U.S. Supreme Court
Providence Bank v. Billings, 29 U.S. 4 Pet. 514 514 (1830)
Providence Bank v. Billings
29 U.S. (4 Pet.) 514
ERROR TO THE SUPREME JUDICIAL COURT
OF THE STATE OF RHODE ISLAND
In 1791, the Legislature of Rhode Island granted a charter of incorporation to certain individuals who had associated for the purpose of banking. They were incorporated by the name of the president, directors, and company of the Providence Bank, with the ordinary, powers of such associations. In 1822, the legislature passed an act imposing a tax on every bank in the state except the bank of the United States. The Providence Bank refused the payment of the tax, alleging that the act which imposed it was repugnant to the Constitution of the United States as it impaired the obligation of the contract created by the charter of in corporation. Held that the act of the Legislature of Rhode Island imposing a tax which under the law was assessed on the Providence Bank does not impair the obligation of the contract created by the charter granted to the bank.
It has been settled that a contract entered into between a state and an individual is as fully protected by the prohibitions contained in the tenth section, first article of the Constitution, as a contract between two individuals, and it is not denied that a charter incorporating a bank is a contract.
The power of taxing moneyed corporations has been frequently exercised, and has never before, so far as is known, been resisted. Its novelty, however, furnishes no conclusive argument against it.
That the taxing power is of vital importance, that it is essential to the existence of government, are truths which it cannot be necessary to reaffirm. They are acknowledged and asserted by all. It would seem that the relinquishment of such a power is never to be assumed. We will not say that a state may not relinquish it; that a consideration sufficiently valuable to induce a partial release of it may not exist; but as the whole community is interested in retaining it undiminished, that community has a right to insist that its abandonment ought not to be presumed in a case in which the deliberate purpose of the state to abandon it does not appear.
The great object of an incorporation is to bestow the character and properties of individuality on a collected and changing body of men. Any privileges which may exempt it from the burdens common to individuals do not flow necessarily from the charter, but must be expressed in it or they do not exist.
The power of legislation, and consequently of taxation, operates on all the persons and property belonging to the body politic. This is an original principle which has its foundation in society itself. It is granted by all for the benefit of all. It resides in government as a part of itself, and need not be reserved where property of any description or the right to use it in any manner is granted to individuals or corporate bodies.
However absolute the right of an individual may be, it is still in the nature of that right that it must bear a portion of the public burdens, and that portion must be determined by the legislature. This vital power may be abused, but the Constitution of the United States was not intended to furnish the correction of every abuse chanrobles.com-red
of power which may be committed to the state governments. The intrinsic wisdom and justice of the representative body and its relations with its constituents furnish the only security where there is no express contract against unjust and excessive taxation, as well as against unwise legislation generally.
This was a writ of error to the Supreme Judicial Court of the State of Rhode Island, and the question which was presented for the consideration of the court was the constitutionality of an act passed by the Legislature of the State of Rhode Island in January, 1822, entitled "An act imposing a duty upon licensed persons and others, and bodies corporate within this state," alleged to be a violation of the contract contained in the charter of the bank. Under the provisions of this act and in conformity with them, a tax was imposed on the Providence Bank, and the bank having refused payment thereof, a seizure was made for the amount of the tax in the banking house by Alpheus Billings, the Sheriff of the County of Providence, and by Mr. Pittman, the General Treasurer of the State of Rhode Island. The bank instituted an action of trespass for this taking against the sheriff and the treasurer in the Court of Common Pleas of the County of Providence, to which action the defendants pleaded in their defense the act imposing the tax and the amendments thereto, and that in pursuance of the provisions of the same a warrant was issued and the proceedings which were the subject of the action were done.
To this plea the bank filed a general and a special demurrer. Among the causes of demurrer, the repugnancy of the acts of the general assembly imposing the tax to the Constitution of the United States inasmuch as they violate the contract set forth in the declaration, the act incorporating the bank, and inasmuch as they authorize private property to be taken for public purpose without providing any compensation are distinctly stated.
