Transcon. Oil Co. v. Emmerson

• Decision Date: 22 June 1921
• Docket Number: No. 13929.,13929.
• Citation: 298 Ill. 394,131 N.E. 645
• Parties: TRANSCONTINENTAL OIL CO. v. EMMERSON, Secretary of State.
• Court: Illinois Supreme Court

298 Ill. 394

131 N.E. 645

TRANSCONTINENTAL OIL CO.

v.EMMERSON, Secretary of State.

No. 13929.

Supreme Court of Illinois.

June 22, 1921.

Bill by the Transcontinental Oil Company against Louis L. Emmerson, Secretary of State. From decree dismissing the bill, complainant appeals.

Reversed and remanded, with directions.Appeal from Circuit Court, Sangamon County; E. S. Smith, judge.

Scott, Bancroft, Martin & Stephens, of Chicago, and Brown, Hay & Creighton, of Springfield (John E. MacLeish and George W. Swain, both of Chicago, and Logan Hay, of Springfield, of counsel), for appellant.

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

DUNN, J.

The Transcontinental Oil Company, a Delaware corporation authorized to do business in the state of Illinois, filed its report for the year 1919 as required by the general Corporation Act (Laws of 1919, p. 316), and the Secretary of State assessed a franchise tax of 5 cents on each $100 of the proportion of its authorized capital stock represented by business transacted and property located in this state upon the basis of his finding that .01241 of complainant's authorized capital of $200,000,000, being $2,482,000, was employed in its business within this state. The Secretary of State also notified the corporation that, inasmuch as in filing its application to be admitted to do business within the state of Illinois in the year 1919, in accordance with paragraph (e) of section 81 of the general Corporation Act, it had estimated the total amount of its authorized capital to be employed by it in business within the state of Illinois at $183,000 and had paid its initial franchise fee on that basis, there was due to the state an additional fee for the preceding year of $1,149.50, based upon the difference between the estimated sum of $183,000 and $2,482,000, the amount of authorized capital found by the Secretary of State to be employed by the appellant within the state. The Secretary of State further notified the company that, unless both amounts were paid on or before July 31, 1920, there would be assessed a penalty of 5 per cent. for each month until they should be paid. The corporation insisted that the franchise tax should be only $117.10, based upon its claim that the proportion of its authorized capital employed in its business within the state of Illinois was only .001171, or $234,200, and that the deficit in the amount of its initial franchise fee paid in 1919 was only $25.60, being .001171 of the difference between $183,000 and $234,200. The company being unable to induce the Secretary of State to accept the smaller amounts which it insisted were all that it owed, in order to avoid the penalties imposed by the act if the tax assessed should not be paid by July 31, 1920, it deposited with the Secretary of State the sum of $2,390.50, being the total tax assessed, accompanying the deposit with a written protest specifying the grounds for its objection to the tax. Afterward, on September 27, 1920, the company filed a bill in the circuit court of Sangamon county against the Secretary of State praying for an injunction against his turning over to the treasurer or otherwise disposing of the funds deposited by the company without first deducting therefrom $2,247.80, and from forfeiting, annulling, canceling, declaring void, or otherwise interfering with the authority and license of the appellant to do business in the state of Illinois, or declaring it without authority to do business in Illinois, or from imposing any penalty provided in the general Corporation Act or failure promptly to pay its franchise tax. A temporary injunction was issued. The bill was afterward amended, and the demurrer to it was sustained. The complainant electing to stand by its bill, the court dismissed the bill for want of equity, the injunction was dissolved, and the complainant appealed.

The wide divergence in these estimates of the proportion of the company's capital employed in its business in the state of Illinois arose out of a difference of opinion as to what constitutes the tangible property of the corporation. Section 106 of the general Corporation Act provides that--

‘In ascertaining the amount of the authorized capital stock represented by business transacted and property located in this state, the sum of the business of any foreign or domestic corporation transacted in this state and the total tangible property of such corporation located within this state shall be divided by the sum of the total business of the corporation, and the total tangible property of the corporation wherever situated.’

Section 137 provides that--

‘The term ‘tangible property’ as used in this act, shall mean corporeal property, such as real estate, machinery, tools, implements, goods, wares and merchandise, and shall not be taken to mean money, deposits in bank, shares of stock, bonds, notes, credits or evidence of an interest in property or evidences of debt.'

It appears from the report filed by the appellant with the Secretary of State that the total value of all the property of the appellant, wherever located, amounted to $196,706,277.38; that of this amount $175,649,289.81 represented the value of oil leaseholds and oil properties owned by the appellant and located outside the state of Illinois; that appellant's total business transacted at or from places in Illinois during the year 1919 was $228,690.01, and its total business everywhere transacted was $3,107,107.63; that the total property of the appellant within the state of Illinois has a value of $5,500; and that the authorized capital stock of the appellant consisted of $2,000,000 shares without nominal or par value.

The only question upon which the parties disagreed, as stated by the appellant and accepted by the appellee, is whether or not the value of the oil leaseholds of the appellant should have been included in determining the total tangible property of the corporation wherever situated. The Secretary of State excluded such oil leaseholds, and the appellant insists that they should have been included as a part of its tangible property.

The appellant's oil and gas leaseholds covered properties owned and operated by it in many different states and in foreign countries, and were held under instruments the form of which is attached to the bill as Exhibit D. They provided that--

‘The lessor, for and in consideration of _____ dollars, cash in hand paid, receipt of which is hereby acknowledged,and of the covenants and agreements hereinafter contained on the part of the lessee to be paid and kept and performed, ha___ granted, demised, leased, and let, and by these presents do___ grant, demise, lease, and let unto the said lessee, for the sole and only purpose of mining and operating for oil and gas, and of laying of pipe lines, and of building tanks, powers, stations, and structures thereon to produce, save, and take care of said products, all a certain tract of land situate in the county of _____, State of _____, described as follows, to wit, * * * and containing _____ acres, more or less.’

It is agreed that--

‘This lease shall remain in force for a term of * * * years from this date, and as long thereafter as oil or gas, or either of them, is produced from said land by the lessee.’

The lessee covenants and agrees:

‘(1) To deliver to the credit of the lessor, free of cost, in the pipe line, to which _____ may connect _____ wells, the equal one-eighth part of all oil produced and saved from the leased premises.

‘(2) To pay the lessor _____ dollars each year, in advance, for the gas from each well where gas only is found, while the same is being used off the premises, and lessor to have gas free of cost from any such well for _____ stoves and _____ inside lights in the principal dwelling house on said land during the same time by making _____ own connections with the well at _____ own risk and expense.

‘(3) To pay lessor for gas produced from any oil well and used off the premises at the rate of _____ dollars per year for the time during which such gas shall be used, said payments to be made each three months in advance.

‘If no well be commenced on said land before the ___ day of _____, 191_, this lease shall terminate as to both parties, unless the lessee, on or before that date, shall pay or tender to the lessor or to the lessor's credit, in the _____ bank at _____, or its successors, which shall continue as the depository regardless of changes in the ownership of said land, the sum of _____ dollars, which shall operate as a rental and cover the privilege of deferring the commencement of a well for _____ months from said date. In like manner, and upon like payments or tenders, the commencement of a well may be further deferred for like period of the same number of months successively. And it is understood and agreed that the consideration first recited herein, the down payment, covers not only the privilege granted to the date when the first rental is payable as aforesaid, but also lessee's option of extending that period as aforesaid, and any and all other rights conferred. Should the first well drilled on the above-described land be a dry hole, then and in that event, if a second well is not commenced on said land within twelve months thereafter, this lease shall terminate as to both parties, unless...