of examiners for the assessment of taxes on railroads, and the other as comptroller of the state of Tennessee, to obtain an injunction restraining those officers from levying and collecting taxes assessed upon the property of the railroad company for the years 1891 and 1892, from which taxes it claimed to be exempt by reason of an immunity granted by the state to the Knoxville & Kentucky Railroad Company, and transferred to the complainant upon the purchase by it of the franchises and property of said last-named company. The bill was amended by leave of the court on the 22d day of December, 1893. The defendants answered, admitting their purpose to levy and collect the taxes in question, and justifying their action by the provisions of the constitution of the state of Tennessee of 1870, and of the statutes of that state in regard to the assessment and collection of taxes; and they denied the exemption relied upon by the complainant. An amended answer was subsequently filed.

The facts are not much in dispute, and they are as follows: By an act of its legislature, passed February 11, 1852 (Acts 1851-52, p. 204), the state of Tennessee established a scheme of internal improvements, and provided for the loan of the bonds of the state to railroad companies to aid them in the construction of their roads. To secure the repayment of the sums so loaned to the several companies, the state was declares, by section 4 of the act, to be invested with a lien upon the road, including the stock, right of way, the structures thereon, and equipments, and all the property owned by the company as incident to or necessary for its business. The Knoxville & Kentucky Railroad Company was one of the companies thus aided. By an act of the legislature passed February 25, 1856, that company was authorized to build a railroad from Knoxville, Tenn., to the Kentucky line in the direction of Louisville or Cincinnati; and by the thirty-third section of the act it was provided: "That the capital stock in the said company, the dividends thereon, and the road and fixtures, depots, workshops, warehouses, and vehicles of transportation, belonging to said company, shall be forever exempt from taxation; and it shall not be lawful for the state, or any corporate or municipal, police, or other authority thereof, or of any town, city, county, or district thereof, to impose any tax upon such stock or dividends, property or estate; provided, the stock or dividends, when the said dividends shall exceed the legal rate of interest of the state, may be subject to taxation by the state in common with and at the same rate as money at interest; but no tax shall be imposed so as to reduce the part of the dividends to be received by the stockholders below the legal interest of the state." The amount loaned by the state to this company was $2,816,176. The several railroad companies to whom the state had loaned its bonds under the act of 1852 being delinquent in payment, the legislature of Tennessee, by an act passed July 1, 1870, after reciting the statutes which it was supposed authorized such action, appointed commissioners to sell the interest of the state in the defaulting railroad companies, and authorized them to put the purchaser in possession of the roads. It was further provided, in the act, that in the event that the commissioners should be unable to sell the "defaulting roads" for the amounts due from them, respectively, they take sealed bids therefor, and report them to the legislature, with such recommendations as they should deem best for the interest of the state. Acts 1870, p. 126. This scheme proved unsuccessful; and the legislature, on December 21, 1870, passed a further act, reciting that difficulty had been encountered in making sales under the act of July 1, 1870, on account of various legal questions which had arisen, and providing for a judicial proceeding for the determination of all legal questions affecting the subject, and for the sale of the roads under the direction of the court. Acts 1870-71, p. 25. The preamble and the first and tenth sections of this act were as follows:

"Whereas, in the recent attempts to sell the state's interest in said roads, various legal questions arose, presenting serious obstacles to a sale under the act of 1870, which it is deemed expedient and necessary to obviate before the interest of the state, in said roads shall be again offered for sale; and whereas by the act of 1852, (Chapt. 151) Sec. 12, the right is expressly reserved to the state to enact all such laws in the future as should be deemed necessary to protect the interest of the state, and to secure the state against any

loss in consequence of the issuance of bonds under the provisions of said act, in such a manner as not to impair the vested rights of stockholders of the companies; therefore,

