MERCHANTS' NAT BANK OF BALTIMORE v. US , 214 U.S. 33 (1909)

[214 U.S. 33, 34]   Messrs. R. E. Lee Marshall, James H. Hayden, and J. Hanson Thomas for appellant.

[214 U.S. 33, 36]   Assistant Attorney General John Q. Thompson and Mr. Philip M. Ashford for appellee.

[214 U.S. 33, 38]  

Mr. Justice White delivered the opinion of the court:

Organized as a state bank in 1834, the appellant was converted, in June, 1865, into a national banking association. For nearly thirty [sic] years after its organization as a national bank, that is, up to July 1, 1904, the bank was assessed for and paid the duty of one-half of 1 per cent upon the average amount of its notes in circulation, in conformity with 5214, Rev. Stat. (U. S. Comp. Stat. 1901, p. 3500). Availing itself of the right conferred by 5218, Rev. Stat., copied in the margin, the bank made application to be refunded the sum of $4,713.01, on the ground that, in making certain of the half-yearly payments under 5214, there had been a miscalculation, and besides, because of an error of law, some of the half-yearly payments had been exacted when the bank was exempt. We put aside so much of the claim as was based upon mere errors of calculation, as no contention on that subject is here presented.

The alleged error of law or asserted right to exemption rests upon the assumption that, by the operation of 3411, Rev. Stat. (U. S. Comp. Stat. 1901, p. 2248), the bank was not liable to pay the half-yearly duty on its outstanding circulation whenever the amount of its circulation fell below 5 per cent of its capital,-a contingency which, it was insisted, had arisen during certain of the half-yearly periods between January, 1888, and July, 1904. The request to be refunded having been rejected by the Treasurer of the United States, this suit was commenced, and this appeal was taken from a judgment in favor of the United States. 42 Ct. Cl. 6.

In the argument for the bank it is stated that all the errors relied upon are embraced in the following propositions:

Sec. 5218. In all cases where an association has paid or may pay in excess of what may be or has been found due from it, on account of the duty required to be paid to the Treasurer of the United States, the association may state an account therefor, which, on being certified by the Treasurer of the United States, and found correct by the First Comptroller of the Treasurer, shall be refunded in the ordinary manner by warrant on the Treasury. [214 U.S. 33, 39]  

'1. The said court erred in holding and deciding that the claimant, being a national bank, was not exempt from taxation on its notes in circulation during the half-yearly periods when the average amount of its said notes was less than 5 per centum of its chartered capital.

'2. The said court erred in holding and deciding that 3411, Revised Statutes, relates solely to the taxation of the outstanding circulating notes of state banks which had ceased to exist, or had been converted into national banks, and did not limit the claimant's liability to taxation on its own outstanding circulation.'

Without presently determining whether the right to be refunded, even if otherwise well founded, was without merit because of the voluntary nature of the payments or the effect of the statute of limitations, we come to consider the merits of the contention. It depends upon whether 5214, Rev. Stat., is limited and controlled by the provisions of 3411, Rev. Stat. The two sections are as follows:

'Sec. 5214. In lieu of all existing taxes, every association shall pay to the Treasurer of the United States, in the months of January and July, a duty of one half of one per centum each half-year upon the average amount of its notes in circulation, and a duty of one quarter of one per centum each half-year upon the average amount of its deposits, and a duty of one quarter of one per centum each half-year on the average amount of its capital stock, beyond the amount invested in United States bonds.'

'Sec. 3411. Whenever the outstanding circulation of any bank, association, corporation, company, or person is reduced to an amount not exceeding five per centum of the chartered or declared capital existing at the time the same was issued, said circulation shall be free from taxation; and whenever any bank which has ceased to issue notes for circulation deposits in the Treasury of the United States, in lawful money, the amount of its outstanding circulation, to be redeemed at par, under such regulations as the Secretary of the Treasury shall [214 U.S. 33, 40]   prescribe, it shall be exempt from any tax upon such circulation.'

