Source: https://supreme.justia.com/cases/federal/us/321/583/
Timestamp: 2019-04-21 14:08:37+00:00

Document:
Under authority of § 3 of the National Banking Act, as amended, and pursuant to a consolidation agreement, a state bank was consolidated in 1935 with a national banking association. The transfer to the consolidated association of title to the property of the state bank was not evidenced by deed, conveyance, assignment or other instrument.
1. In respect of (a) securities held by the state bank as legal and beneficial owner and (b) securities to which the state bank held legal title in fiduciary capacities, the transfer was "wholly by operation of law" within the meaning of Treasury Regulations 71 (1932 ed.), Arts. 34(r) and 35(r), and thereby exempt from the stamp tax imposed by § 800, Schedule A, pars. 3 and 9, of the Revenue Act of 1926, as amended. P. 321 U. S. 588.
2. The transfer to the consolidated association of the realty of the state bank was not subject to the stamp tax imposed by § 800, Schedule A-8, of the Revenue Act of 1926, as amended, since the property was not conveyed by any "deed, instrument, or writing," was not "sold," and there was no "purchaser." P. 321 U. S. 589.
Certiorari, 320 U.S. 723, to review the affirmance of a judgment for the plaintiff, 44 F.Supp. 603, in a suit to recover sums paid as taxes.
Respondent initiated this suit to recover the amount of the documentary stamp tax, penalty, and interest which had been exacted under the Revenue Act of 1926, as amended, in connection with a statutory consolidation of banks under Section 3 of the National Banking Act. [Footnote 1] The District Court entered judgment for respondent for the amount of the tax and interest, 44 F.Supp. 603. [Footnote 2] The Circuit Court of Appeals held that the case was governed by one of its former decisions, [Footnote 3] and affirmed the judgment, 136 F.2d 676. We granted certiorari, 320 U.S. 723, because this judgment was alleged to conflict with decisions in other circuits [Footnote 4] and because of the desirability of a final settlement of the problems involved.
In 1935, the directors of the Spokane and Eastern Trust Company, a state bank, entered into a written agreement of consolidation with the directors of the First National Bank of Seattle. The agreement provided that the banks were to be consolidated under the charter of the First National Bank of Seattle and under the new corporate title of Seattle-First National Bank, the respondent herein. The agreement was ratified and confirmed by the requisite number of stockholders of both banks, and the Comptroller of the Currency issued the necessary certificate of approval, reciting that the directors and shareholders of both banks had complied with the provisions of the National Banking Act.
"All assets of each association at the date of consolidation shall pass to and vest in the consolidated association, and the consolidated association shall be responsible for all of the liabilities of every kind and description of each of the consolidating associations."
The transfer to respondent of title to this property held by the state bank was not evidenced by any deed, conveyance, assignment or other instrument. Nor were any documentary stamps purchased or affixed with respect to such transfer. Subsequently, a deputy collector examined the bank records and exacted a tax from respondent on the theory that the consolidation had resulted in a taxable transfer. The necessary stamps were purchased and affixed, and this suit for refund followed.
was no taxable transfer under the stamp tax provisions in effect at the time the consolidation took place.
"whether made upon or shown by the books of the corporation or other organization, or by any assignment in blank, or by any delivery, or by any paper or agreement or memorandum or other evidence of transfer or sale (whether entitling the holder in any manner to the benefit of such share certificate . . . or not)."
Schedule A-9 [Footnote 6] imposes a stamp tax on similar transfers of legal title to bonds.
act of the parties, and not wholly by operation of law." [Footnote 8] Article 35(r) specifically exempts from the tax those transfers of shares or certificates of stock "which result wholly by operation of law;" it further states that "transfers of this character are those which the law itself will effect without any voluntary act of the parties, such as transfer of stock from decedent to executor." Article 120 makes these same provisions applicable to sales or transfers of bonds. The problem thus resolves itself into a determination of whether the transfer of the state bank's securities to respondent occurred "wholly by operation of law" so as to exempt the transfer from the stamp tax requirements.
