225 F. 278 | E.D. Pa. | 1915
This suit is brought to recover from a former collector of internal revenue the amount paid by the plaintiff under protest as a special excise tax assessed against the Cambria Iron Company under the Corporation Tax Act of 1909, with interest.
From the statement of claim it appears that the Cambria Iron Company, hereinafter referred to as the Iron Company, on December 1, 1898, with the approval of its stockholders, entered into an agreement with the plaintiff, the Cambria Steel Company, hereinafter referred to as the Steel Company, under which it leased to the Steel Company-for the term of 999 years all the property constituting the manufacturing plant and works of the Iron Company, the occupied or unoccupied manufacturing sites connected therewith, the mines and quarries connected therewith, the roads and ways connecting the same, and such additional amount in acreage of coal lands and other lands connected with the said mines and works as not to exceed in the aggregate 10,000 acres of land, and assigned, transferred, and set over to the Steel Company all its cash, bills receivable, accounts, licenses, leases, contracts, agreements, judgments, mortgages, stocks and bonds (except certain stocks and bonds through which the control of the necessary water supply and the. supply of materials for manufacturing purposes was secured). Pursuant to the lease) the Iron Company delivered to the Steel Company possession of all the property mentioned.
The Steel Company, as lessee, agreed to pay as rental a sum equal to 4 per cent, upon the outstanding capital stock of the Iron Company, together with a further sum, not exceeding $5,000, to cover the cost of the maintenance of the organization of the Iron Company, the rental, except the $5,000, to be paid direct to the stockholders of the Iron Company. Since the date of the lease the Iron Company has maintained its corporate existence merely that it may exist as landlord and lessor, and to this end its stockholders have annually elected a board of directors and other officers, and it has maintained books for the transfer of its capital stock; but it has received no income other than as above set forth, and has done nothing else whatsoever, and has no quick assets, cash, or bank account.
The defendant, as collector of internal revenue, made demand upon the Iron Company for a special excise tax of $3,337.20 assessed against it by the Commissioner of Internal Revenue as a corporation having a capital stock and engaged in business in Pennsylvania. The Iron Company filed a claim for abatement of the tax, upon the ground that it was not engaged in business and not subject to the tax. The Commissioner of Internal Revenue rejected the claim for abatement, and on August 26, 1913, the defendant notified the Iron Company that the claim for abatement had been examined and rejected, and that, if the amount of the tax, together with interest at the rate of 1 per cent, pe! mouth, were not paid within 10 days, he would take steps to collect the same, with penalties. The plaintiff, in order to avoid
Under the terms of the lease (article 6), the rental was to be paid “free from all taxes or deductions whatsoever, payment of all such taxes and charges having been assumed by said Steel Company, as in the seventh article of this lease is more particularly stated.’’ By article 7 the Steel Company “agrees to pay all taxes, charges and assessments upon the property, stocks and capital stock, bonds, and loans of the Iron Company, and all legal claims and demands whatsoever which may be made against said Iron Company.”
The Iron Company had by the lease stripped itself of all of its income, except that of $5,000 for maintaining its corporate existence, and the result of nonpayment by the Steel Company would have been the enforcement of payment by collection out of the property of the Iron Company in possession of'the Steel Company and with which the latter was carrying on its business. It was therefore confronted with a situation amounting in law to duress when it paid the tax under protest made to the defendant.
“When taxes are paid under protest that they are being illegally exacted, or with notice that the payor contends that they are illegal and intends to institute suit to compel their repayment, a recovery in such a suit may, on occasion, be had, although, generally' speaking, even a protest or notice will not avail, if the payment be made voluntarily,’ with full knowledge of all the circumstances, and without any coercion by the actual or threatened exercise of power possessed, or supposed to be possessed, by the party exacting or receiving the payment, over the person or 'property of the party making the payment, from which the latter has no other means of immediate relief than such payment.” Chesebrough v. United States, 192 U. S. at page 259, 24 Sup. Ct. at page 264, 48 L. Ed. 432.
