THE PEOPLE OF THE STATE OF YORK, ex rel. THE BANK OF THE MONWEALTH, Plffs. in Err.,

v.

THE COMMISSIONERS OF TAXES ASSESSMENTS OF THE CITY COUNTY OF NEW YORK.

COM

AND

AND

(See S. C., "Bank Tax Case," 2 Wall., 200-210.) State tax on bank capital consisting of U. S. stocks, invalid.

A state tax on the capital of a State Bank is a tax on the property of the institution, and when it consists of the stocks of the United States such tax is invalid.

[No. 230.]

Argued Jan. 5, 1865. Decided Jan. 30, 1865.

N ERROR to the Court of Appeals of the I State of New York.

In 1863, the New York Legislature enacted that "all banks, banking associations and moncyed corporations and associations shall be liable to taxation on the valuation equal to the amount of their capital stock paid in or secured to be paid in, and their surplus earnings (less ten per cent. of such surplus), in the manner now provided by law, deducting the value of the real estate held by any such corporation or association, and taxable as real estate."

The defendants in error, the Commissioners of Taxes (Laws of N. Y. for 1859, ch. 302; 1 N. Y. Rev. Stat., p. 909, 5th ed.), inserted in the assessment roll for 1863, the sum stated as the capital stock of the Bank of the Commonwealth, paid in or secured to be paid in, less the part thereof invested in real estate. The Bank claimed that no money whatever should have been inserted in the assessment roll, on the ground that such amount was not liable to taxation, because it was, at the time, invested in the public stocks of the United States, which by the Constitution and laws of the United States, are exempt from taxation.

The Bank duly protested against the action of the Commissioners and this protest being disregarded, brought a certiorari according to the Statute of the State of New York, to which the Commissioners made return. The Supreme Court on the hearing disallowed the exemption claimed by the Bank, and confirmed the action of the Tax Commissioners. An appeal was taken to the Court of Appeals of the State, and judgment given by that court against the Bank. The case was thereupon brought to this court by writ of error.

The Bank of the Commonwealth is a Corporation organized and doing business under the General Banking Laws of the State of New York, passed in 1838 (Laws of 1838, chap. 260), and subsequent thereto.

Messrs. A. W. Bradford, B. D. Silliman, D. Lord, William M. Evarts, E. L. Fancher,| James Emmot and Irving Parris, for plaintiffs in error:

In all cases involving the supremacy of the Constitution of the United States, over state

NOTE. Limitations on taxing power from mutual independence of federal and state governments note, 23 C. C. A. 515.

Third Point. The privilege of exemption from taxation on so much property as may have been loaned to the Government of the United States, cannot be made to depend on the mode of valuation, either of the property of an individual or of a corporation.

The State cannot tax the security in any way; but instead of taxing what the Bank has now, it taxes what the Bank had, i. e., what it had when it commenced business, or else it taxes what it has now at a valuation of what it had when it commenced business.

It is quite clear, therefore, that one who has loaned his money to the government, though he is not taxable on the United States securities, is really taxed on the sum which he has loaned to the government.

It is, manifestly, the same thing to tax the security and to tax money which produced the security. In either case alike, the power of the government to borrow money is taxed by the State.

Fourth Point. But this power cannot be taxed.

The national sovereignty being conceded, “it is of the very essence of supremacy to remove all obstacles to its action within its own sphere, and so to modify every power vested in the subordinate governments as to exempt its own operations from their influence."

Marshall, Ch. J., in McCulloch v. The State of Maryland, 4 Wheat., 316; Brown v. Maryland, 12 Wheat., 419; Osborn v. Bank of U. S., 9 Wheat., 738; Dobbins v. Erie County, 16 Pet., 435; Weston v. City of Charleston, 2 Pet., 459.

Fifth Point. It has been urged, however, that "Corporations are the mere creatures of the Legislature, which may impose upon them such restrictions and limitations as it pleases, for the privileges and advantages which it confers."

If it be repugnant to the constitution to tax individuals and corporations on government securities directly, how can it be less so, to tax corporations on the ground that they are “mere creatures of the Legislature?"

There is not one interpretation of the Federal Constitution, when an individual claims exemption under it, and another one when a corporation makes the same claim.

