interest, and a contract which would undertake to permit his wanton destruction would be against public policy and void. It does not appear, however, that the liability of the defendant is to be governed by the federal statute. Congress has legislated on interstate shipments as applied to freight, but the act does not reach the questions herein involved, and in the absence of action by Congress the question must be determined by the law of Nebraska. There is no federal legislation touching the liability of railroads growing out of interstate transportation of persons."

The court then refers to Nebraska statute forbidding any limitation of liability by a railroad corporation as a common carrier as to passengers or freight, and this is construed to exclude any power by a railroad to limit liability as to one carried as the servant of another by any arrangement whatever.

It seems true that state law should control in a matter of this kind, but a fair reading of Nebraska statute seems to refer to limitation so far as contracts are concerned between the carrier and its customer. The phrase, "the liability of railroad companies as common carriers shall never be limited," occurs in a section referring to maximum rates, which, of course, means rates charged customers. But, then, it might be said that the servant impliedly authorizes his master to contract for him and, therefore, he stands as well as the master himself can stand, so far as limitation against liability by the carrier is concerned. One should not be allowed to contract in a way for another person for a limitation that would not be enforced against a person contracting in his own right.

INDEMNITY CONTINUATION CERTIFICATE IN SURETY BOND.--Chatham R. E. & I. Co. v. U. S. Fidelity & G. Co., 90 S. E. 88, decided by Georgia Court of Appeals, concerned recovery upon a bond for defalcation of an employe not discovered within six months after expiration of bond, said period being too late under the terms of said bond.

This bond began to run several years ago and was renewed each year by a continuation certificate, which provided that it was "subject to all the covenants and conditions of said original bond." The defalcation occurred between 1907 and 1909, but was not discovered until after employe's death in 1911. Suit was brought on the continuation certificate for the year ending in 1912. The court held that the six months' provision was carried over by the continuation certificate and the action was in

time.

The lower court followed a prior decision of of upper court, which showed not a continuation certificate but a new bond, and this case holds that case is to be distinguished. It was said "In that case the suit was brought upon the original bond, and it was attempted to set up liability upon other bonds. The bonds issued in that case bore limitations upon the liability of the company. In this case the continuation certificate was an extension of liability to end at a given date, adopting the original bond as a part of the continuation certificate, subject to all the covenants and conditions of the original bond."

We are unable so to construe the continuation certificate. At the time the original bond was taken out liability would have ended six months after its expiration. It does not appear that by a renewal bond it was intended to extend that period. This was a limitation in the original bond and the continuation certificate says it is subject to all the covenants and conditions of said original bond. Those covenants and conditions, therefore, stood, and the condition of six months' liability applied to the certificate just as to the original bond. There was no consideration for the company taking on responsibility for an old default merely by accepting a premium for a new period. It ought to be very clear, indeed, that there was extension of the period under the original bond or of any intervening continuation certificate.

THE FEDERAL FARM LOAN ACTII. TAX EXEMPTION PROVISION.

In General.-In Part I of this article. published in last week's issue of this journal,1 we discussed the constitutionality of this act in its general features. How about the tax exemption provision? The two great cases to which reference has been made-McCulloch v. Maryland2 and Osborn v. Bank3-arose by reason of efforts on the part of the State of Maryland in the one case and of Ohio, on the other, to tax the United States Bank. The former was an action of debt brought by the State of Maryland against McCulloch, the cashier of a branch of the bank operating in the

city of Baltimore, to recover penalties to which it was alleged he was subject for issuing notes on paper other than stamped paper provided by said state, procurable only upon payment of a tax, as prescribed by the state law. The statute obligated in terms every bank not chartered by the Maryland Legislature to issue its notes. only upon such stamped paper, from which requirement it could be relieved by the annual payment of $15,000.

It was on the consideration of this feature of the case that the court asserted epigrammatically that the power to tax is the power to destroy. If the State of Maryland could tax the bank $15,000 a year, it could tax it out of existence. Indeed, the requirement of the law probably was prohibitive and was intended to be prohibitive. | To concede such a right in a state would be to concede its right to destroy the instrumentalities designed and called into existence by the federal government for the discharge of its functions.

Agitation Over Attempt to Collect Tax on National Banks.-The waves of passion aroused by the continuing agitation over the constitutionality of the bank acts, aggravated rather than stilled by the decision in the McCulloch case, as well as over the wisdom of the law from an economic and governmental standpoint, ran high in the state of Ohio. Ohio demanded $50,000 apiece from those located within her borders. That state assumed a leadership in the war upon the bank. Undeterred by the decision in the McCulloch case, rendered March 6, 1819, the state authorities spurred by the intense enmity that prevailed, announced their determination to collect the tax for which the state law declared a liability. The bank on September 14, 1819, the day before that on which the tax became due, filed a bill in equity to enjoin them, and secured a restraining order which, however, was not served, until the 18th, though the fact that it had been issued was publicly known on the 17th, when agents of the state auditor appeared at the branch bank at Chillicothe, leaped over

the counter, seized the vaults of the bank, and forcibly collected the tax. By supplemental averments these facts were presented and further appropriate relief was asked. The Circuit Court granted the relief prayed for, and the Supreme Court, on appeal, upon a review of both questions to which it addressed itself in the McCulloch case, reaffirmed the doctrines it asserted.

Mention is made of the conditions out of which the Osborn and McCulloch cases arose, not alone because of their historical interest, but because they serve to emphasize the fact that the tax denounced was one levied upon the operations of the bank, as distinguished from a tax upon its property. Such a distinction was made in the Pacific Railroad cases, in which exemption from state taxation was claimed for all properties of the transcontinental lines upon the ground that they were agencies created or adopted by the federal government to effectuate national purposes. It was asserted and refuted first in the case of Thompson v. Pacific Railroad, in which immunity was claimed on behalf of a government aided road organized under a state charter, and later in Railroad Co. v. Peniston, in which the claimant was a corporation created by virtue of an act of Congress. It is under the doctrine and upon the authority of these cases that reliance is placed, for the greater part, for the claim that the tax exemption section of the bill under review is void.

Rulings Under Existing National Bank Act.-Before entering upon an examination of those cases, it will be particularly pertinent to inquire as to the rulings of the courts concerning the power of the states to tax the existing national banks or their property. The analogy between them and the national land banks about to be brought into being is much more close, if, indeed, so far as the question under consideration is concerned, there is not entire identity between the two kinds of national banks. (4) 9 Wall., 579. 18 Wall., 5.

(5)

The national bank act in terms authorizes the states to tax the owners or holders of shares of national banks at the rate at which other moneyed capital is assessed, and any bank on its real estate as other real estate is assessed.

In Owensboro National Bank v. Owens

boro, the court, considering the validity of a statute of the state of Kentucky under which a tax is laid upon the bank under a valuation equal to the sum of its capital, surplus and undivided profits, said:

"Early in the history of this government, in cases affecting the Bank of the United States, it was held that an agency, such as that bank was adjudged to be, created for carrying into effect national powers granted by the Constitution, was not in its capital, franchises and operations subject to the taxing powers of a state."

"The principles settled by the cases just referred to and subsequent decision were thus stated by this court in Davis v. Elmira Savings Bank :

'National banks are instrumentalities of the federal government, created for a public purpose, and as such necessarily subject to the paramount authority of the United States. It follows that an attempt, by a state, to define their duties or control the conduct of their affairs is absolutely void, wherever such attempted exercise of authority expressly conflicts with the laws of the United States, and either frustrates the purpose of the national legislation or impairs the efficiency of these agencies of the federal government to discharge the duties, for the performance of which they were created. These principles are axiomatic and are sanctioned by the repeated adjudications of this court."

"It follows then necessarily from these. conclusions that the respective states would be wholly without power to levy any tax, either direct or indirect, upon the national banks, their property, assets or franchises, were it not for the permissive legislation of Congress.""

And then, after quoting Section 5219, R. S., U. S., touching the authority of the states to tax a national bank, the court adds:

"This section, then, of the Revised Statutes is the measure of the power of a state to tax national banks, their property or their franchises. By its unambiguous provisions the power is confined to a taxation of the shares of stock in the names of the shareholders, and to an assessment of the real estate of the bank. Any state tax therefore which is in excess of and not in

conformity to these requirements is void.”

It would seem as though this case left no room for argument that neither the capital nor the property of national banks is subject to taxation by the states except as Congress may expressly consent. But it is advanced that the sole question involved in that case was the right to tax the franchise of the bank, the imposition being referred to as "franchise" taxes. The plain declaration of the court that the property of a national bank is not taxable except as prescribed in Section 5219 is denounced as obiter. Without pausing further to inquire into the justice of that criticism, it will be sufficient to remark that the decision in Rosenblatt v. Johnston, 104 U. S. 462, appears to be a direct adjudication of the point. The opening sentence of the brief opinion is as follows:

case

"The single question in this is, whether the personal assets and personal property of an insolvent national bank in the hands of a receiver appointed by the comptroller of currency, in accordance with the provision of Section 5234 of the Revised Statutes, are exempt from taxation under state laws, and we have no hesitation in saying that in our opinion they are.'

The opinion asserts that the receiver holds for the bank, whose corporate existence is continued, the thought in the mind of the court evidently being that the property being exempt were the bank operating, it is exempt in the hands of the receiver. This is the view taken of the effect of that decision in People v. National Bank of D. O. Mills & Co.10 The proposition being canvassed, as it was presented in that case, is stated in the opinion thus:

"The attorney-general does not deny that a national bank is a fiscal agent of the

(10) 123 Cal., 52.

United States, created by it as a means of exercising its powers. Nor does he apparently question the power of Congress to limit or deny the right of the state to tax its property; but he contends that, although the state cannot tax an agency of the United States, it may tax the property of its agents, -at least, where there is no express inhibition by Congress,--and that taxation of the personal property of a bank, as other like property in the state is taxed, is not prohibited, either expressly or impliedly, by the act of Congress."

Touching the question so raised, Temple, J., for the court, said:

"It seems to me that the precise question was determined in Rosenblatt v. Johnson, 104 U. S. 462, 26 L. ed. 832. A state attempted to tax the personal assets of an insolvent national bank. It was quite naturally thought that it had then ceased to be a governmental instrumentality. In a short opinion by the chief justice it was held that, as the assets still belonged to the corporation, they were exempt, under Section 5234 of the Revised Statutes of the United States. In Covington City Nat. Bank v. Covington, 21 Fed. Rep. 489, Mr. Justice Matthews refers to the case. After asserting the power of Congress in the premises, he says: 'It has in fact withdrawn them and their property from the domain of state taxation, except so far as it has expressly consented that they may be taxed. That consent, so far as it has been given, is contained in Section 5219 of the Revised Statutes. It does not permit taxation of any property belonging to the bank, except only its real estate, as clearly appears from Rosenblatt v. Johnston."11

This decision was followed in First National Bank of San Francisco v. City and County of San Francisco,12 and in San Francisco V. Crocker-Woolworth Natl.

The basis of the claim advanced therein is briefly but comprehensively stated in the opinion in the Thomson case, as follows:

"It is urged that the aids granted by Congress to the road were granted in the exercise of its constitutional powers to regulate commerce, to establish post-offices and post-roads, to raise and support armies, and to suppress insurrection and invasion; and that by the legislation which supplied aid, required security, imposed duties, and finally exacted, upon a certain contingency, a percentage of income, the road was adopted as an instrument of the government, and as such was not subject to taxation by the state."

9914

It will be remembered that the company claiming the exemption in that case was not a federal corporation. Frequent mention of that fact is made in the opinion in connection with the remark of the chief justice in the Osborn case to the effect that "It (the bank) is not an instrument which the government found ready made, and has supposed to be adapted to its purposes, but one which was created in the form in which it now appears, for national purposes only." But, as stated, the doctrine announced in the Thomson case was afterwards applied in the Peniston case, in which a corporation created by act of Congress claimed the exemption.

No effort will be made to demonstrate a complete harmony between those cases and the later decisions in relation to the property of national banks. Doubtless there is an essential difference between means employed by the government and the property of agents employed by the government. At least the court in the Thomson case stated that there is a clear distinction between them, and then added:

"Taxation of the agency is taxation of the means taxation of the property of the agent is not always, or generally, taxation of the means."

And in the Peniston case the same idea was expressed in this language:

"Here is a clear distinction made between a tax upon the property of a government

(14) Thomson V. Pacific Railroad, 9 Wall., 587.

agent and a tax upon the operations of the agent acting for the government."

"This distinction, so clearly drawn in the earlier decisions, between a tax on the property of a governmental agent, and a tax upon the action of such agent, or upon his right to be, has ever since been recognized. All state taxation which does not impair the agent's efficiency in the discharge of his duties to the government has been sustained when challenged, and a tax upon his property generally has not been regarded as beyond the power of a state to impose."15

The court had in mind the embarrassing consequences that would result from acceptance of the views urged upon it by the representatives of the railroad companies, saying, in the earlier case:

"It would remove from the reach of state taxation all the property of every agent of the government. Every corporation engaged in the transportation of mails, or of government property of any description, by land or water, or in supplying materials for the use of the government, or in performing any service of whatever kind, might claim the benefit of the exemption. The amount of property now held by such corporations, and having relations more or less direct to the national government and its service, is very great. And this amount is continually increasing; so that it may admit of question whether the whole income of the property which will remain liable to state taxation, if the principle contended for is admitted and applied in its fullest extent, may not ultimately be found inadequate to the support of the state governments."

Having in mind another important consideration presently to be adverted to, the court thus announced its ultimate conclusion:

"It is, therefore, manifest that exemption of federal agencies from state taxation is dependent, not upon the nature of the agents, or upon the mode of their constitution, or upon the fact that they are agents, but upon the effect of the tax; that is, upon the question whether the tax does in truth deprive them of power to serve the government as they were intended to serve it, or does hinder the efficient exercise of their power. A tax upon their property has no such necessary effect. It leaves them free to discharge the duties they have undertaken

(15) Id. 36. Railroad Company v. Peniston, 18 Wall., 35, 36.

to perform. A tax upon their operations is a direct obstruction to the exercise of federal powers."

The attention of the Supreme Court was called to those decisions in a recent case, in the opinion in which a suggestion was thrown out through which whatever of irreconcilable inconsistency there may be between the railroad cases and the bank cases may disappear. The reference is to Central Pacific Railroad Company v. California,10 in which an attempt was made to apply the doctrine declared in California v. Pacific Railroad Companies, 127 U. S. 1, that the state cannot impose a license or other franchise tax up on the transcontinental railroads created or aided through national legislation. After reviewing the decisions in the earlier cases, the court, in 162 U. S. 125, remarked:

"It may be regarded as firmly settled that although corporations may be agents of the United States, their property is not the property of the United States, but the property of the agents, and that a state may tax the property of the agents, subject to the limitations pointed out in Railroad Co. v. Peniston. Van Brocklin v. Tennessee."

And then follows this significant language:

"Of course, if Congress should think it necessary for the protection of the United States to declare such property exempted, that would present a different question. Congress did not see fit to do so here."

Reference is repeatedly made in the Thomson case to the fact that Congress had not declared that the property of the railroad company should be exempt. The importance which this feature of the case assumed in the mind of the court may be gathered from the observations taken from the opinion:

"It is to be observed that this exemption is not claimed under any act of Congress."

"It is claimed that this state corporation, owing its being to state law, and indebted for these benefits to the consent and active interposition of the state legislature, has a

(16) 162 U. S., 91.

(17) 117 U. S., 151, 177.