MEROANTILE NAT. 'BANK OF CLEVELAND v. SHIELDS, County " Treasurer.
(Oh'cult Court, N. D. Ohlo,E. D.
NATIONAL BANKS-TAXATION BY STATES-"MoNEYED CAPITAL. It
Rev. St U. S. § 5219, provides that taxation by a state of the shares of a national bank situated therein "shall not be at a greater rate than Is assessed upon other moneyed capital in the hands of the individual citizens of such state." Held, that the term "moneyed capital" means moneY employed :In a business whose object is to make profit by investing such money :In securities by way of loan, discount, or otherwise, Which from time to time, in the course· of business, are reduced again to money; and reinvested. by c:!tizens of the state tU.be made from credits held by them for purposes of taxation, but the state courts hold that such deduction is not allowable from shares in a national bank. Held, that this is a discrimination in favor pf "other moneyed. capital" of. the state,;md against national w:lthIn the. prohibition of Rev. St. U. s. § 5219; and it is not less SO trom the fact that the deduction is also denied in the case of shares ofridlroads, insurance companies, and· manUfacturing corporations, for theY are not "moneyed capital."
OF NONBEflIDENT. SBARElJOt,DERB.
2. SAMEl-DISORIMINATION. ... . . R.ev. St. Ohio, § 2730, allows a deduction of legal bona fide debts owing
T.!;o4er Rev. St. U. S. § 5219, providing "that the shares of any national bankiilg association owned by nonresidents. of any state may be taxed where the bank:ls lcicated," a nonresident shareholder, being compelled to pay 'the tax at such place, is entltledto all deductions from the value of his shares, on account of debts, that ar.e allowed to resident shareholders.
InEquity. On demurrer. Bill by the Mercantile National Bank of· Cleveland against Joseph C. Shields, treasurer of Cuyahoga county. Demurrer overruled.
The cOIllplainant IDes its. bill' on behalf· of :Its shareholders, asking for a permanent injunction against the defendant, restraining him from collecting taxes levied upon the shares of stock owned by certain persons named in the bill, which. taxes complainant avers are illegal and void because imposed in direct violation of section 5219 of the Revised Statutes of the United States, which provides that taxes imposed upon shares of national banks "shall not be at a greater rate than is assessed upon other moneyed capital in the hands of individual citizens of such states." The complainant furtJier avers that a large amount of the moneyed capital. in the hands of individual citizens of the state, and of the county of Cuyahog,a and city of Cleveland, invested in promissory notes and other obligations and securities, is, by prOVision of section 2730· of the Revised Statutes of Ohio, (allowing a deduction of legal bona fide debts to be made from "credits,") expressly exempted from taxation, thereby ml\k.ing an unlawfIll discrimination against moneyed capital invested in. national bank shares, as to' which no exemption or deduction is provided tor by the laws of Ohio, which discrimination is in violation of the provision of the laws of the United States' above quoted. The bill further alleges thll.tsome 2,489 shares ofcompla:lnant's! stock, owned by the several shareholdets named In the bill, w;ere valued by the state board of equalization of Ohio for taxation for the year 1892 at $149,340,. and were certified by said board to the auditor of Cuyahoga county as the taxable value thereof, which value, multiplied by the rate of two and seventy-five hundredths cents on the dollar, fixed for said year as the rate of taxation upon all property situated in said county upon a dollar's valuation, amounted, on said shares, to $4,106.84. The bill further avers that between the first and second Mondays in May of 1892, when the cashier of said bank made return to the auditor of said
KERCANTILE NAT. BANK .,. SHIELDS.
