Bank of Pennsylvania v. The Commonwealth

• Decision Date: 27 October 1852
• Citation: 19 Pa. 144
• Parties: Bank of Pennsylvania <I>versus</I> The Commonwealth.
• Court: Pennsylvania Supreme Court

Page 144

19 Pa. 144

Bank of Pennsylvania versus The Commonwealth.

Supreme Court of Pennsylvania.

October 27, 1852.

ERROR to the Common Pleas of Dauphin county.

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The case was argued by Bell and Mallery, for the Bank.—The material question is, whether, by the Act of 11th April, 1848, the Bank of Pennsylvania is liable to the graduated tax on its dividends imposed by the Act of 1st April, 1835. The phrase in the first section of the Act of 1848, relied on upon the part of the Commonwealth, viz. "except in cases where there is an express exemption in the Act extending or renewing such charter," it was submitted, might be construed to mean "clear" or "plain." If so, and the Court, from the Act of 1830, incorporating the Bank, or from it in connection with contemporaneous evidence, can perceive a clear intent to exempt the Bank from future taxation, the constitutional question may not arise.

It was contended, that the Act of 1848, if designed to affect the Bank of Pennsylvania, was unconstitutional. The parties to the contract were the stockholders, in their individual character and the state: Providence Bank v. Billings, 4 Peters' Rep. 523-4. In relation to the constitutional question, reference was made to the case above referred to: 4 Wheaton 575, Dartmouth College v. Woodward; 6 Barr 86, Brown v. Hummel; 10 Barr 449, Commonwealth v. Easton Bank; 7 Ohio 125; 7 Yerger 490.

It was admitted that a relinquishment of the taxing power is not to be assumed; an intent to abandon ought to appear. But the contract to relinquish it may be shown by necessary implication: 2 Story on the Const. § 1371.

It was contended that the action of the house was legitimate evidence to be submitted to the jury on the question of consideration paid for the charter.

In the case of Gordon v. The Appeal Tax Court, 3 Howard 113, it was decided that the right of banking is a franchise, which is not taxable as such, if a price has been paid for it, and accepted by the Legislature. A distinction is there taken between the franchise, as a subject of taxation, and the corporate property of the Bank; which latter, it is said, may be taxed, unless there is a special agreement to the contrary.

Purviance and McCormick, for the Commonwealth.—The case, on the part of the Bank, rests upon the argument, 1. That the Act of 1848 was not designed to embrace the Bank of Pennsylvania; 2. That if it were so intended, the Act is unconstitutional. It is assumed, on the part of the Bank, that there was a contract between the Commonwealth and the Bank, in the Act of 1830, that the Bank should be exempted from taxation. But there is no evidence that the four million loan was regarded as a bonus; it was given to the Bank because the state was the holder of a large amount of its stock. But the Act alone is to be looked to in deciding the question as to whether there was such a contract. The evidence was all on paper, and should not have been submitted to the jury.

There was no bank but the Mechanics' Bank which was expressly exempt from taxation.

The Bank of Pennsylvania did not apply for an extension of its charter at the session of 1829-30. The Act of that year was a revenue measure, and there is no evidence that the Bank of Pennsylvania participated in it till the bill had passed both houses, was approved, and was accepted by the stockholders.

But the material question is, whether the Bank is embraced by the Act of 1848. The Act is general in its terms, applying to all banks, except to such as were expressly exempt from taxation. In its case there was neither an express nor an implied exemption. As to the argument that the premium of 5½ per cent. to be paid on the four millions, amounting to $220,000, was to be regarded as a bonus paid for its charter, it will be seen that, according to the practice of the Legislature about that time, this was a less price than was usually exacted from other banks at the time of granting or renewing their charters. But it is plain that there was neither an express nor implied exemption in the case of this Bank. The Act of 1830 imposed no tax on the dividends of this Bank; and the Act of 1835 imposed the graduated tax upon those banks only which were then subject to a tax on dividends, and it was by the indulgence of the Legislature, from 1835 till 1848, that this Bank was allowed to escape the tax imposed on nearly all of the banks of the state. The case of the Easton Bank, 10 Barr 442, rules the principle that arises here.

