Bank for Savings v. The Collector - 70 U.S. 495 (1865)
U.S. Supreme Court
Bank for Savings v. The Collector, 70 U.S. 3 Wall. 495 495 (1865)
Bank for Savings v. The Collector
70 U.S. (3 Wall.) 495
CERTIFICATE OF DIVISION OF OPINION OF THE JUDGES OF THE CIRCUIT
COURT OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK
1. Savings banks which receive deposits and lend the same for the benefit of their depositors, although they may have no capital stock and neither make discounts nor issue any money for circulation, are "engaged in the business of banking" within the meaning of the first clause of the 110th section of the Revenue Act of 30 June, 1864, which enacts that
"There shall be levied, collected, and paid a duty of 1/24 of 1 percent each month upon the average amount of the deposits of money . . . . . with any person, bank, association, corporation, or company engaged in the business of banking."
2. On the repeal of the proviso to that section which declared that the section should not apply
"to any savings bank having no capital stock, and whose business is confined to receiving deposits and loaning the same on interest for the benefit of the depositors only, and which do no other business of banking,"
such savings banks became subject to the duty imposed by the principal enactment.
3. Moneys received by such banks from depositors become "deposits" within the meaning of the act as soon as they are received, and as such are immediately subject to taxation.
4. In interpreting a section of a statute which remains in force, resort may be had to a proviso to it, although the proviso be repealed.
The 110th section of the Internal Revenue Act of June 30, 1864, enacted as follows:
"There shall be levied, collected, and paid a duty of 1/24th of one percent each month upon the average amount of the deposits of money subject to payment by check or draft, or represented by certificates of deposit, or otherwise, whether payable on demand or at some future day, with any person, bank, association, company, or corporation, engaged in the business of banking. . . ."
"And a duty of 1/24th of one percent each month, as aforesaid, upon the average amount of the capital of any bank, association, company, or corporation, or person engaged in the business of banking beyond the amount invested in United States bonds."
"And a duty of 1/12th of one percent each month upon the average amount of circulation issued by any bank, association, corporation, company, or person, including as circulation all certified checks, and all notes and other obligations calculated or intended to circulate or be used as money. "
"PROVIDED, that this section shall not apply to associations which are taxed under and by virtue of the act 'to provide a national currency,' &c. . . . [Nor to any savings bank having no capital stock, and whose business is confined to receiving deposits and loaning the same on interest for the benefit of the depositors only, and which do no other business of banking.]"
By an Act of March 3, 1865 -- an act itself of numerous pages -- amendatory of the former one, and inserting or striking out passages all through it, this 110th section was amended by "striking out" that part of the proviso relating to savings banks, and above enclosed in brackets.
In this state of the revenue statutes, "The Bank for Savings in the City of New York," a respectable institution, incorporated by the State of New York, A.D. 1819, was existing in the city just named. The features which, under its charter and bylaws, distinguished, as was conceived by its managers, this corporation from those which exercise to some extent the same functions, and especially from ordinary banking corporations and associations, were apparently these:
1. It was incorporated, not for private gain, but upon the application of the Society for the Prevention of Pauperism in the City of New York.
2. It had no capital stock.
3. It had no shareholders, and no corporators interested in or entitled to participate in the profits of the institution.
4. The corporators were the "trustees" for the time being, who constituted the "Board of Managers." These were prohibited from directly or indirectly receiving any pay or emolument for their services; neither could they have any interest in the deposits or the profits arising therefrom.
5. It was prohibited from issuing notes, making discounts, or transacting any business which belongs to or is transacted by incorporated banks other than is specified in the act, and from lending money "upon notes, bills of exchange, drafts, or any other personal securities whatever."
6. It was enjoined and required to use the funds entrusted to it, and exercise the powers conferred for the promotion of the objects stated in the preamble to its charter, viz.,
"encouraging in the community habits of industry and economy by securing and investing in government securities or stock created and issued under and by virtue of any law of the United States, or of this state, and in no other way, such small sums of money as may BE SAVED from the earnings of tradesmen, mechanics, laborers, minors, servants, and others, thereby affording the twofold advantage of security and interest."
