text:
Barnes v. The Railroads/Opinion of the Court

ERROR to the Circuit Court for the Eastern District of Pennsylvania; the case being thus:

The one hundred and sixteenth section of the act of June 30th, 1864, as amended by the thirteenth section of the act of March 2d, 1867, enacts:

'SECTION 116. That there shall be levied, collected, and paid annually upon the gains, profits, and income of every person residing in the United States, or of any citizen of the United States residing abroad, whether derived from any kind of property, rents, interest, dividends, or salaries, or from any profession, trade, employment, or vocation, carried on in the United States or elsewhere, or from any other source whatever, a tax of 5 per centum on the amount so derived over $1000, and a like tax shall be levied, collected, and paid annually upon the gains, profits, and income of every business, trade, or profession carried on in the United States by persons residing without the United States, and not citizens thereof. And the tax herein provided for shall be assessed, collected, and paid upon the gains, profits, and income for the year ending the 31st day of December next preceding the time for levying, collecting, and paying said tax.'

The one hundred and seventeenth section of the same act, as amended in the same way, required that there should be included, inter alia, in the estimate of gains, profits, and income, which the act made it obligatory on the taxpayer to return, the share of any person of the gains and profits of all companies, whether incorporated or partnership, who would be entitled to the same if divided, whether divided or otherwise,

'Except the amount of income received from institutions or corporations whose officers, as required by law, withhold a percentum of the dividends made by such institutions, and pay the same to the officer authorized to receive the same, and except that portion of the salary or pay received for services in the civil, military, or naval, or other service of the United States, including senators, representatives, and delegates in Congress, from which the tax has been deducted.'

The one hundred and eighteenth section related to the manner of the party's making and the assessor's obtaining returns of that portion of the taxpayer's income which was to be paid by such taxpayer directly.

The one hundred and nineteenth section, as amended by the already-mentioned section of the act of March 2d, 1867, enacts:

'SECTION 119. That the taxes on incomes herein imposed shall be levied on the 1st day of March, and be due and payable on or before the 30th day of April in each year, until and including the year 1870, and no longer.'The one hundred and twenty-second section of the same act as amended by the ninth section of the act of July 13th, 1866, enacts:

'SECTION 122. That any railroad, canal, turnpike, canal navigation, or slack-water company, indebted for any money for which bonds or other evidence of indebtedness have been issued, payable in one or more years after date, upon which interest is stipulated to be paid, or coupons representing the interest, or any such company that may have declared any dividend in scrip or money, due or payable to its stockholders, including non-residents, whether citizens or aliens, as part of the earnings, profits, income, or gains of such company, and all profits of such company carried to the account of any fund, or used for construction, shall be subject to and pay a tax of 5 per centum on the amount of all such interest, or coupons, dividends, or profits, whenever and wherever the same shall be payable, and to whatever party or person the same may be payable, including non-residents, whether citizens or aliens.

'And said companies are hereby authorized to deduct and withhold from all payments on account of any interest, or coupons, and dividends, due and payable as aforesaid, the tax of 5 per centum; and the payment of the amount of said tax so deducted from the interest, or coupons, or dividends, and certified by the president or treasurer of said company, shall discharge said company from that amount of the dividend, or interest, or coupon, on the bonds or other evidences of their indebtedness so held by any person or party whatever, except where said companies may have contracted otherwise.'

This is the material part of the section; another paragraph, however, being referred to in one of the opinions given further on in the case, as bearing on the question hereafter stated as in controversy, the paragraph, which runs thus, is added:

'And a list or return shall be made and rendered to the assessor or assistant assessor, on or before the 10th day of the month following that in which said interest, coupons, or dividends become due and payable, and as often as every six months; and said list or return shall contain a true and faithful account of the amount of tax, and there shall be annexed thereto a declaration of the president or treasurer of the company, under oath or affirmation, in form and manner as may be prescribed by the Commissioner of Internal Revenue, that the same contains a true and faithful account of said tax. And for any default in making or rendering such list or return, with the declaration annexed, or of the payment of the tax as aforesaid, the company making such default shall forfeit as a penalty the sum of $1000; and in case of any default in making or rendering said list or return, or of the payment of the tax or any part thereof, as aforesaid, the assessment and collection of the tax and penalty shall be made according to the provisions of the law in other cases of neglect or refusal.'

The one hundred and twenty-third section of the same act, as amended by the thirteenth section of the act of March, 1867, enacted:

'SECTION 123. That there shall be levied, collected, and paid on all salaries of officers, or payments for services to persons in the civil, military, naval, or other employment or service of the United States, including senators, representatives, and delegates in Congress, when exceeding the rate of $1000 per annum, a tax of 5 per centum on the excess above the said $1000; and it shall be the duty of all paymasters and all disbursing officers under the government of the United States, or persons in the employ thereof, when making any payment to any officers or persons as aforesaid, whose compensation is determined by a fixed salary, or upon settling or adjusting the accounts of such officers or persons, to deduct and withhold the aforesaid tax of 5 per centum; and the pay-roll, receipts, or account of officers or persons paying such tax as aforesaid, shall be made to exhibit the fact of such payment.'

In this state of statutory enactment, the Philadelphia and Reading Railroad Company (a corporation of Pennsylvania) on the 22d of December, 1869, declared a dividend, payable January the 17th, 1870, on their stock, as part of the profits made between the 1st of July and 1st of December, 1869; the dividend being made in pursuance of a power in the company's charter which authorized its managers to declare at least twice in each year such dividend of the company's profits as they deemed advisable; the same to be payable at the expiration of ten days.

So too the Harrisburg, Portsmouth, and Mount Joy and Lancaster Railroad Company, having a large capital stock, and having issued bonds for money, with interest payable semi-annually on the 1st of January and July, declared on the 10th of January, 1870, a dividend on their stock as part of their income and gain made between the 1st of July, 1869, and the 1st of January following. Apart from this dividend a semi-annual instaiment on the bonds fell due on the 1st of January, 1870.

In both the cases, and in the cases of several other railroad companies which had made dividends, or were about to pay interest, the assessor of the district assessed a tax of 5 per cent on this dividend. The companies refused to pay, and the collector, one Barnes, distrained. Thereupon the companies sued Barnes in trespass.

The question in the cases was whether the duration of the tax upon 'interest or coupons, dividends or profits' of railroad, canal, and other companies, imposed by the 122d section, quoted above, was subject to the limitation fixed by the 119th section, taken in connection with the 116th section. In other words, whether a tax upon the profits, interest, or dividends mentioned in the said 122d section was authorized to be assessed and collected, where such profits were set apart or where such interest or dividends became due and payable after the 31st of December, 1869, and especially as in the second of the above-mentioned cases, where the dividend was declared after that date. The government contended that the limitation referred to was not applicable to the tax described in the 122d section, and that the assessment and collection thereof, upon interest, dividends, &c., due and payable subsequent to that date, were authorized; a position denied by the railroad companies and their stockholders and creditors.

The court below was of opinion that the tax was not authorized, and gave judgment accordingly. From that judgment the collector brought the cases here.

In this court the cases were twice argued. On the first argument, the court being then composed of eight judges, there was an equally divided bench. After the accession of Mr. Justice Hunt a new argument was ordered, and it was accordingly reargued by Mr. G. H. Williams, Attorney-General, and Mr. S. F. Phillips, Solicitor-General, for the collector; and by Messrs. J. G. Gowen, Chapman Biddle, and Theodore Cuyler, for different railroad companies interested.

Mr. Justice CLIFFORD, now, March 3d, 1873, delivered the judgment of the court in all the cases, dividing them, as they had been argued, into two classes; the first class being where the dividend was declared prior to the 1st of January, 1870, and made payable afterwards; the second where it had been both declared and made payable afterwards.

I. IN THE FIRST CLASS.

Power to lay and collect taxes for Federal purposes, being vested exclusively in Congress, it becomes necessary, whenever the validity of such a tax is drawn in question, to examine the act imposing the tax, as the question in every case must necessarily depend upon its true construction, unless it appears that the tax is not apportioned as required, or not uniform, or the object taxed is one not taxable for such a purpose.

Railroad companies indebted for any money for which bonds or other evidences of indebtedness have been issued, payable in one or more years after date, subject to interest or with coupons representing interest, are by the 122d section of the act of the 13th of July, 1866, made liable to the internal revenue tax imposed by that section.

Provisions upon the subject differing essentially from those contained in that section had previously been enacted; but the Congress, on that day, amended the corresponding section in the prior law by striking out all after the enacting clause, and inserting in lieu thereof the section under consideration, which also provides that 'any such company that may have declared any dividend in scrip or money, due or payable to its stockholders, including non-residents, whether citizens or aliens, as part of the earnings, profits, income, or gains of such company, and all profits of such company, carried to the account of any fund, or used for construction, shall be subject to, and pay a tax of 5 per centum on the amount of all such interest or coupons, dividends or profits, whenever and wherever the same shall be payable, and to whatsoever party or person the same may be payable, including non-residents, whether citizens or aliens.'

By the act incorporating the railroad company it was provided that the dividends of so much of the profits of the company as it should appear advisable to the managers should be declared at least twice in every year, payable to the stockholders subsequent to the expiration of ten days from the time it was so declared.

