Op. of the Ct. Mo., Kan. & Tex. Ry. Co. v. Oklahoma, 271 U.S. 303 (1926)
Case details
Citation
271 U.S. 303
Full caption
Opinion of the Court. MISSOURI, KANSAS & TEXAS RAILWAY COMPANY et al . v. OKLAHOMA et al .
Country
United States
Jurisdiction
Federal
Court
Supreme Court of the United States
Decided
May 24, 1926
Opinion of the Court.
MISSOURI, KANSAS & TEXAS RAILWAY COMPANY et al . v. OKLAHOMA et al .
ERROR TO THE SUPREME COURT OF THE STATE OF OKLAHOMA.
No. 205. Submitted March 5,1926.—Decided May 24, 1926.
1. A contract between a city and a railroad company the enforcement of which would hamper the State’s power reasonably to regulate the construction and use of a crossing of the railway by a city street, would be void. P. 307.
2. A contract between a city and a railroad company, whereby the company (owning the fee) granted the city the right of way for a street under its railroad, and the city agreed to pay the cost of construction, and which contained other stipulations made for the sake of doing away with unauthorized crossings and arranging for further street extensions, but none involving any surrender by the city of police power or eminent domain, held valid. P. 308.
3. An order of a state commission ignoring such a contract and requiring the company to construct the crossing and share the expense with the city, receiving from the city compensation for the right of way, impaired the obligation of the contract and deprived the company of property without due process of law. P. 306.
107 Okla. 23, reversed.
Error to a judgment of the Supreme Court of Oklahoma denying a petition by the Railway Company to set aside an order of the Oklahoma Corporation Commission, made on petition of the City of McAlester, and requiring the Company to provide a street crossing.
Messrs. Joseph M. Bryson, Charles S. Burg, Maurice D. Green, and Howard L. Smith for plaintiffs in error.
Messrs. William J. Horton, E. S. Ratliff, and Jackman A. Gill for defendants in error.
Mr . Just ice Butle r delivered the opinion of the Court.
The railroad of plaintiff in error runs through the city of McAlester, Oklahoma. At Comanche Avenue the main
Opinion of the Court. 271 U. 8.
line is on a fill, and at least one industrial or sidetrack is on a lower level. In September, 1921, the city applied to the state Corporation Commission for an order requiring the railway company to provide at that place a pass under its tracks and a highway across its right of way. The commission ordered that the company prepare a plan and an estimate of quantities and cost for a reinforced concrete subway, having two openings of specified dimensions; that the plan show the location of industrial tracks, and that these tracks conform to the street grade; that the plan and estimate be filed with the mayor of the city and the Corporation Commission; and that if the company and the city failed to agree on an apportionment of cost of the underpass, the commission would hear evidence on that subject. The company was ordered to have the underpass constructed and open for traffic within 90 days after arrangement by the city to pay its portion of the cost. The company filed its petition in the supreme court to have the order set aside on the grounds, among others, that it is repugnant to the due process clause of the Fourteenth Amendment, and impairs the obligation of a contract in violation of § 10 of Article I of the Constitution of the United States. The court affirmed the order (107 Okla. 23), and the case is here on writ of error. § 237, Judicial Code.
The line was built about 1873 on land granted by Congress to the company—then known as the Union Pacific Railroad Company, southern branch—for the construction of its railroad. Act of July 26, 1866, § 8, c. 270, 14 Stat. 289, 291. The city of South McAlester and the townsite of McAlester were laid out subsequently, pursuant to the Act of Congress of June 28, 1898, § 14, c. 517, 30 Stat. 495, 499. In platting these townsites, streets were laid out to the boundary line on each side of the land constituting the company’s right of way. November 8, 1901, the city passed Ordinance No. 74. At p. 305that time there were a number of unauthorized crossings in use by the public; but the city had not acquired by purchase or condemnation the right of way for the extension of any street across the railroad. The ordinance was accepted by the company and is in form a contract. It provided for the immediate extension of certain platted streets across the right of way, tracks and station grounds of the company in lieu of the unauthorized crossings then in use. Some of the new crossings were to be constructed by the company at its own expense, and the cost of others was to be borne equally by the parties. Terms and conditions for the construction of other crossings were set forth in the ordinance. It was declared that thereafter the city would open no other street across the right of way and tracks of the company except upon payment of amounts specified in the ordinance as stipulated damages for a right of way across the railroad, any determination in condemnation proceedings instituted by the city, whether more or less than the agreed sum, to the contrary notwithstanding. It was stated that nothing contained in the ordinance should constitute a waiver of the company’s right to contest the opening of additional streets. But there is no provision purporting to limit power or authority of the city to establish or regulate street crossings over, under or upon the tracks and other property of the company. And it was specifically agreed that, if at any time the city should desire to extend and open Comanche Avenue across the company’s right of way and station grounds, the crossing should be constructed under the tracks located upon the fill and at grade across tracks laid at the street level, according to plans and specifications approved by the company and at the sole cost and expense of the city. The company, for this and other considerations mentioned in the ordinance, agreed to waive all claims for damages caused by the opening and establishing of this crossing.
