37 Pa. 340 | Pa. | 1861
The opinion of the court was delivered, by
The Iron City Bank was incorporated in 1857, subject to a tax on its dividends according to the scale prescribed in the 21st section of our general banking law of 16th April 1850, and subject also to the taxation of its stock in the manner prescribed in the 33d section of the Act of 29th April 1844. This section was omitted from the general law of 1850, but was restored by the Act of 27th of April 1852, the first section of which concludes with a proviso “ that the capital stock of such hanks shall not he subject to taxation for any other than state purposes
The charter of the Iron City Bank therefore is to be read as if these several sections of our previous legislation had been
But on the 4th of January 1859, the legislature empowered the councils of the city of Pittsburgh to levy, assess, and collect, for the use of the city, an annual business tax, not exceeding one-third of one mill per dollar on the average quarterly business of all forwarding and commission merchants, .brokers, banks, banking institutions, and on the average quarterly receipts of insurance companies, insurance agencies, express companies, and telegraph companies doing business in said city.
And by an ordinance of the 6th of October 1859, passed in pursuance of said Act of Assembly, the city councils levied a tax of a third of a mill per dollar “on the average quarterly discount business of all banks and banking institutions doing business in said city,” and they ordained farther, that the “ average quarterly discounts of banks should be ascertained by averaging the weekly statements thereof of notes and bills discounted during the first three months of each and every year.”
The tax assessed upon the discount business of the Iron City Bank, under this ordinance, amounts for the year 1860 to $243.66, for which this suit was brought.
The defence is that the Act of Assembly of 1859 was unconstitutional and void, because it impaired the obligation of the contract between the Commonwealth and the bank, that the capital stock should not be subject to taxation for any other than state purposes. The only reply to this is, that it is not the capital stock, but the discount business of the bank that is taxed under the legislation of 1859.
We are not satisfied with this reply. It is true that most banks of discount do business greatly beyond their capital — they discount on their deposits and on their credit — but they do also discount on their capital. It is this indeed which attracts the confidence of depositors, and gives credit to the paper which they issue, so that the capital stock is the real foundation of all the business of the banks, and enters specifically into their discounts. If, therefore, the average quarterly discount business of the bank is to be taxed without taxing its capital, all that part of its business into which the capital enters must be laid out of the account, and the residue of its business only taxed. But how is the discrimination to be made ? The city assessor does not seem to have attempted to make it, and he would probably have failed had he attempted it. It may be true
Did the legislature mean to tax the capital of the Pittsburgh banks for city purposes? We should be glad to be able to say, as we did in respect to the general tax laws in the case of the New York and Erie Railroad Co. v. Sabins, 2 Casey 244, that we saw no express intention to that effect, and that we would not imply the intention where another specific mode of taxation had been provided; but the language of the Act of 1869 is too full and precise to admit of such a construction. To say that they did not intend a tax of the capital, would be to impute to the legislature ignorance of the fact that the capital of banks enters into their “ average quarterly business.” That they must have known when they passed the act. It would be scandalous to doubt it. Then their language is plain, that “the average quarterly business” shall be taxed for city purposes, which is a plain though not a very direct way of saying that the capital shall be taxed for city purposes.
We are thus forced, by the most necessary construction, upon the conclusion that the Act of 1869 is in conflict with the proviso of the Act of 1862, which forms a part of the charter of the bank. And then the very grave question arises, is the Act of 1859 for that reason unconstitutional and void ? What power does one legislature possess to restrain the action of a subsequent legislature? And does the power of restraint extend to that peculiar legislative function which is known as the taxing power ? I propose to treat these questions in a very brief review of the principal judicial opinions which have been recorded for our instruction.
In the year 1810, the great case of Fletcher v. Peck, 6 Cranch 87, was decided in the Supreme Court of the United States. It was-an action of covenant, founded upon a deed made by John Peck to Robert Fletcher, for part of a large body of lands purchased by James Gunn and others, in the year 1795, from the state of Georgia, the contract for which was made in the form of a bill passed by the legislature of the state.
This proposition was sustainable on general principles of law and equity, without any support from that clause of the Federal Constitution which inhibits a state from passing any law impairing the obligation of contracts; but the court did not hesitate to apply that clause of the Constitution, and to hold that a grant of lands by a state legislature, is an executed contract within the meaning of the Constitution, and that its obligations cannot be impaired by a subsequent law of the state.
It is very apparent, that, whilst this case lays the foundation for the doctrine that an Act of Assembly may be a contract within the protection of the Constitution, it does not touch the taxing power of the government in the least.
Two years afterward, in the case of The State of New Jersey v. Wilson, 7 Cranch 164, that court made a decision which is usually cited as showing that an act of legislation may restrain the taxing power of a subsequent legislature.