Apart from that it also appears that the railroad company, on the 22d of December, 1869, declared a dividend in money amounting in the whole to the sum of $1,527,531.59 on their capital stock, as part of their earnings, profits, incomes, and gains made, and which accrued between the 1st of July of that year and the 1st of December of the same year. None of these matters are controverted, but the dividend, though it accrued during the period described, and was declared at the date specified, was made payable to the stockholders on the 17th of January following, as appears by the record.

Due return of the said dividend, as required by law, was made by the railroad company to the assessor of the first collection district, and the proper revenue authorities assessed a tax of 5 per centum upon the said dividend, amounting to the sum of $76,376.58, which the railroad company was required to pay within the period prescribed by law.

Payment of the tax having been refused, after due notice given and demand made, the collector, and the other two defendants as his deputies, distrained the goods and chattels mentioned in the declaration to secure and enforce the payment of the tax, penalty, and interest, as directed in the warrant from the assessor. Distraint was made in due form, but the corporation plaintiffs, denying the legality of the tax, brought an action of trespass against the collector and his deputies in the State court to test that question, and the record shows that the suit, on the petition of the defendants, was regularly removed into the Circuit Court of the United States for trial. Both parties appeared in the Circuit Court, and the plaintiffs having filed their declaration the defendants pleaded the general issue, and also a special plea, in bar of the action, setting up substantially the same matters as those set forth in the preceding statement. Issue was joined upon the first plea, but the plaintiffs demurred to the second, insisting that the matters pleaded do not constitute any defence to the action which is the principal question in the case. Judgment was rendered for the plaintiffs in the Circuit Court, and the defendants sued out a writ of error and removed the cause into this court.

Questions of importance to the parties, it may be conceded, are presented in the record for the decision of the court, but it must be admitted that they are all mere questions as to the construction of the act imposing the tax, as it is not pretended that the object taxed is one not taxable for Federal purposes, nor that the regulations prescribed for the assessment and collection of the tax are subject to any constitutional objections. Stripped of every difficulty of that kind, as the case confessedly is, the great central question which arises is, what did the lawmakers mean when they enacted that 'any such company that may have declared any dividend in scrip or money, due or payable to its stockholders, including non-residents, whether citizens or aliens, as part of the earnings, profits, income, or gains of such company, and all profits of such company carried to the account of any fund, or used for construction, shall be subject to and pay a tax of 5 per centum on the amount of all such interest or coupons, dividends or profits, whenever and wherever the same shall be payable?'

Congress, it is insisted by the United States, intended to tax that accrued fund in the hands of the railroad company, in whatever form it might be; whether it existed as accumulated interest or in coupons representing interest, or in a dividend declared, or in a special fund of any kind, and without respect to the time of payment or the person or persons to whom it was ultimately payable. Every element of that proposition is denied by the plaintiffs, and as a means of refuting it they have entered into an extended and critical review of all the principal features of the prior acts providing for the collection of internal revenue duties.

Where a section or clause of a statute is ambiguous, much aid, it is admitted, may be derived in ascertaining its meaning by comparing the section or clause in question with prior statutes in pari materi a, but it cannot be admitted that such a resort is a proper one where the language employed by the legislature is plain and free of all uncertainty, as the true rule in such a case is to hold that the statute speaks its own construction.

Much criticism is bestowed upon the corresponding provisions in the prior acts in order to show that Congress never intended to tax the railroad company at all, and that the tax, in view of the circumstances, cannot be sustained against the shareholder as a tax on income for the half-year specified in the statement, as the dividend was not made payable to the stockholder until the 17th of January of the succeeding year; and the court, if the tax could be regarded as one imposed upon the shareholder, would be inclined to concur with the plaintiffs that a dividend, neither due nor payable to the shareholder within a given year, could not be taxed to the shareholder as income of that year under the internal revenue laws which were in operation at the time the tax in question was assessed and collected.

Concede all that and still the court is of the opinion that the concession cannot benefit the plaintiffs, as the tax, by the very terms of the act imposing it, is a tax on the railroad company to be assessed and collected in the manner and by the means prescribed in the act imposing the tax, and having come to that conclusion it will not be necessary to examine very critically the machinery enacted in prior laws for the assessment and collection of income taxes against individuals, as the court is of the opinion that those regulations afford little or no aid in solving any material question involved in this record.

Attention was called during the argument to the fact that the railroad company is authorized, by the same section which imposes the tax, to deduct and withhold from all payments on account of any interest or coupons and dividends, due and payable as aforesaid, the tax of 5 per centum, and that the payment of the amount of the tax so deducted from the interest or coupons or dividends, and certified by the president or treasurer of the company, is made a discharge to the company for the amount of the tax so paid, deducted, and withheld, except where the company may have otherwise contracted.

Attempt is made to invoke that provision as showing that the tax is a tax on the shareholder and not a tax on the railroad company, but the court is unable to perceive that the argument has any foundation whatever, as the provision does not contain a word inconsistent with the preceding part of the section, which in terms imposes the tax upon the railroad company.

Beyond doubt those two provisions should be construed together, and when so construed they are perfectly consistent and show to the entire satisfaction of the court that the plaintiffs are liable to pay the tax in controversy. They are so liable because it appears that they, as such company, having been indebted for money, issued bonds, or other evidences of indebtedness, payable with interest, or with coupons representing interest, in one or more years after date, and that they declared a dividend in money due or payable to their stockholders as part of the earnings, profits, income, or gains of such company, and the section provides that such a company under such circumstances shall be subject to and pay a tax of 5 per centum on the amount of all such interest or coupons, dividends or profits, and authorizes the company to deduct and withhold the amount of the tax from the dividend due or payable to their stockholders.

Different regulations for the assessment and collection of the income taxes of every kind were prescribed in the prior laws imposing internal revenue duties, but they were not in all respects satisfactory, and many controversies had arisen calling in question the action of the revenue officers in their efforts to enforce the collection of that branch of the public revenue. Contrariety of decision had resulted in some instances, and the Circuit Court had decided in one case that a railroad company could not deduct and withhold the amount of such a tax from a dividend due and payable to a non-resident alien, the presiding justice being of opinion that the language of the prior act did not warrant the conclusion that Congress intended to include such holders of the bonds or certificates in the category of persons liable to such an assessment.

Congress, accordingly, in order to remove those difficulties, imposed the tax upon the railroad company, and enacted that the company should pay the same whenever and wherever the dividend should be payable, and to whatsoever party or person the same should belong, showing beyond the possibility of doubt that Congress intended to hold the railroad company absolutely and solely liable for the tax, reserving to the company the right, which is equally unqualified, of deducting and withholding from the dividend the amount of the tax, whether the dividend was due or payable to the stockholder before or subsequent to the payment of the tax, and wholly irrespective of the question whether the stockholder was a resident or non-resident, or citizen or non-resident alien.

Payment of the tax by the company is an absolute requirement, just as much so as if the company was the actual holder of the bonds and the real owner of the dividends, whether they deduct and withhold the amount from the dividends or not, and the fact that the company is permitted to do so, if they see fit, does not in the slightest degree change the relation of the company to the United States, as the taxpayers under that section of the law imposing internal revenue duties.

Confirmation of that view is also derived from the regulations for the assessment and collection of the tax contained in the same section, which require that a return shall be made and rendered to the assessor or assistant assessor on or before the 10th day of the month following that in which said interest, coupons, or dividends become due and payable, and as often as every six months, and that the return shall contain a true and faithful account of the tax, with a declaration annexed thereto, of the president or treasurer of the company, verifying that statement under oath or affirmation.

All these regulations apply to the company, and the provision is that the company, if they make default, either in rendering the return or in the payment of the tax, shall forfeit as a penalty the sum of $1000, and that the tax and the penalty shall be assessed and collected as in other cases of neglect or refusal.

Special reference is made by the plaintiffs to the regulation enacted in the 119th section of the act of the 2d of March, 1867, that 'taxes on income herein imposed' shall be levied on the 1st day of March in each year, and be due and payable on or before the 30th day of April in the same year, as inconsistent with the theory assumed by the United States, but the court is not able to perceive that the objection is entitled to any weight, as the income taxes therein imposed are required to be assessed on the incomes of individuals, and the 117th section of the same act expressly authorizes the individual to omit from his return of gains, profits, and income the amount of income received from institutions or corporations whose officers, as required by law, withhold a per centum of the dividends made by such institutions and pay the same to the officer authorized to receive such payments. Important amendments were made by that act to some of the sections of the prior act, but the 122d section, under which the tax in controversy was assessed, was left in full force and operation, without any change, alteration, or modification of any kind.

Such a dividend as that made by a railroad company is not required to be included in the return made by the shareholder of his gains, profits, and income, but is expressly required by law to be returned by the president or treasurer of the railroad company, as before explained, and the act of Congress in terms provides that the company shall be liable to and pay the tax, no matter when or where or to whatsoever party or person the dividend may be payable.

Prior to that time the rule had been different, as the 116th section of the act of the 3d of March, 1865, expressly required that the amount of income received from such institutions by a shareholder should be included in his return to the assessor, but the power to lay and collect taxes for Federal purposes is vested in Congress, and Congress having repealed that provision and substituted another in its place, requiring the return to be made by the president or treasurer of the company, and having finally authorized the shareholders to omit the amounts received from that source from their returns, the argument would seem to be concluded unless it be assumed that some one or all of these regulations transcend the power of Congress under the Constitution, which is not pretended.

