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
accepted.
But the corporate property of the bank is separable from the
franchise, and may be taxed unless there is a special agreement to
the contrary.
The Legislature of Maryland, in 1821, continued the charters of
several banks to 1845 upon condition that they would make a road
and pay a school tax. This would have exempted their franchise, but
not their property, from taxation.
But another clause in the law provided that upon any of the
aforesaid banks' accepting of and complying with the terms and
conditions of the act, the faith of the state was pledged not to
impose any further tax or burden upon them during the continuance
of their charters under the act.
This was a contract relating to something beyond the franchise,
and exempted the stockholders from a tax levied upon them as
individuals according to the amount of their stock.
The first case depended upon the constitutionality of a tax
imposed by the Legislature of Maryland in 1841, it being alleged to
be in violation of a contract made by the legislature in 1821, and
the second depended upon the same circumstance, with the addition
that the plaintiff in error was entitled to the benefit of the same
contract by virtue of an act of the general assembly passed in
1834.
The facts in the case were these;:
At November session, 1804, the Legislature of Maryland
incorporated the Union Bank of Maryland. Samuel Gordon, the
plaintiff in error in the first case, was, at the institution of
the suit below, a stockholder in this bank. No bonus was required
to be paid to the state, but five thousand shares were reserved for
the use and benefit of the State of Maryland, to be subscribed for
by the state when desired by the legislature thereof. The charter
was to last until 1816.
At the session of 1812, the legislature passed an act
entitled
"An act to incorporate a company to make a turnpike road leading
to Cumberland, and for the extension of the charters of the
several
Page 44 U. S. 134
banks in this state, and for other purposes."
It proposed to extend the charters of the banks to 1835 upon
condition that they would subscribe for as much stock as would
raise a fund necessary and sufficient to finish and complete the
road, and upon the further condition, should bind themselves to pay
into the Treasury the sum of $20,000 for each and every year that
the charters should continue, the fund being pledged for the
support of common schools.
The 12th section was as follows:
"That upon any of the banks in this state complying with the
conditions of this act, the faith of the state is hereby pledged
not to impose any further tax or bonus on the said banks during the
continuation of their charters under this act."
This act was not accepted by any of the banks.
At the session of 1813, the legislature passed another act,
which was entitled a supplement to the aforegoing. The 1st section
incorporated a company to make the road. The second was as
follows:
"And for the purpose of raising a fund to make and complete said
road, be it enacted that the charters of the several banks &c.,
shall be, and they are hereby continued and extended to the 1st day
of January, 1835, and to the end of the session of the general
assembly next thereafter, upon condition of the said several banks'
subscribing, in proportion to their respective capitals actually
paid in at the time of such subscriptions, for as much stock as is
necessary and sufficient to finish and complete said road,"
&c.
The 7th section enacted that every bank should pay annually into
the Treasury the sum of twenty cents on every hundred dollars of
the capital stock actually paid in, and if this were neglected for
six months after it was due, the bank so neglecting should forfeit
its charter.
The 8th section continued the charters of such banks as complied
with the act until 1835.
The 11th section ran thus:
"That upon any of the aforesaid banks accepting of and complying
with the terms and conditions of this act, the faith of the state
is hereby pledged not to impose any further tax or burden upon them
during the continuance of their charters under this act, and in
case of the acceptance of and compliance with the provisions of
this act by the several banks hereby required to make the
aforementioned road, the faith of the state is further solemnly
pledged to the several existing banks in the City of Baltimore, not
to grant a charter of incorporation to any other banking
institution to be established in the City or precincts of Baltimore
before the 1st day of January, 1835."
At the session of 1815, an act was passed, "declaring the
continuation and extension of the charters of the several banks
therein mentioned." It recited that several banks, and amongst them
the Union Bank, had accepted the act of 1813, and then declared
that their charters were extended to 1835.
Page 44 U. S. 135
At the session of 1821, another act was passed entitled
"An act to incorporate a company to make a turnpike road from
Boonsborough to Hagerstown, and for the extension of the charters
of the several banks in the City of Baltimore, and for other
purposes."