county of the names and residences of the shareholders of said bank, with the numbl'rlI and nar value of the shares of the capital stock of said bank, each of said shareholders was indebted and owing to others, of legal, bona fidp. debts, a sum In excess of the "credits" from which, under the laws of Ohio, be was entitled to deduct said debts, to an amount equal to the par value of said shares, which said excess of said debts over credits, as aforesaid, the said shareholders were entitled to have deducted from the assessed value of said shares so severally owned by them. The complainant further avers that the said auditor did deduct and abate said indebtedness of said shareholders from the assessed value of their shares, thereby exempting the same trom taxation, and dellvered the duplicate, with said deduction, to the defendant as treasurer of said county, and said complainant paid to said treasurer, on December 20, 1892, the half-year taxes so due. The complainant further avers that the auditor of said county, on June 10, 18\)3, disregarding the deductions allowed as aforesaid, did, without authority of law, add to said duplicate the allowances so aforesaid made, and did assess against the same the rate and percentage of taxation for said city, county, and state for 1892, and now threatens to collect by distraint the said tax on said shares, with said deductions disallowed. Complainant further avers that, in case said taxes are not paid, the defendant threatens to give notice of a tax lien upon said shares to the cashier of said bank, so that, under section 2839 of the Revised Statutes of Ohio, such stock cannot be transferred, and no dividend can be paid thE'reon. Complainant further avers that, if said stock Is permitted to be sold under said provision of law, great and irreparable injury will be done to the business of said bank. It is further alleged that since the tax as levied on said shares on December 20, 18\)2, was paid, a part of said shares have been sold and delivered. It is further averred that in a prior suit pending in this court between Whitbeck, as treasurer, and complainant, the precise issues now made were heard and adjudicated, and a decl'et: entered, perpetually enjoining the defendant from collecting the tax then assessed, in which decree the right of shareholders to deduct from the value of their shares their bona fide debts was recognized and enforced. Said decree is still in full force; and complainant alleges that said issue so determined was between the same parties, and' involved the same subjectmatter and legislation. The complainant tenders the amount it claimed to be due, and asks an injunction to restraIn the collection of the further amount put on the duplicate as aforesaid, and for the reasons stated. To this bill the defendant interpOlle3 a general demurrer.
Boynton & Horr, for complainant. S. K. Dissette, for defendant. RICKS, District Judge, (after stating the facts.' The 'defendant relies upon a recent decision of the supreme court of Ohio, of Niles v. Shaw, 50 Ohio St. --, 34 N. E. 162, as justifying the county authorities in refusing to allow shareholders of national banks in the city of Cleveland to deduct from the value of their shares as fixed for taxation their bona fide indebtedness. The syllabus of the Obio decision reads as follows:
"Our tax laws do not authorize the deduction, trom the value of shares In a national bank entered upon the duplicate for taxation, of legal, bona tide debts owing by the holders of such shares of stock."
It is contended that this construction of an Ohio statute relat· ing to the levying and collecting of state taxes by the highest judicial tribunal of the state is controlling upon the federal courts. This proposition would unquestionably be true if the only question for consideration was the application or enforcement of such stl1-te statute. If nothing more were here involved, we would feel controlled by the construction of the Ohio statute as given by ita
;highest court. And such construction'is not questioned. Indeed, the supreme court of the United states, in the caaeof Whitbeckv. 121 U. S. 193, $ Sup. Qt. 1124, in affirming the decree of 1;qia, court in a similar suit, seeking the same' relief now prayed for, approved the:flnding of this court that:
of obto make no provIsIon tor the deductIon of bona fide inof any shareholdjll' upon the shares of hIs stock, and provIde no by ,which said deduction can be liIecured."
Itis ,for the veryreM(;>n that the laws of Ohio' fail to provide for such,right to the shareholders of national that the jurisdictionof this court attaches, and enables it to give the relief for the complainant· prays. The laws of Ohio, as construed by itsJ;dghestcQutts, faJl to give to shareholders of national banks the·i'lglltto ded,uct from the value of their shares of stock their bonafide debts. That right is given:to individual citizens in the statEFwl10 have moneyOO. capital otherwise invested. These laws therefore discriminate against the holders of sucllbank stock, and conlliQt with the lawa of congress. The contep-tion that there is such a contlict, and that the laws of the United States on this subjectareparamount and Inust prevail, presents the federal question conferring jurisdiction upon the court in this case, which is a COntroversybetween citizens of the same state, not otherwise cognizable 'in .this court. Section 5219 of the Revised Statutes of the provides as follows :
"Notllingherein shall prevent all the shares of anyassociatioJ;l from being included. ,w. the valuation at personal property of the owner or holder of such shareS in assessing ou;es imposed by authority of the state in which the is located; but the legislature of each state may determine and direct tllemanner and place of taxing all the shares of natIonal banking as· sociations,.located within tl1e state, subject only to the' two restrictions, that the taxation shall not be at a greater rate. than is assessed upon other mono eyed capital In the hands of the indivIdual citizens of such state, and that the shares of any national banking associatIon owned by nonresidents of any state shall be taxed in the city or town where the bank Is located, and not elsewhere. NothIng hereIn shall be construed to exempt the real property of associaUQJ1ll from eIther state,countY,or. mv,nlcipal taxes to the same extent accordIng to its value as other real property is taxed."