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Pursuant to the Act of Congress of March 29, 1906, c. 1351, 34 Stat. 91, the city of McAlester was created by the consolidation of the city of South McAlester and the town of McAlester. In performance of the agreements contained in the ordinance, the city of McAlester in 1909, and again in 1912, assumed and paid portions of the cost of construction of some of the crossings covered by the ordinance. And ever since the consolidation it has been recognized and treated as the successor of the city of South McAlester and as a party to the contract. The present city is bound to the same extent as was its predecessor that passed the ordinance.
The court held that the state laws gave the commission full jurisdiction over all highways where they cross railways; that the commission had authority to order the crossing in question and to assess the cost of it against the city and the railway company, but not more than 50 per cent, against the city; that the company was the owner in fee of its right of way lands; that they could not be appropriated or damaged for public use without just compensation, and that the commission could not enforce obedience to its order to construct the grade crossing until the question of damage to the fee had been determined either by amicable settlement or by condemnation proceedings.
The order, as interpreted and affirmed, directly contravenes the provisions of the ordinance in respect of the Comanche Avenue crossing. It sets at naught the undertaking of the city to bear the cost of construction and the agreement of the company to give the city the right of way for the street crossing and to waive all claims for damages. The effect is to require the company forthwith to prepare the plan and estimate, and to direct the company—upon the determination of its just compensation and the consummation of arrangements by the city to pay the portion of the cost, if any, that may be imposed upon p. 307it—to proceed to construct the underpass and to have it open for traffic within the time specified. If a contract exists between the parties in respect of this crossing, it is manifest that it would be impaired by the enforcement of the commission’s order.
But defendants in error contend that the ordinance is void because it attempts to surrender police power; and therefore that there is no such contract.
It is elementary that for the safety and convenience of the public, the State, either directly or through its municipalities, may reasonably regulate the construction and use of highways where they cross railroads. The legitimate exertion of police power to that end does not violate the constitutional rights of railroad companies. They may be required at their own expense to Construct bridges or viaducts whenever the elimination of grade crossings reasonably may be required, whether constructed before or after the building of the railroads. Northern Pacific Railway v. Duluth, 20&U. S. 583, 597; Chi., Mil. & St. P. Ry. v. Minneapolis, 232 U. S. 430, 438; Mo. Pac. Ry. v. Omaha, 235 U. S. 121, 127; Erie R. R. Co. v. Public Utilities Comm’rs, 254 U. S. 394, 409, 412. And such costs are not included in the just compensation which the railroad companies are entitled to receive. Cincinnati, I. & W. Ry. v. Connersville, 218 U. S. 336, 343; Chi., Mil. & St. P. Ry. v. Minneapolis, supra, 440. If the enforcement of its provisions operates to hamper the State’s power reasonably to regulate the construction and use of the Comanche Avenue crossing, then undoubtedly the ordinance is void. Chicago & Alton R. R. v. Tranbarger, 238 U. S. 67, 76; Atlantic Coast Line v. Goldsboro, 232 U. S. 548, 558; Denver Ac R. G. R. R. Co. v. Denver, 250 U. S. 241, 244.
The precise question is whether the agreement of the city to bear the cost of construction is inconsistent with the proper exertion of the police power.
When the ordinance was passed, it was the purpose of the parties to get rid of unauthorized crossings then in use and to arrange for the extension of platted streets across the tracks and station grounds. It was necessary for the city to obtain rights of way for that purpose; and it was empowered to acquire them by contract, purchase or condemnation. §§ 11, 14, c. 517, 30 Stat. 498, 499; Mansfield’s Digest of the Statutes of Arkansas (1884), §§ 749, 760, 907-912. It could not take them without making just compensation to the owner. The company owned its right of way lands and station grounds in fee. Missouri, Kansas & Texas Ry. Co. v. Roberts, 152 U. S. 114. It was entitled to compensation for any of its property that might be taken or damaged by the construction and use of the crossings. Chicago, Burlington, &c., R. R. Co. v. Chicago, 166 U. S. 226, 251; Cincinnati, I. & W. Ry. v. Connersville, supra.
The ordinance did not purport to limit the number of crossings that might be opened. Retention by the company of the right to resort to litigation to determine whether the opening of additional streets across the railroad is reasonably necessary does not at all impinge upon police power. Quite independently of the ordinance, the opening and regulation of such crossings is subject to judicial scrutiny, and action that is arbitrary or capricious will be held invalid. Denver & R. G. R. R. Co. v. Denver, supra, 244. Indeed, the reservation contemplates the exertion of the police power and plainly implies that the parties did not intend to restrict the authority of the city to open crossings.
