Duryea v. American Woodworking Mach. Co.

• Decision Date: 22 November 1904
• Parties: DURYEA v. AMERICAN WOODWORKING MACH. CO.
• Court: U.S. District Court — District of New Jersey

133 F. 329

DURYEA v. AMERICAN WOODWORKING MACH. CO.

United States Circuit Court, D. New Jersey.

November 22, 1904

Grey McDermott & Enright, for exceptants.

Robert H. McCarter, Atty. Gen., for State of New Jersey.

LANNING District Judge.

The question raised by the exceptions to the master's report is whether the state of New Jersey is entitled to have paid to it by the receivers of the defendant company, as a preferred claim, a 'license fee or franchise tax' of $3,500 imposed on the defendant company in 1901. The company was incorporated under the New Jersey corporations act on December 11, 1897, and it was adjudged to be insolvent, and receivers were appointed for it by this court in this cause on September 6, 1899.

By section 4 of the New Jersey act of 1884, entitled 'An act to provide for the imposition of state taxes upon certain corporations and for the collection thereof' (P.L. 1884 p. 234), it was provided that every corporation of the class to which the defendant company belonged should pay 'a yearly license fee or tax' of one-tenth of 1 per centum on the amount of its capital stock. The section was amended in 1892 (P.L. 1892, p. 137); the only change, so far as the question now presented is concerned, being that the so-called tax was denominated an 'annual license fee or franchise tax. ' By a supplement to the act of 1884 approved February 19, 1901 which went into immediate effect (P.L. 1901, p. 31), the imposition is again denominated an 'annual license fee or franchise tax. ' By section 6 of the act of 1884 it is provided that 'such tax shall also be a preferred debt in case of insolvency.'

In considering the validity of an imposition of a 'license fee or franchise tax' upon a corporation after the Court of Chancery of New Jersey has decreed it to be insolvent and appointed a receiver for it, the highest court of New Jersey, in the United States Car Company's Case, 60 N.J.Eq. 514, 43 A. 673, said:

'Although the statute designates an imposition of this kind as a license fee or franchise tax, it plainly is not a tax upon corporate franchises. In fact, it is not, strictly speaking, a tax at all, nor has it the elements of one. It is in reality an arbitrary imposition laid upon the corporation, without regard to the value of its property or of its franchises, and without regard to whether it exercises the latter or not, solely as a condition of its continued existence. The state, in creating a corporation, has the right to impose upon its creature such conditions as the Legislature, within constitutional limits, may deem proper; and the acceptance by the corporation of the franchises, powers, and privileges conferred upon it binds it to the performance of those conditions so long as it continued to remain in possession of those franchises, powers, and privileges, and the conditions themselves remain unrevoked by the Legislature. And this is so without regard to the solvency or insolvency of the corporation, the value or want of value of its franchises, or whether or not it is exercising them either by its officers and directors, or through a receiver. The sole test in determining its liability to comply with those conditions, so long as they remain unrevoked, is the existence or nonexistence of the corporation.'

It was accordingly held that the tax imposed on the United States Car Company after it had been decreed to be insolvent and after a receiver had been appointed, but before the company had been legally dissolved, was a valid claim against the assets in the hands of the receiver, and entitled to priority of payment over the claims of general creditors.

In the case at bar, however, the counsel for the receivers insist that the defendant company has been legally dissolved before the tax of 1901 was imposed. That insistment is based on a certain portion of section 1 of the act of 1896 (P.L. 1896, p. 319), which is as follows:

'If any corporation heretofore or hereafter created shall for two consecutive years neglect or refuse to pay the state any tax which has been or shall be assessed against it under any law of this state and made payable into the state treasury, the charter of such corporation shall be void, and all powers conferred by law upon such corporation are hereby declared inoperative and void, unless the Governor shall, for good cause shown to him, give further time for the payment of such taxes, in which case a certificate thereof shall be filed by the Governor in the office of the Comptroller, stating the reasons therefor.'

The tax of 1899 was never paid by the defendant company, but was paid by the receivers after February 11, 1903, more than three years after it became due and payable. The argument is that the defendant company became dissolved by operation of law at the expiration of two years after the tax of 1899 became due and payable. The fifth section of the act of 1884, as amended in 1892 (P.

L 1892, p. 140), required the...