1. It is the general rule that the construction given by state
courts to state laws and constitutions are binding and conclusive
upon the federal courts, but the rule does not extend to cases in
which this Court is called on to interpret the contracts of states,
though they have been made in the form of laws or by functionaries
of the state in pursuance of state laws.
2. Fidelity to the Constitution of the United States makes it
necessary, that in such a matter, this Court should not follow the
construction of a state court with whose opinion it cannot concur,
and it makes no difference in the obligation whether the contract
is in the shape of a law or of a covenant by the state's
agents.
3. The charter of a bank is a franchise, which is not taxable as
such if a price has been paid for it which the legislature has
accepted with a declaration that it is to be in lieu of all other
taxation.
4. The rule of construction is strict against the corporators
and in favor of the public, and neither the right of taxation nor
any other power of sovereignty will be held to have been
surrendered, unless such surrender has been expressed in terms too
plain to be mistaken.
5. But the state may make a contract not to exercise the taxing
power, or to exercise it only within certain limits with respect to
a particular subject, and such a contract once made cannot be
rescinded by a subsequent legislative act.
6. The 60th section of the charter of the State Bank of Ohio,
which requires that six percent of the dividends shall be set off
for the use of the state, which sum the state consents to accept in
lieu of all taxes to which the banks or their stockholders might
otherwise be subject, is a contract, and a subsequent law
increasing the taxes is a violation of the contract.
7. A provision of the state constitution adopted after the
charter of the state Bank that a higher tax might be imposed on all
banks than that stipulated for in the charter of the state Bank
cannot be applied to the state Bank and its branches without a
violation of the contract.
The Jefferson branch of the State Bank of Ohio brought trespass
in the Common
Page 66 U. S. 437
Pleas of Jefferson County against Alexander Skelly, and charged
in their declaration that the defendant took and carried away from
the banking house of the plaintiff at Steubenville a certain
quantity of gold coin of the value of seven thousand dollars and
converted it to his own use. The defendant pleaded specially, in
justification, that he was treasurer of Jefferson County, and as
such required and authorized by law to collect the taxes assessed
in the County of Jefferson; that taxes to the amount of $5,568
88.9/10 had been assessed upon and were then due from the
plaintiff, which it was the duty and right of the defendant to
distrain for, and that the supposed trespass consisted in making
such lawful distraint. The plaintiff replied that it was a banking
corporation organized under an act of the state legislature,
entitled "An act to incorporate the State Bank of Ohio and other
banking corporations;" that, agreeably to the 60th section of said
act, the plaintiff had always agreeably to the 60th section of said
act, the plaintiff had always regularly and punctually paid to the
properly authorized officers six percent of its profits; that the
60th section of the charter was a contract between the state and
the plaintiff to assess or demand no other or greater taxes from
the plaintiff than six percent on its profits; and that the taxes
for which the defendant alleged that he had made the supposed
distraint were assessed and demanded in pursuance of a law which
was a violation of the said contract, and therefore void. The
defendant rejoined, taking issue on the replication.
The question of law thus raised was whether the state had a
right to impose on the bank any taxes other than those which were
stipulated for in the 60th section of the charter, the plaintiff
asserting, and the defendant denying, that the section referred to
was a contract which made any other or greater taxes illegal and
unconstitutional. The verdict and judgment in the common pleas were
in favor of the plaintiff for $6,292 80, with costs. The defendant
appealed to the circuit court, where a verdict and judgment for the
plaintiff were again rendered, but the judgment was arrested, and
judgment finally given for the defendant. Thence the cause was
taken, on the plaintiff's petition, to the supreme court of the
state. The judges of the supreme court were of opinion that the
said 60th section of
Page 66 U. S. 438
the act of the General Assembly of Ohio of the 24th of February,
1845, entitled "An act to incorporate the State Bank of Ohio and
other banking companies," under the provisions of which the said
Jefferson branch was organized, is not a contract within the
meaning, and entitled to the protection, of that clause of the
Constitution of the United States which provides that "no state
shall pass any law impairing the obligation of contracts," and that
consequently the subsequent laws under which the increased taxes
were assessed and levied were valid. The judgment of the circuit
court was therefore affirmed, and thereupon the plaintiff took this
writ of error from the Supreme Court of the United States.
Page 66 U. S. 442
MR. JUSTICE WAYNE.
This case has been brought to this Court by a writ of error to
the Supreme Court of the State of Ohio.
Its purpose is to revise a judgment rendered by that court in
which it has, among other things, declared, contrary to the uniform
decisions of this Court upon the same subject matter, that the 60th
section of the charter of the State Bank of Ohio is not a contract
within the meaning of that clause of the Constitution of the United
States which provides "that no state shall pass any law impairing
the obligation of contracts."