A judgment against them was submitted to by the bank in the court of common pleas, and they appealed to the Supreme Judicial Court, where the judgment of the inferior court was confirmed by submission on the part of the bank, chanrobles.com-red
and it prosecuted this writ of error under the twenty-fifth section of the Judiciary Act of 1789.
The Providence Bank was chartered by the Legislature of Rhode Island in October, 1791. The preamble of the act states,
"Whereas the president and directors of a bank established at Providence on 3 October last have petitioned this general assembly for an act to incorporate the stockholders in said bank, and whereas well regulated banks have proved very beneficial in several of the United States as well as in Europe, therefore be it enacted by the general assembly, and by the authority thereof it is hereby enacted that the stockholders in said bank, their successors and assigns, shall be, and are hereby created, and made a corporation and body politic by the name and style of the president, directors and company of the Providence Bank, and by that name shall be, and are hereby made able and capable in law to have, purchase, receive, possess, enjoy, and retain to them and their successors, rents, tenements, hereditaments, goods, chattels and effects of what kind or nature soever, and the same to sell, grant, devise, alien or dispose of, to sue and be sued, plead and be impleaded, answer and be answered, defend and be defended, in courts of record or any other place whatsoever, and also to make, have, and use a common seal, and the same to break, alter, and renew at their pleasure, and also to ordain, establish, and put in execution such bylaws, ordinances, and regulations as shall seem necessary and convenient for the government of the said corporation, not being contrary to law or the constitution of said bank, and generally to do and execute all and singular acts, matters, and things which to them it shall or may appertain to do."
"And whereas, the stockholders, on the said 3d day of October, formed and adopted a constitution for said bank, in the words following, viz.,"
" Taught by the experience of Europe and America that well regulated banks are highly useful to society by promoting punctuality in the performance of contracts, increasing the medium of trade, facilitating the payment of taxes,
preventing the exportation of specie, furnishing for it a safe deposit, and by discounts rendering easy and expeditious the anticipations of funds on lawful interest, advancing at the same time the interest of the proprietors, we, the subscribers, desirous of promoting such an institution, do hereby engage to take the number of shares set against our names respectively, in a bank to be established in Providence, in the State of Rhode Island, on the following plan, &c."
The plan of the association is set forth in the act, and is made a part of the charter. It provides for the opening of subscriptions for the stock of the bank, to consist of six hundred and twenty-five shares, of $400 each, making a capital of $250,000, and for the organization of the bank. The act gives to the corporation the usual powers necessary to carry into effect the objects of its formation, and makes provisions for the transaction of the business of the company. Amendments to this act were afterwards passed by the legislature. chanrobles.com-red
MR. CHIEF JUSTICE MARSHALL delivered the opinion of the Court.
This is a writ of error to a judgment rendered in the highest court for the State of Rhode Island in an action of trespass brought by the plaintiff in error against the defendant.
In November, 1791 the Legislature of Rhode Island granted a charter of incorporation to certain individuals who had associated themselves together for the purpose of forming a banking company. They are incorporated by the name of the "President, Directors, and Company of the Providence Bank," and have the ordinary powers which are supposed to be necessary for the usual objects of such associations.
In 1822, the Legislature of Rhode Island passed "an act imposing a duty on licensed persons and others and bodies corporate within the state," in which, among other things, it is enacted
"That there shall be paid for the use of the state by each and every bank within the state except the Bank of the United States the sum of fifty cents on each and every thousand dollars of the capital stock actually paid in."
This tax was afterwards augmented to one dollar and twenty-five cents.
The Providence Bank, having determined to resist the payment of this tax, brought an action of trespass against the officers by whom a warrant of distress was issued against and served upon the property of the bank in pursuance of the law. The defendants justify the taking set out in the declaration under the act of assembly imposing the tax, to which plea the plaintiffs demur, and assign for cause of demurrer that the act is repugnant to the Constitution of the United States, inasmuch as it impairs the obligation of the contract created by their charter of incorporation. chanrobles.com-red
Judgment was given by the court of common pleas in favor of the defendants, which judgment was, on appeal, confirmed by the supreme judicial court of the state; that judgment has been brought before this Court by a writ of error.
