Armstrong v. Emmerson

• Decision Date: 09 December 1921
• Docket Number: No. 14037.,14037.
• Citation: 300 Ill. 54,132 N.E. 768
• Parties: ARMSTRONG et al. v. EMMERSON, Secretary of State.
• Court: Illinois Supreme Court

300 Ill. 54

132 N.E. 768

ARMSTRONG et al.

v.EMMERSON, Secretary of State.

No. 14037.

Supreme Court of Illinois.

Oct. 22, 1921.

Rehearing Denied Dec. 9, 1921.

Suit by E. N. Armstrong, receiver for the Toledo, Peoria & Western Railway Company, against Louis L. Emmerson, Secretary of State, to enjoin a payment of money into the state treasury. Defendant's demurrer was overruled, injunction issued, and defendant appeals.

Reversed and remanded, with directions.

Appeal from Circuit Court, Sangamon County; E. S. Smith, judge.

Edward J. Brundage, Atty. Gen. (Clarence U. Boord and James W. Gullett, both of Springfield, of counsel), for appellant.

Geo. B. & Geo. M. Gillespie, of Springfield (J. M. Elliott, of Peoria, of counsel), for appellees.

DUNN, J.

The Toledo, Peoria & Western Railway Company is a corporation organized under the laws of the state of Illinois, and on July 2, 1917, E. N. Armstrong was appointed receiver for it under a decree of the United States District Court for the Southern District of Illinois and has since his appointment been in possession of all its property and has operated its railroad exclusively under the control of that court, except during such time as the railroad was in the possession of the government of the United States and was operated under the act known as the Federal Railway Control Act (U. S. Comp. St. 1918, U. S. Comp. St. Ann. Supp. 1919, §§ 3115 3/4a-3115 3/4p). The Secretary of State assessed the annual license fee or franchise tax provided by section 105 of the General Corporation Act, as amended in 1919 (Hurd's Rev. St. 1919, c. 32, § 28a 77), upon the capital stock of the railway company in the year 1919 and notified the railway company and its receiver of such assessment, amounting to $2,250, which they were required to pay on or before July 31, 1919, or else the assessment would become delinquent and the penalties provided by the act would be added. The receiver appeared before the Secretary of State by counsel and endeavored to obtain a cancellation of the assessment, but the Secretary having refused to cancel or modify it, the receiver paid to the Secretary of State the sum of $2,250, the amount of the assessment, under protest, and a bill was filed in the name of the railway company and the receiver to restrain the Secretary of State from paying the money over to the treasurer and to require him to repay it to the receiver. The bill, in addition to the facts stated, alleged that the railway company previous to the receivership was operating the railroad, extending from Effner, in the state of Indiana, through the state of Illinois and into the state of Iowa, and was engaged as a public utility in intrastate and interstate commerce as a common carrier of passengers and goods; that during the whole of the year 1919, for which the license fee or franchise tax was assessed, the railroad was operated exclusively by the Director General of Railroads of the United States; that neither the railway company nor its receiver was in possession, control, or operation of the railroad or transacted any transportation business within the state of Illinois or elsewhere; and that if any franchise tax may be assessed against the railway company it should be assessed under section 107 of the General Corporation Act (Hurd's Rev. St. 1919, c. 32, § 28a79), instead of under section 106, as it was assessed by the Secretary of State. It is also charged that the assessment was wrongfully made upon the total amount of capital stock authorized to be issued under the laws of the state of Illinois ($4,500,000) of which $4,076,900, only, had in fact been issued, and before any additional stock of the company can lawfully be issued it will have to be authorized by the Public Utilities Commission of the State of Illinois. A temporary restraining order was entered restraining the Secretary of State from paying the amount received into the state treasury. A demurrer to the bill was overruled, and the defendant having elected to stand by the demurrer, an order was entered perpetually enjoining the payment of the sum of $211.56 into the state treasury and requiring its return to the receiver. The defendant has appealed and the complainants have assigned cross-errors.

