National Bank of Commerce of Seattle v. King County

• Decision Date: 09 August 1929
• Docket Number: 21949-21953.
• Citation: 153 Wash. 351,280 P. 16
• Court: Washington Supreme Court
• Parties: NATIONAL BANK OF COMMERCE OF SEATTLE v. KING COUNTY, and four other cases.

280 P. 16

153 Wash. 351

NATIONAL BANK OF COMMERCE OF SEATTLE v. KING COUNTY, and four other cases.

Nos. 21949-21953.

Supreme Court of Washington, En Banc.

August 9, 1929

Appeal from Superior Court, King County; John Truax, Judge.

Separate actions by the National Bank of Commerce of Seattle, by the Dexter Horton National Bank of Seattle, by the First National Bank of Seattle, by the National City Bank of Seattle, and by the Seattle National Bank against King County, consolidated for trial. Judgment for plaintiffs, and defendant appeals. Affirmed.

Ewing D. Colvin and Harry A. Rhodes, both of Seattle, and A. O Colburn, of Spokane, for appellant.

Harold Preston and Tanner & Garvin, all of Seattle, amici curiae.

Peters Powell, Evans & McLaren and Poe, Falknor, Falknor & Emory all of Seattle, for respondent Dexter Horton Nat. Bank.

Bausman, Oldham & Eggerman, of Seattle, for respondent Seattle Nat. Bank.

Kerr, McCord & Ivey, of Seattle, for respondent National Bank of Commerce.

McMicken, Ramsey & Rupp, of Seattle, for respondent First Nat. Bank of Seattle.

Almon Ray Smith, of Seattle, for respondent National City Bank.

MILLARD J.

On the ground that the assessment was prohibited by section 5219, Rev. St. U.S. (12 USCA § 548), as discriminative, five national banks of Seattle instituted separate actions against King county to recover taxes paid under protest. Refund of taxes paid for 1926 is sought by the National City Bank and the National Bank of Commerce. The other plaintiffs seek recovery for taxes paid for 1925 and 1926. The causes were consolidated for purposes of trial below and appeal to this court. Except as to the capital, surplus, and undivided profits, and the amount of taxes paid by each plaintiff, the facts in the five cases are the same. The causes were tried to the court without a jury, and resulted in separate findings in each action in favor of the plaintiff. From the judgments entered in favor of the plaintiffs, the defendant has appealed.

Respondent national banks, under authority of acts of Congress, were actively engaged in the banking business during 1925 and 1926 in the city of Seattle. Their capital, surplus, and undivided profits were employed in investments in interest-bearing mortgages, notes, accounts, bonds, warrants, and other evidences of debt, and amounted to approximately $11,250,000 on March 1, 1925, and $12,000,000 on March 1, 1926. During 1925 and 1926 savings and loan associations, mutual savings banks, bond houses, and other financial institutions engaged substantial sums of untaxed moneyed capital in Seattle and throughout the state in competition with the business of respondents.

The capital of domestic savings and loan associations in Seattle, consisting of the savings or deposits of their members, exceeded $22,000,000 on March 1, 1925, and $30,000,000 on March 1, 1926. The capital and funds of the associations were invested in loans upon real estate, interest-bearing bonds, and other securities, and loans upon collateral security other than real estate. Not more than 50 per cent. of the investments were in loans upon real estate mortgages to home owners. Loans of substantial amounts were made to nonmembers of the associations, who became members in form only by depositing small sums to qualify as a member of the association and to obtain a loan. In one instance a loan of $500,000 was thus made to a fraternal organization for the construction of a lodge home and business building. Approximately 90 per cent. of the capital of the associations was contributed by persons who never borrowed from the associations. On March 1st of each of the years 1925 and 1926 the associations had outstanding from individual citizens of Seattle collateral loans of more than $300,000. This collateral consists of a class of securities accepted by respondent banks as collateral for loans. These loans, during each of the years 1925 and 1926, were in excess of $1,500,000. The associations invested in government, state, municipal, and other bonds and warrants of the same character in which the respondents invest, and sold such bonds to citizens of Seattle. Their investments in such bonds and warrants during 1925 and 1926, respectively, exceeded $1,750,000 and $3,750,000. On March 1, 1925, the associations had invested in such bonds and warrants approximately $1,500,000, and on March 1, 1926, $2,500,000. In purchasing municipal bonds and warrants the associations would bid therefor in competition with respondent banks and other financial organizations, and upon such competition purchased during 1925 and 1926 entire series of county and municipal bonds and warrants. The associations accepted deposits, and it was a common practice to permit withdrawal of deposits at will and without notice, upon a form of deposit and withdrawal slips similar to that used by the respondents. The rate of interest higher than that paid by respondents was paid by the associations on savings deposits.

