THE MINORITY OPINION OF THE KEN

TUCKY COURT OF APPEALS IN THE

BANK TAX CASES - OPINION DELIV

ERED BY JUDGE PAYNTER.

W1

ERE this a case simply affecting the rights of two citizens of the State I might content myself with dissenting without expressing my rea son therefor.

Involving as this does the sovereignty of the people, and denying, as I conceive it does, to have their will to assume the form of law on such a vital question as that of taxation, and their right to demand and enforce equal and just taxation, I feel constrained to give my reasons for dissenting from the views expressed by the court.

The effect of the opinion of the court is to destroy a principle engrafted in the laws of the State nearly forty years ago. One so important that it was declared by the General Assembly to be in effect written in every act of incorporation granted by it. So important was the reservation of the right to amend or repeal such act of incorporation that the General Assembly was unwilling to run the risk of inserting it in each act, but declared by general law that it should be understood to be written in all of them.

The opinion, in effect, denies the power of the people through their organic law to declare what are just principles of taxation; that the same rate of taxation shall be imposed on the property of corporations as on an individual, and the authority of the General Assembly to execute that constitutional mandate.

I believe that corporate rights should be held as inviolate as those of the citizen; that each citizen should bear his full share of the common burden of taxation; "that all freemen, when they form a social compact, are equal, and no man, or set of men, are entitled to exclusive, separate public emoluments or privileges from the community, but in consideration of public services." I do not believe in the State passing laws impairing the obligation of its contracts with corporations or individuals when the contracts are made by virtue of the provisions of the Constitution; nor do I believe in denying the right to the State to withdraw from a contract when in express terms the right to do so is reserved, as in such case it cannot be said to impair the obligation of the contract.

While I regard there is a vast difference between granting a corporate franchise authorizing the acquisition of property by donation or otherwise for the purpose of educating and spreading the Gospel among the Indians and affording an opportunity to the youth of the land in the days of the early settlement of the country to obtain an education, as was the purpose of the charter to Dart

mouth College, and between granting immunity from taxation to an institution operated solely for private gain, yet the courts of the country, taking the principle enunciated in the Dartmouth College case as authority therefor, have held that immunity from taxation granted in the act of incorporation is a contract with the State, and is irrevocable unless the right to do so is reserved in the act of incorporation or in a general act, which must be treated as part of the act of incorporation.

In considering these cases I shall accept that as the rule to govern in the determination of the question involved. Indeed, it is unnecessary to take any other view of the law in order to reach the conclusion, which I have done in these cases.

However, I cannot forbear quoting what Justice Miller said in delivering the opinion of the court in New Jersey v. Yard, 95 U. S. 114, to-wit: "The writer of this opinion has always believed, and believes now, that one Legislature of a State has no power to bargain away the right of any succeeding Legislature to levy taxes in as full a manner as the Constitution will permit. But so long as the majority of this court adheres to the contrary doctrine, he must, when the question arises, join with the other judges in considering whether such contract has been made."

I agree with Justice Miller that in the matter of taxation one Legislature of a State has no power to bargain away the right of a succeeding Legislature to levy taxes in as full a manner as the Constitution will permit.

Such a power could be exercised to such an extent as to almost destroy the government or to grievously burden one class of its citizens.

Instead of having the Dartmouth College case under consideration, had Chief Justice Marshall a case coming from Kentucky, wherein it was claimed the Legislature has sought to impair the obligation of a contract it had made with one of the old banks by passing a statute providing it should pay an amount of tax in addition to that specified in its charter, I cannot believe in view of the constitutional provision prohibiting the granting of exclusive privileges from the community, except "in consideration of public services," he would have held the bank had an irrevocable contract with the State.

From the Dartmouth College case to the present time (and the right was in that case recognized), the Superior Court of the United States has uniformly held that whenever the Legislature granting the charter reserved the right to amend or repeal it, either by so providing in the charter or by a general law or the right to amend or repeal such charter exists and to do so is not an act impairing the obligation of a contract.

The charter being accepted with the full understanding that the right of repeal is part of the contract and to the exercise of which right the grantee has consented.

"The reservation affects the entire relation between the State and the corporation and places under legislative control all rights, privileges and immunities derived by its charter directly from the State.

The same doctrine is enunciated in Railroad v. Maine, 96 U. S. 499; Railroad Company v. Georgia, 98 id. 359; Hoge v. Railroad Company, 99 id. 348; Greenwood v. Freight Company, 105 id. 13-21; Spring Valley Water Works Company v. Schottler, 110 id. 347-352; Clore v. Greenwood Cemetery Com

It reads as follows: "All charters and grants of or to corporations or amendments thereof enacted or granted since the 14th of February, 1856, and all other statutes, shall be subject to amendment or repeal at the will of the Legislature, unless a contrary intent be therein plainly expressed; provided, that whilst privileges and franchises so granted may be changed or repealed, no amendment or repeal shall impair other rights previously vested."

