In 1791, the Legislature of Rhode Island granted a charter of
incorporation to certain individuals who had associated for the
purpose of banking. They were incorporated by the name of the
president, directors, and company of the Providence Bank, with the
ordinary, powers of such associations. In 1822, the legislature
passed an act imposing a tax on every bank in the state except the
bank of the United States. The Providence Bank refused the payment
of the tax, alleging that the act which imposed it was repugnant to
the Constitution of the United States as it impaired the obligation
of the contract created by the charter of in corporation.
Held that the act of the Legislature of Rhode Island
imposing a tax which under the law was assessed on the Providence
Bank does not impair the obligation of the contract created by the
charter granted to the bank.
It has been settled that a contract entered into between a state
and an individual is as fully protected by the prohibitions
contained in the tenth section, first article of the Constitution,
as a contract between two individuals, and it is not denied that a
charter incorporating a bank is a contract.
The power of taxing moneyed corporations has been frequently
exercised, and has never before, so far as is known, been resisted.
Its novelty, however, furnishes no conclusive argument against
it.
That the taxing power is of vital importance, that it is
essential to the existence of government, are truths which it
cannot be necessary to reaffirm. They are acknowledged and asserted
by all. It would seem that the relinquishment of such a power is
never to be assumed. We will not say that a state may not
relinquish it; that a consideration sufficiently valuable to induce
a partial release of it may not exist; but as the whole community
is interested in retaining it undiminished, that community has a
right to insist that its abandonment ought not to be presumed in a
case in which the deliberate purpose of the state to abandon it
does not appear.
The great object of an incorporation is to bestow the character
and properties of individuality on a collected and changing body of
men. Any privileges which may exempt it from the burdens common to
individuals do not flow necessarily from the charter, but must be
expressed in it or they do not exist.
The power of legislation, and consequently of taxation, operates
on all the persons and property belonging to the body politic. This
is an original principle which has its foundation in society
itself. It is granted by all for the benefit of all. It resides in
government as a part of itself, and need not be reserved where
property of any description or the right to use it in any manner is
granted to individuals or corporate bodies.
However absolute the right of an individual may be, it is still
in the nature of that right that it must bear a portion of the
public burdens, and that portion must be determined by the
legislature. This vital power may be abused, but the Constitution
of the United States was not intended to furnish the correction of
every abuse
Page 29 U. S. 515
of power which may be committed to the state governments. The
intrinsic wisdom and justice of the representative body and its
relations with its constituents furnish the only security where
there is no express contract against unjust and excessive taxation,
as well as against unwise legislation generally.
This was a writ of error to the Supreme Judicial Court of the
State of Rhode Island, and the question which was presented for the
consideration of the court was the constitutionality of an act
passed by the Legislature of the State of Rhode Island in January,
1822, entitled "An act imposing a duty upon licensed persons and
others, and bodies corporate within this state," alleged to be a
violation of the contract contained in the charter of the bank.
Under the provisions of this act and in conformity with them, a tax
was imposed on the Providence Bank, and the bank having refused
payment thereof, a seizure was made for the amount of the tax in
the banking house by Alpheus Billings, the Sheriff of the County of
Providence, and by Mr. Pittman, the General Treasurer of the State
of Rhode Island. The bank instituted an action of trespass for this
taking against the sheriff and the treasurer in the Court of Common
Pleas of the County of Providence, to which action the defendants
pleaded in their defense the act imposing the tax and the
amendments thereto, and that in pursuance of the provisions of the
same a warrant was issued and the proceedings which were the
subject of the action were done.
To this plea the bank filed a general and a special demurrer.
Among the causes of demurrer, the repugnancy of the acts of the
general assembly imposing the tax to the Constitution of the United
States inasmuch as they violate the contract set forth in the
declaration, the act incorporating the bank, and inasmuch as they
authorize private property to be taken for public purpose without
providing any compensation are distinctly stated.
A judgment against them was submitted to by the bank in the
court of common pleas, and they appealed to the Supreme Judicial
Court, where the judgment of the inferior court was confirmed by
submission on the part of the bank,
Page 29 U. S. 516
and it prosecuted this writ of error under the twenty-fifth
section of the Judiciary Act of 1789.
