The court of errors and appeals of New Jersey sustained a tax for the year 1906, levied by the state board of assessors, under the railroad and canal tax act of 1884 and supplements thereto, upon the canal and appurtenances leased by the Morris Canal & Banking Company to the Lehigh Valley Railroad. 76 N. J. L. 627, 71 Atl. 328. Plaintiffs in error claim the charter of the lessor company exempts the assessed property from taxation, and to subject it to the charge in question would impair the obligation of that contract contrary to the provisions of article I., § 10, Federal Constitution.
The Morris Canal & Banking Company was incorporated by a special act of the New Jersey legislature, passed in 1824, for the purpose of constructing a canal across the state. This statute expressly declared that 'said canal when completed shall forever thereafter be esteemed a public highway,' gave the state the right to purchase it after ninety-nine years at a fair valuation, and specified that it should become the sole property of the state after one hundred and forty-nine years; but no power was granted the corporation either to sell or lease its works. Section 4 provides:
'No state, county, township, or other public assessments, taxes or charges whatsoever shall at any time be laid or imposed upon the said canal company, or upon the stocks and estates which may become vested in them under this act; but this exemption shall not extend to any other estate or property of the company than such as is possessed, occupied and used by the said company for the actual and necessary purposes of said canal navigation under this act, according to the true intent and meaning thereof; . . .'
An act approved March 14, 1871, amended the original charter as follows:
'It shall and may be lawful for the Morris Canal & Banking Company, by and with the consent of a majority in interest of the stockholders of the said company, expressed in writing and duly authenticated by affidavit, and filed in the office of the secretary of state, to lease the canal of said company, or any part thereof, with all or any of its boats, property, works, appurtenances and franchises, to any person or persons, or corporation, either perpetually or for such shorter time, and upon such rents and agreements, as may be agreed upon between the said contracting parties, and it shall be lawful for the lessee or lessees in said lease to use and enjoy the said property and franchises so demised, for the term in said lease mentioned.'
By indenture dated May 4, 1871, the canal company undertook to let and demise to the Lehigh Valley Railroad its entire canal and navigation works, together with all corporate franchises, rights and privileges, other than that of being a corporation, to have and to hold unto the lessee, its successors and assigns, perpetually. (The words 'rights and privileges' are not contained in the amendment to the charter.) Likewise it bargained and sold to the railroad all of its cars, trucks, boats, etc., and movable property of every kind and description except certain records and specified articles.
Admitting that the provision in the charter of 1824, granting exemption from taxation, constituted a valid contract which subsequent legislation could not impair, the state maintains that it ceased to apply after the lease and sale to the railroad, and the property in question then became subject to assessment.
The doctrine essential to the solution of the question in issue was lucidly stated and the pertinent authorities cited in Rochester R. Co. v. Rochester, 205 U.S. 236, 51 L. ed. 784, 27 Sup. Ct. Rep. 469, Mr. Justice Moody delivering the opinion. Speaking in respect of the transfer of an immunity from the exercise of governmental power granted by contract, he declared (p. 247):