It seems so plain that charters and grants since 14th February, 1856, are subject to amendment or repeal at the will of the Legislature unless a contrary intent is plainly expressed therein, that it is needless to discuss it.

The Supreme Court of the United States has not only so held, but this court has done likewise in every case that has been before it.

The character of acts of 1856 have uniformly been held to be a condition upon which every charter of a corporation subsequently granted was held, and upon which every amendment or modification was made, and that they were as much a part of the charters as if incorporated into them.

Any other interpretation would render the statute inoperative and wholly deprive it of its power to accomplish the purpose of its enactment. In 1841 South Carolina passed a statute substantially the same as the statute of 1856. The Southeastern Railroad Company was incorporated in 1851. In 1855 an act was passed to amend its charter and exempted the railroad company from taxation. In 1868 the State adopted a new constitution in which it was declared that the property of the corporations then existing or thereafter created should be taxed.

Citizens' Gas Company, 115 id. 683-696; Gibbs v. Consolidated Gas Company, 130 id. 369-408; Sioux City Street Railway Company v. Sioux City, 138 id.

98-108.

It must be conceded from the authorities cited that the Supreme Court of the United States has repeatedly held that the Legislatures of the States have the power when reserved in the charter or by general law to change or repeal acts granting corporate privileges or franchises.

These opinions are in accord with the decisions of this court.

The case of Griffin v. Kentucky Insurance Company, 3 Bush, 592, has been quoted with approval in the case of Louisville Water Company v. Clark, 143 U. S. 14, and in that case the court held that in all cases of charters or grants of corporate franchises where the intention of the Legislature was not "plainly expressed not to exercise the power reserved by the statute of 1856 to amend or repeal at the will of the Legislature, such charters or grants must be read as if all the provisions of the act of 1856 were incorporated in them.

In the case of Cumberland and Ohio Railroad Company v. Barren County Court, 10 Bush, 604, in reference to the act of 1856, the court said: "The act was intended to preserve to the State control over all acts of incorporation thereafter passed. Experience has demonstrated the propriety of, if not the absoluto necessity for, such a reservation of power, and it would be a manifest disregard of the clearly-expressed will of the Legislature for the courts to resort to technical rules of construction or finely drawn legal implications to escape the effect of the plain declaration that all charters of and grants to corporations shall be subject to amendment and repeal "unless a contrary intent be expressed."

I conclude that the Legislature in 1886, when it passed the Revenue bill, had the right to amend or

The question involved in Tomlinson v. Jessup, 15 Wallace, 454, was as to the enforcement of such legislation.

porations or amendments thereof enacted or granted since the 14th of February, 1856, "unless a contrary intent was plainly expressed."

In view of decisions of the court I also concede

that as to the charters of banks granted prior to the 14th of February, 1856, unless the acts extending them reserved the right to amend or repeal their charters, any act of the Legislature increasing their tax would be invalid as to such banks unless in the acts extending them the right to amend or repeal was reserved.

The national banks were subject to have the same tax imposed on their shares of stocks as are imposed on State banks, doing business under charter granted since the 14th of February, 1856. Their real estate is subject to taxation. Their shares of stock may be taxed at their actual value, but no greater rate of taxation shall be collected on them than is assessed upon the moneyed capital in the hands of individual citizens of the State.

In the case of the Covington City National Bank v. City of Covington, etc., 21 Federal Reporter, 491, Justice Mathews, discussing this subject, said: When therefore a statute taxes the shares of a stockholder at their actual or market or full value, that necessarily includes such value beyond its par or nominal value as is imparted to the stock by the fact that the bank has a surplus fund or undivided profits. The interest which Congress has left subject to taxation by the State under the limitations prescribed, and which is a distinct independent interest in property held by the stockholder, like any property that may belong to him, is that interest as defined in Van Allen v. The Assessors, 3 Wall, 573, which entitles him to participate in the net profits earned by the bank in the employment of its capital during the existence of its charter in proportion to the number of its shares, and upon its dissolution or termination to his proportion of the property that may remain of the corporation after the pay ment of its debts,' and (page 587) it includes for taxation the whole interest of the stockholder, such as would pass to the purchaser of the share of his certificate. So, when a State law taxes shares of national bank stock it taxes the same interest of the shareholder that he would transfer on a sale. The State may tax them at their actual or at their market value, or at any other rate of appraisement which does not violate the act of Congress."

