Merchants' Nat. Bank of Glendive v. Dawson County

• Decision Date: 21 January 1933
• Docket Number: 7070.
• Citation: 19 P.2d 892,93 Mont. 310
• Parties: MERCHANTS' NAT. BANK OF GLENDIVE v. DAWSON COUNTY.
• Court: Montana Supreme Court

19 P.2d 892

93 Mont. 310

MERCHANTS' NAT. BANK OF GLENDIVE v. DAWSON COUNTY.

No. 7070.

Supreme Court of Montana

January 21, 1933

Rehearing Denied March 24, 1933.

Appeal from District Court, Dawson County; Frank P. Leiper, Judge.

Action by the Merchants' National Bank of Glendive against Dawson County. Judgment for defendant, and plaintiff appeals.

Affirmed.

Statute may exempt building and loan associations from taxation without violating the Federal Constitution (Const.U.S. Amend 14).

Frank Woody, of Helena, and P. F. Leonard, of Miles City, for appellant.

L. A Foot, Atty. Gen., L. V. Ketter, Asst. Atty. Gen., and F. S P. Foss, of Glendive, for respondent.

ANGSTMAN Justice.

Plaintiff, a national banking association of Glendive, Dawson county, brought this action to recover taxes paid by it for the year 1929 under protest. In general, it charges that the applicable laws exact from it taxes on shares of its stock at rates higher than from that of competing moneyed capital, contrary to section 5219 of the Revised Statutes of the United States, as amended (12 USCA § 548).

It concedes that the assessing officers properly valued its shares of stock for assessment purposes under section 2066, Revised Codes 1921, and chapter 64, Laws of 1929, but charges that under the law competing moneyed capital is taxed on the basis of 7 per cent. of its value; whereas its shares are taxed on the basis of 30 per cent. of their value, so that there is produced the unequal taxation complained of. It paid the entire tax assessed against its shares of stock, but the difference between what the tax would have been, if computed on the basis of 7 per cent., and the amount actually assessed, was paid under protest, and the alleged excess is sought to be recovered by this action.

The trial court found all of the issues against plaintiff, and entered judgment for defendant. Plaintiff appealed from the judgment.

In its complaint, plaintiff charges that building and loan associations during the year 1929 employed capital, substantial in amount, in direct and active competition with plaintiff in the county in which plaintiff engages in the banking business. This was put in issue by the answer.

The record shows that on the first Monday in March, 1929, plaintiff had invested in loans and discounts, $480,186.19; in bonds and warrants, $352,598.85; in United States bonds, $101,050; had checking and time deposits of $510,252.05, and savings deposits of $66,403.23.

The evidence shows that on the first Monday in March, 1929, there were twenty-six building and loan associations, including the Glendive Building & Loan Association, doing business in the state; that, from the statement filed by the Glendive Building & Loan Association with the county assessor, it appears that it had loans on real estate secured by mortgages amounting to $197,867.28, loans on stock certificates and passbooks $2,050, and deposits in banks amounting to $2,956.57.

A statement was introduced in evidence showing the resources and liabilities of all twenty-six associations in the state. It is sufficient to say that the statement shows that these associations have resources in substantial amount.

There was evidence that some of these associations, in addition to the Glendive Association, made loans in Dawson county. Thus it was shown that the United States Association of Butte held twenty-seven real estate mortgages on property situated in that county on the first Monday of March, 1929, securing loans aggregating $38,440, and the Security Association of Billings held fifty-seven mortgages on real estate in Dawson county, securing loans aggregating $183,550. There was introduced in evidence a mortgage on real estate in Dawson county given to the Security Building & Loan Association to secure a loan of $30,000, which, the evidence shows, covered property used for an apartment house and garage. There was evidence of another mortgage to the same association, securing a loan of $5,000 and covering business property in Dawson county used as a furniture establishment and photograph gallery. A third mortgage securing a loan in the sum of $5,000 to the same association covers real property in Dawson county used as business property. The loan was not made for the purpose of constructing a new building, but simply as a secured loan. A number of like loans were made by the associations on business property situated in Custer county.