A remnant of the tribe of Delaware Indians agreed with commissioners on the part of the then colony of New Jersey, to release their claim to all lands south of the river Raritan, in consideration that the government would purchase a tract of land on which they might reside. The legislature of 1758 passed an act to carry this arrangement into effect, and the act provided, among'other things, “that the lands to be purchased for the Indians aforesaid, shall not hereafter be subject to any tax, any law, usage, or custom to the eontrai’y thereof, in any wise notwithstanding. ’ ’
In 1801, the legislature authorized the Indians to sell these lands, but said nothing about taxing them. In 1803, they were sold under this act to George Painter and others. In 1804, the legislature passed an act repealing the above-cited clause of the Act of 1758, and subjecting the lands to taxation.
The question was upon the validity of this law. It was submitted to the court without argument, and Chief Justice Marshall, after deciding that the exemption from taxation, though for the benefit of the Indians, was annexed to the land itself, and not to their persons, rested the judgment on the ground that the state might have insisted on a surrender of this privilege, as the sole
The nature of the taxing power was not discussed in this case. Fletcher v. Peek was the only authority cited by the Chief Justice, and the state was treated as estopped by its own condition annexed to the title; after permitting and encouraging a purchaser for a valuable consideration to buy the title with the condition annexed. In other words, the state of New Jersey, as a dealer in lands, was held to be subject to the ordinary law of vendors.
The next case was that of the Trustees of Dartmouth College v. Woodward, 4 Wheat. 518, where, after great consideration, it was decided that the royal charter granted to the trustees of Dartmouth College, before the American revolution, was a contract within the meaning of that clause of the Constitution of the United States, which declares that no state shall make any law impairing the obligation of contracts, and that an act of the legislature of New Hampshire, altering the charter, without the consent of the corporation, in a material respect, was an act impairing the obligation of a contract, and therefore unconstitutional and void.
For many reasons this may be considered one of the most important judicial decisions that has ever been pronounced in this country. Though often questioned, it has generally been followed, and the doctrine may now be regarded as settled, in every state of the Union, that an act of incorporation, accepted and acted upon by the corporators, is a contract between the state and the corporators which a subsequent legislature may not impair. “All the cases,” said Judge Black, in The Bank of Pennsylvania v. The Commonwealth, 7 Harris 151, “are saturated with this doctrine. It is sustained, not by a current, but by a torrent of authorities. No judge, who has a decent respect for the principle of stare decisis — that great principle which is the sheet-anchor of our jurisprudence — can deny that it is immovably established.”
This is perhaps not too strong a statement of the authorities, where the question is upon the repeatability of charters or their modification in essential particulars, without the consent of the corporators, but it would be quite too strong when applied to a question of taxation. The ruling in the Dartmouth College case was not upon the taxing power, and in the very case cited from 7 Harris we refused to regard a legislative imposition of taxes upon the dividends of the Bank of Pennsylvania as any invasion of its charter rights. A still stronger case to the same effect is
The Dartmouth College case having settled the general doctrine that legislative charters, like legislative grants of land, are contracts within the meaning of the Federal Constitution, the Supreme Court of the United States recognised it as applicable to banks in a question of taxation, in the ease of The Providence Bank v. Billings, 4 P. 514, but refused in that case to consider a tax law as impairing the obligation of the contract, because the charter contained no stipulation against future taxation. This decision, pronounced in 1830, has been followed, as we have already seen, by this court, and the American courts have generally agreed that where a bank charter does not stipulate for exemption from further taxation, a law subsequently passed imposing further taxation is not a law impairing the obligation of the contract. I am not sure, however, that this is a fair statement of the present position of the Supreme Court of the United States, for in the case of the State Bank of Ohio v. Knoop, 16 How. 369, Justice McLean, speaking for a majority of that court, held this language : “Every valuable privilege given by the charter, and which conduced to an acceptance of it and an organization under it, is a contract which cannot be changed by the legislature, where the power to do so is not reserved in the charter. The rate of discount, the duration of the charter, the specific tax agreed to be paid, and other provisions essentially connected with the franchise, and necessary to the business of the bank, cannot, without its consent, become a subject of legislative action.”
This is making the exercise of the taxing power to depend on a power reserved in the charter, which is a long step in advance of the doctrine in the Providence Bank case and our own cases, where it is held to be free unless expressly restricted by something in the charter. How earnestly several of the judges dissented from this position, may be seen both from the report of this case and of that which immediately follows it in the same book — The Ohio Life Insurance and Trust Company v. Debolt, 16 How. And how unsatisfactory this doctrine is to several state courts may be seen'by what was said, and the authorities cited on the subject, in the case of Mott v. The Pennsylvania Railroad Company, 6 Casey 31.
