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