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grant of August 8, 1846; and therefore that the railroad took the title to them under the latter grant. This contention was denied, the court observing:

"It has been argued that these lands. had not been reserved by competent authority, and hence that the reservation was nugatory. As we have seen, they were reserved from sale for the specific purpose of aiding in the improvement of the Des Moines river, first by the secretary of the treasury, when the land department was under his supervision and control, and again by the secretary of the interior, after the establishment of this department, to which the duties were assigned, and afterwards continued by this department, under instructions from the president and cabinet. Besides, if this power was not competent, which we think it was ever since the establishment of the land department, and which has been exercised down to the present time, the grant of 8th August, 1846, carried along with it, by necessary implication, not only the power, but the duty, of the land office to reserve from sale the lands embraced in the grant. Otherwise, its object might be utterly defeated."

So the acts of 1856 and 1864, by necessary implication, carried not only the power, but the duty, of the land department, to reserve for the benefit of the Omaha Company the lands necessary to satisfy the grant made to it. In the case of Kansas Pac. Ry. Co. v. Dunmeyer, 113 U. S. 629, 5 Sup. Ct. 566, it was held that, where a homestead right had attached to a tract after the grant, and before the time of definite location of a railroad company's line, which homestead was afterwards abandoned, the tract was simply restored to the public domain, and did not pass to the railroad company under its grant; that the grant only attached to lands which were the subject of the grant at the time of definite location; and that the company had no interest in the question as to what afterwards became of a tract which was not public land at the time the grant became fixed. On page 644, 113 U. S., and page 566, 5 Sup. Ct., Mr. Justice Miller, in delivering the opinion of the court observed:

"The right of the homestead having attached to the land, it was excepted out of the grant as much as if, in a deed, it had been excluded from the conveyance by metes and bounds."

This doctrine was affirmed in Railroad Co. v. Whitney, 132 U. S. 357, 10 Sup. Ct. 112; Land Co. v. Griffey, 143 U. S. 32, 12 Sup. Ct. 362; Bardon v. Railroad Co., 145 U. S. 535, 12 Sup. Ct. 856. The supreme court has decided, in many cases, that the withdrawal by the land department operated to exclude from sale, purchase, or pre-emption all lands embraced in such withdrawal or reservation, and that it also operated to exclude from the grant to a railroad company all lands so withdrawn or reserved, for any public purpose or use, at the time of the definite location of its line. Bullard v. Railroad Co., 122 U. S. 167, 7 Sup. Ct. 1149; U. S. v. Des Moines Nav. & Ry. Co., 142 U. S. 510, 12 Sup. Ct. 308. In the case last cited it is said:

"The validity of this reservation was sustained in the case of Wolcott v. Des Moines Co., 5 Wall. 681. In that case it was held that, even in the absence of a command to that effect in the statute, it was the duty of the officers of the land department, immediately upon a grant being made by congress, to reserve from settlement and sale lands within the grant; and that, if there was dispute as to its extent, it was the duty to reserve all lands which,

upon either construction, might become necessary to make good the purposes of the grant. This ruling as to the power and duty of the officers of the land department has been followed in many cases."

In the case of Hamblin v. Land Co., 147 U. S. 531, 536, 13 Sup. Ct. 353, it is said:

"A reservation by the interior department, it is well settled, operates to withdraw the land from entry under the pre-emption or homestead laws;" citing Wolcott v. Des Moines Co., 5 Wall. 681; Wolsey v. Chapman, 101 U. S. 755; Bullard v. Railroad Co., 122 U. S. 167, 7 Sup. Ct. 1149; U. S. v. Des Moines Nav. & Ry. Co., 142 U. S. 510, 12 Sup. Ct. 308.