Comstock, J., 23 N. Y., 192.

Sixth Point. From the passage of the Act of 1857, to April, 1863, a period of six years, the Banks were exempt from taxation on funds loaned to the United States, whatever may have been the just construction of the statutes previous to 1857.

Dolloway v. O. 8. Factory, 21 N. Y., 449.

If the Law of 1863 be valid, and if its legitimate effect be to render that taxable which before was not taxable, then money loaned to the government by the banks, has no longer any immunity from state sovereignty.

Confessedly these securities now held were acquired during a period from 1857, when, by the method of taxation, they were exempt. This exemption was a vested right, and cannot be impaired by any state law. Dodge v. Woolsey, 18 How., 331 (59 U. S., XV., 401).

Seventh Point. The idea of a tax upon "capital stock" as a thing distinct from the property actually owned by the Bank, is not well founded.

This position has been refuted by the judgment of the Court of Appeals in Tax Cases, since the decisions reported in 2 Black., 620 (ante, 451), thus showing that "capital" means property.

Hanover Bank v. Tax Commissioners, 37 Barb., 635.

Can a great constitutional right be dependent upon names? "Is the proposition to be maintained that the Constitution meant to prohibit names and not things?"

4 Pet., 433.

Messrs. Francis Kernan, John E. Develin and James T. Brady, for the defendants in error: 1. There is no jurisdiction in this court over any of the cases at bar. No question arises in either of them, under the Constitution of the United States. Their decision exclusively depended, in the Court of Appeals of New York, upon the Constitution and legislation of that State.

Martin v. Hunter, 1 Wheat., 304; Miller v. Nicholls, 4 Wheat., 311; Comm. Bank v. Buckenham, 5 How., 317; Menard v. Aspasia, 5 Pet., 505.

1. The authority of the State to tax, is one which, as Chief Justice Marshall said in Weston v. The City of Charleston, 2 Pet., 449, "Is a right which, in its nature, acknowledges no limits."

McCulloch v. Maryland, 4 Wheat., 425.

2. This court will not review the decisions of the Court of Appeals on the construction of the Law of 1863. That decision declares that the State has imposed the tax on the "nominal capital," as was done by the Revised Statutes, and this court has adjudged that in such case the tax laid is annexed to the franchise as a royalty for the grant. The tax in question is, there fore, valid. The numerous cases appropriate to this point are collected in Holcombe's Dig., pp. 248, 249.

Williams v. Norris, 12 Wheat., 117.

If a moneyed corporation, the moment its capital is paid, can distribute its stock, and by investing the whole capital in government securities escape entirely from taxation, it follows that while it derives its existence from the State, it need contribute nothing to the maintenance of the State; and this is the more remarkable in view of the fact, that by the Revised Statutes of New York, part 1, chap. 13, sec. 7, it is provided that "the owner or holder of stock in any incorporated company, liable to taxation on its capital, shall not be taxed as an individual for such stock." This is still the law.

Case of Providence Bank v. Billings, 4 Pet., 561; Bank of Ohio v. Knoop, 16 How., 387.

Mr. Justice Nelson delivered the opinion of the court:

This is a writ of error to the Court of Appeals of the State of New York.

The question involved is, whether or not the stock of the United States, in which the capital of the Bank of the Commonwealth is invested, is liable to taxation by the State of New York under an Act passed by its Legislature, 29th of April, 1863; or, to state the question more directly, whether or not that Act imposes a tax upon these stocks thus invested in the capital of the Bank.

A case between this bank and others in the City of New York and the Commissioners of Taxes, came before this court at the December Term, 1862, in which it was determined that the capital of the banks invested in the stocks of the United States were not taxable under the state laws. The case was reported in 2 Black, 620 [ante, 451]. The Act of Legislature under which the tax was then imposed provided that the capital stock of every company liable to taxation, &c., "Shall be assessed at its actual value, and taxed in the same manner as the other personal and real estate of the country." It ap peared, in that case, that a large portion of the capital of the banks was invested in United States stocks and owned by it, and which had been assessed and taxed by the Commissioner. The court, for the reason stated in the opinion, held that the tax was a tax upon the stock and which, being exempt from state taxation by the settled law of this court, was illegally imposed.