Argument to show that a railroad company may be taxed for Federal purposes is certainly unnecessary, as the theory is not controverted, and the proposition that the dividends of such a company are the proper objects of such taxation is also self-evident. Congress may tax such a dividend before it is paid to the holders of the securities, either as the property of the company or of the shareholders, at the election of Congress, nor can either party have any just ground of complaint if proper regulations are enacted to apportion and distribute the burden.

Power to tax either the company or the shareholder being admitted, the only question which can arise in this case is a question of construction, and the court is of the opinion that the act of Congress imposes the tax in controversy upon the railroad company. Having come to that conclusion it is not necessary to enter into any discussion of the question whether the action of trespass will lie in such a case against the collector of the revenue. He acts under a warrant or other process from the assessor, and it may well be doubted whether he can be regarded as a trespasser unless it appears that he exceeds his jurisdiction. Several cases decide that the party taxed must pay the tax and bring assumpsit to recover back the money.

Neither party, however, raised any such questions in the court below, nor has it been discussed in this court, and in view of those facts the court is not inclined to decide it at the present time.

Internal revenue taxes were assessed against the corporation plaintiffs by the assessor of the first collection district charged with that duty, and the plaintiffs denying the legality of the assessment refused to pay the tax, and the collector having distrained the goods and chattels mentioned in the declaration, as the means of enforcing payment, the plaintiffs brought an action of trespass against him and his deputy, claiming damages for the alleged unlawful seizure and detention of the goods and chattels.

Enough appears in the record to show that the plaintiffs are a railroad company; that being indebted for money to a large amount they issued bonds for the same, or other evidences of indebtedness, payable with interest, or with coupons representing interest, in one or more years subsequent to their date. On the 10th of January, 1870, the railroad company declared a dividend in money amounting to the sum of $43,567.63 on their capital stock as part of their income and gains made, and which accrued between the 1st of July, 1869, and the 1st of January following.

Apart from the dividend an instalment of semi-annual interest also fell due at the same time, amounting to $21,000, which accrued during the same six months for which the dividend of the income and gains was declared. Due return was made by the railroad company of the amount of the dividend and interest to the assessor of internal revenue for the first collection district, and a tax of 5 per cent. on the amount was assessed by the proper revenue authorities, which is the tax in controversy, and for which the distraint was made, as alleged in the pleadings.

Detailed statement of the pleadings is unnecessary, as they are the same as in the preceding case, and all the questions presented for decision are the same except one, which will be made the subject of special examination. Judgment was rendered for the plaintiffs in the Circuit Court, and the defendants brought a writ of error and removed the cause into this court.

Such a dividend, declared by such a company, in money, due or payable to their stockholders as part of the earnings, profits, income, or gains of the company, it was decided in the preceding case rendered the company liable to the tax of 5 per cent. on the amount of such income or gains, as more fully explained in the opinion delivered in that case, and the court is of the opinion that the tax on the semiannual instalment of interest is within the same principle, and that it must be governed by the same rule.

Suppose that is so, still it is insisted by the plaintiffs that the rule there adopted is not applicable in this case, as the dividend was not declared within the six months specified in the pleadings, and because neither the dividend nor the interest was due or payable to the stockholders until the 10th of January following. Beyond doubt the two cases differ in that respect, and the question in this case is whether the admitted fact that the dividend was not declared within the half-year during which the income and gains were made takes the case out of the rule adopted in the other case.

Much weight would be due to that suggestion if the tax was a tax upon the shareholder, but the court has already decided that the tax imposed by that provision is a tax upon the railroad company, and the court adheres to that conclusion, which is confirmed by the fact that the object made taxable by that section is not only 'any dividend declared,' but the language also extends to 'all profits of such company carried to the account of any fund, or used for construction,' showing that Congress intended that such company shall be subject to and pay a tax of 5 per centum on the amount of all such interest or coupons, dividends or profits, whenever and wherever the same shall be payable and to whatsoever party or person the same may ultimately belong.

Tested by these considerations it is quite clear that it is the fund which accrued within the half-year which Congress intended to tax, and the record shows that every dollar of the fund taxed in this case accrued within the last six months of the year preceding the time when the dividend was actually declared.

Although the dividend was not declared until the 10th of January, 1870, yet it is true that the object taxed is the fund which accrued within the last six months of the preceding year, and it is certain that the fund taxed does not include a dollar of the income or gains of the company for the succeeding year. Concede that, and still it is insisted by the plaintiffs that the dividend cannot be regarded as income and gains of the company for the six months specified in the pleadings, because it was not actually declared as such by the company within that period, but the court is not able to adopt that construction of the act, as it would enable the company to postpone the payment of such a tax for six months or even for a year whenever they pleased, by omitting to declare a dividend, which would be inconsistent with the plain intent of Congress as manifested by the language employed in the section imposing the tax.

Taxes illegally exacted under the revenue laws of the United States may be recovered back, if paid under protest, in an action of assumpsit against the collector, but the person taxed cannot enjoin the collector from enforcing payment, and very grave doubts are entertained whether trespass against the collector is a proper remedy under existing laws. No such error, however, having been assigned in the case the court will not decide the point at the present time.

JUDGMENT REVERSED IN EACH CLASS OF CASES, and the causes remanded for further proceedings in conformity to the opinion of the court.

I concur in the judgment of the court on the ground that the 119th section of the Internal Revenue Act, in affixing a limit to the period for imposing and collecting the income tax, referred in express terms only to the annual tax returnable and payable by individuals, and to no other tax imposed by the act.


text: Talk:Barnes v. The Railroads/Opinion of the Court

license: Creative Commons - Attribution Share-Alike - https://creativecommons.org/licenses/by-sa/4.0/


text: Dictionary of National Biography, 1885-1900/Wale, Samuel


text:
United States v. Railroad Company (84 U.S. 322)

ERROR to the Circuit Court for the District of Maryland.

This case arose upon the identical 122d section of the Internal Revenue Act of 1864, as amended by that of 1866, which is discussed in the preceding case. The section enacts:

'That any railroad, canal, turnpike, canal navigation, or slack-water company, indebted for any money for which bonds or other evidence of indebtedness have been issued, payable in one or more years after date, upon which interest is stipulated to be paid, or coupons representing the interest, or any such company that may have declared any dividend in scrip or money due or payable to its stockholders, including non-residents, whether citizens or aliens, as part of the earnings, profits, income, or gains of such company, and all profits of such company carried to the account of any fund, or used for construction, shall be subject to and pay a tax of 5 per centum on the amount of all such interest or coupons, dividends or profits, whenever and wherever the same shall be payable, and to whatsoever party or person the same may be payable, including non-residents, whether citizens or aliens.

'And said companies are hereby authorized to deduct and withhold from all payments on account of any interest or coupons, and dividends, due and payable as aforesaid, the tax of 5 per centum; and the payment of the amount of said tax so deducted from the interest, or coupons, or dividends, and certified by the president or treasurer of said company, shall discharge said company from that amount of the dividend, or interest, or coupon on the bonds or other evidences of their indebtedness so held by any person or party whatever, except where said companies may have contracted otherwise.'

This is the material part of the section. Another paragraph is, however, here presented, as it is spoken of in one of the opinions in the preceding case, as assisting to interpret the parts that precede it.

'And a list or return shall be made and rendered to the assessor or assistant assessor on or before the tenth day of the month following that in which said interest, coupons, or dividends become due and payable, and as often as every six months; and said list or return shall contain a true and faithful account of the amount of tax, and there shall be annexed thereto a declaration of the president or treasurer of the company, under oath or affirmation, in form and manner as may be prescribed by the Commissioner of Internal Revenue, that the same contains a true and faithful account of said tax. And for any default in making or rendering such list or return, with the declaration annexed, or of the payment of the tax as aforesaid, the company making such default shall forfeit as a penalty the sum of $1000; and in case of any default in making or rendering said list or return, or of the payment of the tax or any part thereof, as aforesaid, the assessment and collection of the tax and penalty shall be made according to the provisions of law in other cases of neglect or refusal.'

In the year 1854, and prior, of course, to the enactment of the said section, or indeed of any internal revenue statutes, the legislature of Maryland gave to the city of Baltimore (then desirous of aiding the Baltimore and Ohio Railroad Company in the construction of its road, which the city councils of Baltimore conceived would, if made, greatly benefit the city), authority to issue and sell its bonds to the extent of $5,000,000, payable in 1890; and to lend the proceeds to the railroad company, less 10 per cent., to be reserved as a sinking fund to pay the principal of the loan at its maturity. This the city did, the railroad company in turn giving to it a mortgage on all its road, revenue, and franchises, to secure the payment of the bonds which the city had issued, and the interest which it had bound itself to pay.

After the passage of the internal revenue laws, the 122d section of which is above quoted, the government claimed payment from the company of a tax of 5 per cent., which the collectors of the Federal revenue alleged that under the plain language of the above-quoted 122d section, the company was bound to withhold from the city and pay to the United States. The company refused so to pay the 5 per cent. to the government, on the ground that the tax was not a tax laid on it, the company, but one laid on their creditor, the city of Baltimore, and that that city, being a municipal corporation, could not have its revenues taxed by the Federal government.

The United States accordingly sued the company, in the court below, in assumpsit.

The first count alleged that the company, by force of the provisions of the mortgage, became bound to pay to the city the interest on the loan, and that the company owed for tax on such interest $87,000.

The second count was for $87,000, money had and received. The defendant pleaded the general issue.