The agreement of the city to pay the amounts stipulated for the opening of certain crossings does not involve or contemplate any surrender of the power of eminent domain. It was authorized to contract, purchase or condemn as it saw fit. The opinion of the state court rightly approves amicable settlement of the p. 309compensation to be given the owner. The parties were not bound to resort to litigation. It was competent for them in advance to settle the form and amount of compensation. The company’s agreement to grant a right of way for the crossing was a valid consideration for the city’s undertaking to bear the cost of construction.
This case is not like Northern Pacific Railroad v. Duluth, supra, cited by defendants in error. There the city had the right of way for the street, and a grade crossing existed for many years. The elimination of that crossing became necessary. The company refused to comply with the city’s demands in that respect. Then a contract was made. The city agreed to build a bridge to carry the street over the railroad tracks and the company agreed to contribute $50,000 to its cost. The city undertook to maintain the bridge over the tracks for 15 years and to maintain the approaches perpetually. The city built the bridge at a cost of $23,000 in addition to the amount paid by the company. Years later, when repairs were needed, the company refused to make them. This court following the decision* of the Minnesota supreme court (98 Minn. 429) held that the contract was without consideration, against public policy and void. The Northern Pacific Company gave up nothing. The city already had the right of way. The company might have been required to build the bridge. The contract relieved it of a part of the cost, and attempted for all time to suspend the proper exertion of the police power in respect of maintenance. The ordinance now before us is very different from the situation and contract considered in that case.
There is nothing in the ordinance that involves any attempt to interfere with or hinder the proper exertion of police power. Evidently it was the intention of the parties to make a permanent settlement in respect of the crossings covered by the ordinance. The city was em-
Syllabus.
powered to open the Comanche Avenue crossing at any time without condemnation or other proceedings. Neither party could terminate the contract without the consent of the other. Western Union Telegraph Co. v. Pennsylvania Co., 129 Fed. 849, 862. The city’s agreement to bear the cost of construction of the Comanche Avenue crossing does not infringe the police power. The enforcement of the commission’s order would deprive plaintiff in error of its property without due process of law and would impair the obligation of the contract in violation of the Constitution of the United States.
Judgment reversed.
UNITED STATES v. PITTSBURGH & WEST VIRGINIA RAILWAY COMPANY et al .
PITTSBURGH & WEST VIRGINIA RAILWAY COMPANY et al . v. UNITED STATES.
APPEALS FROM THE COURT OF CLAIMS.
Nos. 864, 865. Argued March 11, 1926.—Decided May 24, 1926.
1
Under § 1 of the Federal Control Act, and § 6 of the standard form of contracts made pursuant thereto between the Director General of railways and railroads taken over by the Government, whereby the Director General was either to pay out of the revenues derived from railway operations “ during the period of federal control,” or save the company harmless from, all taxes lawfully assessed under federal or other governmental authority “ for any part of said period,” except “ war taxes ” assessed against the company under the Revenue Act of 1917 or any Act in addition thereto or amendment thereof, the obligation of the Director General to bear the normal income taxes of a railroad corporation was limited to those assessed for the period of federal control,” and did not extend to income taxes under the Revenue Act of 1921, assessed for the year 1921, on income received by the company in that year (after termination of federal control) from the Director General in compensation for the use of its properties during federal control. P. 312.
2. The divisions of income taxes prescribed by Revenue Act of 1918, § 230(b), between the Director General of Railroads and railroad companies did not apply to income taxes imposed by Revenue Act of 1921, and the latter prescribed no such divisions. Id. 61 Ct. Cis. 11, reversed.
Cros s app eals from a judgment of the Court of Claims in. a suit to recover money collected from the plaintiff railway companies as income tax.
Solicitor General Mitchell, with whom Mr. A. A. Mc-Laughlin was on the brief, for the United States.
Mr. Harvey D. Jacob, with whom Mr. Frank M. Swacker was on the brief, for the Pittsburgh & West Virginia Railway Company et al.
Mr . Justi ce Butler delivered the opinion of the Court.
The United States appeals from a judgment in favor of plaintiffs for $21,295.62, being two per cent, tax on their consolidated income for 1921. Plaintiffs have taken a cross appeal, and insist that the court erred in failing to add their expenses and attorneys’ fees.
The Pittsburgh Company owned all the capital stock of the West Side Company. Their railroads were taken over by the President and were operated under federal control from January 1, 1918, to March 1, 1920. They failed to make any agreement with the Railroad Administration as to just compensation to be paid them for the use of their properties until final settlement was made July 1, 1921. At that time there was paid to plaintiffs $1,570,000 in addition to $250,000 which had been paid on account in January, 1920. And the Director General assumed, in respect of the payment of taxes, the obligations which are specified in § 6 of the standard form contract .authorized by the Federal Control Act, March 21, 1918, § 1, c. 25, 40 Stat. 451.