The Legislature of Pennsylvania passed a statute taxing the shares in national banks on an assessed value thereof for county, school, municipal and local purposes. The Supreme Court in Hepburne vs. the School Directors, 23 Wallace, 480, held the statute valid.

It has been decided that it is competent for the States to tax the shares of national bank stock, notwithstanding the capital of the bank was invested in bonds of the United States, which were not subject to taxation.

It is not discrimination against them because they are required to pay a greater tax on their shares of stock than is paid by banks enjoying special privileges under their charters. Leverberger vs. Rouse, 9 Wallace, 468.

The court should endeaver to ascertain the legislative intent in the act of 1886 with reference to the taxation of banks, as all depends in this controversy as to what was that intent.

To aid in reaching a conclusion as to what the intent was it is well to recall some official facts within the knowledge of the members of the Legislature.

The 1st of July, 1885, was the date of the last report of the capital stocks of the banks in the State before the enactment of the revenue law of 1886. From that it is learned that the capital stock of the fifty-nine National Banks amounted to $9,708,900. The capital stock of the sixty-five State Banks, doing business under charters granted subsequent to 1856, amounted to $6,224,891.

The capital stock of the four State Banks-Farmers' Bank of Kentucky, Bank of Kentucky, Northern Bank and Bank of Louisville, incorporated prior to 1856, was $5,144,500.

It will be seen from this statement that the capital stock of the National Banks and of the State banks chartered since 1856 amounted in round numbers to $16,000,000, while the capital stock of banks whose charters ante date 1856 amounted to about $5,000,000, being less than one-third of that of the other banks named.

It must be presumed that the Legislature knew that the banks claiming irrevocable contracts to pay only 50 cents on each share of their capital stock equal to one hundred dollars, paid less than onethird of the revenue coming from the banks under the then existing law.

It can hardly be said that the Farmers' Bank of Kentucky was in a condition to claim an irrevocable contract, because the act extending its charter, which became a law on March 10, 1876, expressly reserved the right to amend or repeal its charter and amendments thereto.

To simply quote the act extending the charter is a sufficient denial of and answer to the claim of an irrevocable contract.

This left but three banks in the State which could claim an irrevocable contract, and one hundred and twenty-five without any claim whatever to immunity against increased taxation.

The revenue act repealed several acts by particularly naming them, and excluded certain other acts from the repealing clause, and declared all other acts, general and special, and parts of acts inconsistent or not in conformity there with were thereby repealed. The revenue law is not Chapter 92 General Statutes. The only part of the act relating to the taxation of banks and other institutions of loan or discount is Article 2, Chapter 92, General Statutes. Section 1 of the article relates to the amount of tax which the banks shall pay and designating the method of levying the tax.

Section 2 imposes certain duties on the cashier of the bank with reference to making a report to the auditor of public accounts.

Section 3 exempts banks having certain money invested in bonds or funds of the United States from taxation named in the section.

Sections 4, 5 and 6 of article 2 are as follows: "Sec. 4. 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 or called meeting, may give its consent to the levying of said tax; and agree to pay the same as herein provided, and waive and release all right under the acts of Congress or under the charters of the State banks to a different mode or smaller rate of taxation, which consent or

agreement to and with the State of Kentucky shall be evidenced by writing under the seal of such agreement and consent being delivered, and in consideration thereof, such bank and its shares of stock shall be exempt from all other taxation whatever so long as said tax shall be paid during the corporate

tax, State, county and municipal, shall be imposed, levied and collected, etc., as is imposed on the assessed, taxable property in the hands of individuals.

Without section 4 the remaining sections of the article would have been a complete system for levying and collecting taxes on the banks chartered after 1856. The article treats of nothing except the taxation of banks.

It seems there can be no further question of the power of the Legislature at that time to impose a tax on such banks for State, county and municipal purposes.

It was wholly useless for the Legislature to ask the consent of the banks chartered since 1856 to make any consent to the imposition of tax on them for that purpose.

