Union & Planters' Bank of Memphis v. City of Memphis

• Decision Date: 21 October 1901
• Docket Number: 924.
• Citation: 111 F. 561
• Parties: UNION & PLANTERS' BANK OF MEMPHIS v. CITY OF MEMPHIS.
• Court: U.S. Court of Appeals — Sixth Circuit

111 F. 561

UNION & PLANTERS' BANK OF MEMPHIS v. CITY OF MEMPHIS.

No. 924.

United States Court of Appeals, Sixth Circuit.

October 21, 1901

Wm. H Carroll and T. E. Cooper, for appellant.

John H Watkins, for appellee.

The case is this: In 1859 the state of Tennessee, by its general assembly, granted a charter under which the Union &amp Planters' Bank was organized. That charter contained a provision upon the subject of taxation in these words 'That said company shall pay to the state of Tennessee an annual tax of one-half of one per cent. on each share of stock subscribed, which shall be in lieu of all other taxes. ' The complainant's bill avers that, in impairment of the obligation of this contractual exemption from every tax except that provided by the charter, the state of Tennessee has passed a law providing, among other things, for the assessment of state, county, and city taxes upon the capital stock of this and all other corporations having like contractual exemptions, and that the city of Memphis, under and in pursuance of the legislation referred to, has assessed an ad valorem tax for the year 1899 upon the capital stock of the complainant bank for municipal purposes exceeding $2,000, and is about to distrain, etc. It is averred that the law under which this assessment has been made impairs the obligation of the contract by which complainant is exempt from all taxation upon its capital stock other than that provided for in its charter. It is then averred that in a former litigation between this complainant and the city of Memphis, where it was sought to enforce a municipal assessment of taxes upon complainant's capital stock for the years 1888, 1889, and 1890, it was solemnly adjudged and decided that under the charter provision aforesaid the capital stock of said corporation was exempt from all general taxation. The record in the said suit, and the judgment therein rendered,--being a judgment of the supreme court of Tennessee,-- is set out in full, and pleaded and relied upon as an adjudication estopping the said city of Memphis from bringing the validity or the true and proper construction and meaning of said provision again into controversy. The bill is most specific in averring that the judgment so pleaded and set out as establishing the exemption of its said capital stock from taxation was based upon the identical claim of exemption now asserted by it in order to defeat the taxes now in question, and that 'the judgment and decree aforesaid adjudged its claim to exemption upon the identical same facts and conditions' as those appearing herein. Upon this former judgment between the same parties, and upon the same facts and issues, the complainant bank avers and contends that the question of the right of the city of Memphis to assess its capital stock 'has been finally judicially determined not to exist, because of the judicial construction put upon its exemption in the suit to determine that question between it and the said city of Memphis. ' The defendant filed a demurrer assigning no less than 12 reasons why the complainant's bill should not be sustained. This demurrer was sustained, and the bill dismissed.

Before LURTON, DAY, and SEVERENS, Circuit Judges.

LURTON Circuit Judge, having made the foregoing statement of the case, proceeded then to deliver the opinion of the court.

1. The demurrers which go to the jurisdiction of the court are not well founded. The jurisdiction does not depend upon diversity of citizenship, for that does not exist, but upon the federal question arising out of the alleged violation of the obligation of the contract contained in the charter of the complainant corporation. The bill attacks the constitutionality of the revenue laws of 1897 and 1899, so far as they authorize the imposition of a tax upon the capital stock of the Union & Planters' Bank, as laws impairing the obligation of the charter exemptions. Bank v. Stone (C.C.) 88 F. 383, 390; Stone v. Bank, 174 U.S. 409, 412, 19 Sup.Ct. 880, 43 L.Ed. 1027.

