People v. Detroit, Etc., Railway Co. , 228 Mich. 596 ( 1924 )

I am unable to concur in the conclusion reached by Mr. Justice SHARPE in this case.

In 1855 the Detroit Pontiac Railroad Company and the Oakland Ottawa Railroad Company were consolidated by force of Act No. 140, Laws of 1855, as the Detroit Milwaukee Railway Company. After being operated for several years under this title its name was changed by amendment to that of defendant. Defendant continued to operate the railroad until it was absorbed, by ownership of stock, by the Grand Trunk Railway Company of Canada. The Grand Trunk Railway Company of Canada operated it as an independent corporation until that company itself was absorbed by the Dominion of Canada. By reason of the ownership of defendant passing to the Dominion, the real parties in interest to this controversy are now the State of Michigan and the Dominion of Canada.

The act of consolidation contained a taxation clause, reading:

"SECTION 9. The said company shall, on or before the first day of July, pay the State treasurer an annual tax of 1% on the capital stock of said company paid in, which shall be in lieu of all other taxes, except for penalties imposed upon said company by its act of incorporation, or any other law of this State. The said tax shall be estimated upon the last annual report of said corporation."

The defendant railway was required to make an annual report to the State of the company's physical assets, its indebtedness, and certain other information. The statutory annual report was required to show, in part:

"1. The capital stock and the amount actually paid in;

"2. The amount expended for the purchase of lands for the construction of the road, for buildings, for engines and cars respectively;

"3. The amount and nature of its indebtedness, and the amounts due the corporation;

"4. The amount received for transportation of passengers, of property, of mails, and from other sources;

"5. The amount of freight, specifying the quantity in tons, of the products of the forest, of animals, of vegetable food, and other agricultural products, manufactures, merchandise, and other articles;

"6. The amount paid for repairs, engines, cars, buildings and salaries;

"7. The number and amount of dividends, and when paid;

"8. The number of engine houses and shops of engines and cars and their character;

"9. The number of miles run by passenger, freight and other trains respectively;

"10. The number of men employed and their occupation;" * * * 1 Comp. Laws 1857, § 1976.

There has been, from time to time, since the consolidation, much litigation between this railway and the State. Most of this litigation was initiated by the State for the purpose of avoiding the company's special charter in whole or in part, and is of no importance in this litigation except in a historical way. These efforts failed because the conclusions of the courts were that the special charter was a contract which the State could not avoid. When this question was settled, the State then filed this suit in the latter part of the year 1910, praying for a construction of the taxing clause of the special charter. The State contends that the words "capital stock paid in" mean the capital investment or the property which the corporation has received and presumably holds. The position of the railway is that they mean the money paid in by the shareholders, which is represented by the paper shares. It appears to be undisputed that the paper shares have represented, since the consolidation, the sum of $2,517,140, with some slight variation during the years, whereas the value of the railway and its assets are now between $8,000,000 and $10,000,000. Since the consolidation the company has been paying $25,171.40 as an annual tax upon its theory that only the paper shares, were taxable. Had it been paying on the theory of the State that its total investment was taxable, it would now be paying substantially $100,000 a year, and defendant's counsel estimates that had the railroad paid on the State's theory since the consolidation, it would have paid into the treasury of Michigan substantially $3,500,000 more than it has paid.

It may further be stated in explanation of the position of the State that it is not seeking to enforce any past delinquencies upon the part of the railroad. It is simply seeking a construction of the taxing provision for the purpose of furnishing a basis for future taxation.

The two questions which demand solution are:

(1) What meaning shall be given to the words "capital stock paid in?"

(2) By accepting payment on defendant's theory for several years is the State now estopped to estimate a tax on its present theory, if that theory be the correct one?

1. In construing this taxation clause it will be helpful to get as nearly as we can the view point of the legislators of that session. The legislature was engaged in the work of joining two railway lines, which, when finished, would reach from the Detroit river to Lake Michigan. It was thought in those days that this line, in connection with a boat line, would furnish one of the principal lines of transportation between Detroit and Chicago. Of course, it was understood by the legislators that this railway was to traverse much undeveloped country, and that as the natural resources of the State were developed the business of the railway would increase and eventually become not only an important but prosperous line of railway. This is evidenced in part by the act of the legislature authorizing the railway to construct a double track line and increase its stock to $10,000,000. With this hopeful view of the future of this railway it created this taxing clause. It is hardly conceivable that with this outlook the legislature intended to fix a partial exemption of one per cent. on the then invested capital of $2,517,140, and, in addition, forever exempt from taxation all the property this railway might accumulate in all the years to come. To so hold would be to charge the legislature of that day with welding these two lines of railway into one and leaving the resulting corporation to fix its own tax base. This construction would have permitted the company to borrow money on mortgage bonds, improve its line and increase its value without increasing its tax base. I am unable to believe that the many able and eminent men who were members of the legislature of that session were guilty of such far reaching recreancy as to grant to defendant such an inequitable and unheard of privilege.

