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    GRAND RAPIDS & I R CO v. OSBORN, 193 U.S. 17 (1904)

    U.S. Supreme Court

    GRAND RAPIDS & I R CO v. OSBORN, 193 U.S. 17 (1904)

    193 U.S. 17

    CHASE S. OSBORN, Commissioner of Railroads of the State of Michigan.
    No. 61.

    Argued November 6, 1903.
    Decided February 23, 1904.

    This is a writ of error to review a judgment of the supreme court of the state of Michigan, which affirmed an order of the circuit court of Kent county, Michigan, awarding a peremptory writ of mandamus. By the writ the plaintiff in error was, in effect, commanded to reduce its rates for the transportation of passengers over its lines of railroad from [193 U.S. 17, 18]   3 cents per mile to 2 1/2 cents per mile, as required by an act of the legislature of Michigan known as act 202 of the session of 1889

    The Grand Rapids & Indiana Railroad Company was the original owner of the road in question. That company was incorporated under the laws of Michigan and Indiana in 1870, and its line of railroad was constructed and put into operation before January 1, 1873. It also owned and operated in Michigan a number of short branch lines and several leased lines; and its mileage in Michigan exceeded 300 miles. During the period between the incorporation of the company and the construction of its road, railroad companies which were operating in Michigan were authorized to regulate the tolls and compensation to be paid for the transportation in that state of persons and their baggage, but the charge which might be made for such transportation was limited to 3 cents per mile on roads over 25 miles in length. The Michigan statutes also contained provisions authorizing the execution of mortgage and the issue of bonds by railroad corporations. By act 198 of the session of 1873, the laws relating to railroads were revised, and such revision with amendments is still in force. Mich. Comp. Laws 1897, chap. 164, pp. 1937-2000. It was therein provided that corporations organized under a prior general railroad law 'shall be deemed and taken to be organizations under this act.' By subdivision 9 of 9 of article 2 the maximum charge which railroad corporations might make for the transportation of passengers and their ordinary baggage on roads exceeding 25 miles in length was fixed at 3 cents per mile. Power was also conferred upon railroad companies to borrow money, issue bonds or other obligations therefor, and to mortgage their corporate property and franchises, and the income thereof, or any part thereof, as security. Section 2 of article 1 of the act was as follows:

    There was also a general provision that the act might be altered, amended, or repealed, but that such alteration, amendment, or repeal 'shall not affect the rights or property of companies organized under it.'

    In 1884 the Grand Rapids & Indiana Railroad Company executed a second mortgage upon its railroad property to [193 U.S. 17, 20]   secure an issue of $3,000,000 of bonds. While this mortgage was in force, and in the year 1889, subdivision 9th of 9 of article 2 of the general railroad law of 1873-the section containing an enumeration of powers conferred upon railroad corporations-was amended to read as follows:

    The mortgage of 1884 was foreclosed; and, in 1896, under decrees of circuit courts of the United States, the property covered by such mortgage was sold to John C. Sims, subject to a prior mortgage securing a large issue of outstanding bonds. Sims and his associates subsequently executed the certificate authorized by, and complied with all the requirements mentioned in, 2 of article 1 of the general railroad law of 1873 aforesaid, and by virtue thereof the plaintiff in error came into existence and took control of the railroad property in question. It continued to exact a charge for the transportation of passengers and their ordinary baggage of 3 cents per mile.

    In a statutory report made in 1891 by the plaintiff in error to the commissioner of railroads of Michigan it was represented that the gross earnings in Michigan of the passenger trains on its lines of railroad exceeded $2,000 per mile of road operated. Thereupon said commissioner notified plaintiff in error to reduce its rates on passenger traffic to 2 cents per mile for distances exceeding 5 miles. The order not being obeyed, a proceeding in mandamus was instituted to compel compliance. In its answer to the rule to show cause the company specially set up the claim that, so far as it was concerned, the statute was repugnant to the due process and equal protection clauses of the 14th Amendment, and also violated the commerce clause of the Constitution of the United States. It recited the cost to the plaintiff in error of the property indirectly acquired by it under the foreclosure, the amount of outstanding capital stock, the bonded indebtedness of the road, and the annual interest on such bonded debt; and represented that the income from passenger traffic which would be received if it put in force the reduced rates would leave but a trifling surplus after deduction of reasonable operating expenses, interest on debt, and other fixed charges. It was also averred in support of the charge that the act was repugnant to the commerce clause of the Constitution of the United States, that the gross receipts from passenger traffic in Michigan forming the basis of the [193 U.S. 17, 22]   proposed reduction in rates included receipts from interstate traffic, and that if such interstate traffic receipts were not included the gross receipts would be less than $2,000 per mile, and hence the reduced rates would not be enforceable.

