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CRS Annotated Constitution

CRS Annotated Constitution

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Strict Construction of Charters, Tax Exemptions.—Long, however, before the cases last cited were decided, the principle that they illustrate had come to be powerfully reinforced by two others, the first of which is that all charter privileges and immunities are to be strictly construed as against the claims of the State, or as it is otherwise often phrased, “nothing passes by implication in a public grant.”

The leading case was that of the Charles River Bridge v. Warren Bridge,1918 which was decided shortly after Chief Justice Marshall’s death by a substantially new Court. The question at issue was whether the charter of the complaining company, which authorized it to operate a toll bridge, stood in the way of the State’s[p.382]permitting another company of later date to operate a free bridge in the immediate vicinity. Inasmuch as the first company could point to no clause in its charter specifically vested it with an exclusive right, the Court held the charter of the second company to be valid on the principle just stated. Justice Story, presented a vigorous dissent, in which he argued cogently, but unavailingly, that the monopoly claimed by the Charles River Bridge Company was fully as reasonable an implication from the terms of its charter and the circumstances surrounding its concession as perpetuity had been from the terms of the Dartmouth College charter and the ensuing transaction.

The Court was in fact making new law, because it was looking at things from a new point of view. This was the period when judicial recognition of the Police Power began to take on a doctrinal character. It was also the period when the railroad business was just beginning. Chief Justice Taney’s opinion evinces the influence of both these developments. The power of the State to provide for its own internal happiness and prosperity was not, he asserted, to be pared away by mere legal intendments, nor was its ability to avail itself of the lights of modern science to be frustrated by obsolete interests such as those of the old turnpike companies, the charter privileges of which, he apprehended, might easily become a bar to the development of transportation along new lines.1919

The rule of strict construction has been reiterated by the Court many times. In the Court’s opinion in Blair v. City of Chicago,1920 decided nearly seventy years after the Charles River Bridge case, it said: “Legislative grants of this character should be in such unequivocal form of expression that the legislative mind may be distinctly impressed with their character and import, in order that the privilege may be intelligently granted or purposely withheld. It is a matter of common knowledge that grants of this character are usually prepared by those interested in them, and submitted to the legislature with a view to obtain from such bodies the most liberal grant of privileges which they are willing to give. This is one among many reasons why they are to be strictly construed. . . . The principle is this, that all rights which are asserted against the State must be clearly defined, and not raised by inference or presumption; and if the charter is silent about a power, it does not exist. If, on a fair reading of the instrument, reasonable doubts arise as to the proper interpretation to be given to it, those doubts are to be solved in favor of the State; and where it is susceptible[p.383]of two meanings, the one restricting and the other extending the powers of the corporation, that construction is to be adopted which works the least harm to the State.”’1921

An excellent illustration of the operation of the rule in relation to tax exemptions was furnished by the derivative doctrine that an immunity of this character must be deemed as intended solely for the benefit of the corporation receiving it and hence, in the absence of express permission by the State, may not be passed on to a successor.1922 Thus, where two companies, each exempt from taxation, were permitted by the legislature to consolidate, the new corporation was held to be subject to taxation.1923 Again, a statute which granted a corporation all “the rights and privileges” of an earlier corporation was held not to confer the latter’s “immunity” from taxation.1924 Yet again, a legislative authorization of the transfer by one corporation to another of the former’s “estate, property, right, privileges, and franchises” was held not to clothe the later company with the earlier one’s exemption from taxation.1925

Furthermore, an exemption from taxation is to be strictly construed even in the hands of one clearly entitled to it. So the exemption conferred by its charter on a railway company was held not to extend to branch roads constructed by it under a later statute.1926 Also, a general exemption of the property of a corporation from taxation was held to refer only to the property actually employed in its business.1927 Also, the charter exemption of the capital stock of a railroad from taxation “for ten years after completion of the said road” was held not to become operative until the completion of the road.1928 So also the exemption of the campus and endowment fund of a college was held to leave other lands of the college, though a part of its endowment, subject to taxation.1929 Provisions in a statute that bonds of the State and its political subdivisions were not to be taxed and should not be taxed were held[p.384]not to exempt interest on them from taxation as income of the owners.1930