"Be it enacted by the general assembly of the state of Tennessee, that a bill shall be immediately filed in the chancery court at Nashville, in the name and behalf of the state, to which all the delinquent companies, the respective stockholders, holders of the bonds, creditors, and all persons interested in the said several roads, shall be made parties defendants, and shall be brought before the court in the mode prescribed by the rules of practice in chancery established in the state, except as otherwise herein provided. And said court is hereby invested with the exclusive jurisdiction to hear, adjudicate and determine all questions of law and matters of controversy of whatever nature, whether of law or of fact that have arisen or may arise touching the rights and interest of the state, and also of the stockholders, bondholders, creditors and others in said roads; and to make all such rules, orders and decrees interlocutory and final, as may be deemed necessary in order to a final and proper adjustment of the rights of all the parties, preliminary to a sale of the interest of the state in said roads. Also to declare the exact amount of indebtedness of each of said companies to the state; and likewise to define, as may be thought proper, what shall be the rights, duties and liabilities of a purchaser of the state's interest in said roads, or either of them, and what shall be the reserved rights of said companies, stockholders and others, respectively, as against said purchasers after such sale, under the existing laws of the state."

"Sec. 10. That upon the sale of any of the franchises of either of the railroad companies by the commissioners under the provisions of this act, all the rights, privileges and immunities appertaining to the franchise so sold, under its act of incorporation and the amendments thereto, and the general improvement law of the state, and acts amendatory thereof, shall be transferred to and vest in said purchaser, and the purchaser shall hold said franchise subject to all liens and liabilities in favor of the state as now provided by law against the railroad companies."

A supplemental act was passed January 26, 1871 (Acts Tenn. 1870-71, p. 75), providing "that, whenever any person or persons shall hereafter become purchasers of any of the existing railroads on which the state has a lien, or is in any way interested, that may be sold under the laws of the state as they are now or may hereafter be enacted, said person or persons so purchasing may file their petition in the chancery court of either of the counties through which said railroad runs, asking to be substituted to all the rights, privileges and immunities, and subject to all the liabilities of the act of incorporation, under which said railroad company was organized, and amendatory thereof, and for such a change of name or privilege as they may desire; and upon satisfactory evidence being produced of the fact of the purchase and the propriety of the changes proposed, then the chancellor may so adjudicate and decree; and the purchaser or purchasers will be thereby fully clothed with the powers, privileges and immunities of the original act of incorporation, and acts amendatory thereof, and subject to all the liens and liabilities thereby created or incurred."

*

Previous to the enactment of these last-mentioned statutes, and on March 26, 1870, a new constitution was adopted in Tennessee. It contained, among other provisions, the following: Article 2, § 28: “All property, real, personal or mixed, shall be taxed. All property shall be taxed according to its value, that value to be ascertained in such manner as the legislature shall direct, so that taxes shall be equal and uniform throughout the state." Article 11, § 8: "No corporation shall be created, or its powers increased or diminished, by special laws; but the general assembly shall provide, by general laws, for the organization of all corporations hereafter created, which laws may at any time be altered or repealed; and no such alteration or repeal shall interfere with, or divest rights which have become vested.”

On January 20, 1871, pursuant to the act of the legislature of December 21, 1870, a bill was filed in the chancery court at Nashville, in the name and on behalf of the state, making the Edgefield & Kentucky Railroad Company and the other delinquent railroad companies, and other parties having interests involved, defendants, to carry into effect the objects contemplated by the act.