The preamble was as follows:
"Whereas it is to the interest of the state that a turnpike road
should be made, leading from Boonsborough to Hagerstown, in
Washington County, and it is represented to the legislature that
the banks hereinafter mentioned are willing to make the same if an
extension of their several charters be granted to them, as they
were heretofore extended by an act entitled a supplement to the act
entitled, an act to incorporate a company to make a turnpike road,
leading to Cumberland, and for the extension of the charters of the
several banks in the City of Baltimore, and for other purposes,
passed at December session, 1813: Therefore, Be it enacted,"
&c.
The 1st section incorporated a company to make the road.
The 2d section was as follows:
"And for the purpose of raising a fund to make and complete said
road, be it enacted. That the charters of the several banks
aforesaid shall be, and they are hereby, continued and extended to
the 1st day of January, 1845, upon condition of the said several
banks subscribing, in proportion to their respective capitals
actually paid in at the time of such subscriptions, for as much
stock as is necessary and sufficient to finish and complete said
road,"
&c.
The 6th section was as follows:
"That if the said company shall not commence the making of the
said turnpike road within two years from the passage of this act,
and shall not complete the same in four years thereafter, the right
of the said company to the said road shall revert to the State of
Maryland, and the charters of the said banks are hereby declared
not to be continued or extended by virtue of this act."
The 7th section enacted that the banks should annually pay to
the treasurer the sum of twenty cents on every hundred dollars of
the capital stock of each bank actually paid in, and in case of
neglect, the bank was to forfeit its charter.
The 8th section renewed and continued the charters of the
complying banks until 1845, and the session of the general assembly
next thereafter.
The 11th section was as follows:
"That upon any of the aforesaid banks accepting of and complying
with the terms and conditions of this act, the faith of the state
is hereby pledged not to impose any further tax or burden upon them
during the continuance of their charters under this act, and in
case of the acceptance of and compliance with the provisions of
this act by the several banks hereby required to make the
aforementioned road, the faith of the state is further pledged, to
the aforesaid banks in the City of Baltimore, not to grant a
charter of incorporation to any other banking institution to be
established in the city or precincts of Baltimore before the 1st
day of January, 1845. "
Page 44 U. S. 136
The 12th section was as follows:
"That the said banks, specified in the 7th section of this act,
should they elect so to do, shall be, and they are hereby, exempt
from the payment of the annual tax hereby imposed, upon condition
of their paying to the treasurer of the Western Shore of Maryland,
on or before 1 January, 1823, the sum of $100,000, to be
appropriated in the manner herein before provided for."
The Union Bank, as was admitted in the court below, duly
accepted and complied with the terms and conditions of this act of
1821.
At the session of the Legislature of December, 1834, an act was
passed (chap. 274) to "extend the charters of several banks in the
City of Baltimore," by which, amongst other enactments, the charter
of the Union Bank was extended to the end of the year 1859. It
introduced some new provisions into the charter, required the
payment of the school tax and a proportionate share of $75,000, but
contained no stipulation like that of the 11th section of the act
of 1821.
At the session of December, 1835, the Farmers' and Planters'
Bank was incorporated. It was required to pay a bonus and school
tax, but the charter contained no exemption from taxation.
At the same session,
viz., December, 1835, an act
(chap. 142) was passed reciting that whereas, by the 11th section
of the act of 1821, the faith of the state was pledged not to
impose any further tax or burden upon certain banks, and it was
equitable that other banks should stand on equal footing, and
enacting that the faith of the state was pledged not to impose any
further or other tax on banks incorporated since the year 1821 than
might be imposed on the banks which had complied with the terms of
that act.
The 3d section was as follows:
"And be it enacted, That in the said act of 1821, it was not,
nor is it now, the intention of the general assembly of Maryland,
to exempt from taxation and equitable contribution to the common
burdens for state purposes, the property, stock, or dividends
severally held in or derived from any bank in this state, by any
person or persons whatever; but that the true intent and meaning of
the pledge given by the said act of assembly was, to limit the
taxation upon the franchises only of the banks therein
mentioned."
