People ex rel. Union Trust Co. v. Coleman

• Citation: 27 N.E. 818,126 N.Y. 433
• Parties: PEOPLE ex rel. UNION TRUST CO. v. COLEMAN.
• Decision Date: 02 June 1891
• Court: New York Court of Appeals

126 N.Y. 433

27 N.E. 818

PEOPLE ex rel. UNION TRUST CO.

v.COLEMAN.

Court of Appeals of New York.

June 2, 1891.

Appeal from supreme court, general term, first department.

Wheeler H. Peckham, for appellant.

D. J. Dean, for respondent.

FINCH, J.

The relator has been assessed upon an ‘actual value’ of its capital stock derived entirely from the market value of its shares. These are selling at the large premium of something over $500 for each share of $100, and the assessors have concededly taken that valuation, or the principal part thereof, as the ‘actual value’ of the company's stock liable to taxation, instead of its own proved and established value. The relator challenges the assessment, and through all the proceeding has persistently raised and pressed the inquiry, not so much as to the mode or manner of ascertaining value, but, rather, as to what is the precise thing to be valued,-whether the capital stock of the company, or the capital stock held in shares by the corporation. If these are the same, or, in any just sense, equivalents, either might be valued without substantial error; but, if they are not such, we must determine which is to be valued before we can solve the problem of how to value it. Now, it is certain that the two things are neither identical nor equivalents. The capital stock of a company is one thing; that of the shareholders is another and a different thing. That of the company is simply its capital, existing in money or property or both; while that of the shareholders is representative, not merely of that existing and tangible capital, but also of surplus, of dividend earning power, of franchise, and the good-will of an established and prosperous business. The capitalstock of the company is owned and held by the company in its corporate character; the capital stock of the shareholders they own and hold in different proportions as individuals. The one belongs to the corporation; the other, to the corporators. The franchise of the company, which may be deemed its business opportunity and capacity, is the property of the corporation, but constitutes no part or element of its capital stock; while the same franchise does enter into and form part, and a very essential part, of the shareholder's capital stock. While the nominal or par value of the capital stock and of the share stock are the same, the actual value is often widely different. The capital stock of the company may be wholly in cash or in property, or both, which may be counted and valued. It may have in addition a surplus, consisting of some accumulated and reserved fund, or of undivided profits, or both; but that surplus is no part of the company's capital stock, and therefore is not itself capital stock. The capital cannot be divided and distributed; the surplus may be. But that surplus does enter into and form part of the share stock, for that represents and absorbs into its own value surplus as well as capital, and the franchise in addition; so that the property of every company may consist of three separate and distinct things, which are its capital stock, its surplus, and its franchise; but these three things, several in the ownership of the company, are united in the ownership of the shareholders. The share stock covers, embraces, represents all three in their totality; for it is a business photograph of all the corporate possessions and possibilities. A company also may have no surplus, but, on the contrary, a deficiency which works an impairment of its capital stock. Its actual value is then less than its nominal or par value, while yet the share stock, strengthened by hope of the future and the support of earnings, may be worth its par, or even more. And thus the two things, the company's capital stock and the shareholder's capital stock, are essentially and in every material respect different. They differ in their character, in their elements, in their ownership, and in their values. How important and vital the difference is became evident in the effort by the state authorities to tax the property of the national banks. The effort failed, and yet the share stock in the ownership of individuals was held to be taxable as against them. The corporation and its property were shielded, but the shareholders and their property were taxed.

