Court Opinion

ID: 3235905
Source: CourtListenerOpinion
Date Created: 2016-07-05 16:10:31.802272+00
Date Added: 2024-06-11T12:45:19.357740
License: Public Domain

The question in this case is whether the requirement of section 229 of the Constitution, that the Legislature shall provide a franchise tax on domestic corporations in proportion to the amount of capital stock, applies to such stock of building and loan associations, payments on which may be withdrawn by the shareholder. Funds so received by building and loan associations, which are withdrawable by the members, are declared not to be capital stock for purposes of taxation, neither as a basis for (a) a franchise tax (Gen. Acts 1927, p. 177, § 55), nor (b) for an ad valorem tax beyond the value of its taxable property (Gen. Acts 1927, pp. 434, 437, § 5 (11).
In this case the parties have agreed that appellee "has no shares of stock the amount paid in on which may not be withdrawn."
The act of 1927 (page 431 et seq.), section 1, provides that three or more persons shall have the right to become a body corporate to carry on the business of a building and loan association, and shall have (b) capital stock subscribed and paid in, of not less than $5,000 of cash, and (f) may fix the kinds and classes of shares to be issued, of which the par or matured value shall be $50 per share, and (e) that it may repay to each of its members his savings whenever they have accumulated to the full par value of the shares or when he shall desire the same, or when the association shall desire to repay it; and section 3 (f) authorizes it to cancel shares of stock that have matured or the payment on which has been withdrawn and to reissue the same; and section 5 (8) provides that the capital of building and loan associations shall be paid by the subscribers in the manner provided by the by-laws, and payments on installment stock shall be called dues; and shares matured and surrendered or canceled shall become the property of the corporation and may be reissued; and may issue fully paid up shares; that the by-laws shall provide for the different classes of shares, the manner in which they may be withdrawn in whole or in part, and the extent to which they shall share in the net earnings, and the dividends, if any, to be paid; and (9) that members may have shares, if so provided, which have fixed earnings on their contributions; and (10) the right to vote shall be as provided by the by-laws; and (11) the holders of all classes shall be members, but withdrawal sums shall not be deemed capital stock for purposes of taxation.
The record on this appeal shows only one quality of the shares of its stock, and that is that all sums paid in on them are withdrawable at the will of the member.
"Capital stock [or a corporation] is the aggregate [amount] of money or other valuable thing contributed or paid into the common treasury, as a condition of the exercise of corporate functions, and a security for their faithful and prudent exercise." Comm. Fire Ins. Co. v. Board of Revenue of Montgomery County, 99 Ala. 1 (7), 14 So. 490, 493, 42 Am. St. Rep. 17; 2 Cooley on Taxation, § 868; 5 Fletcher, Cyc. of Corps. § 3413; 14 Corpus Juris, 379.
"If this trust fund be misapplied to objects or uses outside of the scope of the corporate powers, this is a breach of trust, and fastens a personal liability on those who perpetrate the wrong, commensurate with the injury, if any, caused by the misapplication; and persons receiving the trust fund so misapplied, knowing it to be such, make themselves trustees in invitum, and render themselves liable to the corporation whose funds are thus misapplied, or to the creditors of the corporation, for any diminution the trust fund may suffer in the transaction." Comm. Fire Ins. Co. v. Board of Revenue, supra; Hall  Farley v. Alabama T.  I. Co., 143 Ala. 464,39 So. 285, 2 L.R.A. (N.S.) 130, 5 Ann. Cas. 363; Id., 152 Ala. 262,44 So. 592; Sherrill v. Hutson, 187 Ala. 189, 65 So. 538; Dacovich v. Canizas, 152 Ala. 287, 44 So. 473.
So that corporate stock which carries the right of the shareholder at will to withdraw from the capital the amount paid into that fund is contrary to the ordinary conception of capital stock in a corporation.
But we are not here dealing with an ordinary corporation. We have shown the statutory authority for its existence, and that the right to withdraw contributions to its capital stock paid on subscriptions to its stock ownership is authorized by law. Such organizations have a genus of their own. It is said of them: "Building and loan associations are peculiar corporations in that, at the inception, a share therein has only a nominal value, and payment therefor is made at the end, *Page 484 
rather than at the beginning, and in that the capital may be diminished at the will of the shareholder, by his withdrawal. While it may be stated generally that their basic and essential principle is mutuality, and that they are neither corporations nor partnerships to the fullest extent, the courts have found it difficult and practically impossible to classify them accurately with other bodies. They have been variously described as mutual benefit associations, membership corporations, limited, quasi, or corporate partnerships, or as expedients resorted to for the more convenient prosecution of the particular co-partnership business for which they are organized, and as not being savings institutions or stock corporations within the meaning of certain statutes." 9 Corpus Juris, 921, 922. The right of withdrawal from the capital stock is said to be peculiar to them. 9 Corpus Juris, 938.
They are, however, classed by the text-writers as corporations whose capital stock is of the same nature as that of other corporations for taxation under constitutional equality. Endlich on Building Associations, § 495; Thompson on Building Associations, § 329; State ex rel. Morgan v. Workingmen's B.  L. F.  S. Ass'n, 152 Ind. 278, 53 N.E. 168; 37 Cyc. 848.
The general rule is that, if the Constitution forbids the exemption of corporations from taxation, the Legislature cannot create a corporation, not excepted from the constitutional requirement, and make it free from liability for the tax required by law to be collected of other corporations. Thompson on Building Associations, § 327, pp. 668, 669 (section 329); Charlotte B.  L. Ass'n v. Board of Commissioners,115 N.C. 410, 20 S.E. 526; Deniston v. Terry, 141 Ind. 677, 41 N.E. 143.
If they are domestic corporations, and have capital stock, they are due to pay a franchise tax in proportion to the amount of such capital stock (section 229, Constitution) and the Legislature cannot exempt them. If it undertakes to do so, the exemption is void. State v. Elba Bank  Trust Co., 18 Ala. App. 253,91 So. 917.
The Legislature cannot by its enactment authorize the organization of a corporation with capital stock (not benevolent, educational or religious) and at the same time declare that for taxation its capital stock is not capital stock.
It was intended and declared by the act to be a corporation with capital stock, though it has material distinctions from other corporations. So long as the shareholder has not withdrawn his contributions to the capital stock, the total amount of such contributions is its capital stock, and its character as such is not altered because the shareholder has the privilege of withdrawal. The exemption from a franchise tax in proportion to its stock, because the owner may withdraw such payments, is in our opinion in violation of section 229, Constitution.
We cannot therefore concur in the judgment of the circuit court, and it is reversed and one here rendered for the sum of $1,952.50, which is at the rate of $2 per thousand on the capital amount agreed on, to wit, $976,250.90.
Reversed and rendered.
ANDERSON, C. J., and GARDNER, THOMAS, BOULDIN, and BROWN, JJ., concur.
KNIGHT, J., not sitting.
                              On Rehearing.