Stone v. Bank of Commerce
174 U.S. 412 (1899)

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U.S. Supreme Court

Stone v. Bank of Commerce, 174 U.S. 412 (1899)

Stone v. Bank of Commerce

No. 882

Argued February 28, March 2, 1899

Decided May 16, 1899

174 U.S. 412

Syllabus

Citizens' Savings Bank v. Owensboro,173 U. S. 636, followed to the point that in the case of a bank whose charter was granted subsequently to the year 1866, and which had accepted the provisions of the Hewitt Act

Page 174 U. S. 413

and had thereafter paid the tax specified therein, there was no irrepealable contract in favor of such bank that it should be thereafter and during its corporate existence taxed under the provisions of that act.

The agreement set forth in the statement of facts between the City of Louisville, the sinking fund commissioners of that city, represented by the city attorney, and the various banks of that city acting by their attorneys, was not a valid agreement within the power of an attorney at law to make.

An attorney, in his capacity merely as such, has no power to make any agreement for his client before a suit has been commenced or before he has been retained to commence one, and if, under such circumstances, he assumes to act for his principal, it must be as agent, and his actual authority must appear.

An equitable estoppel which would prevent the state from exercising its power to alter the rate of taxation in this case should be based upon the clearest equity, and the payment of the money under the circumstances of this case, not exceeding the amount really legally due for taxes, although disputed at the time, does not work such an equitable estoppel as to prevent the assertion of the otherwise legal rights of the city.

The bill in this case was filed in 1897 by the Bank of Commerce, a citizen and resident of the City of Louisville, in the State of Kentucky, for the purpose of obtaining an injunction restraining the defendants from assessing the complainant, and from collecting or attempting to collect any taxes based upon the assessment spoken of in the bill, and for a final decree establishing the contract right of the complainant to be taxed in the method prescribed by the Act of May 17, 1886, known as the "Hewitt Act," the terms of which it alleged it had accepted. The bill sought to perpetually enjoin the defendants from assessing the franchise or property of the complainant in any other manner than under that act. The material provisions of the Hewitt Act are set out in the opinion of the court, delivered by MR. JUSTICE WHITE, in the case of Citizens' Savings Bank of Owensboro v. Owensboro,173 U. S. 636.

In 1891, Kentucky adopted a new constitution, section 174 of which, providing for the taxation of all property in proportion to its value, is also set forth in the above-cited case.

The legislature of the state in 1892 passed an act in relation to the taxation of banks and other corporations which was in conflict with the Hewitt Act, and provided for taxing the

Page 174 U. S. 414

banks in a different manner from that act, and also subjected the banks to local taxation, the total being much more onerous than that enforced under the Hewitt Act.

The complainant was incorporated under an Act of the legislature of Kentucky approved February 10, 1865, and it had all the powers granted by that act and the several amendments thereof as alleged in its bill.

There were various other banks in the City of Louisville which also alleged that they had accepted the terms of the Hewitt Act, and by reason thereof had a valid contract with the state that they should be taxed only under the provisions of that act.

The complainant alleges in its bill that early in the year 1894, a demand was made on the part of the defendant the City of Louisville, based upon the act of 1892 and the ordinance adopted in pursuance thereof, for the payment of a license tax equal to four percent of its gross receipts into the sinking fund of the city. The banks denied their liability to pay any tax other than that provided in the Hewitt Act, and hence arose the differences between the city and the banks.

No litigation had been commenced for the purpose of testing the questions at issue between the city and the banks, although negotiations looking to that end had been in progress between the city attorney of Louisville and the members of the sinking fund board, on the one hand, and the counsel for the various banks and trust companies, on the other. There is set forth in the bill of the complainant the action of the sinking fund board, as follows:

"Sinking Fund Office, Feb'y 13, 1894"

"A committee, consisting of Messrs. Thomas L. Barrett, John H. Leathers, and George W. Swearingen appeared before the board on behalf of the banks who are members of the Louisville Clearing House and stated that it was the purpose of said banks to resist the payment of the license fee demanded of them under the license ordinance approved January 29, 1894, on the ground that said banks were not legally liable to pay the same, but, in order to save the sinking fund

Page 174 U. S. 415

from any embarrassment occasioned by their refusal to pay said license fee, the banks, with two or three exceptions, were willing to enter into an arrangement whereby they would pay a part of the amount demanded of them and lend the sinking fund the balance thereof, to be repaid, with interest at four percentum per annum, if it was finally decided and adjudged that the banks were not liable to pay said license fees."