It has been settled that a contract entered into between a state and an individual is as fully protected by the tenth section of the first article of the Constitution as a contract between two individuals, and it is not denied that a charter incorporation a bank is a contract. Is this contract impaired by taxing the banks of the state?
This question is to be answered by the charter itself.
It contains no stipulation promising exemption from taxation. The state, then, has made no express contract which has been impaired by the act of which the plaintiffs complain. No words have been found in the charter which in themselves would justify the opinion that the power of taxation was in the view of either of the parties and that an exemption of it was intended, though not expressed. The plaintiffs find great difficulty in showing that the charter contains a promise, either express or implied, not to tax the bank. The elaborate and ingenious argument which has been urged amounts in substance to this. The charter authorizes the bank to employ its capital in banking transactions, for the benefit of the stockholders. It binds the state to permit these transactions for this object. Any law arresting directly the operations of the bank would violate this obligation and would come within the prohibition of the Constitution. But as that cannot be done circuitously which may not be done directly, the charter restrains the state from passing any act which may indirectly destroy the profits of the bank. A power to tax the bank may unquestionably be carried to such an excess as to take all its profits, and still more than its profits for the use of the state, and consequently destroy the institution. Now whatever may be the rule of expediency, the constitutionality of a measure depends not on the degree of its exercise, but on its principle. A power, therefore, which may in effect destroy the charter is inconsistent with it, and is impliedly renounced by granting it. Such a power cannot be exercised without chanrobles.com-red
impairing the obligation of the contract. When pushed to its extreme point or exercised in moderation, it is the same power, and is hostile to the rights granted by the charter. This is substantially the argument for the bank. The plaintiffs cite and rely on several sentiments expressed on various occasions by this Court in support of these positions.
The claim of the Providence Bank is certainly of the first impression. The power of taxing moneyed corporations has been frequently exercised, and has never before, so far as is known, been resisted. Its novelty, however, furnishes no conclusive argument against it.
That the taxing power is of vital importance, that it is essential to the existence of government, are truths which it cannot be necessary to reaffirm. They are acknowledged and asserted by all. It would seem that the relinquishment of such a power is never to be assumed. We will not say that a state may not relinquish it; that a consideration sufficiently valuable to induce a partial release of it may not exist; but as the whole community is interested in retaining it undiminished; that community has a right to insist that its abandonment ought not to be presumed in a case in which the deliberate purpose of the state to abandon it does not appear.
The plaintiffs would give to this charter the same construction as if it contained a clause exempting the bank from taxation on its stock in trade. But can it be supposed that such a clause would not enlarge its privileges? They contend that it must be implied because the power to tax may be so wielded as to defeat the purpose for which the charter was granted. And may not this be said with equal truth of other legislative powers? Does it not also apply with equal force to every incorporated company? A company may be incorporated for the purpose of trading in goods as well as trading in money. If the policy of the state should lead to the imposition of a tax on unincorporated companies, could those which might be incorporated claim an exemption in virtue of a charter which does not indicate such an intention? The time may come when a duty may be imposed on chanrobles.com-red
manufactures. Would an incorporated company be exempted from this duty as the mere consequence of its charter?
The great object of an incorporation is to bestow the character and properties of individuality on a collective and changing body of men. This capacity is always given to such a body. Any privileges which may exempt it from the burdens common to individuals do not flow necessarily from the charter, but must be expressed in it, or they do not exist.
If the power of taxation is inconsistent with the charter because it may be so exercised as to destroy the object of which the charter is given, it is equally inconsistent with every other charter, because it is equally capable of working the destruction of the objects for which every other charter is given. If the grant of a power to trade in money to a given amount implies an exemption of the stock in trade from taxation because the tax may absorb all the profits, then the grant of any other thing implies the same exemption, for that thing may be taxed to an extent which will render it totally unprofitable to the grantee. Land, for example, has in many, perhaps in all, the states been granted by government since the adoption of the Constitution. This grant is a contract, the object of which is that the profits issuing from is shall enure to the benefit of the grantee. Yet the power of taxation may be carried so far as to absorb these profits. Does this impair the obligation of the contract? The idea is rejected by all, and the proposition appears so extravagant that it is difficult to admit any resemblance in the cases. And yet if the proposition for which the plaintiffs contend be true, it carries us to this point. That proposition is that a power which is in itself capable of being exerted to the total destruction of the grant is inconsistent with the grant, and is therefore impliedly relinquished by the grantor though the language of the instrument contains no allusion to the subject. If this be an abstract truth, it may be supposed universal. But it is not universal, and therefore its truth cannot be admitted in these broad terms in any case. We must look for the exemption in the language of the instrument, and if we do chanrobles.com-red
not find it there, it would be going very far to insert it by construction.
