198 U.S. 100 (1905), Covington v. First National Bank of Covington

Citation:198 U.S. 100, 25 S.Ct. 562, 49 L.Ed. 963
Party Name:Covington v. First National Bank of Covington
Case Date:April 17, 1905
Court:United States Supreme Court

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198 U.S. 100 (1905)

25 S.Ct. 562, 49 L.Ed. 963



First National Bank of Covington

United States Supreme Court

April 17, 1905




A federal court is not required to give a judgment in a state court any greater weight than is awarded to it in the courts of the state in which it was rendered. As it is the settled rule in Kentucky that an adjudication in a suit for taxes is not an estoppel between the parties as to taxes of any other year, even though such adjudication involves the finding of an exemption by contract, not only as to taxes involved in the suit, but also as to all taxes that might be levied under the contract, the

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federal courts will not enjoin the collection of taxes for subsequent years on the ground that their invalidity was adjudicated by such a judgment.

The statute of Kentucky of March 21, 1900, taxing shares of national banks, from the years 1893 to 1900 and thereafter, held void and in conflict with § 5219, Rev.Stat., as to those portions which are retroactive as imposing a burden on the bank not borne by other moneyed corporations of the state, and valid and not in conflict with § 5219 as to taxes imposed thereafter.

A difference in methods in assessing shares of national banks from that of taxing state banks does not necessarily amount to a discrimination, rendering the act invalid under § 5219, and justify the judicial interference of courts for the protection of the shareholders, unless it appears that the difference in method actually results in imposing a greater burden on the national banks than is imposed on other moneyed capital in the state.

This case was here upon a former appeal, which was dismissed for want of final decree in the court below. Covington v. Covington First National Bank, 185 U.S. 270.

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

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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 National Bank, 185 U.S. 270, and for convenience of reference is also inserted in the margin here. * It was also averred in the bill that the [25 S.Ct. 563] Act of March 21,

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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. 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 F. 523.

December 17, 1900, a decree was entered, but, not being final, the writ of error was dismissed. 185 U.S. 270. 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

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decree enjoining the assessment and levying of taxes before the passage of the law to stand. 129 F. 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.

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DAY, J., lead opinion

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; Citizens' Savings Bank v. Owensboro, 173 U.S. 636. Reference is made to the various cases leading up to this result in Deposit Bank v. Frankfort, 191 U.S. 499, 508. 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 [25 S.Ct. 564] 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 F. 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. Commonwealth, 106 Ky. 444, 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

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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 exist, regardless of former adjudications as to the validity of a different tax.

It is unnecessary to cite the cases; they will be found in Judge Cochran's opinion. It is sufficient to say that, if this case had been decided in the state court in Kentucky, the adjudication pleaded herein, not involving taxes for the same years as those now in controversy, would not avail as an estoppel between the parties. It is true that a different rule prevails in the courts of the United States. The reasons therefor were stated in an opinion by MR. JUSTICE WHITE, speaking for the Court, in the case of New Orleans v. Citizens' Bank, 167 U.S. 371, and in cases arising in a federal jurisdiction the doctrine therein announced will doubtless be adhered to. The learned counsel for the plaintiff in error refer to the decision of this Court in Deposit Bank v. Frankfort, 191 U.S. 499, as authority for the doctrine that, where a contract right has been adjudicated which involves an exemption from all taxation, such adjudication will...

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