We shall not now reargue the question, nor any point in
connection with it, thinking it best to give without addition what
have been the judgments of this Court when the matter in connection
with the charter of the State Bank of Ohio has been before it. The
reasoning of the Supreme court of Ohio has, at all times, had our
most respectful consideration.
Hoc non obstante, however,
it is again reproduced by that court as the foundation of its
judgment, without other illustration than it had when we first were
called upon to review it, and we are now asked to reconsider it by
the district attorney, James Murray, Esquire, upon an intimation,
that this Court might be induced to reverse its decision in the
Piqua Branch case because that judgment of this Court
involves the construction of the constitution and laws of the State
of Ohio differently from what both had been decided to be by the
supreme court of the state, and that the Supreme Court of the
United States should follow or conform to the conclusion of the
former, at the same time admitting that there had been an
inconstancy of interpretation by the Supreme Court of Ohio in its
judgments upon the 60th section of the charter of the State Bank of
Ohio.
Page 66 U. S. 443
We answer to this, as this Court has repeatedly said whenever an
occasion has been presented for its expression, that its rule of
interpretation has invariably been that the constructions given by
the courts of the states to state legislation and to state
constitutions have been conclusive upon this Court, with a single
exception, and that is when it has been called upon to interpret
the contracts of states, "though they have been made in the forms
of law," or by the instrumentality of a state's authorized
functionaries, in conformity with state legislation. It has never
been denied, nor is it now, that the Supreme Court of the United
States has an appellate power to revise the judgment of the Supreme
court of a state whenever such a court shall adjudge that not to be
a contract which has been alleged, in the forms of legal
proceedings, by a litigant to be one within the meaning of that
clause of the Constitution of the United States which inhibits the
states from passing any law impairing the obligation of contracts.
Of what use would the appellate power be to the litigant who feels
himself aggrieved by some particular state legislation if this
Court could not decide, independently of all adjudication by the
supreme court of a state, whether or not the phraseology of the
instrument in controversy was expressive of a contract and within
the protection of the Constitution of the United States, and that
its obligation should be enforced notwithstanding a contrary
conclusion by the supreme court of a state? It never was intended,
and cannot be sustained by any course of reasoning, that this Court
should or could with fidelity to the Constitution of the United
States follow the construction of the supreme court of a state in
such a matter when it entertained a different opinion, and in
forming its judgment in such a case, it makes no difference in the
obligation of this Court in reversing the judgment of the supreme
court of a state upon such a contract whether it be one claimed to
be such under the form of state legislation or has been made by a
covenant or agreement by the agents of a state by its
authority.
We have thus given, very much in what has been the language of
this Court, what has been always its attitude in respect
Page 66 U. S. 444
to the revisal of the judgments of the supreme court of a state
upon contracts which have been declared not to be within the
protection of the Constitution of the United States.
We will now show that this opinion may be better understood, in
connection with the citations which will be produced to sustain it,
the origin of this controversy from its proceedings and
pleadings.
It was an action of trespass brought by the plaintiff in error
against the defendant Skelly for forcibly entering the plaintiffs
banking house, and taking and carrying away gold coin, the money of
the plaintiff. To this charge the defendant pleaded the general
issue, not guilty, and two pleas of justification substantially the
same. They are that the defendant, as treasurer of the county, had
received from the auditor for the collection of taxes, a tax
duplicate of $5,303.70, which had been assessed in the year 1852
upon the plaintiff's property for state and county taxes, and other
purposes; that being unpaid after the time allowed by law for its
payment, he had seized and taken from the plaintiffs banking house
$5,568 88 in money of the plaintiff, to satisfy the tax and penalty
for default of payment, as he had the right officially to do. To
these pleas the plaintiff replied that the bank prior to 1850 had
been incorporated and organized as a banking company, in conformity
with an act of the general assembly entitled "An act to incorporate
the State Bank of Ohio and other banking companies," passed the
14th of February, 1845, and as such had carried on business as a
branch of the State Bank of Ohio, and was then doing so; that it
had at all times, as required by the 60th section of the act, set
off to the state six percentum on its profits, deducting from it
the expenses and its ascertained losses for the six months
preceding; and that the cashier had punctually, within ten days
after having done so, informed the auditor of the state that it had
been done, and that it had paid the same, whenever required, to the
treasurer, upon the order of the auditor, and that they had been
and were then ready to pay the amount according to law.
It is alleged that the bank had performed all required by the
60th section of the act of incorporation, and that from its
Page 66 U. S. 445
acceptance of the act and compliances with it, a contract had
been made between the state and the bank, according to the 60th
section, that the six percentum on the profits of the bank, to be
divided semiannually and set off to the state of Ohio, should be in
lieu of all taxes which the bank and its stockholders, on account
of the stock held by them, were bound to pay, and that the
assessment set forth in the defendant's pleas of justification was
a direct violation of the contract between the state and the
banking company. To this replication the defendant made no answer,
and a judgment was rendered against them for want of a
rejoinder.
