Commonwealth of Pennsylvania v. York Silk Mfg. Co.

• Decision Date: 06 December 1911
• Docket Number: 33 (1,535).
• Citation: 192 F. 81
• Parties: COMMONWEALTH OF PENNSYLVANIA v. YORK SILK MFG. CO.
• Court: U.S. Court of Appeals — Third Circuit

192 F. 81

COMMONWEALTH OF PENNSYLVANIA v. YORK SILK MFG. CO.

No. 33 (1,535).

United States Court of Appeals, Third Circuit.

December 6, 1911

Aaron V. Bower and Clarence B. Miller (John F. Kell, on the brief) for the Commonwealth of Pennsylvania.

Henry C. Niles, for respondent.

Before GRAY, BUFFINGTON, and LANNING, Circuit Judges.

LANNING Circuit Judge.

The commonwealth of Pennsylvania has filed with the referee in bankruptcy a claim against the bankrupt, the York Silk Manufacturing Company, arising out of the following facts: On or about June 25, 1904, the bankrupt increased its capital stock from $1,800,000 to $5,000,000. The Pennsylvania law (P.L. 1901, p. 5, Sec. 3) then provided that, upon the actual increase of the capital stock of a corporation--

'it shall be the duty of the president or treasurer of such corporation, within thirty days thereafter, to make return to the Secretary of the commonwealth under oath, of the amount of such increase actually made, and concurrently therewith such corporation shall pay to the State Treasurer, for the use of the commonwealth, such bonus on the actual increase shown by said return as shall then be prescribed by law.'

It further provided that:

'In case of neglect or omission to make said return, such corporation shall be subject to a penalty of five thousand dollars, in addition to the bonus, which penalty shall be collected on an account settled by the Auditor General and State Treasurer as accounts for taxes due the commonwealth are settled and collected.'

No return of the increase was made until October 19, 1910, which was a month after the corporation had been adjudged bankrupt. The bonus, amounting to the sum of $10,666.67, and the penalty of $5,000, are two of the items in the commonwealth's present claim, which claim, the commonwealth insists, is a preferred one under section 64a of the bankruptcy act. That section declares that:

'The court shall order the trustee to pay all taxes legally due and owing by the bankrupt to the United States, state, county, district or municipality in advance of the payment of dividends to creditors.'

The District Court, affirming the decision of the referee (188 F. 735), disallowed the penalty item, but without prejudice to the right of the commonwealth to present a claim under section 57j of the bankruptcy act; and, as to the bonus item, held it not to be a tax, but a consideration payable to the commonwealth for a privilege conferred. The bonus item was therefore allowed as a general but not preferred claim. Section 57j expressly declares that a debt owing to a state as a penalty shall not be allowed except for the amount of the pecuniary loss sustained by the transaction out of which the penalty arises. The order of the District Court permits the commonwealth to prove for that loss.

The Supreme Court of Pennsylvania, we are advised, has never construed the Pennsylvania act of 1901 respecting the payment of a bonus when the capital stock of a corporation is increased, but it has several times distinguished between a bonus and a tax. Commonwealth v. Erie & Western Trans. Co., 107 Pa. 112; Commonwealth v. Bessemer Co., 207 Pa. 302, 56 A. 871; Commonwealth v. Bailey, etc., Co., 20 Pa.Super.Ct. 210; Commonwealth v. American Steel Hoop Co., 226 Pa. 6, 74 A. 617. See, also, Railroad Co. v. Maryland, 21 Wall. 456, 22 L.Ed. 678.

Unless the item of $10,666.67, called a bonus by the statute, is in reality a tax within the meaning of section 64a of the bankruptcy act, the decision of the court below is correct. It is contended by counsel for the commonwealth that the act of 1901, on which the claim for a bonus is based, differs from the preceding acts...