Court Opinion

ID: 5470050
Source: CourtListenerOpinion
Date Created: 2022-01-09 20:32:41.285406+00
Date Added: 2024-06-11T08:33:16.349003
License: Public Domain

Dissenting opinion by

Mr. Justice Nelson.

Concurred in by

Mr. Justice Davis.
I am unable to concur in the opinion of a majority of the court in this case. The Veazie Bank was incorporated by the legislature of the state of Maine in 1848, with a capital of $200,000, and was invested with the customary powers of a banking institution, and among others the power of receiving deposits, discounting paper and issuing notes or bills for circulation. The constitutional authority of the state to. create these institutions *161and to invest them with full banking powers is hardly denied; but it may be useful to recur for a few moments to the source of this authority. The tenth amendment to the constitution is as follows:—
“ The powers not delegated to the United States by the constitution, nor prohibited by it to the states are reserved to the states respectively, or to the people.”
On looking into the constitution it will be found that there is no clause or provision which, either expressly or by reasonable implication, delegates this power to the federal government which originally belonged to the states, nor any which prohibited it to them. In the discussions on the subject of the creation of the first bank of the United States in the first congress and in the cabinet of Washington in 1790 and 1791, no question was made as to the constitutionality of the state banks. The only doubt that existed and which divided the opinion of the most eminent statesmen of the day, many of whom had just largely participated in the formation of the constitution of the government which they were then engaged in organizing was, whether or not congress possessed a concurrent power to incorporate a banking institution of the United States. Mr. Hamilton in his celebrated report on a national bank to the house of representatives, discussed at some length the question whether or not it would be expedient to substitute the Bank of North America, located in Philadelphia, and which had accepted a charter from the legislature of Pennsylvania, in the place of organizing a new bank. And, although he finally came to the conclusion to organize a new one, there is not a suggestion or intimation as to the illegality or unconstitutionality of this state bank. The act incorporating this bank, passed February 25, 1791, prohibited the establishment of any other by congress during its charter, but said nothing as to the state banks. A like prohibition is contained in the act incorporating the Bank of the United States of 1816. The constitutionality of a bank incor*162porated by congress was first settled by the judgment of this court, in McCulloch agt. The State of Maryland, in 1819. (4 Wheaton, p. 316.) In that case both the counsel and the court recognize the legality and constitutionality of banks incorporated by the states. The constitutionality of the Bank of the United States was again discussed, and decided in the case of Osborn agt. United States Bank—(9 Wheaton, p. 738)—and in connection with this was argued and decided a point in the case of the United States Bank agt. The Planters’ Bank of Georgia, which was common to both cases. The question was whether the circuit courts of the United States had jurisdiction of a suit brought by the United States Bank against The Planters’ Bank of Georgia, incorporated by that state, and in which the state was a stockholder í (Wheat, pp. 804, 904.) The court held in both cases that it had.
Since the adoption of the constitution down to the present act of congress, and the case now before us, the question in congress and in the courts has been not whether the state banks were constitutional institutions, but whether congress had the power conferred on it to establish a national bank. As we have said that question was closed by the judgment of this court in McCulloch agt. The State of Maryland. At the time of the adoption of the constitution there were four state banks in existence and in operation, one in each of .the states of Pennsylvania, New York, Massachusetts, and Maryland. The one in Philadelphia had been originally chartered by the confederation, but subsequently took a charter under the state of Pennsylvania. The framers of the constitution were therefore familiar with these state banks, and the circulation of their paper as money, and were also familiar with the practice of the states, which was so common, to issue bills of credit, which were bills issued by the state exclusively on its own credit aud intended to circulate as currency, redeemable at a future day. They guarded the people against the evil of this practice of the *163state governments by the provision in the tenth section of the first article: “ that no state shall emit bills of credit;” and in the same section guarded against any abuse of paper money of the state banks in the following words: “ Nor make anything but gold and silver coin a tender in payment of debts.” As bills of credit were thus entirely abolished, the paper money of the state banks was the only currency or circulating medium to which this prohibition could have had any application, and was the only currency, except gold and silver, left to the states. The prohibition took from this paper all coercive circulation, and left it to stand alone upon the credit of the bank. It was no longer irredeemable currency, as the banks were under obligation—and including frequently that of its stockholders—to redeem their paper in circulation in gold or silver at the counter. The state banks were left in this condition by the constitution, untouched by any other provision. As a consequence they were gradually established in most or all of the states, and had not been encroached upon or legislated against,or in any other way interfered with by acts of congress for' more than three-quarters of a century—from 1787 to 1864.
But in addition to the above recognition of the state banks, the question of their constitutionality came directly before this court in the case of Briscoe agt. The Bank of the Commonwealth of Kentucky (11 Pet. 257). The case was most elaborately discussed both by the counsel and the court. The court after the fullest consideration held that the states possessed the power to grant charters to state banks; that the power was incident to sovereignty; and that there was no limitation in the federal constitution on its exercise by the states. The court observed that the Bank of North America, of Massachusetts, and some others, were in operation at the time of the adoption of the constitution; and that it could not be supposed the notes of these banks were. intended "to be inhibited by that instrument, or that they were considered as bills of credit within its meaning. All *164the judges concurred in this judgment, except Mr. Justice Story. The decision in this case was affirmed in Woodruff agt. Trapnall (10 How. 205), in Darrington agt. The Bank of Alabama (13 to. 12), and in Curran agt. State of Arkansas (l5 id. 317).