The court below gave judgment for the company, and the United States brought the case here, where it was fully argued March 12th, 1873, by—

Mr. G. H. Williams, Attorney-General, and Mr. S. F. Phillips, Solicitor-General, for the plaintiff in error; Messrs. J. H. B. Latrobe and I. N. Steele, contra.

And now, April 3d, 1873—

Mr. Justice HUNT delivered the opinion of the court.


text: Talk:United States v. Railroad Company (84 U.S. 322)


text:
United States v. Railroad Company (84 U.S. 322)/Opinion of the Court

The defendants insist, firstly, that the section in question does not lay a tax upon the corporations therein named, and by whom the tax is payable, upon their own account, but uses them as a convenient means of collecting the tax from the creditor, or stockholder, upon whom the tax is really laid. They insist as a consequence, secondly, that the present is a tax upon the revenues of the city of Baltimore; and, thirdly, that it is not within the power of Congress to tax the income or property of a municipal corporation.

1. The case of The Railroad Company v. Jackson, decided in 1868, and Haight v. Railroad Company, are authorities in support of the first proposition. In the case first mentioned, Jackson, an alien non-resident, sought to recover from the railroad company the amount of the tax of 5 per cent. imposed upon the interest of bondholders by the act of 1864, and withheld by the company. A similar tax was imposed by the statutes of Pennsylvania. The plaintiff claimed that as he was an alien non-resident, it was not in the power of Congress, or of that State, to tax him. The courts of Pennsylvania had sustained the deduction. Mr. Justice Nelson, in delivering the opinion of this court, and in remarking upon the decision of those courts, 'that the deduction from the prescribed income of the interest on these railroad bonds, when paid by companies, was regarded as simply a mode of collecting this part of the income tax,' says: 'We concur in this view. It is not important, however, to pursue this argument, as Congress has since, in express terms, by the acts of March 10th and July 13th, 1866, imposed a tax on alien non-resident bondholders. The question will be hereafter not whether the laws embrace the alien non-resident holder, but whether it is competent for Congress to impose it.' In Haight v. Railroad Company it was held that a covenant by the corporation issuing the bond to pay the interest 'without any deduction to be made for or in respect of any taxes, charges, or assessments,' did not relieve Haight, who was a bondholder, from the deduction of the 5 per cent. authorized by the 122d section. The court below said that 'the measure of the company's liability is expressed in the bond as being debt and interest only. It has nothing to do with the taxes which the government may impose on the plaintiff for the interest payable to him. . . . The plaintiff pays no internal revenue tax on these bonds at his place of residence. It is, therefore, no case of double taxation. The tax should be paid somewhere, and it was to meet investments like this, in banks, railroads, &., that the 122d section was passed.' This opinion was adopted in this court, Mr. Justice Grier saying: 'The facts in this case are correctly stated, and the law properly decided by the learned judge of the Circuit Court.'

This is a clear, distinct, unqualified adjudication, by the unanimous judgment of this court, that the tax imposed by the 122d section is a tax imposed upon the creditor or stockholder therein named; that the tax is not upon the corporation, and that the corporation is made use of as a convenient and effective instrument for collecting the same. It is a sequence in logical connection with that provision of section 117, which specifies as the subjects of individual taxation all the earnings, profits, gains, and income from whatever source derived, and whether divided or not, except the amount derived from the sources indicated in the 122d section. Of the incomes specified in section 117 the individual must make specific returns, and be directly taxed thereon. Upon or for the incomes received from the sources mentioned in section 122 no tax is directly imposed upon the owner. That tax is to be returned by, and collected from, the corporation as his agent and instrument.

A tax is understood to be a charge, a pecuniary burden, for the support of government. Of all burdens imposed upon mankind that of grinding taxation is the most cruel. It is not taxation that government should take from one the profits and gains of another. That is taxation which compels one to pay for the support of the government from his own gains and of his own property.

In the cases we are considering the corporation parts not with a farthing of its own property. Whatever sum it pays to the government is the property of another. Whether the tax is 5 per cent. on the dividend or interest, or whether it be 50 per cent., the corporation is neither richer nor poorer. Whatever it thus pays to the government, it by law withholds from the creditor. If no tax exists, it pays 7 per cent., or whatever be its rate of interest, to its creditor in one unbroken sum. If there be a tax it pays exactly the same sum to its creditor, less 5 per cent. thereof, and this 5 per cent. it pays to the government. The receivers may be two, or the receiver may be one, but the payer pays the same amount in either event. It is no pecuniary burden upon the corporation, and no taxation of the corporation. The burden falls on the creditor. He is the party taxed.

In the case before us this question controls its decision. If the tax were upon the railroad, there is no defence. It must be paid. But we hold that the tax imposed by the 122d section is in substance and in law a tax upon the income of the creditor or stockholder, and not a tax upon the corporation.

The creditor here is the city of Baltimore, and the question then arises whether this tax can be collected from the revenues of that municipal corporation.

There is no dispute about the general rules of law applicable to this subject. The power of taxation by the Federal government upon the subjects and in the manner prescribed by the act we are considering, is undoubted. There are, however, certain departments which are excepted from the general power. The right of the States to administer their own affairs through their legislative, executive, and judicial departments, in their own manner through their own agencies, is conceded by the uniform decisions of this court and by the practice of the Federal government from its organization. This carries with it an exemption of those agencies and instruments, from the taxing power of the Federal government. If they may be taxed lightly, they may be taxed heavily; if justly, oppressively. Their operation may be impeded and may be destroyed, if any interference is permitted. Hence, the beginning of such taxation is not allowed on the one side, is not claimed on the other.

In the 'Compendium of Internal Revenue Law,' by Davidge & Kimball, it is said, 'Congress may not tax the revenues of a State,' and also, 'A national bank is not liable under the internal revenue laws to the tax upon dividends due a State on stock owned by the State.'

Again: 'The term corporation as used in the acts of Congress touching internal revenue does not include a State, consequently the income of the State of Georgia from the Western and Atlantic railroad, property owned, controlled, and managed by that State, has not been made by law a subject of taxation.'

Again, 'The term person as used in §§ 9 and 44 does not include a State. The receipts or certificates issued by the State of Alabama are not subject to the tax of 10 per cent. imposed by the act of Congress of March 25th, 1867.'

The inquiry then arises, what is the nature and character of municipal corporations, and what is their connection with the government of the State.

A work on corporations says, that inferior and subordinate communities, imperia in imperio, such as cities and towns,. . . are allowed to assume to themselves some of the duties of the State in a partial or detailed form, but having neither property nor power for the purposes of personal aggrandizement, they can be considered in no other light than as auxiliaries of the government, and as the secondary deputies and trustees and servants of the people.

It is said further by the same authority, the main distinction between public and private corporations is, that over the former the legislature, as guardian of the public interests, has the exclusive and unrestrained control; and acting as such, as it may create, so it may modify or destroy, as public exigency requires or recommends, or the public interest will be best subserved. It possesses the right to alter, abolish, or destroy all such institutions, as mere municipal regulations must, from the nature of things, be subject to the absolute control of the government. 'Such institutions (it is added) are auxiliaries of the government in the important business of municipal rule.'

A municipal corporation like the city of Baltimore, is a representative not only of the State, but is a portion of its governmental power. It is one of its creatures, made for a specific purpose, to exercise within a limited sphere the powers of the State. The State may withdraw these local powers of government at pleasure, and may, through its legislature or other appointed channels, govern the local territory as it governs the State at large. It may enlarge or contract its powers or destroy its existence. As a portion of the State in the exercise of a limited portion of the powers of the State, its revenues, like those of the State, are not subject to taxation. This proposition is very properly admitted by the counsel for the government. In their brief it is said, 'We admit that municipal corporations, acting merely within the scope of their duties as such, are not to be included within general words imposing taxes upon persons or corporation.' In support of this view is cited the proviso to the amendment in 1866, in these words: 'Provided that it is the intent hereby to exempt from liability to taxation such State, county, town, or other municipal corporation, in the exercise only of functions strictly belonging to them in their ordinary governmental and municipal capacity.'

Assuming for the argument that this qualification is well made, let us look at the facts of the case before us. The city of Baltimore, with a view to its commercial prosperity, was desirous of aiding in the construction of a railroad, by which the commerce and business of the Western States would be brought to that city. For this purpose it was authorized by the legislature to issue its corporate bonds for $5,000,000, on which it was to obtain the money. The proceeds of these bonds, reserving 10 per cent. as a sinking fund, were to be paid to the railroad company. To secure the city against loss and to provide for the payment of the interest on the bonds of the city as it should, from time to time mature, and of the principal when payable, the railroad company were to execute a mortgage to the city upon its road and franchises and revenues. All this was done as agreed upon. The interest, secured by this mortgage, has, from time to time, been paid by the railroad company to the city, and it is a tax (under the 122d section before referred to) upon the interest thus paid, that the plaintiff now seeks to recover.

That the State possessed the power to confer this authority upon the city, we see no reason to doubt.