But aside from these considerations I think the language of the taxing clause shows on its face that the legislature intended that "capital stock paid in" should include the capital investment of the railway. If the words "capital stock paid in" be construed in connection with the statutory duty of the railway to file annual reports and the provision of the taxing clause that the "tax should be estimated from those reports," it shows clearly that capital stock was intended to cover its entire capital assets. If defendant's theory be true that the paper shares furnished the base of taxation, there would be no need to estimate the tax, there would be no need for an annual report showing the assets of the railway, all that was necessary would be a computation of one per cent. on the capital stock of $2,517,140. During all the years which have intervened all the auditor has done has been to compute the tax on the paper shares, and if the railroad company has obeyed the law as to annual reports, it has each year done an idle thing, as they have served no purpose. This view ignores the purpose of compelling annual reports and renders meaningless the mandate that the tax shall be estimated from such reports.

It is quite evident that the succeeding legislature of 1859 did not construe the language in question to refer only to the paper shares, as the legislature at that session provided that if any mortgage was foreclosed on the consolidated company the purchasers might continue the operation of the road under the old charter, and issue to themselves new stock in such amountas they might deem proper. Act No. 96, Laws of 1859. Under this privilege the capital stock could have been reduced to $1,000,000 or $500,000, and its annual taxes would have been reduced to $10,000 or $5,000 instead of $25,000. It is morally certain that no such privilege as this would have been granted by the legislature to purchasers at mortgage sales if it had understood the basis of taxation was limited to the paper shares of the company.

Again, attention is called to the fact that the general law which permitted the incorporation of railways had a similar provision as to taxation (1 Comp. Laws 1857, § 1989), and the specially chartered railroads also had similar provisions, and the attorney general very pertinently inquires why the State should grant to this railroad a more favorable exemption from taxation than it did to those organized under the general law and special charters, and he suggests that this is especially significant in view of the fact that the State had recently been in a legal controversy with the Detroit Pontiac Railway over its refusal to pay its taxes. People v. Railroad, 1 Mich. 458.

Further, if defendant's construction be accepted it must be conceded that the legislature of 1855 granted defendant two exemptions, one by restricting taxation on its then invested capital to one per cent. and another by exempting all the property and value which it might thereafter accumulate. There is nothing in the act to indicate that the legislature intended to grant the second exemption. Upon this phase of the case some observations on exemptions by 2 Lewis' Sutherland Statutory Construction (2d Ed.), § 539, is not out of place:

"Legislation which is claimed to relieve any species of property from its due proportion of the general burden of government should be so clear that there can be neither reasonable doubt nor controversy about its terms. The language must be such as leaves no room for discussion. Doubts must be resolved against the exemption."

In view of the requirements of the taxing clause of the charter that annual reports shall be made and the tax estimated therefrom, there is little difficulty in construing the words "capital stock paid in" as including the property of the corporation. It is not uncommon in taxing statutes to construe "capital" and "capital stock" as referring to the same thing. 1 Cook on Corporations (8th Ed.), § 8; 2 Clark Marshall on Private Corporations, § 375; 1 Desty on Taxation, § 74; and, as was said in Powers v. Railway Co., 201 U.S. 559 (26 Sup. Ct. 556):

"The terms 'share,' 'stock,' 'capital' and 'capital stock' are of frequent and not uniform use, and we have often to turn to the context to see what is intended by its use in a particular case."

"Where, by its charter, a corporation is required to pay 'in lieu of all other taxes' an annual tax of a certain per cent. on the 'amount of capital' or 'amount of capital stock'paid in, the charter tax is upon the capital stock of the corporation and the shares of the stockholders are not exempt; but where it is required to pay such a percentage 'on each share of stock' the charter tax is upon the shares and the provision exempts the several shareholders from taxation on their shares, but it does not also exempt the corporation fromtaxation on its capital stock, or on its surplus and undividedprofits, or from the payment of an occupation or privilege tax." 37 Cyc. p. 912.

