Page:The Green Bag (1889–1914), Volume 24.pdf/30

 Taxation of Guaranteed Stock

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would doubt that an income bond was entire security a bond. There is a dictum of Judge Lurton that a similar taxable in Massachusetts. Courts have held such securities to clause postponing subsequent creditors be bonds.4 A similar stock issued by would be void.8 But since the priority special statute in Massachusetts in the given owners of preferred stock in the eariy days of railroad financing, which Holding Company is conferred by special differed only in the fact that the inter act of the Legislature, which doubtless est or dividends on it were payable had power to authorize the Holding absolutely regardless of profits, was said Company to issue mortgage bonds, it by our court to make its holders would seem more likely that the courts would interpret the security as a con creditors, at least as to dividends.6 That the court did not mean to say tractual obligation, or, in other words, that they could be both creditors and a bond. This was the result in an im stockholders by virtue of the same cer portant Maryland case. A Maryland statute authorized cor tificates, is shown by the language of porations to issue bonds secured by the same court in a later case. mortgage, or instead of raising money "To suppose such a relation (i.e., preferred stockholder's) to be coupled with that of an that way to issue preferred stock to the ordinary contract to pay interest on a debt, amount for which it could issue bonds, and execute an agreement under seal and that the same contribution to capital con stitutes at once a member and a creditor of the guaranteeing to the purchasers of the company, would destroy all distinction between preferred stock a perpetual six per cent capital stock and corporate indebtedness."8 "The question in all cases is, are the parties dividend out of the profits of the cor actually stockholders or are they creditors? . . . poration before any dividend was dis tributed to any other stockholders. They cannot occupy both positions of stock holders and creditors," said a New Jersey judge.7 Later an amendment provided that this It is, of course, possible that a court agreement, under seal, might be re in dealing with provisions in a stock corded, and that the said preferred certificate inconsistent with its nature as stock should be a lien on the franchises stock might prefer to declare these pro and property of the corporation and visions void instead of declaring the have priority over any subsequently created mortgage, or any encumbrance. A corporation issued preferred stock in Company v. Siherberg, 108 Ga. 281, 286; Storrow v. accordance with the amended statute. Texas Assn., 87 Fed. 612, 616 (C. C. A. Tex. 1898). Merely calling a thing stock does not make it so, Then debts were contracted. The prop if it is really a loan. erty was burned and the question related Kidd v. Puritania Co., 122 S. W. 784, 787, 789. The converse of this was recently decided in the to the distribution of the insurance fund Supreme Court of New Jersey as to "debenture certificates," designed to escape the franchise tax. Hillson Co. v. State Board of Assessors, 80 At. 929. •Williams v. Parker. 136 Mass. 204, 207. See also American Tube Works v. Boston Com pany. 139 Mass. 5, 0. •Williston v. Michigan Co., 13 Al. 400, 404. See also Barrett v. King, 181 Mass. 476, 479. 'Holding that a mortgage securing so-called pre ferred stock did not have priority over subsequent debts (but partly on the ground of lack of statu tory authority). Black v. Hobart Trust Company, 64 N. J. Eq. 415, 426. Ace. Chafff v. Railroad Co., 66 Vt. 110, 129.
 * Burt v. Ratt'e, 31 Ohio St. 116. 127; Savannah

8"If the purpose in providing for these peculiar shares was to arrange matters so that under any circumstances a part of the principal of the capital stock might be withdrawn before the full discharge of all corporate debts, the device would be contrary to public policy, and void as to creditors affected thereby." (Preferred stock bearing interest and with lien.) Hamlin v. Toledo Company, 78 Fed. 664, 671. Ace. Ellsworth v. Lyons, 181 Fed. 55, 60 (C. C. A. Mich. 1910). See Warren v. King, 108 U. S. 389, 399. National Salt Company v. Ingraham, 122 Fed. 40, 44 (C. C. A. N. Y., 1903.)