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THE MINORITY OPINION OF THE KEN- mouth College, and between granting immunity

TUCKY COURT OF APPEALS IN THE
BANK TAX CASES – OPINION DELIV-

from taxation to an institution operated solely for ERED BY JUDGE PAYNTER.

private gain, yet the courts of the country, taking

the principle enunciated in the Dartmouth College ERE this a case simply affecting the rights of case as authority therefor, have held that immunity

two citizens of the State I might content from taxation granted in the act of incorporation is myself with dissenting without expressing my rea- a contract with the State, and is irrevocable unless son therefor.

the right to do so is reserved in the act of incorpoInvolving as this does the sovereignty of the ration or in a general act, which must be treated as people, and denying, as I conceive it does, to have part of the act of incorporation. their will to assume the form of law on such a vital

In considering these cases I shall accept that as question as that of taxation, and their right to de- the rule to govern in the determination of the quesmand and enforce equal and just taxation, I feel tion involved. Indeed, it is unnecessary to take constrained to give my reasons for dissenting from any other view of the law in order to reach the conthe views expressed by the court.

clusion, which I have done in these cases. The effect of the opinion of the court is to de- However, I cannot forbear quoting what Justice stroy a principle engrafted in the laws of the State Miller said in delivering the opinion of the court in nearly forty years ago. One so important that it New Jersey v. Yard, 95 U. S. 114, to-wit: “The was declared by the General Assembly to be in ef- writer of this opinion has always believed, and befect written in every act of incorporation granted | lieves now, that one Legislature of a State has no by it. So important was the reservation of the power to bargain away the right of any succeeding right to amend or repeal such act of incorporation Legislature to levy taxes in as full a manner as the that the General Assembly was unwilling to run the Constitution will permit. But so long as the marisk of inserting it in each act, but declared by gen-jority of this court adheres to the contrary doceral law that it should be understood to be written trine, he must, when the question arises, join with in all of them.

the other judges in considering whether such conThe opinion, in effect, denies the power of the tract has been made.” people through their organic law to declare what I agree with Justice Miller that in the matter of are just principles of taxation; that the same rate taxation one Legislature of a State has no power to of taxation shall be imposed on the property of bargain away the right of a succeeding Legislature corporations as on an individual, and the authority to levy taxes in as full a manner as the Constitution of the General Assembly to execute that constitu- will permit. tional mandate.

Such a power could be exercised to such an exI believe that corporate rights should be held as tent as to almost destroy the government or to inviolate as those of the citizen; that each citizen grievously burden one class of its citizens. should bear his full share of the common burden of Instead of having the Dartmouth College case taxation; "that all freemen, when they form a so- under consideration, had Chief Justice Marshall a cial compact, are equal, and no man, or set of men, case coming from Kentucky, wherein it was claimed are entitled to exclusive, separate public emolu- the Legislature has sought to impair the obligation ments or privileges from the community, but in of a contract it had made with one of the old consideration of public services.” I do not believe banks by passing a statute providing it should pay in the State passing laws impairing the obligation an amount of tax in addition to that specified in of its contracts with corporations or individuals its charter, I cannot believe in view of the conwhen the contracts are made by virtue of the pro- stitutional provision prohibiting the granting of visions of the Constitution; nor do I believe in de-exclusive privileges from the community, except nying the right to the State to withdraw from a "in consideration of public services,” he would contract when in express terms the right to do so have held the bank had an irrevocable contract is reserved, as in such case it cannot be said to im- with the State. pair the obligation of the contract.

From the Dartmouth College case to the present While I regard there is a vast difference between time (and the right was in that case recognized), granting a corporate franchise authorizing the ac- the Superior Court of the United States has uniquisition of property by donation or otherwise for formly held that whenever the Legislature granting the purpose of educating and spreading the the charter reserved the right to amend or repeal it, Gospel among the Indians and affording an oppor- either by so providing in the charter or by a genetunity to the youth of the land in the days of the ral law or the right to amend or repeal such charearly settlement of the country to obtain an educa- ter exists and to do so is not an act impairing the tion, as was the purpose of the charter to Dart- | obligation of a contract.