The Providence Bank was chartered by the Legislature of Rhode
Island in October, 1791. The preamble of the act states,
"Whereas the president and directors of a bank established at
Providence on 3 October last have petitioned this general assembly
for an act to incorporate the stockholders in said bank, and
whereas well regulated banks have proved very beneficial in several
of the United States as well as in Europe, therefore be it enacted
by the general assembly, and by the authority thereof it is hereby
enacted that the stockholders in said bank, their successors and
assigns, shall be, and are hereby created, and made a corporation
and body politic by the name and style of the president, directors
and company of the Providence Bank, and by that name shall be, and
are hereby made able and capable in law to have, purchase, receive,
possess, enjoy, and retain to them and their successors, rents,
tenements, hereditaments, goods, chattels and effects of what kind
or nature soever, and the same to sell, grant, devise, alien or
dispose of, to sue and be sued, plead and be impleaded, answer and
be answered, defend and be defended, in courts of record or any
other place whatsoever, and also to make, have, and use a common
seal, and the same to break, alter, and renew at their pleasure,
and also to ordain, establish, and put in execution such bylaws,
ordinances, and regulations as shall seem necessary and convenient
for the government of the said corporation, not being contrary to
law or the constitution of said bank, and generally to do and
execute all and singular acts, matters, and things which to them it
shall or may appertain to do."
"And whereas, the stockholders, on the said 3d day of October,
formed and adopted a constitution for said bank, in the words
following,
viz.,"
" Taught by the experience of Europe and America that well
regulated banks are highly useful to society by promoting
punctuality in the performance of contracts, increasing the medium
of trade, facilitating the payment of taxes,
Page 29 U. S. 517
preventing the exportation of specie, furnishing for it a safe
deposit, and by discounts rendering easy and expeditious the
anticipations of funds on lawful interest, advancing at the same
time the interest of the proprietors, we, the subscribers, desirous
of promoting such an institution, do hereby engage to take the
number of shares set against our names respectively, in a bank to
be established in Providence, in the State of Rhode Island, on the
following plan, &c."
The plan of the association is set forth in the act, and is made
a part of the charter. It provides for the opening of subscriptions
for the stock of the bank, to consist of six hundred and
twenty-five shares, of $400 each, making a capital of $250,000, and
for the organization of the bank. The act gives to the corporation
the usual powers necessary to carry into effect the objects of its
formation, and makes provisions for the transaction of the business
of the company. Amendments to this act were afterwards passed by
the legislature.
Page 29 U. S. 559
MR. CHIEF JUSTICE MARSHALL delivered the opinion of the
Court.
This is a writ of error to a judgment rendered in the highest
court for the State of Rhode Island in an action of trespass
brought by the plaintiff in error against the defendant.
In November, 1791 the Legislature of Rhode Island granted a
charter of incorporation to certain individuals who had associated
themselves together for the purpose of forming a banking company.
They are incorporated by the name of the "President, Directors, and
Company of the Providence Bank," and have the ordinary powers which
are supposed to be necessary for the usual objects of such
associations.
In 1822, the Legislature of Rhode Island passed "an act imposing
a duty on licensed persons and others and bodies corporate within
the state," in which, among other things, it is enacted
"That there shall be paid for the use of the state by each and
every bank within the state except the Bank of the United States
the sum of fifty cents on each and every thousand dollars of the
capital stock actually paid in."
This tax was afterwards augmented to one dollar and twenty-five
cents.
The Providence Bank, having determined to resist the payment of
this tax, brought an action of trespass against the officers by
whom a warrant of distress was issued against and served upon the
property of the bank in pursuance of the law. The defendants
justify the taking set out in the declaration under the act of
assembly imposing the tax, to which plea the plaintiffs demur, and
assign for cause of demurrer that the act is repugnant to the
Constitution of the United States, inasmuch as it impairs the
obligation of the contract created by their charter of
incorporation.
Page 29 U. S. 560
Judgment was given by the court of common pleas in favor of the
defendants, which judgment was, on appeal, confirmed by the supreme
judicial court of the state; that judgment has been brought before
this Court by a writ of error.
It has been settled that a contract entered into between a state
and an individual is as fully protected by the tenth section of the
first article of the Constitution as a contract between two
individuals, and it is not denied that a charter incorporation a
bank is a contract. Is this contract impaired by taxing the banks
of the state?
This question is to be answered by the charter itself.
