A corporation organized for the purpose of doing an insurance
business, under an act of the Legislature of the State of Tennessee
passed before the adoption by that state of its Constitution of
1870, with a provision in the charter limiting the rate and extent
of taxation by the state, does not continue to enjoy the exemption
if its corporate objects and business are changed to those of a
bank by legislation enacted subsequent to the adoption of that
constitution.
Page 161 U. S. 187
A judgment in favor of the exemption of its shareholders from
taxation in excess of the statutory limit, entered before the
insurance company was changed to a bank, cannot be upheld as
res judicata in an action brought after the change to
recover such excess.
This suit is similar to those which precede, and is brought for
the collection of taxes against the corporation plaintiff in error
or its stockholders. It was tried upon an agreed statement of
facts. Those which are material to the present inquiry are the
following: the defendant corporation, in January, 1870, under its
then name of the Memphis City Fire and General Insurance Company,
was duly organized, under the charter granted to it on the 24th of
January, 1870, and the organization under it was in all respects
valid, and no question is made upon the same. The defendant, from
that date down to the year 1887, carried on an insurance business
under its charter in the City of Memphis. In that year, in
pursuance of the powers granted in chapter 190, Acts 1887, the
corporation (also claiming the right to do so under the powers
conferred by its charter) changed its business from that of
insurance to that of banking, and since that date down to the
present time has exclusively conducted a banking business in
Memphis. Section 2 of the original charter empowers the corporation
to receive in trust, from any person, moneys, jewels, plate, and
other valuable things, and to give acknowledgment therefor in such
form as the directors of the corporation may deem best suited to
the protection and convenience of depositors and the company. And
the corporation was also authorized to loan its surplus funds on
any public stock, or of any incorporated company, or of the United
States, or either of them, or to invest such funds in any real or
personal estate, choses in action, or other good securities.
Section 7 provides that there shall be levied a state tax of
one-half of one percent upon the amount of capital stock actually
paid in, to be collected in the same way and at the same time as
the other taxes are by law collected, which shall be in lieu of all
other taxes and assessments. Chapter 190, Acts 1887, enacted that
any company incorporated under the laws of Tennessee, having by its
charter the right to receive moneys
Page 161 U. S. 188
in trust or otherwise, should be held to have the power to
receive deposits, and loan the same and its capital stock on any
kind of commercial or business paper, or real estate, buy and sell
exchange, and all kinds of public or private securities and
commercial paper. It was also further provided in that act
"that the exercise of any of the granted powers should not
operate to forfeit any franchise, right, power, privilege, or
immunity granted in the original charter, and that the nonuser of a
part of a corporation's powers, privileges and franchises should
not have the effect of forfeiting any franchise, right, power,
privilege, or immunity contained in its charter."
On the 23d of January, 1889, the legislature passed an act
changing the name of the corporation plaintiff in error from that
of the Memphis City Fire and General Insurance Company to that of
the Memphis City Bank, and since that time it has conducted
business under the latter name. From its first organization in 1870
down to the present time, it has regularly and constantly paid to
the State of Tennessee the charter tax provided for in section 7 of
its charter, and has regularly filed with the comptroller of the
state the statement required and called for by the seventh section
of that charter.
The opinion of the Supreme Court of Tennessee, delivered upon
the demurrer to the bill in this case, will be found reported in 7
Pickle 574, under the name of
Memphis v. Memphis City
Bank. In the year 1872, the State of Tennessee, the County of
Shelby, and the City of Memphis undertook to tax the shares of
stock of the Memphis City Fire and General Insurance Company at
their market value in the hands of the shareholders at the same
rate as other property was taxed. The shareholders denied this
right, and claimed an exemption from all taxation except to the
extent of the tax provided for in the seventh section of the
charter. Thereupon an agreed case was made up between the parties,
the State of Tennessee on the one side and Napoleon Hill, a
stockholder in the company, on behalf of all the other stockholders
on the other side. The case was made in conformity with the laws of
Tennessee, and the question submitted to the
Page 161 U. S. 189
Second Chancery Court of Shelby County and State of Tennessee to
determine whether the said county or state had the right to impose
a tax upon the shares other than the one-half of one percent
provided for in its charter. The case was regularly heard in the
Second Chancery Court of Shelby County, and decided in favor of the
shareholders, and against the power to tax. It was then carried to
the Supreme Court of Tennessee, where the decision of the chancery
court was reversed and the power to tax affirmed. The case was
heard in the supreme court in connection with several cases of the
same character under the title of
City of Memphis v. William M.
Farrington, 8 Baxter 538. Mr. Hill sued out a writ of error
from this Court in behalf of himself and the other shareholders,
and the case was regularly heard in this Court upon the federal
question, and upon that hearing this Court reversed the decree of
the Supreme Court of Tennessee and affirmed that of the Second
Chancery Court of Shelby County, and upon a mandate, properly
issued from this Court to the state court, a judgment was entered
in favor of said Hill and the other shareholders in the company.
The case, as decided by this Court, is reported under the name of
Farrington v. Tennessee, 95 U. S. 679. The
plaintiffs in error herein rely upon that final decree as being a
full, final, and complete adjudication of all questions involved in
this case, and as being
res judicata, and binding upon the
parties hereto.
Upon these agreed facts, the case was tried and judgment given
for the shareholders, which, upon appeal, was reversed by the
Supreme Court of Tennessee, and judgment entered for the City of
Memphis for the recovery of taxes upon the shares of stock in the
Memphis City Bank and upon the surplus and undivided profits for
the years therein named, and it is to review this judgment that the
plaintiffs in error come here.