When, however, .such duress is exerted under circumstances sufficient to influence the apprehensions and conduct of a prudent business man, payment of money wrongfully induced thereby ought not
“Every demand by one clothed with official legal authority to make tho demand, imposes a certain compulsión on tho one upon whom the demand is made. Such a demand is always exigent, and places a recusant in a position of disadvantage. Especially is this so in regard to the payment of taxes, state or national. The proper administration of the fiscal affairs of the government require that the payment of taxes should not be delayed by disputes as to their legality, but that the taxes should first be paid, and all questions in regard to them be determined in suits brought for their refunding. It is a wise policy, therefore, that encourages the payment under protest of disputed taxes. Though there is some conflict in the dicta of the Supreme Court, we think that the true doctrine is that, when taxes are paid under protest that they are being illegally exacted, or with notice that the payor contends that they are illegal and intends to institute suit to compel their repayment, a sufficient foundation lor such a suit has been established.”
In the present case, under the acts of Congress relating to collection of taxes (Rev. St. § 3186 et seq.), the property of the Iron Company of which the plaintiff was in possession under its' lease was liable for the tax, together with interest, penalties, and costs. Upon failure of the Iron Company to pay the tax, the Steel Company, knowing that the Iron Company could not pay, and being bound by its agreement to pay for it, was therefore confronted with the threatened sale by the . collector of the property which it held under its lease. Such circumstances were sufficient to constitute the payment one enforced by duress or compulsion, and not voluntary, and the Steel Company was therefore entitled to sue, without regard to privity of contract between it and the collector.
"This business, by the lease of 389(>, it had turned over to the Reading Company. If that lease had been made without authorization of law, it may be that for some purposes, and possibly for the present purpose, the lessee might be deemed in law the agent of the lessor, or at least the lessor held estopped to deny such agency. But the lease was made by the express authority of the state that created the Minehill Company, conferred upon it its franchise, and imposed upon it tlie correlative public duties.”
But the lease to the Steel Company was not made without authorization of law, for the Iron Company is expressly authorized by the Legislature under the Pennsylvania act of February 25, 1862 (P. L. 50), “to sell and dispose of the property, real and personal, of said company.” But no such legislative authority was necessary to empower the Iron Company to lease its property. The law is thus stated by Mr. Justice Sharswood in Ardesco Oil Co. v. North American Oil & Mining Co., 66 Pa. at page 382:
*282 "Corporations, unless expressly restrained by the act which establishes them or some other act of assembly, have and always have had an unlimited power over their respective properties, and may alienate and dispose of the same as fully as any individual may do in respect to his own property.”
And the rule is stated to the same effect by the same authority in Pittsburgh & Connellsville Railroad Co. v. Bedford & Bridgeport Railroad Co., *81 Pa. at page 111; but it was held in that case that a railroad company could not lease to another its franchise of operating a road built or authorized to be built, unless by a legislative grant in express terms, or by necessary implication.
In citing that case in support of the contention of the defendant that the Iron Company could not without express legislative enactment dispose of its property or franchises by lease, the District Attorney has failed to distinguish between the powers of a corporation performing by authority of the Legislature a public duty, such as building and operating a railroad, and a corporation organized for private purposes, as is the Cambria Iron Company, and the language of> Mr. Justice Pitney in the Minehill Case, supra, was applied to the former and not the latter class of corporations. It cannot be doubted, therefore, that the Iron Company was within its corporate rights when it leased its property to the plaintiff and quit carrying on the business which it was authorized to do by 'its charter.
“The distinction is between (a) the receipt of income from outside property or investments by a company that is otherwise engaged in business, in which event the investment income may be added to the business income in order to arrive at the measure of the tax; and (b) the receipt of income from property or investments by a company that is not engaged in business, except the business of owning the property, maintaining the investments, collecting the income, and dividing it among its stockholders. In the former case the tax is payable; in the latter, not.” McCoach v. Minehill Railway Co., supra.
Rule absolute.