Hughes v. City Trust & Savings Co.

Statement of the Case. MONROE, C. J. This is a proceeding for the collection of state, parish, school, and other taxes for the year 1916 said to have been assessed to the Red River Valley Bank & Trust Company, and for which the City Trust & Savings Company and the City National Bank, both of Shreveport, are alleged to have made themselves liable in solido with the original tax debtor by reason of the following acts and circumstances, to wit: The corporation first above mentioned was created in 1913, and. was engaged in business in Shreveport until a certain date in June, 1916. Several months prior to that date some of the stockholders, with a few other persons, conceived the idea of establishing a national bank and a trust and savings bank as an ally under the state law, with the same stockholders and management, and, as the main feature of that movement, to absorb the Red River Valley Bank & Trust Company (hereafter called Red River Bank). Of the three persons who particularly, interested themselves in furthering that idea, Mr. W. L. Young, a gentleman of experience in banking matters, took the more active part, and was the only witness who testified in the case. His testimony .reads in part as follows: “Q. Was it not part of the program that, in making the change, you would go with the Red River Bank and assist that bank in liquidating its affairs, so that the new bank could take the business and assets and liabilities of the old bank? A. Well, when I went in there [as cashier] the plan of organization had not been thoroughly worked out. Q. Was it then in contemplation? A. Yes, sir. Q. And you were working along with others to that end? A. Yes, sir; the new bank was contemplated, and the organization was being perfected at that time. Q. Then you were working right along with the others in order to assist the old bank tb be liquidated and the new bank to take over the business and go ahead? A. Well, I suppose so; the idea was.to build a new organization and to use the old organization as a nucleus. Q. You were one of the gentlemen, to wit, J. B. Ardis, J. Homer Jordan, and yourself, to take up the matter of liquidating the old bank with the stockholders and taking over the business of the old bank from the stockholders by the new bank? A. I was one of the three trustees who had power of attorney from the stockholders of the Red River Bank. * * * Q. Mr. Young, what proposition was put to the stockholders of the Red River Bank & Trust Company in regard to the dissolution and to the taking over of the assets and liabilities by the new bank at the liquidation of the Red River Bank & Trust Company; also what inducements were offered to take out stock in the new bank ? A. I think we have the letter here that was sent out. * * * (Counsel for plaintiff offers in evidence the letter.) Q. Mr. Young, yourself, J. Homer Jordan, and J. B. Ardis received all the proxies from the stockholders of the Red River Valley Bank & Trust Company, as trustees for those stockholders? * * * A. I think practically all of the proxies were given to us, but I think that a few were given to other person's. * * * Q. Mr. Young, in the letter dated February 25, 1916, sent out to the stockholders of the Red River Bank & Trust Company, appears the following statement: ‘As stockholders of the Red River Bank & Trust Company, we beg to submit herewith, for your consideration and approval, a plan for the reorganization of its 'affairs, with a simultaneous establishment of a national hank and trust company, to take over the business, with an increase of capital and with valuable acquisitions to the personnel of the management. As you know, the Red River — 317 — Bank & Trust Company Ras $150,000.00 capital [and] $50,000.00 surplus, making a total capital and surplus of $200,000.00 paid in. It is proposed to raise $300,000.00' more from new stockholders, and to organize a national bank and trust company, to have a capital stock of $400,000.00, and the trust company to have $100,000.00. The two institutions are to belong to the same stockholders, have the same directors and to be operated under the same management. The national bank will be called the City National Bank, and the name of the trust company will be City Trust & Sayings Company.’ I will now ask you whether or not the organization set out in the letter I have just read was in fact, consummated? A. Practically so. * * * Q. You would say that the plan was substantially carried out as set out in that letter? A. Yes, sir.” The proxies and powers of attorney referred to were given by the holders of the entire $200,000 constituting the capital and surplus of the Red River Bank, with the exception of $13,705, and read in part as'follows: - “It is understood that the City National Bank of Shreveport is to be organized under the national banking laws, with a capital of $400,000.