Baltimore & Eastern Shore Railroad v. Spring

Page, J., delivered the opinion of the Court. This is an appeal from an order of the Circuit Court for Talbot County, directing a writ of injunction to be issued restraining the County Commissioners of that county from issuing the bonds mentioned in chapter 295 of the Acts of — 514 — the General Assembly of 1892, and in chapter 152 of the Acts of 1894. The bill was filed by a taxpayer and citizen of Talbot County, on behalf of himself and other citizens and taxpayers of that county. It is alleged that these “Acts are unconstitutional, and for other reasons invalid, null and void.” Such of the facts appearing by the record, as are requisite to be stated for the purposes of this opinion, may be thus briefly set forth. The Baltimore and Eastern Shore Railroad Co. was incorporated by the General Assembly in the year 1886, for the purpose of constructing and operating a railroad through Talbot and other counties of the State of Maryland. At the same session, by chapter 509, the Com-' missioners of Talbot County were authorized to endorse the bonds of the Railroad Company to an amount not exceeding $50,000, after it had been sanctioned by the voters of Talbot County; such bonds were to be secured by a mortgage which should be second to a mortgage to the city of Baltimore. This Act, which authorized only an endorsement of bonds, and not a subscription to the stock of the railroad, though voted upon favorably by the voters of Talbot County at the general election of 1887, it is conceded became inoperative for the purpose of authorizing the proposed endorsement, for reasons not necessary to be now stated. By the Act of 1890, ch. 150, the County Commissioners of Talbot County were authorized to subscribe to the capital stock of the company to the amount of $25,000. This Act, however, was not'published as required b.y Article 3, sec. 54 of the Constitution, and for that reason became invalid. Soon after its incorporation in 1886, the railroad company proceeded to construct its road, and having fully completed it, operated it until the 21st of April, 1891, when, having become totally insolvent, its property rights and franchises passed into the hands of a receiver, appointed by the Circuit Court óf the United States for the District of Maryland; and since that date, under the decree of that Court, all of its property and franchises have been sold to other parties. So — 515 — that in 1892, when the Act of 1892, ch. 295, which will be subject of our examination, was passed, the road was entirely-constructed, and after having been operated for a short time, had experienced all the results of insolvency, up to .the point of having its affairs administered by a receiver for the benefit of its creditors. From this recital it is clear that, prior to 1892, there had never been any valid power conferred upon the County Commissioners either to endorse the bonds of the company or subscribe to its stock; nor is it pretended that they ever undertook to exercise such power. In the agreement of parties, found in the record, it is stated that the Commissioners “ never passed any resolution to endorse the bonds * * or to subscribe to the stock.” The statement, therefore, contained in the preamble of the Act of 1892, ch. 295, also in the body of the Act (and also in the Act of 1894, ch. 152), to the effect that the authority to issue bonds was conferred for the purpose of raising money to “pay the county’s subscription” to th^ capital stock of. the railroad company, was wholly unfounded in fact. The County Commissioners never did (and never had the power to) make such subscription. There is no question in this case, therefore, of good faith on the part of the county, no contractual element to embarrass the Court in determining the strictly legal effect of the Act of 1892, ch. 295, and the confirmatory Act of 1894, ch. 152. What, then, are the provisions of these Acts ? By the first section of the Act of 1892, the Commissioners are authorized to issue the bonds of the county to the amount of $2¡,000; by the second, it is provided that they “shall sell said bonds,” and with the proceeds thereof pay said subscription of said county to said railroad company; provided, however, that before any bonds shall be issued under this Act, the said railroad company “ shall file, in the office of the County Commissioners of Talbot County, an agreement, in writing, authorizing the said County Commissioners of Talbot County to first pay and satisfy all proper and legal — 516 — claims and demands held by bona fide residents of Talbot County, on the twentieth day of April, in the year 1891, against said railroad company, out of the proceeds arising from the sale of said bonds, and the balance, if any, to apply under the order and direction