Commercial Bank of Cleveland v. Simmons.

under this act, may be had in any circuit, district or territorial court of the United States held within the district in which such association may be established."

To ascertain the privileges and powers conferred upon these banking associations, these sections are to be taken and construed together. It seems to me that these privileges and powers, thus given in this act, are as broad and comprehensive as those given to the United States bank by its charter, and referred to in the case in 9 Wheaton.

It must be borne in mind that, in the Judiciary Act, the right to sue or be sued, mainly depends upon citizenship of the parties; that corporations are only allowed to sue or be sued in the Federal courts under the act, through the legal fiction of citizenship, arising from the presumption that such corporations are citizens of the State under whose laws they are created.

These banking associations, not being created by State laws, have no State citizenship growing out of the presumed residence of the stockholders.

Under the Judiciary Act, then, they have no power to sue in Federal courts, and must, therefore, derive it from the act creating them. Having no right to sue under that act, the limitation on the 11th section, as to suits on indorsed notes and choses in action, does not apply. The right to sue under that section and the limitation thereto go together, the one controlling the other.

If the matter of citizenship in reference to the National banks is dispensed with in favor of such banks, then what reason is there for the application of the limitation as to suits on assigned paper? That limitation is only attached to enforce the privileges of citizenship, and to prevent its abuse in bringing suits in Federal courts; and further, the banks, in purchasing notes, etc., do only what the law authorizes them to do.

I may then well say, as was said in the case in Wheaton: That the bank does not sue in virtue of any rights conferred by the Judiciary Act, but in virtue of the right conferred upon it by the act of 1864, authorizing and creating it, and which constitutes its charter.

The charter of the old United States Bank was but a law, as this general act is a law of the United States.

That the Judiciary Act does not control the right and power of these banks to sue in the Federal courts.

The demurrer to the petition is overruled.

City National Bank v. Paducah.

CITY NATIONAL BANK V. PADUCAH.

(5 Cent. Law Journal, 347.)

Taxation of National bank shares - Injunction to restrain — Parties — Rate of taxation Deductions for debts and real estate.

A National bank is a proper party complainant to a bill in equity, to enjoin the collection of a tax upon its shares, assessed against its stockholders, if it be shown that the bank would be subjected to a multiplicity of suits, whereby its business will be interfered with, its credit impaired and its stock depreciated.

The remedy by injunction to stay the collection of a tax upon personal property may be invoked where the enforcement of the tax would lead to the multiplicity of suits, or where the law authorizing the tax is itself invalid. Where, by the laws of a State, or municipality, different rates of taxation are imposed upon different classes of moneyed capital, such State or munici pality may not tax the shares of National banks at the highest rate imposed upon any class, regardless of the proportion which that class bears to other classes; nor, upon the other hand, is it confined to the lowest rate imposed upon any class.

Where different rates of taxation are prescribed for different classes of "other moneyed capital," the rate imposed upon shares in National banks should not, as a general rule, exceed that imposed upon other moneyed capital of the same class, viz.: shares in State banks.

Where, practically, the entire banking capital of the State of Kentucky was exempted from taxation beyond fifty cents per share, and included in this enumeration, was a State bank in Paducah, the capital stock of which exceeded that of all the National banks located there, it was held that an ordinance imposing a tax of $1.05 nominally upon all banks in the city, but from which the State banks had been adjudged exempt, was an unlawful discrimination against the National banks, and therefore invalid.* Where other moneyed capital than bank stocks was also taxed at $1.05, but with a proviso that from the amount of this capital the entiro indebtedness of the owner should be deducted before the assessment was made, and no such deduction was allowed where such capital consisted of shares in National banks, the tax upon such shares was held invalid.

The tax was also held invalid for the reason that no provision was made for deducting the value of real estate owned by the bank, which was thereby subjected to double taxation.

(Circuit Court, Sixth Circuit, District of Kentucky.)

*See Lionberger v. Rouse, ante, p. 41; Hepburn v. School Directors, ante, p. 113.

City National Bank v. Paducah.

HIS was a bill in equity against the city and a tax collector of Paducah, to enjoin the collection of a tax upon the shares of the complainant's bank. In 1867 the Legislature passed an act to tax the shares of National banks, and provided that the tax should not exceed the rate imposed upon the shares of banks organized under the laws of the State. The amount so assessed upon the State banks under the general laws of the State of Kentucky was fifty cents per share. Under this law complainant has for several years reported to the auditor the number of its shares and paid the tax thereon which was in lieu of all other taxes.

In 1871 the city of Paducah, under an amended charter passed that year, was authorized to levy and collect a tax at the rate of not exceeding two dollars and fifty cents per hundred dollars of property within the city limits made taxable by law for State purposes, and also upon all bank stock located therein incorporated under the laws of the State of Kentucky or of Congress. No steps were taken under this act until April, 1875, when the common council of Paducah passed an ordinance providing for the collection of a tax of one dollar and five cents on a share for the year 1875, and for all subsequent years at a rate levied by the common council for other taxation, which ordinance was made applicable by its terms to banks organized under the State law, as well as National banks. It was, however, by the courts of Kentucky, held invalid as to State panks. This tax was assessed for the year 1875, and the books placed in the hands of the collector, and this bill was filed to enjoin him from proceeding thereunder against the bank.