-00, and the City Trust & Savings Company of Shreveport is to be organized agreeably to the laws of the state of Louisiana with a capital stock of $100,000.00. Both institutions are to he established simultaneously or as nearly so as practicable, and operated under the same management. The stock of the City Trust & Savings Company is to be the property of the stockholders of the City National Bank, and all of it, except what may be necessary for directors to own in order legally to qualify as such, is to be issued in the names of J. B. Ardis, J. H. Jordan and W. L. Young, trustees, to be held by them in trust for the benefit of the stockholders of the City National Bank of Shreveport. “I hereby grant to my above-named agents and attorneys in fact full power and authority to act for me in my name, place, and stead as aforesaid,” etc. The words “practically” and “substantially,” which appear in the foregoing testimony, are, no doubt, used because there was delay in completing the organization of the national bank, and, the organization of the City Trust & Savings Company having been first completed, the assets and liabilities of the-Red Riyer Bank were turned over to it and assumed by it, and parceled out between it and the National Bank upon the completion of the latter organization. The proceedings in the carrying through of the transaction were about as follows: The agents appointed by the stockholders of the Red River Bank, acting under the authority conferred on them, voted that institution into liquidation and appointed the City Trust & Savings Company liquidator; they then conveyed the-entire assets of the bank to the liquidator, calling the conveyance a sale, for which they received the checks of the cashier of the savings company; and they then, or later, returned tho&e checks and received instead-stock in the two new .banks for the amount of the stock of their principals in the Red River Bank which they surrendered with the assets of that bank; so that, the whole transaction, as originally' contemplated and as carried through, was but the exchange of the stock, assets, and* liabilities of the Red River Bank for an equal amount, par value, of the stock and corresponding interest in the assets of the two new banks. The resolutions whereby the transfer was made and accepted read in part: “* * * Be it resolved that the Red River Bank * * * does hereby sell, set over, and1 deliver the whole of its assets to the said City Trust & Savings Company for a sum of money equal to the liabilities of the Red River Valley Bank, * * * including its capital stock and other liabilities, as shown by statement of June 21, 1916, all of which liabilities are to be assumed and paid in full by the City Trust & Savings Company. * * * “Resolved that the City Trust & Savings Company, represented by a quorum of its directors, does hereby accept and confirm the sale embodied in the above resolution adopted by the stockholders of the Red River Valley Bank & Trust Company, pursuant to all of its assumptions and obligations therein set forth.” The liquidation of the Red River Bank was completed on June 21, 1916. The ^ organization of the City National Bank was com — 319 — ple'ted on July 1. A.t that time the state and. parish tases for the year 1916 for which the Red River Bank was liable were not exigible, and hence they were not included in the statement of assets and liabilities taken over and assumed by the City Trust & Savings Bank. But some time later in the year the new banks were notified that they were looked to for their payment, and, the matter having been taken under consideration by the directors (who were the same for both institutions), they instructed the cashier (who was also the same, being W. L.. Young) to draw a check for their payment, and he drew the check. Thereafter, however, the directors were advised that- the banks were under no liability for the taxes, and tbe order to draw the check was rescinded, and the check canceled. The certified excerpt from the assessment roll of the parish of Oaddo for the year 1916 .showing the assessment of the Red River Valley Bank & Trust Company appears in the record as follows:» “Assessment Rolls of the Parish of Caddo, State of Louisiana, for the Year 1916. No. ' Name and address of Taxpayer. 