In April, 1841, an act was passed "for the general valuation and
assessment of property in this state, and to provide a tax to pay
the debts of the state." It directed, amongst other things,
that
"all stocks or shares owned by residents of this state in any
bank, institution, or company incorporated in any other state or
territory: all stocks or shares in any bank, institution, or
company incorporated by this state,"
&c., should be assessed, and a tax imposed upon this and all
other species of property, of twenty cents, or one-fifth of one
percent on every hundred dollars of assessable property. It also
provided for an Appeal Tax Court, whose decisions should be carried
to the Court of Appeals.
Page 44 U. S. 137
In the trial of the cause in the Court of Appeals, the following
agreement was filed:
"It is agreed, that the appellant banks, to-wit, the Union Bank
of Maryland, the Bank of Baltimore, the Mechanics' Bank of
Baltimore, the Commercial and Farmers' Bank of Baltimore, the
Marine Bank of Baltimore, and the Farmers' and Merchants' Bank of
Baltimore, commonly called the old banks, were chartered previous
to the year 1821, and that the new banks, to-wit, the Merchants'
Bank of Baltimore, the Farmers' and Planters' Bank of Baltimore,
the Citizens' Bank of Baltimore, and the Western Bank of Baltimore,
were chartered since the year 1830; the respective periods of the
incorporation of all the aforegoing banks appearing by reference to
their charters."
"It is admitted, that the old banks have duly accepted and
complied with the terms and conditions of the act of 1821, chap.
131, the manner of which acceptance appears by the paper marked A,
herewith filed; and have also accepted and complied with the
provisions of the act of 1834, chap. 274, and it is also admitted
that taxes have always, since the incorporation of said banks, been
levied and assessed upon their real and personal property in all
the cities and counties of this state, in the same manner as upon
property of the same kind belonging to individuals, and that said
taxes have always been paid by said banks up to this time. And it
is further admitted that said banks did not, at the time of the
enactment of the act of 1841, chap. 23, nor have they at any time
since, paid or redeemed their notes or other obligations in
specie."
The Court of Appeals decided that the tax imposed by the act of
1841 was not a violation of the contract between the state and the
banks, which was effected under the act of 1821, and to review this
opinion the writ of error was brought.
Page 44 U. S. 144
MR. JUSTICE WAYNE delivered the opinion of the Court.
The question raised in this case by the agreed statement of
facts upon the record, is does the Act of Maryland of 1841, chap.
23, so far as it imposes a tax upon the shares of stock held by
stockholders in the Union Bank of Maryland and the other banks
mentioned in the statement, impair the obligation of a
contract?
The banks are classified in that statement as the old and the
new banks. The old are those which were chartered previous to the
year 1821; the new, those which were chartered after the year
1830.
Their exemption from the tax imposed by the act of 1841 is
claimed under the Acts of Maryland of 1821, chap. 131, and that of
19 March, 1835, chap. 274, called the act of the session of
1834.
Page 44 U. S. 145
It is admitted that the old banks accepted and have complied
with the terms and conditions of the act of 1821; that they also
accepted and have complied with the provisions of 1834; and that
taxes have always, since the incorporation of the banks, been
assessed and levied upon their real and personal property in all
the cities and counties of the state, in the same manner as upon
property of the same kind belonging to individuals, and that they
have always been paid by the banks up to this time.
The question, however, which this Court is called upon to
decide, and to which our decision will be confined, is are the
shareholders in the old and the new banks liable to be taxed under
the act of 1841 on account of the stock which they own in the
banks?
The statement given by the reporter of the acts of the
Legislature of Maryland, by which the charters of the banks have
been extended at different times, makes it unnecessary to refer to
them in detail here.
Are the old banks in Baltimore and their stockholders exempted
from further taxation during the continuance of their charters
under the act of 1821, chap. 131, by force of the 11th section of
that act? Can the old banks, after the year 1845, the time to which
their charters were extended by the act of 1821, and the new banks,
claim any exemption from taxation under the act of 1834, chap. 274,
unless it be a tax upon their franchise of banking?
It appears from the acts of 1812, 1813, and 1821, that the
legislatures which passed them had in view the construction of the
Cumberland and Boonsborough turnpike roads, and the establishment
of a school fund. That they designed to accomplish those objects by
making some of the banks construct the roads, and all of them
contributors to the school fund, as the price for their charters. A
round sum, or an annual charge, with or without reference to
capital stock, may be asked by a legislature for such a franchise.