In that state of the case, it was carried by appeal into the
District Court of Ohio, and there submitted to a jury upon the plea
of not guilty, and a verdict was rendered for the plaintiff. But
after that judgment, the verdict was arrested by the district court
upon the ground that the matter set forth in the plaintiff's
replication was no answer to the defendant's pleas of
justification, and that those pleas were a bar to the plaintiff's
recovery.
The case was then carried by appeal to the supreme court, and
the judgment of the district court was affirmed on the express
ground that the 60th section of the bank charter was not a contract
between the state and the bank within the meaning of that clause of
the Constitution of the United States which provides that "no state
shall pass any law impairing the obligation of contracts," and that
the act of the general assembly, passed the 13th April, 1852, for
the assessment and taxation of all property in the state, according
to its true value in money, was binding on the Bank of the State of
Ohio and its branches.
Having given the case in its pleading and proceedings in all
their irregularities, we now proceed to state what have been the
uniform decisions of the Supreme Court of the United States in
respect to the protective clause against legislation by the states
impairing the obligation of contracts, and particularly of that
legislation of Ohio comprehending the present controversy, which
its supreme court has affirmed to be constitutional, and which is
now regularly before us for review
Page 66 U. S. 446
and reversal in conformity with previous decisions of this
Court.
First, as to the decisions of this Court in respect to the power
of a state legislature to bind the state by a contract, we refer to
the case of
Billings v. Providence Railroad Bank, that of
the
Charles River Bridge Company, and that of
Gordon
v. Appeal Tax Court, and to the case of
Richmond
Railroad Company v. Louisa Railroad Company, 13
How. 71. The last, in principle, was identical with that of
Charles River Bridge v. Warren Bridge. The opinion of the
majority of the Court was put upon the ground that the legislature
of a state had a right to bind the state by such a contract, and
the three dissenting judges in that case were of the opinion, as
the report of the case will show, not only that the legislature
might bind the state by such a contract, but that it had bound it,
and that the charter of the Louisa Railroad Company violated the
contract and impaired its obligation. This Court has also decided
that the charter of a bank is a franchise which is not taxable as
such if a price has been paid for it which the legislature has
accepted with a declaration that it was to be in lieu of all other
taxation.
Gordon v. Appeal Tax
Court, 3 How. 133. The rule of construction in such
a case is that the grant of privileges and exemptions to a
corporation are to be strictly construed against the corporators
and in favor of the public, that nothing passes but what has been
granted in clear and explicit terms, and that neither the right of
taxation nor any other power of sovereignty will be held by this
Court to have been surrendered unless such surrender has been
expressed in terms too plain to be mistaken.
In respect to the power of a state legislature to exempt
persons, corporations, and things from taxation and to bind the
state by such enactment, we refer to the case of
New Jersey
v. Wilson, 7 Cranch 164. The circumstances of that
case were these:
A legislative act declaring that certain lands should be
purchased for the Indians, and that such lands should not be
thereafter subject to taxation, it was decided by this Court that
such language made a contract between the
Page 66 U. S. 447
Indians and the state which could not be rescinded by a
subsequent legislative act, and that such a repealing act was void
under that clause of the Constitution of the United States
prohibiting the states from passing any law impairing the
obligation of contracts. The case shows what has been the fidelity
of this Court to the Constitution in this particular. The
illustration will be more decisive by briefly stating the
circumstances of the case. In 1758, the State of New Jersey
purchased the Indian title to lands in that state, and as a
consideration for the purchase bought a tract of land as a
residence for the Indians, having previously passed an act
declaring that such lands should not be subject thereafter to any
tax by the state, any law or usage, or law then existing to the
contrary notwithstanding. The Indians, from the time of purchase,
lived upon the land until the year 1801, when they were authorized
by an act of the legislature to sell the land. This last act
contained no provision in respect to the future taxation of the
land. Under it the lands were sold. In October, the legislature
repealed the act of August, 1758, which exempted the lands from
taxation, subjecting them to taxes in the hands of the purchasers.
They were assessed and demanded, the purchasers resisted, and upon
the trial of the case the taxes imposed by the act of 1804 were
declared to be unconstitutional. This Court then said the
privilege, though for the benefit of the Indians, is annexed by the
terms which create it to the land itself, and not to their persons.
In the event of a sale, the privilege was material, because the
exemption from taxes enhanced its value.