See, also, Memphis v. Memphis City Bank, 91 Tenn. 574 (19 S.W. 1045), and later affirmed in 161 U.S. 186 (16 Sup. Ct. 466).

In Powers v. Railway Co., supra, the Supreme Court of the United States referred to and construed this taxing provision, which we are now considering, although it was not material in that case. The following will indicate the view Mr. Justice Brewer entertained as to the construction which it should receive:

"By section 9 the tax is 'on the capital stock of said company paid in.' Clearly that refers to the property which the corporation has received and presumably holds. It is not the individual property of the shareholders which is contemplated, but that which is in the treasury of the corporation, or included among its assets. This as we have seen is the ordinary meaning of the term 'capital stock.' Further, we find that this tax is to be 'in lieu of all other taxes, except for penalties imposed upon said company.' In other words, the tax upon the company of one per cent. may be increased by penalties imposed upon the company and in no other way. Again, the tax is to 'be estimated upon the last annual report of said corporation.' While such report might be expected to include not merely the property belonging to the corporation but also the number and names of the stockholders and the number of shares held by each, and possibly also the amount paid in by each, yet the word 'estimated' carries with it the idea of valuation rather than of mathematical apportionment. It suggests that the property reported by the corporation is to be the basis upon which the assessors shall make their valuation, so that the tax is 'estimated' upon that property rather than fixed by the mere process of multiplication or division. That the tax is to be paid by the company is of course not conclusive on the question, but it is in harmony with all the other provisions of the section."

This is undoubtedly the reasonable view, and is the one which is urged by the attorney general in the present case.

I am of the opinion that the taxing clause upon its face, with the aid of relevant legislation, which was a part of the charter, shows conclusively that the words "capital stock paid in" were intended by the legislature to include all of its capital investments. This construction is supported by the language of the act, is approved by the Supreme Court of the United States, is manifestly just to the people of this State, and in accord with defendant's contract.

2. If the State's theory of construction be correct, is itnow estopped to have that construction enforced? It is the contention of defendant that its construction of the taxing clause has been acquiesced in for so many years that it amounts to a practical construction of the contract and cannot now be disturbed. The State argues that the situation is such that the doctrine of estoppel ought not in law nor justice to be applied.

The record fairly shows that the first auditor general, who dealt with this tax, acquiesced in defendant's construction and computed the tax upon the basis of the paper shares, and all of his successors have accepted it. It does not appear that any question concerning this construction was ever raised by any State officer until this litigation began. It appears that in certain years the statutory reports were made; in other years they appear to have been omitted, and for several years it is not shown definitely whether any report was made. It is fair to assume from the record that the auditors general made a computation of one per cent. on the amount of the paper shares, and accepted that sum without question as the tax. An example of the many indorsements made by him on the books is shown by the following:

"Received and filed June 4, 1873, H.R. Pratt, deputy auditor general. Tax due July 1, 1873, $25,171.40. Bill mailed June 20, 1873, to J.H. Muir, secretary, Detroit, Michigan."

Under these circumstances the question arises whether the State is estopped to insist that the exemption does not extend to the seven or eight million dollars of capital assets which defendant has accumulated since the taxing clause was granted. In the discussion of this question one phase of it has not received, in my opinion, the consideration it should have had. The question of taxation with the incident power of exemption involves one of the sovereign powers of the State. The State is never estopped to exercise any attribute of sovereignty unless it appears to have surrendered it upon a consideration in the most clear and explicit terms, and is never estopped because of the ignorant, indifferent or wilful acts of its servants. If the State were acting in its proprietary capacity it might be equitably estopped, but the acts of careless and recreant public servants can never estop the State from exercising an attribute of sovereignty, however long the practice may have been continued. It is easy to see why this is so. If the acts of indifferent and recreant public servants could estop the State in the exercise of its sovereignty in a few years, it would so limit its power that it could not exercise the functions of government. It is only when the legislature has expressly and in unmistakable terms surrendered a part of its sovereignty upon a consideration that it can be insisted upon. This principle is well stated in 10 R. C. L. p. 704:

"It has been denied and affirmed with equal confidence that an equitable estoppel can be applied to the government. It is, however, quite well settled that when the State makes itself a party to an action or to a contract, or grant in its proprietary capacity, it is subject to the law of estoppel, as other parties litigant or contracting parties. And so, a State department in a matter of procedure and within the scope of departmental powers may be estopped. But the State cannot be estopped to exercise its sovereign power."