Now, some degree of confusion and trouble have come in because these two different things are denominated alike ‘capital stock,’ making the expression sometimes ambiguous. It is the important and decisive phrase in the law of 1857 under which the assessment here resisted was made, and requires of us to determine at the outset in which sense it was used. The section reads thus: ‘The capital stock of every company liable to taxation, except such part of it as shall have been excepted in the assessment roll, or shall have been exempted by law, together with its surplus profits or reserved funds exceeding 10 per cent. of its capital, after deducting the assessed value of its real estate, and all shares of stock in other corporations actually owned by such company which are taxable upon their capital stock under the laws of this state, shall be assessed at its actual value, and taxed in the same manner as the other real and personal estate of the county.’ There are reasons in abundance for the conclusion that by the phrase ‘capital stock’ the statute means not the share stock, but the capital owned by the corporation; the fund required to be paid in and kept intact as the basis of the business enterprise, and the chief factor in its safety. One ample reason is derived from the fact that the tax is assessed against the corporation, and upon its property, and not against the shareholders, and so upon their property. In theory, every tax is charged against some person, natural or artificial, resident or non-resident, known or unknown. It is assessed, not upon property irrespective of ownership, but against persons in respect to their property, (People v. Commissioners, 23 N. Y. 215;) and effects, not merely a lien, but also a personal liability. On the assessment rolls in this case appeared the name of the relator as the person assessed, and the amount of the tax became a charge against it. Of course, it could only be assessed and taxed in respect to its own property,-that which in its corporate character it owned and possessed; and so it follows inevitably that the statute concerns the company's capital stock,-that is, its real and actual capital,-and not in any respect the share stock which it does not own, and whose possessors have not been assessed.

Another reason is found in those terms of the statute which include and exclude, respectively, specific kinds or classes of property in the corporate ownership. Thus, the assessment is to be laid, not merely upon the capital stock of the corporation, but also upon its surplus. No such explicit direction was necessary, except on the assumption that by the words ‘capital stock’ was meant simply ‘capital,’ which would not include surplus, and so required that it be subjected by name to the valuation. If the share stock was meant, its value would include surplus, and make its specification not only needless, but confusing. But, while the statute includes surplus by specific mention, it excludes franchise by omitting it. The omission of franchise is emphasized by the careful inclusion of surplus. It is fully and definitely settled that the tax imposed by the statute is not upon franchise. People v. Commissioners, 2 Black, 620. But, if that be so, it is not upon the share stock, for that represents the value of the corporate franchise as a part of the total of the corporate property; and so, both by what it specifically includes and silently excludes, the statute itself informs us that by ‘capital stock’ it means and intends the company's actual capital paid in and possessed, and not at all or in any sense the share stock. The same thing becomes apparent from a study of the whole line of legislation which culminated in the law of 1857. It was traced in detail upon the argument with great industry and wealth of illustration. We have verified it by traveling over the same track, and, without taking pains to reproduce it, may assert the general result which it discloses, and select out one or more illustrations. The investigation shows that the word ‘capital’ and the phrase ‘capital stock’ are used interchangeably and synonymously, and, where the latter phrase occurs, there is almost always something in the statute which stamps and labels it as referring to the actual capital of the company. Thus the law of 1823, (chapter 262,) after providing for the taxation of all persons owning or possessing property, proceeds to declare that corporations shall be deemed persons for the purposes of the act, and requires them to furnish a statement of the amount of ‘capital’ actually paid in; and then, referring to turnpike and bridge companies, requires them to state ‘the amount of capital stock actually paid in or secured to be paid in.’ Both clauses refer to the same assets or fund, naming it indiscriminately ‘capital’ and ‘capital stock.’ Again, in the law of 1825, (chapter 254,) the assessors, after putting the corporation by name on the assessment roll, are required to add the amount ‘of its capital stock paid in or secured to be paid in,’ and to designate how much of it is in real and how much in personal property, and so, no doubt is left that by ‘capital stock’ was meant simply the ‘capital’ possessed in cash or invested in securities or real estate

The illustrations might be multiplied and fortified by reference to numerous acts relating to the formation or managementof manufacturing, railroad business, and telegraph companies, in which the two forms of expression are used indiscriminately and as convertible terms; but I think quite enough has been said to require unhesitating assent to the proposition that, under the law of 1857, the thing...