    On the hearing of the order to show cause it was contended on behalf of the relator that the railroad company, by incorporating under the law which embodied the provisions complained of, thereby entered into a contract with the state to carry passengers at the rate fixed in the statute. By leave a demurrer was filed to the answer, the single ground stated in support thereof being the following:

    The circuit court sustained the demurrer, and awarded a peremptory mandamus commanding the railway company to 'forthwith and hereafter issue and cause to be issued tickets to all persons applying therefor and desiring to travel over its line of road in the state of Michigan, and to accept tolls or compensation for transporting any person and his or her ordinary baggage, not exceeding in weight 150 pounds, at the rate of 2 cents per mile for all distances exceeding 5 miles.' The record by writ of certiorari was removed to the supreme court of Michigan. In that court leave was given to add to the demurrer the following additional ground, viz.: '2. That upon its incorporation in 1896 under the general railroad law, the said respondent became subject to that law and the provision therein requiring it to carry passengers at the rates fixed in subdivision 9th, 9 of article 2 of that law, said provision in regard to rates being one of the conditions of the existence of respondent.' Waiting a decision of the first ground of demurrer, the order awarding a peremptory writ of mandamus was affirmed upon the second ground just recited. 130 Mich. [193 U.S. 17, 23]   248, 89 N. W. 967. By writ of error the judgment of affirmance has been brought here for review.

    Messrs. T. J. O'Brien and James H. Campbell for plaintiff in error.

    [193 U.S. 17, 25]   Messrs. Horace M. Oren and Charles A. Blair for defendant in error.

    [193 U.S. 17, 27]  

    Statement by Mr. Justice White:

    Mr. Justice White, after making the foregoing statement, delivered the opinion of the court:

    A jurisdictional question which was raised by the defendant in error requires first to be disposed of. It was objected that the judgment of the supreme court of Michigan in the case at bar was not based upon a Federal question, and hence this court is, it is urged, without jurisdiction to entertain this writ of error. The objection, however, is not well founded. It is plain from the averments of the answer of the railroad company to the petition in mandamus, that the company relied upon the provisions of the general railroad law of 1873, authorizing the incorporation of the purchasers of a railroad after sale in the foreclosure proceedings, as constituting a contract protected by the Constitution of the United States. The determination of the alleged estoppel embodied in the ground [193 U.S. 17, 28]   of demurrer to the answer of the railroad company, and which was sustained by the supreme court of Michigan, necessarily involved a consideration of this claim of a contract right, protected from impairment by the Constitution of the United States. In substance, if not in express terms, such question was passed upon by the court below. A Federal question which gives this court jurisdiction therefore arises on the record.

    That the section of the general railroad law of 1873, making provision for the creation of a new corporation upon the reorganization of a railroad by the purchaser at a foreclosure sale, did not constitute a contract protected by the Constitution of the United States, is concluded by the decision in New York ex rel. Schurz v. Cook, 148 U.S. 397 , 37 L. ed. 498, 13 Sup. Ct. Rep. 645. There the purchasers of railroad property in the state of New York under a sale upon foreclosure of a mortgage sought to escape the payment of an incorporation fee laid by the authority of certain statutes of the state of New York enacted after the execution of the mortgage. The claim was made that the statutes of the state of New York authorizing the purchasers of railroads sold upon foreclosure to incorporate, which were in force when the mortgage was executed, constituted a contract between the state of New York and the bondholders and their privies, and that the enforcement of the subsequent statute providing for the payment of an incorporation fee violated the obligation of the alleged contract. The court of appeals of New York held to the contrary, and its judgment was affirmed by this court. In the course of the opinion of this court it was said (p. 410, L. ed. p. 503, Sup. Ct. Rep. p. 649):

    It results from the foregoing that Sims-the purchaser of the railroad property in question at the sale under foreclosure-and his associates could not demand to be incorporated under the statutes of Michigan as a matter of contract right. Possessing no such contract right, they or their privies cannot now be heard to assail the constitutionality of the conditions which were agreed to be performed when the grant by the state was made of the privilege to operate as a corporation the property in question. Having voluntarily accepted the privileges and benefits of the incorporation law of Michigan the company was bound by the provisions of existing laws regulating rates of fares upon railroads, and it is estopped from repudiating the burdens attached by the statute to the privilege of becoming an incorporated body. Daniels v. Tearney, 102 U.S. 415 , 26 L. ed. 187, and cases cited. That a railroad corporation may contract with a municipality or with a state to operate a railway at agreed rates of fare is unquestionable. And where the provisions of an accepted statute respecting rates to be charged for transportation are plain and unambiguous, and do not contravene public policy or positive rules of law, it is clear that a railroad company cannot avail of privileges which have been procured upon stipulated conditions, and repudiate performance of the latter at will. Whether, if a condition in a statute is couched in ambiguous language, and is susceptible of two constructions, as it is claimed is the case before us in respect to the basis upon which the gross receipts per mile of operated roal was to be calculated, a construction should be [193 U.S. 17, 30]   adopted which will not render the condition repugnant to the Constitution of the United States, we need not determine. The statute in question, in its entirety, has been construed by the supreme court of Michigan, and held valid, and its decision as to the proper interpretation of the language of the act in respect to the mode of ascertaining the gross receipts per mile does not render the statute repugnant to the Constitution of the United States, within the ruling recently made by this court in Wisconsin & M. R. Co. v. Powers, 191 U.S. 379 , ante, p. 107, 24 Sup. Ct. Rep. 107.

    Judgment affirmed.

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