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part of the dividend. The withdrawal was of securing reasonable safety to those who initiated by the declaration of the dividend deal with the banks, we may nevertheless by the board of directors, and was consum: say, in view of this whole system of liabilimated on their part when they permitted ty, that it is unnecessary, and that it would

payment to be made in accordance with the be an unnatural construction of the language [406]declaration. We think this language *im of section 5204 to hold that in a case such as

plies some positive or affirmative act on the this a shareholder, by the receipt of a divi-
part of the shareholder by which he knowing: dend from a solvent bank, had withdrawn or
ly withdraws the capital or some portion permitted to be withdrawn any portion of its
thereof, or with knowledge permits some act capital.
which results in the withdrawal, and which We may concede that the directors who de
might not have been so withdrawn without clared the dividend under such circumstan-
his action. The permitting to be withdrawn ces violated the law, and that their act was
cannot be founded upon the simple receipt of therefore illegal, but the reception of the
a dividend under the facts stated above. dividend by the shareholder in good faith, as

One is not usually said to permit an act mentioned in the question, was not a wrongful
which he is wholly ignorant of, nor would or designedly improper act. Hence the lia-
he be said to consent to an act of the commis-bility of the shareholder should not be en-
sion of which he had no knowledge. Ought larged by reason of the conduct of the direc-
it to be said that he withdraws or permits tors. They may have rendered themselves
the withdrawal by ignorantly, yet in entire liable to prosecution, but the liability of the
good faith, receiving his proportionate part shareholder is different in such a case, and
of the dividend? Is each shareholder an ab- the receipt of a dividend under the circum-
solute insurer that dividends are paid out of stances is different from an act which may
profits? Must he employ experts to exam- be said to be generally illegal, such as the
ine the books of the bank previous to receiv. purchase of stock in one national bank by an-
ing each dividend ? Few shareholders could other national bank for an investment mere
make such examination themselves. The ly, which is never proper. First National
shareholder takes the fact that a dividend Bank of Concord v. Hawkins, Receiver, just
has been declared as an assurance that it was decided (174 U. S. 364, ante 1007).
declared out of profits and not out of capi- The declaration and payment of a dividend
tal, because he knows that the statute pro- is part of the course of business of these cor-
hibits any declaration of a dividend out of porations. It is the thing for which wey are
capital. Knowing that a dividend from cap. established, and its payment is looked for as
ital would be illegal, he would receive the the appropriate result of the business which
dividend as an assurance that the bank was has been done. The presumption of legality
in a prosperous condition and with unim- attaches to its declaration and payment, be
paired capital. Under such circumstances cause declaring it is to assert that it is paya-
we cannot think that Congress intended by ble out of the profits. As the statute has
the use of the expression "withdraw or per- provided a remedy under section 5205 for the
mit to be withdrawn, either in the form of impairment of the capital, which includes the
dividends, or otherwise," any portion of its case of an impairment produced by the pay.
capital, to include the case of the passive re- ment of a dividend, we think the payment(408)
ceipt of a dividend by a shareholder in the and receipt of a dividend under the circum-
bona fide belief that the dividend was paid stances detailed in the question certified do
out of profits, while the bank was in fact not permit of its recovery back by a receiver
solvent. We think it would be an improper appointed upon the subsequent insolvency of
construction of the language of the statute the bank.
to hold that it covers such a case.

The facts in the various English cases cited We are strengthened in our views as to by counsel for complainant are so entirely the proper construction of this act by refer- unlike those which exist in this case that no ence to some of its other sections. The pay. useful purpose would be subserved by a refment of the capital within a certain time is erence to them. Not one holds that a diviprovided for by sections 5140 and 5141. Sec- dend declared under such facts as this case tion 5151 provides for the individual respon- assumes can be recovered back in such an sibility of each shareholder to the extent of action as this. his stock at the par value thereof in addi. We answer the first question in the nega. tion to the amount invested therein. (These tive.