Opinion of the Court. 271 U. 8.
Plaintiffs made returns and paid the full amount of federal taxes for 1918 and 1919 respectively. These included nothing received as compensation for the use of their properties. The Director General reimbursed them to the extent of the normal taxes. Plaintiffs made their return and paid their taxes for 1920. Their income in that year included the $250,000 paid on account. As federal control ended March 1, the Director General declined to allow more than one-sixth of the tax. The plaintiffs’ taxable net income for 1921 was $1,064,781.39. This, because of deductions allowed, was less than the payment at final settlement. In 1923, upon plaintiffs’ insistence, the Bureau of Internal Revenue held that the compensation received in 1921 for the use of their properties during federal control was income for that year, and that none of it was attributable to the period of federal control. Subsequently, plaintiffs called on the Railroad Administration for payment of $21,295.62, two per cent, of their income.
The question for decision is whether plaintiffs’ income tax for 1921 was “ assessed for the period of Federal control ” within the meaning of the Federal Control Act and the authorized standard contract.
Section 1 of the Federal Control Act required that every such agreement should provide that federal taxes under the Revenue Act of 1917, or Acts in addition thereto or in amendment thereof, commonly called war taxes, “ assessed for the period of Federal control beginning January first, nineteen hundred and eighteen, or any part of such period ” should be paid by the carrier out of its own funds or should be charged against or deducted from the just compensation; that other taxes assessed “for the period of Federal control or any part thereof,” should be paid out of revenues derived from operations while under federal control.
The authorized standard form of contract, § 6 (a), provided that all war taxes assessed against the company p. 313under the Revenue Act of 1917 or any Act in addition thereto or in amendment thereof should be paid by the company. And paragraph (c) provided that the Director General should either pay out of revenues derived from railway operations “ during the period of Federal control ” or save the company harmless from all taxes lawfully assessed under federal or other governmental authority “ for any part of said period ” except the taxes and assessments for which provision was made in paragraph (a).
The tax of twTo per cent, imposed by § 10 of the Revenue Act of 1916 was known as the normal tax. The additional tax of four per cent, imposed by § 4 of the Revenue Act of 1917 was a war tax. Section 230 (a) of the Revenue Act of 1918 provided that, in lieu of the two per cent, normal tax and the four per cent, war tax, there should be paid for the calendar year 1918 a tax of 12 per cent, of net incomes and for each year thereafter 10 per cent. Section 230 (b) provided that, for the purpose of the Federal Control Act, five-sixths of the 12 per cent, tax and four-fifths of the 10 per cent, tax should be “ treated as levied by an Act in amendment of Title I of the Revenue Act of 1917.” Thus, it was plainly indicated that the tax to be borne by the Director General was the two per cent. The amount in controversy is two per cent, of the income tax for 1921. It was assessed under the Revenue Act of that year which provided that, in lieu of taxes imposed by the Act of 1918, there should be paid 10 per cent, of net incomes for 1921 and 12% per cent, for each year thereafter. The divisions between the Director General and the corporation, prescribed by subdivision (b) of § 230 of the Act of 1918 applied only to taxes imposed by subdivision (a) of that section. No divisions were prescribed by the Act of 1921. Those made by the earlier Act were not intended to apply to taxes imposed by the Act of 1921, and neither of them would produce the two per cent, normal tax if applied to 12% per cent., the rate for each year after 1921.
The provisions of § 6 of the standard form of contract, the Federal Control Act and the Revenue Acts are to be read together. When this is done, it is clear that the obligation of the Director General to bear the normal income taxes of the corporations did not go beyond those assessed for the period of federal control. That obligation was not held down to the normal tax on amounts received as compensation for the use of their properties, but extended to the normal tax assessed for that period on all incomes taxed without regard to source. But it cannot be held to extend to taxes on incomes for 1921 without excluding from consideration the provisions of the Federal Control Act and standard agreement clearly limiting the obligation to taxes assessed for the period of federal control. The meaning of these provisions is plain. There is no room for construction. The period in which the assessments were made governed. The sources of taxable incomes were not regarded. It would be contrary to the plain language of the statute and contract to hold the United States liable for any part of the taxes for 1921. Plaintiffs were not entitled to recover.
Their cross appeal depends upon a provision contained in § 6 of the standard contract binding the Director General to pay or save the company harmless from expense of suits respecting the classes of taxes payable by the Director General under the agreement. As the tax was not so payable, plaintiffs take nothing by their cross appeal.
Judgment reversed.
Mr . Justice Brandeis took no part in the consideration or decision of this case.