U.S. Supreme Court
Mercantile Bank v. Tennessee, 161 U.S. 161 (1896)
Mercantile Bank v. Tennessee
Argued January 20-22, 1896
Decided March 2, 1896
161 U.S. 161
A judicial sale and conveyance, made under order of court, of the franchises of a corporation whose taxation is limited by the act of the legislature of the state incorporating it to a rate therein named, carries to the purchaser chanroblesvirtualawlibrary
(if anything) only the franchise to be a corporation; and a corporation organized to receive and receiving conveyance of such franchises, is not the same corporation as the original corporation, and is liable to taxation according to the constitution and laws of the state in force at the time of the sale, or which may be subsequently adopted or enacted, and is not entitled to the limitation and exemption contained in the original act of incorporation.
This also is a bill filed by the State of Tennessee against the Mercantile Bank for the purpose of collecting taxes alleged to be due plaintiff below under the statutes of that state.
The bill alleges that the Legislature of Tennessee, by an act passed February 29, 1856, incorporated the Gayoso Savings Institution, and by the third section of the act it was provided that the institution should "pay to the state an annual tax of one-half of one percent on each share of the capital stock, which shall be in lieu of all other taxes." The company, as complainants allege, was duly organized under the act of incorporation, at what date it is now known, but at all events it was engaged in a general banking business in the City of Memphis from a date as nearly as 1856 down to the year 1869. In that year, the institution failed, and a bill was filed by its president, John C. Lanier in the proper court, for an administration of the affairs of the company as an insolvent corporation under the laws of the state. In the course of the proceedings, one E. B. McHenry was appointed receiver of the assets of the company by the court, and on the 11th day of June, 1880, the court directed the receiver to sell the charter of the company. On the 28th of June of that year, the receiver did sell the charter at public auction, for the sum of $201, to Julius A. Taylor, and the sale was afterwards duly reported to and confirmed by the court. On the 26th of March, 1881, the legislature of the state passed an act changing the name of the company to that of the Mercantile Bank, and thereupon Mr. Taylor undertook to sell the charter to John R. Godwin and others, who organized the bank with a capital stock of $200,000. Since the year 1885, the company has been carrying on a general banking business in the City of Memphis, claiming to be organized under, and to have all the rights, privileges, chanroblesvirtualawlibrary
and immunities originally granted to, the Gayoso Institution, and that by virtue of this claim, neither the defendant company nor its shareholders have paid any taxes whatever to the state, county, or municipality since its organization, except the one-half of one percent as provided in the charter.
Complainant charged that it was wholly incompetent to sell the charter of the Gayoso Savings Institution, and that the defendant company had no right or title thereto, and especially that it had no rightful claim to immunity from taxation as contained in that charter, and it is averred that all the stock of the defendant company was subscribed for and issued since the adoption by the state, on May 4, 1870, of the constitution of that year. For the year 1891, the capital stock of the company was assessed at a valuation of $160,000. The bill then further alleges the various statutes of the State of Tennessee providing for the assessment of shares or of the capital stock of corporations, and various other allegations are made tending to show a valid assessment either upon the capital stock or the shares of stock in the hands of shareholders, if the claim for exemption be not well founded. It prays for a discovery of the names of the shareholders, and that the court may determine whether the corporation or the shareholders have any immunity from taxation under the charter of that company, and that complainants have a decree against the defendant corporation for such taxes, with interest, etc.