Was it exercised for the benefit of the municipality, that is in the course of its municipal business or duties? In other words, was it acting in its capacity of an agent of the State, delegated to exercise certain powers for the benefit of the municipality called the city of Baltimore? Did it act as an auxiliary servant and trustee of the supreme legislative power? The legislature and the authorities of the city of Baltimore decided that the investment of $5,000,000 in aid of the construction of a railroad, which should bring to that city the unbounded harvests of the West, would be a measure for the benefit of the inhabitants of Baltimore and of the municipality. This vast business was a prize for which the States north of Maryland were contending. Should it endeavor by the expenditure of this money or this credit to bring this vast business into its own State, and make its commercial metropolis great and prosperous, or should it refuse to incur hazard, allow other States to absorb this commerce, and Baltimore to fall into an inferior position? This was a question for the decision of the city under the authority of the State. It was a question to be decided solely with reference to public and municipal interests. The city had authority to expend its money in opening squares, in widening streets, in deepening rivers, in building common roads or railways. The State could do these things by the direct act of its legislature, or it could empower the city to do them. It could act directly or through the agency of others. It is not a question to be here discussed, whether the action proposed would in the end result to the benefit of the city. It might be wise, or it might prove otherwise. The city was to reap the fruits in the advanced prosperity of all its material interests, if successful. If unseccessful, the city was to bear the load of debt and taxation, which would surely follow. The city had the power given it by the legislature to decide the question. It was within the scope of its municipal powers.

This advance of the city bonds was not a donation. It was an investment supposed to be judiciously made and adequately secured. It was not for the individual benefit of those managing the business. No one received advantage except as he was a citizen or his property was within the city. It was not a loan for the benefit of the railroad; it was for the benefit of the city solely. That the railroad company was also benefited did not affect the purpose of the transaction.

It is said by the counsel for the United States that municipal corporations are those that are created irrespective of those who are associated therein, and that the powers are given and withheld upon grounds which concern the public at large. It is not necessary to discuss the question whether this city is a municipal corporation. If there can exist a municipal corporation, as that expression is generally understood, the cities of this country, like Baltimore, Philadelphia, and New York, fall within the definition. The power in question was conferred because its exercise concerned the public and to benefit that public. This power could no doubt have been imposed upon the city as a duty, and its exercise directed without the assent or against the wish of the corporation or its citizens. The State could do it directly for and on behalf of the city, and without its intervention. The city could act only by authority from the State. The State is itself supreme, and needs no assent or authority from the city. It is not perceived that the act is less public and municipal in its character than if the State had compelled the city to lay the tax and to make the appropriation of the proceeds to the railroad company. In The Town of Guilford v. The Board of Supervisors of Chenango County, it was held:

1. That the legislature has power to levy a tax upon the taxable property of a town, and appropriate the same to the payment of a claim made by an individual against the town.

2. That it is not a valid objection to the exercise of such power, that the claim to satisfy which the tax is levied is not recoverable by action against the town.

3. That it does not alter the case that the claim has been rejected by the voters of the town, when submitted to them at a town meeting, under an act of the legislature authorizing such submission and declaring that their decision should be final and conclusive.

The action is no less a portion of the sovereign authority, when it is done through the agency of a town or city corporation.

We admit the proposition of the counsel, that the revenue must be municipal in its nature to entitle it to the exemption claimed. Thus, if an individual should make the city of Baltimore his agent and trustee to receive funds, and to distribute them in aid of science, literature, or the fine arts, or even for the relief of the destitute and infirm, it is quite possible that such revenues would be subject to taxation. The corporation would therein depart from its municipal character, and assume the position of a private trustee. It would occupy a place which an individual could occupy with equal propriety. It would not in that action be an auxiliary or servant of the State, but of the individual creating the trust. There is nothing of a governmental character in such a position. It is not necessary, however, to speculate upon hypothetical cases. We are clear in the opinion that the present transaction is within the range of the municipal duties of the city, and that the tax cannot be collected.

JUDGMENT AFFIRMED.

I concur in the judgment of the court in this case, without deciding whether Congress can or cannot tax the property of municipal corporations. I concur in the judgment on the ground that Congress did not intend by the internal revenue laws to tax property belonging to the States or to municipal corporations. This is apparent from the language of the 116th section of the Internal Revenue Act of 1864. I also concur in the construction given by the opinion to the Internal Revenue Act, that the tax imposed by the 122d section of that act was substantially a tax on the stock and bondholders, and not on the railroad or canal companies.


text: Dictionary of National Biography, 1885-1900/Waleden, Humphrey de


text: Talk:United States v. Railroad Company (84 U.S. 322)/Opinion of the Court


text: Hume v. Beale's Executrix

title: Hume v. Beale's Executrix


text: Dictionary of National Biography, 1885-1900/Walerand, Robert


text: Talk:Hume v. Beale's Executrix

title: Talk:Hume v. Beale's Executrix


text:
Hume v. Beale's Executrix/Opinion of the Court

ERROR to the Supreme Court for the District of Columbia; the case being thus:

Benjamin Berry, of Prince George's County, Maryland, owning a farm in that county, about twenty miles from Washington City, stocked with thirty slaves, and with proper animals and implements of husbandry, on which farm his son and the wife Eleanor of this son, with their three children, named respectively, Barbara, Amanda, and Rosalie, were living, conveyed it in March, 1826 (his said son having then recently died), to Robert Beale (a young lawyer of Washington City, a friend of the family, and who in 1829 married a daughter of the said Mrs. Eleanor Berry, by a former husband) on these trusts and no other; that is to say, 'to retain the legal title to all the said property during the life and widowhood of the said Eleanor, and after her death or marriage, until such time as the eldest of the children shall come of age or be married, on which event or events the said Robert shall convey the unconditional title in fee to all the property, both real and personal, unto the said children and their heirs, or such of them as may be living at the time of such conveyance, and to the issue of any such as may be dead, &c. . . . And the said Robert shall permit the said Eleanor to have and enjoy the sole and exclusive use of all the said property for and during the time in which she shall and may live and remain unmarried, without molestation or hindrance of him, the said Robert, or said Benjamin, or any other person or persons whatsoever.'

On the 18th of December, 1827, Benjamin Berry, the grantor, died.

In the autumn of 1828 Mrs. Eleanor Berry took up her residence in Washington City, and there became acquainted with, and, as was rumored, was married (secretly, in order to avoid a forfeiture of her life estate), to a certain Col. Owings. While on the farm, according to the testimony, she 'lived finely, and entertained a great deal.' Her course of life in Washington also was expensive. She had very little property of her own, and that not in money.

In the years 1828 and 1829, that is, after the death of Mr. Berry, the grantor, and before the year 1830, nearly all the slaves had disappeared from the farm; the slaves were 'not sold in a body but picked off one or two at a time; that is, sent to a place where the traders could get them; locked up there till the traders came.'

Most of the farm stock had equally disappeared.

Early in 1830 Beale filed a bill against Mrs. Berry in the High Court of Chancery of Maryland to prevent her from further disposing of the personal property. And immediately thereafter, in 1830, under or in consequence of some order of court, took possession of the land and what remained of the personal property.

In the summer of 1830 Mrs. Berry left her house in Washington City, and never returned to it; 'went off travelling,' said a witness in the case, 'where, I do not know.'

In December, 1830, the three children, by their uncle as next friend (he residing on an adjoining estate), filed a bill in the County Court of Prince George's County, Maryland, against Beale, Mrs. Berry, and Owings (to whom the bill alleged that she was married), setting forth the sale of all the personal property and waste of the proceeds, and praying the removal of Beale as trustee, an account, and the appointment of a receiver. Mrs. Berry was not served with process, being off travelling. A receiver was appointed and gave bond. Beale appeared and answered. He admitted in his answer that Mrs. Berry, who, he asserted, had been rightfully in possession and control of the property, had, without his knowledge or authority, greatly impaired and injured the value of the trust estate; and alleged that finding all other means ineffectual to prevent her further disposing of the property, he had appealed for protection to the High Court of Chancery of Maryland, which was granted, and that he had abandoned his residence in Washington at great personal sacrifice, and was living on the farm for the purpose of taking care of it and what remained of the personal property. He denied that he was in anywise remiss or negligent of his duties as trustee, or that he had anything to do with the sale of the negroes or other personalty. The cause was regularly heard, and a decree made dismissing the bill.

In February, 1833, the daughter Barbara married Mr. Hume.

In 1834 the trust property was sold under a decree of the court; the share of each of the three daughters being $3000. The share of the youngest daughter, Miss Rosalie, was left in the hands of Beale, who was intrusted by the said Miss Rosalie with the management of it. This money was paid, after Miss Rosalie's death, to her administratrix and sister, Mrs. Hume.

In 1839, Mrs. Hume attained the age of 21 years.

In September, 1842, Mr. Hume died.

In 1843, Mrs. Eleanor Berry was married to one Ferguson.

In November, 1844, Amanda married Mr. Crosby.

In January, 1857, Mrs. Eleanor Ferguson (Berry) died.

In September, 1857, Mr. Crosby died.

In May, 1860, Miss Rosalie Berry died unmarried; her sister, Mrs. Hume, becoming her administratrix.

In November, 1866, Mr. Beale, the trustee, died, leaving his daughter executrix of his estate.

In April, 1867, the surviving daughters, Mrs. Hume and Mrs. Crosby (their husbands being now dead), filed a bill in the court below against this executrix of Beale, alleging that he had sold and converted to his own use a considerable portion of the personal property, the proceeds of which he had used very advantageously to himself, and had suffered Mrs. Berry, the widow, to squander the rest. The bill giving as an excuse for not instituting proceedings sooner, that Beale had from time to time put the complainants off with promises of settlement; that having married their half-sister, 'he took advantage of that relationship to abuse the confidence which the relationship naturally inspired, and to turn the same to his own pecuniary interest and advantage.'

