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THE COURT'S OPINION – FULL TEXT OF First. The banks chartered prior to the act of
THE IMPORTANT DECISION ON THE 1856, when the power to amend or repeal was not a BANK TAX CASES.
part of the charter, or reserved by any general law. KENTUCKY COURT OF APPEALS.
Second. Banks chartered after that date, when, PINION of the court delivered by Chief Justice by a general law, the right to amend or repeal the
charters was expressly reserved. Pryor, Judges Hazelrigg, Grace and Eastin
Third. The national banks. concurring:
We shall treat all the cases as one, in considering The Bank of Kentucky, the Northern Bank, the
the application of the Hewitt act to the banks acFarmers' Bank and other State banks, the National bank of Covington and other national banks, are
cepting its provisions. in this court by their presidents and directors, some
Prior to the adoption of the present Constitution
it seems to have been the settled policy of the State of them appealing from judgments imposing upon them taxation for county and municipal purposes,
to exempt banking institutions from local taxation, and others standing as appellees in cases relieving and require them to pay a larger tax to the State them from such local burden. The legislation im- upon their property than that paid by the indiposing such burdens is found in the Kentucky stat
vidual taxpayer, and this additional tax went into utes under the title of “Revenue and Taxation,”
the State treasury instead of being applied to muniand is based on sections 174 and 175 of the present framers of the Constitution, not approving of this
cipalities in the discharge of local burdens. The Constitution. Section 174 provides : All property, whether owned by natural persons made all taxation alike upon property, whether for
policy, established a fixed rule of taxation, and or by corporations, shall be taxed in proportion to its value, unless exempted by this Constitution; and
State or municipal purposes, applying the rule for all corporate property shall pay the same rate of municipal purposes to the territory in which the taxation paid by individual property. Nothing in
tax is imposed. It is argued, and no doubt true,
tha a discrimination must exist between banks this Constitution shall be construed to prevent the
located where heavy local burdens are imposed and General Assembly from providing for taxation based
like institutions in more favored localities where on incomes, licenses or franchises." Section 175 provides: “The power to tax prop- banks in the commercial centers of the State are
lighter or no local burden exists; and, while the erty shall not be surrendered or suspended by any taxed two and a quarter dollars on the bundred, contract or grant to which the Commonwealth
under the present system (local and State), and shall be a party."
those in an adjoining town or county only one per It is manifest, by reason of section 175, the right cent, may work a hardship, and prevent competiof the Legislature no longer exists of surrendering tion, or drive the bank thus heavily taxed to locate the power to tax property; or, by contract, to bind elsewhere, yet this, under the old system, was a the State to any other mode of taxation than that question of policy only, and the framers of the found in the Constitution; and all property, whether present Constitution, in adopting the ad valorem belonging to corporations or individuals, must pay system, left no room for classifying property so as the same rate of taxation. The appellants in these to make any discrimination in the subjects of taxacases (the banks) are claiming that, prior to the tion, and the suggestion of counsel can only be conadoption of the present Constitution, a contract had sidered in determining the intent of the Legislature been entered into between them and the State by in framing the Hewitt act and that of the banks in which, in consideration of the surrender by them of accepting it. certain rights found in their respective charters, and It may be well, however, to ascertain the condiby their consent and agreement to pay a larger tion of the banks (and praticularly those charState tax than individuals paid, or their charters re- tered before the year 1856) with reference to taxaquired, the State agreed not to impose upon them tion, and the circumstances attending the legislaany local burden, and the important inquiry in tion resulting in the passage of the Hewitt bill, in these cases is, was such a contract entered into be- order to ascertain whether or not it was the purpose tween the banks and the State, based on a consid of the State to surrender in part its power of taxaeration binding the State on the one side, and the tion, and that of the banks to relinquish any right banks on the other?
