verted into stock whenever the Company shall be authorized to increase their capital stock to an amount sufficient for such conversion.

Interest certificates of the kind were issued as evidence to the stockholders that an equal amount of the earnings of the Company beyond current expenses had been expended for the objects stated in the preamble of the certificates, and to show that the respective stockholders were entitled to re-imbursement of such expenditure at some convenient future period, and also to show that the stockholders were entitled to dividends on the same whenever dividends were paid on the shares of the capital stock, and that the certificates were to be paid out of the future earnings of the Company, or to be converted, at the option of the Company, into stock, if thereafter authorized to exercise that option.

Such a paper, therefore, by whatever name it may be called, is, upon its face, evidence for each stockholder, to persons with whom he may have dealings, of the amount of the previous net earnings of the Company; that such net earnings, to the amount specified, have been expended in constructing and equipping 634*] the railroad and in the purchase of real estate and other properties appertaining to the same, and that the holders of the certificates will be entitled to dividends whenever dividends are paid upon the capital stock. By the terms of the paper it is stated that it may be transferred on the books of the Company, and the form of the transfer is appended to the same, which also shows that the transferee, like the original holder, will be entitled to be re-imbursed for the amount of the expenditure therein certified at some convenient future period, unless the Company should elect to convert the same into the stock of the Company instead of paying the same ratably out of their future earnings.

Stockholders to whom such certificates were issued, it is insisted by the plaintiffs, acquired no rights whatever by virtue of the instruments, beyond what they had before, except the right to accruing dividends; but it is clear that the proposition is founded in mistake, as the certificates possessed every quality of stock except that they conferred no power to vote and may be redeemed by payment. out of the future earnings of the Company. Like stock certificates they are made conveniently transferable, as they may be transferred upon the books of the Company, and possess an equal value with stock when used as collateral security or as the basis of credit in any moneyed transaction.

dends were paid by the Company on the shares *of the capital stock, and that the cer- [*635 tificates themselves should either be paid ratably out of the future earnings of the Company, or be converted into stock at the option of the Company.

Bona fide holders of the certificates might de mand that the certificates should be paid out of the future earnings of the Company, or that they should be converted into stock whenever the Company should be authorized to increase their capital to an amount sufficient for the purpose, and that they should have a pro rata share in the distribution of whatever assets may remain at the dissolution of the Company.

Stock dividends, it is conceded, are a proper object of taxation under the Internal Revenue Act, and if so, it is difficult to see why those certificates are not, as they differ from the former only in the fact that they do not confer the right to vote and that they may be canceled by payment out of the future earnings of the Company.

No attempt is made in argument to show that the mere fact, that the Company has reserved the right to pay the certificates out of their future earnings, without more, exempts them from liability to taxation under that Act, and it is clear that the fact that they do not confer the right to vote cannot have any such effect, as dividends in stock do not necessarily entitle the holder to any additional vote. Whether they do so or not depends in any particular case upon the terms of the certificate and the charter of the Company. Taylor v. Griswold, 2 Green (N. J.), 226.

Usually a stockholder is a member of the company and, as such, has a right to vote; but it does not necessarily follow that the right increases with the increase of stock, or that the right is lessened in case the number of shares owned by the stockholder should be diminished.

Net earnings of such a company may be expended or invested in constructing or equipping the railroad, or in the purchase of real estate or other properties; but the investment, whatever it may be, belongs to the stockholders, and may be distributed, as they may [*636 direct, in dividends of stock or of scrip or of money, payable out of the future earnings of the Company, or by a sale of property not necessary to effect the purposes for which the Company was created.

terest in such property and franchises as the dividend of stock, except that it is the right of the Company to pay the same out of their future earnings, and that the dividend in scrip confers no right to vote. Bk. v. R. Co., 13 N. Y., 627; Bk. v. Burr, 24 Me., 264.

Much discussion, to show that a dividend in scrip declared by a railroad as part of their earnings, profits, income or gains is the proper subject of taxation by virtue of the Internal Revenue Act, is scarcely necessary, as the express words of the Act are that such a dividend "shall be subject to and pay a tax of five per centum whenever and wherever and to whatsoever party or person the same may be payable." Ohio v. Bk., 11 Ohio, 95.

*

alone he can claim, and that contract is found in the scrip issued by the Company. Brown v. Coal & Nav. Co., 49 Pa. St., 273; People v. N. Y. Co., 16 N. Y., 427.

Funds set apart as capital out of which debts are to be paid, it is held, amounts to a contract with those who become creditors on the faith of the transaction that the fund shall not be withdrawn and appropriated to the use of the owner or owners of the capital stock, and the court is of the opinion that the vote of the Company issuing these certificates is a valid contract of the Company with the holders of the certificates that the same shall be paid, at some convenient period, out of the future earnings of the Company, unless the Company, when thereto authorized, elect to convert the same into capital stock. Ins. Co. v. N. Y., 8 N. Y. 250; Ins. Co. v. Erie Co., 4 N. Y., 445.

