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U.S. Supreme Court

Grand Rapids & Indiana Ry. Co. v. Osborn, 193 U.S. 17 (1904)

Grand Rapids & Indiana Railway Company v. Osborn

No. 61

Argued November 6, 1803

Decided February 23, 1904

193 U.S. 17


Where the determination by the state court of an alleged ground of estoppel embodied in the ground of demurrer to an answer necessarily involves a consideration of the claim set up in the answer of a contract protected by the Constitution of the United States, a federal question arises on the record which gives this Court jurisdiction.

Provisions in the railway law of Michigan of 1873, 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 within the impairment clause of the Constitution of the United States. New York v. Cook, 148 U. S. 397.

Purchasers of a railroad, not having any right to demand to be incorporated under the laws of a state, but voluntarily accepting the privileges and benefits of an incorporation law, are bound by the provisions of existing laws regulating rates of fare, and are, as well as the corporation formed, estopped from repudiating the burdens attached by the statute to the privilege of becoming an incorporation.

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 chanroblesvirtualawlibrary

Page 193 U. S. 18

three cents per mile to two and one-half 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 three cents per mile on roads over twenty-five 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, c. 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 ninth of section 9 of Article II, the maximum charge which railroad corporations might make for the transportation of passengers and their ordinary baggage on roads exceeding twenty-five miles in length was fixed at three 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 I of the act was as follows:

"In case of the foreclosure and sale of any railroad, or part of any railroad, under any trust deed, or mortgage given to secure the payment of bonds sold to aid in its construction and equipment, or for other cause authorized by law, it shall

Page 193 U. S. 19

be competent and lawful for the parties who may become the purchasers, and such others as they may associate with themselves, to organize a corporation for the management of the same, and issue stock in the same in shares of $100 each, to represent the property in said railroad, and such corporation, when organized, shall have the same rights, powers, and privileges as are or may be secured to the original company whose property may have been sold under and by virtue of such mortgage or trust deed. Such organization may be formed by virtue of a declaration or certificate of the purchasers at the sale under said mortgage or trust deed, which shall set forth the description of the property sold, and the date of the deed under which it was sold, or the decree of the proper court, if it shall have been sold by virtue of a decree of any court, and with such description of the parties to the deed or suit as may identify the one or the other, or both; the time of the sale, and the name of the officer who sold the same, and also the purchasers, and the amount paid, and the stockholders to whom stock is to be issued, and the amount of the capital stock and the name of the new corporation, and such other statements as may be found requisite to make definite the corporation whose property may have been sold, and the property sold, as well as the extents and rights and property of the new company; which said certificate or declaration shall be signed by all of the said purchasers, and shall be addressed to the secretary of state, and being filed and recorded in his office, the said corporation shall become complete, with all the powers and rights secured to railroad companies under this act, to all the provisions of which, and amendments thereto, it shall be subject, and a certified copy of the said certificate or declaration shall be prima facie evidence of the due organization of said company."

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 chanroblesvirtualawlibrary

Page 193 U. S. 20

secure an issue of $3,000,000 of bonds. While this mortgage was in force, and in the year 1889, subdivision ninth of Section 9 of Article II of the general railroad law of 1873 -- the section containing an enumeration of powers conferred upon railroad corporations -- was amended to read as follows:

"Ninth. To regulate the time and manner in which passengers and property shall be transported, and the tolls and compensation to be paid therefor; but such compensation for transporting any passenger, and his or her ordinary baggage, not exceeding in weight one hundred and fifty pounds, shall not exceed the following prices, viz.: for a distance not exceeding five miles, three cents per mile; for all other distances, for all companies the gross earnings of whose passenger trains, as reported to the commissioner of railroads for the year 1888, equaled or exceeded the sum of three thousand dollars for each mile of road operated