The answer denied the breach of trust, and while alleging that the transactions narrated in the bill, so far as they were founded in truth, occurred nearly forty years before, and before the respondent was born, and consequently that she could have no personal knowledge of the circumstances, yet set forth a narrative of facts which tended to show that the waste of the property was committed solely by Mrs. Berry, and that Beale had used his efforts to prevent it, and did finally arrest it, but not until most of the personal property had been made away with. It stated that the farm, and what trust property remained, had prior to 1834 been sold by order of the court, by trustees duly appointed, and the proceeds distributed. It denied that Beale ever made the admissions, promises, and excuses alleged in the bill, or that the complainants ever asserted against him in his lifetime the claim now made or any claim; and asserted contrariwise that the complainants had received all that they were entitled to, and that their husbands had used what money they had, and left them, in widowhood, dependent on their relatives.

The answer set up also certain special defences as—

The suit against Beale in the County Court of Prince George's County.

The statute of limitation [three years in the District], and independently of it the laches and lapse of time.

The testimony chiefly relied on by the complainants was that of Mrs. Hume, one of the complainants; of a white witness named Douglass, of another, named Brashears, and of two old colored servants, Johnson and Brooks, who had been on the farm.

The testimony of Mrs. Hume was received under the act of Congress of July 2d, 1864, which enacts that

'In courts of the United States there shall be no exclusion of any witness. . . in civil actions, because he is a party to or interested in the issue joined;'

no objection having been raised to it, so far as appeared by the record, under the act of March 3d, 1865, amendatory to the said act, which amendatory act provides—

'That in actions by or against executors, administrators, or guardians, in which judgment may be rendered for or against them, neither party shall be allowed to testify against the other as to any transaction with or statement by the testator, intestate or ward, unless called to testify by the opposite party.'

'After my grandfather Berry's death, in 1827, the property commenced to go. It went by degrees. From 1828 to the summer of 1830 everything was spent except some old negroes. They were sold by my mother and Mr. Beale. The real estate was sold by commissioners appointed by the court. My husband received my portion in person. Mr. Beale paid me my sister's portion in driblets. He never paid me anything else. I called upon him repeatedly to settle his trusteeship. Three or four years before his death,' most every time I saw him, I asked him for a settlement, and told him my inability to live. I told him my situation, and told him it was very destitute. These conversations occurred almost every time I saw him. I told him almost every week, when I saw him, that it was high time to make a settlement. He did not give me any money, and he never made any settlement. He made a great many promises, and that is all. The reason I never instituted this suit before was he made so many promises from time to time that he would settle. He never made me any payments at all outside of the $3000 which he received as my share of the proceeds of the farm. At the conversations I have spoken of, about a settlement, no one was present but ourselves. He never talked before third persons unless they were interested. I occasionally wrote to Mr. Beale, and he answered my letters. In his letters he never spoke anything of the wasted property. I never wrote to him about any of it, except some servants that Otho Beale bought, and Mr. Beale (for me) brought suit to recover them. I always thought that Mr. Beale got part of the money that the personal estate sold for. My husband thought Mr. Beale had done very wrong. He was himself a lawyer. He spoke to me in his lifetime, in 1834 or 1835, of bringing a suit, and asked me to join him. I told him it was of no use, as Mr. Beale was poor and we could make nothing out of him at that time.

'I never was present when any negroes were sold. I never saw any money paid by the traders for them. My mother had some negroes which came by her mother's (Mrs. Lane's) estate. Mrs. Lane was rich. They came to her before her marriage with my father, Mr. Berry, Jr. They were made over to my half-brother and to Mrs. Beale, my half-sister.'

Douglass, who testified that he had owed some money to Mr. Beale, said:

'Mr. Beale was pressing me for the money. He said that he owed these ladies (half-sisters of his wife) some money, and that he wanted the money for them. These conversations ran through a number of years, to the day that I settled with him. He said that he wanted $5000. I do not remember that he mentioned real estate to me. He told me that the way he became indebted to the ladies was that he had charge of their money, and had borrowed it. He said that he must raise the money from me or sell his house to raise it. In speaking of these ladies, I think he mentioned one of them as Berry: he simply used the name of Berry.'

Brashears testified only that he lived on an adjoining farm and knew Beale; that when Beale was appointed trustee, he was regarded as poor, and that he afterwards owned a house in which he lived; that he thought Beale had exercised control over the farm from the time he was married; and that 'the property on it was pretty generally on the travel from the time Mrs. Berry moved to Washington till it was all sold.'

One of the old slaves, Brooks, testified thus:

'Mr. Beale had no property, before he was married, but a house. After the deed of trust was given and Mr. Beale got the property in his own hands he was like the green bay tree by the river of water. He spread out-he got everything he wanted. He had control as a master over everything; to sell or not to sell, as he pleased. If he chose to do anything, Mrs. Berry could not stop him. I never saw him do anything, because I was not present, but I know he disposed of all the property. I never saw him take away any of the property; I mean, saw him sell any, and I never saw him receive any money for it. The only way that I know he sold the slaves was that I missed them, and as they could not be sold by law without his consent, I believe he sold them. I know it must have been done by his consent, because nobody else could have done it. He was the guardian of the children. Before Mrs. Berry moved to Washington, she lived in very handsome style and had plenty of everything. She was rich.'

'As far as I know, Mrs. Berry and Mr. Beale were hand-in-glove, and between them they sold the colored people; somewhere in the neighborhood of thirty-five; not one was left to tell the tale. Mr. Beale would come down from Washington once or twice a week. I don't know who received any of the money for the negroes. I have seen the negro-traders there often. Mr. Beale would bring them down there from the city, and have the negroes hiding about like young rabbits. And I have often heard the servants say that they thought Mr. Beale ought to interfere and protect the children. I never knew him to interfere to prevent them being sold. He only told me that he would see that I was not sold to Georgia. My wife belonged to him. She came from old Mrs. Lane. I never saw Mr. Beale have any possession of any of the servants, except when any of them were to be sold, when, of course, he always had a hand in it. There were only two old men and two old women, three or four house servants, and myself left on the farm after Mrs. Berry came to Washington. I flew the track; they sold me running. I think one of the old ones that were left was afterwards sold to a brother of old Mr. Berry. Mrs. Eleanor Berry had no property when she married young Mr. Berry. His father gave him the farm, and stock, and servants, and let him have it to make what he could, but gave him no title to it, or any of it, because his wife had the reputation of being an extravagant woman, and he was fearful that the children might come to want.'

Certain letters were introduced by the defendants from Mrs. Hume to Mr. Beale, by way of discrediting her testimony. They were of a very confidential kind. Parts of them were thus:

'NASHVILLE, December 1st, 1837.

'DEAR MR. BEALE: You will oblige me very much, if you can spare the time, to go to Marlboro' this court, for the purpose of getting the money, or a part of it, that is due me. I am very much in want at this time. I would not trouble you, but necessity is the first law of nature; therefore I was compelled to address you. My circumstances are such that I cannot do without a little money. Mr. Hume is out of employment entirely; dissipated and too indolent to exert himself for a support. We are all living with his mother; she is not able to keep us, and can hardly get along with her own family. I cannot stay here. I am a stranger here, no one to aid me in the most trifling matter. If I was where I was known I could get along somehow or other. I should like to be with my relations. I think Otho Beale would help me if he knew my situation. I should like to get in a school as an assistant teacher, so as I could be making a living for myself and children. I would exert myself to the utmost to get along. I have said enough of this matter for you to judge of my situation. . . . I wish I had never have left the city, and have taken your good advice. I cannot say any more. You can see what my feelings are. Do answer this, and please to attend to the request I have made of you about getting the money. Give my best love to sister and brother, and accept a great share of love from

'Your true friend,

'BARBARA.'

'June 5th, 1846.

'R. BEALE, ESQ.: Your note has been received in which you refuse to see me again, and, strange to say, you have charged me with falschood, duplicity, and treachery. What crime have I committed that you should apply such epithets to my name? Thank God, I have an approving conscience; one that can say I have never, my dear brother, wronged you in thought or word. I always spoke of you in the most affectionate manner. I admit I have been in error, but am ready to make reparation. Don't judge me so harshly. You have wronged me. Forgive the innocent. I truly repeat, my dear brother, speak kindly to me, and don't cast me on the cold world without a cent. I will go to Baltimore; stay there in retirement. Time will show you that I am not what you consider me. I will not stay here longer. . . . Soon a lonely grave will be the only mark that I shall leave behind me. I wish to see you once more. I shall be then better satisfied. Don't refuse me this small favor. No money or friends! Heaven's support in this hour of affliction is all I pray for.

'B.'

It appeared that the husbands of both Mrs. Hume and Mrs. Crosby (the daughters Barbara and Amanda) were improvident men, who always wanted money.

The court below being equally divided in opinion the bill was dismissed, and the complainants took this appeal.

