Shelby County v. Union Planters Bank

• Decision Date: 02 March 1896
• Docket Number: No. 766,766
• Citation: 40 L.Ed. 650,16 S.Ct. 558,161 U.S. 149
• Parties: SHELBY COUNTY et al. v. UNION & PLANTERS' BANK
• Court: U.S. Supreme Court

161 U.S. 149

16 S.Ct. 558

40 L.Ed. 650

SHELBY COUNTY et al.

v UNION & PLANTERS' BANK

No. 766.

March 2, 1896.

S. P. Walker, for appellants.

Wm. H. Carroll, for appellee.

Mr. Justice PECKHAM delivered the opinion of the court.

This is an appeal from the decree of the circuit court of the United States for the Western district of Tennessee, granting an injunction at the suit of the Union & Planters' Bank to restrain the municipal authorities from collecting any tax laid upon the surplus of the bank, on the ground that such surplus is exempt under a clause in the charter of the bank similar to the one discussed in the cases of The Bank of Commerce, 16 Sup. Ct. 456. The circuit court granted the injunction, and permanently enjoined the municipal authorities from the collection of the tax. They have appealed to this court.

There are two grounds, either of which, if decided in favor of appellants in this case, would result in upholding the validity of the tax upon the surplus: First, if it should be held that by the true interpretation of the charter the exemption, while applying to the shares of stock in the hands of the shareholders, does not extend to the corporation itself, the tax would be valid; second, even if the tax on the capital stock were void, that upon the surplus might still be upheld, on the authority of the cases of The Bank of Commerce, supra. We have already held in that case that a tax on the surplus was valid, but the question whether a tax on the capital stock of the bank was valid could not be raised there, because the case was before us on a writ of error taken to a state court, and the question in the state court was decided in favor of the exemption claimed by the bank. This being an appeal from a judgment of the United States circuit court, both questions are open for our decision. We think it, therefore, proper to here decide the question first above stated.

Various decisions of the courts of Tennessee have been cited by counsel on both sides as to the meaning of the exemption clause,—whether or not it covered the capital stock and the shares also. Generally, the courts of that state held, before the decision by this court of the Farrington Case, 95 U. S. 679, that the charter tax was laid upon the corporate capital stock, and the exemption was of that stock from any further tax. Subsequently to the decision in that case the state courts have held that under the construction given to the clause in the Farrington Case and in Bank of Commerce v. Tennessee, 104 U. S. 493, the tax was on the shares, and the exemption covered both the capital stock and the shares thereof. The decision giving exemption to both classes of property was adjudged alone upon the authority cited. In such a case as this, where we are to construe the meaning of the clause of the statute as to what contract is contained therein, and whether the state has passed any law impairing its obligation, we are not bound by the previous decisions of the state courts, except when they have been so long and so firmly established as to constitute a rule of property (which is not the case here), and we decide for ourselves, independently of the decisions of the state courts, whether there is a contract, and whether its obligation is impaired. Railroad Co. v. Palmes, 109 U. S. 244, 256, 3 Sup. Ct. 193; Railroad Co. v. Dennis, 116 U. S. 665-667, 6 Sup. Ct. 625; Mobile & O. R. Co. v. Tennessee, 153 U. S. 486, at page 492, 14 Sup. Ct. 968.

While according to the decisions of the supreme court of Tennessee, the respect which is most justly due them on account of the high character of that tribunal, nevertheless the responsibility is upon us to determine the question independently, and we cannot agree with that court in its construction of the decisions of this court in the two cases mentioned. Indeed, one of the judges of the state court said in the course of an opinion (City of Memphis v. Union & Planters' Bank, 91 Tenn., at page 553, 19 S. W. 758) that since the Farrington Case the court had recog- nized the decision, and had at the same time adhered to its own former decisions that no ad valorem tax could be lawfully laid on the capital stock; and thus the effect of the two decisions, the one federal and the other state, was that both classes were exempted. Other judges said they were exempted by reason of the federal decisions.