Chancellor Kent observes that Mr. Justice Story in his commentaries on the constitution (vol. 3, pi. 19), seems to be of opinion that independent of the long continued practice from the time of the adoption of the constitution the states would not, upon a sound construction of the constitution, if the question was res integra, be authorized to incorporate banks, with a power to circulate bank paper as currency, inasmuch as they are expressly prohibited from coining money. He cites the opinion of Mr. Webster, of the Senate of the United States, and of Mr. Dexter, formerly Secretary of War, on the same side. But the Chancellor observes, the equal, if not the greater, authority of Mr. Hamilton, the earliest Secretary of the Treasury, may be cited in support of a different opinion, and the contemporary sense and uniform practice of the nation are decisive of the question. He further observes: ‘‘The prohibition of bills of credit does not extend to bills emitted by individuals, singly or collectively, whether associated under a private agreement for banking purposes, as was the case under the Bank of New York prior to its earliest charter, which was in the winter of 1791; or, acting under a charter of incorporation, so long as the state lends not its credit or obligation or coercion to sustain the circulation. In the case of Briscoe agt. The Bank of the Commonwealth of Kentucky, he observes: “ This question was put at rest by the opinion of the court; that there was no limitation in the constitution on the power of the states to incorporate banks, and these notes were not intended nor were considered as bills of credit.” (Kent’s Com., p. 409; marg. note of tenth ed.)
The constitutional power of the states being thus estab *165lished by incontrovertible authority to create state banking institutions, the next question is whether or not the tax in question can be upheld, consistent with the enjoyment of this power. The act of congress of July 13, 1866 (4, Stat. at Large 146, s. 9.), declares that the state banks shall pay ten per cent, on the amount of their notes or the notes of any person or other state banks used for circulation and paid out by them after the 1st of August, 1866. In addition to this tax, there is also a tax of five per cent, per annum upon all dividends to stockholders (13 P. 283, 120), besides a duty of one-twenty-fourth of one per cent, monthly upon all deposits, and the same monthly - duty upon the capital of the bank (id. 277, 110). This makes an aggregate of some sixteen per cent, imposed annually upon these banks. It will be observed that the tax of ten per cent, upon the bills in circulation is not a tax upon the property of the institutions. The bills in circulation are not the property but the debts of the bank, and in their account of debts and credits are placed to the debit side. Certainly no government has yet made the discovery of taxing both sides of this account—debit and credit—as the property of a taxable person or corporation. If both these items could be made available for this purpose a heavy national debt need not create any very great alarm, either as it respects its pressure on the industry of .the country for the time being or of its possible duration. The imposition upon the banks cannot be upheld' as a tax upon property, neither could it have been so intended. It is simply a mode by which the powers or faculties of the states to incorporate banks are subjected to taxation, and which, if maintainable, may annihilate these powers. No person questions the authority of congress to tax the property of the banks and of all other corporate bodies of a state the same as that of individuals. They are. artificial bodies, representing the associated pecuniary means of real persons, which constitute their business capital, and the property *166thus invested is open and subject to' taxation with all the property, real and personal, of the state. ■ A tax upon this property, and which’by the constitution is to be uniform, "affords full scope to the taxing powers of the federal .government, and is consistent with the power of the states to create the banks, and in our judgment, is the only subject of taxation by this government to which these institutions are liable.
As ■ we have seen in the fore part of this opinion, the power to incorporate banks was not surrendered to the federal government, but reserved to the states, and it follows that the constitutioh itself protects thém, or should 'protect them, from any encroachment upon this right. As to the powers thus reserved the states are as supreme as before they entered into, the Union and are entitled to the unrestrained exercise of them.- The question as to the taxation of the powers and faculties belonging to governments is not new in this court. The bonds of the federal government have been held to . be exempt from state taxation. Why ? Because they were issued under the power in the constitution to borrow money, and the tax would be a tax upon the power; and as there can be no limitation to the extent of the tax, the power to borrow might be destroyed; so in the instance of the United States notes, or legal tenders as they are called, issued under a constructive power to issue bills of credit, as no express power is given in the constitution, they are exempt from state taxation for a like reason, as in the case of government bonds. And we learn from the opinion of the court in this case that one step further is taken, and that is, that the notes of the national banks are exempt as bills of credit issued indirectly by the government, and it follows, of course, from this that the banks used as instruments to issue and put in circulation these notes are- also exempt. We are not complaining of this. Our purpose is to show how important it is to the proper protection of the reserved rights of the states that their *167powers and prerogatives should be exempt from federal taxation and how fatal to their existence if permitted.
It is true that the present decision strikes only at the power to create banks; but no person can fail to see that the principle involved affects the power to create any other description of corporations, such as railroads, turnpikes, manufacturing companies and others. This taxation of the powers and faculties of the state governments, which are essential to their sovereignties and to the efficient and independent management and administration of their internal affairs, is, for the first time, advanced as an attribute of federal authority. It finds no support or confidence in the early history of the government, or in the opinions of the illustrious statesmen who founded it. These statesmen scrupulously abstained from any encroachment upon the reserved rights of the states, and within these limits sustained and supported them as sovereign states.
We say nothing as to the purpose of this heavy tax of some sixteen per cent, per annum upon the banks, ten of which we cannot but regard as imposed upon the power of the state to create them, though the purpose is scarcely concealed, in the opinion of the court—namely, to encourage the national banks. It is sufficient to add that the burden of the tax, while it has encouraged these banks, has proved fatal to the existence of those of the states; and if we are at liberty to j udge of the purpose of an act from the consequences that has followed it, it is not, perhaps, going too far to say that these consequences were intended.