The only question raised by the appellant's assignment of errors is whether the assessment should be based upon the amount of $4,500,000, the total amount of capital stock which the corporation was authorized to have, or upon the amount of $4,076,900, the amount of capital stock which had been issued. The claim of the appellees that the assessment should be based upon the latter amount is founded on the fact that the corporation is a utility corporation and its power to issue its stock is subject to the supervision, regulation, and control of the State Public Utilities Commission, and can be exercised only under such rules and regulations as the Commission may prescribe. The decision of the question requires the determination of the meaning of the words ‘authorized capital stock,’ in section 105 of the General Corporation Act. The appellant contends that the language refers to the total amount of capital stock authorized by the articles of incorporation; the appellees, that it refers to the amount of capital stock which the corporation has been authorized to issue under the regulations of the Public Utilities Commission, in accordance with sections 20 and 21 of the Public Utilities Act (Hurd's Rev. St. 1919, c. 111a).

The expression ‘capital stock’ or ‘authorized capital stock’ is capable of use to express different meanings. It may be used to designate the capital stock which the corporation is authorized to have or the capital stock authorized by the directors to be issued, or, in the case of a public utility, the capital stock authorized by the Public Utilities Commission to be issued in accordance with its regulations. ‘Capital stock is the sum fixed by the corporate charter as the amount paid in, or to be paid in, by the stockholders for the prosecution of the business of the corporation and for the benefit of corporate creditors. The capital stock is to be clearly distinguished from the amount of property possessed by the corporation. Occasionally it appears that, under the terms of statutes relating to taxation which have been drawn without regard to the technical meaning of words, the courts will construe the capital stock to mean all the actual property of the corporation. But this is for the purpose of carrying out the intent of the statute and is not the real meaning of the term. At common law the capital stock does not vary but remains fixed, although the actual property of the corporation may fluctuate widely in value and may be diminished by losses or increased by gains.’ 1 Cook on Stocks and Stockholders, § 9; Morawetz on Private Corp. § 781; 2 Beach on Private Corp. § 466; Farrington v. Tennessee, 95 U. S. 679, 24 L. Ed. 558;Markle v. Burgess, 176 Ind. 25, 95 N. E. 308;Tradesman Publishing Co. v. Knoxville Car Wheel Co., 95 Tenn. 634, 32 S. W. 1097,31 L. R. A. 593, 49 Am. St. Rep. 943;State v. Clement Nat. Bank, 84 Vt. 167, 78 Atl. 944, Ann. Cas. 1912D, 22. It is this invariable sum fixed by the charter as the amount to be paid in by the stockholders for the prosecution of the business of the corporation and for the benefit of the corporate creditors which is ordinarily understood by the term ‘capital stock’ unless the context indicates a different meaning. The capital stock is not the same thing as the capital of the corporation or its actual property, the value of which may fluctuate from time to time. However much the value of the property of the corporation may increase in the prosecution of a successful enterprise or may be diminished by losses incurred, the capital stock remains unchanged. The fees and franchise taxes which every corporation must pay under the General Corporation Act are fixed by sections 96 to 107, inclusive, of that act (Hurd's Rev. St. 1919, c. 32, §§ 28a68-28a79). The initial fee is provided for by section 96 and is one-twentieth of one per centum upon the amount of the capital stock which the corporation is authorized to have, and the section provides that each public utility corporation shall pay the same fees as are required to be paid for incorporation by other corporations organized for pecuniary profit. Section 99 provides that when a public utility corporation shall renew its charter or extend the term of its existence the Secretary of State shall charge and collect the same fees as provided in the case of a new company. The annual license fee or franchise tax which each corporation for profit, including railroads (except insurance companies), is required to pay by section 105, is also one-twentieth of one per centum upon the authorized capital stock. Public utility corporations are not specifically mentioned, but there is nothing to indicate that the authorized capital stock upon which the franchise tax of such corporations is to be assessed is any different from the authorized capital stock upon which other corporations are to be assessed.

In American Can Co. v. Emmerson, 288 Ill. 289, 123 N. E. 581, an objection was made to the amount of the tax assessed against a foreign corporation under section 5b of the Foreign Corporation Act (Laws 1917, p. 306) then in force, that in ascertaining the proportion of the capital stock represented by property located and business transacted in the state of Illinois the Secretary of State used as a basis the entire capital stock of the company,...