Its object, as declared in the preamble, was "to ameliorate the condition of the poor and laboring classes of the community."
[Power was subsequently given to invest in the debt of the City of New York and to lend upon bond secured by mortgage upon unencumbered real property in the City of New York, and the institution was subjected to a closer scrutiny by the officers of the state.]
7. All the profits derived from the business were divisible ratably semi-annually among the depositors, except that a small percentage was permitted to be retained for accumulation, to prevent or to make good any loss to the depositors by reason of a reduction in the market price of securities or stocks held below the par value.
8. Money, when received by it from its depositors, was to be entered in a pass book, which, when presented, was a voucher or warrant for payments made by the bank and entered in the book, and the corporation -- which by its charter had power to pay cash to depositors when required, and at such times and with such interest and under such regulations as the trustees should from time to time prescribe -- could by its bylaws only be called upon to make payments either of principal or profits on four stated days in the year, and then only upon a week's notice of the intended call. It was at liberty, however, to return all or any part of any deposit whenever it thought proper, and moneys might "be voluntarily paid by the bank daily and without such notice, and without thereby waiving the right of the bank to such notice and time of payment."
One of its bylaws was that "all drafts must be made personally,
or by order in writing, . . . and must be accompanied by the pass book."
9. All the money received by it under the charter was, and at all times had been, either actually invested in stocks or lent on bond and mortgage except some small sum which was kept on deposit in a bank of deposit in the city for current expenses, or waiting an opportunity to invest.
10. Deposits of $1 or of any number of dollars were receivable, but no person, "except in rare and special cases," and with the special direction of the attending committee, was allowed to have with the corporation moneys amounting in the aggregate to more than $1,000, and in no case could the amount exceed $5,000. Those having less than $500 with the corporation were, by law, entitled to receive one percent more of the profits than the others.
11. A large proportion of the depositors, it appeared, had incomes less in amount than $600 per annum, and were not liable to pay an income tax.
12. Courts were enjoined by the charter of the institution to construe the act of incorporation favorably and benignly for every beneficial purpose therein intended.
It was not asserted that the corporation had in any way exceeded its powers or violated the laws of its creation.
The character of its "depositors" appeared from a return of the new ones in 1865. These numbered 13,071, of whom 5,905 were married women, minors &c.; 300 washers, 571 seamstresses, 798 laborers, 1,534 domestics. About four-fifths of the deposits were in sums of less than $100.
It may be here well to add that the statute of 1864, already spoken of, enacts by its 79th section thus:
"Every person, firm, or company, and every incorporated or other bank having a place of business where credits are opened by the deposit or collection of money or currency, subject to be paid or remitted upon draft, check, or order; or where money is advanced or loaned on stocks, bonds, bullion, bills of exchange, or promissory notes; or where stocks, bonds, bullion, bills of exchange, or promissory notes, are received for discount or sale shall be regarded a banker under this act. "
"PROVIDED that any savings bank, having no capital stock and whose business is confined to receiving deposits and loaning the same for the benefit of its depositors, and which does no other business of banking, shall not be liable to pay for a license as a banker."
In the amendatory act of 1865, the above given proviso to this 79th section, a proviso which, the reader will have observed, much resembles that to the 110th section, was not stricken out.
The directors of the institution, conceiving that this was not a corporation "engaged in the business of banking" nor otherwise within the sections of the act already quoted, made no returns for several months to the assessor of the United States of the average amount of the deposits out on loan or invested for individuals in pursuance of its charter, as every corporation engaged in the business of banking is required to do. Hereupon the assessor estimated the amount as the statute provides in cases of delinquency, and these being returned to and adopted by the commissioner, the last-named officer gave a warrant to the collector of the district, to collect the amount as estimated and assessed, with penalties. The collector being about to proceed accordingly, the corporation filed a bill in the supreme court of New York to enjoin him. A preliminary injunction having been granted there, the case was removed by certiorari into the Circuit Court of the United States for the Southern District of that state.