shareholders have already been assessed un. The second question relates to the juris(407) ier *this section). And section 5205 pro- diction of a court of equity over an action of

vides for the case of a corporation whose this nature. It is evident that the question capital shall have become impaired by losses was propounded to meet the case of an af. or otherwise, and proceedings may be taken firmative answer to the first question. by the association against the shareholders In that event the second would require an for the payment of the deficiency in the capi. answer. As we answer the first question in tal within three months after receiving no the negative, and the second question was tice thereof from the Comptroller. These scarcely touched upon in the argument, we various provisions of the statute impose a think it unnecessary to answer it in order to very severe liability upon the part of holders enable the court below to proceed to judgof national bank stock, and while such pro- ment in the case. The first question will be visions are evidently imposed for the purpose I certified in the negative.

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]SAMUEL A. STONE, Auditor, et al., Appts., and by the fifteenth section of the charter of

complainant it was provided as follows: FARMERS' BANK OF KENTUCKY. "It shall be the duty of the cashier of the

principal bank, *on the 1st day of July, 1851,[410)

and on the 1st day of July in each succeedFARMERS' BANK OF KENTUCKY, Appt., ing year during the continuance of this

charter, to pay to the treasury of this comSAMUEL H. STONE, Auditor, et al.

monwealth fifty (50) cents on each

hundred dollars of stock held and paid (See S. C. Reporter's ed. 409-412.)

for in said bank, which shall be in full

for all tax or bonus: Provided, That no tax Res judicata as to tawes.

shall be paid until said bank goes into oper•

ation: And provided further, That the tax An adjudication that an irrevocable contract ex- or bonus hereby proposed to be imposed on

ists which precludes the enforcement of a tax each share of stock in this bank, or such as law In conflict with the contract is res judi- shall hereafter be imposed on each share, cata as to an attempt to enforce such tax law is hereby set apart and forever dedicated to In succeeding years against the parties to the cause of education on the common school such an adjudication, but it is not res judicata system; and that whenever the same, or any as to those who were not parties thereto.

part thereof, shall be diverted otherwise by [Nos. 385, 386.]

legislative enactment, said bank shall then be exonerated from the payment of any tax :

or bonus whatever." Argued February 28, March 2, 3, 1899. De

It was further averred that on March 10, cided May 15, 1899.

1876, the charter of the bank was extended

to May 1, 1905, by the following enactment: A PRELAISE the United States tore torsist

“Sec. l. That the charter of the Farmers' Court of the United States for the Dis. Bank of Kentucky as amended be extended trict of Kentucky in a suit in equity brought for the period of twenty-five (25) years from by the Farmers' Bank of Kentucky against the termination of its charter as therein Samuel H. Stone, auditor of that state, and fixed : Provided, That said charter and others constituting the state board of valua- amendments shall be subject to amendment tion and assessment, et al., decreeing that a or repeal by the general assembly by general certain adjudication constituted res judicata | or special acts: And provided further, That as to the city of Frankfort, the county of whilst the privileges and franchises so grantFranklin, the city of Henderson, and the coun. ed may be changed or repealed, no amendty of Henderson, preventing the collection ment or repeal shall impair other rights preof certain taxes, but did not constitute such viously vested.” res judicata as to the defendants the county It was then averred that after the extenof Scott and the city of Georgetown. De sion of the charter, in consequence of an at. cree, so far as it granted relief against the de, tempt of the county of Franklin to collect fendants other than the county of Scott and a tax from the bank for county purposes, unthe city of Georgetown, affirmed by a divided der the authority of an act of Kentucky court; and so far as it adjudicated in favor passed in 1876, which statute, it was alleged of defendants the county of Scott and the by the bank, was in violation of the charter city of Georgetown, affirmed.

exemption of the bank, the complainant See same case below, 88 Fed. Rep. 987.

brought, and carried to a successful termina

tion in 1838, in the court of appeals of KenStatement by Mr. Justice White: tucky, a suit to enjoin the county named