they could have asserted against the State by The statute under which this contract is claimed reason of their charters. The banks in existence to have been made, is found in the general statutes prior to the act of 1856 were claiming their charter under the title of “Revenue and Taxation," sec- contract by which a tax of fifty cents on each share tions 1 and 4 of article 2, known as the “ Hewitt of $100 of stock could only be imposed. The Bill." Counsel for the banks, in the discussion of national banks claimed they were entitled to be these cases, classified the banks as follows:
taxed like the State banks and were not liable for sideration, and the renewals of the charters of the Section 4 of the act provided :
local burdens, and besides, that their surplus, if in tax shall be paid during the corporate existence of greenbacks, or other non-taxable securities, could such bank.” not be taxed under their charters from the Federal Section 5 of the act provided : government. The State claimed that the old banks “The said banks may take the proceeding auwere taxed for too small an amount, and, the banks thorized by section 4 of this act at any time until chartered since the year 1856 were resisting any the meeting of the next General Assembly, providiscrimination between such institutions and the ded they pay the tax provided for in section 1 from old banks. Under these circumstances, the Legis- the passage of the act." lature devised a mode of taxation that prevented a Section 6 provides: discrimination that would otherwise exist, and by “ This act shall be subject to the provisions of the provisions of the Hewitt bill said to all the banks, section 8, chapter 68, General Statutes.” State and national, we will impose a tax of seventy- The banks involved in this litigation accepted in five cents on each share of your capital stock equal writing the provisions of the act, and filed their to $100, and in addition a tax on your surplus, and written acceptance with the governor under their this shall be in full of all tax, State, county and corporate seal. The banks incorporated before the municipal, provided, you will accept the act im- act of 1856 surrendered what they claimed to be posing the tax, with the conditions annexed. This their charter contracts, lvy which they were taxed act reads:
only fifty cents on their shares of stock of $100. "Shares of stock in State and national banks and The national banks yielded their right to deduct other institutions of loan and discount, and in all from the value of their stock their surplus, consistcorporations required by law to be taxed on their ing of non-taxable securities, and their claim to be capital stock shall be taxed seventy-five cents on taxed as the old banks; and most of the State banks each share thereof equal to $100 of stock therein, uniting to prevent any discrimination, all accepted owned by individuals, corporations or societies, and the proposition made by the State, and agreed to such banks, institutions and corporations shall, in pay seventy-five cents on each share of stock of addition, pay on each $100 of so much of their sur
$100 in value, and the additional tax mentioned in plus, undivided surplus, undivided profits or individ- the article. ual accumulations, as exceeds an amount equal to It is conceded (and we think it clear) by counsel ten per cent of their capital stock, the same rate of for the city of Louisville, that prior to the passage taxation that is assessed upon real estate, which of the Hewitt bill, in the year 1886, the Bank of shall be in full of all tax, State, county and mu- Kentucky had an irrevocable contract to be taxed nicipal."
at the rate of fifty cents on each share of $100, and The seventh section of the act further providing the same may be said of all the banks chartered that“ Nothing herein contained shall be construed as prior to the act of 1856; but it is further contended exempting from taxation for county or municipal that the act, as well as the contract under it, were purposes any real estate or building owned and used both subject to repeal by reason of the reserved by said banks or corporations for conducting their power contained in section 6 of article 11. Again, business; but the same may be taxed for county it is contended by counsel for the city of Frankfort and municipal purposes as other real estate is that the grant to the banks was without any contaxed."