On March 1, 1925, the guaranty fund, surplus, and undivided profits of domestic mutual savings banks in Seattle were approximately $675,000, and on March 1, 1926, exceeded $800,000. Their deposits on March 1, 1925, were approximately $33,000,000, and on March 1, 1926, more than $40,000,000. Of their total resources exceeding $33,000,000 on March 1, 1925, more than $22,000,000 were invested in first mortgages on improved real estate, $42,000 in collateral loans to citizens of King county, and $10,500,000 in government, state, municipal, and other bonds and warrants. On March 1, 1926, of their total resources of $41,000,000, $27,000,000 were invested in first mortgages on improved real estate, $61,000 in collateral loans to King county citizens, and $12,500,000 in bonds and warrants.

Only one trust company was actively engaged in business in Seattle. Its capital, surplus, and undivided profits on March 1, 1925, were $697,365, and on March 1, 1926, $879,496. It acts in all fiduciary capacities as national banks are permitted to do under acts of Congress and laws of this state. The company conducted a mortgage loan business by negotiating mortgages with the borrowers, and sold bonds or participating certificates issued under mortgages or trust deeds to individual investors, most of whom were citizens of Seattle. During 1925 and 1926 it made collateral loans of approximately $15,000 to $20,000, and its loans on mortgages against leaseholds approximated in 1925 $500,000, and in 1926 $700,000. These loans were in the form of bond issues, and most of the bonds were sold to King county citizens. Real estate loans, exclusive of loans against leaseholds, were made by the trust company, approximating $3,000,000 during 1925, and $2,750,000 during 1926. The bonds and participating certificates issued against the mortgages were sold to the public, and particularly to citizens of King county. The company acted as trustee for bond issues secured by mortgages upon real estate and leaseholds aggregating $7,000,000 during 1925 and more than $7,000,000 in 1926. As trustee and executor, the trust company managed estates having investments in mortgages, notes, and bonds of approximately $2,250,000 in 1925, and $13,500,000 in 1926.

The activities of domestic and foreign finance corporations, maintaining offices in Seattle and doing business in 1925 and 1926 throughout King county, chiefly consisted in the financing of automobile dealers, merchants, and individual citizens of the state by lending money upon security of interest-bearing chattel mortgages or conditional sale contracts upon automobiles, furniture, and chattels of various kinds, and also upon assigned accounts and bills receivable, or by the purchase of such mortgages or conditional sale contracts at a discount sufficient to yield a large interest return. Nearly all of the mortgages or purchases were guaranteed by the borrower or vendor. The course pursued by the companies is substantially the same as that followed by the respondent banks in financing such transactions. In many instances customers of the companies were patrons of the national banks, and often financed themselves through the national banks and the finance corporations at the same time. Before the entry of the finance companies into the field such financing was done almost exclusively by the national banks. The finance companies have deprived the national banks of a large percentage of this business by making advances exceeding the amount advanced theretofore by the national banks upon similar securities. The combined capital, surplus, and undivided profits of domestic finance companies in Seattle on March 1, 1925, were more than $1,750,000, and on March 1, 1926, not less than $2,500,000. The amount invested in loans and purchases, and which the companies owned and had on hand March 1, 1925, was approximately $3,500,000, and on March 1, 1926, $4,500,000. The volume of such investments during 1925 was not less than $7,000,000, and almost $9,500,000 during 1926. The foreign finance corporations did a business of approximately $2,250,000 in 1926, and owned on March 1, 1926, $1,250,000 of investments.

Industrial loan companies, domestic corporations maintaining offices in Seattle, had on March 1, 1925, capital surplus and undivided profits of $271,000, and on March 1, 1926, approximately $364,000. They owned on March 1, 1925, interest-bearing mortgages and discounts approximating $300,000, and on March 1, 1926, $500,000. The activities of the companies were very similar to those of the finance companies. Their loans and discounts were made by way of salary loans, assignments of bills receivable, and upon the security of chattel mortgages and conditional sale contracts upon automobiles and other chattels, and...