"After discussion, the president was, on motion of Mr. Tyler, seconded by Mr. Summers, authorized to enter into the following arrangement with the different banks, trust and title companies who will be subject to the payment of the license fees if the license ordinance is finally adjudged to be valid and enforceable:"

"First. To accept from each of said banks and companies a payment equal to the difference between the amount they now pay to the state for state taxes and the amount they would be required to pay for state taxes under the provisions of what is known as the 'Hewitt Bill.' This sum shall be an actual payment, not to be repaid under any circumstances, but its payment shall not in any manner or to any extent prejudice the banks or companies paying it, or be taken as a waiver of any legal right which they have in the premises."

"Second. In addition to making the above payments, the said banks and companies, save those selected to test the question involved, shall each lend to the sinking fund a sum which, added to said payment, will equal four percentum of its gross earnings during the year 1893, and the sinking fund will execute for said loans its obligations, agreeing to repay the same, with interest at four percentum per annum, when and if it shall be finally adjudged by the court of last resort that said banks or companies are not liable to pay the license fee required by the ordinance aforesaid; but if it is finally adjudged that they are liable to pay said license fee, then the said loan shall be taken and deemed as a payment of said license fee, and the obligation to repay the same shall be void."

"Third. The banks or companies selected to test the question involved will each lend the sinking fund a sum equal to four percentum of their gross earnings for the year 1893, and

Page 174 U. S. 416

will receive therefor the obligations of the sinking fund as above described."

"Fourth. This arrangement is to be entered into with the understanding that the said banks and companies will institute without delay and diligently prosecute such actions as may be necessary to settle and adjudge the right and liabilities of the parties in the premises, and pending such proceedings, the sinking fund will not prosecute them, or any of them, for doing business without license."

"A true copy. Attest: J. M. Terry"

"Secretary and Treasurer"

Following the above, the complainant's bill contains what is termed a

"Stipulation between the City of Louisville, the Commissioners of the Sinking Fund of the City of Louisville, and the Banks, Trust, and Title Companies of the City of Louisville,"

which stipulation reads as follows:

"It is agreed between the City of Louisville, the Commissioners of the Sinking Fund of the City of Louisville, represented by H. S. Barker, City Attorney, acting under the advice and by the authority of the Board of Sinking Fund Commissioners, given at a regular meeting of said board, and the Mayor of the City of Louisville, on the one part, and the various banks, trust and title companies of the City of Louisville, acting by Humphrey & Davie and Helm & Bruce, their attorneys, of the other part:"

"First. That in February, 1894, it was agreed between the City of Louisville and the board of sinking fund commissioners, acting together in the interest of the said city, and the various banks, trust and title companies, acting through their committee, to-wit, Messrs. Thomas L. Barrett, John H. Leathers, and George W. Swearingen, and their counsel, to-wit, Messrs. Humphrey & Davie and Helm & Bruce, that the question of the liability of said banks and trust and title companies to pay municipal taxes, either license or ad valorem, otherwise than as provided by the revenue law, commonly known as the 'Hewitt Bill,' should be tested by appropriate litigation looking to that end. "

Page 174 U. S. 417

"Second. In order to effectually test the question as to all of said companies, they were divided into three classes, it being understood that all who had accepted the provisions of the said Hewitt Bill would fall in one or the other of the classes named, to-wit:"

"(A) Banks whose charters had been granted prior to 1856."

"(B) Banks whose whose charters had been granted subsequent to 1856."

"(C) National banks."

"It being understood that the trust and title companies which had accepted the provisions of the Hewitt Bill would fall in class B, above named."

