Deposit Bank of Frankfort v. Board of Councilmen of the City of Frankfort

This action was brought by the board of councilmen of the city of Frankfort, in the Franklin circuit court, for the recovery of certain ad valorem taxes under levies for the years 1892, 1893, and 1894. The tax for the year 1892 has been eliminated from the controversy, and the matters now disputed include the taxes for the years 1893 and 1894, and interest. The bank in the first instance relied upon the provisions of a certain law of the state of Kentucky, known as the Hewitt law, as exempting it from the taxes sought to be enforced. This law was passed in 1886 (Session Laws of Kentucky, 1885-6, pp. 140, 144-7, 201), and provided:

'Section 1. That shares of stock in state or national banks, and other institutions of loan or discount, and in all corporations required by law to be taxed on their capital stock, shall be taxed 75 cents on each share thereof equal to $100, or on each $100 of stock therein owned by individuals, corporations, or societies, and said banks, institutions, and corporations shall, in addition, pay upon each $100 of so much of their surplus, undivided surplus, and undivided accumulations as exceeds an amount equal to 10 per cent of their capital stock, which shall be in full of all tax, state, county, and municipal.

'Sec. 4. That each of said banks, institutions, or corporations, by its corporate authority, with the consent of a majority in interest of a quorum of its stockholders, at a regular or called meeting thereof, may give its consent to the levy of said tax, and agree to pay the same as herein provided, and to waive and release all rights under the act of Congress, or under the charters of the state banks, to a different mode or smaller rate of taxation, which consent or agreement to and with the state of Kentucky shall be evidenced by writing, under the seal of such bank, and delivered to the governor of this commonwealth; and upon such agreement and consent being delivered, and in consideration thereof, such bank and its shares of stock shall be exempt from all other taxation whatsoever so long as said tax shall be paid during the corporate existence of such bank.

'Sec. 5. The said bank may take the proceeding authorized by § 4 of this act at any time until the meeting of the next general assembly: provided, they pay the tax provided in § 1 from the passage of this act.

'Sec. 6. This act shall be subject to the provisions of § 8, chapter 68, of the General Statutes.

'Sec. 7. If any bank, state or national, shall fail or refuse to pay the tax imposed by this act, or shall fail or refuse to make the consent and agreement as prescribed in § 4, the shares of stock of such bank, institution, or corporation, and its surplus, undivided accumulations, and undivided profits, shall be assessed as directed by § 2 of this act, and the taxes-state, county, and municipal-shall be imposed, levied, and collected upon the assessed shares, surplus, undivided profits, undivided accumulations, as is imposed upon the assessed taxable property in the hands of individuals: Provided, that nothing herein contained shall be construed as exempting from taxation for county or municipal purposes any real estate or building owned and used by said banks or corporations for conducting their business, but the same may be taxed for county and municipal purposes as other real estate is taxed.'

The Deposit Bank of Frankfort accepted the terms of the Hewitt law, and made payment of the taxes as therein provided.

The circuit court of Franklin county, by judgment upon the pleadings in this case, sustained the bank's claim of exemption, holding the Hewitt law to be an irrevocable contract between the bank and the state. Upon appeal, this judgment was reversed by the Kentucky court of appeals, that court holding that the Hewitt act did not constitute an irrevocable contract, and had been repealed by the later act of 1892, under which act the bank was not exempt from payment of the taxes in controversy.

After the case was remanded to the circuit court for a new trial the bank filed a supplementary answer, setting up as an estoppel a decree of the United States circuit court for the district of Kentucky rendered in 1898, in a case to which the bank and the complainant were parties. The decree in that case was rendered upon a bill filed by the bank, in which it set up, among other things, a certain judgment of the Franklin circuit court rendered in 1896, in which it was adjudged that the Hewitt law constituted an irrevocable contract exempting the bank from taxation. At the time of the rendition of the decree in the United States court the judgment of the state circuit court relied on was in full force although subsequently reversed by the Kentucky court of appeals.

In the Federal court the following decree was rendered:

'The court being sufficiently advised, files its opinion herein.

'It is therefore adjudged, ordered, and decreed as follows:

'First. That the demurrer of the defendants Board of Councilmen of the city of Frankfort and Franklin county and of the defendants Samuel H. Stone, G. W. Long, and Charles Finley be, and the said demurrers are, hereby overruled; to which the said defendants each except.

'Second. The plea of defendants Board of Councilmen of the city of Frankfort and Franklin county to the bill of complaint is overruled; to which the said defendants except.