Messrs. Moore and Hughes, for the appellants, the complainants below:

The claim of the complainants is not barred by the lapse of time or the statute of limitations. The trust is an express trust. The trustee was the brother-in-law of the complainants, and when he took possession of their property they were of tender years. It is not pretended that any settlement of Beale's trusteeship was ever made. No account was ever rendered to the court, or anywhere else, by Beale. A large amount of personal property came to his hands. The deed of trust vested the legal title to all of the property in him, and Mrs. Berry had nothing but the use under said deed. That Beale profited by it is shown by the testimony of Mrs. Hume, and of Johnson and Brooks, old family servants. That he acknowledged his obligation, and promised to pay, is shown by the testimony of Mrs. Hume and of Douglass. The case is one where two dependent females, sisters-in-law to the trustee, looked to him, leaned upon him, and trusted him to take care of the estate which had been left them by their grandfather. They, of course, were reluctant to believe that their brother-in-law would wrong them, and his repeated promises doubtless kept them from calling him to a settlement in court long ago.

Under such a state of facts, neither the lapse of time nor statute of limitations can avail. The principle settled by this court in Michoud v. Girod, rules the case. In that case the court, speaking of the acquiescence of parties like the complainants here, say:

'We can only see in their conduct the fears and forbearance of dependent relatives, far distant from the scenes of the transactions of which they complain, desirous of having what was due to them, and suspecting it had been withheld, but unwilling to believe that they had been wronged by brothers with whom they had been associated in a common interest by another brother who was dead. In a case of actual fraud courts of equity give relief after a long lapse of time, much longer than has passed since the executors in this instance purchased their testator's estate. In general, length of time is no bar to a trust clearly established to have once existed; and where fraud is imputed and proved length of time ought not to exclude relief.'Messrs. J. M. Carlisle and J. D. McPherson, contra, argued:

That the complainants were estopped in the proceeding in the County Court of Prince George's County in December, 1830.

That Beale was trustee of a mere dry legal estate, and that the duties of such trustees are confined to three objects: 1st. To permit the cestui que trust to enjoy the estate; 2d. To execute conveyances when necessary; '3d. To defend the title of cestui que trust in any court of law or equity, or at any rate to suffer his name to be used for that purpose.' 'It is not his duty to bring suits, but only to allow his name to be used, and this not until security has been given by the cestui que trust for costs.'

That it could never have been contemplated that Mr. Beale, a young lawyer in Washington City, should act the part of a slave-master and overseer of a farm, twenty miles off.

That so far as evidence of Mr. Beale's misconduct as trustee came from Mrs. Hume, one of the complainants, it should be disregarded as having been received in violation of the act of Congress of March 3d, 1865; while so far as it came from the old slaves, Johnson and Brooks, who naturally wished to testify in favor of their young mistress, it was destroyed by the very witnesses themselves; and that if Mr. Beale ever did bring slave-traders to the farm to buy slaves, it was doubtless to buy his own wife's slaves; those that came from Mrs. Lane, her grandmother, and were on the farm, but were not among those conveyed by old Mr. Berry.

That there was no evidence that Beale ever grew rich, beyond owning a house in which he lived; while it was shown that his wife had some property.

That the testimony of Douglass was sought to be perverted. Consider that testimony. If Mr. Beale was speaking of what he owed Mrs. Hume and Mrs. Crosby, in their own right, he would have used their names, and not have used the name of Berry, which they had laid aside years before; he would have had no occasion to speak of owing any one named Berry at all. Mr. Beale, 'said he had charge of their money, and borrowed it.' That was the way in which he owed Miss Rosalie, and that certainly was not the way in which he owed the complainants. If he owed them anything, it was because he had fraudulently sold their slaves, and not because he had borrowed their money.

That the laches were gross; the lapse of time in connection with the death of the party charged with mal-administration, conclusive. In Prevost v. Gratz, this court says:

'Fraud or breach of trust ought not lightly to be imputed to the living, for the legal presumption is the other way; and as to the dead, who are not here to answer for themselves, it would be the height of injustice and cruelty to disturb their ashes, and violate the sanctity of the grave, unless the evidence of fraud be clear beyond a reasonable doubt.'

Mr. Justice DAVIS delivered the opinion of the court.

It is undeniable that the waste and misappropriation of property for which relief is sought, occurred prior to 1830.

This is apparent, not only by the testimony of the living witnesses, but by the papers in the suit commenced in the County Court of Prince George's County, Maryland, where the property was situated, in behalf of the children, for whom Benjamin Berry, in his deed, made provision, by their uncle and next friend, for the same cause of action as that comprised in the present suit.

While it is not necessary for the purposes of this case to decide whether this decree can be treated as a former adjudication of the matters in controversy, yet it is quite clear that forty years ago a Maryland court of equity, sitting on the spot where the transactions occurred, while they were fresh in the memory of men, did not believe Beale guilty of the breach of trust with which he was charged, and that the near kindred of the complainants acquiesced in the result of that suit.

Whether Beale, under the deed of Benjamin Berry, was the trustee of a mere dry, legal estate, or whether his duties and responsibilities extended further, it is not important to determine. In any aspect of the case, there has been such gross laches on the part of the cestui que trusts that they have disentitled themselves to the relief which they seek to obtain. It is an established rule with courts of equity, independent of any statute limiting the time in which suits can be brought, that they will not entertain stale demands. This rule is necessary from considerations of public policy, and because it is impossible to do entire justice when the transactions sought to be impeached have become obscure by lapse of time, and the evidence on the subject is liable to be lost. Story, referring to the rule imposing diligence upon parties seeking relief, says: 'Hence, if there be a clear breach of trust by a trustee; yet, if the cestui que trust or beneficiary has for a long time acquiesced in the misconduct of the trustee, with full knowledge of it, a court of equity will not relieve him, but leave him to bear the fruits of his own negligence or infirmity of purpose.'

This rule, requiring the party injured to seek redress in reasonable time, has so often received the sanction of courts of equity in this country and England, that it is unnecessary to cite authorities to sustain it. Whether the lapse of time is sufficient to bar a recovery must, of necessity, depend upon the particular circumstances of each case.

By the terms of the deed in this case, the interest of Mrs. Berry in the property terminated on her marriage or death, and if the eldest child was of age or married, on the happening of either of these events the entire trust ceased, and the trustee was directed to convey the estate, real and personal, to the children and their heirs. It is alleged that Mrs. Berry was married to Owings in 1830. If this were so, it would account for her conduct in converting the personal property to her use, but the evidence on the subject of this marriage, although rendering it highly probable that it did occur, is insufficient to establish it.

It is conceded, however, that she was married to Ferguson in 1843, at which time the eldest child was not only of full age, but had been married and was then a widow. These occurrences, according to the terms of the deed, terminated the trust, but in point of fact it was terminated in 1834 or 1836, when the real estate was sold by order of the Prince George's County Court. This sale is set up in the answer, and Mrs. Hume testifies that the farm was sold by commissioners appointed by the court, and that her husband, in 1836, received from them in person, her share of the proceeds. It is in evidence that Mrs. Crosby was married in 1844, and she must have arrived at full age before that time.

It thus appears that all grounds of action, existing in this case, must have occurred between twenty and thirty years ago, and that the alleged breach of trust for which the estate of Beale is asked to account took place thirty-seven years before the institution of this suit.

Why have these complainants slept upon their rights for this great length of time, and why have they delayed invoking the aid of a court of equity until the person charged with misconduct is dead? It is plain this unusual delay places them on the defensive, and requires satisfactory explanation before they can obtain relief.

It is alleged in the bill as an excuse for not suing earlier that Beale put the complainants off from time to time with promises to settle his trusteeship, and did not deny that he was largely indebted to them on that account. This allegation receives support only in the testimony of Mrs. Hume, who had no right to testify as to any conversation or transaction with the decedent unless the opposite party or the court wished her to do it. This rule of exclusion was imposed by Congress in the interest of dead men's estates, but as the record does not disclose any objection to the competency of the witness her testimony will be treated as if rightfully given. She says, in general terms, that she called on Beale repeatedly to settle, and that he promised to do so, and that these promises induced her not to sue him. This is the extent of her testimony on the subject, and her statement is so general and so obviously necessary to avoid the bar of the statute of limitations and of lapse of time, which were pleaded, that it carries little weight with it. It would never do to hold that a stale demand of such long standing could have vitality imparted to it, on the mere statement of a party in interest that the decedent promised to settle. There must be some corroborating circumstances to call into activity the powers of a court of equity, and these are wholly wanting in this case. No one was ever present at any of these conversations, and there is no specification of time or place, nor does she say that Beale ever admitted any indebtedness on account of this trust. Besides, she never wrote to him, nor did he ever write to her on the subject, which is a little remarkable, considering her destitute situation from 1837 to the commencement of this suit. Indeed, the letters which she did write to him in 1837 and 1846 are inconsistent with the idea that she thought he intended to defraud her, which she now says she always entertained.

There is nothing in the record except this testimony that tends even to show that Beale ever admitted he was chargeable for the wrongful conversion of the property in question. He expressly disclaims this liability in the Maryland suit in 1830, and the court could not have rendered the decree it did without being satisfied at least that he was not personally concerned in the waste of the property. It is hard to believe, on the unsupported testimony of a party in interest, that Beale at different times during a long life confessed a liability which he repudiated on the occasion of that litigation.

It is a little singular that Beale should have confined his promises to Mrs. Hume, and not extended them to Mrs. Crosby. Mrs. Crosby does not testify, and we do not learn that either herself or husband, with whom she lived for thirteen years, ever manifested disapprobation of Beale's conduct. If the other sister, Rosalie, who died unmarried in 1860, considered Beale had wronged her, she would not have intrusted him, as she did, with management of her share of the money received from the sale of the farm.