"Third. In pursuance of that agreement the sinking fund commissioners caused to be issued warrants against the Bank of Kentucky, representing class A, the Louisville Banking Company, representing class B, and the Third National Bank, representing class C, and these banks respectively applied for a writ of prohibition against the City Court of Louisville, proceeding with the hearing, that being the manner pointed out by the city charter for testing the validity of city ordinances."

"It was distinctly understood and agreed at that time -- and this agreement was made for the best interest of all parties to it -- that if any bank in any class should eventually fail to establish the existence and validity of the contract which it was claimed was made under the Hewitt Bill, that all of that class should thereafter regularly and promptly submit to the existing laws and pay their taxes, and it was also agreed that if any bank of any class should succeed in establishing a contract and the validity thereof under the Hewitt Bill, that that should exempt all banks and companies falling within that class from the payment of taxes except as provided in the Hewitt Bill."

"Fourth. On the faith of this agreement, all of the banks and companies aforesaid paid into the sinking fund the amounts of taxes claimed against them under the terms and conditions named in the minutes of the sinking fund commissioners of February 13, 1894, an attested copy of which is hereto attached as part hereof; but at a later date, and in further

Page 174 U. S. 418

reliance upon said agreement, all said banks and companies, except those actually involved in the test cases, paid the whole of the amount of taxes claimed as against them by the City of Louisville, without reservation, until the question thus raised should be finally disposed of."

"Humphrey & Davie"

"Helm & Bruce"

"For Banks, Trust and Title Companies, of the City of Louisville"

"H. S. Barker, City Att'y"

"Approved:"

"C. H. Gibson"

"Pres't Comm'rs Sinking Fund City of Lou."

"A true copy. Attest:"

"Huston Quinn"

"Arthur Peter"

"M. McLoughlin"

The Louisville Banking Company was one of the banks which brought an action for the purpose of testing the question of its liability to taxation. The charter of that company was granted subsequent to the year 1856, and in that respect it was like the defendant bank. It also claimed to have accepted the provisions of the Hewitt Act. In the litigation which followed, the Louisville Banking Company was adjudged by the Court of Appeals of Kentucky to have an irrepealable contract, throughout its charter existence, to be taxed under the Hewitt Act, and judgment pursuant to that adjudication was entered in favor of that company. The complainant herein claimed the benefit of the foregoing adjudication, and the circuit court allowed it, and gave judgment as follows:

"1. That the complainant is entitled to the benefit of the proceedings taken in the case of Louisville Banking Company v. R. H. Thompson, Judge, etc., in the Jefferson Court of Common Pleas, and the proceedings taken in said cause on appeal to the Court of Appeals of Kentucky wherein the Louisville Banking Company was appellant, and the said R. H. Thompson, judge, etc., and the City of Louisville, were appellees, to the same extent as if the complainant had been a party to said proceedings. "

Page 174 U. S. 419

"(2) That it is res judicata between the complainant and the City of Louisville that the complainant is entitled to be taxed under what is known as the 'Hewitt Revenue Law,' and not otherwise, and it is therefore adjudged, ordered, and decreed that the defendants Samuel H. Stone, Charles Findley, and George W. Long are perpetually enjoined and restrained from making any assessment under the Act of November 11, 1892, or certifying the same, to the City of Louisville, upon any rights, properties, or franchises, or shares of stock, of the complainant, and that any provisions of the constitution of the State of Kentucky, and any provision of the said Act of November 11, 1892, or of the city charter, which may be construed as authorizing the levy or assessment of any tax against the complainant, its rights, properties, or franchises, other than as allowed by the said Hewitt Law, is, during the corporate existence of the complainant, unconstitutional and void, and that the complainant and its shares of stock are exempt from all other taxation whatsoever except as prescribed in the said Hewitt Law, so long as said tax shall be paid during the corporate existence of complainant."

The defendants appealed directly to this Court from the judgment of the circuit court under the provisions of section 5 of the act of 1891, 26 Stat. 826, because the case involved the application of the Constitution of the United States and because a law of the State of Kentucky was claimed to be in contravention of that Constitution.

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