of Joseph B. Seth, the president of said railroad company.” If the claims thus provided for should prove to be in excess of the $25,000, it is enacted by the third section that they shall be paid pro rata, and the receipt of persons holding such claims, and of the president of the company, in the event of any balance remaining after the payment of the claims, shall be good against the railroad and all others claiming under it; and by the fourth section, a “ committee ” of three are appointed “with full power and authority” to determine the amount of each claim and who are entitled to be paid, and their decision is to be final and without appeal. To comprehend these provisions thoroughly, it must be borne in mind that the railroad company, at the date of the passage of the Act, had fully constructed its road. It had also become insolvent, and on the day after the date mentioned in the Act, that is, on the 21st of April, 1894, it had passed into the hands of a receiver. No doubt it had many creditors. In Talbot County there were claims exceeding in the aggregate the entire amount of the proposed subscription, and the record shows there was a bonded debt of $ 1,600,000, secured by a mortgage upon all the property of the company. Subsequent events have shown that its insolvency was hopeless ; such as could only terminate as it did — in a sale for the benefit of its mortgage creditors. Under these circumstances it was plain there was little probability that these creditors in Talbot County, unsecured as they were, could ever hope to have their claims paid in the ordinary way. Now, as was said by this Court in M. & C. C. of Balto. v. Gill, 31 Md. 387, “ we must not forget that we are dealing with the substance, not with form. It is the thing done or sought to be accomplished which must determine the question of the power.” The purpose of this — 517 — Act was not to aid in the construction of the road, because the road was then completed, nor even to pay debts incurred in the construction, for the beneficiaries of the Act were all those who, being residents of Talbot County, held “ proper and legal claims” against the company, and this included all claims, whether - incurred by the company in constructing the road or otherwise. That the subscription was to be made to enable the county to discharge an obligation imposed upon it by the requirements of good faith, was, as we have seen, founded upon an assumption, and absolutely false. The conclusion seems to be inevitable that the effect and scope of the act is simply to levy a tax upon the property of the citizens of Talbot County, to pay to certain residents of that county the claims due to them by, an insolvent railroad company. This is a private purpose, and not one of the objects of taxation. By the Declaration of Rights, Art 15, as well as by the fundamental maxims of a free government, taxes can only be imposed to raise money for public purposes. “ Taxes are burdens or charges imposed by the Legislature upon persons or property to raise money for public purposes.” Cooley Cont. Lim. 479. If it be necessary to cite authorities to maintain this thoroughly established principle, the following may be mentioned: Citizens' Savings and Loan Ass. v. Topeka City, 20 Wall. 655; Cole v. La Grange, 113 U. S. 1; Cooley Cont. Lim., sec. 488, and authorities there cited; Lowell v. Boston, 111 Mass. 454. Sharpless v. Mayor, &c., 21 Penn. St. 168; Brodhead v. Milwaukee, 19 Wis. 652; St. Mary's Ind. School v. Brown, 45 Md. 335. Nor can this Act be supported under the 54th sec. of Article 3. The object of this section was not to extend the power of taxation. It is, in fact, “a limitation of power, not only of the local authority, but of legislative power itself.” Pumphrey's case, 74 Md, 111. Counties have “no inherent power of taxation.” What power of taxation they exercise must be delegated to them by the Legislature. The Legislature, however, cannot delegate a power prohib — 518 — ited by the Constitution. Therefore, the taxing power, when exercised by the county authorities, as was said by this Court in the case of Daly v. Morgan, 69 Md. 468, “ is but the exercise of the taxing power of the Legislature delegated to them, and is subject to every constitutional limitation to which the taxing power of the Legislature is subject.” St. Mary's Ind. School, &c., v. Brown, 45 Md. 333. (Decided February 28th, 1895.) Being of the opinion that the object and effect of this Act is not to subserve a public purpose, but to pay certain individuals by taxing the property of the people of Talbot County for their benefit, we must pronounce the.Act itself unconstitutional and void. Inasmuch as what we have said disposes of the case, we deem it unnecessary to consider the other questions raised at the argument. Order affirmed.