The national banks were subject to the payment of taxes for State, county and municipal purposes, and it was not necessary to obtain their consent that they might be taxed for that purpose. It was needless to ask this class of banks to enter into the agreement. The Legislature may have entertained some doubt not as to the right to tax banks for State, county and municipal purposes, but as to the method prescribed and desired to remove all doubt by obtaining the consent of such banks to that method. It was greatly to the interest of the na

tional banks and the State banks chartered subsequent to 1856 to enter into the agreement because they were thus released from the payment of county and municipal taxes. In agreeing to pay the amount provided in the article for State purposes they were released from local burdens, which, in some instances, are two or three times as great as that which they agreed to pay the State. It was greatly to their interest to accept the proposition of the State. As a matter of fact these banks were relin

quishing no rights. They were apparently yielding a right which the State in its sovereignty already possessed. The right had never been relinquished, but had been expressly reserved. So vigilant had been the State to not only retain the control of corporations and retain its power to tax them, its purpose to do so was declared in the form of a legislative enactment which was understood to be written in every act of incorporation. It may be a more difficult task to show why the three old banks entered into the agreement. Their right to the immunity from increased taxation was questioned as shown by revenue act, as their charters were declared repealed so far as they were inconsistent therewith. It was the evident purpose of the Legislature to induce these banks to recede from their claim to an irrevocable contract. It was desired

that all banks should be placed upon the same footing in the matter of taxation with the other banks of the State.

The Legislature had been renewing their charters, and if they were again renewed an appeal must be made to the same power. These banks may have realized that the act of 1856 should have, by a proper interpretation, been made applicable to the acts renewing their charters. However, it is needless to speculate further as to the reason which induced them to enter into the contract with the State by which they released any irrevocable contract which they had under their charter against increased taxation. Then banks had the right to give their consent to the increased taxation. The courts had always recognized the right of a corporation to consent to legislation or accept its provisions, and be bound thereby, though it may have the effect of depriving such corporation of a vested right. This brings me to the question as to what were the terms and conditions of the contract into which all these banks entered. The banks must be presumed to know the law and the effect of the contract to which they agreed. Those who represent banks are among the brightest and most sagacious business men of the country. The contract is brief, simple and without ambiguity.

In short the State agreed to accept and the banks agreed to pay seventy-five cents annually on each share of this stock equal to $100, and in consideration thereof be exempt from all other taxation whatsoever so long as this tax shall be paid during the corporate existence of such bank. If these

were all the terms of the contract then it might be contended with some reason that it was irrevocable during their corporate existence. Being mindful of the policy which had been pursued for thirty years it said in effect to the banks it is desired that the contract be signed in the formal way described, but it must be understood that the right to alter, change or abandon the contract is reserved to the State. That its purpose might be fully understood the Legislature placed in the article Section 6, which in terms makes the statute of 1858 a part of the contract.

In view of the plain provision of the statute about the meaning of which there should be no doubt, and the intent of the Legislature being fully explained by its record, it seems to me there should be no hesitation in concluding the act of 1856 should be read as part of the contract, hence not irrevocable contracts. The fact that a written consent was asked and secured does not alter the application of the act of 1856. To this effect is New Jersey vs. Yard, 95 United States, 104

corporation by an act of the Legislature of New Jersey passed January 29, 1835. The act provided that as soon as the net proceeds of the railroad amounted to seven per cent. on its cost it should pay a State tax of one-half of 1 per cent. on the cost of the road, and no other tax should be levied upon it.

The twentieth section reserved to the Legislature the right to amend or repeal the act whenever it should think proper. A supplemental act was passed on March 2, 1836, in which the right to repeal or amend was reserved. On the 14th of February, 1846, the Legislature of New Jersey passed an act in effect the same as the Kentucky act of 1856.

Another supplemental act to the charter of the railroad was approved March 23, 1865, authorizing a branch road to be built and by which the company was vested with all the powers and franchises given by original and supplemental acts, etc. The third section of the last-named act read as follows: "Be it enacted that the tax of one-half of 1 per cent. provided by this said original act of incorporation to be paid by the said company to the State whenever the net earnings of the said company amount to 7 per cent. upon the cost of the road, shall be paid at the expiration of one year from the time when the road of the said company shall be open and in use to Phillipburg, and annually thereafter, which tax shall be in lieu and satisfaction of all other taxation or imposition whatever, by or under the authority of this State or any law thereof; provided, that this section shall not go into effect or be binding upon the said 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, and which assent shall be signified within sixty days after the passage of the act, or this act is void." The instrument required by the section was duly executed by the company. In the act of 1865 there was no reservation of the right to repeal or amend it. Acts of the Legislature imposed a more burdensome tax on the railroad company than that provided for in Section 3, supra. The sole question in New Jersey against Yard was whether the act of 1865 and its acceptance by the railroad company constitute a contract which could not be impaired by any subsequent Legislature of the State.

The court held that it was an irrevocable contract, because the Legislature had not reserved the right to amend or change it. It is plain from the opinion that had the Legislature reserved the right to alter or change the contract or act by which it was made the court would have held the act of the Legislature doing so did not impair the obligation of the con