9 Mich. 448 | Mich. | 1862
Lead Opinion
The hill in this cause was filed to restrain the collec' tion of -$11,718,34, being a balance claimed to be due from the complainants to the State of Michigan for specific taxes. The complainants claim that this amount of tax is made up of three fourths of one per cent on six separate items, all of which they insist are exempt from the tax. These items are set forth in the bill as consisting of, First, $300,000 of stock which is averred to consist of three thousand shares which it is alleged were issued in 1849, and delivered to the “then several stockholders of the company, without any consideration therefor, without any subscription being made for said stock, and without any promise from any person whatsoever to pay the amount or any part thereof to said company, nor was any capital directly or indirectly, actually or technically, paid to said company on account of said certificatesSecond, $185,-459,84 which is the amount of discount on the sale of company bonds below par; Third, $250,000 of bonds known as Jackson Branch bonds, which were never sold by the company, but were lent and disposed of by the borrower, who had turned out as collateral the bonds of the Chicago and Mississippi Railroad Company, which the complainants took on settlement and now hold, and which are averred to be worthless; Fourth, $466,848,02,^ being the cost of various steamboats, one of which was destroyed some years since, and the remainder are alleged to have been employed and taxed in other states, and of late have been unemployed and lying idle; Fifth, $300,000 lent by complainants to the Chicago and Mississippi Railroad Company, and secured by-worthless securities; Sixth, $60,136,-87 expenses incurred in 'obtaining loans and selling bonds.
Before inquiring into these items it becomes necessary to consider a question raised on behalf of the defendant, and which is claimed to preclude any investigation of these
The first questions which I propose to examine are those not presented in that case, and which may therefore be regarded as new questions. And for convenience they will be taken up in their inverse order.
The complainants claim an exemption of tax on $60,-186,8^, paid out for commissions and other expenses attending the sale of bonds and the obtaining of loans. I do not perceive upon what ground this exemption can be claimed. The loans which caused these expenses were taxable. The expenses were mere agency expenses, in no wise differing from any other outlays for services. The law does not undertake to follow the money of the company to its several destinations. When once borrowed the company can use it for the proper objects; and should, I think, be held responsible for taxes on it, whether spent
The same objection applies to the demand to have a deduction from the tax on account of $300,000 lent by complainants to the Chicago and Mississippi Railroad Company. Having borrowed money which became taxable as a loan, the complainants did not cease to be debtors for the amount by lending it or giving it away. Such a loss might afford an argument for legislative relief, but it can not change their position as borrowers, nor diminish the amount of their loans.
The next item embraces the cost of the steamboats. It appears that one of them has been lost, and that the rest have been lying at Toledo unproductive, and have been taxed in Ohio. This .exemption is claimed on the ground that complainants are not taxable for any capital or loans not “ actually employed in the State of Michigan The third section of the act of consolidation between the Michigan and Indiana Company is relied upon for this exemption. That section is as follows: “ The said corporation so to be organized, by virtue of this act, shall continue subject to the same rate of tax as though such consolidation should not take place; and the amount of its capital and loans hereafter, upon which such taxation shall be paid, shall be such portion of the whole of its capital and loans as is actually employed in the State of Michigan,” &c. By the original charter, the Southern Railroad Company was liable to a tax of three-fourths of one per cent upon the capital stock paid in, and upon all loans made to the company for the purpose of constructing the railroad, or purchasing, constructing, chartering or hiring steamboats.
By imposing the tax on stock and loans, and exempt
The object of the consolidation act was to enable this company to form a union with another company in Indiana; and by the terms of the act the new corporation was to be governed substantially by the old charter. That
The next item on which a deduction is claimed consists of §250,000 of Jackson Branch bonds, which were lent by complainants and misappropriated. This item was considered
The next item embraces §185,459,84, which sum represents the discount on bonds sold. It was held in the case before referred to, 4 Mich. 398, that the loans to the company must be taken to stand at the face of the bonds. This, I think, is a fair presumption, but not a conclusive one. The law permits complainants to sell their bonds at a discount, and therefore contemplates that they may have to repay more than they borrow. The tax is to be laid “upon all loans made to said company.” Sec. 31 of Charter, Laws 1846, p. 191. Nothing is lent which does not pass from the lender; and if in return for his ninety dollars he is to receive ninety - five or a hundred, he still lends but ninety. It appeal's that no bonds were sold at a premium, and that the amount' of loans was less than the face of the bonds by the amount above mentioned. I think no tax can be properly laid on this sum, because it was never borrowed.