The statute under which the present case has arisen, has been passed since the above deci. sion and is as follows: "All banks, banking associations, &c., shall be liable to taxation on a valuation equal to the amount of their capi tal stock paid in, or secured to be paid in, and their surplus earnings, &c., in the manner now provided by law," &c.

It will be remembered that the previous Act, the Act of 1857, directed that the capital stock of the banks should be assessed and taxed at its actual value. By the present Act, as is seen, the tax is imposed on a valuation equal to the amount of their capital paid in or secured to be paid in, &c.

Looking at the two Acts, and endeavoring to ascertain the altération or change in the law from the language used, the *intent of [*207 the law makers would seem to be quite plain, namely; a change simply in the mode of ascer taining or fixing the amount of the capital of the banks, which is made the basis of taxation. By the former, the actual value of the capital, as assessed by the commissioners, is prescribed. By the latter, the capital paid in, or secured to be paid in, in the aggregate, is the valuation prescribed. By the former, the commissioners were bound to look into the financial condition of the banks, into the investments of their capital, losses and gains, and ascertain the best way they can the sum of present value as the basis of taxation. By the latter, they need only look into the condition of the banks in order to ascertain the amount of the capital stock paid in, or secured to be paid in; and this sum,

in the aggregate, will constitute the basis. The rule of the present law is certainly more simple and fixed than that of the former, and inuch less burdensome to the commissioners or assessors and in its practical operation is, perhaps, as just. The former mode involved an inquiry into the whole of the financial operations of the Bank, its several liabilities, and its available resources; often a complicated and difficult undertaking and, at best, of uncertain results.

In order more fully to comprehend the meaning of the language used in the Act of 1863, it may be well to refer, for a moment, to the system of the general Banking Law of 1838, and the amendments of the same, under which these institutions have been organized.

Any number of persons may associate to establish a bank under this law, but the aggregate amount of capital stock shall not be less than $100,000. The instrument of association must specify, among other things, the amount of the capital stock of the association, and the number of shares into which the same shall be divided. It may also provide for an increase of their capital and of the number of the associates, from time to time, as may be thought proper. The association is required to deposit with the Superintendent of the Bank Department, stocks of the State of New York or of the United States, or bonds and mortgages up208*] on *real estate, at a prescribed valuation, before any bills or notes shall be issued to it for circulation as currency. Nor can it commence the business of banking until these securities have been deposited to the amount of $100,000. The public debt and bonds and mortgages are to be held by the superintendent exclusively for the redemption of the bills and notes put in circulation as money until the same are paid. And it is made the duty of the superintendent not to countersign any bills or notes for an association to an amount, in the aggregate, exceeding the public debt, or public debt and bonds and mortgages so pledged. It is true, the associations are not obliged to invest more of their capital paid in in stocks, or stocks and bonds and mortgages, than is required as security, with the superintendent, for the bills and notes delivered for circulation as currency. The investment, however, cannot be for a less, amount than $100,000. It may exceed that limit. But this reference to the system shows that however large the amount of the capital of the association fixed by its articles and paid in, the whole or any part of it may be lawfully invested in these stocks. The whole need not be used as a pledge for the redemption of the bills, or notes as currency, as the issuing of these for circulation is only one branch of the business of banking. The banks, therefore, were but obeying the injunction of the law in investing the capital paid in in these stocks.

Now, when the capital of the banks is required or authorized by the law to be invested in stocks, and among others in United States stocks, under their charters or articles of association, and this capital thus invested is made the basis of taxation of the institutions, there is great difficulty in saying that it is not the stock thus constituting the corpus or body of the capital that is taxed. It is not easy to sep

arate the property in which the capital is invested, from the capital itself. It requires some refinement to separate the two thus intiinately blended together. The capital is not an ideal, fictitious, arbitrary sum of money set down in the articles of association, but, in the theory and practical operation *of the [*209 system, is composed of substantial property, and which gives value and solidity to the stock of the institution. It is the foundation of its credit in the business community. The Legislature well knew the peculiar system under which these institutions were incorporated, and the working of it; and, when providing for a tax on their capital at a valuation, they could not but have intended a tax upon the property in which the capital had been invested. have seen that such is the practical effect of the tax, and we think it would be doing injustice to the intelligence of the Legislature to hold that such was not their intent in the enactinent of the law.