old banks, as they are designatıd, placed them “ That each of said banks, institutions and cor- within the provisions of the act of 1856; and, by porations, by its proper corporate authority, with the attorney-general, that the State had no power the consent of a majority in interest of a quorum to surrender this right of taxation, and the contract, of its stockholders, at a regular meeting thereof, may if made, is not binding. give its consent to the levying of said tax, and This court, in the case of the Franklin County agree to pay the same as herein provided, and to Court against the Bank of Kentucky, reported in waive and release all right under the act of Con- 87th Kentucky, in an opinion delivered by Chief gress, or under the charters of the State banks, to Justice Bennett, held that the renewals of those a different mode or smaller rate of taxation, which charters did not affect the contract made with the consent or agreement with the State of Kentucky State under the original grant; and, if disposed to shall be evidenced by writing, under the seal of reconsider the decision rendered in that case, it such bank, and delivered to the governor of this could not affect the issue involved on the present Commonwealth, and upon such agreement and con- appeals. At the date of the passage of the Hewitt sent being delivered, and in corsideration thereof, bill, the the Franklin Circuit Court had decided such bank and its shares of stock shall be exempt that the charter contract still existed ; and, after from all other taxation whatsoever, so long as said I the acceptance by the banks of the provisions of the
Hewitt bill, this court affirmed that judgment. It Assuming, and, as we think, was the legislative is apparent that Article II. in the Hewitt bill was intent, the word “ act” in section 2 of the Hewitt adopted by the Legislature with the view of equal- bill used as
synonymous with the word izing the burdens of taxation as between the banks, article," and, therefore, the reservation of the and to relieve them from the burden of local taxation power on the part of the Legislature was the right during their corporate existence; but it is insisted to amend or repeal the article in which is contained there was no consideration for this partial exemption. the proposition by the State to the banks in refer
If there was a binding contract between the old ence to taxation, it by no means follows that a conbanks and the State to pay a tax of only fifty cents tract made by virtue of its provisions can be on each share of stock, and the banks surrendered abrogated at the will and pleasure of the Legislatheir contract, or their rights under it, and agreed ture. The distinction between the power of the to pay seventy-five cents to the State, instead of Legislature to repeal an act and the right to annul forty-two and a half cents, it seems to us this would by appeal or otherwise a contract made under it is be a consideration sufficient to uphold any such manifest; and, while, under our present Constitucontract with the State, if the power existed with tion, the State can make no contract by which the the State to make it; and the fact that such a power exercise of the taxing power can be lessened or any existed has been too often decided by this court, as part of its sovereign power in that regard relinwell as the Supreme Court, to require authority inquished, under the former Constitution property support of it. It is plain also that these banks, might not only be classified, in imposing taxation, including the national banks, surrendered their but the State could discriminate between the classes, rights, not only to settle the question as to local when providing the rate of taxation, and this taxation, but to prevent competition, or any dis- doctrine has been recognized by numerous decrimination, between banks located in the com
cisions of this court, and sustained in like cases by mercial centers of the State and those outside of numerous decisions of the Supreme Court. such localities, where no heavy burdens for local The general rule in regard to legislation is, that taxes were being levied; and, therefore, the con- one legislative body can not bind a subsequent sideration, moving from the old banks, was for the Legislature by its action, in purely legislative matbenefit of all the banks accepting the terms of the ters; but, when it comes to matters of contract, if contract. The Legislature was attempting to avoid the State has the power to make it, its terms and all discriminations between these moneyed institu- conditions are as obligatory on the State as if entions, and, therefore, its exactions from the old tered into between two of its citizens; and an atbanks and the national banks being acceded to, it tempt to cancel such a contract, without the conresulted to the benefit of the banks organized sent of the party with whom it is made, is in direct after, as well as before, the act of 1856, as to such | violation of that clause of the Federal Constitution banks uniting with the old banks in accepting the which provides that: Hewitt bill. In this statute imposing the tax of “No State shall pass any law impairing the obliseventy-five cents, and its acceptance on the condi- gation of contracts.” (Section 10 of article 1, tions proposed, there exists every element of a United States Constitution.) contract between the State and the banks, and with That the State may enter into such contract was such a consideration as will uphold it. No reason- beld by this court as early as the year 1839, in the able doubt can be entertained that such was the
case of Johnson against the Commonwealth, repurpose of the parties to it.
ported in 7th Dana, 442, where there was an effort It is contended that, if a contract was entered to tax the shares of stock in a bank in excess of the into, the provisions of the present Constitution, and terms of the contract, and this court held that the subsequent legislation under it, operated to repeal contract placed a limitation on the power. In the not only the statute, but the contract made by case of the Farmers' Bank against the Commonvirtue of its provisions; and this power existed by wealth, reported in 6th Bush, it was held that the reason of the sixth section of the article, making it bank could not be taxed beyond its charter rate as subject to the provisions of Section 8 of Chapter 68, tixed by the contract; and in the late case of the General Statutes, declaring that:
city of Frankfort against the Bank of Kentucky " This shall be subject to amendment or repeal at and others, reported in 87th Kentucky, the same the will of the Legislature, unless a contrary intent doctrine was announced. The question, then, arises, be plainly expressed."
did the reservation of the power to amend or repeal Provided : “ That, whilst privileges and franchises this article of the Hewitt law empower the Legislaso granted may be changed or repealeil, no amend ture, or the framers of the Constitution, to disregard ment or repeal sball impair other rights previously this contract between the banks and the State? We vested."