These cases, and others to the same effect, establish the principle that the land department is invested with authority to withdraw or reserve public lands from sale, entry, or grant for the purpose of devoting them to some public purpose or use, in pursuance of an act of congress; and that the withdrawal of such lands at any time before the title to the lands attach, under a grant, by the definite location of a railroad line, excludes them from the mass of public lands upon which a legislative grant will operate. The reason is obvious. Otherwise a later grant might operate to defeat or impair the effect of a prior grant. Whenever congress makes a grant of public land in aid of a public improvement, it is not to be supposed that it was within the legislative intent to defeat or impair the full effect of the prior grant, unless such purpose is manifested in plain and unambiguous terms. When public lands have been segregated from the common mass by an act of congress, or by an order of the land department withdrawing them from entry or sale, for the accomplishment of some specific public purpose, it has never been held that such lands were embraced within the operation of a grant in aid of the construction of a railroad, should the order of withdrawal afterwards from any cause be revoked. Lands so reserved or withdrawn at the time of the definite location of a railroad line are not embraced within the terms of the grant. The grant, though made prior to the reservation, does not attach to lands withdrawn to satisfy an earlier grant, for the reason that they are excluded therefrom by the clear and explicit language of the act of congress.

It is argued that the fundamental error in the decision of the court below is in overlooking the fact that the earlier grant to the Omaha Company passed no title to, and made no grant of, the indemnity lands. It is true that no title to the indemnity lands could vest in the Omaha Company until such lands were located and selected, and such location and selection had been approved by the land department. But the earlier grant, while conveying no title to the indemnity lands, operated as a covenant or promise by the government to convey those lands, which bound it in good faith to do no act which would defeat or impair such covenant or promise. So far as the Pacific Company is concerned, it has no just ground of complaint; for, in reserving these lands for the benefit of the earlier grant, the land department has simply done what the plighted faith of the government required it to do. While the right to these indemnity lands rested in covenant or contract, it


imposed on the government a strong moral obligation to cause such acts to be done as would protect the just expectations of the Omaha Company from disappointment. And although the grant to the Pacific Company was one operating in praesenti, still its title did not, and by the express terms of the statute could not, attach to any specific lands, until the line of its definite location was fixed,and then only to public lands, not reserved or otherwise appropriated. The lands in controversy, at the time of the definite location of its line, were reserved by competent authority, for the benefit of an earlier grant, and hence were not embraced within the operation of the grant to the Pacific Company. We have carefully examined all the authorities cited by counsel for the appellants, and find nothing in conflict with the views here expressed. The conclusion reached makes it unnecessary to consider the other questions presented. There is no error in the decree, and it will be affirmed, at the cost of the appellants.

WALTERS et al. v. WESTERN & A. R. CO. (STEWART, Intervener). (Circuit Court, N. D. Georgia. June 1, 1895.)


No. 358.

The state of Georgia, being the owner of a railroad, leased the same to certain persons who were formed into a body corporate and granted immunity from taxation upon the property used for railroad purposes, except as to a tax of one-half of 1 per cent. on their net income. Upon the expiration of the lease, when the property was about to be surrendered back to the state, the assets of the company were placed in the hands of receivers, to wind up its affairs, who thereafter received and held considerable amounts of money and other property. Held, that the immunity from taxation ceased with the termination of the lease and expiration of the charter, and that the property in the receivers' hands was subject to taxation.


Held, further, that, as the receivers had made no return of the property in their hands, the taxing officers would not be held barred from enforcing their claim because it was not presented within a period fixed by the court for the presentation of claims against the receivers; but, as they had made no application for the payment of the tax, they would not be permitted to exact a penalty for delay in payment.

This was an intervening petition, filed by A. P. Stewart on behalf of the state of Georgia and county of Fulton, and by the city of Atlanta, in the cause of William T. Walters against the Western & Atlantic Railroad Company, to enforce the payment of certain taxes by the receivers appointed in that cause. The receivers demurred to the petition.

A. P. Stewart and L. S. Rosser, for intervener.
Anderson & Colville, for city of Atlanta.

Payne & Tye, for defendant.

NEWMAN, District Judge. Taxation is the rule, and immunity from taxation is the exception. It is governmental policy that all

