Court Opinion

ID: 6897671
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:51:35.791939+00
Date Added: 2024-06-11T16:06:03.446923
License: Public Domain

LINDLEY, District Judge
(dissenting).
Though the legal title to the property owned by the merging corporation was in that corporation, it was held for the benefit of its stockholders. After its creditors were satisfied, the corporation had no interest or title except for the benefit of its stockholders; each certificate of stock merely represented an aliquot undivided part of the assets of the corporation in reality owned by the certificate holder. Therefore, when, by virtue of a statutory merger, the merging corporation ceased to exist, it had no right to receive stock from the surviving corporation. But the *921stockholders, the beneficial owners of the assets of the merging corporation, were entitled to receive something for their aliquot parts of the assets delivered to the surviving corporation, — something adequately equivalent to their undivided shares of the assets of the merging corporation. This they did receive in the form of certificates of stock in the surviving corporation and, upon issuance of that stock to them, a tax was paid as contemplated by the revenue act. By the merger the merging corporation died, — it no longer had any existence; legal title to the assets having been held by it merely for the benefit of its stockholders any rights emanating from the surviving corporation rightfully belonged to those stockholders and not to the corporation. I cannot read into this state of facts any right in the merging corporation to receive stock which it has transferred to its stockholders and which is subject to a transfer tax.
A merger or consolidation by which a surviving corporation succeeds to the assets of a merging corporation is entirely different from a sale of the property by one corporation and the purchase by another. Thus the Supreme Court of Illinois said in Chicago, Santa Fe and California Railway Company v. Mary Ashling, Admx., 160 Ill. 373, at page 380, 43 N.E. 373, 375: “The effect of this part of the transaction was to incorporate in the Santa Fe Company the stockholders of the St. Louis Company, combining all the stockholders of each company in one. This was an act of consolidation, and not by any means necessary to a mere purchase and sale. If the transaction could be distinguished from a consolidation as a mere purchase and sale, to be regarded as a fair one (and it should be so regarded for the purpose of the argument) the St. Louis Company itself, and not its individual stockholders, should have received all the consideration for the property conveyed, so that it would have the equivalent of the property sold with which to meet the obligations and liabilities which ft had created or incurred.” And the Appellate Court, in Chicago & Joliet Electric Ry. Co. v. Matilda S. Ferguson, 106 Ill. App. 356, at page 358, said: “A consolidation, not a purchase, is effected by the transfer of the franchise and all the property of one corporation to another under an arrangement by which the stockholders of the former company exchange their stock for stock in the latter company.” “A sale implies a vendor and a vendee, and by it the former sells and transfers a thing that he owns to the latter for a price paid or to be paid to himself. The vendor parts with nothing but his property, and for it receives a quid pro quo. Such is not the case where companies are consolidated under this statute. It is true that the owners of each constituent road parts with its property. But it does much more. It not only parts with its property, but ceases to be a juristical entity, capable of owning or acquiring property. It does not, and could not, receive any consideration for the transfer, because it is extinguished and dissolved by the act of its stockholders in assenting to the proposed agreement.” Compton v. Wabash, St. L. & P. R. Co., 45 Ohio St. 592, 16 N.E. 110, 117, 18 N.E. 380.
That the stockholders are the real parties in the transaction is apparent from the Illinois statute. Section 157.69, ch. 32, Illinois Revised Statutes provides that the surviving corporation shall constitute a single corporation; that the separate existence of the merging corporation shall cease; that the surviving corporation shall receive all the property, privileges, immunities and powers of the merging corporation and become liable for the debts of the merging corporation. Section 157.70 provides that if any stockholder dissents to the merger, he shall have a right to recover from the surviving corporation the fair value of his shares as of the date prior to the merger.
Inasmuch as the surviving corporation derives its right from grant of the state and not by way of transfer from the merging corporation (Diggs v. Fidelity & Deposit Co., 112 Md. 50, 75 A. 517, 20 Ann. Cas. 1274, and inasmuch as the property of the merging corporation was always held for the benefit of its stockholders, it seems to me to follow that the issue of stock by the surviving corporation to the stockholders can be made the subject of no more than one transfet tax. The stock*922holders merely gave up their old stock and received new stock, traded their stock in one corporation for stock in another, and upon this transfer tax was paid. The merging corporation having had no right to receive stock or anything else after it ceased to exist, issuance of the new stock to the stockholders did not amount to a transfer by the merging corporation to its old stockholders.
I think the facts are clearly distinguished from Raybestos-Manhattan, Inc. v. United States, 296 U.S. 60, 56 S.Ct. 63, 80 L.Ed. 44, 102 A.L.R. Ill, where the court was dealing with a sale by one corporation and purchase by another. For the same reason the case is to'be distinguished from United States v. Vortex Cup Company, 7 Cir., 84 F.2d 925.
I would affirm the judgment.