6873. Red River Bank & Trust Company. “Description of Property.” Then comes a list of the stockholders in the bank, with the number and value of the shares held by them, respectively, after which, the following: “Capital stock, $150,000.00; surplus, $50,--000.00; undivided profits, $8,400.00; total, $208,400.00, less 65 % — total, $135,460.00. “I hereby certify .that the above and foregoing is a true and correct copy of the assessment of the Red River Valley Bank & Trust Company, as shown by assessment rolls for the year 1916, of record in my office. “Given under my hand and seal of office on this, the 4th day of June, 1919. “[Signed] W. M. Levy, “Dy. Clk. & Ex. off. Dy. Recorder.” And there follows a similar certificate by the assessor. Opinion. I. Tbe act of 1916 (No. 169, pp. 397, 398) requires tbe assessor to deduct tbe amount at wbicb tbe real estate of a bank is assessed from its capital, surplus, and undivided profits, “and make an assessment for tbe current year upon tbe capital, surplus and undivided profits remaining after deducting tbe value of -said real estate,” and tbe last section reads: “Sec. 2. * * * That all laws or parts of laws in conflict herewith be and the same are hereby repealed, and that the assessment for the year 1916 shall be made in accordance with this act.” Under' the pre-existing law (Act 170 of 1898, § 27) tbe assessment of tbe capital stock of banks to tbe banks themselves was prohibited, and tbe -taxation óf that property was arrived at by assessing tbe shares to tbe shareholders and requiring tbe banks to pay tbe tax. Tbe modus operand! by wbicb assessments were. made and completed and taxes became exigible was provided (so far at least as tbe question here at issue is concerned) by Acts 182 and 194 of 1906, 220 of Í910, and 171 of 1912, by tbe various provisions of wbicb tbe taxpayer was required to make bis returns prior to April 1; tbe assessor was required to complete bis listing and valuations on or before May 1; tbe police juries, sitting as boards of reviewers, were required ‡0 meet on tbe first Monday in June, or as soon thereafter as possible, and were expected to complete their work prior to June 30, since tbe assessor was required, as soon as they bad done so, and on or before June 30, to forward abstracts of tbe rolls to tbe auditor; and tbe state board of equalization was required to meet in tbe state capitol on tbe second Tuesday in July, examine tbe abstracts, and equalize tbe assessments, after which, and after notification by tbe auditor of tbe action so -taken, tbe assessor was required to complete bis rolls in triplicate, and deliver one copy to tbe tax collector and one to tbe auditor, and file tbe third copy in tbe office of tbe recorder of mortgages. By Act 171 of 1912 it is provided that tbe tax on movable property shall be due as soon — 321 — as the rolls are filed in the mortgage office, and shall be paid on the 1st day of the calendar month next succeeding such filing, provided that no forced collection of taxes on movable property shall be made before the 1st day of October, unless the collector has good reason to believe that the state, parish, or municipal corporation will lose the same, and provided further that all taxes unpaid on the 31st day of December shall bear interest at the rate,of 10 per cent, from that date. The grounds upon which defendants rely are thus stated in the brief of their counsel, to wit: “The defense of this case is twofold, it being averred, * * * on the one hand, that the assessment which is the basis of the tax here sought to be collected is a nullity, and did not create any liability even on the part of the Red River Bank, and, on the other hand, that, even if the assessment were legal, and the tax claimed thereunder a valid obligation of the Red River Bank, neither the City Trust & Savings Company nor the City National Bank is liable therefor, for the reason that neither of them is the successor of the Red River Bank, nor has either acquired the assets of the Red River Bank by consolidations, merger, reorganization, or reincarnation; and the defendants have both alleged and proven that the purchase by the City Trust & Savings Company from the Red River Bank of the latter’s assets was a purchase in good faith for a more than adequate consideration, which consideration was paid in cash to the Red River Bank.” [2] The contention in support of the ground of defense first alleged (i. e., that the assessment was null even as to the Red River Bank) is that it is an assessment of the shares to the shareholders, as provided by Act 170 of 1898, and not an assessment c>f the capital, surplus, etc., to the bank, as required by Act 169 of 1916. The assessment, however, speaks for itself. The general caption shows that