Our reports have other cases of a like kind passed upon by this
Court with like results. In every case, the vital importance of a
state's right to tax was considered, and the relinquishment of it
by a state has never been presumed. The language of the Court has
always been cautious and affirmative of the right of the state to
impose taxes unless it has been relinquished by unmistakable words
clearly indicating the intention of the state to do so. This Court
has always said and acted upon it:
"We will not say that a state may not relinquish its right to
tax in particular cases, or that a consideration
Page 66 U. S. 448
sufficiently valuable to induce a partial increase of it may not
exist, but as the whole community is interested in preserving it
undiminished, it has a right to insist that its abandonment ought
not to be presumed in a case in which the deliberate purpose of a
state to abandon it does not appear."
We are aware that the very stringent rule of construction of
this Court in respect to taxation by a state has not been
satisfactory to all persons. But it has been adhered to by this
Court in every attempt hitherto made to relax it, and we presume it
will be until the historical recollections which induced the
framers of the Constitution of the United States to inhibit the
states from passing any law impairing the obligation of contracts
have been forgotten. This Court's view of that clause of the
Constitution, in its application to the states, is now and ever has
been that state legislatures, unless prohibited in terms by state
constitutions, may contract by legislation to release the exercise
of taxing a particular thing, corporation, or person, as that may
appear in its act, and that the contrary has not been open to
inquiry or argument in the Supreme Court of the United States.
This brings us to the consideration of the legislation of Ohio
upon which its supreme court has passed judgment on the case now
before us.
It has been decided three times by this Court that the 60th
section of the charter of the State Bank of Ohio was a contract
between the state and the bank within the meaning, and entitled to
the protection of the Constitution of the United States against any
law of the state of Ohio impairing its obligation, and that the
acts of Ohio upon which the supreme court of Ohio has assumed the
state's right to tax the State Bank of Ohio and its branches
differently from the tax stipulated for in the 60th section of the
charter were and are unconstitutional and void.
The first case in the order of time is that of the
Piqua
Branch v. Knoop. In that case we declared the act of 1845 to
be a general banking law, the 59th section of which required the
bank to make semiannual dividends, and that the 60th section
required the officers of the banks to set off six
Page 66 U. S. 449
percent of such dividends in the manner prescribed in it for the
use of the state, which sum the state had consented to accept and
would accept in lieu of all taxes to which the banks or their
stockholders might otherwise be subject; that the act was a
contract, fixing the amount of taxation, and not a rule or law
prescribed until changed by the Legislature of the State of Ohio;
that the act of 1851, to tax banks and other stocks the same as
property, was an act to increase the tax upon the banks, and that
such law being a violation of the state's contract, that the banks
were not bound to pay the same; that a municipal corporation, in
which is vested some portion of the administration of the
government, may be changed at the will of the legislature; but that
a bank, in which stock is held by individuals, is a private
corporation, and its charter is a legislative contract, which
cannot be changed without its consent; and in connection, this
Court again repeated that, by the 60th section of the act of 1845,
the state bound itself by contract to levy no higher tax than was
mentioned in it upon the bank should it be organized under that law
during the continuance of their charters.
Two years afterwards, in 1855, the particulars of the decision
as they have just been stated were reaffirmed. It also then added
that a stockholder in a corporation has a remedy in chancery
against the directors of a bank to prevent them from doing acts
which would amount to a violation of its charter or to prevent them
from any misapplication of its capital which might lessen the value
of the shares if the acts intended to be done shall amount to what
the law deems to be a breach of trust; also that a stockholder in a
bank or other corporation had a remedy in chancery against
individuals, in whatever character they profess to act, if the
subject of complaint is an imputed violation of a corporate
purchase or the denial of a right growing out of it for which there
is not an adequate remedy at law, and if the stockholder who
complains be a resident of another state than that in which the
bank or corporation has its habitat, that he may then resort to the
courts of the United States for a remedy.
That the fact that the people of the State of Ohio had, in
the
Page 66 U. S. 450
year _____, adopted a new constitution in which it was declared
that taxes should be imposed upon banks in the manner provided for
by the act of 13 April, 1852, cannot be applied to the State Bank
of Ohio or its branches without a violation of the contract
contained in the charter of 1845. Having now noticed every
essential point made in the argument in support of a claim to
subject the Bank of the State of Ohio and its branches to a higher
rate of taxation than that stipulated in its charter, we will close
this opinion in the language of THE CHIEF JUSTICE in
Knoop's
Case:
"I think, that, by the 60th section of the act of 1845, the
State of Ohio bound itself by a contract to levy no higher tax than
the one there mentioned upon the banks or stocks of the banks
organized under that law during the continuance of their charters.
In my judgment, the words used are too plain to admit of any other
construction."
We shall direct a reversal of the judgment of the Supreme Court
of Ohio in this case and direct a mandate to be issued
accordingly.
Judgment of the Supreme Court of Ohio reversed.