The case coming on to be tried, the judges there were divided on the following questions:
1. Whether the circuit court could restrain the collection of the tax and penalties by injunction?
2. Whether an injunction could properly issue in this case?
3. Whether under the 110th section of the act of June 30, 1864, as amended by the act of March 3, 1865, the corporation was liable to pay a duty of 1/24th of one percent per month on the average amount of money so received and invested or lent as aforesaid, and represented and entered in the pass book as aforesaid,
and payable to the parties entitled under the laws of the corporation already sufficiently set forth.
4. Whether moneys so received and invested were deposits within the meaning of the acts of Congress.
5. Whether moneys received on deposit in any one month and invested as aforesaid during the same month were "deposits" within the meaning of the said acts, so as to render the plaintiff liable to pay a tax thereon for such month.
And on a certificate of division these questions were now before this Court.
MR. JUSTICE CLIFFORD delivered the opinion of the Court. [Footnote 1]
Immediate purpose of the suit in this case was to restrain the respondent, as the Collector of Internal Revenue for the Sixth Collection District of the state of New York, from collecting certain internal duties or taxes assessed against the corporation complainants, by the Commissioner of Internal Revenue. Charter of the complainants was granted by a special act of the Legislature of the State of New York, passed on the twenty-sixth day of March, 1819, and entitled an act to incorporate an association by the name of a Bank for Savings in the City of New York.
Statement of facts as proved or admitted shows that the complainants did business in the City of New York under that act of incorporation and certain other acts of the legislature of the state, as detailed in the record from the date of their charter to the time of the filing of the bill of complaint. Complainants denied that they were subject to the payment of any internal duties or taxes as a savings bank, and they accordingly neglected and refused to make any returns either to the Commissioner of Internal Revenue or to the assessor of the district. Failing to receive such returns, the assessor of the district estimated the average amount of their deposits for the periods specified in the record, and certified the same to the Commissioner of Internal Revenue as required by law in case of delinquency.
Assessor's estimates as certified were adopted by the commissioner as correct, and he thereupon proceeded to assess the duties or taxes in controversy, adding thereto certain penalties for the neglect and refusal to make the returns as
required by the act of Congress, and directed the respondent as the collector of that collection district to collect the amount so estimated and assessed.
1. Exemption from liability to taxation in the case is claimed by the complainants upon the ground that the corporation is not a bank, either in the ordinary and popular sense or in the legal sense of that word, and they allege that they have never transacted any business of banking within the meaning of the acts of Congress under which the duties or taxes were estimated and levied. Respondent in his answer alleged that the complainants were an incorporated savings bank within the usual and proper meaning of that term, and that as such they have been and were engaged in the business of banking as assumed by the revenue officers. Wholly unable to agree in opinion, the judges of the circuit court certified five questions to this Court for decision, but in the view taken of the case, it will not be necessary to examine the first two, as the answers to be certified to the other three will enable the circuit court to dispose of the cause.
2. Substantial import of the third question is whether the complainants are liable under the internal revenue acts to pay a duty of one-twenty-fourth of one percent per month on the average amount of money which they receive and invest or loan, as described in the statement of facts exhibited in the record.
Their powers are set forth in their charter and the other acts of the legislature to which reference has been made. Purpose of the charter as described in the preamble is to encourage in the community habits of industry and economy by receiving and investing in government securities or in federal or state stocks such small sums of money as may be saved from the earnings of tradesmen, mechanics, laborers, minors, servants, and others. They are constituted by the first section of the charter a body corporate and politic by the name of the Bank for Savings in the City of New York, and the provision is that by that name they shall have perpetual succession, and that they shall be capable of suing
and being sued, pleading and being impleaded, and defending and being defended in all courts and places whatsoever. Power to hold real and personal estate to such an amount as may be necessary for the purposes of the incorporation is also conferred, provided that the clear annual value thereof, exclusive of profit arising from interest or from the sale of any stock in which the deposits made in the bank may be invested, shall not exceed the sum of five thousand dollars.
