Bank of Kentucky v. Stone

• Decision Date: 04 June 1898
• Docket Number: 6,555.
• Parties: BANK OF KENTUCKY v. STONE et al.
• Court: United States Circuit Court, District of Kentucky

88 F. 383

BANK OF KENTUCKY v. STONE et al.

No. 6,555.

United States Circuit Court, D. Kentucky.

June 4, 1898

[Copyrighted Material Omitted]

This is a bill in equity filed by the Bank of Kentucky, a corporation organized under the laws of Kentucky, to restrain the assessment and collection of certain taxes for the benefit of the defendants the city of Louisville, the county of Franklin, and the city of Frankfort. Samuel H. Stone is the auditor of public accounts for the state of Kentucky, Charles Finley is the secretary of state, and George W. Long is the state treasurer; and these three officers, also made defendants herein, constitute the state board of valuation and assessment. The bill avers that the complainant has an irrevocable contract with the state of Kentucky, by which taxes are limited to a certain amount per share upon its stock, and the usual local taxes on its real estate, but that the revenue act of the legislature of Kentucky passed November 11, 1892, impairs that contract, and is in violation of the constitution of the United States.

The case made by the bill is as follows:

The complainant was created a body politic and corporate by an act of the general assembly of Kentucky approved February 22 1834. The term of its corporate existence was fixed at 30 years from the date of its incorporation. It was authorized to do a banking business and to issue bank notes. It was directed to keep its principal office of discount and deposit in the city of Louisville, and to locate a branch at Frankfort, the seat of the government, to aid and manage the fiscal affairs of the state. The state was given a voice in the control of the bank by a provision that the government of the commonwealth should appoint three of the bank's directors. By the fifteenth section of the original charter it was provided that the bank should pay to the treasurer of the commonwealth 25 cents on each $100 of stock held and paid for in said bank, which should be in full of all tax and bonus, provided that the legislature might increase or diminish the same; but that at no time should the tax exceed 50 cents on each $100 of stock paid for in said bank. By an act of February 12, 1836, the tax was increased to 50 cents a share. By the act of February 15, 1858, it was provided that the charter privileges of the complainant should continue in full force for 20 years from October 1, 1864; but this extension was declared to be granted on certain conditions. The extension was duly accepted by complainant. On May 17 1886, an act called the 'Hewitt Act' was passed, to make taxation equal and uniform. It provided that all state and national banks should pay into the state treasury 75 cents on each share of their capital stock, and should, in addition, pay into said treasury, on their surplus, undivided profit, and accumulations in excess of 10 per cent. of their capital stock, a tax at the same rate as that assessed on real property; and that the said taxation should be in full of all tax,-- state, county, and municipal,-- except that the real estate and buildings owned and used by the banks in conducting their business should not be exempted from taxation for municipal or county purposes; and that such real estate alone might be taxed for county and municipal purposes, as other real estate was taxed. The fourth section of the second article of the act provided that each of the 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 thereof, might give its consent to the levying of said tax, and agree to pay the same, and waive and release all right under the act of congress or under the charters of the state banks, to a different mode or a smaller rate of taxation, which consent and agreement to and with the state of Kentucky should be evidenced by writing, under the seal of said bank, and delivered to the governor of the commonwealth before the next meeting of the legislature; and said agreement and consent being delivered, and in consideration thereof, such bank and its shares of stock should be exempt from all other taxation whatsoever, so long as said taxation should be paid, during the corporate existence of the bank. On June 25, 1887, within the proper time, at a stockholders' meeting, by a vote of the stockholders, the complainants gave their consent to the levying of said tax, and to the waiver and release of all right under their charter to a different mode and a lower rate of taxation; and this consent was duly certified by the governor of the commonwealth. Since 1887 the complainants have paid this tax under the so-called 'Hewitt Act.' On November 11, 1892, the legislature of Kentucky, under a constitution adopted in 1891, passed an act dealing with the assessment of certain corporations; among others, banks. The act provided that every incorporated bank should, in addition to other taxes imposed on it by law, annually pay a tax on its franchise to the state, and a local tax thereon to the county, incorporated city, town, or taxing district where its franchise might be exercised. The auditor, treasurer, and secretary of state are by said act constituted a board of valuation and assessment for fixing the value of said franchise. The board is required to apportion the value of the franchise among the several taxing jurisdictions entitled to a share of such tax, and for such apportionment the auditor of state is required, at the expiration of 30 days, to certify to the county clerks of the counties where any portion of the corporate franchise of such banks shall be liable to local taxation the amount thereof liable for county or state taxes; and the county clerk is required to certify the same to the collecting officer of the county and city for collection. If a bank fails to pay its taxes, penalties, and interest after 30 days' notice, it is to be deemed guilty of a misdemeanor, and upon conviction is to be fined $50 for each day during which the tax remains unpaid, to be recovered by indictment or by civil action, of which the Franklin circuit court shall have jurisdiction. The bill avers that the amount of tax which the complainant would have to pay to the board of valuation and assessment over and above what it has to pay under the Hewitt law would be more than $20,000 per annum.

The complainant avers: That the defendants are conclusively estopped by previous litigation to contend in this suit that the complainant has not an irrevocable contract with the state limiting its taxes to those fixed in the Hewitt act. That on February 28, 1894, the complainant filed in the circuit court of Franklin county, that being a court of general jurisdiction, its petition against the county court of Franklin and R. D. Armstrong, sheriff of said county setting forth the contracts between complainant and the state in regard to taxes under its original charter and under the Hewitt law, claiming that no taxes could be collected from the complainant except under the Hewitt law during its charter life, and, further, that the act of the legislature of November 11, 1892, was unconstitutional and void as impairing the obligation of its contracts aforesaid. That the prayer of the petition was that the court should establish the contracts, and should enjoin Franklin county and Armstrong, its sheriff, from attempting to collect any taxes contrary to said contracts. That a decree was entered upon this petition in the Franklin circuit court, adjudging that the act of November 11, 1892, did not violate any contract between the complainant and the state, and the petition for injunction was denied. That the complainant thereupon appealed from the decree to the court of appeals of Kentucky, which court reversed the judgment of the lower court, and remanded it to the circuit court of Franklin county for judgment in conformity to its opinion. That the circuit court entered the following judgment on January 21, 1896, which is still in full force and effect: 'This day came the parties by their attorneys, and this cause having been heretofore submitted for a judgment conforming to the opinion and mandate of the court of appeals heretofore filed, reversing the former judgment of this court, and the court being now sufficiently advised, it is adjudged that article 2 of the act of the general assembly entitled 'An Act to amend the revenue laws of the commonwealth of Kentucky,' approved May 17, 1886 (Gen. St. c. 92, art. 2), and the acceptance of the provision thereof by the plaintiff, constituted a contract between the plaintiff and the commonwealth, which the latter cannot alter or change without the consent of the former, by the terms of which contract the plaintiff cannot, during the continuance of its charter, be assessed for taxation or taxed for state purposes in a different mode or at a greater rate of taxation than as prescribed in the said act, and can be assessed for taxation and taxed for county and municipal purposes only upon its real estate used by it in conducting its business; that the provisions of the present constitution of this state and the act of November 11, 1892 (Acts 1891-93, c. 103, art. 3), in so far as they were intended to provide for any assessment or taxation of the plaintiff's property, rights of property, or franchise, except to assess and tax for county and municipal purposes its real estate used in conducting its business, are in violation of and repugnant to the federal constitution, and void; that the board of valuation and assessment provided for in said act of November 11, 1892, had and has no authority in law to assess or value the plaintiff's franchise for taxation, or the auditor to apportion or certify the same, or any...