The record shows that three classes of stock are issued by Montana building and loan associations, viz. installment, prepaid, and fully paid stock. On installment and prepaid stock, the dividends earned and apportioned are not paid over to the shareholder, but are credited to the stock on the books of the association. The dividends on the fully paid stock are paid to the owners when the dividends are declared.

The Glendive Association had outstanding installment stock amounting to $82,418 and fully paid stock amounting to $93,300, and the owners of about $47,000 of this stock had borrowed money from the association. The twenty-six associations together had in the year 1929 outstanding loans of about $16,500,000 to holders of about $13,500,000 of installment stock, and loans of about $265,000 to holders of $3,375,900 fully paid stock, and $1,275,000 prepaid stock.

The contention of the plaintiff bank is that the owners of the fully paid and prepaid stock of building and loan associations, by becoming the owners of such stock, have made investments the same as purchasers of bank stock, and that the investments are of moneyed capital for the purpose of obtaining earnings thereon by way of dividends, the same as investments in bank stock; or, if not, that they have become depositors of funds on which they receive interest by way of dividends, the same as savings deposits in a bank, and that the associations are in competition with the banking business.

Plaintiff's contention is that building and loan associations are favored in matters of taxation over national banks. The contention that there is unlawful discrimination cannot be sustained.

Section 5219, supra (12 USCA § 548) as in force in 1929, sanctioned state taxation of shares of stock of national banks, subject to the restriction that "the tax imposed shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such state coming into competition with the business of national banks: Provided, That bonds, notes, or other evidences of indebtedness in the hands of individual citizens not *** engaged in the banking or investment business and representing merely personal investments not made in competition with such business, shall not be deemed moneyed capital."

It is sometimes difficult to determine when moneyed capital comes into competition with the business of national banks within the meaning of this section. In Mercantile National Bank v. New York, 121 U.S. 138, 7 S.Ct. 826, 30 L.Ed. 895, it was held that this section embraces shares of stock or other interests owned by individuals in enterprises in which the capital used in the business is money, and where the object of the business is the making of profit by its use as money.

In First National Bank v. Anderson, 269 U.S. 348, 46 S.Ct. 135, 138, 70 L.Ed. 303, the court said that competition exists where moneyed capital "is employed, substantially as in the loan and investment features of banking, in making investments, by way of loan, discount or otherwise, in notes, bonds or other securities with a view to sale or repayment and reinvestment."

Again, in First National Bank v. City of Hartford, 273 U.S. 548, 47 S.Ct. 462, 465, 71 L.Ed. 767, 59 A. L. R. 1, the court had this to say: "But this court has recently had occasion, in reviewing the earlier decisions dealing with this subject, to point out that the requirement of approximate equality in taxation is not limited to investment of moneyed capital in shares of state banks or to competing capital employed in private banking. The restriction applies as well where the competition exists only with respect to particular features of the business of national banks or where moneyed capital 'is employed, substantially as in the loan and investment features of banking, in making investments, by way of loan, discount or otherwise, in notes, bonds or other securities with a view to sale or repayment and reinvestment.' *** Competition may exist between other moneyed capital and capital invested in national banks, serious in character and therefore well within the purpose of section 5219, even though the competition be with some but not all phases of the business of national banks. Section 5219 is not directed merely at discriminatory taxation which favors a competing banking business. Competition in the sense intended arises not from the character of the business of those who compete but from the manner of the employment of the capital at their command. *** Our conclusion is that section 5219 is violated wherever capital, substantial in amount when compared with the capitalization of national banks, is employed either in a business or by private investors in the same sort of transactions as those in which national banks engage and in the same locality in which they do business."

Of like import is the case of State of Minnesota v. First National Bank of St. Paul, 273 U.S. 561, 47 S.Ct. 468, 470, 71 L.Ed. 774.

In the Hartford Case, the court pointed out that, in order to establish the fact of competition, it is not necessary to show that national banks and competing investors solicit the same customers for the same loans or investments, but that it is enough "if both engage in seeking and securing in the same locality capital investments...