Argument for Appellant.

201 U.S.

602; Traders &c. Insurance Co. v. Brown, 142 Massachusetts, 403; People v. Wemple, 78 Hun, 67; People v. Knight, 75 App. Div. N. Y. 164; Howland v. Edmonds, 24 N. Y. 315; People v. Tax &c. Commissioners, 23 N. Y. 219; State v. Cheraw &c. R. Co., 16 S. Car. 528; Tradesmen's Pub. Co. v. Knoxville Car Wheel Co., 95 Tennessee, 634; State Bank v. Milwaukee, 18 Wisconsin, 284.

Undivided profits or surplus form no part of the capital stock, though they do form part of the general capital or assets of the corporation. Farrington v. Tennessee, 95 U. S. 686; Hightower v. Thornton, 8 Georgia, 486 (52 Am. Dec. 412); People v. Wemple, 78 Hun, 63; Berry v. Mer. Exch. Co., 1 Sandf. Ch. 307; Williams v. Western U. Tel. Co., 93 N. Y. 187; Sun Mut. Ins. Co. v. New York, 8 N. Y. 241; State v. Bank of Commerce, 95 Tennessee, 221; State Bank v. Milwaukee, 18 Wisconsin, 284.

Money borrowed by the corporation forms no part of its capital stock. State v. Cheraw R. Co., 16 S. Car. 528. The franchise of the corporation constitutes no part or element of its capital stock. People v. Coleman, 34 Am. & Eng. Corp. Cas. 223.

A corporation is not limited in its ownership of property to the amount fixed as its capital stock. State v. Morristown F. Assoc., 23 N. J. L. 195; Berry v. Merchants' Exch. Co., 1 Sandf. Ch. 307.

Upon the other hand the amount of capital stock is limited to the amount actually subscribed for and issued, and is not necessarily the amount named in the articles of association, which latter is merely the authorized capital stock. Fisk v. Chicago R. Co., 36 How. Pr. (N. Y.) 22; Pratt v. Munson, 17 Hun, 475; Green Point Sugar Company v. Whitin, 69 N. Y. 338; Commonwealth v. Lehigh Ave. R. Co., 129 Pa. St. 414; Philadelphia v. Ridge Ave. Pass. R. Co., 102 Pa. St. 190; Philadelphia v. Philadelphia &c. R. Co., 52 Pa. St. 177.

The accumulated surplus of a corporation is defined to be "the fund the corporation has in excess of its capital stock, after

payment of its debts." State v. Parker, 35 N. J. L. 578; State v. Utter, 34 N. J. L. 480; State v. Yard, 42 N. J. L. 359.

In view of the clear distinction between the stock in the hands of the shareholders, the capital stock, the property of the corporation, the surplus over and above the capital stock and the franchise, each may be regarded as separate and distinct classes of property, and the exemption, if one exists, be no further than the language clearly imports, viz., upon the amount of the capital stock paid in.

But it is not the capital stock the State seeks to tax; it is the property of the railroad company; appraised at $6,195,000, while the amount of capital stock paid in, as shown by the bill of complaint is the sum of $2,517,140, showing property of the value of $3,677,860 in excess of the amount of capital stock paid in.

Whether this excess is the result of accumulated earnings, or property produced by the sale of bonds, does not appear, but it is quite clear that it is a surplus and is the property of the corporation and subject to taxation, and it does not appear that any part of said capital stock paid in has been converted into the property taxed. If it did so appear, then the exemption could only extend to the amount of the capital stock paid in.

Mr. H. Geer and Mr. L. C. Stanley for appellee:

Section 9, act 140, Laws of 1855, is a part of the complainant's charter, and its repeal by act 5, Laws of 1900, was in violation of the contract clause of the Constitution of the United States, in that it impaired the obligation of the contract between complainant and the State of Michigan, and therefore complainant is not subject to taxation under act 173, Laws of 1901. Bank v. Knoop, 16 How. 369; McHenry v. Alford, 168 U. S. 651; Stearns v. Minnesota, 179 U. S. 223; Railroad Co. v. St. Louis County, 179 U. S. 302; Bank v. Parker, 192 U. S. 73.

The charter is a contract protected by the Constitution both

of the United States and of the State. Greenwood v. Freight Co., 105 U. S. 13.

A territorial legislature has all the power of a state legislature, except as limited by the Constitution and by the act of Congress. Walker v. Southern Pac. Ry., 165 U. S. 593.

A distinction between an exemption from taxation contained in a special charter and general encouragement to all persons to engage in a certain class of enterprise is pointed out in East Saginaw Co. v. East Saginaw, 13 Wall. 373; Wisconsin & Michigan Ry. Co. v. Powers, 191 U. S. 379.