The charter being accepted with the full under- “The reservation affects the entire relation bestanding that the right of repeal is part of the con- tween the State and the corporation and places tract and to the exercise of which right the grantee | under legislative control all rights, privileges and bas consented.

immunities derived by its charter directly from the Many of the States after the Dartmouth College State. case, began to realize the importance of reserving The same doctrine is enunciated in Railroad v. the right to control corporate organizations which Maine, 96 U. S. 499; Railroad Company v. Georgia, from time to time were being created, and to make | 98 id. 359; Hoge v. Railroad Company, 99 id. 348; sure such power was being reserved, they passed | Greenwood v. Freight Company, 105 id. 13-21; general laws expressly reserving such powers and Spring Valley Water Works Company v. Schottler, which statutes became a part of every act of incor- 110 id. 347-352; Clore v. Greenwood Cemetery Comporation as fully as if written therein unless a differ

pany, 107 id. 4663-476; Louisville Gas Company v. ent purpose was therein plainly expressed in the act.

Citizens' Gas Company, 115 id. 683-696; Gibbs v. The Legislature of this State being fully aware Consolidated Gas Company, 130 id. 369-408; Sioux of the importance of such action as would reserve City Street Railway Company v. Sioux City, 138 id. the right to amend or repeal acts of incorporation, | 98-108. passed what is known as the statute of 1856, which It must be conceded from the authorities cited is section 8, Chapter 68, General Statutes.

that the Supreme Court of the United States has reIt reads as follows: All charters and grants of peatedly held that the Legislatures of the States or to corporations or amendments thereof enacted have the power when reserved in the charter or by or granted since the 14th of February, 1956, and general law to change or repeal acts granting corall other statutes, shall be subject to amendment or porate privileges or franchises. repeal at the will of the Legislature, unless a con- These opinions are in accord with the decisions trary intent be therein plainly expressed; provided, of this court. that whilst privileges and franchises so granted may The case of Griffin v. Kentucky Insurance Combe changed or repealed, no amendment or repeal pany, 3 Bush, 592, has been quoted with approval shall impair other rights previously vested.”

in the case of Louisville Water Company v. Clark, It seems so plain that charters and grants since 143 U. S. 14, and in that case the court held that 14th February, 1856, are subject to amendment or in all cases of charters or grants of corporate repeal at the will of the Legislature unless a con- franchises where the intention of the Legislature trary intent is plainly expressed therein, that it is was not “plainly expressed " not to exercise the needless to discuss it.

power reserved by the statute of 1856 to amend or The Supreme Court of the United States has not repeal at the will of the Legislature, such charters only so held, but this court has done likewise in or grants must be read as if all the provisions of the every case that has been before it.

act of 1856 were incorporated in them. The character of acts of 1856 have uniformly In the case of Cumberland and Ohio Railroad been held to be a condition upon which every char- | Company v. Barren County Court, 10 Bush, 604, in ter of a corporation subsequently granted was held, reference to the act of 1856, the court said: "The and upon which every amendment or modification act was intended to preserve to the State control was made, and that they were as much a part of the over all acts of incorporation thereafter passed. charters as if incorporated into them.

Experience has demonstrated the propriety of, if not Any other interpretation would runder the stat- the absoluto necessity for, such a reservation of ute inoperative and wholly deprive it of its power power, and it would be a manifest disregard of the to accomplish the purpose of its enactment. In clearly-expressed will of the Legislature for the 1841 South Carolina passed a statute substantially courts to resort to technical rules of construction or the same as the statute of 1856. The Southeastern finely drawn legal implications to escape the effect Railroad Company was incorporated in 1851. In of the plain declaration that all charters of and 1855 an act was passed to amend its charter and ex- grants to corporations shall be subject to amendempted the railroad company from taxation. In 1868 ment and repeal “unless a contrary intent be exthe State adopted a new constitution in which it was pressed." declared that the property of the corporations then I conclude that the Legislature in 1886, when it existing or thereafter created should be taxed.

passed the Revenue bill, had the right to amend or The Legislature of the State passed an act to repeal at will all charters and grants of or to corenforce that provision of the Constitution.

porations or amendments thereof enacted or granted The question involved in Tomlinson v. Jessup, 15 since the 14th of February, 1856, "unless a contrary Wallace, 454, was as to the enforcement of such intent was plainly expressed.” legislation.