It contains no stipulation promising exemption from taxation.
The state, then, has made no express contract which has been
impaired by the act of which the plaintiffs complain. No words have
been found in the charter which in themselves would justify the
opinion that the power of taxation was in the view of either of the
parties and that an exemption of it was intended, though not
expressed. The plaintiffs find great difficulty in showing that the
charter contains a promise, either express or implied, not to tax
the bank. The elaborate and ingenious argument which has been urged
amounts in substance to this. The charter authorizes the bank to
employ its capital in banking transactions, for the benefit of the
stockholders. It binds the state to permit these transactions for
this object. Any law arresting directly the operations of the bank
would violate this obligation and would come within the prohibition
of the Constitution. But as that cannot be done circuitously which
may not be done directly, the charter restrains the state from
passing any act which may indirectly destroy the profits of the
bank. A power to tax the bank may unquestionably be carried to such
an excess as to take all its profits, and still more than its
profits for the use of the state, and consequently destroy the
institution. Now whatever may be the rule of expediency, the
constitutionality of a measure depends not on the degree of its
exercise, but on its principle. A power, therefore, which may in
effect destroy the charter is inconsistent with it, and is
impliedly renounced by granting it. Such a power cannot be
exercised without
Page 29 U. S. 561
impairing the obligation of the contract. When pushed to its
extreme point or exercised in moderation, it is the same power, and
is hostile to the rights granted by the charter. This is
substantially the argument for the bank. The plaintiffs cite and
rely on several sentiments expressed on various occasions by this
Court in support of these positions.
The claim of the Providence Bank is certainly of the first
impression. The power of taxing moneyed corporations has been
frequently exercised, and has never before, so far as is known,
been resisted. Its novelty, however, furnishes no conclusive
argument against it.
That the taxing power is of vital importance, that it is
essential to the existence of government, are truths which it
cannot be necessary to reaffirm. They are acknowledged and asserted
by all. It would seem that the relinquishment of such a power is
never to be assumed. We will not say that a state may not
relinquish it; that a consideration sufficiently valuable to induce
a partial release of it may not exist; but as the whole community
is interested in retaining it undiminished; that community has a
right to insist that its abandonment ought not to be presumed in a
case in which the deliberate purpose of the state to abandon it
does not appear.
The plaintiffs would give to this charter the same construction
as if it contained a clause exempting the bank from taxation on its
stock in trade. But can it be supposed that such a clause would not
enlarge its privileges? They contend that it must be implied
because the power to tax may be so wielded as to defeat the purpose
for which the charter was granted. And may not this be said with
equal truth of other legislative powers? Does it not also apply
with equal force to every incorporated company? A company may be
incorporated for the purpose of trading in goods as well as trading
in money. If the policy of the state should lead to the imposition
of a tax on unincorporated companies, could those which might be
incorporated claim an exemption in virtue of a charter which does
not indicate such an intention? The time may come when a duty may
be imposed on
Page 29 U. S. 562
manufactures. Would an incorporated company be exempted from
this duty as the mere consequence of its charter?
The great object of an incorporation is to bestow the character
and properties of individuality on a collective and changing body
of men. This capacity is always given to such a body. Any
privileges which may exempt it from the burdens common to
individuals do not flow necessarily from the charter, but must be
expressed in it, or they do not exist.
If the power of taxation is inconsistent with the charter
because it may be so exercised as to destroy the object of which
the charter is given, it is equally inconsistent with every other
charter, because it is equally capable of working the destruction
of the objects for which every other charter is given. If the grant
of a power to trade in money to a given amount implies an exemption
of the stock in trade from taxation because the tax may absorb all
the profits, then the grant of any other thing implies the same
exemption, for that thing may be taxed to an extent which will
render it totally unprofitable to the grantee. Land, for example,
has in many, perhaps in all, the states been granted by government
since the adoption of the Constitution. This grant is a contract,
the object of which is that the profits issuing from is shall enure
to the benefit of the grantee. Yet the power of taxation may be
carried so far as to absorb these profits. Does this impair the
obligation of the contract? The idea is rejected by all, and the
proposition appears so extravagant that it is difficult to admit
any resemblance in the cases. And yet if the proposition for which
the plaintiffs contend be true, it carries us to this point. That
proposition is that a power which is in itself capable of being
exerted to the total destruction of the grant is inconsistent with
the grant, and is therefore impliedly relinquished by the grantor
though the language of the instrument contains no allusion to the
subject. If this be an abstract truth, it may be supposed
universal. But it is not universal, and therefore its truth cannot
be admitted in these broad terms in any case. We must look for the
exemption in the language of the instrument, and if we do
Page 29 U. S. 563
not find it there, it would be going very far to insert it by
construction.