The remaining item of §300,000, is claimed to be exempt from taxation because it is alleged to consist of 3000 shares of stock distributed among the stockholders in 1849,
The term used in the section under which the tax was originally laid is “capital stock paid in.” Upon the case made by the bill the company deliberately issued stock as paid, and has always so treated it. It has, as fully appears, changed hands so as to become entirely confused. The holders of it have received dividends upon it, as full paid stock. It so stands for all ordinary purposes. I see no hardship in holding complainants responsible for taxation on what they hold out to the world as cash capital. And in this respect, I think the former decision was right. The company had debarred itself upon this theory from calling any more assessments. And the ordinary understanding of stock paid in, is stock on which no further calls can be made. It is n matter of daily occurrence to pay for labor and other expenditures in what is termed “ full paid stock,” at rates very different from what would be required in cash. The company obtains the same credit for one kind as for another when it seeks public confidence on the ground of its paid up capital. If instead of taxing the company, the several stockholders should be taxed on stock, one •share would avail no more than another.
But when we examine the evidence, the case made out by the bill is not only not established but entirely disproved. And as a complainant must rely upon the case set up in his own bill, he is entitled to no relief, even if the rule of law laid down in deciding the ' former case were to be disregarded.
It appears by the sworn report of the complainants upon which this tax is chiefly based (p. 18 of case) that the total amount of capital stock subscribed in the entire con
Being asked by the second and fifth interrogatories concerning the existence of unpaid stock, he shows a deficiency of about $160,000, which he thinks was for that amount unpaid on 8000 shares of stock. The evidence of the amount refers under the second answer to the time of the consolidation. The fifth answer appears to show that, so far as he knows, it was never paid. This makes a discrepancy in the report of $140,000, if we entirely disregard the small deficit appearing in the sum total of consolidated stock, which, however, from its minute accuracy has evidently been taken from accounts and not from estimates.
The testimony of Mr. Bliss, however, and the exhibits A and B, which he proves from the company’s records, show very clearly the character of the stock distribution of 1849, and show conclusively that there was never any distribution of 3000 shares of fictitious stock, nor any other amount of that kind. It appears from those resolutions, that the stock which had been divided into 5000 shares was recalled, and a new division of 8000 shares made in lieu of it, all to stand on the same footing — all credited equally with what had been paid in, and all equally chargeable with future calls. The amount paid in on each share was $45, making an aggregate of $360,000. There is no reason to suppose that any portion of this sum was fictitious.
It was claimed by complainants’ counsel on the argument, that the testimony of Elisha C. Litchfield shows the fictitious character of the 8000 shares, That testimony is not very intelligible, and is evidently an attempt to explain the issue upon a mistaken theory. But if its facts be taken as accurate, its deductions are clearly erroneous, and would show merely a deficiency of $88,470 unpaid, instead of making that sum represent the entire payment. The resolutions of August, 1849, made the whole 8000 shares liable to further assessments to the amount of $55 per share, or $440,000, supposed to represent the debts and liabilities of the company. These debts Mr. Litchfield puts down as consisting of $325,000 unpaid principal of the purchase money due the State, and $76,580 debts for prior loans. By deducting these from $440,000, he deduces the balance of $88,470. He treats this sum of $440,000 as if it had been credited to the stock, when it was on the contrary charged on it, and, unless it exceeded the debts, it made the stock liable to its entire face. The interest on the $325,000 of State indebtedness at six per cent., if principal and interest should be paid promptly, would amount to $68,250, which not only
When all the evidence is collated, it is impossible to say that any particular deficiency, or any deficiency, is made out. The issue of any fictitious stock is clearly disproved. And all the stock being put on the same basis, it is not presumable that assessments have been since made on any but the just and equal principles which are required by law to be observed. The case does not assume any thing of this kind. Neither is it averred or shown that any assessments called on this stock remain unpaid. The payment of dividends on it would be inconsistent with such a theory. The books of the company must show the precise state of the stock account in regard to the whole issue. The evidence is in the control of the complainants. Until the original sources of evidence are resorted to, all outside testimony must be vague and unsatisfactory, as this record very fully exemplifies. If complainants have not received what should have been received on any of this stock, no one else has the means of ascertaining it, and I do not think their proofs at all satisfactory.
I am of opinion that a deduction should be made from the amount to be taxed of $250,000, for the lent bonds, and $185,459,84, for discounts on loans, and that no further deduction should be allowed on the case' presented.
Concurrence Opinion
I concur in the opinion of my brother Campbell, with the single exception of the views he has intimated upon a question which, so far as regards the proof, is merely hypothetical.
Had it appeared in evidence, as alleged in the bill, that $300,000 of fictitious stock had been issued upon which nothing had in fact been paid, I should not be prepared to hold that it could be taxed under a charter which taxes
But as I concur entirely in the view my brother Campbell has taken of the evidence, that, as respects this item, the proof fails to sustain the case made by the bill, I forbear to enter upon the discussion of the case upon this •hypothesis.
This court in the case of The People of the State of Michigan v. The Michigan Southern and Northern Indiana Railroad Company, 4 Mich. 398, decided the present complainant was not entitled to any deduction from its tax on the capital stock and loans of the company on account of the 3000 shares of stock alleged to have been gratuitously distributed among its stockholders; and the $185,459,84 lost by the company in negociating its loans; and the $250,000 of Jackson Branch bonds. That decision I think was correct.