After reciting the acts of February 11, 1852, and amendatory acts, and the loans to the several railroad companies, it asserted a lien in behalf of the state upon the "entire road of the said several companies, including their stock, right of way, grading, bridges, masonry, iron rails, spikes, chairs, and the whole superstructure and equipment, and all the property owned by the companies, and necessary for the business, and all the depots, stations, its franchises, and property," as security for the loans made by the state, that it had a right to demand a sale thereof, and prayed that the "roads, with all their property, franchises, and rights," be sold. It further prayed that the court "would make all such rules, orders, and decrees, interlocutory and final, as may be deemed necessary, in order to a final and proper adjustment of the rights of all the parties, preliminary to a sale of the interest of your orator in said roads," and should "define, as may be thought proper, what may be the duties, rights, and liabilities of a purchaser of the state's interest in said roads, or either of them." Jurisdiction having been duly obtained, and the case being ready therefor, the court, on the 6th day of July, 1871, made and entered in the case an interlocutory decree determining the rights of the parties and of purchasers in regard to the roads, and what were the incidents of the things to be sold. It determined, among other things, that "upon a sale of any of the franchises of either of said railroad companies by the commissioners, under the decrees in this cause and the provisions of said act of the 21st of December, 1870, all the rights, privileges, and immunities appertaining to the franchise so sold, under its acts of incorporation and the amendments thereto, and the general improvement law of the state and the acts amendatory thereof, shall be transferred to and vested in such pur-· chaser," and it was adjudged and decreed accordingly. Pursuant to the decrees of the court, the roads were sold, among them that of the Knoxville & Kentucky Railroad Company. The purchaser of this last-named company, one W. B. Johnston, having offered therefor, for himself and his associates, the sum of $350,000, their bid was accepted by the commissioners, and the sale reported to the court. The sale was confirmed October 30, 1871, and in its decree of confirmation the court declared that the rights of the purchasers under the sale should be those defined and decreed by the court on the 6th day of July, 1871; and the case was "retained for the purpose of any further orders or decrees necessary to protect and effectuate the rights of the purchasers, or of the state."

Subsequently the purchasers filed a petition in the chancery court of Knox county, under the provisions of the act of January 26, 1871, above recited, and were decreed by that court to be substituted to all of the rights, privileges, and immunities of the act of incorporation under which the Knoxville & Kentucky Railroad Company was organized, and the acts amendatory thereof, and clothed with all the powers, privileges, and immunities of said acts, and the name of the company was changed from the "Knoxville & Kentucky Railroad Company" to the "Knoxville & Ohio Railroad Company." This being done, they filed their petition in the original suit at Nashville, and obtained a decree vesting in the new company "all rights, franchises, privileges, and immunities appertaining and legally incident to the Knoxville & Kentucky Railroad Company, as defined by the former decrees of this court and the laws of the state."

The defendants, who constituted the board of examiners for the assessment of taxes against the railroads, acting under the authority of certain statutes of Tennessee, which, they claim, authorize and require it, assessed the property of complainant, the Knoxville & Ohio Railroad Company, for taxation, for the years 1891 and 1892, at the sum of $806,850. Other incidental facts are referred to in the opinion.

The circuit court sustained the complainant's claim of exemption, and decreed accordingly. The defendants have appealed.

G. W. Pickle, Atty. Gen., and Vertrees & Vertrees, for appellants. Henderson, Jourolmon & Welcker and Lucky & Sanford, for appellee.

Before TAFT, Circuit Judge, and HAMMOND, J., and SEVERENS, District Judge.

SEVERENS, District Judge, having stated the case as above, delivered the opinion of the court.

The public transactions out of which the present controversy arises have been the subject of considerable litigation in the courts of Tennessee, and on several occasions have been under review in the federal courts, and we have had the aid of the discussions which have taken place in those cases in reaching our present conclusions. An extended argument was made by counsel for the state, in their original brief and at the hearing, upon an analysis of the thirtythird section of the act of February 25, 1856, to prove that, inasmuch as, by the language of the act, exemption from taxation was accorded only to "the capital stock in said company, the dividends thereon, and the road and fixtures, depots, workshops, warehouses, and vehicles of transportation belonging to the company," its franchises were not included, and remained a distinct species of property of the corporation subject to taxation. This contention constitutes the premise from which the deduction is made that the immunity from taxation which is claimed by the appellee to have been acquired through the sale under the decrees of the chancery court at Nashville was not an incident of the franchises of the Knoxville & Kentucky Railroad Company, but was an incident of the particular kinds of property expressly enumerated in the language of the section creating the exemption. And upon the assumption of the further proposition, that the only immunity mentioned in the operative parts of the decrees was one which was incident to the franchises of the original corporation, the conclusion is reached that no immunity of any kind was acquired by the purchasers at the gale. If the first of these propositions were now for the first time submitted, unaffected by what has since transpired, it seems clear that we should be bound to give it our assent by the rule, now well established, that exemption from taxation can only be sup ported upon clear and unequivocal language in the law supposed to grant it.