Trustees or managers are appointed by the act of incorporation, but they are forbidden to receive any pay or emolument for their services, and it is provided that they shall not "issue any notes, make any discounts, or transact any business which belongs to or is transacted by incorporated banks, other than is herein specified." Funds of the corporation are required to be used and appropriated for the promotion of the objects stated in the preamble, and the second section of the charter provides in effect that the association shall receive as deposits, from persons of the description mentioned in the recital to the act, all sums of money which may on the terms specified be offered for that purpose, and that the same shall be invested accordingly, and shall be repaid to the respective depositors when required and at such times and with such interest and under such regulations as the trustees shall from time to time prescribe.
3. Such trustees may make bylaws and regulations, and they are expressly required by the charter to regulate the rate of interest to be allowed to depositors so that they shall receive a ratable proportion of all the profits of the bank after deducting all necessary expenses. Authority is conferred upon the trustees to manage the affairs of the bank, and for that purpose to appoint clerks and fix their salaries, but they are required to make an annual report of their funds to the legislature and to common council of the city. Subsequent enactments very much enlarged the powers of the trustees and subjected the bank to a much closer scrutiny by the proper authorities of the state. Investment of the funds under those additional provisions may be made in any state stocks where the faith of the state is pledged for
their redemption, or the moneys received on deposit may be loaned on bonds secured by mortgage of real estate in the city where the bank is located. They are also authorized to accumulate and "hold invested" a surplus fund, not exceeding ten percent on the amount of deposits, as a protection to depositors against loss in case of the reduction in the market price of their securities. Bank commissioners have the power to visit and inspect the bank under existing laws whenever they deem it necessary, or whenever thereto required by the comptroller of the state, and they are required to report the general condition of the bank to the legislature once at least in every three years.
4. Intention of Congress undoubtedly was to impose a duty of one-twenty-fourth of one percentum each month upon the average amount of deposits of money, subject to payment by check or draft, or represented by certificates of deposit or otherwise, whether payable on demand or at some future day, if made with any person, bank, association, company, or corporation engaged in the business of banking except deposits with associations which were taxed under and by virtue of the act "to provide a national currency," and with savings bank having no capital stock, and whose business was confined to receiving deposits and loaning the same on interest, for the benefit of the depositors only, and which were doing no other business of banking. [Footnote 2] Confirmation of that view is derived from the language of the next clause, which imposes the same duty upon the average amount of the capital of any bank, association, company, or corporation, or person engaged in the business of banking, beyond the amount invested in United States bonds.
Savings banks having no capital are not included in that provision, nor are they included in the next succeeding clause, which imposes a duty of one-twelfth of one percent each month upon the average amount of circulation issued by any bank, association, corporation, company, or person, including as circulation, all certified checks, and all notes
and other obligations calculated or intended to circulate or to be used as money. Such savings banks having neither capital nor circulation, did not fall within the words of either of those clauses, and consequently it did not require any proviso to exclude them from the operation of those provisions. But those banks, as banks of deposit, did fall directly within the words of the first clause of the section, and therefore it became necessary to insert the proviso near the close of the section, to exclude them from the otherwise plain meaning and operation of the clause.
Precise language of the proviso is that the section shall not apply
"to any savings bank having no capital stock, and whose business is confined to receiving deposits, and loaning the same on interest, for the benefit of the depositors only, and which do no other business of banking."
More exact description of the corporation complainants than is expressed in the language of that proviso could not be conceived, and it amounts to a legislative enactment that the receiving of deposits and loaning the same on interest for the benefit of the depositors is a business of banking. Throughout the section, the distinction between deposits, capital, and circulation as separate objects of taxation is clearly maintained and enforced both in respect to the monthly returns and the monthly payment of the duties.
Same remarks apply to the seventy-ninth section of the act, which requires bankers to pay a certain sum for a license, and defines the meaning of the word as used in the section. Doubt cannot be entertained that the definition as there given would have included savings banks having no capital stock but for the proviso annexed to the clause, which is in the very words of the proviso under consideration.
5. Argument for the complainants is that the proviso was only inserted out of abundant caution, and that it was unnecessary, inasmuch as such an association was not included in the substantive words of the section, but it is not possible to sustain that proposition for the reasons already given, as well as others which will be briefly stated.
the complainants receive deposits as one of the primary purposes of the charter, and the second bylaw of the bank provides that
"Deposits of one dollar or any number of dollars may be received, but are not, in the whole, to exceed one thousand dollars from any depositor without the special direction of the attending committee."