It is insisted that the sections, considered as applicable to the same subject, are harmonious, and that giving effect to both, while leaving a national banking association liable to the duty imposed by 5214, will yet entitle it to the exemption provided in 3411 when the contingency stated in that section has come to pass. And as this result, it is argued, is clear and free from all doubt, considering the text of the two sections, recourse may not be had to legislation prior to the Revised Statutes, from which the provisions of the sections were drawn, in order to arrive at their correct meaning. Reference to such prior legislation, it is insisted, cannot be resorted to for the purpose of creating a doubt, but only to solve one otherwise arising from the text, citing Hamilton v. Rathbone, 175 U.S. 418 , 44 L. ed. 220, 20 Sup. Ct. Rep. 155; Bate Refrigerating Co. v. Sulzberger, 157 U.S. 1, 36 , 39 S. L. ed. 601, 611, 15 Sup. Ct. Rep. 508, and cases cited.

Accurately considering the text of the two sections and the context of the respective titles of the Revised Statutes in which they are found, we think the contention that the sections are free from ambiguity and may be harmoniously applied without the necessity of construction is without merit. It is conceded that for the more than thirty-five years since the enactment of the Revised Statutes, in the administration of the national- bank act, national banking associations have been required to and have, without question, paid the half-yearly duty on circulation, wholly irrespective of the exemption provided in 3411,-a condition which clearly suffices, to say the least, to engender doubt as to the correctness of the belated contention now urged. Besides, the sections are in different titles of the Revised Statutes, the one ( 3411) 'Internal Revenue,' the other ( 5214) 'National Banks.' While 5214 and the other sections contained in the title in which it is found leave no doubt that 5214 was intended to deal with the outstanding circulation of national banks, not only the text of 3411, but the other sections of the chapter, under the general [214 U.S. 33, 41]   title 'Internal Revenue,' in which it is found, cause it to be questionable whether that section is at all concerned with the subject of the circulating notes of a national banking association. As suggesting doubt and ambiguity concerning the contention that national banking associations are embraced within the enumeration of banks and bankers made in 3411, whose outstanding circulation would become 'free from taxation' in the specified contingency, it is to be observed that the enumeration conforms generally to that made in other sections of the chapter, which other enumerations clearly relate only to state banks and private bankers. Indeed, this is strengthened by the fact that, in the Revised Statutes, associations organized under the national bank act are distinctively characterized as national banking associations, and that their designation by that call is explicitly made use of in various sections of the chapter in which 3411 appears. In view (a) of the distinct provisions as to the circulating notes of national banks, found in the appropriate title of the Revised Statutes (b) of the general subject to which the chapter in which 3411 is contained relates, and (c) that in that chapter, when it was deemed essential to legislate concerning national banking associations, they were specially designated by that appellation, it would seem to result that it cannot possibly be said that 3411 clearly has relation to the outstanding circulation of national banking associations. Moreover, the assumption that, considering the text of the two sections, and treating them as relating to the same subject, they are each susceptible of being fully enforced, is a mistaken one. The duty upon the outstanding circulation imposed by 5214 is assessed half-yearly, not upon the amount outstanding at any particular time, but upon the average for the six months. Section 3411, however, provides that the outstanding circulation to which it refers 'shall be free from taxation whenever such outstanding circulation is reduced to an amount not exceeding five per centum of the chartered or declared capital existing at the time the same was issued,'-a provision which clearly contemplates a positive and perma- [214 U.S. 33, 42]   nent exemption, to arise from the reduction to the limit specified, and wholly incompatible with the system of average provided in 5214. This results because, by that system of average, even although the sum of the outstanding circulation of a national banking association might, on a particular day or days of a half-yearly period, fall below 5 per centum of its capital, yet the duty to be paid would attach wholly without reference to that condition, and be determined by the average for the six months. Besides, when there is taken into account the plain meaning of the concluding portion of 3411, concerning a deposit with the Treasurer of the United States of money to meet outstanding circulation of the banks embraced within that section, it becomes manifest that the circulation referred to in 3411 cannot be the circulation of a national banking association referred to in 5214, since the method of deposit of money to secure the payment of outstanding circulation provided by 3411 is absolutely in conflict with the methods provided for securing and redeeming outstanding circulation of national banking associations, as expressly provided in the sections of the Revised Statutes concerning national banking associations, which sections are cognate to and inseparably connected with the provisions of 5214. And, beyond all this, it is apparent that, to treat the outstanding circulation referred to in 3411 as embracing the outstanding circulation of national banking associations, contemplated by 5214, would require it to be held that the very purpose intended to be accomplished by the national-bank act was frustrated by the exemption accorded by 3411. It has long been settled that one of the public policies embodied in the national-bank act was to secure the public credit and encourage the issue of notes to circulate as currency, founded upon the security of the bonds of the United States,-a purpose which would be directly discouraged by exempting a national banking association which reduced its circulation below 5 per centum of its capital from the payment of a duty thereon, and yet enforcing the payment of such duty against a national bank which had not reduced its out- [214 U.S. 33, 43]   standing circulation to the limit stated. In addition, as the half-yearly duty provided by 5214 was intended, among other things, at least, to create a general fund for paying the cost of engraving and printing the circulating notes of national banking associations (Twin City Nat. Bank v. Nebeker, 167 U.S. 196 , 42 L. ed. 134, 17 Sup. Ct. Rep. 766), 3411 could not be construed as now claimed without giving rise to the assumption that it was without reason intended to exempt national banking associations which might choose to allow their circulation to fall below 5 per centum from a burden which, in the nature of things, was common to all such banks.