property should bear its just proportion of the public burden. Acts of the legislature exempting property from taxation are strictly construed, as to the extent of the exemption, in favor of the government and against the exemption. The fact that property is in the hands of a receiver of a court does not exempt it from taxation. The foregoing well-recognized and fundamental rules are stated for the purpose of applying them to the following state of facts: The state of Georgia is the owner of the Western & Atlantic Railroad, a line of road extending from Atlanta to Chattanooga, Tenn. On the 24th day of October, 1870, the legislature of the state passed an act for the lease of this road, and providing for the incorporation of the lessees as a body politic, and granting them certain immunities and exemptions, among which were, as construed by the supreme court of the state, exemption from taxation, except as to a tax of one-half of 1 per cent. on their net income; the exemption to be confined, however, to property used for railroad purposes. The lease in pursuance of this act was executed on the 27th day of December, 1870, the lessees becoming a body corporate by the provisions of the act referred to, under the name of the Western & Atlantic Railroad Company. The road was operated by that company during the lease which, having expired on the 27th day of December, 1890, and the property about to be surrendered back to the state, on the application to this court, by certain shareholders, the assets of the company were placed in the hands of receivers, who were to hold such assets and wind up the affairs of the company for the benefit of the creditors and shareholders. The receivers have had in their hands considerable funds from time to time, but have not returned the same for taxation to the state, county, or city of Atlanta, in which city the office of the receivers is, and where the principal office of the Western & Atlantic Railroad Company was.located. The state, county of Fulton, and city of Atlanta now bring their petition in this court and ask to be allowed to intervene in the equity cause to have the amount of the taxes due on the funds in the hands of the receivers ascertained, and pray an order requiring the receivers to pay the same. To this application demurrers have been filed by the receivers, and the question before the court is on these demurrers. The matter for determination is the liability of this property for taxes. The question raised by the demurrers, simply stated, is that, the Western & Atlantic Railroad Company having been exempt from taxation except on its net income, and there having been no net income since the expiration of the lease and its charter, these assets are not subject to taxation at all. It is urged that the state, having invited these lessees to take its property in charge and operate it, and having granted certain immunities in connection with the contract of lease, will not now be allowed, before this fund resulting from its operation can go into the hands of the shareholders, to subject it to taxation. The same contention applies, of course, to the county and city as subordinate to the state. Applying the well-settled rule that exemptions from taxation are strictly construed against the exemption, it is clear that the immunity granted in this instance ceased with the termination of the lease and the expiration of the charter. It would not be ex

tended beyond its necessary terms. It is said, however, that where the state undertakes to enter into a contract in reference to property it descends from its position as a sovereign, and must be treated as an individual entering into a contract. The authorities cited in support of this view refer to exemptions granted where benefits are received by the state as consideration for the exemption. The lease of the Western & Atlantic Railroad Company was for what must have been treated as a fair rental value of the property, and the exemption from taxation was the same as that granted to the Central Railroad, the Georgia Railroad & Banking Company, and the Macon & Western Railroad, and simply places it on the same footing with other railroads in the state. The legislature does not seem to have intended to do more than to treat it like other railroad corporations. The lease of the property by the state as the owner thereof, and the terms and conditions of the same, was one thing, and as to that, doubtless, the state's act and its contract would be considered as that of an individual. The exemption from taxation, however, was not the act of the state in its capacity as owner of the property, but in its capacity as a sovereign, and no good reason is perceived, under the facts of this case, why the exemption should have a different construction than that of any other tax exemption. Especially is this true when the extent of the exemption was the same as that allowed to several other railroad corporations. Construed in this way, it appears that the period for which the exemption was granted is ended. There is no net income so that the tax of one-half of 1 per cent. can be collected from that source, and no good reason is perceived why the property is not subject to taxation like any other property in the state. Certain statutes of the state, as contained in the Code of Georgia, have been cited in argument. Section 799 is as follows:

“All real and personal estate, whether owned by individuals or corporations, resident or nonresident, are liable to taxation, unless specially exempted."

Section 803 is in this language:

"Lands or other property belonging to citizens of the United States non resident of this state, can not be taxed higher than the property of residents, but all the property of such non residents, whether their property be real or personal, in this state, must pay taxes on the same herein."

This property, if it is subject to taxation at all, must be taxed as a lump sum in the hands of the receivers. It is not a question, such as has been argued, of the taxation of intangible shares in a corporation at the residence of the stockholder, but the question in issue, according to these petitions, is of the taxation of material, visible property. It is, to a large extent, actual money, as alleged, held by the receivers in the state, county, and city claiming the tax. It is not different from any other property in the hands of receivers of court, which all the authorities agree is subject to taxation in the locality where it is held by these officers of court. In my opinion, these receivers should have returned this property for taxation to the state, county, and city; and, having failed to do so, the court will require them to pay such amount as should have

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