Tested by these considerations, it is quite clear that the first instruction given by the court to the jury is erroneous.

Unless otherwise provided by the charter or by-laws of a corporation the profits and surplus funds of a corporation, whenever they have accrued, are, until separated from the capital by the declaring of a dividend, a part of the stock itself and will pass with the stock under this name in a transfer or bequest. Iron Co. v. Com., 55 Pa. St., 451; Brundage v. Brundage, 1 Thomp. & C., 90; Phelps v. Bk., 26 Conn., 269.

Purchasers of stock have a right to claim and receive all dividends subsequently declared, no matter when the fund appropriated for the purpose was earned, whether before or after the transfer and delivery of the certificates constituting the evidence of ownership. March v. R. Co., 43 N. H., 515.

As a general rule, stock dividends, even when they represent net earnings, become at once a part of the capital of the company and, of course, entitle the holder to vote, unless it is otherwise provided in the charter or by-laws. Such a dividend, if earned and declared, necessarily increases the value of the old stock if new stock is not issued, and in that mode reaches substantially the same result. R. Co. v. Com., 100 Mass., 404.

By the terms of the Act, a dividend in scrip declared by such a company as a part of its earnings, etc., is subject to the described tax whenever or wherever or to whatsoever party or person the same shall be payable. What is required to be due is the scrip and not the fund, money or proceeds which it represents. Beyond doubt, such scrip becomes operative and due within the meaning of the Revenue Act when it is unconditionally declared without containing any provision postponing its effect. These certificates are not dividends in money, 638*] nor are they *stock or certificates of stock in the strict sense; but they are exactly what they are described to be in the Revenue Act, to wit: dividends in scrip, which entitle the holder to just what he is promised in the instrument; or, in other words, his right must be determined by the contract under which

spects illegal and void; but the court is of the opinion that none of those objections are now open to examination, as they are not included in the assignment of errors.

Mere irregularities may be passed over without remark, as the suit is an action of assumpsit brought by the plaintiffs to recover back money which they paid to the collector, and the burden is upon them to show that the defendant ex equo et bono is bound to refund the amount which they paid. Swift v. Poughkeepsie, 37 N. Y., 512. Indebitatus assumpsit is founded upon what the law terms an implied promise on the part of the defendant to pay what in good conscience he is bound to pay to the plaintiff. *Where the case [*639 shows that it is the duty of the defendant to pay, the law imputes a promise to fulfill that obligation; but the law never implies a promise to pay unless some duty creates such an obligation, and more especially it never implies a promise to do an act contrary to duty or contrary to law. Curtis v. Fiedler, 2 Black, 478, 17 L. ed. 276; Cary v. Curtis, 3 How., 236; Philadelphia v. Collector, 5 Wall., 732, 18 L. ed. 617; Elliott v. Swartwout, 10 Pet., 150; Bend v. Hoyt, 13 Pet., 267.

Thoughout the argument for the plaintiffs it is admitted that they never made the list or return of the interest certificates in question to the assessor or assistant assessor, as required by the Internal Revenue Act, if such scrip is the proper subject of taxation, as claimed by the defendant.

Evidently, the instruction under consideration is erroneous, as well as the first instruction, and for these reasons the judgment must be reversed. Having come to that conclusion, it is unnecessary to enter into any extended discussion of the exception to the ruling of the court in excluding certain evidence offered by the defendant. Suffice it to say, that the court here is of the opinion that the ruling is erroneous, and that the evidence was properly admissible, as explanatory of the surrounding circumstances. Beyond all doubt these conclusions are correct and, in the judgment of the

court, they dispose of all the questions involved in the errors assigned by the defendant, and render it unnecessary to examine any other question presented in the argument at the bar. Judgment reversed, with costs, and the cause remanded, with directions to issue a new venire.

Dissenting, Mr. Justice Field.

DAVID BAILEY, Joseph Seligman, Edwin D. Morgan, Uriel Crocker, and George S. Curtis, Appts.,

v.

CONSTANTINE MAGWIRE et al. (See S. C., 22 Wall., 215-231.) Railroad company—liability to taxation-surrender by State-taxes on.

1. Where, by the charter of a railroad company, immunity from all taxation was given until the road was in operation two years, but after this it is declared "That such completed road shall be subject to taxation at the rate assessed by the State on other real and personal property of like value; held, that after such two years, such road was liable to county and municipal taxation. 2. An intention of the State to surrender the power of taxation will not be imputed to it, unless the language employed leaves no other alternative. 3. The State Legislature has a right to change the mode for ascertaining the tax due the State. Until it is changed, taxes can only be collected in the way pointed out in the charter.