"The neglects or omissions of public officers as to their public duties will not work an estoppel against the State. Consequently a State is not estopped from levying a tax for the reason that no attempt has been made to assess the property for many years, nor from insisting on the condition prescribed for a foreign corporation to do business in the State, by failure of officials to require compliance with the law at the proper time. And, of course, the State cannot be estopped by the unauthorized acts of its officers." Id. 705.

The rule is stated in 16 Cyc. p. 780, as follows:

"The weight of authority is to the effect that the doctrine of equitable estoppel does not apply to the government, at all events, in the case of unauthorized acts or omissions on the part of its officers and agents. Nor are public officers concluded by acts done in their official capacity. So, too, it has been held that the doctrine of estoppel will not apply to a private individual where the public interest is concerned."

The South Carolina court has discussed the question of estoppel and whether it could be established by the acts of its agents:

"The doctrine of equitable estoppel has no application to a sovereign State. Equitable estoppel rests upon an implication of fraud in the parties sought to be estopped, and fraud ought not to be imputed to the sovereign. The State can only act under its constitution and through its legislative enactments pursuant thereto, and can only ratify in the manner in which it could originally authorize; and if it could be estopped to assert the truth, the effect might be to fix upon the State responsibilities in conflict with its constitution and laws. All men are bound to take notice of a special authority of the State's officers, and when dealing with them outside their authority they assume the peril with their eyes open, and cannot be heard to say that they placed reliance upon the State. The question is not one of intention, but of power; and if the officer has not power to act, his action is not State action, and so affords no basis upon which to predicate estoppel against the State. And if it were in any sense a question of intention the State's intention can only be evidenced in a constitutional way." Carolina Nat. Bank v.State, 60 S.C. 465 (38 S.E. 629, 85 Am. St. Rep. 865).

In Vicksburg, etc., R. Co. v. Dennis, 116 U.S. 665 (6 Sup. Ct. 625), the Supreme Court announced the same principle:

"It has been said that 'neither the right of taxation nor any other power of sovereignty will be held by this court to have been surrendered, unless surrender is expressed in terms too plain to be mistaken;' that exemption from taxation 'should never be assumed unless the language used is too clear to admit of doubt;' that 'nothing can be taken against the State by presumption or inference; the surrender, when claimed, must be shown by clear, unambiguous language, which will admit of no reasonable construction consistent with the reservation of the power; if a doubt arises as to the intent of the legislature, that doubt must be solved in favor of the State;' that a State 'cannot by ambiguous language be deprived of this highest attribute of sovereignty;' that any contract of exemption 'is to be rigidly scrutinized, and never permitted to extend, either in scope or duration, beyond what the terms of the concession clearly require;' and that such exemptions are regarded 'as in derogation of the sovereign authority and of common right, and therefore not to be extended beyond the exact and express requirement of the grants, construed strictissimi juris.' "

The Illinois supreme court is in accord with this principle:

"It is a familiar doctrine that the State is not embraced within the statute of limitations, unless specially named, and, by analogy, would not fall within the doctrine of estoppel. Its rights, revenues, and property would be at fearful hazard, should this doctrine be applicable to a State. A great and overshadowing public policy of preserving these rights, revenues, and property from injury and loss by the negligence of public officers, forbids the application of the doctrine. If it can be applied in this case, where a comparatively small amount is involved, it must be applied where millions are involved, thus threatening the very existence of the government. The doctrine is well settled that no laches can be imputed to the government, and by the same reasoning which excuses it from laches, and on the same grounds, it should not be affected by the negligence, or even wilfulness, of any one of its officials." People v. Brown, 67 Ill. 435.

In a bill filed by the State to recover back taxes the Illinois Central Railroad Company argued the State was estopped to inquire as to the correctness of certain semi-annual statements made by it on account of the great lapse of time. The court said:

"Counsel for appellee insist that the State is estopped at this late date from inquiring into the correctness of these semi-annual statements; that this charter being a contract between the parties, the doctrine of estoppel will apply to the State here as it ordinarily would to a private party. The rule invoked by appellee on this point applies only to those contracts where the State goes into business as a partner with individuals or in competition with her citizens. Brown v.Trustees of Schools, 224 Ill. 184 (79 N.E. 579, 8 Ann. Cas. 96, 115 Am. St. Rep. 146); 2 Herman on Estoppel, § 1128; 25 Cyc. p. 1007; 19 Am. Eng. Enc. Law (2d Ed.), p. 190). This charter is not within the class of contracts just referred to. If the State, in enforcing this contract, acted in its private capacity as distinguished from its governmental capacity, then the doctrine of estoppel might be invoked. Barnard v. County of Sangamon, 190 Ill. 116 (60 N.E. 109); City of Chicago v. Sexton, 115 Ill. 230 (2 N.E. 263); Chicago, etc., R. Co. v. City of Joliet, 79 Ill. 25. But the State, in enforcing the provisions of this charter contract, is not acting in its private capacity. The contract has nothing to do with trade relations between private individuals and the government, but is one exempting property from ordinary taxation for an equivalent. The revenue to be paid under this charter is simply a substituted tax — a special form of taxation (State v. Railway Co., 128 Wis. 449 [108 N.W. 594]), for the benefit of all the people of the State. In attempting to collect this revenue the State is acting in its governmental capacity, the same as when it is attempting to collect taxes under the general revenue laws. This being so, public policy requires that the State shall not lose through the laches or negligence of its officers. People v. Brown, 67 Ill. 435; Catlett v. People, 151 Ill. 16 (37 N.E. 855); Whittemore v. People, 227 Ill. 453 (81 N.E. 427, 10 Ann. Cas. 44)." State v. Railroad Co., 246 Ill. 188, 234 (92 N.E. 814).

In Hibernian Benevolent Society v. Kelly, 28 Or. 173 (42 P. 3, 30 L.R.A. 167, 52 Am. St. Rep. 769), the State had recognized for several years that its property was exempt. When an attempt was made to subject it to tax it was argued that the State was estopped on account of having recognized the exemption for so many years. The court said:

"It is insisted by the plaintiff that the State is estopped from levying the tax in question for the reason, that while it has owned the property assessed since 1877, no attempt was made to assess it until the year 1890, and that, relying upon that fact, it borrowed in that year $33,000 on a mortgage, to enable it to erect the buildings now on the premises, and stipulated and agreed to pay the taxes on such mortgage. But the neglect or omission of the proper officers to assess the property cannot control the duty imposed by law upon their successors, or affect the legal construction of the statute under which its exemption from taxation is claimed. Vicksburg, etc., R. Co. v. Dennis,116 U.S. 665 (6 Sup. Ct. 625)."

The rule in the Dominion of Canada is the same. It was held in Humphrey v. The Queen, 2 Ex. C. R. 386, that as her Majesty was defendant the doctrine of estoppel could not be invoked against her. Also, The Queen v. Black, 6 Ex. C. R. 236. Other cases in accord with this principle are Barker v. Crum, 177 Ky. 637 (198 S.W. 211, L.R.A. 1918F, 673); Chicago, etc., R. Co. v. Douglas County, 134 Wis. 197 (114 N.W. 511, 14 L.R.A. [N. S.] 1074); United States v. Walker, 148 Fed. 1022; PulaskiCounty v. State, 42 Ark. 118; Alexander v.State, 56 Ga. 478; Hennepin County Com'rs v. Dickey, 86 Minn. 331 (90 N.W. 775); Oregon v. Electric Co., 52 Or. 502 (95 P. 722, 98 P. 160); State v. Savings Bank, 106 Ind. 435 (7 N.E. 379); State v. Railroad Co., 52 Fed. 450.

The State is therefore not estopped by the practical construction contended for. Unless the statute is ambiguous the question of practical construction must give way to the terms of the statute. 25 R. C. L. p. 1043; 2 Elliott on Contracts, § 1542; Menage v. Rosenthal, 175 Mass. 361 (56 N.E. 579).

Chief Justice COOLEY said in Westbrook v. Miller, 56 Mich. 148,152:

"The rule which favors the acceptance of a practical construction of statutes has its limits, and must not be suffered to defeat the manifest purpose of the legislation."

Even where a statute is ambiguous, the construction given it by the executive department of the State will not be followed by the court when clearly erroneous. Koy v. Schneider, 110 Tex. 869 (218 S.W. 479, 221 S.W. 880);Commonwealth v. Railroad Co., 95 Ky. 60 (23 S.W. 868).

In VanDyke v. City of Milwaukee, 159 Wis. 470 (146 N.W. 812,150 N.W. 509), it was said.

"But a practically contemporaneous construction of an administrative department cannot be successfully invoked to override a plain meaning of the statute."

In Commonwealth v. Railroad Cos., 95 Ky. 60, 73 (23 S.W. 868), it was held:

"If the language of an act be certain, its object can never be frustrated by any amount of contemporaneous interpretation, no matter how consistent or how widely adopted it may have been. A construction against the plain meaning of the law as expressed by its terms, even in aid of justice or right, or to avoid an absurdity, is never permissible. Endlich, Interpretation of Statutes, p. 506."

