Majestic Household Utilities Corp. v. Stratton

• Decision Date: 22 June 1933
• Docket Number: No. 21793.,21793.
• Citation: 186 N.E. 522,353 Ill. 86
• Parties: MAJESTIC HOUSEHOLD UTILITIES CORPORATION v. STRATTON, Secretary of State.
• Court: Illinois Supreme Court

353 Ill. 86

186 N.E. 522

MAJESTIC HOUSEHOLD UTILITIES CORPORATION

v.STRATTON, Secretary of State.

No. 21793.

Supreme Court of Illinois.

June 22, 1933.

Suit by the Majestic Household Utilities Corporation against William J. Stratton, Secretary of State. From a decree dismissing the bill, complainant appeals.

Reversed and remanded, with directions.Appeal from Circuit Court, Sangamon County; Frank W. Burton, judge.

Jones, Addington, Ames & Seibold, of Chicago (Albert F. Mecklenburger and Sidney Neuman, both of Chicago, of counsel), for appellant.

Otto Kerner, Atty. Gen. (B. L. Catron, of Springfield, of counsel), for appellee.

ORR, Chief Justice.

This is a suit to recover an annual franchise tax paid under protest. Only an interpretation of the statute is involved, but jurisdiction lies here on direct appeal from the circuit court because the case relates to revenue.

Appellant, the Majestic Household Utilities Corporation (herein referred to as complainant), filed its verified bill of complaint in the circuit court of Sangamon county to enjoin the secretary of state (herein referred to as defendant) from paying to the state treasurer the sum of $5,937.49 theretofore paid to defendant under protest, as annual franchise tax for the year beginning July 1, 1932. Upon the filing of the bill, a preliminary injunction was issued restraining defendant from paying the disputed sum to the state treasurer until further order of court. Thereafter a general demurrer filed by defendant was sustained, and the bill dismissed for want of equity. The injunction, however, was continued in force pending this appeal.

Complainant is an Illinois corporation. Its authorized capital consists of 600,000 shares of common stock of no par value, all of one class. The maximum number of issued shares was 500,000. On March 10, 1931, complainant transferred all of its assets, together with its good will, to the Grigsby-Grunow Company, an Illinois corporation, in consideration of the following: (a) 375,000 shares of the common capital stock of the Grigsby-Grunow Company;(b) the assumption by the Grigsby-Grunow Company of the liabilities of complainant; and (c) the cancellation of all intercompany indebtedness and investments between complainant and the Grigsby-Grunow Company, including a debt of complainant in excess of $1,000,000, and the agreement of the Grigsby-Grunow Company to surrender for cancellation 125,000 shares of common stock of complainant then held and standing of record in the name of the Grigsby-Grunow Company. Complainant then offered its stockholders, not including the Grigsby-Grunow Company, the opportunity to surrender their stock for cancellation and in exchange for shares of the capital stock of the Grigsby-Grunow Company on a share for share basis. This exchange and cancellation were effected to the extent of 352,323 shares, in addition to the 125,000 shares canceled by the agreement of exchange. On February 24, 1932, the date of its annual report to the secretary of state, there were outstanding only 22,677 of the original 500,000 issued shares of complainant's stock.

The transaction above outlined was authorized and approved by the action of stock-holders and directors of complainant and of the Grigsby-Grunow Company. The shares of complainant's stock surrendered from time to time in exchange for an equal number of shares of the Grigsby-Grunow stock were actually canceled and retired pursuant to resolutions adopted by complainant's directors and by more than two-thirds of its stock-holders. From and after March 10, 1931, the date of the transfer of all the assets and liabilities of complainant to the Grigsby-GrunowCompany, complainant ceased doing business in this state. Since that date complainant has had no property located in this state except the sum of $1,000 in cash and a certain number of shares of Grigsby-Grunow stock held by a transfer agent for the purpose of issuance to complainant's stockholders, who thereafter surrendered their stock in exchange.

At an earlier date than March 10, 1931, complainant had received the aggregate sum of $11,874,975 in cash and property for the 500,000 shares of its issued capital stock. As to the 22,677 shares reported as issued and outstanding on February 24, 1932, the amount which complainant had received was $25 per share, or $566,925. Prior to February 24, 1932, complainant had not amended its corporate charter reducing its authorized capital stock. These facts appeared in the original and amended annual reports filed by complainant in the office of the secretary of state, dated February 24 and April 14, 1932, respectively. Any penalty which might have resulted from the filing of the amended annual report after, rather than before, the first day of April, 1932, was waived by defendant. Thereafter, as above stated, defendant assessed a franchise tax against complainant in the sum of $5,937.49, based upon the maximum number of shares of complainant's stock at any time theretofore issued, namely, 500,000 shares, and the amount received therefor, namely, $11,874,975, rather than upon the number of shares issued and outstanding as of February 24, 1932, namely, 22,677 shares, and the amount received therefor, namely, $566,925. This is the action complained of.

It is not disputed that the Grigsby-Grunow Company, when it acquired all of the assets of complainant, issued 375,000 shares of its capital stock in part consideration therefor. A certificate whith respect to the issuance thereof was filed pursuant to the statute, and the required fees and franchise taxes were paid. In the month of February, 1932, the Grigsby-Grunow Company filed its annual report, from which its annual franchise tax was computed. This report filed with defendant showed the issuance of the 375,000 additional shares of Grigsby-Grunow stock and the consideration received therefor, being the net value of the assets acquired by the Grigsby-Grunow Company from complainant. A franchise tax was assessed against the Grigsby-Grunow Company for the year beginning July 1, 1932, based, in part, upon the 375,000 shares so issued and the consideration received for them. The bill alleges that the franchise tax thereon has been paid or that the Grigsby-Grunow Company is liable therefor, and that the effect of the assessment against complainant-the subject-matter upon which this bill is based-is double taxation.

By the provisions of ‘An Act in relation to corporations for pecuniary profit’ (Smith-Hurd Rev. St. 1931, c. 32), corporations may dissolve (section 74-79, inclusive); they may merge or consolidate into a single corporation (sections 65-73 inclusive); or they may lease, exchange, or sell all their corporate assets with the consent of two-thirds of all outstanding capital stock (section 6, subsec. 9). In the present case it is apparent that the last-mentioned course was followed by an exchange of corporate assets, rather than a dissolution, merger, or consolidation. Whether complainant will later be required to dissolve its corporate entity is of no present moment-it has exercised one of the powers expressly conferred upon it by statute. The exchange of all of its corporate assets to the Grigsby-Grunow Company was accomplished, as the statute requires, with the consent of two-thirds of all the outstanding capital stock of the corporation voted at a special meeting of the stockholders called for that purpose. The rights of all stockholders who did not vote in favor of the exchange of their stock for an equal number of shares of Grigsby-Grunow stock were protected...