It is clear that the consolidation or merger of the national bank and the state bank occurred through the voluntary acts of the respective directors and stockholders pursuant to the provisions of Section 3 of the National Banking Act, with the approval of the Comptroller of the Currency. If the words "wholly by operation of law," as used in the administrative regulations, refer here to the entire process of consolidation, of which the transfer of securities is an essential part, the exemption cannot be applied. But, in a broad sense, few if any transfers ever take place "wholly by operation of law," for every transfer must necessarily be a part of a chain of human events, rarely if ever other than voluntary in character. Thus, to give any real substance to the exemption, we must take a more narrow view and examine the transfer apart from its general background. We must look only to the immediate mechanism by which the transfer is made effective.
If that mechanism is entirely statutory, effecting an automatic transfer without any voluntary action by the parties, then the transfer may truly be said to be "wholly by operation of law."
"(1) upon consolidation, the corporate existence of each of the constituent banks shall be merged and continued in the consolidated national banking association, which shall be deemed to be the same corporation as the constituent banks; (2) all the rights, franchises, and interests of each constituent bank in and to every species of property, real, personal, and mixed, and choses in action thereto belonging, 'shall be deemed to be transferred to and vested in' the consolidated association without any deed or other transfer; (3) the consolidated association, by virtue of such consolidation and without any order or other action by any court or otherwise, shall hold and enjoy the same and all rights of property, franchises, and interests (including fiduciary interests) in the same manner and to the same extent as held and enjoyed by the constituent banks."
less than one "wholly by operation of law." This was merely an agreement that the assets would be transferred in the future, and did not purport to be a present, effective conveyance. The transfer of the securities to which the state bank held legal and beneficial title was therefore exempt from the stamp tax under Articles 34(r) and 35(r).
Third. The transfer of the real property owned by the state bank is likewise, in our opinion, exempt from the stamp tax.
purchaser or purchasers. . . ."
It is clear, however, from Section 3 of the National Banking Act that the state bank's realty was not conveyed to or vested in respondent by means of any deed, instrument or writing. There was a complete absence of any of the formal instruments or writings upon which the stamp tax is laid. Nor can the realty be said to have been "sold" or vested in a "purchaser or purchasers" within the ordinary meanings of those terms. Only by straining the realities of the statutory consolidation process can respondent be said to have "bought" or "purchased" the real property. That we are unable to do.
Act of November 7, 1918, c. 209, 40 Stat. 1043, Sec. 3, as added by the Act of February 25, 1927, c.191, 44 Stat. 1224, Sec. 1, and as amended by the Banking Act of 1933, c. 89, 48 Stat. 162, Sec. 24, and the Banking Act of 1935, c. 614, 49 Stat. 684, Sec. 331, 12 U.S.C. § 34a.
Recovery was denied for the $100 penalty, which was paid in compromise of a threatened criminal prosecution, on the ground that the compromise was a final settlement of the penalty. This matter is not now before us.
United States v. Merchants National Trust & Savings Bank, 101 F.2d 399.
See City Bank Farmers Trust Co. v. Hoey, 125 F.2d 577; State Street Trust Co. v. Hassett, 134 F.2d 156.
C. 27, 44 Stat. 9, as amended by Section 723(a) of the Revenue Act of 1932, c. 209, 47 Stat. 169.
C. 27, 44 Stat. 9, as added by Section 724(a) of the Revenue Act of 1932, c. 209, 47 Stat. 169, and as amended by Section 212 of the National Industrial Recovery Act, c. 90, 48 Stat. 195, 206, and as amended by Pub.Res. No. 36, c. 333, 49 Stat. 431.
Substantially similar regulations were promulgated under the Revenue Act of 1926 and were in effect when Congress, in the Revenue Act of 1932, reenacted the stamp tax provisions in issue. Congress did not see fit to amend or change these regulations until the Revenue Act of 1942, Sections 506(b)(1) and (2), c. 619, 56 Stat. 958. See Helvering v. Reynolds Tobacco Co., 306 U. S. 110, 306 U. S. 115.
While the grammatical construction of the quoted clause gives rise to some doubt as to its meaning, we interpret it in accord with Article 35(r) so as to impose a tax on transfers arising out of mergers only if the transfer occurs by the act of the parties and not wholly by operation of law.
"the transfer of stock from the name of a deceased or resigned trustee to the name of a substituted trustee appointed in accordance with the terms of the original trust agreement, which is a transfer resulting wholly by operation of law."
C. 27, 44 Stat. 9, as added by Section 725 of the Revenue Act of 1932, and as amended by Section 212 of the National Industrial Recovery Act, 48 Stat. 206, and as amended by Pub.Res. No. 36, c. 333, 49 Stat. 431.

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