There is one other point in connection with the testimony of Mrs. Hume worthy of comment. She swears that, in 1834 or 1835, she advised her husband against suing Beale, for the reason that he was poor and nothing could be made out of him, and that her husband used to lend Beale money and supersede his debts for him. If this be so, the theory on which this case is prosecuted falls to the ground, for the whole effort is to show that Beale got so rich immediately after the conversion of the personal estate that he must have shared the proceeds. It is argued that the conversations which Beale had with Douglass refer to the obligations arising from his breach of trust, and that, therefore, Mrs. Hume is sustained by the testimony of Douglass. But manifestly Beale is not talking on this subject; he is talking about the sum of $3000 which Miss Rosalie Berry got from the sale of the farm and placed in his hands to loan. This money he owed the estate of Miss Berry, and was desirous of paying to her next of kin, Mrs. Hume and Mrs. Crosby.

It is needless to pursue the subject further. If Beale was guilty of misconduct in his character of trustee, the complainants had full knowledge of it and acquiesced in it for a great length of time, and there is nothing shown in the evidence to overcome the decisive influence of this knowledge and acquiescence.

DECREE AFFIRMED.


text: Talk:Hume v. Beale's Executrix/Opinion of the Court


text:
Allen v. Massey

APPEAL from the Circuit Court for the District of Missouri; the case being thus:

The fourteenth section of the Bankrupt Act of March 2d, 1867, enacts that the judge of the District Court or the register in bankruptcy shall assign all the estate, real and personal, of a bankrupt to his assignee in bankruptcy, and that such assignment shall vest in the assignee all the said estate, and all the property conveyed by the bankrupt in fraud of his creditors, and that the assignee may sue for the same.

And the statute of frauds of Missouri enacts, that 'every sale by a vendor of goods and chattels in his possession, or under his control, unless accompanied by delivery within a reasonable time (regard being had to the situation of the property), and be followed by an actual and continued change of possession, shall be held to be fraudulent and void as against the creditors of the vendor or subsequent purchasers in good faith.'

These enactments, State and Federal, being in force, one Downing, being indebted to a certain Mrs. Massey, wife of John Massey, conveyed to her a quantity of furniture under the following circumstances: Downing and his family, with John Massey and his family, had been living together in the same house for eighteen years. About five years next previous to the sale now spoken of, they all moved to the house in which they were living at the time of this sale. When they moved into this house Downing furnished a part of it, and Massey a part; Downing furnishing the articles which were the subject of this sale, and which were principally furniture for the parlor, library, dining-room, halls, and stairways. Both families used and occupied the parlor, library, and dining-room alike, and made equal use of the furniture of these rooms. Massey did the marketing and paid the bills for household expenses, and attended to matters about the house; he and Downing making settlements from time to time and dividing the household expenses between them.

At the time of the sale Downing and Mrs. Massey went around and looked at the different articles of furniture, took an inventory of it, agreed upon the price; and completed the transaction by Downing turning over to her the furniture, and executing and delivering to her a bill of sale duly acknowledged before a notary public. After the sale both families continued to occupy the house and use the furniture as before; the furniture, however, being subject to the absolute and sole control of Mrs. Massey.

Subsequently to this sale Downing was decreed a bankrupt, one Allen being appointed his assignee.

Hereupon Allen filed a bill in the court below against Massey, his wife, and Downing, to have the sale annulled, and the property given up to him the assignee. The District Court rendered a decree to that effect. This decree being affirmed by the Circuit Court, the defendants brought the case here.

Mr. I. M. Krum, for the appellants; Messrs. H. Hitchcock, G. W. Lubke, and P. Player, contra.

Mr. Justice FIELD delivered the opinion of the court.

title: Allen v. Massey


text: Talk:Allen v. Massey

title: Talk:Allen v. Massey


text:
Allen v. Massey/Opinion of the Court

The sale was, within the terms of the statute, fraudulent and void as against Downing's creditors. It was not accompanied by any delivery of the property, and was not followed by any change of possession. The property consisted of furniture used in a house occupied jointly by Downing and his vendee and her husband, and it remained in the same condition, and was used by all three precisely in the same manner after the sale as previously. There was no outward sign manifested, nor indicia exhibited, nor notice given, which could apprise the community of any change of ownership. The object of the statute is to prevent parties from being misled by apparent ownership of property where real ownership does not exist, but where a secret transfer has been made to another. This object would be defeated if a sale like the present one could be upheld. In the case of Claflin v. Rosenberg, where the vendor had become the clerk of the purchaser, the Supreme Court of Missouri held that the possession which the purchaser was required to take of the property sold, in order to render the sale valid under the statute, must be open, notorious, and unequivocal, such as would inform the public, or those who were accustomed to deal with the party, that the property had changed hands, and that the title had passed from the vendor to the purchaser; observing at the same time that possession of this kind excluded the idea of a joint or concurrent possession with the vendor. The statute being a local one, applying only to sales in Missouri, this court will follow the construction given to it by the highest court of the State.

The assignee of Downing's estate was authorized, by the express terms of the fourteenth section of the Bankrupt Act, to pursue the property thus attempted to be transferred, and, as auxiliary to its recovery, to ask that the sale of the bankrupt be annulled.

DECREE AFFIRMED.

title: Allen v. Massey/Opinion of the Court


text: Talk:Allen v. Massey/Opinion of the Court


text:
Rodd v. Heartt

ON motion to dismiss an appeal from the Circuit Court for the District of Louisiana; the case being this:

A steamer having been sold under a proceeding in rem in the admiralty, left in the registry of the court $4337.51, claimed on the one hand by Rodd and several other persons, creditors of the owners, who by one mortgage on the vessel had undertaken to secure all these creditors in a body, and on the other hand claimed by Heartt and others, mariners, furnishers of supplies, and material-men. The claim of Rodd under the mortgage was $4825, and of his co-mortgagees over (in the aggregate) $8000. The claims of the opposing mariners, furnishers of supplies, and material-men were $10,151.

The case coming before the District Court that court ordered that the fund in dispute should be paid to Rodd and the others in satisfaction of the mortgage claims. This gave Rodd, who was the largest of the mortgage creditors, $1498.99 as his pro rata share.

From this decree of the District Court the mariners, furnishers of supplies, and material-men appealed; and on the appeal, the Circuit Court, on the 3d of June, 1872, ordered that the decree of the District Court 'be avoided and reversed;' and decreed that 'the claims of the mariners, furnishers of supplies, and material-men be recognized as superior to those of the mortgage creditors and paid in preference to the latter, and that a new distribution of the proceeds be prepared by the commissioner in accordance with the principles thus laid down.'A new table of distribution having been prepared accordingly, and reported to the court, the following order was entered on the 6th of June, 1872:

'The commissioner having submitted a distribution based upon the decree heretofore made by the court, it is ordered and decreed that the balance of the proceeds of the steamer, now in the registry of this court, be distributed as follows:'

And then followed the names of the distributees and the pro rata sum awarded to each.

This decree being made, Rodd and his co-mortgagees, by one petition filed in the Circuit Court, on the 15th of June, 1872 (but one Sunday having intervened between that day and the preceding 3d of June), prayed an appeal; and on the same day, the district judge sitting in the Circuit Court, allowed it.

Mr. R. De Gray, for the motion, asked the dismissal of the appeal on three grounds:

First. That the appeal was from a decree of the Circuit Court, reversing a decree of the District Court, and was allowed by the district judge; who, though the Judiciary Act makes him a member of the Circuit Court, yet provided 'that no district judge shall give a vote in any cause of appeal. . . from his own decision.'

Second. Because no one of the claims exceeded $2000; Rodd's, which was the largest, being but $1498.99, and the Judiciary Acts giving an appeal only 'where the matter in dispute exceeds $2000.'

Third. Because the appeal was not in time to operate as a supersedeas; more than ten days, as the learned counsel alleged, having elapsed from the 3d of June, when, as he contended, the final decree was entered, till the 15th, when the appeal was allowed, and the Judiciary Act of 1789, making a writ of error (to which by an act of 1803 any appeal conforms) a supersedeas only in cases where it is served within ten days (Sundays excepted) after the decree has passed.

Mr. T. J. Semmes, contra.

The CHIEF JUSTICE delivered the opinion of the court.

title: Rodd v. Heartt


text: Talk:Rodd v. Heartt

title: Talk:Rodd v. Heartt


text: Dictionary of National Biography, 1885-1900/Wales, James


text:
Rodd v. Heartt/Opinion of the Court

As to the first of the grounds, on which a dismissal of this appeal is asked, on looking into the acts of Congress relating to the connection of the district judge with the Circuit Court, we are of opinion that, though upon appeals from the District Court the district judge has no vote in the Circuit Court, he has in all other respects the powers of a member of the court, and may consequently allow appeals from its decisions.

Secondly, it is apparent that, though no one of the claims allowed exceeded $2000, yet the claim of the appellants, which was disallowed, exceeded that sum.

Thirdly, we are of opinion that the decree may be considered as of either the 3d day of June or the 6th day of June, 1872, and that the appeal was in time to operate as a supersedeas under the act of 1789. That act, however, does not prescribe the existing rule. The act of June 1st, 1872, which must govern the case, allows sixty days for the filing of the bond by which the appeal is made to operate as a supersedeas.

MOTION DENIED.

title: Rodd v. Heartt/Opinion of the Court


text: Talk:Rodd v. Heartt/Opinion of the Court


text: Dictionary of National Biography, 1885-1900/Wales, William