City of Covington v. First National Bank of Covington No 113 First National Bank of Covington v. City of Covington No 114

• Decision Date: 17 April 1905
• Docket Number: Nos. 113,114,s. 113
• Parties: CITY OF COVINGTON, Kentucky, and John N. Middendorf, Assessor of the City of Covington, Kentucky, Appts. , v. FIRST NATIONAL BANK OF COVINGTON, Kentucky. NO 113. FIRST NATIONAL BANK OF COVINGTON, Kentucky, Appt. , v. CITY OF COVINGTON, Kentucky, and John N. Middendorf, Assessor of the City of Covington, Kentucky. NO 114
• Court: U.S. Supreme Court

198 U.S. 100

25 S.Ct. 562

49 L.Ed. 963

CITY OF COVINGTON, Kentucky, and John N. Middendorf, Assessor of the City of Covington, Kentucky, Appts.,

v FIRST NATIONAL BANK OF COVINGTON, Kentucky. NO 113. FIRST NATIONAL BANK OF COVINGTON, Kentucky, Appt., v. CITY OF COVINGTON, Kentucky, and John N. Middendorf, Assessor of the City of Covington, Kentucky. NO 114.

Nos. 113, 114.

Argued January 5, 1905.

Decided April 17, 1905.

This case was here upon a former appeal, which was dismissed for want of final decree in the court below. Covington v. Covington First Nat. Bank, 185 U. S. 270, 46 L. ed. 906, 22 Sup. Ct. Rep. 645.

The original action was brought to enjoin the assessment or collection of taxes on certain shares of capital stock of the First National Bank of Covington for the years from 1893 to 1900, inclusive, and to enjoin the arrest of the president and cashier of the bank for not listing such shares, and for a decree adjudicating the same not liable to taxation up to the time of the expiration of the charter of the bank on November 17, 1904.

The principal grounds alleged and relied upon are that, by reason of the acceptance of the terms of the act of the general assembly of Kentucky, passed in 1886, known as the Hewitt law, an irrevocable contract had been made between the bank and the state, whereby the former was to pay to the state taxes at a certain rate on its stock, surplus, and undivided profits, which, when paid, were to be in full of all other state, county, or municipal taxes, except those levied on the bank's real estate. It was averred that complainant had regularly paid such taxes up to and including those due July 1, 1900. That the fact that the bank had such irrevocable contract had been adjudicated and finally determined by a decision in the* court of appeals of Kentucky in a litigation wherein the state and the city of Covington and the bank were parties. The bill further set up that an attempt was being made to compel the complainant to list for taxation its shares of stock under an act of the state of Kentucky, passed March 21, 1900 (Session Acts 1900, p. 65). The act under which the taxes were assessed is given in the margin of the opinion in the case of Covington v. First Nat. Bank, 185 U. S. 270, 46 L. ed. 906, 22 Sup. Ct. Rep. 645, and for convenience of reference is also inserted in the margin here. It was also averred in the bill that the act of March 21,

'An Act Relating to the Taxation of the Shares of Stock of National Banks.

'Whereas, the Supreme Court of the United States has lately decided that article three (3), chapter one hundred and three (103), of the acts of 1891, 1892, and 1893 is void and of no effect in so far as the same provides for the taxation of the franchise of national banks. in consequence of which decision there is not now, and has not been since adoption of said article in 1892, any adequate mode of taxing national banks, while state banks are now, and have been ever since 1892, taxable for all purposes, state and local; therefore:

'Be it enacted by the General Assembly of the Commonwealth of Kentucky:

'Section 1. That the shares of stock in each national bank of this state shall be subject to taxation for all state purposes, and shall be subject to taxation for the purposes of each county, city, town, and taxing district in which the bank is located.

'Sec. 2. For purposes of the taxation provided for by the next preceding section, it shall be the duty of the president and the cashier of the bank to list the said shares of stock with the assessing officers authorized to assess real estate for taxation, and the bank shall be and remain liable to the state, county, city, town, and district for the taxes upon said shares of stock.

'Sec. 3. When any of said shares of stock have not been listed for taxation for any of said purposes under levy or levies of any year or years since the adoption of the revenue law of 1892, it shall be the duty of the president and cashier to list the same for taxation under said levy or levies: Provided, That where any national bank has heretofore, for any year or years paid taxes upon its franchise as provided in article three (3) of the revenue law of 1892, said bank shall be excepted from the operation of this section as to said year or years: And provided further, That where any national bank has heretofore, for any year or years, paid state taxes under the Hewitt bill in excess of the state taxes required by this act for the same year or years, said bank shall be entitled to credit by said excess upon its state taxes required by this act.