The other facts of the case, so far as they are material to the questions involved, are stated in the opinion of the court.

Charles S. Marshall and L. D. Husbands, for complainant.

King & Gilbert and Campbell & Greer, for defendants.

BROWN, J. Upon the threshold of this case we are confronted with the objection that, inasmuch as the tax in question is laid upon the individual shareholders, the bill cannot be maintained in the name of the bank; that the suit is one which concerns the stockholders only, and that they are the only proper parties complainant. Though this question has been raised before the Supreme

1

City National Bank v. Paducah.

Court several times, it has never been directly passed upon. In Dows v. The City of Chicago, 11 Wall. 108, the bill was filed by a stockholder simply upon the ground of the illegality of the tax. The bank itself filed a cross-bill, also alleging the illegality of the tax assessed, on various grounds; and averring that if the share were permitted to be sold, irreparable injury would only be done the shareholders, but also to the bank, which would be thereby subjected to great loss of standing and other injury, for the redress of which the law afforded no remedy; and that such also would be the result if the bank paid the taxes, and was subject to suits by each of the shareholders by reason of so doing; and that in either event a multiplicity of suits would be rendered necessary to adjust the rights of the parties. A demurrer was interposed to both bills, and both were dismissed; the original bill because it was based solely upon the ground that the tax was illegal, and the cross-bill because it must share the fate of the original. The court intimated, however, that if the cross-bill had been an original, with like averment, it might have been sustained to avoid a multiplicity of suits. The question appears to have been fully argued in Tappan v. The Merchants' National Bank, 19 Wall. 490,* under an allegation in the bill similar to the one under consideration, and to have been ruled by the Circuit Court of Northern Illinois in favor of the jurisdiction. Union National Bank v. Chicago, 3 Biss. 82. In the Supreme Court the case went off on another point, and the court expressly declined to pass upon this question. The only case I have found in which the jurisdiction was denied is that of The First National Bank of Hannibal v. Meredith, 44 Mo. 500, where, notwithstanding the taxes were assessed on the bank, and sought to be collected by seizing and selling all the shares comprising the capital stock, the court declined to interfere on the ground that an injunction to restrain the collection of the tax was not the proper remedy, unless the sale of the property was accompanied by irreparable damage. Incidentally, the court remarked that the plaintiff had no equity, for the reason that its property was not in jeopardy; that the bank, as a cor'poration, would lose nothing if the shares of its stockholders were sold, and that its shareholders, if any one, were entitled to relief. The point, however, does not seem to have been maturely consid ered, and indeed it is doubtful whether the petition in that case, charging as it did not an impending multiplicity of suits, but that

*See ante, p. 100.

City National Bank v. Paducah.

the sale of the shares would greatly damage the bank, by impairing its credit and stability and injuring the owners of the stock, by casting a cloud over the title and destroying its convertibility, made out a case for relief.

The bill under consideration alleges, and the evidence meets, substantially, the averment, that the city is threatening to sue the bank and each of its stockholders, in separate suits, and will, unless restrained, sue out attachment garnishing the bank and attaching the stock of the shareholders, involving the plaintiff in a great many petty suits, breaking down the business of the bank, depreciating its stock, bringing endless confusion on the ownership of the same, injuring the credit of the bank, putting a cloud upon the same, and doing it an irreparable injury. That if the bank pays these taxes, the stockholders will sue it; and, in either event, a multiplicity of suits will result. Upon the whole, I think the bank is so far the trustee of the stockholders, and the custodian of their dividends, that it is entitled to maintain the bill. It might be subjected to great annoyance by stockholders, who denied the legality of the tax, and gave the bank notice that it would pay it at the peril of being sued by them. It is certainly no hardship to permit the whole question to be litigated in a single action.

We assume in this connection that all the stockholders in this bank, each having the same ground for relief, and the same defense being applicable to all, might have united in a single bill without multifariousness. Cooley on Taxation, 545. This being so, we see no objection to the bank maintaining a like bill as trustee for the entire body of stockholders. We should feel inclined to go to the limit of the law in sustaining a practice so convenient, and, so far as we can see, so unobjectionable.

It is also insisted that a remedy by injunction cannot be invoked in this case. While it is freely conceded that a court of equity has no general power to restrain the collection of taxes for any irregularity of assessment or levy, or for overvaluation or unjust discrimination, and that to sustain a bill the case must be brought within some acknowledged head of equity jurisdiction, we think this exigency is met in either of the two following cases: 1. Where the enforcement of the tax would lead to a multiplicity of suits; or

2. Where the law authorizing the tax is itself invalid.

Upon the first ground the interference of a court of equity was