These appeals were taken from a decree from collecting the taxes complained of. The rendered in a suit in equity brought by The judgment rendered was pleaded as res judiFarmers' Bank of Kentucky against Samuel cata. H. Stone, Auditor, Charles Finley, Secretary The enactment, on May 17, 1886, of a law, of State, and G. W. Long, Treasurer of the commonly denominated as the Hewitt act, reCommonwealth of Kentucky, constituting a lating to the taxation of *banks, was next[411) State Board of Valuation and Assessment; stated in the bill. An acceptance of the the Board of Councilmen of the City of terms of that act was averred, which it was Frankfort; the County of Franklin; the City claimed constituted an irrevocable contract of Henderson; the County of Henderson; the with the complainant. It was next alleged City of Georgetown: and the County of Scott. that on November 11, 1892, the legislature The object of the bill and of an amended and of Kentucky passed a revenue act which subsupplemental bill was to restrain the val-jected banks in the state to county and municuation of the franchise of the complainant ipal taxation, and to a much greater rate of under the provisions of a revenue act of taxation than was provided in the Hewitt Kentucky, enacted November 11, 1892, as act. Complainant then pleaded as res judicata also the certification of such valuation and judgments rendered in 1895 and 1896 in its the collection of taxes thereon for the years favor by courts of the state of Kentucky, in 1895, 1896, 1897, and 1898.

suits brought by the bank to enjoin attempts It was averred in the bill that the com- to collect from it alleged franchise taxes unplainant was chartered on February 16, 1850, der the supposed authority of the revenue to endure until May 1, 1880; and that in act of 1802. The defendants, who were par.

to

ties to the suits in question, were averred SAMUEL H. STONE, Auditor, et al., Appts., to be the county of Franklin and the sheriff

t'.
of that county; the board of councilmen of

BANK OF COMMERCE.
the city of Frankfort; the city of Henderson;
and the county of Henderson and its sheriff.

(See S. C. Reporter's ed. 412-428.)
The several decrees, it was alleged, conclu-
sively established that the acceptance of the Invalid agreement as to abiding the result of
Hewitt act constituted an irrevocable con. a test suit in relation to taxes-authority
tract with the bank as respected taxation, of city attorney-when estoppel does not
and that the revenue act of 1892, in certain arise from payment of taxes-omission to
particulars, impaired such contract, and in sue as ground for estoppel.
so far as it did so was in violation of the
Constitution of the United States and void. 1. The agreement of the commissioners of the

Certain of the defendants filed pleas to the sinking fund of the city of Louisville and the jurisdiction. All the defendants demurred attorney of the city with certain banks, trust to the bill, and some filed answers, to which

companies, etc., including the Bank of Com

merce, that the rights of those institutions plaintiff filed replications. The demurrers

certain limitations of taxation should and pleas were overruled, and the cause was

abide the result of test suits to be brought, heard upon the pleadings and attached ex

was beyond the power of such commissioners hibits. On January 21, 1898, a final decree and attorney, and invalid ; and the decree of was entered sustaining the claims of res judi. the test suit brought in pursuance of such cata made in the bill, and granting the re- agreement is not res judicata as to those not lief prayed for so far as respected the assess

actually parties to tbe record. ment, certification, and collection of fran- 2. A city attorney whose duties by statute are chise taxes for the benefit of the defendants

to give legal advice to the city officers and the board of councilmen of the city of Frank

boards, and to prosecute and defend suits for fort, the county of Franklin, the city of Hen.

the city, has no power to bind the city by

such an agreement. derson, and the county of Henderson. It was

3. The payment of the money for taxes to the held that by the judgments relied upon by

commissioners of the sinking fund pursuant complainant it had been conclusively adjudi. to such agreement, not exceeding the amount cated as to those defendants that the Hewitt really legally due, although disputed, does not act constituted an irrepealable contract, and estop the city of Louisville from asserting that the provisions of the revenue act of the invalidity of such agreement or its legal 1892 in conflict with that act impaired the

rights. nor make the decree in such test case terms of such contract, and were void. 88

res judicata in favor of the bank.

