4.3.5 Mountain South (1861-1877): Entering the Industrial Age


Corporate Regulation in the Mountain South

State ex rel. Missouri & Mississippi River Railroad Co. v. Macon County Court – Missouri, 1867 (41 Mo. 453); Shelby County Court v. Cumberland & Ohio Railroad Co. – Kentucky, 1871 (71 Ky. 209); Mercer County Court v. Kentucky River Navigation Co. – Kentucky, 1871 (71 Ky. 300); Osage Valley & Southern Kansas Railroad Co. v. County Court of Morgan County – Missouri, 1873 (54 Mo. 156); Knoxville & Ohio Railroad Co. v. Hicks – Tennessee, 1877 (68 Tenn. 442)

  • Before the war, mountain South states embraced government subsidy of railroads.  The debt crisis triggered by railroad failures during the 1837-40 and 1857-58 depressions (see §§ ___) touched them more lightly than other states.  They resumed railroad subsidies shortly after the war, but corruption and railroad failures soon produced a reaction:  most mountain South states prohibited further state aid in the late 1860s, although they were more liberal toward local aid. 
  • When mountain South legislatures tried to cut back railroad subsidies and impose new taxes on existing railroads, the roads used the Dartmouth College doctrine (§ ___) to fight back, arguing that their corporate charters constituted a bargain with the states which the states could not alter with new restrictions on subsidies.  Most states countered by enacting anti-Dartmouth laws providing that all corporate charters would be subject to future changes in state law.   Many courts, such as Kentucky’s supreme court in Shelby County and Tennessee’s court in Hicks, sided with the railroads but made clear, based on the new laws, that all state laws would apply to corporations chartered in future. 
  • Following a rash of railroad failures the late 1860s, many mountain South municipalities (like their counterparts in parts of the Midwest, § ___) tried to escape their obligations to pay subsidies by arguing that they had lacked constitutional authority to take on such obligations.  But in cases such as Macon County, Mercer County and Hicks, mountain South courts rejected this argument and held that once they committed to aid a railroad, under the Dartmouth rule their obligation became absolute.       


“It is difficult to perceive how [local railroad aid] can be [a public purpose] with reference to the establishment of an ordinary private corporation, however great may be its influence for enhancing the property of the wealthy, or stimulating or promoting any particular private business or pursuit.”  - Justice Mordecai Hardin (dissenting), in Mercer County


“If [the Dartmouth College rule] was a new question, it would deserve the most serious consideration, and courts would now doubtless hesitate long before establishing it. …. The necessities for revenue now demand contribution from every available source.  The property of some of these roads is valuable and exemptions are now odious.”  - Justice Robert McFarland, in Hicks 


 

West Virginia

Kentucky

Tennessee

Missouri

Arkansas

State and local subsidy of railroads

1863:  State aid prohibited by constitution

1868:  Local aid authorized

1869:  State aid prohibited

1871: Municipalities may aid railroads only if ¾ of voters approve; debt limited to 10% of total property value

1868: Municipalities may aid railroads only if 2/3 of voters approve

1871: debt limited to 10% of total property value

1866:  Laws authorizing state aid

1868:  State aid prohibited by constitution; local aid authorized

Regulation of railroad rates

1866

1871

1871

1863

1873

Transition to general incorporation laws

1872

1854

1873

1863

1868


File:Anheuser-Busch Brewery, Broadway & Pestalozzi , Saint Louis (St. Louis City County, Missouri).jpg

Anheuser-Busch Brewery, St. Louis, Missouri - courtesy American Historic Buildings Survey and Wikimedia Commons

“Whatever doubts may have existed, or might now be entertained, as to the constitutional validity of … municipal subscriptions for stock in railroads affording peculiar local benefits  … such subscriptions …. may now be regarded as of unquestionable constitutionality, in view of the numerous and uniform decisions of this court sustaining them.”  - Justice __, in Shelby County


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