are satisfied, after a careful consideration of this question, that the parties making it never contem- of which they could not be divested without their plated, or intended, that the act of 1856 should consent, the chief of which was the payment of a apply to this contract after its acceptance by the specified tax to the State during their corporate exbanks, and that such an acceptance was necessary istence. The State waived its right to tax these to make the contract complete between the parties. banks for local purposes (except their realty), and The Legislature, at the time this contract was made, required in lieu thereof an additional tax to be paid recognized the right of the Bank of Kentucky and into the State treasury. In this way, the State the banks chartered prior to 1856 to stand upon granting the franchise, derived the benefit instead their charter riglits, or, if not, the right of the of the municipal government, which, under the banks as against the State on this subject of taxa- present system, the difference between forty-two tion had found its way to the court, and had been and a half cents and seventy-five cents, with tax on decided adversely to the State. The Legislature surplus, amounting to $125,000, is taken from the thought the tax of fifty cents too small; the old revenue proper and applied to the municipalities banks claimed an irrevocable contract; the National where the banks are located. banks could only be taxed as authorized by the In the case of the State against the Green and Federal Congress; the new State banks were sub- Barren River Navigation Company, reported in 79th ject to such taxation as the State might see proper Kentucky, this court held, with the act of 1856 to place upon them, and, to make them liable for in full force, that the State had no power to these local burdens would be to end their existence, annul a contract that had been executed between or cause them to seek shelter under the Federal | the State and the company, and the repeal of the Banking Act; and, with the view of placing the charter to the extent that it deprived the company entire matter at rest, and placing the banks on an
of its contract rights acquired under it, was in vioequal footing, the Legislature said to all the banks, lation of the Constitution. In that case that court
If you will agree to pay seventy-five cents on each said: share of stock equal to $100, it shall be in full of
“We cannot assent to a doctrine that will allow all tax, State, county and municipal.” It said to
the State to alter or abolish such contracts whenthe old banks, “You must relinquish your right to ever, in the opinion of the Legislature, the necessia smaller rate of tax, and this must be done not by ties of the public or the interest of the State reyour president and directors, but by the consent of quires it.” the stockholders, in writing, and delivered to the The case of the Commonwealth against the Owensgovernor, as evidence of your good faith.” The boro Railroad Company, to be reported in 96th banks accepted the proposition made them, in the Kentucky, determines in effect the question inmanner pointed out by the act; and from that time volved here. In the year 1884 the Legislature to the adoption of the present Constitution, the passed an act to encourage the construction of railcontract was adhered to by both the State and the roads, and, in doing so, relieved them from taxabanks. It is now argued that the banks, and par- tion for a limited period. The act provided : ticularly those with charter contracts for a smaller "That all said railroads which may hereafter be rate of taxation, surrendered those charter rights, built within this Commonwealth, under existing and agreed to pay a higher rate of tax under an act charters, or under charters which may hereafter be that authorized any subsequent Legislature to repeal granted, shall be exempt from all taxation under the contract at its will and pleasure. No rational the laws of this Commonwealth for the period of view of this agreement should lead to the conclu- five years from the date of the beginning of the sion that business men at the head of these insti- construction of the new roads." tutions would relinquish any right they had ac- The State claimed the right, under the act of quired under their charters, that an increased 1856, to repeal the law, claiming this had been burden might be placed upon the banks they repre- done by legislation, as in the case before us, and sented. In the contention that the sixth section of attempted to coerce payment of taxes when the the article reserved this power of repeal, counsel five years from the beginning of construction of overlook the fact that, by the express terms of the these roads had not expired. The court, in resection by which this reserved power is retained, it sponse to the argument to exact the tax, and the is provided that:
application of the act of 1856 to its provisions, said: “No amendment or repeal shall impair other “It is sufficient to say of this proposition, which, rights previously vested."
even at first blush, strikes us as extraordinary and The execution of the agreement between the unjust, if attempted to be applied to those of the State and the banks, based on a consideration such appellees who accepted the offer of the State and as appears from the act itself, connected with its expended their money on its exemption pledge, acceptance by the banks, vested in the latter rights that the act of 1856 reserving the right to repeal or
amend charter privileges, has no application to the ture intend to make such a contract; that its meanlaw of 1884, which, as said before, was a general ing and its terms are clear enough, and, taken alone, law, and affected all alike who accepted its pro- no one denies but that it is a contract which would visions, or acted on the strength of them."