The charter of the Michigan Southern Railroad Company makes the capital stock and loans of the company for constructing the road the basis of the tax to be paid to the State. In doing this, the Legislature probably intended the company should pay to the State, after the first day of February, 1851, three quarters of one per cent, on what the construction of the road should cost the company. But how should the cost of constructing the road be ascertained ? Should it be left with the company who was to pay the tax to fix the amount? or should the capital stock and loans made by the company, as the company would have no other means to build the road, be taken as the cost of the road, and be made the basis of- taxation? The latter
By the words “ capital stoch paid in,” I understand that the company is not to be taxed on what is due it from its stockholders, who would be called on from time to time to pay for their stock as the work progressed, and the company should stand in need of the money. It was not intended to exempt from taxation stock which the company, for some imaginary or actual past or future benefit, or other-cause, might think proper to dispose of without an equivalent in money. Such stock, within the meaning of the charter, is paid in, as there is nothing due on it to the company to be paid at a future day. When I say I own a certain number of shares of stock, with ten per cent, or any other amount paid in, my language implies, and I am understood as saying, at the same time, that- there is something still due from me to the company whose stock I hold.
And “upon all loans made to said company,” &c. This language, it is to be observed, is not upon all moneys borrowed or received on its loans; but “ upon all loans made.” There is a difference between these phrases, and they can not be used or construed to mean the same thing when the money received is less than the -amount mentioned in the bond given to secure the loan. The loan is the sum mentioned in the bond, and not the money received, and the interest payable on the loan, is interest on the amount mentioned in the bond, and not on what the bond may have been sold for in the market to effect the loan.
By a recent act of the Legislature, the Governor and State Treasurer are authorized, for war purposes, to negocíate and contract for a loan or loans not exceeding one
The company in its first reports to the Auditor General -seems to have understood the word loans in this sense. And so it appears to be understood by Mr. Barhydt, one of complainant’s witnesses, and by the company, if we are to judge of its understanding from the entries in its books, Mr. Barhydt, in his answer to the first direct interrogatory says, “he can not answer of his own knowledge, but he says he has examined the books kept by said companies, •and from information derived from said books, he states upon his belief, that the entire amount of loans made by the M. S. R. R. Co., at the date of consolidation, was two millions five hundred thousand dollars, which loans appear •by the course of entries in said books to have been made for the purpose in the first part of this interrogatory mentioned.” That is, for the purpose of constructing said railroad, &c.
In regard to the $250,000 Jackson Branch bonds, they are not only a part of the $2,500,000 loaned to the company, but the allegation in the bill relative to them is not sustained by the proofs. The bill states that one of the officers of the Michigan Southern Railroad • Company, without authority from the ' corporation, handed over these bonds to a person interested ih the Chicago and Mississippi Railroad Company, on the promise of said person to return 'them, he giving out and pretending that he desired them •only temporarily to pledge, as collateral security, for a
“ Bills Receivable, Dr.
“February 23, 1854.
“To mortgage bonds Jackson Branch, obligation of H-Dwight, Junior, dated October 15, 1853, payable July 4,. 1855, with interest payable semi-annually, principal or any part payable in bonds, either Michigan Southern or North-. ern Indiana Railroad at par, at option of payer: 250 bonds, Nos. 1 to 250 both inclusive, $250,000; collateral security for the above note of H. Dwight, Junior, $33'T,000, second mortgage bonds of the Chicago and Mississippi R. R.
“Chicago and Mississippi Bonds to Bills Receivable.
“July 13, 1855.
“To 300 bonds of $1000 each, second mortgage Chicago, and Mississippi R. R., numbered as per bill of sale on file, taken from H. Dwight, in payment of his obligation for $250,000.”
From these entries it appears the bonds were sold on. the 15th October, 1853, to Henry Dwight, Junior, for $250,000, to be paid for on the 4tli July, 1855, with in-, terest .payable semi-annually; the principal or any part thereof, at the option of the purchaser, to be paid in Michigan Southern or Northern Indiana Railroad bonds at par:, that Dwight gave his note or obligation for the $250,000, and $33l7,000 of second mortgage bonds of the Chicago and Mississippi Railroad Company, as collateral security for the payment of his note or obligation. And that on the 13th July, 1855, $300,000 of these bonds were taken from Mr. Dwight, in payment of his note.
The nest two sums, $466,848,02, cost of steamers, and $300,000 lent to the Chicago and Mississippi Railroad Com»
To this part of the bill, as well as to all other claims for deduction to be made from the company’s capital and loans, for any cause, there is a very short and conclusive answer, viz: that the Auditor General is not authorized by law to make any deduction whatever, while it is made his duty to levy the tax on the whole amount of the company’s capital stock paid in, and all loans made to the company for constructing its road. This is also a sufficient answer to the $60,136,37 deduction claimed for commissions and expenses in negociating its loans.
The third section of the act authorizing the consolidation of the two companies, it was held, in the case in 4 Mich., and I think correctly, did not change the principles of taxation on that part of the consolidated company’s road in the State of Michigan. I think the decree dismissing the bill should be affirmed.
Decree affirmed.