It may be more convenient to the banks to have such a consideration
or bonus distributed through the years of their corporate
existence, than to pay its equivalent in advance. This option was
given to the old banks. Being so given, it is conclusive that the
legislature intended the annual tax or charge upon the capital
stocks of the banks to be the bonus or price, or part of the price
as to some of them, that they were to pay for the prolongation of
their franchise of banking. When the banks accepted the acts, by
choosing to pay the annual charge instead of the stipulated
alternative, it is plain that they thought so too, and that they
understood in that way the contract between themselves and the
state. Either was a condition, to be accepted and complied with
before the charters were to be extended. Such a contract is a
limitation upon the taxing power of the legislature making it, and
upon succeeding legislatures, to impose any further tax upon the
franchise. But why, when bought, as it becomes property, may it not
be taxed, as land is taxed which has
Page 44 U. S. 146
been bought from the state, was repeatedly asked in the course
of the argument? The reason is that everyone buys land, subject in
his own apprehension to the great law of necessity, that we must
contribute from it and all of our property something to maintain
the state. But a franchise for banking, when bought, the price is
paid for the use of the privilege whilst it lasts, and any tax upon
it would substantially be an addition to the price. But whether the
bonus for the franchise is paid by an annual tax upon the capital
stock, or in any other way, it is in the discretion of the
legislature to tax the capital stock as an aggregate, according to
its actual value, or the stockholders on account of their separate
ownership of it, or the dividends in the aggregate, or the
stockholders on account of their portions of them. The limitation
and the power to tax, as both have been just expressed, was
substantially conceded by counsel on both sides of this cause. We
did not understand the counsel for the appellants as contending,
that the shareholders in the old banks were exempted from the tax
imposed upon them on account of their stock, except by the force of
the 11th section of the act of 1821. Their argument was, though the
franchise might be taxed separate from the stock of a bank, whether
the annual tax paid by the banks upon their capital stock was a tax
upon their franchises or not, that the banks were exempted from
further taxation; the old bank by force of the 11th section of the
statute of 1821, and all of the banks in Baltimore by force of the
act of 1834. The argument of the counsel for the defendant in error
was that the annual tax paid by the banks was a tax upon their
franchises, and that the 11th section did not give to the
stockholders any exemption from being taxed as persons on account
of their stock. Whether or not the exemption given by that section
is extended to the old and the new banks in virtue of the act of
1834, is another question, to which a separate answer must be given
in the course of this opinion.
Has such an exemption been given to the old banks? The language
of the 11th section of the act of 1821 is:
"And be it enacted that, upon any of the aforesaid banks
accepting and complying with the terms and conditions of this act,
the faith of the state is hereby pledged not to impose any further
tax or burden upon them during the continuance of their charters
under this act."
This is the language of grave deliberation, pledging the faith
of the state for some purpose -- some effectual purpose. Was that
purpose the protection of the banks from what that legislature and
succeeding legislatures could not do, if the banks accepted the
act, or from what they might do, in the exercise of the taxing
power? The terms and conditions of the act were, that the banks
should construct the road and pay annually a designated charge upon
their capital stocks, as the price for the prolongation of their
franchise of banking. The power of the state to lay any further tax
upon the franchise was exhausted. That is the contract between the
state and the banks. It follows, then,
Page 44 U. S. 147
as a matter of course, when the legislature go out of the
contract, proposing to pledge its faith, if the banks shall accept
the act, not to impose any further tax or burden upon them, that it
must have meant by those words an exemption from some other tax
than a further tax upon the franchise of the banks. The latter was
already provided against. To confine the pledge to any further tax
upon the franchise, surrenders the whole clause as a substantive
enactment, to a supposed needless declaration of the legislature,
that it would not do what it had stipulated by its contract not to
do. The faith of states is never pledged but for some substantial
end, within the competency of their legislative power; and it is
not for us to suppose that of Maryland was given in the act of
1821, with a less grave intent. "Not to impose any further tax or
burden," when used in reference to some tax already imposed, means
no other tax besides that to which reference is made. Those words,
so used, cannot be limited by a refinement upon the etymology of
the word "any," out of or beyond its meaning in common discourse,
to any like; and the words "any further tax," used with relation to
some other tax, will, by common consent, as it always has been, be
intended to mean any additional tax besides that referred to, and
not any further like tax.