The power of legislation, and consequently of taxation, operates on all the persons and property belonging to the body politic. This is an original principle which has its foundation in society itself. It is granted by all for the benefit of all. It resides in government as a part of itself, and need not be reserved when property of any description or the right to use it in any manner is granted to individuals or corporate bodies. However absolute the right of an individual may be, it is still in the nature of that right that it must bear a portion of the public burdens and that portion must be determined by the legislature. This vital power may be abused, but the Constitution of the United States was not intended to furnish the corrective for every abuse of power which may be committed by the state governments. The interest, wisdom, and justice of the representative body and its relations with its constituents furnish the only security, where there is no express contract, against unjust and excessive taxation as well as against unwise legislation generally. This principle was laid down in the case of McCullough v. Maryland and in Osborn v. Bank of the United States. Both those cases, we think, proceeded on the admission that an incorporated bank, unless its charter shall express the exemption, is no more exempted from taxation than an unincorporated company would be, carrying on the same business.
The case of Fletcher v. Peck has been cited, but in that case the Legislature of Georgia passed an act to annul its grant. The case of New Jersey v. Wilson has been also mentioned, but in that case the stipulation exempting the land from taxation was made in express words.
The reasoning of the Court in the case of McCullough v. Maryland has been applied to this case, but the Court itself appears to have provided against this application. Its opinion in that case, as well as in Osborn v. Bank of the United States, was founded expressly on the supremacy of the laws of Congress and the necessary consequence of that supremacy to exempt its instruments chanrobles.com-red
employed in the execution of its powers from the operation of any interfering power whatever. In reasoning on the argument that the power of taxation was not confined to the people and property of a state, but might be exercised on every object brought within its jurisdiction, this Court admitted the truth of the proposition, and added that the power was an incident of sovereignty, and was coextensive with that to which it was an incident. All powers, the Court said, over which the sovereign power of a state extends are subjects of taxation. The sovereignty of a state extends to everything which exists by its own authority or is introduced by its permission, but does it extend to those means which are employed by Congress to carry into execution powers conferred on that body by the people of the United States? We think not.
So in the case of Osborn v. Bank of the United States, the Court said "the argument" in favor of the right of the state to tax the bank,
"supposes the corporation to have been originated for the management of an individual concern, to be founded upon contract between individuals, having private trade and private profit for its great end and principal object."
"If these premises were true, the conclusion drawn from them would be inevitable. This mere private corporation, engaged in its own business, would certainly be subject to the taxing power of the state as any individual would be."
The Court was certainly not discussing the question whether a tax imposed by a state on a bank chartered by itself impaired the obligation of its contract, and these opinions are not conclusive as they would be had they been delivered in such a case; but they show that the question was not considered as doubtful, and that inferences drawn from general expressions pointed to a different subject cannot be correctly drawn.
We have reflected seriously on this case, and are of opinion that the act of the Legislature of Rhode Island passed in 1822, imposing a duty on licensed persons and others and bodies corporate within the state, does not impair the obligation of the contract created by the charter granted to the chanrobles.com-red
plaintiffs in error. It is therefore the opinion of this Court that there is no error in the judgment of the Supreme Judicial Court for the State of Rhode Island affirming the judgment of the circuit court in this case, and the same is
Affirmed, and the cause is remanded to the said Supreme Judicial Court that its judgment may be finally entered.
This cause came on to the heard on the transcript of the record from the Supreme Judicial Court of the State of Rhode Island and Providence Plantations and was argued by counsel, on consideration whereof it is ordered and adjudged by this Court that the judgment of the said Supreme Judicial Court in this cause be and the same is hereby affirmed with costs.