We

We will add, that we have looked with some care through the statutes of New York relating to the taxation of moneyed corporations, including the Act of 1823, in which the first material change was made in the system, the Act of 1825, the revision of 1830, the Acts of 1857 and of 1863; and it will be seen in all of them that the tax is imposed on the property of the institutions, as contradistinguished from a tax upon their privileges or franchises. Since the Act of 1825, the capital has been adopted as the basis of taxation, as furnishing the best criterion of the value of the property of which these institutions were possessed. Under their charters or articles of association, this amount was paid in, or secured to be paid in, by the stockholders or associates to the corporate body or ideal person constituting the capital stock, to be managed and disposed of by directors or trustees in furtherance of the objects and purposes for which the institutions were created. It constituted the fund raised by the corporators, with which the institutions began and carried on the particular business in which they were engaged. The injunction of the charters, which required this capital to be paid in, made it necessarily substantial property. The amount might fluctuate according to the good or ill fortune of the enterprise. It might become enhanced by gains in business, or diminished by losses; but, whether the one or the other, the tax in contemplation of the Legislature and of the charters was imposed on the property of the institution *consisting of its capital. In [*210 case of a permanent loss, a remedy against grievous taxation was always at hand by a reduction of the capital.

Having come to the conclusion that the tax on the capital of the Bank of the Commonwealth is a tax on the property of the institution, and which consists of the stocks of the United States, we do not perceive how the case can be distinguished from the cases heretofore before the court, and reported in 2 Black, 620 [ante, 451].

The judgment of the court below is reversed and the cause remitted, with directions to enter judgment in conformity with the opinion.

Note From Opinion Record. Twenty-four other cases were argued or sub

5. Several of the propositions stated in the "Prize Cases," 2 Black, 671 (ante, 459) are in point upon this question.

The port of an enemy, while in the temporary possession of a belligerent, is the port of the belligerent. U. S. v. Rice, 4 Wheat., 246; 30 Hogsheads of Sugar v. Boyle, 9 Cranch, 191. The blockade of New Orleans, ceasing by the occupation of that port and city by the Federal forces, there was an end of the right to capture and condemn The Circassian, no matter how guilty her design, or how open her act, to break the blockade of that port.

The ship must be in delicto at the time of capture.

The Lisette, 6 C. Rob., 387, 395; The Weelvaart Van Pillaw, 2 C. Rob., 128; 6 C. Rob., 390, note; The Atlanta, 6 C. Rob., 457; The Abby, 5 C. Rob., 251, 254; U. S. v. The Ship Helen, 6 Cr., 203; 1 Duer, Ins., 688; 628, 571; Halleck's Int. Law, 565 and 575; 1 Kent, 152; Lawrence's Wheat., Int. Law, 845; Wheat. Int. Law, 585.

II. Even had the blockade of the port of New Orleans continued at the time of the capture of this vessel, the question would still be presented, whether the sailing for a neutral port under a contract by which the owner bound himself in case required by the charterer (under an option reserved to him to be exercised only after arrival there) to run the blockade, subjected her to condemnation as lawful prize upon capture, while actually proceeding to, and before arrival at that neutral port, and before the determination of the option reserved to the charterer.

1. It is conceded that the English authorities warrant the condemnation upon a capture at any stage of the voyage after its commencement, while the vessel is actually proceeding to a blockaded port, with intent to break the blockade. The Columbia, 1 C. Rob., 154.

2. It is respectfully contended, however, that even these authorities do not go the length of justifying a condemnation in such a case as this, when the parties have not definitely determined their own plans; but whether the voyage is to terminate lawfully or unlawfully, is to depend upon a contingency which has not yet happened at the time of capture. In saying this, the case of The Richmond, 5 C. Rob., 325, is not overlooked.

Case of The Imina, 3 C. Rob., 167; case of The Jonge Pieter, 4 C. Rob., 79; case of The Neptunus, 2 C. Rob., 110.