Having determined that the clause in question was not meant as a
pledge against further taxation upon the franchises of the banks,
but that it was a pledge against additional taxation, what is the
extent of exemption given by it, or to what does it apply? Does it
exempt the respective capital stocks of the banks, as an aggregate,
and the stockholders from being taxed as persons on account of
their stock? We think it does both. The aggregate could not be
taxed without its having the same effect upon the parts, that a tax
upon the parts, would have upon the whole. Besides, the
legislature, in proposing the terms and conditions of the act, use
the word "banks" with reference to the consent or acceptance of the
act being given by the stockholders, according to a fundamental
article of their charters. The acceptance of the act could only be
made by the stockholders. They did accept, and the state recognized
it as the act of the stockholders. It could not have been given or
been recognized in any other way. True it is, when accepted and
recognized, it became a contract with the banks. But its becoming a
contract with the banks determines of itself nothing. We must look
in what character, or by whose assent it was to become a contract
with the state, to ascertain the intention of the legislature in
making the pledge,
"that upon any of the aforesaid banks accepting of and complying
with the terms and conditions of this act, the faith of the state
is hereby pledged not to impose any further tax or burden upon them
during the continuance of their charters under this act."
The senses in which the words bank or banks are used, occur
every day in conversation, and are understood by everyone. But
Page 44 U. S. 148
the sense in which they are intended to be used, is determined
by their connection with what is said besides. When we speak of an
act to be done by a bank or banks, we mean an act to be done by
those who have the authority to do it. If it be an act within the
franchise for banking, or the ordinary power of the bank to
contract, and it is done by the president and directors, or by
their agent, we say the bank did it, and everyone understands what
is meant. If, however, an act is to be done relative to the
institution by which its charter is to be in any way changed, the
stockholders must do it, unless another mode to effect it has been
provided by the charter. In one sense, but after it has been done,
we may say the bank did it, but only so because what the
stockholders have done, became a part of the institution, which it
was not before. The act to be done in this instance was relative to
the institution. The legislature knew it could only be done by the
stockholders, and it uses the word banks in reference to the act
being accepted by the stockholders. The act was accepted by them.
When, then, the legislature says
"that upon any of the aforesaid banks accepting of and complying
with the terms and conditions of this act, the faith of the state
is hereby pledged not to impose any further tax or burden upon them
during the continuance of their charters under this act,"
the relative is as broad as the antecedent, comprehending all
that the latter referred to. It cannot be said, then, that the
stockholders in the old banks are not exempted by the 11th section
of the act of 1821 from being taxed as persons, on account of their
stock in those banks, during the continuance of their charters
under that act.
Such was manifestly the intention of the legislatures which
passed the acts of 1813 and 1821, from their language. It is
confirmed by the attendant circumstances. Each of those
legislatures were anxious to have a certain road constructed, which
they thought the convenience and intercourse of the citizens of
Maryland required; and they were also anxious to raise an adequate
school fund for every county in the state. They determined that
both should be accomplished by incorporating certain banks, with
the obligation upon them to make the roads, and to make all the
banks in the state pay an annual tax upon their respective
capitals, for a school fund, as the conditions upon which their
charters were to be extended. By the act of 1813, chap. 122, every
incorporated bank in the state was required to pay the annual tax
of twenty cents upon every hundred dollars of its capital stock, as
the condition upon which its charter was to be extended.
When the legislature, in 1821, incorporated the Boonsborough
Turnpike Company, and proposed to extend the charters of those
banks which, by the terms of the act, were to subscribe for stock
enough to complete the road, it renewed upon those banks the school
tax which had been imposed upon them in common with the
Page 44 U. S. 149
other banks, by the act of 1813. The 11th sections in both acts
are identical. In what spirit were those acts offered to the
acceptance of the banks? In what spirit was it that the banks
viewed and accepted these acts? It was an unusual way of providing
means for the construction of turnpike roads. The tolls might turn
out to be enough to compensate them for the expenditures. They
might not. Though the legislature thought the construction of the
roads and paying the school fund tax were no more than an adequate
price for an extended franchise, it is very certain that the
stockholders may have thought, that the incorporation of the banks
into turnpike companies, with an obligation upon them to withdraw
so much money from their business operations as was sufficient to
finish the roads, presented only a contingent possibility that they
could be remunerated by tolls from the roads. When the act of 1821
was proposed, they had some experience of what had been the result
of the construction of the Cumberland road. Is it not possible,
then, that when the acts of 1813 and 1821 were in preparation, or
as they were being enacted, that the 11th section was introduced as
an inducement to the stockholders to accept those acts? Whether the
tolls from the road have ever compensated the banks for the
expenditure upon them, does not appear in the case. But it was
natural that the stockholders, knowing as they did that a tax upon
the franchises of the banks would not exempt them from other
taxation, stipulated in both instances that a provision should be
introduced into the acts surrendering the state's right to tax them
further than they were about to be by those acts. In whatever way
we examine the acts of 1813 and 1821, we are of opinion that it
appears from the 11th sections in those acts, to have been the
intention of the legislatures which passed them, to exempt the
stockholders from taxation as persons on account of the stock which
they owned in the banks. This exemption, however, is limited to the
old banks in Baltimore which were chartered before 1821, during the
continuance of their charter under the act of 1821. It is founded
upon the 11th section of that act, and it is our opinion that the
act of 1841, chap. 23, insofar as it imposes a tax upon the
stockholders in those banks, on account of their stock, does impair
the obligations of a contract, and is void by the 10th section of
the 1st article of the Constitution of the United States.
The act of 1834 does not extend to the old or the new banks an
exemption from the tax imposed by the act of 1841, chap. 23. It is
an act to extend the charters of the several banks in Baltimore.
The second section prescribes the terms upon which the franchise
for banking is extended. Those terms are the payment annually of
twenty percent upon every hundred dollars of the respective
capitals of the banks, and their proportional parts of $75,000, in
two yearly installments, computed from the passage of the act,
according to the combined rates of their respective capitals paid
in,
Page 44 U. S. 150
and of the time for which their charters are respectively
continued beyond the first day of January, 1845.
Upon a failure of any bank to pay either the annual charge or
its proportional installment, its charter is declared null and
void. The annual charge and the installment make the bonus to be
paid by each bank for its continued franchise. It was urged for the
old and the new banks, that the annual tax which they were required
to pay by the second section of the act of 1834 being upon their
respective capitals, a tax upon the stockholders on account of
their stock would be equivalent to an increase of the price which
had been given for the franchise. The effect upon the stockholders
would be the same, as they pay both, but that is because they
agreed to pay an annual tax upon the capital stock, for their
franchise, without and stipulation by the state that were not to be
taxed as stockholders, on account of their stock, as was the case
in the eleventh section of the act of 1821. The franchise is their
corporate property, which, like any other property, would be
taxable, if a price had not been paid for it, which the legislature
accepted, as the consideration for allowing them to use the
franchise during the continuance of their charters. The capital
stock is another property -- corporately associated, for the
purpose of banking -- but in its parts is the individual property
of the stockholders in the proportions they may own them. Being
their individual property, they may be taxed for it, as they may
for any other property they may own. This is not only the case in
Maryland. A franchise for banking is in every state of the union
recognized as property. The banking capital attached to the
franchise is another property, owned in its parts by persons,
corporate or natural, for which they are liable to be taxed, as
they are for all other property, for the support of government.
We are of opinion that the stockholders in the old banks are
exempt from the tax imposed by the act of 1841, chapter 23, during
the continuance of their charters under the act of 1821, but that
the stockholders in the old and new banks are liable to be taxed by
the act of 1841, or that they can claim no exemption under the act
of 1834, by which their charters were further extended.
The judgment of the Court of Appeals is therefore reversed,
and the cause will be remanded, with directions to enter up a
judgment for the plaintiff in error.