"It is the function and duty of the courts to interpret the meaning of a statute, and when they can ascertain the legislative intent by the use of intrinsic aids alone, resort to its contemporaneous construction by other persons is both unnecessary and improper. It is only where the language of the statute is ambiguous or uncertain that the opinions entertained by contemporaries as to its meaning may be consulted."Barker v. Crum, 177 Ky. 637 (198 S.W. 211, L.R.A. 1918F, 673).

In Houghton v. Payne, 194 U.S. 88 (24 Sup. Ct. 590), it was argued that the construction by numerous postmasters general that certain publications were periodicals and were entitled to second class mail privileges, the court said:

"Great stress is laid by counsel upon the original interpretation of the term 'periodical,' as applied to these books, which it is said was continued without change under different administrations and by several successive postmasters general, and from 1879, the date of the passage of the act, until 1902, when the certificates granted by the former postmasters general were revoked by the defendant and a different classification made of the publications now in issue, that the attention of congress was repeatedly called to the evils and to the large expense incurred by the Government by the admission of publications of this description to mail matter of the second class; that congress seriously considered these representations, and committees made voluminous report thereon, yet congress persistently refused to change by legislation the ruling of the postmasters general in that regard. * * *

"The action of the Government consists merely in the revocation of a certificate or license admitting these publications as mail matter of the second class. No vestedright having been created by such certificate, no contract can be said to be impaired by its revocation. Salt Co. v. EastSaginaw, 13 Wall. (U.S.) 373; Grand Lodge v. New Orleans,166 U.S. 143, 147 (17 Sup. Ct. 523). It was said, in that case, that the construction is one which, though inconsistent with the literalism of the act, certainly consorted with the equities of the case. Whereas, in the case under consideration, if we are to believe the statements of counsel, which are not denied, the carriage of these publications as second class mailmatter entails annually an enormous loss upon the Governmentand constitutes an odious discrimination between publishers ofbooks and publishers of the so-called periodicals.

"But in addition to these considerations it is well settled that it is only where the language of the statute is ambiguous and susceptible of two reasonable interpretations that weight is given to the doctrine of contemporaneous construction.United States v. Graham, 110 U.S. 219 (3 Sup. Ct. 582); UnitedStates v. Finnell, 185 U.S. 236 (22 Sup. Ct. 633). Contemporaneous construction is a rule of interpretation, but it is not an absolute one. It does not preclude an inquiry by the courts as to the original correctness of such construction. A custom of the department, however long continued by successive officers, must yield to the positive language of the statute. As was said in the Graham Case (p. 221), 'if there were ambiguity or doubt, then such a practice, begun so early and continued so long, would be in the highest degree persuasive, if not absolutely controlling, in its effect. But with language clear and precise and with its meaning evident there is no room for construction, and consequently no need of anything to give it aid. The cases to this effect are numerous. Edwards' Lessee v. Darby, 12 Wheat. (U.S.) 206; United States v. Temple, 105 U.S. 97; Swift Co. v.United States, 105 U.S. 691; Ruggles v. Illinois, 108 U.S. 526 (2 Sup. Ct. 832).' "

To the same effect are Whittemore v. People, 227 Ill. 453 (81 N.E. 427, 10 Ann. Cas. 44); United States v. Graham,110 U.S. 221 (3 Sup. Ct. 582); United States v. Tanner,147 U.S. 661 (13 Sup. Ct. 436); United States v. Tod, 297 Fed. 172;Chicago, etc., R. Co. v. United States, 242 U.S. 621 (37 Sup. Ct. 241); People v. Sergel, 269 Ill. 619 (110 N.E. 124); People v. Subway Co., 187 N.Y. 58 (79 N.E. 892); Hord v.State, 167 Ind. 622 (79 N.E. 916); State v. Brewer, 64 Ala. 287; 36 Cyc. p. 1139.

But we are not obliged to depend on foreign authorities to settle the question of estoppel. In the case of Lake Shore,etc., R. Co. v. People, 46 Mich. 193, the precise question here involved was raised in that case. The question of estoppel by practical construction was involved. It also involved the misconstruction of the taxing clause of the special charter by the auditor general as in this case. Mr. Otto Kirchner, who was attorney general at that time, argued that an estoppel does not operate against a sovereignty. The court said:

"The auditor general having assessed the company upon the reports made by it, for the several years covered by this action, and such assessments having been paid, it is claimed that in the absence of fraud by the company the action of the auditor was final.

