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U.S. Supreme Court

Oulton v. Savings Institution, 84 U.S. 17 Wall. 109 109 (1873)

Oulton v. Savings Institution

84 U.S. (17 Wall.) 109


1. Under the 110th section of the Internal Revenue Act of 1864, as amended by the Act of July 13, 1866, taxing deposits in banks, an entry made in the depositor's pass book of a deposit or payment, is "a certificate of deposit," or "check," or "draft" within the meaning of the section.

2. Under the proviso to that section, savings banks are not exempt from taxation if they have a capital stock, or if they do any other business than receiving deposits to be lent or invested for the sole benefit of the person making such deposits.

3. The fact that, by an agreement between the savings bank and the depositor, money deposited with the bank shall be reimbursed only out of the first disposable funds that shall come into the hands of the bank after demand, being a regulation adopted but for an emergency, and not such as essentially impairs the just claim of a depositor, does not change the case.

The German Savings and Loan Society, at San Francisco, California, brought a suit in the court below against Oulton, collector of internal revenue, to recover back a tax of 1/24th

Page 84 U. S. 110

of 1 percent per month, for moneys deposited in the savings bank during the month of August, 1870.

The case was thus:

The 79th section of the Act of June 30, 1864, [Footnote 1] as amended by an act of July 13th, 1866, [Footnote 2] enacts:

"That every incorporated or other bank, and every company having a place of business where credits are opened by the deposit . . . of money or currency subject to be paid . . . upon draft, check, or order, or where money is advanced or loaned on stocks, bonds, bullion, bills of exchange or promissory notes . . . shall be regarded as a bank."

The 110th section of the same act as amended in the same way, enacts: [Footnote 3]

"That there shall be levied, collected, and paid a tax of 1/24th of 1 percent each month upon the average amount of the deposits of money, subject to payment by check or draft, or represented by certificates of deposits or otherwise, whether payable on demand or at some future day, with any person, bank, association, company, or corporation engaged in the business of banking."

But this section contains a proviso, thus:

"Provided that the deposits in associations or companies, known as provident institutions, savings banks, savings funds, or savings institutions, having no capital stock, and doing no other business than receiving deposits to be loaned or invested for the sole benefit of the parties making such deposits, without profit or compensation to the association or company, shall be exempt from tax on so much of their deposits as they have invested in securities of the United States, and on all deposits less than $500 made in the name of anyone person."

With these enactments in force, Oulton, collector of internal revenue at San Francisco, laid the aforesaid tax of 1/24th of 1 percent on the loan and savings institution named.

The society was organized under a statute of California, "to provide for the formation of corporations for accumulations

Page 84 U. S. 111

and investment of funds and savings," &c. It had a capital stock of $100,000, of which $60,000 had been paid in cash, the notes of the stockholders being given for the balance.

The capital stock was a part of the security which the depositors had. After paying expenses, 5 percent of the net profit of the bank was set aside for a reserve fund, and then 10 percent of the remainder set apart for the stockholders, who did not otherwise share in the dividends. And the reserve fund and the interest thereon was lent out and disposed of in the same manner as the deposits, and was kept in the same manner as the capital stock, as security for the depositors.

The bank received deposits, lent the money so deposited, and repaid it, together with the dividends arising from the interest on loans, to depositors, in accordance with the terms, conditions, and plans stated in a prospectus issued by the bank to depositors in a pamphlet, and an agreement thereto appended, which every depositor, upon making a deposit, signed.

Among these terms and conditions were these:

"All moneys now or hereafter deposited by me, shall be reimbursable only out of the first disposable funds that shall come into the hands of the corporation, after the date of any demand for the reimbursement thereof, and after payment of all sums for the reimbursement of which demand shall have been made prior to the date of my demand."

"The corporation will only engage to repay depositors when there is money on hand which the board of directors may not deem it necessary to reserve for other payments."

"When there is not money enough on hand to repay all the deposits applied for, the directors shall make no new loans nor investments until there is again sufficient money on hand to meet the current applications; and if the demand shall, in their judgment, become excessive or general, they shall have power to set aside all applications previously made which may not have been satisfied, and to order an apportionment of all the funds, as they may be got in, and at such short intervals as they may

Page 84 U. S. 112

judge proper, among all the ordinary depositors, in proportion to the amount of their deposits."

No money was received on deposit or held otherwise than upon the terms and conditions thus set forth in the prospectus and agreement.

No accounts had ever been opened or moneys received subject to payment on draft, check, or order. When a deposit was made a pass book was given to the depositor, and an entry of the deposit made in it and in the books of the bank. When the money was drawn the depositor presented his pass book, received his money and signed a receipt for it in the books of the bank, and an entry was made in the pass book. When the depositor could not appear in person to receive his money, he sent an order with the pass book, and on the production of the pass book and order the order was taken as a receipt and pasted in the receipt book in the place of the receipt, and the entry made in the pass book. No such order was ever paid without a presentation of the pass book with the order. In practice, although not obliged to do so, the company always intended to keep sufficient money on hand to meet all ordinary calls when made, and it always paid upon call, so long as there was money to do so. There had been one or two occasions when there was a heavy demand for money, and when it had not been able to meet on call all ordinary demands. Loans were usually made on real estate. This was the company's regular mode and business; but when unable to put all the deposits out on real estate, it lent them on other securities, such as mint certificates, bonds of the United States, state bonds, Oakland, San Francisco, and other bonds, San Francisco Gas Company and Spring Valley Water Works Company's stocks. But this was not the regular business of the company, and such loans were but temporary. The company did not lend on bills of exchange, or promissory notes without mortgages, and did not pay out money on drafts or checks. It issued certificates for "term deposits" not transferable, but the certificates were issued subject to the foregoing agreement. The certificate when made out was cut from a corresponding

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stump, and before delivery the party receiving it signed the receipt upon the stump, showing that it was received subject to the conditions of the said agreement upon which deposits were received.

As conclusions of law, the court found:

1st. That the company received no deposits of money subject to payment by check or draft, or represented by certificates of deposits, or otherwise, payable on demand, or at some future day, within the meaning of the revenue acts of the United States.

2d. That the moneys deposited with it were not subject to the tax assessed thereon and collected by the defendant.

3d. That the plaintiff was entitled to recover.

Judgment being entered accordingly in favor of the company, the collector brought the case here.

Page 84 U. S. 116

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