I enter into no discussion of the nature of the taxing power, nor of the reasons that have been urged for and against the right of a legislative body to release or restrict it in behalf of a particular corporation; these topics will be found ably discussed in the cases I have referred to; but it must be remembered that the questions belong, for final adjudication, to the Supreme Court
The conclusions of that court on this subject may be stated thus:—
1. A grant of land or of a corporate franchise by an act of legislation, is a contract between the state and the grantee, the obligation of which a subsequent legislature cannot impair.
2. If the legislature, in creating a corporation, prescribe a rate of taxation, and expressly release the power to impose further taxes, or do not expressly reserve the power to themselves, a subsequent tax law does impair the obligation of the contract, and is void.
The evident effect of these propositions is to place the taxing power of the state governments at the disposal of contracting parties. The legislature, representing the people, are one of the contracting parties — the corporators are the other. The theory is, that the legislature represent the people for the purpose of making contracts as well as for making laws; that the grant of a franchise is not merely an act of legislation, but is also a contract, and that the legislature holds the taxing power, and therefore may bargain it away, precisely as they hold and may grant the power of corporate franchises.
My purpose at this time is not to combat nor even question these conclusions, but to inquire whether they are applicable to the bank that is before us. We have seen that by the organic law of this bank certain specific taxes were imposed; that the power to levy further taxes for state purposes was not released, but that it was stipulated that the capital of the bank should not be subject to taxation for any other than state purposes. We have seen, also, that the law of 4th January 1859 does tax the capital stock of the bank for other than state purposes. The question then is, do the doctrines of the Supreme Court of the United States apply to this case ?
I hold that they do not, for reasons which I proceed to state: The 25th section of the first article of the Constitution of Pennsylvania, as amended in 1838, says, that “ no corporate body shall be hereafter created, renewed, or extended with banking or discounting privileges, without six months’ previous public notice of the intended application for the same, in such manner as shall be prescribed by law; nor shall any charter for the purposes
By the 53d section of the General Banking Law of 16th April 1850, the power to alter and revoke bank charters is reserved in the very terms of the above constitutional provision. Losing sight, then, of none of the “ provisions, restrictions, immunities, or privileges” under which this bank was created, it may be said with great confidence that it accepted its charter under the express stipulation that the state sovereignty over it should remain unimpaired. The power to alter, revoke, or annul charters, whenever, in the opinion of the legislature, they become injurious to the citizens of the Commonwealth, was the utmost that was ever claimed in behalf of state sovereignty, and this the Iron City Bank conceded — subject to one only condition — that no injustice should be done to corporators. Whether this condition is to be judged of by the legislature or the courts may be a somewhat nice question. Generally, questions of justice and injustice are judicial in their nature, and I incline to think it is for the courts and not the legislature to decide whether the repeal or modification of a bank charter works injustice to the corporators. But assuming this to be so, it must also be assumed that the courts will never hold a tax law applicable alike to all the banks of a great city to be an act of injustice. We have repeatedly said that the taxing power is exclusively legislative, and not at all judicial, and that until the exercise of it became so extravagant and wanton as to be no longer in the nature of a legislative function, we would not attempt to arrest it. We would not see a citizen’s property confiscated under pretence of taxing it. That would be a case of manifest injustice. But when the legislature thinks that the banks and other corporations doing business in a particular city, and enjoying the protection of its police and other facilities for business, should contribute a reasonable part of their profits to the support of that city, and accordingly authorizes them all to be taxed according to a uniform rate, it is not for the judiciary to revise the legislative discretion, and to pronounce such a tax law an act of injustice to the corporators. Resumption of the franchise, or abridgment
Another point may be taken. It may be said that the Act of 1859 neither alters, revokes, nor annuls the charter, and therefore is not within the purview of this clause of our state Constitution. Does it not “ alter” the charter ? That is the very complaint that is urged. If the charter says the bank shall pay no taxes hut state taxes, and the Act of 1859 says it shall pay city taxes also, I think it quite clear that the charter is altered. We are accustomed to speak of all the incorporating acts as constituting the charter, which is not strictly correct language, though accurate enough for all practical purposes. The Constitution used the word charter in its loose and popular sense rather than in its strictest signification. We regard, then, the general banking law of 1850 and its supplements as entering into and forming part of the charter of this bank, within the meaning of the word charter, as used in our state Constitution — and we look upon
With a firm conviction that bank stocks are taxed beyond any other forms of property in the Commonwealth, with no disposition to encourage legislation that is founded on bonuses or releases of the taxing power, or repeal of privileges once granted to corporations, we are brought, nevertheless, to the conclusion that this tax is legal and constitutional, and therefore that the judgment should be afSrmed.