the instrument upon which it appears is the “Assessment Rolls of the Parish of Caddo, State of Louisiana, -for the Year 1916,” and it is to be presumed that the assessment was intended to conform to the statute which required that the assessment of banking capital, surplus, and undivided profits for the year 1916 should be made to the bank or banking association owning such assets; and it does conform to that statute, since beneath the subcaption “Name and Address of the Taxpayer” we find “Red River Bank & Trust Company,” and under the heading “Description of Property,” and following the names of the shareholders and the statement of their holdings, we find the property taxed described as: “Capital stock, 8150,000.00; surplus, $50,000.-00; undivided profits, $8,400.00; total $200,-000.00, less 65% ; total, $135,460.00” — whereas section 27 of Act 170 of 1898 contains no provision for the assessments of either surplus or undivided profits, and declares in terms: “That no assessment shall hereafter be made under that name, as the capital stock of any national bank, state bank, banking company, banking firms or banking associations, whose capital stock is represented by shares, but the shares shall be assessed, at their actual value as shown by the books of the bank, or banks, to the shareholders, who appear as such upon the books,” etc. Apart from the presumption that the assessor intended that which he was commanded to do, rather than that which he was prohibited from doing, and that the assessment, as made, describes the bank as the taxpayer, and the capital stock, surplus, and undivided profits, of which the shares are constituent elements, as the property taxed, there is a presumption, founded in reason and common observation, which tends strongly to support the view that the assessment in question was made with due regard to the requirements of the act of 1916. That statute was approved on duly 6, 1916, and must have been in process of gestation for some time prior to that, and it is in the highest degree improbable that the assessors throughout the state should have been ignorant of the fact, and should have failed to keep themselves informed of the progress made and on the alert with respect to the duty which it might — 323 — impose upon them in so important a matter as the assessment of banting capital. Whether the assessment was made in anticipation of or after the passage of the act the evidence does not enable us to say, but, as it could not have reached the board of equalization before the second Tuesday in July, 1916, and may not have been acted on by that board for some time subsequent to that date, and had then to be returned to the assessor, completed by him, and filed in triplicate in the several offices mentioned, it seems more than probable, particularly when we consider that, as completed, it conforms to that statute, that it was made so to conform after the passage of the act of 1916 and upon its return from the board of equalization. The law declares and the jurisdiction is settled to the effect that, if an assessment be of such a character as to identify the property, it is sufficient, and we are of opinion that in this instance the assessment does identify the property as the capital, surplus, and undivided profits of the Red River Valley Bank & Trust Company, and that the reference to the shares may be regarded either as a further description of such capital stock, surplus, etc., or as a mere surplusage. [1] Defendants’ counsel quote certain allegations of plaintiff’s petition as meaning that the assessment here in question was made under and conforms to Act 170 of 1898, rather than Act 169 of 1916, and that, as judicial admissions they are conclusive of that question. We have given our reasons for the conclusion that the assessment as made conforms to the requirements of the act of 1916, and it appears to us that that conclusion cannot be controlled by possible errors of law into which plaintiff’s. counsel may have -fallen as to the statute which the assessor had in mind in making it. In other words, if the assessment conforms to the requirements of the statute prescribing the manner in which the capital, surplus, and undivided profits of banks were to be assessed for the year 1916, its legality cannot be affected by an erroneous allegation that it was made under and in conformity to, some other statute. There is, however, no specific allegation in plaintiff’s petition to the effect that the assessment was made under, or that it conforms to, the requirements of the act of 1898. That meaning is deduced by defendant’s counsel and by our learned Brother, and not