"The auditor general is required to ascertain and estimate, from the annual report made by the company, the amount of the tax chargeable against it, and for this purpose he may require the company to make farther and additional reports. It is not claimed that there was any fraud practiced by the company, and the auditor general seems to have been satisfied with the annual reports as made, as he did not call for anything farther. An examination of one of the reports made, all being alike, shows that the company gave therein the aggregate amount upon which it claimed the State could fix it, but whether correct or not, or whether the company was not liable to pay a tax upon the items in controversy in this case the auditor general from the report could not determine. The company did not set up or present the facts in its report concerning these disputed items and leave it to the auditor general to exercise his judgment and make an assessment therefrom. Had the company done so and the auditor made his assessment therefrom, or had he called for further report, or in any way passed upon the facts and made an assessment accordingly, the question presented would have been very different. In this case the auditor general seems to have accepted the conclusion of the company as to the amount upon which it was liable to pay taxes, and having done so the amount of the tax was a matter of computation, a merely ministerial act. The only discretion or judgment he exercised, if any, was to not call for a farther report, but this was not a discretion or judgment passed upon any facts, but if anything, simply that he would not ask for or look into the facts at all. The law declared that the company should pay a certain tax upon its capital and loans actually employed in this State. From this the auditor general had no power to exempt or relieve the corporation, and if in making and filing its report the corporation did not set forth the correct amount, the neglect or failure of the auditor general to perform his duty would not operate as a payment or discharge to the company. The State ought not to be concluded by the mere nonaction of one of its officers. It is sufficient for the protection of all, to hold the State bound, where an officer ascertains the facts and passes judgment thereon. The company made out its report upon a mistaken basis, and if it thereby misled the auditor the State should not be the loser."

It would be difficult to find two cases more parallel on the material questions and, in my judgment, it should control the present one.

It may be well in this connection to consider the case ofPeople, ex rel. Attorney General, v. Railroad Co., 145 Mich. 140, about which so much has been said by defendant. At the time to which the issue in this case relates the Michigan Central Railroad Company was operating and paying taxes under its special charter. The legislature amended its charter authorizing the company to make loans and secure them for the purpose of building the part of the railway lying outside of the State. In making its annual reports it deducted that part of the capital employed in the road outside of the State. The position of the State was that the amendment became a part of the charter because accepted by the company and thereby bound it to pay taxes on that part of its capital. This was denied by the company and raised a serious legal question. It appeared that the reports making the deduction of the capital stock outside of Michigan were questioned by the auditors. One of the auditors was so much in doubt whether it should be deducted that he asked the opinion of the attorney general, and he decided the position of the company was the right one, that the capital employed in a foreign State was not taxable. The matter was afterwards called to the attention of Governor Bagley, and he in turn called it to the attention of the legislature, and it was also called to the attention of the Honorable John T. Rich, at that time railway commissioner, and afterward governor. Under these circumstances, the court held that the State was bound by the practical construction which the auditor general had given to it. In this case the auditor general examined the reports and exercised his discretion and estimated the tax. In the case before us it does not appear that any auditor general ever questioned a report. It was never referred to the attorney general, never was referred to the governor, nor to the legislature. In the Michigan Central Case the auditor exercised the discretion vested in him by the legislature. In the present case the auditor general never exercised the power vested in him, and never estimated the tax from the reports, he simply computed it. Herein lies the difference in these two cases. It is quite evident that the court, when writing the Michigan Central Case, recognized this distinction or else it would have expressly overruled the case of Lake Shore, etc., R. Co. v. People, supra.

The rules to be extracted from these authorities are:

(1) That a State cannot be estopped to exercise any of its attributes of sovereignty unless it can be shown that the legislature, for a consideration, has expressly surrendered it, and this must be done in clear and unmistakable language.

(2) The State is never estopped in the exercise of its sovereign right by the laches of its servants, nor by the ignorant, indifferent or recreant action of its public servants, however long such action may have continued.

(3) The State may be equitably estopped when acting in its proprietary capacity, and when interests have vested and justice demands it.

(4) The State cannot be estopped in the exercise of its sovereignty by the practical construction of a State department when the construction is clearly erroneous.

If we apply these rules, which are nowhere denied, to the present controversy, what becomes of defendant's contention that the State is estopped to put its construction into effect? It cannot be denied that the question before us is the exercise of a sovereign right or a governmental function. Justice FELLOWS stated in Union Steam Pump Sales Co. v. Secretary ofState, 216 Mich. 261, that the levying of taxes to meet the expenses of government is the highest prerogative of government, and the supreme court of Illinois agrees with this holding. State v. Railroad Co., 246 Ill. 188 (92 N.E. 814). If this be a sovereign right it must prevail unless it can be shown that the State has expressly surrendered it for a consideration. There is nothing in the record which shows any such express surrender, and I do not think there is any such claim.