[No. 474.]

by the spirit of the Act. The mode of assessing and collecting the tax mentioned is specifically provided with great particularity. A return of the property is to be made. The character of the return, the kind of property to be returned, the person by whom and the officer to whom and the duties of the officer in charging the taxes and of the officer who is to collect the same and many other particulars are specifically set out. The tax is to be paid to the State Treasurer. No mention is made anywhere in the Act of any other taxation for county or any other purpose. In the proviso at the close of the section it is declared, "That if said Company shall fail, for the period of two years after said roads respectively shall be completed and put in operation, to declare a dividend, that then said Company shall no tax, etc." What tax is it that the Company is longer be exempt from the payment of said to be no longer exempt from? Clearly the tax specifically provided for, after the total exemption ceases. It is not taxes, but tax. The total exemption is from taxes for all purposes, while that authorized is a tax only, and is to be paid to the Treasurer of the State.

In the case of Hannibal & St. Jo..R. Co. v. Shacklett, 30 Mo., 551, the Supreme Court of Missouri refers to section 12 of the Act of December 25, 1852, for the purpose of aiding in the construction of the section from which it

A

1875.

PPEAL from the Circuit Court of the United States for the Eastern District of Missouri. The bill in this case was filed in the court below by the appellants, to restrain the collection of certain taxes. A decree having been entered in favor of the respondents, the complainants took an appeal to this court.

The case is fully stated by the court. Messrs. James Baker, Wm. M. Evarts and Geo. F. Edmunds, for appellants:

It has been decided by the Supreme Court of the United States in the case of The Pacific R. Co. v. Maguire, not yet reported, ante, 282, that this section is a contract between the State and the Company, protected by the Federal Constitution, and that the Company is exempt from all taxation until a dividend is paid, after the completion of the road, or until two years after such completion. The court says: "We are of the opinion: first, that the 12th section of the Act of 1852 created a contract between the State and the Railroad Company, by which the railroad was exempt from taxation, until it was completed and put in operation, and until it should declare a dividend on its capital stock, not, however, extending longer than two years after its completion." In another case, between the Pacific R. Co. and Cass Co., 53 Mo., 17, the Supreme Court of that State declares, "That the temporary exemption of the company from taxation under that Act, it may be conceded, was broad enough to apply to all taxes whatever."

By examining the whole section it will be seen that the whole subject of the future taxation of this road was intended to be and is specifically provided for, and that the interpretation contended for by us is fully supported

NOTE Repeal of statute by implication-see note to "Henderson's Tobacco," 20 L. ed. U. S. 235.

road, passed at the same session of the Legislature in September previous. If it is allowable to refer to a subsequent Act for such purposes, is it not more so to refer to a prior one, especially when the section under consideration was mainly copied from the one referred to?

In the Shacklett case just referred to, section 12 of the Act of Dec. 25, 1852, is copied in full, and its meaning and object carefully considered, and the opinion of the court in respect to it, to be regarded as an adjudication upon it, the same as if it was directly in issue. In that case the court says: "The property of this company had been exempted from taxation except at a time and in a mode particularly specified in the section which we quoted at large from the Act of 1852."

It further states: "The 9th section of the

Act concerning the Cairo and Fulton Railroad Company is almost a literal copy of the 12th section above referred to, and of course exempts beyond all doubt all the property of this road from taxation, except in the mode pointed out." The question there was, whether these Acts allowed any further or different taxation than that provided for in them; that necessarily included this question, and the court declared that they furnished the only rule and authority by which the company can be taxed. That decision was, for many years after it was rendered, regarded as a settlement of this question by all concerned.

In the case of The State v. Hannibal & St. Joseph R. Co., 37 Mo., 266, which was in respect to taxes imposed by the authorities of Livingston County for the year 1874, five years after the completion of that road, the court fully sustained the rulings on the Shacklett case, and applied them to taxes imposed after that road was subject to taxation under the provisions of the Act of 1852.

On the faith of these decisions, the complain

Gelpcke v. Dubuque, 1 Wall., 175, 17 L. ed. 520; Havemeyer v. Iowa County, 3 Wall., 294, 18 L. ed. 38; Olcott v. Fond du Lac Co., 16 Wall., 678, 21 L. ed. 382.

In the case of The State & Pacif. R. Co. v. Dulle, 48 Mo., 287, it is assumed that this section is a mere Act of Legislature that may be repealed at pleasure.

