Shelby County v. Union & Planters' Bank

delivered the opinion of the court.

This is an appeal from the decree of the Circuit Court of the United States for the Western District of Tennessee, granting an injunction at the suit of the Union & Planters’ Bank to restrain the municipal authorities from collecting any tax laid upon the surplus of the bank, on the.ground that such surplus is exempt under a clause in the charter of the bank similar to the one discussed in the above cases of the Bank of Commerce, ante, 134. The Circuit Court granted the injunction and permanently enjoined the municipal authorities from the collection of the tax. They have appealed to this court.

There are two grounds, either of which, if decided in favor of appellants in this case, would, result in upholding the validity of the tax upon the surplus: First, if it should be held that by the true interpretation of the charter the exemption, while applying to the shares of stock in the hands of the shareholders, does not extend to the corporation itself, the tax would be valid; second, even if the tax on the capital stock were void, that upon the surplus might still be upheld on the authority of the case of the Bank of Commerce, ante, 134. We have already held in that case that a tax on the surplus was valid, but the question whether a tax on the capital stock of the bank was valid could not be raised there, because the case was before us on a writ of error taken to a state court, and the question in the state court was decided in favor of the exemption claimed by the bank. This being an appeal from

Yarious decisions of the courts of Tennessee have been cited by counsel on both sides as to the meaning of the exemption clause, whether or not it covered the capital stock and the shares also. Generally, the courts of that State held before the decision by this court of the' Farrington case, that the charter tax was laid upon the corporáte capital stock, and' the exemption was of that stock from any further tax. Subsequently to the decision in that case the state courts have held that under the construction given to the clause in the Farrington case and in Bank v. Tennessee, 104 U. S. 493 , the tax was on the shares, and the exemption covered both the capital stock and the shares thereof. The decision giving exemption to both classes of property was adjudged alone upon the authority cited. In such a case as this, where we aré to construe the meaning of the clause of the statute as to what contract is contained therein, and whether the State has passed any law impairing its obligation, we are not bound by the previous decisions of the state courts, except when they have been so long and so firmly established as to constitute a rule of property, (which is not the case here,) and we decide for ourselves independently of the decisions of the state courts, whether there is a contract and whether its obligation is impaired. Louisville & Nashville Railroad v. Palmes, 109 U. S. 244 , 256; Vicksburg &c. Railroad v. Dennis, 116 U. S. 665 -667; Mobile & Ohio Railroad v. Tennessee, 153 U. S. 486 , 492.

While according to the decisions of the Supreme Court of Tennessee the respect which is most justly due them on account of the high character of that tribunal, nevertheless the responsibility is upon us to determine the question independently, and we cannot agree with that court in its construction of the decisions of this court in the two cases mentioned. Indeed, one of the judges of the state court said in the course of an opinion, Memphis v. Union & Planters’ Bank, 7 Pickle, 546 , 553, that since the Farrington case the court had recog

We stated in the Bank of Commerce case, ante, 134, that the tax proyided in this charter is laid upon the shares of stock in the hands of the shareholders, and they are exempt from any further taxation on account of their ownership of such shares. In that respect .we followed the case of Farrington v. Tennes see, 95 U. S. 679 , and we refused in the Bank of Commerce case to overrule or distinguish it; but it is claimed on the part of the appellee herein that the Farrington case also decided that the charter tax is in lieu of all other taxes, not only upon the shares in the hands of the shareholders, but that it exempts the corporation and all its property from any further taxation. We cannot give so broad an effect to the decision in the Farrington case. The question of the exemption of the corporation and its property from taxation did not arise in that case, and there was no adjudication of that question by its decision. Farrington was the owner of certain shares of stock in the bank, and the State and the county of Shelby each claimed the right, under the law, to assess taxes against him by reason of his ownership of those shares, at the same rate that taxes were assessed and levied upon other taxable property. He resisted the payment of the .taxes upon the ground that by virtue of the exemption clause in the charter the bank, its franchise, its capital stock, and also the shares of' stock of the individual stockholders, were subject to no taxation other than at the rate specified in the charter.

Although in setting forth the grounds of‘his resistance to the payment of the tax,-Farrington stated that the bank,' its franchise and its capital stock, were not subject to taxation, still that was not a material question. If the shares of stock owned by him were not subject to taxation in his hands, that was sufficient for him, and the question of the exemption of property of the corporation would not be . involved. The'

There are undoubtedly some expressions in the opinion of Mr. Justice Swayne which lend color to the idea that, in his belief, not only were the shares in the hands of the shareholders exempt from any further taxation than that imposed by the charter, but that the property of the corporation was itself exempt from any taxation other than that provided for in that section; the latter question, however, wás not before, the court and was not decided by it, and we are of opinion that, assuming that the charter tax was laid upon the shares of stock in the hands of the shareholders, the exemption from

We do not admit the claim made by the counsel for appellee, that the Farrington case must have decided the exemption of the stock of the corporation, because in the case of Wickes v. State of Tennessee, (mentioned in a note to the Farrington case at page 690,) as is claimed, the exemption was of the capital stock of the corporation which was held nevertheless to come within the principle of the main case decided. There was no material difference in the meaning of the exemption clause in the various cases mentioned in the note to the Farrington case. Those clauses were of substantially the samé import as that in the Farrington case, and they are set forth in the dissenting opinion of Mr. Justice Strong at page 692 of the report. The whole court was of one opinion upon the subject, that there was no substantial difference in the extent of the exemptions contained in the several charters, although there was some difference in their phraseology, bat the question was, as stated by Mr. Justice Strong, which of' the parties was to

Other cases in this court are cited by counsel for the appellee, which it is claimed are authority for their proposition of exemption of the corporate property from further taxation. Among them is the State Bank of Ohio v. Knoop, 16 How. 369 . The sixtieth section of the general banking law of the State of Ohio, passed in 1845, required the bank to set off six per cent of each semi-annual dividend made by it for the use of the' State, which sum or amount so set off was to be in lieu of all taxes to which the company or- stockholders therein would otherwise be subject. Subsequently, the State passed an act providing for other and different taxation. The bank refused to pay, whereupon the-treasurer of the county brought an action to enforce payment of such tax, and it was claimed on the part of the treasurer that the provision in the general banking law, above mentioned, was not a contract fixing the amount of the tax, but was a law prescribing a rule of taxation until changed by the legislature. This court held that it was a contract, and that as the operation of the law providing for a different tax. increased the tax upon the bank, it was protected by the terms of its contract, and was not bound to pay that increase. The claim was also argued in that case, on the part of the State, that it was not within the power of any-legislature to tie up the hands of subsequent legislatures in the exercise of the powers of taxation, and hence the provision in question, if construed as an attempt to accomplish that end, must be held to be void. But it was held in this court that the legislature had the power to pass the act in question, and that the bank was entitled to be protected from any further or other taxation. The question, which of the two properties, the bank or the shares of stock in the hands

The next case is that of Dodge v. Woolsey, 18 How. 331 . This is substantially the same case as that just above mentioned, with the sole difference that the State in 1851 adopted a new constitution, in which it was declared that taxes should be imposed upon banks in the mode which an act subsequently passed in 1852 purported to carry out. An assessment was made upon the bank which would result in a larger tax than that provided for in the charter, and one of the shareholders in, the bank commenced a suit in equity against the directors to prevent them from paying the tax, on the ground that the bank was exempt from any such payment, and that it would be a misapplication of the capital of profits of 'the bank if either were taken to pay such taxi This court again decided as to the validity of the contract in favor of the bank, and that there was no material distinction between the two cases arising from the fact that the State of Ohio had adopted a new constitution in the meantime, and under that had passed an act providing for a different method of assessing the property of the bank. This was held to be wholly immaterial as having no effect upon the validity and binding force of the original contract for exemption contained in the charter of the bank.

The same question again came before this court in Jefferson Branch Bank v. Skelley, 1 Black, 436 , the only purpose of which case seems to have been to ask of this court a reexamination of the questions already decided and a reversal of its judgments already twice rendered. This was refused, and the opinion closed by citing the language of the Chief Justice in Knoop’s case as follows: “ I think that by the sixtieth section of the act of 1845, the State of Ohio bound itself by a con

One. other case from this court is cited, that of Gordon v. Appeal Tax Court, 3 How. 133 , 147. The question in that • case depended upon the constitutionality of a tax imposed by the legislature of Maryland in 1841, it being alleged to be in violation of a contract made by the legislature in 1821. The legislature of Maryland in 1821 continued the charters of, several banks to the year 1845, upon condition that they would make a road and pay a, school tax, and it was provided that if any banks should accept and comply with the terms and conditions of the act the faith of the State was pledged not to impose any further tax or burden upon them during the continuance of their charters under the act. Subsequently a tax was levied upon the stockholders as individuals, according to'the amount of their stock, and it was held that by the legislation of 1821 continuing the charters of the banks upon conditions which had been accepted and performed’ by the banks, a contract was created relating to something beyond the franchise, and that it exempted the stockholders from the tax which the State endeavored to levy upon them thereafter.

This ease lends some color to the claim made by the appellee, and yet we do not think it is decisive in favor of that claim. It was a peculiar case. The banks were all in existence, and the question was in regard to their accepting a condition upon compliance with which their charters were to be extended. The act of acceptance, it was stated, would be that of the individual shareholders. The tax was on the shares, and the question which was made was whether the act of the legislature of Maryland of 1841, in imposing a tax upon those shares, impaired the obligation of the contract theretofore entered into between the bank and the State of Maryland. There were two classes of banks, designated as the old and new banks. The old were those which were chartered previous to

The Justice then proceeded in the opinion to discuss the question as to what was meant by the language of exemption, and it was claimed that by reason of the peculiar nature of the act of acceptance, which was that of the stockholders as distinguished from the corporate' action of the bank by the board of directors, the exemption was offered and directed to that authority which could accept the condition and perform it, namely, the stockholders themselves, and hence it was

Another case decided in this court is that of Bank v. Ten nessee, 104 U. S. 493 . That was a case where the questions arose under this same general statute of exemption. The taxing authorities had taxed the bank on all its real estate, consisting of its banking house, a portion of which only it used for the transaction of its own business and it rented the balance, and it was taxed also for three other pieces of real estate bid in by it upon sales under trust deeds to secure indebtedness. The charter provided that the bank might “ purchase and hold a lot of ground for the use of the institution as a place of- business, and at pleasure sell and exchange the same, and may hold such real or personal property or estate as may be conveyed to it to secure debts due the- institution, and may

Nor is there anything in the case of Tennessee v. Whitworth, 117 U. S. 129 , tending to show that the court in the case of Farrington v. Tennessee, 95 U. S. 679 , held that the exemption covered both properties, the corporation and the shares. Mr. Chief Justice Waite in the Whitvjorth case, on page 136, said, in speaking of the Farrington case, that the question was whether the clause in the charter, there quoted, exempted the shares in the hands of the stockholders from any further taxation by the State. He said: “The court, three Justices dissenting, held that it did, because, as the charter tax was laid on each share subscribed, the further exemption must necessarily have been of the shares in the hands of the holders, although the tax as imposed was payable by the corporation. In all cases of this kind the question is as to the intent of the legislature, the presumption always being against any surrender of the taxing power.” No comfort can be extracted from the remarks of the Chief Justice as even tending to show that the exemption clause covered both the property of the corporation and the shares of stock in the hands of individual shareholders.

This determines the liability of the capital stock of the Union and Planters’ Bank to taxation, and of course it overrules any claim on the part of that bank for exemption from taxation of its surplus or accumulated profits. The question whether such surplus could be taxed if the capital stock itself were to be regarded as exempt has also been decided in the preceding case of the Bank of Commerce. The decree of the Circuit Court must, therefore, be

Reversed, and the cause remanded to that court with directions to dismiss the hill with costs.

Me. Justice White dissented.