General rule is that no depositor is allowed to have deposits beyond one thousand dollars, but he may have that amount, and, in special cases, when it is made to appear that he can find no other investment, he may exceed that amount.
2. By the terms of their charter, they are obliged to pay each depositor, when required, "and at such times, and with such interest, and under such regulations as the trustees shall from time to time prescribe."
Obligation of repayment exists throughout, and it cannot make any difference as to the liability of the complainants in this case that the entries are made in a pass book, and that the depositors can only obtain their deposits at certain stated periods. Deposits are made to be invested for the benefit of the depositors, and the bank is under obligations to repay the amount when demanded, agreeably to the bylaws and charter.
3. Only remaining condition to bring the case within the words of the body of the act is that the deposits should be made with a person, bank, association, company, or corporation engaged in the business of banking. Agreed case shows that the corporation complainants were engaged in receiving deposits and loaning the same on interest for the benefit of the depositors. Irrespective of the definition given to that phrase in the language of the proviso, that same conclusion must be adopted from the facts exhibited in the statement of the case unless it can be established that the receiving of deposits by a chartered company, and loaning or investing the same for the benefit of the depositors, is not a business of banking.
Banks, in the commercial sense, are of three kinds, to-wit: 1, of deposit; 2, of discount; 3, of circulation. All or any two of these functions may and frequently are exercised by the same association, but there are still banks of deposit,
without authority to make discounts or issue a circulating medium. [Footnote 3]
"Banks for savings," says McCulloch, "are banks established for the receipt of small sums deposited by the poorer class of persons for accumulation at interest." [Footnote 4] Definition given by Grant is more extended, but it amounts to the same thing. [Footnote 5] Courts of justice also, as well as text writers, recognize the well known distinction between banks of deposit and banks of discount or circulation. [Footnote 6]
6. Beyond all controversy, the proviso, while it continued in force, had the effect to exclude the corporation complainants from the operation of the substantive words of the section. Since the passage of the act, however, the proviso has been stricken out, and the palpable effect of the repeal is to leave the body of the act in full force and operation, without any such qualification as was imposed by the proviso. [Footnote 7] Although the proviso is repealed, still it is proper to resort to it as well as to the proviso in the seventy-ninth section of the same act, as affording a legislative exposition of what is meant by the phrase, engaged in the business of banking, as employed in the first clause of the section under consideration. Looking at the case, therefore, in any point of view, it is clear that the answer to the third question must be in the affirmative.
7. Fourth question presented for decision is whether the moneys so received on deposit and invested are "deposits" within the meaning of the act of Congress. Obviously the question as presented is substantially answered by the remarks already made in disposing of the preceding question. All the moneys received by the bank, whether for safekeeping or for investment, are "deposits" within the meaning of their bylaws and within the very words of their charter. Answer to this question also must be in the affirmative.
8. Fifth question is whether moneys received on deposit in any one month and invested during the same month are "deposits" within the meaning of said acts so as to render the complainants liable to pay a tax thereon for such month. Moneys received, as already explained, whether invested or not, are "deposits" within the meaning of the acts of Congress, and if so, then it is clear that the amount, whatever it may be, is liable to taxation as soon as it is received by the bank, because when received by the bank, it becomes deposits, and continues to be such till it is repaid to the depositor. An affirmative answer must also be certified to this question.
No answers will be certified to the first two questions, because the Court is of the opinion that those given to the others are sufficient to dispose of the cause.
GRIER and NELSON, JJ., dissented; FIELD, J., who, as already said, had not sat in the case, took no part in the judgment.
FIELD, J., not having sat.
§ 110, 3 Stat. at Large 277.
Angel & Ames on Corporations § 55; McCulloch's Commercial Dictionary 73.
Grant on Banking 614.
Duncan v. Savings Institution, 10 Gill & Johnson 309; People v. Utica Insurance Co., 15 Johnson 390; Grant on Banking, 1, 6, 381, 614.
13 Stat. at Large 479.