Opinion
No. 43515.
May 31, 1938.
Valentine B. Havens, of New York City (Charles B. McInnis and Olcott, Paul, Havens Wandless, all of New York City, on the brief), for plaintiff.
Guy Patten, of Washington, D.C., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
Action by Tubize Chatillon Corporation against the United States for the amount of documentary stamp transfer taxes paid under protest.
Petition dismissed.
This case having been heard by the Court of Claims, the court, upon a stipulation by the parties and the evidence, makes the following special findings of fact:
1. Plaintiff is a corporation organized and existing under the laws of the State of Delaware as a new corporation, created by the filing, on March 12, 1930, in the office of the Secretary of State (and otherwise complying with the laws of that State) of an agreement of merger and consolidation between Tubize Artificial Silk Company of America and American Chatillon Corporation, both of which last named Companies were separate and distinct industrial corporations existing under the laws of the State of Delaware and engaged in business for a number of years prior to their merger and consolidation.
By the terms of the agreement of merger and consolidation, which constituted plaintiff's charter the objects and purposes for which plaintiff was created, among others, were as follows:
1. To manufacture, buy, sell, deal in, exchange and transport artificial silk made of acetate of cellulose, or of viscose cellulose, or of nitro-cellulose, or of cuprammonium cellulose, or any other rayon or artificial silk.
* * * * * * * * * *
"6. To acquire, own, manage, operate, hire, rent, lease, mortgage, sell and/or exchange real estate.
* * * * * * * * * *
"15. To purchase or otherwise acquire the whole or any part of the property, assets, business, good-will, and rights and to undertake or assume the whole or any part of the bonds, mortgages, franchises, leases, contracts, indebtedness, guarantees, liabilities and obligations of any person, firm, association, corporation, or organization, and to pay for the same or any part or combination thereof in cash, shares of the capital stock, bonds, debentures, debenture stock, notes, and other obligations of the Corporation or otherwise, or by undertaking and assuming the whole or any part of the liabilities or obligations of the transferor; and to hold or in any manner dispose of the whole or any part of the property and assets so acquired or purchased, and to conduct in any lawful manner the whole or any part of the business so acquired and to exercise all the powers necessary or convenient in and about the conduct, management, and carrying on of such business."
A copy of the agreement of merger and consolidation, dated January 24, 1930, is marked "Stipulation Exhibit 1" and by reference made part hereof.
2. Tubize Artificial Silk Company of America (hereinafter referred to as "Tubize"), was organized on March 2, 1920, and from the outset was engaged in the manufacture of artificial silk yarn by what is known as the nitro-cellulose process. It needed, in order to meet competition, to diversify its products by adding one or more of the other processes then available for the production of artificial silk, which could be done either by the acquisition of new rights and the construction of new plants or by consolidating with some company already equipped along these lines. It had valuable contacts with consumers, and also had one of the best sales organizations of artificial silk in this country.
3. American Chatillon Corporation (hereinafter referred to as "American") was organized on April 26, 1928, and at the time of the merger had recently completed and put in operation two plants located at Rome, Georgia, for the manufacture of artificial silk, one by the viscose process and the other by the acetate process. It owned the American rights to the acetate silk patents under which another company was operating in Italy, and it also had the right to receive royalties from the grant of rights in these patents in other foreign countries, which were estimated to be of great value. It was in need of an adequate sales organization and proper contacts with large consumers.
4. At the time of the merger and consolidation of "Tubize" and "American" a large part of the stock of each of these corporations was held by voting trustees under voting trust agreements as follows:
The "Tubize" Company
On December 15, 1923, a Voting Trust Agreement was entered into between the owners of a large proportion of the stock of "Tubize", Roland L. Taylor, Rufus W. Scott, and John Wyckoff Mettler as Voting Trustees, and said corporation, pursuant to which Agreement said stockholders transferred and assigned to said Voting Trustees a total of 87,368 shares of the Class A and Class B Common Stock of said corporation. Said stock was to be held by said trustees for ten years from the date of said Agreement unless, in the discretion of said trustees, the trust was sooner terminated and said stock surrendered and transferred back to the depositing stockholders. Voting Trust Certificates were issued to said depositing stockholders, representing the number of shares so deposited and transferred by each of them to said Voting Trustees and to which they would be entitled at the termination of said trust. By the terms of said Agreement it was provided in part as follows:
"Ninth: The Voting Trustees shall possess, and shall be entitled, in their discretion, subject to the provisions hereof, to exercise all rights and powers of absolute owners of said stock, including the right to vote for every purpose and to consent to any corporate act of the Company, and to receive cash dividends on said stock; it being expressly stipulated that no voting right passes to others by or under the Voting Trust Certificates or by or under this Agreement, or by or under any agreement, express or implied. * * *
"Thirteenth: The term Company, for the purpose of this Agreement and for all rights hereunder, including the issue and delivery of stock, shall be taken to mean the above named Tubize Artificial Silk Company of America, or any corporation or corporations successor to it."
This agreement further provided that the depositing stockholders, during the period of the trust, would be entitled "* * * to receive payments equal to the cash dividends, if any, collected by the Voting Trustees upon a like number of such shares standing in their names."
Stamp taxes on the transfer by the respective stockholders to the voting trustees of the shares heretofore mentioned were duly paid and are not in issue in this case.
A copy of the voting trust agreement of December 15, 1923, is marked "Stipulation Exhibit 2," and by reference made a part hereof.
The "American" Company.
On June 10, 1929, a voting trust agreement was entered into between the owners of a large proportion of the stock of "American," Rufus W. Scott, John Wyckoff Mettler, D.M. Balsam, Gerrish H. Milliken, and W.W. McLellan as voting trustees, and said corporation, pursuant to which agreement the stockholders transferred and assigned to the voting trustees a total of 310,507 shares of the common stock of that corporation. This stock was to be held by the trustees for ten years from the date of the agreement unless, in the discretion of the trustees, the trust was sooner terminated and the stock surrendered and transferred back to the depositing stockholders. Voting trust certificates were issued to the depositing stockholders, representing the number of shares so deposited and transferred by each of them to the voting trustees and to which they would be entitled at the termination of the trust.
By the terms of this agreement, the rights, powers, and privileges of all the parties thereto, respectively, were, for all practical purposes of this case, substantially the same as those of the respective parties under the similar contract in the case of "Tubize" Company, above mentioned. Stamp taxes on the transfer by the respective shareholders to the voting trustees of the shares heretofore mentioned were duly paid and are not in issue in this case.
A copy of the voting trust agreement of June 10, 1929, is marked "Stipulation Exhibit 3" and by reference made part hereof.
5. For the purpose of effecting the respective objects sought by the corporations, as set forth in paragraphs 2 and 3 of the voting trust agreement, the "Tubize" and "American" Companies entered into the agreement of merger and consolidation dated January 24, 1930, and heretofore identified as "Stipulation Exhibit 1." As a result of the agreement of merger and consolidation the plaintiff herein, by the terms thereof, became the New Corporation and there was lodged in, and plaintiff acquired, legal title to all the properties and assets of the "Tubize" and "American" Companies. This agreement provided among other things as follows:
"Fourteenth: The manner and basis of converting the shares of each of the constituent corporations into the stock of the Consolidated Corporation shall be as follows:
"When this Agreement of Merger and Consolidation shall have become effective, the stockholders of the respective constituent companies are hereby required to, and shall surrender their certificates of stock, duly endorsed in blank, to the Consolidated Corporation at such office or agency as the Board of Directors may designate for that purpose, and the Consolidated Corporation shall thereupon issue to the stockholders so surrendering their old certificates in exchange therefor certificates of stock of the Consolidated Corporation in the following amounts:
"For each share of Preferred Stock of American Chatillon Corporation so surrendered — One share of 7% Cumulative Convertible Preferred Stock Series A of the Consolidated Corporation.
"For each share of Common Stock of American Chatillon Corporation so surrendered — One share of Class A Common Stock of the Consolidated Corporation.
"For each share of Preferred Stock of Tubize Artificial Silk Company of America so surrendered — One share of 7% Cumulative Preferred Stock Series B of the Consolidated Corporation.
"For each share of the Class A Common Stock or Class B Common Stock of Tubize Artificial Silk Company of America so surrendered — Six shares of the Class B Common Stock of the Consolidated Corporation.
* * * * * * * * * *
"Upon surrender of certificates of stock of the constituent corporations, the Consolidated Corporation shall cancel the same and retain possession of the cancelled certificates until such time as it may elect to dispose of them.
* * * * * * * * * *
"Eighteenth: This Agreement of Merger and Consolidation shall, as soon as practicable and not later than April 1, 1930, be submitted to the stockholders of each of the constituent corporations, as provided by law, and if the votes of the stockholders of each constituent corporation, to the extent required by law and by the respective certificates of incorporation, shall be for the adoption of this Agreement of Merger and Consolidation, it shall take effect and be deemed and taken to be the Agreement of Merger and Consolidation of the constituent corporations upon the filing and recording thereof as required by law.
* * * * * * * * * *"
6. On January 24, 1930, both "American" and "Tubize" mailed notices to their stockholders for special meetings of their respective stockholders (not including holders of voting trust certificates) to consider and vote on the adoption of the agreement of merger and consolidation heretofore mentioned, and enclosed therewith were proxies to be executed by such stockholders in connection with voting at such special meetings, respectively. On the same day each of the companies also mailed to their respective stockholders and holders of voting trust certificates for their common stock a statement setting forth the plan of merger and consolidation dated January 24, 1930, and a form of proxy and authorization to be executed by the holders of voting trust certificates under the voting trust agreements of June 10, 1929, and December 15, 1923, respectively.
A copy of each of the foregoing instruments is marked "Stipulation Exhibits 4, 5, 6, 7, 8, 9, 10, and 11," respectively, and by reference made part hereof.
The proxies and authorizations to be signed by the holders of voting trust certificates in each of the corporations (Stipulation Exhibits 10 and 11, supra) provided alike, among other things, that the holder of a voting trust certificate or certificates did thereby authorize the voting trustees as such, and as the attorneys and agents of the signers thereof, to vote at the aforesaid special meetings of the stockholders of the corporations, respectively, in favor of the adoption of the agreement of merger and consolidation between "American" and "Tubize" and in favor of the resolutions authorizing the taking of all action necessary or convenient for the purpose of carrying out the agreement. These proxies and authorizations also expressly authorized and empowered the voting trustees as such, and as the attorneys and agents of the signers thereof, and on their behalf, if and when agreement of merger and consolidation should become effective, to surrender the certificate or certificates for shares of stock of "American" and "Tubize," respectively, represented by the voting trust certificates held by the signers, and to receive in exchange therefor a certificate or certificates for shares of the stock of Tubize Chatillon Corporation, the plaintiff, according to the terms of the agreement of merger and consolidation, and as voting trustees to continue to hold the shares received in such exchange under and pursuant to the terms of the voting trust agreements of December 15, 1923, and June 10, 1929, respectively.
7. The foregoing "Proxies and Authorizations" were executed and returned by the stockholders and by all of the holders of voting trust certificates, and on March 6, 1930, in the case of "American," and at an adjourned meeting held on March 12, 1930, in the case of "Tubize," the stockholders of both corporations duly and legally approved the agreement of merger and consolidation, and on March 6, 1930, the agreement was also approved by the Board of Directors of "American." The Board of Directors of "Tubize" approved the agreement at a meeting held on January 6, 1930.
A copy of the minutes of each of the meetings is marked "Stipulation Exhibits 12, 13, 14, and 15," respectively, and by reference made part hereof.
8. On March 14, 1930, the first meeting of the Board of Directors of plaintiff was held, at which time a resolution was adopted authorizing and directing the officers of plaintiff to issue certificates for its stock in exchange for the stock of "American" and "Tubize," upon the basis and in the manner provided in the agreement of merger and consolidation, and authorizing and directing the execution of voting trust agreements supplemental to the voting trust agreements of December 15, 1923, relating to "Tubize," and of June 10, 1929, relating to "American."
A copy of the resolution is marked "Stipulation Exhibit 16," and by reference made part hereof.
9. Thereafter, as of March 25, 1930, and March 31, 1930, supplemental voting trust agreements were entered into between plaintiff and the aforesaid groups of persons who were voting trustees under the voting trust agreements relating to "Tubize" and "American," respectively, and such holders of voting trust certificates in each of the old companies, respectively, "as may accept voting trust certificates" for stock of plaintiff, by the terms of which it was agreed (a) that the voting trustees would surrender to plaintiff the certificates for all the shares held by them as trustees in the old companies (a total of 397,875 shares), (b) that plaintiff would issue and deliver to them as voting trust certificates for a total of 834,715 of its shares; (c) and upon surrender by the holders of their voting trust certificates in the old companies, the voting trustees would issue and deliver to the holders voting trust certificates representing the number of shares to which each such holder was entitled in the plaintiff corporation under the agreement of merger and consolidation (certificates representing a total of 834,715 shares).
A copy of each of the agreements is marked "Stipulation Exhibits 17 and 18," respectively, and by reference made part hereof.
10. On April 1, 1930, voting trustees, respectively, surrendered all the stock held by them as such trustees of "American" and "Tubize" to plaintiff, and plaintiff issued and delivered to the respective voting trustees certificates for a total of 834,715 shares of its stock. On the same day both groups of trustees sent notices to their respective holders of voting trust certificates, advising them the manner and form in which to surrender their old certificates, and obtain voting trust certificates representing the shares to which they were entitled in the plaintiff corporation.
A copy of each of said notices is marked "Stipulation Exhibits 19 and 20," respectively, and by reference made part hereof.
All the holders of the voting trust certificates for "American" and "Tubize" stock have surrendered their old certificates and there have been issued to them voting trust certificates representing the shares to which they were entitled in the plaintiff corporation.
11. On September 18, 1930, plaintiff paid an original issue tax upon the issuance of its capital stock in the total sum of $14,616.31, no part of which is in issue in this case.
Upon notice and demand by the Commissioner of Internal Revenue, plaintiff, on April 13, 1935, under protest paid to the Collector of Internal Revenue for the Third District of New York documentary stamp transfer taxes in the sum of $16,694.30. The tax was imposed by defendant at the rate of 2 cents a share on the alleged transfer by the holders of the beneficial interest in the plaintiff corporation (the holders of voting trust certificates in "American" and "Tubize") of their rights to receive 834,715 shares of plaintiff's stock to the voting trustees, under the provisions of Schedule A-3, Title 8, of the Revenue Act of 1926, as amended. 26 U.S.C.A. § 902 and note.
12. On May 31, 1935, plaintiff duly filed its claim in which it asked for the refund of $16,694.30, upon the following grounds:
"(a) The tax was assessed in respect to a transfer which did not take place.
"(b) The voting trust certificate holders of the American Chatillon Corporation and of the Tubize Artificial Silk Company of America did not have legal title to the stock of those companies and did not have a right to receive the certificates evidencing legal title to the stock of the Tubize Chatillon Corporation and, therefore could not and they did not transfer the same to the voting trustees, or otherwise.
"(c) If a tax in the amount assessed is payable, it is not properly assessable against or payable by the undersigned, Tubize Chatillon Corporation, for:
"(1) It was not the transferee or transferor.
"(2) No transfer or other entry was made upon its books or records and no act on its part was incident or contributory to the alleged transaction in respect of which the assessment has been made."
A copy of the claim for refund is marked "Stipulation Exhibit 21", and by reference made part hereof.
13. Plaintiff's claim for refund was rejected by the Commissioner of Internal Revenue on October 4, 1935, and plaintiff was duly notified thereof by letter of the same date.
A copy of the letter is marked "Stipulation Exhibit 22", and by reference made part hereof.
14. Plaintiff is the sole owner of the claim sued upon and has never transferred or assigned the same, or any part thereof, or any interest therein, and no action other than that herein mentioned has been had upon said claim in Congress, or before any of the Departments of the Government.
15. The action taken by American, Tubize, and plaintiff constituted a statutory merger under the then existing Corporation Laws of Delaware; and no action, other than stipulated, was taken by the corporations, or either of them, in respect to the consolidation and merger, or in respect to effecting a formal dissolution of either of the corporations, or in respect to the formal transfer of the properties of American and Tubize to plaintiff.
The sum of $16,694.30 has been covered into the Treasury of the United States and is still retained by defendant, without the consent and against the will of plaintiff.
The plaintiff corporation paid the stamp taxes involved in this case. A refund claim was timely filed. The Commissioner of Internal Revenue denied the claim and this suit was brought within the statutory period provided for so doing.
The facts have been stipulated. Insofar as pertinent in an opinion they are as follows:
The Tubize Artificial Silk Company of America and the American Chatillon Corporation were Delaware corporations engaged in the manufacture and sale of commodities of a somewhat similar character. The plaintiff corporation, also organized under the laws of Delaware, was organized and capitalized for the purpose of effecting a merger of the first two corporations.
The capital stock of the Tubize Artificial Silk Company and the Chatillon Corporation was held under express agreements by voting trustees. The depositing owners of the stock possessed voting trust certificates evidencing their individual interest in the stock transferred to the voting trustees.
The agreement of merger and consolidation under the laws of Delaware enabled the plaintiff when it received its charter to acquire all the assets of the two corporations to be merged, and the plaintiff was to and did issue to the voting trustees one share of preferred stock for each share of preferred stock of the old corporation, one share of common stock for each share of common stock of the American Chatillon Corporation, and six shares of common stock for each share of common stock of the Tubize Artificial Silk Company. A total of 834,715 shares of new stock was issued.
Prior to the date of the agreement of merger and consolidation, and pending its execution, the voting trustees who held the stock of the two corporations involved mailed to each holder of voting trust certificates a formal and explanatory "Proxy and Authorization" empowering the voting trustees to consummate the merger agreement if they assented to the same.
The voting trustees received in due course authority to enter into the merger agreement, and as a result a new or supplemental agreement was entered into between the plaintiff, the old group of voting trustees, and the owners of voting trust certificates in the two old corporations to be merged, whereby the stock to be issued by the plaintiff corporation in lieu of stock surrendered by the old stockholders was to be delivered to the new voting trustees, and it was so delivered.
The Commissioner of Internal Revenue imposed a tax of two cents a share on the transfer by the owners of voting trust certificates of the old corporations of their right to receive the 834,715 shares of new stock delivered in accord with the voting trustees' agreement to the voting trustees provided for in the supplemental voting trust agreement. The Commissioner justified his action under Schedule A-3 of Section 800, Title 8, of the Revenue Act of 1926, 26 U.S.C.A. § 902 and note, a copy of which is appended to this opinion. The amount involved and sued for is $16,694.30.
The plaintiff's contention is predicated upon the provisions of the voting trust agreement. It is argued, as it was in some cases to be hereafter cited, that this agreement transferred from the owners of the stock a title and possessory right equal in extent to the powers possessed by the absolute owners, and hence the right to receive the new stock resided in the voting trust trustees.
It is also asserted that the procurement of proxies by the voting trust trustees conferring authority to enter into the merger agreement was nothing more than a precautionary proceeding, not in any sense requisite to the exercise of an authority previously conferred and at the time existing. In other words, it is insisted that the trustees possessed plenary power and authority to effect the merger and exchange of stock under the voting trust agreement.
To analyze and determine the legal consequences, as well as the scope and meaning of the voting trust agreement by citing its provisions, is, we think, unnecessary. This agreement is the usual one appearing in cases of a similar nature, and assuredly it may not be held that the owners of the stock deposited with the trustees surrendered their beneficial interest in the same.
The right to receive, the substantial factor in transactions of the kind involved in this case, resided primarily in the owners of the stock, and thereafter in the owners of voting trust certificates. The legal right to receive, though postponed by intervening events, was attached to and remained with the original owners, and was we think transferred to the voting trust trustees.
In addition to what has been said, the execution of proxies by the owners of voting trust certificates to the voting trust trustees evidenced a transfer of the right to receive which they possessed. This act in its entirety clearly discloses the extent of the authority conferred upon the trustees by the voting trust agreement. The trustees were unwilling to proceed without it, and the legal significance which follows is the fact that the parties to the proxies participated in the transaction and gave it their approval. It was their construction of the power and authority conferred by the original voting trust agreement.
The following cases preclude the plaintiff's right to recover; the principles of law established by them are manifest and familiar. The plaintiff, we think, has failed to distinguish its case from what the Supreme Court decided with respect to transactions of a similar character, and in our opinion are conclusive with respect to issues involved herein. Raybestos-Manhattan, Inc., v. United States, 296 U.S. 60, 56 S.Ct. 63, 80 L.Ed. 44, 102 A.L.R. 111; Middle States Petroleum Corporation v. United States, 18 F. Supp. 945, 85 Ct.Cl. 232; Founders General Corporation v. Hoey, United States v. A.B. Leach Co., United States v. Automatic Washer Co., 300 U.S. 268, 57 S.Ct. 457, 81 L.Ed. 639.
Plaintiff's petition is dismissed. It is so ordered.
APPENDIX
"Sec. 800 of the Revenue Act of 1926, as amended 26 U.S.C.A. § 900 and note:
"On and after the expiration of thirty days after the enactment of this Act there shall be levied, collected, and paid, for and in respect of the several bonds, debentures, or certificates of stock and of indebtedness, and other documents, instruments, matters, and things mentioned and described in Schedule A of this title, or for or in respect of the vellum, parchment, or paper upon which such instruments, matters, or things, or any of them, are written or printed, by any person who makes, signs, issues, sells, removes, consigns, or ships the same, or for whose use or benefit the same are made, signed, issued, sold, removed, consigned, or shipped, the several taxes specified in such schedule. The taxes imposed by this section shall, in the case of any article upon which a corresponding stamp tax is now imposed by law, be in lieu of such tax." [ 44 Stat. 99].
Schedule A-3 (Act of 1926 as Amended, 26 U.S.C.A. § 902 and note):
"Sales and Transfers of Stock
"Capital stock, sales or transfers: On all sales, or agreements to sell, or memoranda of sales or deliveries of, or transfers of legal title to shares or certificates of stock or of profits or of interest in property or accumulations in any corporation, or to rights to subscribe for or to receive such shares or certificates, whether made upon or shown by the books of the corporation, or by any assignment in blank, or by any delivery, or by any paper or agreement or memorandum or other evidence of transfer or sale, whether entitling the holder in any manner to the benefit of such stock, interest, or rights, or not, on each $100 of face value or fraction thereof, 2 cents, and where such shares are without par or face value, the tax shall be 2 cents on the transfer or sale or agreement to sell on each share: * * *."