4. (412]Fed. Rep. 987. *The decree adjudged that as

The bank not having been legally damaged to the defendants the county of Scott and the

by the payment of the money due for taxes,

there is no basis for an estoppel, and no city of Georgetown, who were found not to

equity for a decree relieving it from future have been either parties or privies to the rec- taxation, ords and decrees constituting res judicata, 5. The omission to sue formed no ground for that no irrevocable contract had been estab

an estoppel, as it must be assumed that the lished, by judgment or otherwise, and as to bank knew the agreement to be invalid, there those defendants the bill was therefore dig. being no dispute as to the facts and no mismissed. From the decree thus entered both representations made. parties appealed to this court.

(No. 362.)
Messrs. Ira Julian, W. A. Julian, L. L. Argued February 28, March 2, 3, 1899. De
Bristow, J. C. B. Sebree, W. 8. Taylor, At-

cided May 15, 1899.
torney General of Kentucky, T. A. Crockett,
and James H. Polsgrove for Samuel H.
Stone, et al.

A of

Court of the United States for the Dis. Messrs. John W. Rodman and W. 8. trict of Kentucky decreeing that the Bank of Prior for Farmers' Bank of Kentucky. Commerce, plaintiff in an action against

Samuel H. Stone, auditor, et al., is entitled [412] *Mr.Justice White, after making the fore- to the benefit of the decision in the case of

going statement, delivered the opinion of the the Louisville Banking Company v. Thompcourt:

son, under which its right to be taxed under T'he decree below, so far as it granted the the Hewitt law, and not otherwise, is res relief prayed as against the defendants other judicata, and its shares of stock exempt from than the city of Georgetown and the county all other taxation. Reversed, and case reof Scott, is affirmed by a divided court. The manded, with instructions to dismiss the decree, so far as it adjudicated against the suit. complainant and in favor of the defendants See same case below, 88 Fed. Rep. 398. the city of Georgetown and the county of Scott, those defendants not having been par. Statement by Mr. Justice Peckham: ties or privies to the judgments pleaded as *The bill in this case was filed in 1897 by[413] res judicata, must be aflirmed upon the au- the Bank of Commerce, a citizen and resithority of the decision in Citizens' Savings dent of the city of Lonisville in the state of Bank of Owensboro v. City of Owensboro and Kentucky, for the purpose of obtaining an A. M. C. Simmons, Tax Collector [173 U. injunction restraining the defendants from S. 636, ante, 840).

assessing the complainant and from collectAnd it is so ordered.

ing or attempting to collect any taxes based

case.

upon the assessment spoken of in the bill, | under the license ordinance approved Jan.
and for a final decree establishing the con uary 29, 1894, on the ground that said banks
tract right of the complainant to be taxed were not legally liable to pay the same, but,
in the method prescribed by the act of May in order to save the sinking fund *from any[415]
17, 1886, known as the Hewitt act, the terms embarrassment occasioned by their refusal
of which it alleged it had accepted. The to pay said license fee, the banks, with two
bill sought to perpetually enjoin the defend or three exceptions, were willing to enter in.
ants from assessing the franchise or prop to an arrangement whereby they would pay a
erty of the complainant in any other man- part of the amount demanded of them and
ner than under that act. The material pro- lend the sinking fund the balance thereof, to
visions of the Hewitt act are set out in the be repaid, with interest at four per centum
opinion of the court, delivered by Mr. Jus- per annum, if it was finally decided and ad.
tice White, in the case of the Citizens' Sav- judged that the banks were not liable to pay
ings Bank of Owensboro, Plaintiff in Error, said license fees.
v. City of Owensboro, 173 U. S. 636 [ante, After discussion, the president was, on mo
840].