This case cannot be regarded as a precedent binding the Federal courts, for the reason that it involves a construction of a provision of the Constitution of the United States. When the question whether a contract has been impaired by the State arises in these courts, they are at liberty to construe it for themselves without regard to former decisions of the state courts, otherwise such courts might deprive the parties of the protection of the Constitution by an improper construction of the contract, without passing on the question of constitutionality.

See the following authorities:

State Bank of Ohio v. Knoop, 16 How., 391393; Jefferson Branch Bank v. Skelly, 1 Bl., 436, 17 L. ed. 173; Butz v. Muscatine, 8 Wall., 575, 19 L. ed. 490; Dodge v. Woolsey, 18 How., 331, 15 L. ed. 401; Carroll v. Carroll, 16 How., 275; Binghamton Bridge Case, 3 Wall., 74, 18 L. ed. 142; Raleigh & Gaston R. Co. v. Reid, 13 Wall., 269, 20 L. ed. 570; Wilmington R. Co. v. Reid, 13 Wall., 264, 20 L. ed. 568.

In the case of N. Y. & Erie "R. Co. v. Sabin, 26 Pa., 242, the court says: "Where, however, instead of surrendering the power (of taxation), the Legislature has exercised it by taxing all the property of a particular company in a specified manner, and has intimated no design to subject it to further taxation, we hold the power to be satisfied, and do not add, by judicial implication, burdens which the Legislature has not thought fit to impose. If the Legislature had meant that the property of this company should be taxable in the ordinary mode, it would have imposed no special taxation; or if it meant that this company should be taxable under these Acts, in addition to the special impositions, it would have said so. Without some word to lead us to this conclusion, we will not infer that both special and general taxation were intended." Messrs. Britton A. Hill, R. E. Rombauer and H. A. Clover, for appellees:

There is no remedy in courts of law or equity against unjust legislation. Legislatures are responsible only to the people, unless, indeed, the Acts of the Legislature are in direct violation of the provisions of the State or Federal Constitution. The right to determine what proportion of the burdens of taxation should

North Mo. R. R. Co. v. Maguire, 49 Mo., 490. If there is a contract to exempt from taxation, such a contract must be express in limitation of the powers of the Constitution, and must be couched in unmistakable terms, and upon a consideration deemed to be a part of the value of the grant or of the charter.

Trask v. Maguire, 18 Wall., 401, 21 L. ed. 944; Prov. Bk. v. Billings, 4 Pet., 562; Gordon v. Appeal Tax Court, 3 How., 133; Pacific R. R. Co. v. Maguire, ante, 282; Christ Church v. Phila., 24 How., 300, 16 L. ed. 602; Phila. & Wilmington R. Co. v. Maryland, 10 How., 376; Jefferson Branch Bk. v. Škelly, 1 Black, 447, 17 L. ed. 178; Ohio Life Ins. & Trust Co. v. Debolt, 16 How., 416; Washington University v. Rowse, 42 Mo., 325; St. Jo. & Han. R. Co., 39 Mo., 476; Lionberger v. Rowse, 43 Mo., 67; St. Louis v. Boatmen's Ins. & T. Co., 47 Mo., 150; State, etc., Pacif. R. Co. v. Dulle, 48 Mo., 282; Pacif. R. Co. v. Maguire, 51 Mo., 142; Pacif. R. Co. v. Cass Co., 53 Mo., 17.

But the mode of assessing and collecting the taxes upon this railroad was not a part of the contract in any sense. as claimed by the complainants in this case. The contract exempting the road from taxation until three years after its completion is a definite one, founded upon a pretended consideration, but the mode provided for the assessment of the value of the railroad for taxation, at the rate assessed by the State on other property, is a matter wholly applicable to the revenue laws of the State, and comes within the prohibition of the general corporation law of Missouri, in force in 1845, which thus ordained:

"The charter of every corporation that shall hereafter be granted by the Legislature shall be subject to alteration, suspension and repeal, at the discretion of the Legislature."

Sec. 7, ch. 34, Rev. Code, 1845, p. 232. The complainants insist that the President of the railroad under section 12 of the Act of 1852, had the sole power to fix the actual cash value of the property in these railroads, and that the State was bound by this assessment of the President of the Railway Company, and that the Legislature had no power to provide by law for the correction of this appraisement. But no such power is enforced by the Acts of the Legislature upon this Company or its President.

Section 12 of the Act of 1852 ought not to be construed so as to give the President of the Railroad Company the power to fix the assessment of the actual cash value of the railroad and its appurtenances, at any other amount than the real value in cash.

But if the President fails to perform this duty fairly and justly as required by the Act, the Legislature is authorized to appoint other officers to do the duty justly and fairly.

To accomplish this object and secure a just equality of taxation, as contemplated by said section 12, it was necessary for the Legislature to pass laws for the appointment of officers to revise and correct the assessment made by the President of said Railroad Company.