There is no ambiguity in the taxing clause. It clearly provides for the payment of an annual tax of one per cent. on the "capital stock paid in." Even if the provision ended here it would not be ambiguous if the words "capital stock" were construed as taxing statutes are usually construed to mean all the property of the corporation.

But the provision does not stop here, it goes farther, and provides that "the said tax shall be estimated upon the last annual report of the company." This reference to the annual report made it a part of the contract. Upon what theory would the annual report have been required to disclose "the amount expended for the purchase of lands for the construction of the road, for buildings, for engines and cars respectively" except to enable the auditor to estimate what had been added during the year to the original capital account? There is no other apparent reason for compelling a report which would disclose the entire assets of the railway. The idea in requiring an annual report of all the items mentioned was to enable the auditor to have facts before him from which he could form some independent judgment of the annual additions, and not be obliged to rely wholly on the conclusions of the company. To a reasonably fair man, to an honest official who was anxious to discharge his public duty, there was no ambiguity, and if there were not, then there can be no practical construction now. It was simply a case where the plain letter of the law has been disregarded all these years, to the great detriment of the State's revenues.

There is no claim that the legislature ever expressly sanctioned defendant's construction. Indeed, there is no showing that the matter was ever called to the attention of the legislature, nor that it was ever called to the attention of the executive. The legislature placed a duty upon the auditor general to require annual reports, and specified what they should contain, and therefrom the auditor was required to estimate the tax. The records fail to show, so far as I have examined them, that he ever estimated the tax from a single report. The only thing he did was to compute the tax on the amount represented by the paper shares at one per cent. and receipt for the tax. If the auditors general and those charged with a similar duty have refused to obey the law and to exercise the discretion vested in them by the legislature, there can be no estoppel under any theory.Lake Shore, etc., R. Co. v. People, 46 Mich. 193. By invoking the rule that the State can never be estopped in the exercise of its sovereign power by the supineness and neglect of its unfaithful servants the whole contention of defendant must fail.

Under these rules of law there is no room for defendant's theory of estoppel by practical construction, and its contention is equally weak in the field of equity and justice. This company has accumulated something like $7,000,000 in capital investment since the consolidation in 1855. It has never paid any tax on this excess value, and defendant's counsel say that the excess would amount to $3,500,000. If the defendant has deprived Michigan and her public schools of $3,500,000, which it in justice and equity ought to have paid, how does that furnish any equitable or just basis for defendant to keep on withholding the excess for all the years to come? There is no showing by defendant that it has been deceived or misled to its prejudice by the State, nor that its conduct has been thereby influenced to its injury, and without this showing there can be no estoppel. Porter v. Goudzwaard, 162 Mich. 158,161; Detroit Savings Bank v. Loveland, 168 Mich. 163, 172. Instead of being the loser in the past defendant has been the gainer to the extent of $3,500,000. There is no showing that it will be prejudiced in the future by paying its taxes in accordance with its contract.

It is argued, however, that the defendant has borrowed money and issued mortgages against the property on the faith of this construction. If any mortgagee of the railroad property has had enough interest to inspect the taxing clause of the contract he has ascertained that defendant was required to pay taxes on all its capital assets at a very low annual fixed rate, and that its tax base must be estimated from its annual reports. There is certainly nothing in this contention which should earn the defendant the eternal privilege of going wrong in all the years to come because it has done so for fifty-five years.

The difference now between the two theories of arriving at the tax is approximately $75,000 a year. As the years go by this difference will increase. Because of the laxness of its officials the State is not insisting upon the payment of the $3,500,000, which the defendant has escaped and profited by in the years gone by. The question now is for the future. If we multiply the excess of $75,000 by all the years to come (because the franchise is perpetual) it produces a sum so amazingly large that it is difficult to comprehend it, and it resolves itself into a question whether this vast sum shall in the future be paid to the State of Michigan or be retained by our neighbor, the Dominion of Canada. The law, justice to every tax payer of Michigan, justice to the other railroads payingad valorem taxes with a rate two and one-half times greater, and exact justice to the Dominion of Canada all demand that defendant should in the future pay to the State the taxes agreed upon in its contract.

The judgment of the trial court should be reversed, and the prayer of the State's petition granted.