But it must also be admitted that it is very probable that, at the time when this statute was passed, both the state and the railroad company supposed the exemption extended to every species of rights possessed by the corporation, whether of franchises, privileges, or tangible property. The state forebore for a long series of years, and during the whole period of the existence of the Knoxville & Kentucky Railroad Company, to impose any taxes upon the company. The legislature no doubt indicated the public understanding when, in the act of December 21, 1870, by the tenth section, it declared that "all the rights, privileges, and immunities appertaining to the franchise so sold" should pass to the purchaser; for, confessedly, there was no other immunity than the exemption of taxation enjoyed by the railroads. Besides, the exemption of the capital stock and the dividends thereon, by the statute of 1856, was, as we are inclined to think is rightly contended by counsel for the state, an exemption of them as held and owned by the shareholders, and inured directly to their benefit. We do not say that there was

no room for contending that the exemption also extended to the property of the company in the capital stock. It may have been intended to cover the stock in both its aspects. The franchises of the corporation enter into the shares as an element of their value in the hands of the shareholders, and thus a tax upon the franchises comes in the end to be a burden on the stock. The statute itself was not drawn with that precision of language which distinguishes the brief of learned counsel; and the lines of demarkation in the species of corporate property and the rules applicable to the exemp tion of property from taxation were not then quite so distinct as the discussions of recent years have rendered them. We concede that these considerations would not prevail against the strict rule of construction above referred to; but they sufficiently show that, at the date of the act of December 21, 1870, and of the proceedings in the chancery court thereby authorized, there was a question which touched the substance of the property to be sold, and materially af fected its value. It was a proper and competent subject for judicial inquiry and determination.

Another judicial question was whether, under the constitution of the state, adopted in 1870, the immunity was transferable to the purchaser. There is and was at least plausible ground for believ ing that it was. And the case of Railroad Co. v. Parcher, 14 Minn. 297 (Gil. 224), cited by the appellee, lends confirmation to the view that such provisions as are contained in the Tennessee constitution of 1870 were aimed at the creation of new exemptions rather than the transmission of those already existing, and which the constitution itself could not annul and did not attempt to. A like distinction was also taken in Railroad Co. v. Pickerd, 24 Fed. 614. Counsel for the appellants refer to the case of City of Memphis v. Memphis City Bank, 91 Tenn. 575, 19 S. W. 1045, as establishing a different doctrine. We do not understand that to be the effect of the decision in that case. There a corporation had been chartered, with the proper franchises, for conducting an insurance business, and an exemption from taxation of its property accorded to it. This was prior to the adoption of the constitution of 1870. In 1881 an act was passed authorizing such corporations to engage in banking, and conferring new franchises appropriate to that business; and the same act attempted to transfer to such new franchise the exemp tion which appertained to the old. Manifestly, this was a mere evasion. The court held that it could not be done. To have held otherwise would have admitted the power of the legislature to have vested the various corporations of the state, chartered for specific purposes, with new franchises adapted to any purpose, and to have transferred the exemptions to such new franchises and business. But this may be quite another thing from the transmission of old franchises and properties, to which, by the existing law, an exemp tion is incident, whereby there is no enlargement of privileges to the injury of the state. We are not required, however, to pass upon this question, and we express no opinion upon it. It is sufficient to say that it existed and entered into the value of the property of the