In view of decisions of the court I also concede

that as to the charters of banks granted prior to the The Legislature of Pennsylvania passed a statute 14th of February, 1856, unless the acts extending taxing the shares in national banks on an assessed them reserved the right to amend or repeal their value thereof for county, school, inunicipal and local charters, any act of the Legislature increasing their purposes. The Supreme Court in Hepburne vs. the tax would be invalid as to such banks unless in the School Directors, 23 Wallace, 480, held the statute acts extending them the right to amend or repeal valid. was reserved.

It has been decided that it is competent for the The national banks were subject to have the same States to tax the shares of national bank stock, nottax imposed on their shares of stocks as are imposed withstanding the capital of the bank was invested on State banks, doing business under charter in bonds of the United States, which were aot granted since the 14th of February, 1856. Their subject to taxation. real estate is subject to taxation. Their shares of It is not discrimination against them because they stock may be taxed at their actual value, but no are required to pay a greater tax on their shares of greater rate of taxation shall be collected on them stock than is paid by banks enjoying special privithan is assessed upon the moneyed capital in the leges under their charters. Leverberger vs. Rouse, 9 hands of individual citizens of the State.

Wallace, 468. In the case of the Covington City National Bank The court should endeaver to ascertain the legisv. City of Covington, etc., 21 Federal Reporter, 491, lative intent in the act of 1886 with reference to the Justice Mathews, discussing this subject, said: taxation of banks, as all depends in this controversy

When therefore a statute taxes the shares of a stock- as to what was that intent. holder at their actual or market or full value, that To aid in reaching a conclusion as to what the necessarily includes such value beyond its par or intent was it is well to recall some official facts nominal value as is imparted to the stock by the within the knowledge of the members of the Legisfact that the bank has a surplus fund or undivided lature. profits. Tbe interest which Congress has left sub- The 1st of July, 1885, was the date of the last ject to taxation by the State under the limitations report of the capital stocks of the banks in the State prescribed, and which is a distinct independent in- before the enactment of the revenue law of 1886. terest in property held by the stockholder, like any From that it is learned that the capital stock of the property that may belong to him, is that interest as fifty-nine National Banks amounted to $9,708,900. defined in Van Allen v. The Assessors, 3 Wall, 573, The capital stock of the sixty-five State Banks, which entitles him to participate in the net profits doing business under charters granted subsequent earned by the bank in the employment of its capi- to 1856, amounted to $6, 224,891. tal during the existence of its charter in proportion The capital stock of the four State Banksto the number of its shares, and upon its dissolution Farmers' Bank of Kentucky, Bank of Kentucky, or termination to his proportion of the property Northern Bank and Bank of Louisville, incorporated that may remain of the corporation after the pay prior to 1856, was $5,144,500. ment of its debts,' and (page 587) it includes for It will be seen from this statement that the capitaxation the whole interest of the stockholder, such tal stock of the National Banks and of the State as would pass to the purchaser of the share of his banks chartered since 1856 amounted in round numcertificate. So, when a State law taxes shares of bers to $16,000,000, while the capital stock of banks pational bank stock it taxes the same interest of the whose charters ante date 1856 amounted to about shareholder that he would transfer on a sale. The $5,000,000, being less than one-third of that of the State may tax them at their actual or at their market other banks named. value, or at any other rate of appraisement which It must be presumed that the Legislature knew does not violate the act of Congress."

that the banks claiming irrevocable contracts to pay To the same effect are the cases of People vs. only 50 cents on each share of their capital stock Commissioners of Texas, 94 U. S., 415 ; Mercantile equal to one hundred dollars, paid less than oneBank vs. New York, 121 U. S., 138. In the latter case third of the revenue coming from the banks under the court said (page 155): · The main purpose, the then existing law. therefore, of Congress in fixing limits to State taxa- It can hardly be said that the Farmers' Bank of tion on investments in the shares of national banks, Kentucky was in a condition to claim an irrevocable was to render it possible for the State, in levying contract, because the act extending its charter, such a tax, to create and foster an unequal and un- which became law on March 10, 1876, expressly friendly competition by favoring institutions or in- reserved the right to amend or repeal its charter dividuals carying on a similar business and opera- and amendments thereto. tions and investments of a like character. The It reads as follows: “That the charter of the language of the act of Congress is to be read in the Farmers' Bank of Kentucky as amended be exlight of this policy."