Page 161 U. S. 190
MR. JUSTICE PECKHAM, after stating the facts in the foregoing
language, delivered the opinion of the Court.
The question in this case is whether the corporation plaintiff
in error could, while availing itself of the general act (chapter
190, Acts of 1887, above referred to), change its business from
that of insurance, as provided in its charter, granted in January,
1870, to that of banking, and still retain the exemption from the
payment of any taxes other than those provided for in section 7 of
that charter. After such change of business, and by virtue of
section 14 of the general revenue law of the state, passed in 1887,
the state assumed to tax the plaintiffs in error at a greater rate
than that provided for in the original charter, and it is to
collect these taxes that this suit is brought. At the time the act
of 1887 (chapter 190) was passed, under which the corporation
plaintiff in error claimed the right to change its business (while
also at the same time claiming that right under its original
charter), the Constitution of Tennessee, adopted in 1870, was in
full force. That constitution provided, article 2, section 28, that
"all property, real, personal or mixed, shall be taxed, but the
legislature may except such as may be held by the state, counties,
cities, or towns." By section 8, article 2, of the Constitution of
1870, it was provided, among other things,
"that no corporation shall be created or its powers increased or
diminished by special laws, but the General Assembly shall provide
by general laws for the organization of all corporations hereafter
created, which laws may at any time be altered or repealed, and no
such alteration or repeal shall interfere with or divest rights
which have become vested."
Under these two provisions of the constitution, giving effect to
both, the legislature could not, even by general law, grant or
preserve an immunity from taxation not otherwise existing, total or
partial, to the capital stock or shares of a corporation. The
twenty-eighth section of the second article of the constitution
requires that all property shall be taxed except such as is exempt
by that section or is by that section authorized to be exempt by
the legislature, and the kind of property in question
Page 161 U. S. 191
in this case does not come within either class spoken of in that
section. We think that the change from the business of insurance to
that of banking is a material and radical change, and to such an
extent that the legislature, under the Constitution of 1870, would
have no power to continue an exemption from taxation granted by the
charter to the insurance company so that it should continue to
exist in favor of a company exercising an exclusively banking
business. The legislature was powerless, in the face of the
constitutional provision mentioned, to provide "that the exercise
of any of the granted powers should not operate to forfeit any
franchise, right, power, privilege or immunity" granted in the
original charter. The Supreme Court of Tennessee has so construed
the constitution. 7 Pickle 574.
That court holds that the legislature could not, by enacting
such a proviso, in connection with the authority given by it to a
corporation to change its business, transfer an exemption from
taxation granted to that corporation, while exercising the powers
originally granted to it by its charter prior to the adoption of
the Constitution of 1870.
The substantial effect of chapter 190, Acts of 1887, when made
applicable to any company having, by its charter, the right to
receive moneys in trust or otherwise, was to grant a new charter,
to the extent of granting banking powers, and the company, availing
itself of the privileges mentioned in such act, took them subject
to the constitution and laws then in force. It was not, properly
speaking, a mere act increasing the powers of the corporation, so
that such corporation could perform other acts of a nature similar
to those which it was already authorized to perform by its original
charter. It was not an increase, but it was a change, of powers to
the extent that those granted by the act of 1887 were of a totally
different character and nature. An insurance corporation differs
radically from a banking corporation, and the powers given to one
cannot be exercised by the other without some authority granted by
the state through its legislature. This corporation plaintiff in
error, since the passage of the act in question, has not only
availed itself of the privileges therein granted,
Page 161 U. S. 192
but it has totally abandoned the exercise of the powers
originally granted to it in its charter of 1870, and by such
abandonment, on the one hand, and the exercise of the privileges
granted to it by the act of 1887, on the other, it has become, in
substance and effect, a banking corporation, and necessarily it
must look to the act of 1887 as its authority for the exercise of
its banking privileges. The original contract of exemption from
taxation was manifestly granted to the original corporation, to be
availed of by it while it was in the exercise of its corporate
powers as an insurance company. It cannot be held to go with the
corporation when it abandons the performance of the acts authorized
in its original charter and proceeds to exercise the privileges of
and do a business as a banking corporation, by virtue of the act of
1887. As a result, when it assumes to make use of the privileges
granted to it under the act last named, it must do so subject to
the constitution and laws existing at the time when that act was
passed, and its rights and privileges must be exercised in
subordination thereto.
Upon the proposition argued by plaintiffs in error that they
have the right to engage in their present business of banking by
virtue of the original charter, we are of opinion that such right
does not exist. The power to receive in trust for any person moneys
or other valuable thing, and of giving their acknowledgment
therefor, and to loan their surplus funds as provided in the second
section of the original charter, in no sense authorizes them to
conduct a general banking business. They must look to the act of
1887 alone for their power to transact that kind of business, and,
for the reasons we have stated, they are not entitled to the
exemption provided for in section 7 of their charter.
Second. We do not think that the plea of
res judicata
can be upheld upon the facts as stated. The former judgment was
entered in an action commenced long prior to the act of 1887, to
recover taxes alleged to have become due while the corporation
plaintiff in error was engaged in its original business of an
insurance company, and the judgment was upon the right of its
shareholders to be exempt from any further
Page 161 U. S. 193
taxation than that provided for in the charter while the company
was doing business as such insurance company. The judgment could
therefore not be an estoppel, or operate in any manner as a bar to
the maintenance of this action, based upon facts of a totally
different nature and arising long after the judgment was obtained
in the former action.
The judgment must therefore be
Affirmed.
Memphis City Bank v. Tennessee and Shelby County, No.
675, by stipulation is to abide the event of foregoing case.