The test of a covenant, according to the court in the Wisconsin & Michigan case, is that the consideration should purport to be the motive for the promise, and the promise must purport to be the motive for the consideration. This test is met and satisfied in this case. The State proposed the terms on which it was to get a completed railroad highway, and these terms were accepted, and by these terms some millions of money were expended in providing that highway. See New Jersey v. Yard, 95 U. S. 114.

In the present case, the legislature was making a contract and not a law, because, first, the statute was passed with reference to this case alone, and not generally as to all; second, acceptance was provided for and doubtless was made.

The tax limit is part of the charter, and is not such a contract under the state constitution as to make it subject to amendment. That it is a contract appears from its form and the circumstances under which it was made; that is to say, the need and desire on the part of the people in 1855 to have a railroad across the State.

No new corporation resulted from the merger.

The act itself speaks of the transaction as merger, consolidation or purchase, but it is essentially a merger. No new corporation is created; but the old Detroit & Pontiac Company is given a new name. The period of its existence is not prolonged. The name is not a controlling circumstance. A new corporation might have been created with the old name or a

201 U. S.

Argument for Appellee.

new name given to the old corporation, as was done here. But it is significant that the act declares that the Detroit & Pontiac Company shall be known hereafter by the name of the Detroit & Milwaukee Railway Company. No new company purchases or absorbs the property of both companies, but one company purchases all the property of the other. The charter of the one continues; its functions continue; new stockholders are admitted. In short, "the Oakland & Ottawa Rail Road Company shall thereupon become merged in the Detroit & Milwaukee Railway Company." The case is covered by Keokuk & Western Railroad v. Missouri, 152 U. S. 301. No new stock is created. There is no new property to be represented by stock. See also Tennessee v. Whitworth, 117 U. S. 137; Tomlinson v. Branch, 15 Wall. 460; Central R. R. v. Georgia, 92 U. S. 665; Wilmington &c. R. R. v. Alsbrook, 146 U. S. 279.

The act of 1855 is not repugnant to the constitution. Attorney General v. Joy, 55 Michigan, 94. And the Federal courts choose to be bound by such decision. Pennsylvania College, 13 Wall. 190; Cromwell v. County of Sac, 94 U. S. 359, 365.

The statute of 1901 increasing the rate of tax impairs the obligation of the contract. Pingree v. Michigan Central, 118 Michigan, 314; New Jersey v. Yard, supra; Pearsall v. Great Northern R. R., 161 U. S. 663.

This appellee is the identical Detroit & Pontiac Rail Road Company, and entitled to enjoy charter rights and immunities both of that company and of the Detroit & Milwaukee Railway Company under the amendment of 1855. No new corporations resulted from foreclosure.

A grant of corporate existence, that is, of a new corporate existence, is never implied. In the construction of the statute every presumption is against it. Memphis Railroad Company v. Commissioners, 112 U. S. 609, 618; Central Railroad & Banking Co. v. Georgia, 92 U. S. 665, 670. Unless restricted by constitutional provisions the legislature has supreme power with reference to corporations either in endowing them with life or

continuing their existence. Williamette Company v. Bank of B. C., 119 U. S. 191; Morris v. Railroad, 67 Texas, 692, 700. Corporate life is not cut short by insolvency. Chemical Bank v. Hartford, 161 U. S. 4. A reorganization is not necessarily the organization of a new corporation. 2 Clark & Marshall, Private Corporations, 974. The enlargement of the powers of a company is not by any means necessarily the creating of a new corporation. Broughton v. Pensacola, 93 U. S. 266.

The act of 1901 which assumed to enact that this and other like companies, in whose chartered history there had been a foreclosure and sale, should thereby become extinct as corporations and get new and different life under the general statute, or should be deemed to have done so, impaired the charter tax limit. Wallace v. Loomis, 97 U. S. 154.

The charter was construed by the legislature as well as by the courts prior to the act of 1901. See act of 1861 reaffirming tax limitation. This legislative construction will be followed. Gelpcke v. Dubuque, 1 Wall. 175; Southern Pacific R. R. v. Orton, 32 Fed. Rep. 478; Webster v. Cooper, 14

How. 504.

This court will follow the decision of the Supreme Court of the State; and by reason of the long acquiescence in the decision, will hold the State estopped from claiming the contrary. Wilkes Co. v. Coler, 180 U. S. 506; Burgess v. Seligman, 107 U. S. 20.

The terms "capital stock paid in," as used in the charter tax limit, extend to and mean the corporate property in which that stock is invested. The company is to pay this tax. The words "paid in" signify the capital amassed in the treasury. There is no thought in this language of the shares in the hands of shareholders. It is capital collected, not capital distributed among the shareholders. This extends to the corporate property represented by the capital and in which the capital is invested. Railroad Co. v. Gaines, 97 U. S. 697, 707; D., L. & W. Ry. Co. v. Pennsylvania, 198 U. S. 354.