Thattbe foregoing provision was necessary to authorize the states to impose any tax whatever on p-ational bank shares is abun· dantlyestablished by the cases of McCulloch v. State, 4 Wheat. 316; Osborn v. Bank,9 Wheat; 758; People v. Weaver, 100 U. S. 539. In the latter case, Mr. Justice Miller, in delivering the opinion of the court, said:
"As congress was conferring 'a power on the states which they would not otherwise have had to tax these shares, it undertook to impose a restriction of that power, manIfestly designed to prevent taxation which on the should disc1iminate ,against this class of property as compared with other moneyed capital. In permitting the states to tax these shares it was fore· cases we have cIted from our former decisions showed too clearlythat the state authorities mIght be disposed to tax capital invested in these banks ,oppressively. Tllis mIght have been prevented by fiXing a precise limit 1n amount, but congress, with due regard to the dignity of the states, a,nd "wIth a desIre to interfere only so far as was necessary to protect the banks from anythIng beyond 1;Jleir equal share of public burdens, saId: 'You
MERCANTILE NAT. BANK V. SHIELDS.
may tax the real estate of banks as other real estate is taxed, and you may tax the shares of the bank, as the personal property of the owner, to the same extent you tax other moneyed capital invested in your state.' It was conceived that, by this qualification of the power of taxation, equality would be secured and injustice prevented."
It is therefore clear that congress intended that the holders of shares in national banks should not be discriminated against by state tax laws. Do the tax laws of Ohio, as construed and enforced, result in such discrimination? They certainly do if the citizens of that state are allowed to deduct, from "other moneyed capital" in their hands, their bona fide debts, and pay tax only on the balance so aseertained. It is earnestly contended by counsel for the defendant that "moneyed capital" in Ohio is not so favored. It is insisted that shares in railroads, in manufacturing corporations, and in insurance companies are moneyed capital, and that the holders thereof are not allowed to deduct, from the money value of such stock, their bona fide debts. It is important, therefore, to deteImine what is "moneyed capital," within the meaning of the United States statute, for it must be conceded that it is the construction of a federal statute by the federal courts which must control in this contention. Happily, we :J.eed not be confused as to the meaning of these terms in the statute. Mr. Justice Matthews, in his usual luminous and forceful statement of the law in the case of Mercantile Bank v. City of New York, 121 U. S. 138, 7 Sup. Ct. 826, says that though a railroad company, a mining company, an insurance company, or any other corporation of that description, may have a large part of its capital invested in securities payable in money, and so may be the owners of moneyed capital, yet the shares of stock in such companies held by individuals are not moneyed capital, because the operations in which such money so invested in such companies is employed is not the business of loaning money for hire, or of discounting bills of exchange, or receiving deposits payable on demand, etc. It is where money is used in such a manner that it becomes moneyed capital, within the meaning of the laws of the United States, for it then becomes capital invested in a business competing with national banks, and it is the duty and policy of congress to protect the business and capital of the latter against unjust discrimination. A share in a bank would, therefore, be moneyed capital, while a share in a railroad or a mining or manufacturing company would not. Therefore, the learned justice said:
"The terms of the act of congress, therefore, include shares of stock, or other interests owned by individuals, in all enterprises in which the capital employed in carrying on its business is money, where the object of the business is the making of profit by its uses. The moneyed capital thus employed is invested for that purpose in securities by way of loan, discount, or otherwise, which are from time to time, according to the rules of business, reduced again to money and reinvested. It includes money in the hands of individuals in a similar way, invested in loans or in securities for the payment of money, either as an investment of a permanent character, or temporarily, with a view to sale, or repayment and reinvestment. In this way the moneyed capital in the hands of individuals is distinguished trom what is known as 'personal property.' "
With the al)ove definition of what Is meant by "moneyeo capital," It is evident that, under the tax laws of Ohio, that kind of money and capital has exemptions and prlvUeges over and above moneyed capital invested in national bank shares. Money and capital em· ployed in the manner stated in the case above cited, in the hands of individual citizens, of Ohio,is not fully taxed when the owner is' allowed to deduct therefrom his bona fide debts. Such deductions are made and allowed by the laws of Ohio. It was so found by the lJUpreme court of the United States in the case of Whitbeck v. Bank,heretoforecited. In that case the court said: "An owner of moneyed capital other than shares in a national bank has a deduction equal to his bona fide indebtedness made from the amount of the assessment of the value of such moneyed capital." Taxation uponlfuch abasia is therefore a