Reeves v. East Cairo Ferry Co.

Opinion of the Court .by Judge Cammack Reversing. In October, 1940, the Division of Income Tax of the Department of Revenue made deficiency assessments against the East Cairo Ferry Company in the amount of $974.82 for income taxes for the calendar year 1936 with six per cent interest thereon from May, 1937. The sum of $282.53 represented tax liability on income earned by • the East Cairo Ferry Company in 1936 and the balance of $692.29 represented a tax on a liquidating dividend owed by the Mound City Ferry Company. The East Cairo Company acquired the Mound City Company in January, 1934, and both companies sold and transferred all of their assets to the Cairo Bridge Commission late in 1936. A few days after the Department of Revenue finally approved the deficiency assessments, the East Cairo Company, through its last president, petitioned the Franklin Circuit Court for a review of and relief from the deficiency assessments, and asked that the ap *385 pellants be enjoined from collecting or attempting to collect any income tax from tbe Cairo Company for tbe year 1936. Tbe trial court granted tbe Company tbe relief prayed; bence this appeal. Reversal is urged upon tbe grounds that (1) tbe re- ■ lief granted was broader than that asked; and (2) tbe Commonwealth bas a right to look to tbe stockholders of a dissolved corporation for its unpaid taxes. We gather from tbe briefs that at tbe time this action was filed another was filed seeking a review of tbe deficiency assessment of $692.29 against tbe Mound City Ferry Company and that tbe outcome of that proceeding was a finding in favor of tbe Commonwealth. While tbe Company asked that tbe whole assessment of $974.82 be reviewed, tbe only part thereof which appears to be seriously challenged is tbe tax on tbe liquidating dividend from tbe Mound City Company. We find no basis whatever for challenging tbe item of $282.53 which represents tbe deficiency assessment on the operating income of tbe Cairo Company for 1936. It was pointed out in tbe case of Chesapeake, Ohio & Southwestern R. R. Co. v. Griest, 85 Ky. 619, 4 S. W. 323, 9 Ky. Law Rep. 177, that where a corporation is dissolved or is consolidated its assets become a trust fund for tbe payment of its debts and may be reached by proceeding against tbe stockholders of tbe old company in a court of equity. Tbe case of American Railway Express Company v. Commonwealth, 190 Ky. 636, 228 S. W. 433, 441, 30 A. L. R. 543, involved tbe question as to whether tbe American Railway Express Company could be held liable for certain judgments obtained by tbe Commonwealth against tbe Adams Express Company. Tbe American Express Company was organized for tbe purpose of taking over tbe property and business of tbe Adams Company, and tbe Adams Company transferred all of its property to tbe American. In bolding tbe American liable for tbe Commonwealth’s claims against tbe Adams Company this Court said that, since all that a corporation bas for tbe payment of its debts is its property, tbe law, for tbe protection of creditors, bas impressed tbe property with a trust character for tbe payment of tbe debts “and said that tbe corporation bolds it for tbe benefit of its creditors, and when it parts with this property, getting in return nothing tbe creditor can *386 subject, the law will follow the property into the hands of the taker and make it liable to the extent of the value of the property received.” It is obvious from the foregoing rulings that the Cairo Company’s contention that it is not liable for the deficiency assessment against the Mound City Company by virtue of Section 547 of thé Statutes, which provides that stockholders of a corporation shall be liable to creditors only to the extent of the unpaid part of the stock subscribed for by them, is groundless. That section has nothing whatever to do with the question involved in this case. We have noted that this action was instituted within only a few days after the Department of Revenue notified the Cairo Company of the deficiency assessments. Ordinarily, a question such as the one involved herein would come up in a proceeding instituted by the Commonwealth against the stockholders of the dissolved corporation, but since the question has been raised in this proceeding we fail to see how the rights of either party can be prejudiced by a determination of it at this time. Since it is not contended that the deficiency assessment of $692.29 is incorrect or erroneous, we are faced only with the question as to whether.or not the Cairo Company can be held liable for it. We think it can. To rule otherwise would require a departure from the holdings in the Driest and American Railway Express Company cases, supra, to the effect that the property of a corporation is impressed with the trust for the payment of its debts. Wherefore, the judgment is reversed, with directions to set it aside and for the entry of a judgment dismissing the petition. Whole Court sitting.