The power of taxation is essential to the existence of a state, and is an incident of sovereignty. In making a grant of land the right to tax it need not be expressly reserved: Prov. Bank v. Billings, 4 Peters 514. In the Act of 15th April 1835, rechartering the Mechanics' Bank of Philadelphia, it was declared that in consideration of the payment of $100,000, that Bank "shall be free from any tax or charge whatever, during the continuance of this charter." Here there was an express exemption.

In the Act of 4th May, 1852, relative to a loan for the completion of the North Branch Canal, it was provided that the loan "shall not be subject to taxation for any purpose whatever."

The case in 3 Howard 133, rightly understood, is an authority in favor of the power of a state to tax the dividends of banks. In that case it was decided that the stock of old banks was exempt from taxation, in consequence of a provision in the Act of 1821, exempting them from any further tax or burden; but the new banks, whose charters were extended without such stipulation, were declared liable to be taxed. The Court also defined the distinction between the franchise and the property of the Bank, and determined that, though after a charter has been granted the Legislature have no right to tax the franchise, they have the right to tax the property, and that the capital stock and dividends of a bank are to be regarded as property, and distinct from the franchise, or the right to carry on the business of banking.

The opinion of the Court, filed October 27, was delivered by BLACK, C. J.

The Bank of Pennsylvania was first chartered in 1793. The charter was renewed in 1810, and afterwards again in 1830. By the last-mentioned act the Bank was incorporated for twenty-five years, with a capital of two and a half millions of dollars, and was required to loan to the Commonwealth a sum not exceeding four millions of dollars at a premium of five per cent., the certificates to bear an interest of five per cent. It was also enacted that all certificates of state stock should be issued and transferred at the Bank of Pennsylvania, without charge either to the Commonwealth or to the persons making such transfers. These conditions of the charter were accepted and complied with. The state was the owner of three-fifths of the capital stock, and for that reason or some other this Bank was not made subject to the graduated tax upon dividends provided for by the act relating to banks, passed 1st April, 1835. But in 1843 the state sold out her shares of the stock, and in 1848 a law was passed extending the act of 1835 to all banks whose charters had been renewed or should afterwards be renewed, "except in cases where there is an express exemption in the act extending or renewing their charters." The Auditor-General, deeming the Bank of Pennsylvania within the terms of this act, made out an account against it for taxes unpaid in 1848, 1849, and 1850, amounting, with interest, to $51,068.75. From this account the Bank appealed to the Common Pleas of Dauphin, whose judgment was in favor of the Commonwealth. The case comes to us on writ of error.

The charter contains no express stipulation on the part of the state not to tax the Bank or its stockholders, either for its property, its profits, its capital, or its franchises. It is therefore literally within the terms of the act of 1848. It can relieve itself from the payment of the tax only by showing the act which imposes it to be unconstitutional and void. This it asserts is the case, on the ground that the charter was a contract, and the act of 1848 a violation of it.

That an act of incorporation is a contract between the state and the stockholders, is held for settled law by the Federal Courts and by every State Court in the Union. All the cases on the subject are saturated with this doctrine. It is sustained not by a current, but by a torrent of authorities. No judge who has a decent respect for the principle of stare decisis — that great principle which is the sheet anchor of our jurisprudence — can deny that it is immovably established. Sitting here to declare the law as it is, not as we would have it to be, our private opinions are not entitled to a feather's weight in opposition to the universal voice of our predecessors and our cotemporaries in every part of the country. I say this for myself alone. My brethren think the question does not arise here, and have given me no authority to commit them on it. But we are all willing, though for different reasons, to concede the correctness of the argument for the plaintiff in error, so far as it asserts that the charter is a contract. This being assumed, what is the true construction of it?

I have already said that there is no exemption from taxation stipulated for in the charter. The act of incorporation is entirely silent on that subject. We are then to consider whether the state lost the power to tax the dividends of the Bank by not reserving it in words, or whether the Bank, by not bargaining for exemption, left its stockholders liable to pay out of their profits a share of the public expenses. We think the latter proposition is true, and not the former.

The taxing power is an incident of the highest sovereignty. It is an essential part of every independent government. By the constitution, and by the principles which lie at the foundation of every organized...