'Third. Thereupon came the complainant, by Frank Chinn, its counsel, and files its replication to the answer of the defendants Board of Councilmen of the city of Frankfort and Franklin county. The defendants county of Franklin and city of Frankfort offered to file an amended answer; to which complainant objected, and the motion to file is overruled; to which said defendants except, and said amended answer is made a part of the record by the order of the court.

'And by consent this cause came on to be heard for final decree. The complainant read upon hearing its bill of complaint and its amended bill of complaint herein, together with all the exhibits filed with said bills, to wit:

'Exhibit 'A,' being the record of the proceedings in the case of Deposit Bank of Frankfort against Franklin County and John W. Gaines, sheriff.

'Exhibit 'B,' being the records in the proceedings in the case of Deposit Bank of Frankfort against Franklin county and R. D. Armstrong, sheriff.

'Exhibit 'C,' being judgment of Franklin circuit court, entered February 1, 1896, in the suit of Deposit Bank of Frankfort against Franklin County.

'Exhibit 'D,' being record of the proceedings in the case of Board of Councilmen of City of Frankfort against Deposit Bank of Franklin.

'The defendant, The County of Franklin, read on the hearing its answer, and the defendant Board of Councilmen of the City of Frankfort read on the hearing the record of the proceedings in the case of Board of Councilmen of City of Frankfort against L. C. Norman, auditor, etc., and also read its answer.

'And it is now adjudged, ordered, and decreed that the defendants Samuel H. Stone, Charles Finley, and George W. Long be, and they are hereby, perpetually enjoined and restrained from proceeding to value the franchise of the complainant under the act of November 11, 1892, for the years 1895, 1896, 1897, 1898, or for any other subsequent years until the expiration of the charter of the complainant, and are enjoined and restrained from certifying such value to the county clerk of Franklin county or to any officer of the board of councilmen of the city of Frankfort or the county of Franklin; and the defendants County of Franklin and Board of Councilmen of the City of Frankfort are enjoined and restrained from endeavoring to collect any tax upon any such valuations; and the complainant, by making payments in accordance with the Hewitt law, is discharged in full from all taxes to be exacted from it under any form or by any authority.

'It is further adjudged, ordered, and decreed that by reason of the several pleas of res judicata, relied on by the complainant in its bill, and as shown by the exhibits therewith, the complainant has established a contract with the commonwealth of Kentucky, under the provisions of article 2 of the act of the general assembly of the state of Kentucky, entitled 'An Act to Amend the Revenue Laws of the Commonwealth of Kentucky,' approved May 17, 1886, and the acceptance of the same by the complainant, the terms of which contract the commonwealth cannot alter or change without the consent of the complainant; that by the terms of this contract the complainant and its shares of stock cannot, during its corporate existence, be assessed for taxation for state purposes in a different mode or at a greater rate of taxation than as prescribed in said act, and can be assessed for taxation and taxed for county and municipal purposes only upon its real estate used by it in conducting its business; that the provisions of the present Constitution of the commonwealth of Kentucky, and the act of November 11, 1892, in so far as they are intended to provide or do provide for any assessment or taxation of the complainant's property, rights of property, or franchise, or shares of stock, except to the extent and in the manner provided by §§ 1, 2, and 3 of article 2 of the said act approved May 17, 1886, and except to assess and tax for county and municipal purposes upon its real estate used in conducting its business, are in violation of and repugnant to the Federal Constitution, and void.

'And it is further adjudged that the complainant recover of the defendant its costs in this action expended.

'And came defendants and prayed an appeal in open court, and tendered their assignment of errors; whereupon the court allowed the appeal, and orders the assignment of errors to be filed, and fixes the appeal bond at $1,000.'

This decree of 1898 was afterwards affirmed in this court. 174 U.S. 800, 43 L. ed. 1187, 19 Sup. Ct. Rep. 881. The Franklin circuit court in the case now before us dismissed the petition upon the ground that there had been no proper return of no property found, and did not pass upon the question as to whether the decree of the United States court was effectual as an estoppel between the parties. Upon appeal to the court of appeals of Kentucky, it was held by a majority of the court, three judges dissenting, that the decree relied upon was not an estoppel. By writ of error that judgment is brought here for review.

Messrs. Frank Chinn and D. W. Lindsey for plaintiff in error.

Messrs. W. H. Julian, Ira Julian, and T. H. Crockett for defendant in error.

Statement by Mr. Justice Day:

[Argument of Counsel from pages 505-508 intentionally omitted]

Mr. Justice Day delivered the opinion of the court: