State Nat. Bank v. City of Memphis

• Decision Date: 23 June 1906
• Citation: 94 S.W. 606,116 Tenn. 641
• Parties: STATE NAT. BANK v. CITY OF MEMPHIS.
• Court: Tennessee Supreme Court

94 S.W. 606

116 Tenn. 641

STATE NAT. BANK v. CITY OF MEMPHIS.

Supreme Court of Tennessee.

June 23, 1906

Appeal from Chancery Court, Shelby County; F. H. Heiskell Chancellor.

Action by the State National Bank against the city of Memphis. From a decree sustaining a demurrer to the bill, plaintiff appeals. Affirmed.

Carroll McKellar, Bullington & Biggs, for appellant.

Henry F. Walsh, City Atty., and Flippin & Neuhardt, for City of Memphis. Atty. Gen. Cates, for the State.

NEILL J.

In the general revenue act of 1903, p. 632, c. 258 of the acts of that year, the following section appears, viz.:

"Sec. 25. That the shares of stock of stockholders of any bank or banking association, savings bank, or loan company, or insurance company, or investment company, or cemetery company, or company or incorporation (other than such as are defined and assessable under sections 22 and 23 of this act) doing business in this state, whether domestic or foreign, shall be assessed and taxed for state, county and municipal purposes as the personal property of the stockholders, whether they reside within or without the state of Tennessee; provided, however, the assessment of such shares of stock as the property of the stockholders shall be in lieu of any assessment or taxation of the capital stock or corporate property of such corporation, company, or association. Shares of stock assessable under this section shall be assessed at not less than the actual cash value of the same, less the assessed value of realty and tangible property, which said actual cash value of shares of stock shall be computed by looking to and considering the market value, the actual value of the shares of stock, and from any other evidence of the value of the same. Real estate and tangible personalty of any corporation, company or association, defined in this section, shall be assessed to the same, in the same mode and manner, and where situate, as other real estate and tangible personalty; but in computing the assessable value of such shares of stock, the assessed value of the realty and tangible personalty and registered Tennessee state bonds owned for a period of not less than six months prior to the tenth day of January preceding, shall be deducted from the value of the shares of stock and the remaining value constitute the value upon which the assessment shall be made. Assessments of shares of stock under this section shall be made at the place, ward, or district of the town or county in which the corporation, association, or company is located. ***"

In obedience to the direction contained in the following language of the foregoing section, viz., "but in computing the assessable value of such shares of stock, the assessed value of *** registered Tennessee state bonds owned for a period of not less than six months prior to the tenth day of January preceding, shall be deducted from the value of the shares of stock, and the remaining value constitute the value upon which the assessment shall be made," the tax assessor for the city of Memphis deducted $250,000 as representing the value of such bonds, from the assessment of the shares of stock in the complainant bank, but the board of equalization corrected this action of the assessor, by disregarding this deduction, and raising the assessment accordingly.

Thereupon, an agreement was entered into between the city and the bank whereby the latter was permitted to pay the taxes ($6,840.84) on the shares under protest. This agreement recites that a distress warrant was about to issue and the taxes were paid in view of that fact, and the city agreed that it would not insist that such payment was voluntary.

The tax rate was fixed at $2.15 for the year covered by the assessment in the ward in which complainant bank resides, and the present bill was filed to recover so much of the tax as was paid upon the state bonds.

Upon the allegations of the bill the two principal questions raised by demurrer in the court below and debated here are the following:

On behalf of the complainant it is insisted that state bonds are inherently exempt or nontaxable, on the theory that the state would not have the right to tax its own obligations in the hands of its creditors. But aside from this contention, it is insisted by the complainant that the clause referred to does not create an exemption but only regulates the assessment of the property of banks.

On behalf of the defendant it is insisted that the clause of the act directing a deduction of the amount of state bonds held for six months preceding the assessment was merely an attempt to create an exemption of this class of property, and was therefore unconstitutional and void.

Before considering either of these questions, it is deemed necessary to dispose of two preliminary questions. The first of these is that the money was paid voluntarily, and cannot therefore be recovered. We think this point is covered by the case of Bright v. Holloman, 7 Lea, 309, 312. In that case, it was held that the taxbook was process equivalent to an execution in the hands of the officer, and payment under protest entitled the party to sue for so much as was deemed illegal; that this was true, although the taxes involved were county taxes, and no special provision was made for the payment of this class of taxes under protest under the act of 1873, carried into Shannon's Code as section 1059. See, also, R. R. Co. v. Williams, 101 Tenn. 146, 148, 46 S.W. 448, and Bank v. Memphis, 107 Tenn. 66, 68, 73, 74, 64 S.W. 13. It was also held in a prior case (Lea v. City of Memphis, 9 Baxt. 103) that although taxes were voluntarily paid, yet if they were illegal the city might lawfully agree to refund them and that her paper obligations therefor would be good. On the same principle, we are of opinion that the city when about to distrain for taxes may make an agreement with the party paying, that such payment is under protest; and it would do right to carry out the agreement in any subsequent litigation instituted concerning such payment. Agreements of this character save expensive and embarrassing injunction suits.

The next preliminary point is that the tax was the debt of the stockholders of the bank, and not of the bank itself; therefore that the suit could not be instituted by the bank but only by the stockholders themselves. In respect of this point, we are of opinion that under a proper construction of section 25 of chapter 258 of page 652 of the Acts of 1903, the bank itself might properly pay the taxes assessed against its stock in the hands of the stockholders. Indeed, it is probably its duty to do so, but we do not decide this point. We need not go into this matter at large. We refer to the last five paragraphs of the section. We are of opinion that under the portions of the section last referred to the bank would have the right, at least, to pay the taxes on the stock for its stockholders, and if the payment was made under protest it could sue for and recover such taxes if illegally collected. Of course its recovery would be for the benefit of its stockholders. Having disposed of these preliminary questions, we shall now direct our attention to the merits of the controversy.

We shall first consider whether there is an implied exemption of state bonds. Under the Constitution of 1834 it was held that there was an implied exemption of state property ( Nashville v. Bank, 1 Swan. 269) on the principle that it could not be supposed that the state would do so idle a thing as to tax itself for its own benefit, or that it would take money out of its treasury to be returned immediately thereto, or that it would permit its subordinate political divisions to impose such a burden upon it. It was said that the presumption was against the existence of any such intention. This case was followed and applied under the Constitution of 1870, in respect of municipal property in the case of Nashville v. Smith, 86 Tenn. 213, 6 S.W. 273, and Smith v. Nashville, 88 Tenn. 464, 12 S.W. 924, 7 L. R. A. 469.

The same principle is recognized in other states. People v. Doe, 36 Cal. 220; State v. Atkins, 35 Ga. 315, Fed. Cas. No. 5,350; City of Rochester v. Town of Rush, 15 Hun (N. Y.) 239; Cumru Tp. v. Directors of Poor, 1 Woodw. Dec. (Pa.) 175; Troutman v. May, 33 Pa. 455; McCaslin v. State, 99 Ind. 428; Camden v. Camden Village Corp., 77 Me. 530, 1 A. 689; Newark v. Clinton Tp., 49 N. J. Law, 370, 8 A. 296; Trustees for Sup. of Pub. Schools v. Inhabitants of City of Trenton, 30 N. J. Eq. 667; Erie Co. v. City of Erie, 113 Pa. 360, 6 A. 136; Inhabitants of Wayland v. Middlesex Co. Commrs., 70 Mass. 500; People v. Salomon, 51 Ill. 52, 53; Poor, etc., v. School, etc., 42 Pa. 21; Louisville v. Comw., 61 Ky. 63; E. & W. Const. Co. v. Jasper Co., 117 Iowa, 365, 372, 90 N.W. 1006, 94 Am. St. Rep. 301, and authorities cited in note to Board of Com'rs v. Ottawa (Kan. Sup.) 33 Am. St. Rep. 400-406.

In Miller v. Wilson, 60 Ga. 506, the principle was applied to state bonds to the extent of holding that it will not be presumed that the Legislature intended to tax such bonds merely from a direction that "taxable property" should be assessed, and that the court would not consider the question of the taxability of state bonds as raised in the absence of a provision in a statute expressly directing their taxation. In the Mayor, etc., of Macon v. Jones, 67 Ga. 489, the same doctrine was applied to city bonds. To the same general effect City of Augusta v. Dunbar, 50 Ga. 387.

In Louisiana (State ex rel. v. Board, 35 La. Ann 654), the same rule was applied to state and city bonds. That case also went further and held that such bonds were absolutely exempt, on substantially the same grounds that support an implied exemption of public...