But, in effect, it is argued, conceding that all the ambiguities just stated arise from treating the two sections as relating to the same subject, and from seeking to harmoniously enforce them on that hypothesis, yet there is no warrant for considering the genesis of the provisions in order to dispel the apparent conflict between them, because of the express terms of 3417, Rev. Stat. (U. S. Comp. Stat. 1901, p. 2251), found in the same chapter which embraces 3411. The section relied upon is in the margin. It will be observed that it is expressly declared therein that the provisions of the chapter in which the section is contained shall 'not apply to associations which are taxed under and by virtue of title 'National Banks." This declaration, however, is limited by the words 'except as contained in sections,' which are enumerated, one of them being 3411. From this it is argued that, whatever may otherwise be the conflict between 5214 and 3411, construed together, as 3417 causes 3411 to be broadly applicable to national banking associations, that section must

Sec. 3417. The provisions of this chapter relating to the tax on the deposits, capital, and circulation of banks, and to their returns except as contained in sections thirty-four hundred and ten, thirty-four hundred and eleven, thirty-four hundred and twelve [thirty-four hundred and thirteen], and thirty-four hundred and sixteen, and such parts of sections thirty-four hundred and fourteen and thirty-four hundred and fifteen as relate to the tax of ten per centum on certain notes, shall not apply to associations which are taxed under and by virtue of the title 'National Banks.' [214 U.S. 33, 44]   be treated as limiting and controlling the provisions of 5214. But 3417, unless it be treated as surplusage, implies that 3411 might not, in and of itself, be broadly applicable to national banking associations. While there is no doubt that the result of 3417 is to cause 3411 to be applicable to national banks, the doubt and ambiguity which must arise from the attempt to make that provision broadly applicable, so as to cause it to be controlling upon 5214, is in nowise removed by 3417. In other words, giving full effect to 3417 requires us yet to determine the nature and extent of the application of the provisions of 3411 to national banking associations,-a determination, as we have seen, essential in order to reconcile the confusion and contradiction which otherwise would prevail from the coassociation of the provisions without limitation or interpretation.

A consideration of the origin of the provisions at once demonstrates the unsoundness of the contention relied upon, establishes the correctness of the administrative construction which has prevailed from the beginning, and dispels the confusion and contradiction which necessarily result from the interpretation contended for. We need not specifically trace and develop the origin of the provisions, since it is expressly conceded in the argument for the appellant that 'the provisions of the acts of Congress . . . which are carried into the Revised Statutes as 3407-3417, U. S. Comp. Stat. 1901, pp. 2246-2251, did not, when and as originally passed, relate to national banks or to the circulation of national banks, but related to state and private banks. . . .' So, also, it is conceded that, wholly irrespective of the provisions of the national bank act of 1864 [13 Stat. at L. 99, chap. 106], there were imposed by acts of Congress relating to internal revenue burdens of taxation so heavy upon the circulation of the state banks and private bankers as, by their necessary operation, caused the retirement of such circulation as far as possible. Nor need we refer specially to the origin of 3411, since it is conceded that the provision was enacted originally in order not to compel the payment by state banks of a tax on circulation when such [214 U.S. 33, 45]   circulation no longer existed, upon the assumption that, if 95 per cent had been retired, the remainder was no longer in existence, or, at all events, was not within the power of the bank to retire. It is also unquestioned that where a state bank had become converted into a national bank, or where a national bank had assumed the liabilities of a state bank, the national bank was liable, in addition to the duty on its own circulation, to the payment of the internal revenue tax upon the outstanding circulation of the state bank absorbed by it, or the liabilities of which had been assumed, and that, as to such circulation, national banks were given the benefit of the presumption of loss or destruction or possible retirement when all but 5 per cent of the circulation of the state bank had been actually retired. The concrete result of the provisions just stated and of the antecedent legislation is aptly portrayed in the reenactment in 9 of the act of July 13, 1866 (14 Stat. 146, 147, chap. 184, U. S. Comp. Stat. 1901, pp. 2248, 2251), of previous provisions on the subject, said 9 reading as follows:

'That the capital of any state bank or banking association which has ceased or shall cease to exist, or which has been or shall be converted into a national bank, shall be assumed to be the capital as it existed immediately before such bank ceased to exist or was converted as aforesaid; and whenever the outstanding circulation of any bank association, corporation, company, or person shall be reduced to an amount not exceeding 5 per centum of the chartered or declared capital existing at the time the same was issued, said circulation shall be free from taxation; and whenever any bank which had ceased to issue notes for circulation shall deposit in the Treasury of the United States, in lawful money, the amount of its outstanding circulation, to be redeemed at par, under such regulations as the Secretary of the Treasury shall prescribe, it shall be exempt from any tax upon such circulation; and whenever any state bank or banking association has been converted into a national banking association, and such national banking association has assumed the liabilities of such state bank or [214 U.S. 33, 46]   banking association, including the redemption of its bills, by any agreement or understanding whatever with the representatives of such state bank or banking association, such national banking association shall be held to make the required return and payment on the circulation outstanding, so long as such circulation shall exceed 5 per centum of the capital before such conversion of such state bank or banking association.'

It is apparent that these provisions were in substance adopted in the Revised Statutes, and now constitute 3410, 3411, and 3416, and that, as illumined by the history which we have given, it clearly results that the provision of 3417, expressly making 3411 applicable to national banking associations, caused that section to apply not in the broad sense now claimed, but that it was expressly made applicable in order, beyond peradventure, to give to national banks, as representing state banks, the benefit of the presumption of loss or inability to retire the circulation of the state bank when such circulation had been reduced by 95 per centum of the volume thereof.

It is strenuously argued that to thus construe the provisions in question will destroy the effect of the revision by causing one or more of the sections contained in the revision to become redundant or superfluous. To test this contention we must recur to the provision of the act of 1866, which has been previously quoted. By that provision (a) what should constitute the sum of the capital of a state bank for the purpose of taxation was declared; (b) the right to an exemption of circulation, when such circulation was less than 5 per cent, was also declared, and the power to deposit money with the Treasurer of the United States to the extent of the outstanding circulation, and thus avoid the continuance of a tax thereon, was also given; (c) the liability of a national banking association for the tax upon the circulation of a state bank which had been assumed, as well as the right of the national banking association to the benefits of the exemption when 95 per cent of the circulation of the state bank had been retired, was also expressed. The argument is that to give [214 U.S. 33, 47]   to 3411, the restrictive significance we have adopted is to render 3416 superfluous. It is indeed true that the effect of the construction in an extremely narrow and technical sense might be considered as operating a redundancy. But the asserted redundancy is more seeming than real, as 3416 was plainly not enacted in order to reiterate what was expressly or impliedly embodied in 3411, but was to declare the obligation of a national bank in a stated contingency to make return and payment on the outstanding circulation of a state bank which was subject to taxation.

The elaborate argument made at bar, to the effect that Congress, at the time of the revision, must have contemplated the nonexistence of state banks and the extinguishment of their circulation, and, therefore, must be considered as having intended to make 3411 applicable to the outstanding circulation of national banks, is, we think, so clearly in conflict with the plain manifestation of the purpose of Congress, as shown by the re- enactment in the revision of the provisions as to state banks and their circulation, as to require no further notice.

Affirmed.