Strict Construction and the Police Power.—The police power, too, has frequently benefitted from the doctrine of strict construction, although this recourse is today seldom, if ever, necessary in this connection. Some of the more striking cases may be briefly summarized. The provision in the charter of a railway company permitting it to set reasonable charges still left the legislature free to determine what charges were reasonable.1931 On the other hand, when a railway agreed to accept certain rates for a specified period, it thereby foreclosed the question of the reasonableness of such rates.1932 The grant to a company of the right to supply a city with water for twenty–five years was held not to prevent a similar concession to another company by the same city.1933 The promise by a city in the charter of a water company not to make a similar grant to any other person or corporation was held not to prevent the city itself from engaging in the business.1934 A municipal concession to a water company to run for thirty years and accompanied by the provision that the “said company shall charge the following rates,” was held not to prevent the city from reducing such rates.1935 But more broadly, the grant to a municipality of the power to regulate the charges of public service companies was held not to bestow the right to contract away this power.1936 Indeed, any claim by a private corporation that it received the rate–making power from a municipality must survive a two–fold challenge: first, as to the right of the municipality under its charter to make such a grant, secondly, as to whether it has actually done so, and in both respects an affirmative answer must be based on express words and not on implication.1937

Footnotes
1918 11 Pet. (36 U.S.) 420 (1837).
1919 Id., 548–553.
1920 201 U.S. 400 (1906).
1921 Id., 471–472, citing The Binghamton Bridge, 3 Wall. (70 U.S.) 51, 75 (1866).
1922 Memphis & L. R. Co. v. Commissioners, 112 U.S. 609, 617 (1884). See also Morgan v. Louisiana, 93 U.S. 217 (1876); Wilson v. Gaines, 103 U.S. 417 (1881); Louisville & Nashville R.R. Co. v. Palmes, 109 U.S. 244, 251 (1883); Norfolk & Western Railroad v. Pendleton, 156 U.S. 667, 673 (1895); Pickard v. East Tennessee, V. & G.R. Co., 130 U.S. 637, 641 (1889).
1923 Atlantic & Gulf R. Co. v. Georgia, 98 U.S. 359, 365 (1879).
1924 Phoenix F. & M. Ins. Co. v. Tennessee, 161 U.S. 174 (1896).
1925 Rochester Railway Co. v. Rochester, 205 U.S. 236 (1907); followed in Wright v. Georgia R.R. & Banking Co., 216 U.S. 420 (1910); Rapid Transit Corp. v. New York, 303 U.S. 573 (1938). Cf. Tennessee v. Whitworth, 117 U.S. 139 (1886), the authority of which is respected in the preceding case.
1926 Chicago, B. & K.C. R. v. Guffey, 120 U.S. 569 (1887).
1927 Ford v. Delta and Pine Land Company, 164 U.S. 662 (1897).
1928 Vicksburg, S. & P. R. Co. v. Dennis, 116 U.S. 665 (1886).
1929 Millsaps College v. City of Jackson, 275 U.S. 129 (1927).
1930 Hale v. State Board, 302 U.S. 95 (1937).
1931 Railroad Commission Cases (Stone v. Farmers’ Loan & Trust Co.), 116 U.S. 307, 330 (1886), extended in Southern Pacific Co. v. Campbell, 230 U.S. 537 (1913) to cases in which the word “reasonable” does not appear to qualify the company’s right to prescribe tolls. See also American Bridge Co. v. Comm., 307 U.S. 486 (1939).
1932 Georgia Ry. Co. v. Town of Decatur, 262 U.S. 432 (1923). See also Southern Iowa Elec. Co. v. City of Chariton, 255 U.S. 539 (1921).
1933 City of Walla Walla v. Walla Walla Water Co., 172 U.S. 1, 15 (1898).
1934 Skaneateles Water Co. v. Village of Skaneateles, 184 U.S. 354 (1902); Water Co. v. City of Knoxville, 200 U.S. 22 (1906); Madera Water Works v. City of Madera, 228 U.S. 454 (1913).
1935 Rogers Park Water Company v. Fergus, 180 U.S. 624 (1901).
1936 Home Tel. & Tel. Co. v. City of Los Angeles, 211 U.S. 265 (1908); Wyandotte Gas Co. v. Kansas, 231 U.S. 622 (1914).
1937 See also Puget Sound Traction Co. v. Reynolds, 244 U.S. 574 (1917). “Before we can find impairment of a contract we must find an obligation of the contract which has been impaired. Since the contract here relied upon is one between a political subdivision of a state and private individuals, settled principles of construction require that the obligation alleged to have been impaired be clearly and unequivocally expressed.” Justice Black for the Court in Keefe v. Clark, 322 U.S. 393, 396–397 (1944).
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