be protected by the Constitution of the United Connsel for the local governments argue the States. questions involved as if there was a perpetual grant And in like manner will the contract in question to these corporations, and, therefore the power of be upheld, and, as said by Mr. Justice Miller in New repeal must, of necessity, have been reserved. The
Jersey v. Yard: limitation of the grant extends to the life of the “ The Legislature was not willing to rest this concorporate charter, and with the banks existing tract in the usual statutory form alone, depending prior to the act of 1856 their charters expire in ten on its validity as a contract upon some action of the or twelve years, and hence, the policy of the State, corporation under it to bind it to its terms, but if viewed in that light, was wise, because it was they required of the company a formal, written acincreasing the State revenue from fifty to seventy- ceptance within sixty days, else to become wholly five cents for a fixed and certain period.
inoperative." The framers of the Constitution, in adopting that And it may be said in the New Jersey case there instrument were not looking to past legislation on was no consideration other than is found in ordinthis particular subject, but were creating an organic ary railroad charters. It is said, however, in that law for the future welfare of the State, leaving the case, the repealing clause, or what is known in this rights of those protected by either the State or State as the act of 1856, was appended to the origFederal Constitutions undisturbed; anı if the at- inal charter, and when amended formed no part of tempt to repeal vested rights had been made, the the amendment, as is found in this case, and, thereframers of the present Constitution would have fore, the court concluded the amendment was not been as powerless to accomplish such a purpose as subject to repeal. The question is asked, Why the Legislature in session after its adoption.
the necessity of making the act of 1856 apply to The Supreme Court decided a somewhat similar article 2, if the Legislature did not intend to requestion on a writ of error to the Court of Appeals serve the right of annulling the contract ? In of New Jersey, in the case of New Jersey v Yard, responce to this, it might be asked, If such was the reported in 95th United States, 110. By an act of legislative intent, why the necessity of baving a the Legislature passed in March, 1865, the Legisla- formal, written acceptance from the banks surrenture of New Jersey enacted that the Morris and dering all their respective charter rights, and in Essex Railroad Company should pay a tax of one- consideration therefor, agreeing to tax them half of one per cent., to be paid by the company to seventy-five cents on the one hundred dollars, so the State whenever the net earnings of the company long as their charters continued, if the power was amounted to seven per cent. on the cost of the road, reserved of abrogating the contract at any moment ? to be paid at the expiration of one year from the If such was the legislative purpose, there could time when the road shall be open and in use to have been no necessity for any consideration moving Phillipsburg, and annually thereafter, “which tax from the banks, or any formality attending the exeshall be in lieu and satisfaction of all other taxation cution of the contract. The act of 1856 was enacted and imposition whatever, by or under the authority to avoid the effect of the decision of the Supreme of this State.” The twentieth section of the orig-Court in the Dartmouth College case, reported in inal act of incorporation reserved to the Legislature 4th Wheaton, to enable the sovereign power to the right to alter, amend or repeal the act whenever amend and repeal charter provisions that had thereit should think proper. The act of 1865 was an
tofore been regarded as beyond the power of the amendment to the original grant, and in regulating Legislature, without such a reservation; but under the amount of taxation contained this proviso: this act of 1856 it has been held by this court, as “Provided, That this section shall not go into
well as every other court having the question before effect or be binding on the company, until the said it, that property rights or contract rights acquired company, by an instrument duly executed under its by virtue of the charter in exercising the privileges corporate seal, and filed in the office of the Secre- conferred could not be interfered with by legislatary of State, shall have signified its assent thereto, tion, and, in fact, the act expressly provides “ that which assent shall be signified within sixty days whilst privileges and franchises so granted may be after the passage of this act, or this act shall be changed or repealed, no amendment or repeal shall void."
impair other rights previously vested. Chief Justice Miller, in delivering the opinion in The old banks had contract rights sustained by saiil:
the adjudication of the courts of the State that " The main question here is: Did the Legisla- exempted them from local taxation, and the same