2. Neither is the demurrer to the equitable jurisdiction of the court well founded. The remedy by suit at law to recover a tax paid under protest given by the Tennessee act of 1873 (chapter 44; being section 1059 of Shannon's Revision of the Tennessee Code) applies only to revenue due the state. City of Nashville v. Smith, 86 Tenn. 213, 6 S.W. 273. It has no application where the tax complained of is one assessed by a county or city. In such case the only legal remedy to recover an illegal tax is that furnished by the common law. Railroad v. Williams, 101 Tenn. 146, 46 S.W. 448. There must exist some equitable ground for relief besides the mere illegality of the tax. If it appears that the tax constitutes a cloud upon the title of the complainant, or that he will be subjected to irremediable damages or to a multiplicity of suits if compelled to rely upon his legal remedy alone, equity will interpose upon the ground of the inadequacy of the remedy at law. Dows v. City of Chicago, 11 Wall. 108, 20 L.Ed. 65; Railway Co. v. Cheyenne, 113 U.S. 516, 525, 5 S.Ct. 601, 28 L.Ed. 1098; City of Ogden City v. Armstrong, 168 U.S. 224, 238, 18 Sup.Ct. 98, 42 L.Ed. 444; Bank v. Stone (C.C.) 88 F. 383. The case made by the bill is not the case of an objection to a single or particular assessment. The complainant sets up a claim of complete exemption not only against the particular assessment, but against all future efforts to assess its capital stock. As observed by Chief Justice Marshall in Osborn v. Bank, 9 Wheat. 738, 842, 6 L.Ed. 204, 229:

'The single act of levying the tax, in the first instance, is the cause of an action at law; but that affords a remedy only for the single act, and is not equal to the remedy in chancery, which prevents its repetition and protects the privilege.'

The bill, in substance, avers that there have been many previous litigations between the complainant and the state of Tennessee, the county of Shelby, and the city of Memphis, in which the right to levy taxes upon its capital stock was asserted, and the exemption claimed under the charter was denied. Complainant sets out in full one such former litigation with the city of Memphis, resulting in a judgment of the supreme court of the state judicially determining the exemption of its capital stock from any and all taxes other than the charter tax. Notwithstanding these former litigations, the defendant is charged with persisting in a denial of the exemption claimed. Under such circumstances, it would appear that the complainant is entitled to the remedy in chancery for the purpose of preventing repetitions of such assessments in the future, and thereby preventing a multiplicity of suits. Bank v. Stone (C.C.) 88 F. 383, 392; Morris Canal & Banking Co. v. Mayor, etc., of Jersey City, 12 N.J.Eq. 227; High, Inj. Sec. 530.

3. Is the capital stock of the complainant company contractually exempt from taxation, other than the charter tax of one-half of 1 per cent. on each share of stock subscribed? Does this exemption apply to the corporate capital in the hands of the corporation, or to the shares of capital stock in the hands of shareholders, or are both species of property equally exempt from any tax other than that payable by the express provision of the charter? Curiously enough, we are not lacking in very high authority upholding each of three possible constructions of the taxing clause of the complainant's charter. Thus, in City of Memphis v. Farrington, 8 Baxt. 539, the supreme court of Tennessee held that language similar and identical in meaning found in the charters of a number of Tennessee banks and insurance companies operated only to exempt the capital stock of such corporation in the hands of the corporation upon the payment of the charter tax stipulated for, but that shares of stock, being a distinct property, were not exempt, but were subject to taxation in the hands of shareholders. This decision was made in 1876 in a case between a stockholder in the complainant bank, as well as in other corporations, in which Farrington stood for and represented the entire class of stockholders; the city of Memphis and the state of Tennessee being the adversary parties. The complainant corporation was not a party to the suit, and the real question involved was that of the taxability of shares of stock in the hands of shareholders. That case was taken on writ of error to the supreme court of the United States, and there reversed; that court holding, in an opinion by Justice Swayne, that the exemption granted extended to the shares in the hands of shareholders. Three members of the court dissented, holding that the exemption did not extend to shareholders, and that the judgment of the Tennessee court should be affirmed. The judgment of the Tennessee court was accordingly reversed, and the shareholders held to be exempt from any tax other than that stipulated to be paid by the corporation. Farrington v. Tennessee, 95 U.S. 679, 24 L.Ed. 558. In Bank v. McGowan, 6 Lea, 703, the liability of the Bank of Commerce to be assessed upon its bank building and upon several parcels of realty bought in payment of debt was involved. The court held that the bank building was exempt under a provision of the charter providing that the bank 'shall pay to the state an annual tax of one-half of one per cent. on each share of its capital stock, which shall be in lieu of all other taxes,' but that this exemption would not extend to the real estate bought in satisfaction of debt due the bank. This result was reached upon the assumption of the exemption of the capital stock of the bank, and upon the authority of the case of De Soto Bank v. City of Memphis, 6 Baxt. 415, 32 Am.Rep. 530, where it was held that the bank's power to hold real estate...