Powers v. Detroit, Grand Haven & Milwaukee Railway Co.

Background

The dispute involves a Michigan railroad company that reorganized under laws passed in 1855 and 1859. The Michigan Supreme Court found that the reorganization continued the old corporation and that the statutes were valid. Section 9 of the 1855 law said the company would pay an annual tax of one percent on its paid-in capital stock “in lieu of all other taxes,” except certain penalties. The company and others relied on that law as they sold bonds and completed the railroad.

Reasoning

The central question was whether the 1855 provision created a binding contract that prevented any other taxes on the company’s property, and whether the tax applied to the corporation’s property or to individual shareholders’ shares. The Court accepted the State Supreme Court’s finding that the corporation continued to exist. It found the statute carried consideration because the railroad’s completion served an important public purpose and purchasers relied on the law. The Court concluded the one-percent levy was a tax on the corporation’s property, not on shareholders’ separate holdings, and that the State could not impose other taxes on the company’s property in addition to that agreed tax.

Real world impact

The decision means the railroad company is limited to the agreed one-percent corporate tax and cannot be hit with additional property taxes tied to the company itself. Investors who bought bonds or shares in reliance on the law are protected by the enforceable bargain. The ruling affirms long-standing practical construction of the statute through earlier state decisions.

Dissents or concurrances

Mr. Justice White dissented, as noted in the opinion text.