unreasonably, from the language of the allegations, but the question of law and fact whether the assessment meets the requirements of the act of 1916 is, after all, to be determined by the assessment itself, and, since we find it to be an assessment to the bank of its capital stock, surplus, and undivided profits, which is required by the act of 1916, and is prohibited by the act of 1898, we feel bound to hold it a valid assessment. It is proper to state that defendants filed an exception of no cause of action, which was overruled by Judge Webb, to whom the case appears to have been first assigned, and that thereafter defaults were entered against all the defendants, which were set aside upon the filing of answers (save in the case of the Red River Bank); that the case was then heard by Judge Webb on the merits, and that he gave judgment for plaintiff; that, pending an application for new trial, Judge Webb resigned, and the case fell to Judge Land, who granted the new trial, and apparently was not called on to consider the exception apart from the merits. On the merits the assessment roll was offered and received in evidence without objection, and, in our view, controls the allegations of the petition in the same sense and to the "same extent as does any document which, being described in, is annexed to and made part of, a petition for greater certainty, and our brother Judge Land seems so to have thought, since, in the end, he predicates his judgment upon the assessment itself, holding it to be an assessment of the shares of the — 325 — stock in tlie hands of the shareholders as provided by the act of 1898 — a view in which, for the reasons stated, we are unable to concur. [3] II. The other point presented in the the case is: That, even if the “assessment were legal, and the tax claimed thereunder a valid obligation of the Red River Bank, neither the City Trust & Savings Company nor the City National Bank are liable therefor, for the reason that neither of them is the successor of the Red River Bank, nor has acquired the assets of that bank by consolidation, merger, reorganization, or reincarnation, and that defendants have both alleged and proven that the purchase by the City Trust & Savings Company from the Red River Bank of the latter’s assets was a purchase in good faith for a more than adequate consideration, which consideration was paid to the bank in cash.” No one is here questioning the good faith of the transaction as the result of which the assets, including the good will of the business, of the Red River Bank were conveyed to, and taken over by, the defendant banks, and the Red River Bank, if still existent, left a mere shell, with no assets and no officers to represent it. But, for the purposes of the case, that transaction must be considered as an incident of, and in its relation to, the whole transaction; and, so considering, we find that the whole purpose, as effectuated, was that the owners of 7 per cent, of the stock of the Red River Bank were paid for and withdrew in cash their interests, amounting to $13,705, and that the owners of the remaining 93 per cent, of the stock moved out and carried with them the remaining assets and good will of the business of the bank, amounting in cash and cash assets to $186,229.95, into the two new banks organized by them in association with other persons who contributed additional capital for that purpose, and that, in consideration of the assets, etc., so taken over, they (the stockholders of the old bank), with their new associate stockholders of the new banks, caused tie stock of those banks to be issued to themselves (or to trustees representing them) to an amount equivalent in value to those assets, and the new banks assumed the liabilities of the old. It is true that in the resolutions transferring and accepting the transfer of the assets reference is made to a certain statement of June 21, 1916, as containing a list of the assets and liabilities so transferred, and that the obligation of the Red River Bank with respect to the taxes for 1916 here claimed does not appear therein ; but the evidence satisfies us that its omission was an oversight, and that view is confirmed by the facts that the directors of the new banks, acting at that time, recognized the obligation and instructed the cashier (Mr. Young), who had conducted all the negotiations, to reserve the money required for its discharge, and that he drew his “cashier’s” check wherewith to make the payment, and that it was only at a later period, and upon the advice of counsel as to the validity of the assessment, and perhaps as to the liability of the new banks, even