To that bill the defendants filed a demurrer, and, as grounds thereof, stated that the defendant the Mercantile Bank is treated and sued in the proceeding as a corporation organized under the charter above mentioned, and exercising all the powers and franchises conferred by it, and in the enjoyment of the privileges and immunities bestowed by it, and that therefore the complainants cannot treat the defendant as a corporation under such charter, and at the same time deny its right and title thereto; that it cannot treat the defendant as a corporation under that charter and then deny the existence of the charter; that it cannot sue the said defendant as a corporation, under the charter, for the purpose of imposing burdens on it and then deny the benefit of the chanroblesvirtualawlibrary
privileges and immunities conferred thereunder; that if the Mercantile Bank has no right or title to the charter, and if the charter was destroyed and ended by the judicial proceedings referred to, then there is no such corporation as the Mercantile Bank, and the business conducted under that name is a mere partnership, and the bill should have been filed against the persons composing such partnership. Another ground of demurrer was that it appeared in the third section of the charter above mentioned, under which the bank was organized, and it appears on the face of the bill, that the bank was to pay to the state an annual tax of one-half of one percent on each share of capital stock, which was to be in lieu of all other taxes, and that this constituted a contract between the state, on the one side, and the bank or shareholders, on the other, under which both the capital of the bank and the shares of stock in the hands of the shareholders were exempt, and that the various acts of the legislature subsequent to the grant of that charter, and providing for the assessment of the shares of stock in corporations, if applied to the defendant corporation, impaired the obligations of the contract, and are in conflict with Section 10, Article I, of the Constitution of the United States, and are void.
This demurrer was overruled, with leave to insist upon the grounds thereof upon the hearing.
Complainants then, by leave of court, filed their amended and supplemental bill, adding various allegations not material to here notice, except that it was stated that, by a stipulation between the parties, the defendant corporation had assumed the payment of any liability that might be established against the shareholders therein, and that the defendant C. Hunter Raine should be made a defendant, in his capacity as a shareholder, and that whatever liability should be established against him should be taken as established against all the shareholders in the defendant corporation, and that the liability of all those established should be assumed by the defendant corporation.
To avoid the labor and expense of taking proof, and to chanroblesvirtualawlibrary
bring the case to a final hearing, the parties then agreed upon certain facts, among which are the following: the charter of the Gayoso Savings Institution, and all amendments thereto referred to in the pleadings, are set forth in the statement. The first section of the charter named certain individuals, and it was enacted that they and their associates and successors
"be, and they are hereby, created a body politic and corporate by the name and style of the Gayoso Savings Institution, and by that name shall have succession,"
etc. Provision is then made for subscription for the capital stock, which is to be divided into shares of $50 each, and when 200 shares shall have been subscribed, and the sum of one dollar per share paid thereon, the shareholders may meet and elect five directors. The third section contains the exemption clause, which, as therein set forth, is as follows:
"Said institution shall have a lien on the stock for debts due it by the stockholders, before and in preference to other creditors, except the state for taxes, and shall pay to the state an annual tax of one-half of one percent on each share of capital stock, which shall be in lieu of all other taxes."
Section 4 granted to it the usual banking privileges, as therein set forth. An amendment to this charter, passed March 26, 1881, changed the name of the Gayoso Savings Institution to the Mercantile Bank of Memphis. The statement also shows who were the owners of the capital stock of the Gayoso Savings Institution at the time of the commencement of the suit of John C. Lanier against the institution, mentioned in the original bill.
It is also stated that on the 5th day of March, 1881, Julius A. Taylor, the purchaser of the charter at the receiver's sale in June, 1880, and eight other persons who were associated with him held a meeting as stockholders of the Gayoso Savings Institution, the minutes of which meeting are therein set out. The minutes set forth that on the 5th day of March, 1881, a meeting of the stockholders of the Gayoso Savings Institution was held in Memphis at which certain stockholders were present, and who were therein named, and that one of them was elected chairman of the meeting, and he reported that chanroblesvirtualawlibrary
the requisite number of shares (200) had been duly subscribed to, as follows (giving the names of the subscribers), and that the sum of one dollar per share each had been paid in. It was then moved and seconded to proceed to the election of six directors, which was carried, and such directors were then elected. Just before the time of this meeting, the parties therein named signed and executed a stock subscription paper, which is in the following words:
"We, the undersigned, agree to take stock in the Gayoso Savings Institution of Memphis, Tennessee, to the amount set opposite our respective names, and to pay the same in such manner as may be ordered by the board of directors, having this day paid in the sum of one dollar on each share."
(Here follow the names of the subscribers.) These are the "stockholders" who are mentioned in the minutes of the stockholders' meeting. It is stated that this organization of the institution was continued regularly and without intermission, but without the actual transaction of any banking business until 1883, and that in April, 1883, the said Julius A. Taylor and his associates transferred their stock in the corporation, by regular and proper transfer of the certificates of stock, to John R. Godwin and his associates, and on April 17, 1883, John R. Godwin and his associates at a stockholders' meeting of said corporation, increased the capital stock to $200,000, and began a regular banking business under said charter, and said corporation has, under that organization, continued said banking business down to the present date with the same capital stock of $200,000.