tended for a period of twenty-four years from the

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termination of its charter as therein fixed: Pro- Section 7 provides that if the banks fail or refuse vided, That said charter and amendments shall be to make the consent and agreement as provided in subject to amendment or repeal by the General As-section 4, then they are to be assessed and the same sembly, either by general or special act. That tax, State, county and municipal, shall be imposed, whilst the privileges and franchises so granted may levied and collected, etc., as is imposed on the asbe changed or repealed, no amendment or repeal sessed, taxable property in the hands of individuals. shall impair other rights previously voted."

Without section 4 the remaining sections of the To simply quote the act extending the charter article would have been a complete system for levyis a sufficient denial of and answer to the claim of ing and collecting taxes on the banks chartered afau irrevocable contract.

ter 1856. The article treats of nothing except the This left but three banks in the State which could taxation of banks. claim an irrevocable contract, and one hundred and It seems there can be no further question of the twenty-five without any claim whatever to im- power of the Legislature at that time to impose a munity against increased taxation.

tax on such banks for State, county and municipal The revenue act repealed several acts by particu- purposes. larly naming them, and excluded certain other acts It was wholly useless for the Legislature to ask from the repealing clause, and declared all other the consent of the banks chartered since 1856 to acts, general and special, and parts of acts incon- make any consent to the imposition of tax on them sistent or not in conformity therewith were thereby for that purpose. repealed. The revenue law is not Chapter 92 Gen

The national banks were subject to the payment eral Statutes. The only part of the act relating to

of taxes for State, county and municipal purposes, the taxation of banks and other institutions of loan

and it was not necessary to obtain their consent that or discount is Article 2, Chapter 92, General Stat- they might be taxed for that purpose. It was needutes. Section 1 of the article relates to the amount

less to ask this class of banks to enter into the of tax which the banks shall pay and designating

agreement. The Legislature may have entertained the method of levying the tax.

some doubt not as to the right to tax banks for Section 2 imposes certain duties on the cashier of State, county and municipal purposes, but as to the the bank with reference to making a report to the

method prescribed and desired to remove all doubt auditor of public accounts.

by obtaining the consent of such banks to that Section 3 exempts banks having certain money method. It was greatly to the interest of the nainvested in bonds or funds of the United States

tional banks and the State banks chartered subsefrom taxation named in the section.

quent to 1856 to enter into the agreement because Sections 4, 5 and 6 of article 2 are as follows:

they were thus released from the payment of county 6. Sec. 4. That each of said banks, institutions and municipal taxes. In agreeing to pay the amount and corporations, by its proper corporate authority, provided in the article for State purposes they were with the consent of a majority in interest of a quorum released from local burdens, which, in some inof its stockholders, at a regular or called meeting, stances, are two or three times as great as that may give its consent to the levying of said tax; and which they agreed to pay the State. It was greatly agree to pay the same as herein provided, and waive

to their interest to accept the proposition of the and release all right under the acts of Congress or State. As a matter of fact these banks were relinunder the charters of the State banks to a different

quishing no rights. They were apparently yielding mode or smaller rate of taxation, which consent or

a right which the State in its sovereignty already agreement to and with the State of Kentucky shall

possessed. The right had never been relinquished, be evidenced by writing under the seal of such

but had been expressly reserved. So vigilant had agreement and consent being delivered, and in con

been the State to not only retain the control of corsideration thereof, such bank and its shares of stock porations and retain its power to tax them, its purshall be exempt from all other taxation whatever so

pose to do so was declared in the form of a legislong as said tax shall be paid during the corporate iative enactment which was understood to be written existence of such bank.

in every act of incorporation. It may be a more "Sec. 5. The said banks may take the proceed- difficult task to show why the three old banks enings authorized by section 4 of this act at any time tered into the agreement. Their right to the imuntil the meeting of the next General Assembly; munity from increased taxation was questioned as provided, they pay the tax provided in section 1 shown by revenue act, as their charters were defrom the passage of this act.

clared repealed so far as they were inconsistent "Sec. 6. This act shall be subject to the provis- therewith. It was the evident purpose of the Legions of section eight (8) chapter sixty-eight (68) of islature to induce these banks to recede from their the General Statutes."

claim to an irrevocable contract. It was desired

to " Be it enacted that the tux of one-hulf of 1

that all banks should be placed upon the same foot corporation by an act of the Legislature of New ing in the matter of taxation with the other bauks Jersey passed January 29, 1835. The act provided of the State.

that as soon as the net proceeds of the railroad The Legislature had been renewing their charters, amounted to seven per cent. on its cost it should and if they were again renewed an appeal must be pay a State tax of one-half of 1 per cent. on the cost made to the same power. These banks may have of the road, and no other tax should be levied realized that the act of 1856 should have, by a proper upon it. interpretation, been made applicable to the acts re- The twentieth section reserved to the Legislature newing their charters. However, it is needless to the right to amend or repeal the act whenever it speculate further as to the reason which induced sliould think proper. A supplemental act was them to enter into the contract with the State by passed on March 2, 1836, in which the right to which they released any irrevocable contract which repeal or amend was reserved. On the 14th of they had under their charter against increased taxa- February, 1846, the Legislature of New Jersey tion. Then banks had the right to give their con- passed an act in effect the same as the Kentucky sent to the increased taxation. The courts bad al- act of 1856. ways recognized the right of a corporation to consent

Another supplemental act to the charter of the to legislation or accept its provisions, and be bound railroad was approved March 23, 1865, authorizing thereby, though it may have the effect of depriving a branch road to be built and by which the comsuch corporation of a vested right. This brings pany was vested with all the powers and franchises me to the question as to what were the terms and given by original and supplemental acts, etc. The conditions of the contract into which all these third section of the last-named act read as follows: banks entered. The banks must be presumed to

per know the law and the effect of the contract to cent. provided by this said original act of incorporawhich they agreed. Those who represent banks are tion to be paid by the said company to the State among the brightest and most sagacious business whenever the net earnings of the said company men of the country. The contract is brief, simple amount to 7 per cent. upon the cost of the road, and without ambiguity.

shall be paid at the expiration of one year from the In short the State agreed to accept and the banks time when the road of the said company shall be agreed to pay seventy-five cents annually on each open and in usc to Phillipburg, and annually thereshare of this stock equal to $100, and in considera- after, which tax shall be in lieu and satisfaction of tion thereof be exempt from all other taxation all other taxation or imposition whatever, by or whatsoever so long as this tax shall be paid during under the authority of this State or any law thereof; the corporate existence of such bank.

If these provided, that this section shall not go into effect were all the terms of the contract then it might be or be binding upon the said company until the said contended with some reason that it was irrevoc- company, by an instrument duly executed under its able during their corporate existence. Being mind corporate seal and filed in the office of the Secretary ful of the policy which had been pursued for thirty of State, shall have signified its assent thereto, and years it said in effect to the banks it is desired that

which assent shall be signified within sixty days the contract be signed in the formal way described, after the passage of the act, or this act is void." but it must be understood that the right to alter, The instrument required by the section was duly exchange or abandon the contract is reserved to the ecuted by the company. In the act of 1865 there State. That its purpose might be fully understood was no reservation of the right to repeal or amend the Legislature placed in the article Section 6, it. Acts of the Legislature imposed a more burdenwhich in terms makes the statute of 1858 a part of some tax on the railroad company than that prothe contract.

vided for in Section 3, supra. The sole question in In view of the plain provision of the statute about New Jersey against Yard was whether the act of the meaning of which there should be no doubt, and

1865 and its acceptance by the railroad company the intent of the Legislature being fully explained

constitute a contract which could not be impaired by its record, it seems to me there should be no by any subsequent Legislature of the State. hesitation in concluding the act of 1856 should be The court held that it was an irrevocable contract, read as part of the contract, bence not irrevocable because the Legislature had not reserved the right contracts. The fact that a written consent to amend or change it. It is plain from the opinion asked and secured does not alter the application of that had the Legislature reserved the right to alter the act of 1856. To this effect is New Jersey vs. or change the contract or act by which it was made Yard, 95 United States, 104

the court would have held the act of the Legislature The facts of that case were as follows: The doing so did not impair the obligation of the conMorris and Essex Railroad Company was created a / tract.

was

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