tion of Mr. Tyler, seconded by Mr. Summers, In 1891 Kentucky adopted a new Consti- authorized to enter into the following artution, section 174 of which, providing for rangement with the different banks, trust the taxation of all property in proportion to and title companies who will be subject to its value, is also set forth in the above-cited the payment of the license fees if the license

ordinance is finally adjudged to be valid and The legislature of the state in 1892 passed enforceable: an act in relation to the taxation of banks First. To accept from each of said banks and other corporations which was in con- and companies a payment equal to the differAlict with the Hewitt act, and provided for ence between the amount they now pay to :)taxing the* banks in a different manner from the state for state taxes and the amount they that act, and also subjected the banks to lo- would be required to pay for state taxes uncal taxation, the total being much more on- der the provisions of what is known as the erous than that enforced under the Hewitt "Hewitt bill.” This sum shall be an actual act.

payment, not to be repaid under any circumThe complainant was incorporated under stances, but its payment shall not in any an act of the legislature of Kentucky ap- manner or to any extent prejurlice the banks proved February 10, 1865, and it had all the or companies paying it or be taken as a powers granted by that act and the several waiver of any legal right which they have amendments thereof as alleged in its bill. in the premises.

There were various other banks in the city Second. In addition to making the above of Louisville which also alleged that they payments the said banks and companies, had accepted the terms of the Hewitt act, save those selected to test the question inand by reason thereof had a valid contract volved, shall each lend to the sinking fund with the state that they should be taxed only a sum which, added to said payment, will under the provisions of that act.

equal four per centum of its gross earnings The complainant alleges in its bill that during the year 1893, and the sinking fund early in the year 1894 a demand was made will execute for said loans its obligations, on the part of the defendant the city of agreeing to repay the same, with interest at Louisville, based upon the act of 1892 and four per centum per annum, when and if it the ordinance adopted in pursuance thereof, shall be finally adjudged by the court of last for the payment of a license tax equal to resort that said banks or companies are not four per cent of its gross receipts into the liable to pay the license fee required by the sinking fund of the city. The banks denied ordinance aforesaid, but if it is finally ad. their liability to pay any tax other than that judged that they are liable to pay said li. provided in the Hewitt act, and hence arose cense fee, then the said loan shall be taken the differences between the city and the and deemed as a payment of said license fee, banks.

and the obligation to repay the same shall No litigation had been comnienced for the be void. purpose of testing the questions at issue be.

Third. The banks or companies selected tween the city and the banks, although ne- to test the question involved will each lend gotiations looking to that end had been in the sinking fund a sum equal to four per progress between the city attorney of Louis, centum of their gross earnings for the year ville and the members of the sinking fund 1893, and *will receive therefor the obliga-(416) board, on the one hand, and the counsel for tions of the sinking fund as above described. .the various banks and trust companies on the other. There is set forth in the bill of into with the understanding that the said

Fourth. This arrangement is to be entered the complainant the action of the sinking banks and companies will institute without fund board as follows:

delay and diligently prosecute such actions Sinking Fund Office, Febʼy 13, 1894. as may be necessary to settle and adjudge A committee, consisting Messrs. Thomas the right and liabilities of the parties in the L. Barrett, John H. Leathers, and George W. premises, and pending such procedings the Swearingen, appeared before the board on be- sinking fund will not prosecute them or any half of the banks who are members of the of them for doing business without license. Louisville clearing house, and stated that it A true copy. Attest: was the purpose of said banks to resist the

J. M. Terry, payment of the license fee demanded of them

Secretary and Treasurer.

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Following the above, the complainant's bill bank of any class should succeed in estabcontains what is termed a “stipulation be- lishing a contract and the validity thereof tween the city of Louisville, the commis under the Hewitt bill, that that should exsioners of the sinking fund of the city of empt all banks and companies falling with. Louisville, and the banks, trust and title in that class from the payment of taxes, excompanies of the city of Louisville," which cept as provided in the Hewitt bill. stipulation reads as follows:

Fourth. On the faith of this agreement all

of the banks and companies aforesaid paid It is agreed between the city of Louisville, into the sinking fund the amounts of taxes the commissioners of the sinking fund of the claimed against them, under the terms and city of Louisville, represented by H. S. Bar. conditions named in the minutes of the sinkker, city attorney, acting under the advice ing fund commissioners of February 13, and by the authority of the board of sinking 1894, an attested copy of which is hereto at fund commissioners, given at a regular meet. tached as part hereof, but at a later date and ing of said board, and the mayor of the city in further *reliance upon said agreement all[418] of Louisville, on the one part, and the vari- said banks and companies, except those acous banks, trust and title companies of tually involved in the test cases, paid the the city of Louisville, acting by Humphrey whole of the amount of taxes claimed as & Davie and Helm & Bruce, their attorneys, against them by the city of Louisville withof the other part:

out reservation, until the question thus First. That in February, 1894, it was raised should be finally disposed of. agreed between the city of Louisville and the

Humphrey & Davie, board of sinking fund commissioners, acting

Helm & Bruce, together in the interest of the said city and For Banks, Trust and Title Companies of the the various banks, trust and title companies,

City of Louisville. acting through their committee, to wit,

H. S. Barker, City Att'y. Messrs. Thomas L. Barrett, John H. Leath? Approved :

C. H. Gibson, ers, and George W. Swearingen, and their Pres’t Com’rs Sinking Fund City of Lou. counsel, to wit, Messrs. Humphrey & Davie A true copy. Attest: Huston Quinn. and Helm & Bruce, that the question of the

Arthur Peter. liability of said banks and trust and title

M. McLoughlin companies to pay municipal taxes, either li. cense or ad valorem, otherwise than as pro- The Louisville Banking Company was one vided by the revenue law, commonly known of the banks which brought an action for the as the Hewitt bill, should be tested by ap- purpose of testing the question of its liabili

propriate litigation looking to that end. ty to taxation. The charter of that com(417) *Second. In order to effectually test the pany was granted subsequent to the year

question as to all of said companies they 1856, and, in that respect, it was like the de were divided into three classes, it being un fendant bank. It also claimed to have ac derstood that all who had accepted the pro- cepted the provisions of the Hewitt act. In visions of the said Hewitt bill would fall in the litigation which followed, the Louisville one or the other of the classes named, to wit: Banking Company was adjudged by the court

A. Banks whose charters had been granted of appeals of Kentucky to have an irrepealaprior to 1856.

ble contract throughout its charter existence B. Banks whose charters had been granted to be taxed under the Hewitt act, and judg. subsequent to 1856.

ment pursuant to that adjudication was enC. National banks.

tered in favor of that company. The comIt being understood that the trust and plainant herein claimed the benefit of the title companies which had accepted the pro- foregoing adjudication, and the circuit court visions of the Hewitt bill would fall in class allowed it, and gave judgment as follows: B, above named.

“1. That the complainant is entitled to the Third. In pursuance of that agreement benefit of the proceedings taken in the case the sinking fund commissioners caused to be of the Louisville Banking Company v. R. H. issued warrants against the Bank of Ken Thompson, Judge, etc., in the Jefferson court tucky, representing class A, the Louisville of common pleas, and the proceedings taken Banking Company, representing class B, and in said cause on appeal to the court of apthe Third National Bank, representing class peals of Kentucky, wherein the Louisville C, and these banks respectively applied for Banking Company was appellant and the a writ of prohibition against the city court said R. H. Thompson, judge, etc., and the of Louisville proceeding with the hearing, city of Louisville were appellees, to the same that being the manner pointed out by the extent as if the complainant had been a par. city charter for testing the validity of city ty to said proceedings. ordinances.

*“2. That it is res judicata between the 419) It was distinctly understood and agreed complainant and the city of Louisville that at that time, and this agreement was made the complainant is entitled to be taxed under for the best interest of all parties to it, that what is known as the Hewitt revenue law, if any bank in any class should eventually and not otherwise, and it is therefore adfail to establish the existence and validity of judged, ordered, and decreed that the defend, the contract which it was claimed was made ants Samuel H. Stone, Charles Findley, and under the Hewitt bill, that all of that class George W. Long are perpetually enjoined should thereafter regularly and promptly and restrained from making any assessment submit to the existing laws and pay their under the act of November 11, 1892, or certi. taxes; and it was also agreed that if any 'fying the same to the city of Louisville upon

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