discrimination against owners of shares of national banks· in that state, which is prohibited by the laws 'of the United States. It follows, for these reasons, that the· complainant is entitled to the relief prayed for as to all the shareholders set forth in its bill Ha'V'ing' reached this conclusion, it becomes .unnecessary to consider the several averments of the bill which claim relief upon the ground that the same issue has been heretofore adjudicated between these same parties, and that the action of the county. auditor in subsequently adding to the tax duplicate the deductions and setoffs theretofore allowed the shareholders of the bank was illegal and inequitable. The further question presented' is whether nonresident stockholders of national bank shares are entitled to the same deduction of bona fide debts allowed resident shareholders. The act of congress granting to the several states the right and power to tax. national bank shares provides that the tax shall be assessed at thep:Lace where the bank is located. This compels nonresident shareholders to pay on their shares the tax imposed in the state, county, and city where the bank is located. He cannot choose the place of his residence as fixing the rate of his tax upon his bank shares. He must pay the rate fixed at the place where the bank is located. He ought, therefore, to be allowed to pay that tax upon the same conditions, and subject to the same deductions, allowed to resident shareholders. This is simple justice. Acticle 14 of the constitution of the United States extends equality of protection to all its citizens by the provision that the states shall "not deny to any person the equal protection of the laws." Section 2, art. 4, further provides that "the citizens of each state shall be entitled to all the privileges and immunities of citizens of the severaJ states." In Ward v. Maryland, 12 Wall. 418, the supreme court of the United States, in defining the "privileges" and "immunities" secured by the abov.e provision of the constitution, says:
"It will be safe to say that the clause plainly and unmistakably secures and pl'otects the right of any citizen of one state · · · to ·be exempt from any higher rate of taxation or excises than are imposed by the state upon its own citizens."
It seems plain, therefore, from. these constitutional provisions, and the interpretation put upon them by the supreme court of the
FARMERS'LOAN &: TRUST CO. V. WINONA &: S. W. RY. CO.
United States, that nonresident shareholders of national banks are entitled to the same exemptions and deductions, as against the value of their shares of stock, in ascertaining the taxes due from them, that are granted to resident shareholders, and that, if the latter show a case of discrimination against them by the state which entitles them to relief in this court, nonresident shareholders in the same bank, who have taken the same necessary measures to protect their right of deduction, will be entitled to the same relief. A decree may be prepared accordingly.
FARMERS' LOAN & TRUST CO. v. WINONA & S. W. RY. CO. et aL
(Circuit Court, D. Minnesota, Third Division.
November 20, 1893.)
A railroad mortgage recited that it was given to secure the due and punctual payment of the principal and interest of bonds, both bonds and interest coupons being payable unconditionally at maturity. Article 1 tirovided that, until default should be made in the payment of interest for six months after written demand of payment by the trustee, the mort· gagor should remain in possession and control of the property, but that after such default the trustee might take possession. Article 2 provided that after such default the trustee, after entry or withou'<i entry, might sell the mortgaged property, and that this provision "is cumulative to the ordinary remedy by foreclosure in the courts." Held, that the first article was a limitation only on the trustee's right to take possession, and not on his general right to file a bill for foreclosure; and hence such bill would lie immediately upon default in payment of interest, without the necessity of giving notice, and waiting six months. In a suit for the foreclosure of a railroad mortgage and the appointment of a receiver, the allegations of bill and answer were in conflict as to the solvency of the railroad company, the condition and care of its property, and the wisdom and economy of its methods of operation, but it appeared that a majority of its stock was in the hands of a construction company, which had substantially the same officers, and whose interests were adverse to those of the mortgage bondholders, and that the company was unable or unwilling to pay the interest upon its bonds. 'Held, that a receiver should be appointed.
In Equity. Bill filed by the Farmers' Loan & Trust Company against the Winona & Southwestern Railway Company and the Winona & Southwestern Improvement Company. Lawrence, Truesdale & Corriston, for complainant. C. W. Bunn, for defendants. CALDWELL, Circuit Judge. On the 2d day of April, 1888. the Winona & Southwestern Railway Company executed a mortgage on its railroad and property, thereafter to be constructed and acquired, to the plaintiff, as trustee, to secure an issue of first mortgage bonds to the amount of $18,500 per mile for each mile of the railway completed. The mortgage contemplated the construction of the road from Winona to a point of connection with the Union Pacific Railway Company at Council Bluffs, Iowa, and the ultimate issue of bonds to the amount of $6,950,000. The