US SUPREME COURT DECISIONS

A corporation organized for the purpose of doing an insurance business, under an act of the Legislature of the State of Tennessee passed before the adoption by that state of its Constitution of 1870, with a provision in the charter limiting the rate and extent of taxation by the state, does not continue to enjoy the exemption if its corporate objects and business are changed to those of a bank by legislation enacted subsequent to the adoption of that constitution. chanrobles.com-red

Page 161 U. S. 187

A judgment in favor of the exemption of its shareholders from taxation in excess of the statutory limit, entered before the insurance company was changed to a bank, cannot be upheld as res judicata in an action brought after the change to recover such excess.

This suit is similar to those which precede, and is brought for the collection of taxes against the corporation plaintiff in error or its stockholders. It was tried upon an agreed statement of facts. Those which are material to the present inquiry are the following: the defendant corporation, in January, 1870, under its then name of the Memphis City Fire and General Insurance Company, was duly organized, under the charter granted to it on the 24th of January, 1870, and the organization under it was in all respects valid, and no question is made upon the same. The defendant, from that date down to the year 1887, carried on an insurance business under its charter in the City of Memphis. In that year, in pursuance of the powers granted in chapter 190, Acts 1887, the corporation (also claiming the right to do so under the powers conferred by its charter) changed its business from that of insurance to that of banking, and since that date down to the present time has exclusively conducted a banking business in Memphis. Section 2 of the original charter empowers the corporation to receive in trust, from any person, moneys, jewels, plate, and other valuable things, and to give acknowledgment therefor in such form as the directors of the corporation may deem best suited to the protection and convenience of depositors and the company. And the corporation was also authorized to loan its surplus funds on any public stock, or of any incorporated company, or of the United States, or either of them, or to invest such funds in any real or personal estate, choses in action, or other good securities. Section 7 provides that there shall be levied a state tax of one-half of one percent upon the amount of capital stock actually paid in, to be collected in the same way and at the same time as the other taxes are by law collected, which shall be in lieu of all other taxes and assessments. Chapter 190, Acts 1887, enacted that any company incorporated under the laws of Tennessee, having by its charter the right to receive moneys chanrobles.com-red

Page 161 U. S. 188

in trust or otherwise, should be held to have the power to receive deposits, and loan the same and its capital stock on any kind of commercial or business paper, or real estate, buy and sell exchange, and all kinds of public or private securities and commercial paper. It was also further provided in that act

"that the exercise of any of the granted powers should not operate to forfeit any franchise, right, power, privilege, or immunity granted in the original charter, and that the nonuser of a part of a corporation's powers, privileges and franchises should not have the effect of forfeiting any franchise, right, power, privilege, or immunity contained in its charter."

On the 23d of January, 1889, the legislature passed an act changing the name of the corporation plaintiff in error from that of the Memphis City Fire and General Insurance Company to that of the Memphis City Bank, and since that time it has conducted business under the latter name. From its first organization in 1870 down to the present time, it has regularly and constantly paid to the State of Tennessee the charter tax provided for in section 7 of its charter, and has regularly filed with the comptroller of the state the statement required and called for by the seventh section of that charter.

The opinion of the Supreme Court of Tennessee, delivered upon the demurrer to the bill in this case, will be found reported in 7 Pickle 574, under the name of Memphis v. Memphis City Bank. In the year 1872, the State of Tennessee, the County of Shelby, and the City of Memphis undertook to tax the shares of stock of the Memphis City Fire and General Insurance Company at their market value in the hands of the shareholders at the same rate as other property was taxed. The shareholders denied this right, and claimed an exemption from all taxation except to the extent of the tax provided for in the seventh section of the charter. Thereupon an agreed case was made up between the parties, the State of Tennessee on the one side and Napoleon Hill, a stockholder in the company, on behalf of all the other stockholders on the other side. The case was made in conformity with the laws of Tennessee, and the question submitted to the chanrobles.com-red

Page 161 U. S. 189

Second Chancery Court of Shelby County and State of Tennessee to determine whether the said county or state had the right to impose a tax upon the shares other than the one-half of one percent provided for in its charter. The case was regularly heard in the Second Chancery Court of Shelby County, and decided in favor of the shareholders, and against the power to tax. It was then carried to the Supreme Court of Tennessee, where the decision of the chancery court was reversed and the power to tax affirmed. The case was heard in the supreme court in connection with several cases of the same character under the title of City of Memphis v. William M. Farrington, 8 Baxter 538. Mr. Hill sued out a writ of error from this Court in behalf of himself and the other shareholders, and the case was regularly heard in this Court upon the federal question, and upon that hearing this Court reversed the decree of the Supreme Court of Tennessee and affirmed that of the Second Chancery Court of Shelby County, and upon a mandate, properly issued from this Court to the state court, a judgment was entered in favor of said Hill and the other shareholders in the company. The case, as decided by this Court, is reported under the name of Farrington v. Tennessee, 95 U. S. 679. The plaintiffs in error herein rely upon that final decree as being a full, final, and complete adjudication of all questions involved in this case, and as being res judicata, and binding upon the parties hereto.

Upon these agreed facts, the case was tried and judgment given for the shareholders, which, upon appeal, was reversed by the Supreme Court of Tennessee, and judgment entered for the City of Memphis for the recovery of taxes upon the shares of stock in the Memphis City Bank and upon the surplus and undivided profits for the years therein named, and it is to review this judgment that the plaintiffs in error come here. chanrobles.com-red

Page 161 U. S. 190