though the assessments were valid, that the check was canceled, and denial of the obligation determined upon. The Constitution declares that all property shall be taxed save such as may be expressly exempted by law, and the property here in question is not so exempted, but is specifically taxed. The statute law (Act 170 of 1898, § 1, p. 346) declares that— “Eor the calendar year A. D. 1898 and for each succeeding calendar year, there are hereby levied annual taxes, amounting in the aggregate to six mills on the dollar of the assessed valuation of all property situated within the state of Louisiana, except such as is expressly exempted from taxation by law,” etc. (the rate having been changed, but the provision remaining unchanged in other respects). The obligation thus imposed by the levy of the tax for each calendar year is recognized in every aét of sale of real estate that — 327 — is passed, tlie taxes for tlie current year, if not at the time exigible, being assumed by the one party or the other, or by both; and the proposition that the stockholders of a bank can at any time, by conveying all of its property to another bank created by them (and others who know that the taxes have not been paid), release it from that obligation, is untenable. Act 193 of 1910, § 3, declares that one bank may sell its assets to another, but that “such agreement shall contain provisions for the payment of liabilities of the. selling bank.” Act 170 of 1898, § 49, p. 370, declares that— “Whenever, any sheriff, constable, marshal, receiver, liquidator syndic or other judicial .or court officer or functionary shall take possession of personal property it shall be his duty to pay at once all the taxes that may be due or become due upon the same, and if he fails to do so he shall become responsible personally and upon his bond for the payment of the same.” If, then, the transaction here in question be regarded as a sale, defendants should be held liable for the obligation of the selling bank with respect to its taxes; and, if it be not regarded as a sale, and the liquidating bank be not regarded as a liquidator, within the meaning of the act of Í898, the statutes above quoted at least indicate the policy of the law to be that a corporation shall not devest itself of its property to the prejudice of its creditors, and that those who are put in possession of the property of others shall at once pay such taxes as may be due or become due thereon. Beyond that the consensus of the jurisprudence of the country, as we find, sustains the doctrine that a new corporation, in the organization' of which 93 per cent, of the stockholders of an old corporation participate, and receive stock in exchange for the assets and stock of the old corporation, becomes thereby responsible for the debts of such old corporation, whether matured or unmatured, listed' or unlisted, at least to the extent of the value of such assets so acquired by it; and particularly is that true of taxes due and to become due. Atlantic & Birmingham Ry. Co. v. Johnson, 127 Ga. 392, 56 S. E. 482, 11 L. R. A. (N. S.) 1119, and case note, pp. 1119-1133 ; 10 Cyc. 286 ; W. F. Taylor Co. v. Gulf, etc., Co., 119 La. 426, 44 South. 187 ; Wolff v. Shreveport, etc., Co., 138 La. 759, 70 South. 789, L. R. A. 1916D, 1138 ; Brum et al. v. Merchants’ Mut. Ins. Co. (C. C.) 16 Fed. 140 ; Altoona v. Richardson Gas & Oil Co., 81 Kan. 717, 106 Pac. 1025, 26 L. R. A. (N. S.) 652 ; Grenell v. Detroit Gas Co., 112 Mich. 70, 70 N. W. 413 ; Wesco Supply Co. v. Eldorado Light & Water Co., 107 Ark. 424, 155 S. W. 518 ; Jennings, Neff & Co. v. Crystal Ice Co., 128 Tenn. 231, 159 S. W. 1088, 47 L. R. A. (N. S.) 1058 ; HarbisonWalker Refractories Co. v. McFarland’s Adm’r, 156 Ky. 44, 160 S. W. 798 ; Hibernia Ins. Co. v. St. L. & N. O. T. Co. (C. C.) 13 Fed. 516 ; Kansas, C. S. R. Co. v. Guardian T. Co., 240 U. S. 166, 36 Sup. Ct. 334, 60 L. Ed. 579 ; Northern R. R. Co. v. Boyd, 228 U. S. 482, 33 Sup. Ct. 554, 57 L. Ed. 931 ; Fletcher on Corporations, vol. 7, § 4755. For the reasons thus assigned, it is ordered that the judgment appealed from be annulled, and that there now be judgment in favor of plaintiff and against the City National Bank and the City Trust & Savings Company, herein made defendants in solido in the sum of $2,912.37, with interest thereon at the rate of 10 per cent, per annum from January 1, 1917, until paid, together with an additional 10 per cent, upon the aggregate of said principal amount and interest; and it is further ordered and decreed that said defendants in solido pay all costs of this suit. OVERTON and LAND, JJ., was submitted, take no part in the decision.