We stated in the Bank of Commerce Case, supra, that the tax provided in this charter is laid upon the shares of stock in the hands of the shareholders, and they are exempt from any further taxation on account of their ownership of such shares. In that respect we followed the case of Farrington v. Tennessee, 95 U. S. 679, and we refused in the Bank of Commerce Case to overrule or distinguish it; but it is claimed on the part of the appellee herein that the Farrington Case also decided that the charter tax is in lieu of all other taxes, not only upon the shares in the hands of the shareholders, but that it exempts the corporation and all its property from any further taxation. We cannot give so broad an effect to the decision in the Farrington Case. The question of the exemption of the corporation and its property from taxation did not arise in that case, and there was no adjudication of that question by its decision. Farrington was the owner of certain shares of stock in the bank, and the state and the county of Shelby each claimed the right, under the law, to assess taxes against him by reason of his ownership of those shares, at the same rate that taxes were assessed and levied upon other taxable property. He resisted the payment of the taxes upon the ground that by virtue of the exemption clause in the charter the bank, its franchise, its capital stock, and also the shares of stock of the individual stockholders, were subject to no taxation other than at the rate specified in the charter.

Although, in setting forth the grounds of his resistance to the payment of the tax, Farrington stated that the bank, its franchise, and its capital stock were not subject to taxation, still that was not a material question. If the shares of stock owned by him were not subject to taxation in his hands, that was sufficient for him, and the question of the exemption of property of the corporation would not be involved. The corporation was not a party to the suit, and although in the opinion written upon the decision of the question whether the shares were liable to taxation in his hands it may have rather been assumed that the stock was not subject to taxation as against the corporation, or that the whole stock was exempt in whosesoever hands it was, the matter actually decided was the exemption from taxation of these shares in the hands of the shareholders. In the suit that was instituted it was agreed that if, in any event, the decision was adverse to Farrington, judgment should be rendered against him for a certain number of dollars, the amount of the tax assessed against him; and, if the decision should be in his favor, then the judgment was to be that the taxes were illegally assessed, and that said shares of stock were to be exempt from all other taxation, except the one-half of 1 per cent. to the state, as provided for in the tenth section of the bank's charter; and the collection of any further tax was to be enjoined. The trial court rendered a decree enjoining the collection of the tax, which was reversed by the supreme court of the state (8 Baxt. 539) on the ground that the shares of stock were not the property or thing exempted, and it was, therefore, adjudged that Farrington should pay to the state the sums of money assessed upon his shares. Farrington thereupon sued out a writ of error, and, coming into this court, the judgment of the supreme court of Tennessee was reversed, and it was held that the charter tax was upon the shares of stock in the hands of its shareholders, and that they were consequently exempt from the payment of any further tax.

There are undoubtedly some expressions in the opinion of Mr. Justice Swayne which lend color to the idea that, in his belief, not only were the shares in the hands of the shareholders exempt from any further taxation than that imposed by the charter, but that the property of the corporation was itself exempt from any taxation other than that provided for in that section. The latter question, however, was not before the court, and was not decided by it, and we are of opinion that, assuming that the charter tax was laid upon the shares of stock in the hands of the shareholders, the exemption from further taxation applies to the subject which was taxed under the charter, and is not of any greater scope; and that it would not, therefore, include the exemption from taxation of either the capital stock or the surplus, which is the property of the corporation itself. We come to this conclusion because of the fact, well established by the decisions of this as well as many state courts, that there is a clear distinction between the capital stock of a corporation and the shares of stock of such corporation in the hands of its individual shareholders. So separate are these properties, and so distinct in their nature, that the taxation of the one property is not the taxation of the other. This is no new doctrine, and the distinction between the two properties was recognized by the supreme court of Tennessee as long ago as in the case of Union Bank v. State, 9 Yerg. 490, decided in 1836. It was held that under the clause of the charter there under consideration any further tax on the capital stock than that which was provided for in the charter itself was void, but that the state might tax the shares of stock in the hands of individuals, notwithstanding the exemption from further taxation on the capital stock.

We do not admit the claim made by the counsel for appellee, that the Farrington Case must have decided the exemption of the stock of the corporation, because...