'Sec. 4. All assessments of shares of stock contemplated by this act shall be entered upon the assessor's books, certified, and reported by the assessing officers as assessments of real estate are entered, certified, and reported, and the same shall be certified to the proper collecting officers for collection as assessments of real estate are certified for collection of taxes thereon 1900, which undertakes to impose taxes for the years 1893 and following, is unconstitutional and void, and operates to discriminate against the complainant, in violation of § 5219 of the Revised Statutes of the United States (U. S. Comp. Stat. 1901, p. 3502). The defendants having filed a plea to the jurisdiction and a general demurrer to the bill, upon motion for a temporary injunction, attempt to enforce taxes levied or assessed upon the shares of capital stock at any time previous to March 21, 1900, were enjoined. 103 Fed. 523.

December 17, 1900, a decree was entered, but, not being final, the writ of error was dismissed. 185 U. S. 270, 46 L. ed. 906, 22 Sup. Ct. Rep. 645. After the case was sent back to the circuit court the prior decision in that court was followed, and it was further held that the judgment of the state court was not a bar to the right to collect taxes for other years than the year directly involved in the judgment set up, and that, as the Hewitt law and its acceptance by the bank had been conclusively held not to constitute an irrevocable contract as to taxes between the state and the complainant, and as the law was valid as to future taxation, the injunction could not be granted as to taxes assessed under the law of March 21, 1900, after its passage. A decree was, therefore, entered, dismissing the complainant's bill as to taxes levied after said date, and permitting the former decree enjoining the assessment and levying of taxes before the passage of the law to stand. 129 Fed. 792.

From so much of the decree as enjoined the taxes assessed prior to March 21, 1900, the city appealed; from so much thereof as refused the injunction and dismissed the bill as to taxes assessed after that date, the bank appealed. Both appeals are now before this court:

Messrs. F. J. Hanlon, J. H. Hazelrig, and Ira Julian for the city of Covington.

[Argument of Counsel from pages 104-106 intentionally omitted] Messrs. Shelley D. Rouse, Edmund F. Trabue,James S. Pirtlc, John C. Doolan, and Attilla Cox, Jr., for the bank.

Mr. Justice Day delivered the opinion of the court:

That the acceptance of the provisions of the so-called Hewitt law did not constitute an irrevocable contract, releasing the bank from taxes upon compliance with its terms, has been settled. Bank Tax Cases, 102 Ky. 174, 44 L. R. A. 825, 39 S. W. 1030; Citizens' Sav. Bank v. Owensboro, 173 U. S. 636, 43 L. ed. 840, 19 Sup. Ct. Rep. 530. Reference is made to the various cases leading up to this result in Deposit Bank v. Frankfort, 191 U. S. 499, 508, 48 L. ed. 276, 279, 24 Sup. Ct. Rep. 154. We are therefore left upon this branch of the case to consider the effect of the judgment of the state court of Kentucky, set up in the complainant's bill as an adjudication of the rights of the parties and a final determination that the acceptance of the Hewitt law had the effect of a valid contract. When this case was before the circuit court for the second time (129 Fed. 792), Judge Cochran, after an elaborate review of the Kentucky cases, reached the conclusion that, as the taxes involved in the case in which the adjudication was had were for a different year than those involved in this suit, the former judgment did not have the effect of an estoppel between the parties, being only conclusive, under the Kentucky decisions, as to taxes in the years involved in the suit in which the judgment was rendered. We do not doubt that this is the settled law of the supreme court of Kentucky. Nor does it make any difference, in the view which that court takes of the matter, that the adjudication as to the right to collect the taxes involved the finding of an exemption by contract, which included, not only the taxes for the years in suit, but all taxes which might be levied under the authority of the contract. The ground upon which the court based its decision with reference to the effect of such adjudication is stated in the case of Newport v. Com. 106 Ky. 444, 45 L. R. A. 518, 50 S. W. 845, 51 S. W. 433, as follows:

'The only question remaining for decision is upon the plea of res judicata. The plea in this case avers that the subject-matter of the former suit was identical with that involved in this action, and that the facts were the same in both actions, except that the former action attempted to collect a tax for the year 1893, and the present action was attempting to collect a tax for the year 1894. . . .

'The authorities seem to hold that when a court of competent jurisdiction has, upon a proper issue, decided that a contract, out of which several distinct promises to pay money arose, has been adjudged invalid in a suit upon one of those promises, the judgment is an estoppel to a suit upon another promise founded on the same contract. But taxes do not arise out of contract. They are imposed in invitum. The taxpayer does not agree to pay, but is forced to pay, and the right to litigate the legality of a tax upon all grounds must of necessity...