The regularity of the organization from the 5th day of March, 1881, the date when Julius A. Taylor and his eight associates held the stockholders' meeting above mentioned, is not questioned. Of the $200,000 capital stock which was issued by John R. Godwin and his associates on the 17th of April, 1883, $180,000 was new stock, which was divided between said John R. Godwin and his associates. The Gayoso Savings Institution, from the time it was originally organized under its charter in 1856 to the date when the bill was filed in the case of John C. Lanier and others, in 1869, chanroblesvirtualawlibrary
regularly paid, year after year, to the State of Tennessee, the commutation tax mentioned in its charter, of one-half of one percent on each share of capital stock, and since the 5th day of March, 1881, the defendant corporation, under the name of the Gayoso Savings Institution and the Mercantile Bank, has constantly paid said commutation tax to the state, down to this date. It is further stated that the defendants can produce no evidence of the payment of said commutation tax during the interval above shown. Proper copies of the decree of sale of the charter in the case of John C. Lanier against the Gayoso Savings Institution, the receiver's report of the sale, and the decree confirming the same, are set forth in the agreed statement, and it is admitted that a part of the papers in that case are lost or mislaid, and cannot be found.
It was further admitted that on June 10, 1880, the receiver in the case of Lanier v. The Gayoso Savings Institution filed a petition in the case asking for instructions as to what should be done with the charter. The petition was lost, and no copy could be found. It was stated that there was never any transfer of the certificates of stock from the old stockholders in the Gayoso Savings Institution to Julius A. Taylor and his associates, unless, as a matter of law, such transfer can be made out as the legal effect of the facts above stated. With one or two exceptions, all the old stockholders in the Gayoso Savings Institution were residents of the City of Memphis and the State of Tennessee, and none of them ever claimed any interest in the charter or the business being conducted thereunder, or in the stock issued thereunder, after the sale of the charter to the said Julius A. Taylor. It is alleged that
"the defendants contend that the legal effect of the facts herein stated, and of the steps taken is said case of John C. Lanier v. The Gayoso Savings Institution, as set forth above, was to make a legal transfer of the stock in said Gayoso Savings Institution from the persons who owned the same at the time said bill was filed in said case to the said J. A. Taylor and his associates and their successors. This proposition is denied by complainants, and the question is submitted for decision to the court."
Further facts in relation to the assessment chanroblesvirtualawlibrary
of stock are also set forth, as are also certain cross-bills filed by certain depositors in the bank against Lanier and others, who were offices and directors in the bank, alleging fraud on their part in the reception of deposits, and in the payment of certain debts or claims. Upon this agreed statement of facts and the bill and supplemental bill and demurrer, the parties went to trial.
The decree in the chancery court was in favor of plaintiffs in error on all points. An appeal was taken by the state to the supreme court. That court reversed the decree of the chancery court, and held that the plaintiff in error was not entitled to the immunity from taxation contained in the third section of the charter passed in 1856, and gave a decree against the shares of stock and surplus for the full amount of the taxes claimed by the city and county from the year 1888 down. The defendants below sued out a writ of error from this Court, and assigned as ground of error that the judgment of the court should have been in their favor, denying the right of the state or city to recover any taxes from either the corporation or shareholders, because of the immunity from taxation granted to them by the third section of the charter, and that a denial of that right deprived the defendants below of the immunity guarantied to them by the contract contained in the third section of the charter, and that the tax laws affirmed to be valid against them are repugnant to the contract provision of the Constitution of the United States. As a second ground of error, it was stated that the court erred in denying to the corporation plaintiff in error an exemption from taxation on its surplus and undivided profits. And the third ground was stated to be error of the court in adjudging a liability of the corporation plaintiff in error to pay the privilege tax mentioned therein, on the same ground of immunity granted to it by the third section of the charter. chanroblesvirtualawlibrary