An actual destination to a neutral port when captured, is a sufficient defense to a charge of simple breach of blockade, although there may be an ultimate intention, more or less defined, vague or contingent, subsequently to try the chances of the blockade.

The Minerva, 3 C. Rob., 229; The William, 5 C. Rob., 385; The Thomyris, Edw. Adm., 17; The Commercen, 1 Wheat., 382; Jecker v. Montgomery, 18 How., 114, 15 L. ed. 311.

3. It is also submitted with confidence, that the weight of American, as well as of modern continental authority is decidedly opposed to the lawfulness of the capture, even where the vessel is in the direct course of prosecution of a voyage towards the blockade port, before she has approached sufficiently near to make an actual attempt to enter in violation of the blockade.

Kent, 1st, vol. Com., 150; 5 Cranch, 342, 343; The Nereide, 9 Cranch, 440, 446; Fitz Simmons v. Newport Ins. Co., 4 Cranch, 199; Maryland Ins. Co. v. Woods, 6 Cranch, 45; Vos v. The United Ins. Co., 1 Cai. Cas., 7; Liotard v. Graves 3 Cai., 226; Calhoun v. The Ins. Co. of Pa., 1 Binn., 309; Smith v. Williams, 2 Cai. Cas., 110; Radcliff v. The United Ins. Co., 7 Johns., 48; Olivera v. The Union Ins. Co., 3 Wheat., 196; Hautefeuille, Des Droits et Des Devoirs, des Nations Neutres, tome 2, pp. 241244; Pistoye and Duverdy, in their "Traite des prises maritimes," tome 1, 370; Heffter "Europaisches Volkerrecht," 276, sec. 156; Pand., pp. 500-503; Amer. State Papers, "Foreign Relations" Vol. III., p. 370, and 3 Wheaton, App., 4; 3 Wheaton, App., p. 10; American State Papers, Foreign Relations, Vol. IV., p. 156; Amer. State Papers, Foreign Relations, Vol. IV., p. 158; Pub. Doc., first sess., 20th com., 1827-8; "State Papers," Vol. VII., doc. 281, pp. 11, 12; Ex. Doc. 3d sess., 34 Cong., Vol. I., pt. 1, p. 36; The Bet-sey, 1 C. Rob., 332; The Neptunus, 2 C. Rob., 110; The Posten, 2 C. Rob., 283, note; The Spes & Irene, 5 C. Rob., 77; The Shepherdess, 5 C. Rob., 262; Naylor v. Taylor, 9 Barn. & C., 718; Medeiros v. Hill, 8 Bing., 231; The Little William, 1 Acton, 141; Dalgleish v. Hodgson, 7 Bing., 496.

III. The case of The Hiawatha, 2 Black, 677 (ante, 479), settled nothing as to the construction of the President's Proclamation of 19th April, 1861, on the subject of the right of a vessel proceeding to a blockaded port, to warning from the blockading squadron, and her liability to capture, only upon an attempt to enter subsequent to such warning; and this vessel was not in delicto without such warning from the blockading squadron.

This vessel had a right to that warning on the following grounds:

1. Upon the clear language of the Proclamation itself, containing no reservation or exception as to her not having had previous notice; and for the reasons most forcibly stated by Mr. Justice Nelson in the dissenting opinion in the case of The Hiawatha.

2. That that is the law of nations.

3. That it is the principle uniformly contended for by our government, as the true one, as shown by the extracts from American State Papers cited under the preceding point.

4. That the proclamation itself was framed with the intention and design to adhere to this interpretation of the law.

5. The destruction of papers in this case cannot justify the condemnation of the vessel for the breach of blockade, if the positions above taken are correct, because the argument concedes all which it can be pretended that the letters burnt would have tended to make out on that subject.

The Pizarro, 2 Wheat., 227.

6. The sole cause for condemnation assigned in this case, being a capture while engaged in the prosecution and carrying out of an intent to break the blockade of New Orleans, that is not a sufficient specification of an offense within the authorities above cited.

7. By the capture of New Orleans and the complete reduction of all its defenses by the blockading force, and the occupation of the city by the federal army, prior to the capture