The power of legislation, and consequently of taxation, operates
on all the persons and property belonging to the body politic. This
is an original principle which has its foundation in society
itself. It is granted by all for the benefit of all. It resides in
government as a part of itself, and need not be reserved when
property of any description or the right to use it in any manner is
granted to individuals or corporate bodies. However absolute the
right of an individual may be, it is still in the nature of that
right that it must bear a portion of the public burdens and that
portion must be determined by the legislature. This vital power may
be abused, but the Constitution of the United States was not
intended to furnish the corrective for every abuse of power which
may be committed by the state governments. The interest, wisdom,
and justice of the representative body and its relations with its
constituents furnish the only security, where there is no express
contract, against unjust and excessive taxation as well as against
unwise legislation generally. This principle was laid down in the
case of
McCullough v. Maryland and in
Osborn v. Bank
of the United States. Both those cases, we think, proceeded on
the admission that an incorporated bank, unless its charter shall
express the exemption, is no more exempted from taxation than an
unincorporated company would be, carrying on the same business.
The case of
Fletcher v. Peck has been cited, but in
that case the Legislature of Georgia passed an act to annul its
grant. The case of
New Jersey v. Wilson has been also
mentioned, but in that case the stipulation exempting the land from
taxation was made in express words.
The reasoning of the Court in the case of
McCullough v.
Maryland has been applied to this case, but the Court itself
appears to have provided against this application. Its opinion in
that case, as well as in
Osborn v. Bank of the United
States, was founded expressly on the supremacy of the laws of
Congress and the necessary consequence of that supremacy to exempt
its instruments
Page 29 U. S. 564
employed in the execution of its powers from the operation of
any interfering power whatever. In reasoning on the argument that
the power of taxation was not confined to the people and property
of a state, but might be exercised on every object brought within
its jurisdiction, this Court admitted the truth of the proposition,
and added that the power was an incident of sovereignty, and was
coextensive with that to which it was an incident. All powers, the
Court said, over which the sovereign power of a state extends are
subjects of taxation. The sovereignty of a state extends to
everything which exists by its own authority or is introduced by
its permission, but does it extend to those means which are
employed by Congress to carry into execution powers conferred on
that body by the people of the United States? We think not.
So in the case of
Osborn v. Bank of the United States,
the Court said "the argument" in favor of the right of the state to
tax the bank,
"supposes the corporation to have been originated for the
management of an individual concern, to be founded upon contract
between individuals, having private trade and private profit for
its great end and principal object."
"If these premises were true, the conclusion drawn from them
would be inevitable. This mere private corporation, engaged in its
own business, would certainly be subject to the taxing power of the
state as any individual would be."
The Court was certainly not discussing the question whether a
tax imposed by a state on a bank chartered by itself impaired the
obligation of its contract, and these opinions are not conclusive
as they would be had they been delivered in such a case; but they
show that the question was not considered as doubtful, and that
inferences drawn from general expressions pointed to a different
subject cannot be correctly drawn.
We have reflected seriously on this case, and are of opinion
that the act of the Legislature of Rhode Island passed in 1822,
imposing a duty on licensed persons and others and bodies corporate
within the state, does not impair the obligation of the contract
created by the charter granted to the
Page 29 U. S. 565
plaintiffs in error. It is therefore the opinion of this Court
that there is no error in the judgment of the Supreme Judicial
Court for the State of Rhode Island affirming the judgment of the
circuit court in this case, and the same is
Affirmed, and the cause is remanded to the said Supreme
Judicial Court that its judgment may be finally entered.
This cause came on to the heard on the transcript of the record
from the Supreme Judicial Court of the State of Rhode Island and
Providence Plantations and was argued by counsel, on consideration
whereof it is ordered and adjudged by this Court that the judgment
of the said Supreme Judicial Court in this cause be and the same is
hereby affirmed with costs.
