{
  "id": 8613959,
  "name": "CAROLINA COACH COMPANY v. J. A. HARTNESS, Secretary of State, and NATHAN O'BERRY, Treasurer of the State of North Carolina",
  "name_abbreviation": "Carolina Coach Co. v. Hartness",
  "decision_date": "1930-03-26",
  "docket_number": "",
  "first_page": "524",
  "last_page": "530",
  "citations": [
    {
      "type": "official",
      "cite": "198 N.C. 524"
    }
  ],
  "court": {
    "name_abbreviation": "N.C.",
    "id": 9292,
    "name": "Supreme Court of North Carolina"
  },
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    "name_long": "North Carolina",
    "name": "N.C."
  },
  "cites_to": [
    {
      "cite": "47 L. R. A. (N. S.), 1066",
      "category": "reporters:federal",
      "reporter": "L.R.A.N.S.",
      "opinion_index": 0
    },
    {
      "cite": "259 Ill., 489",
      "category": "reporters:state",
      "reporter": "Ill.",
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  "last_updated": "2023-07-14T19:53:28.956258+00:00",
  "provenance": {
    "date_added": "2019-08-29",
    "source": "Harvard",
    "batch": "2018"
  },
  "casebody": {
    "judges": [],
    "parties": [
      "CAROLINA COACH COMPANY v. J. A. HARTNESS, Secretary of State, and NATHAN O\u2019BERRY, Treasurer of the State of North Carolina."
    ],
    "opinions": [
      {
        "text": "Adams, J.\nThe certificate of incorporation of the Carolina Coach Company, the plaintiff herein, was filed in the office of the Secretary of State on 20 November, 1925, and the stock subscribers, their successors and assigns, were thereby made a body corporate, bearing the name specified in the certificate. The total authorized capital stock was 45,000 shares without nominal or par value, 20,000 shares representing preferred stock, 20,000 shares class A common stock, and 20,000 shares class B common stock. On 2 October, 1926, tbe charter was amended by changing the authorized capital stock to 27,500 shares without nominal or par value, 20,000 shares representing preferred stock, 2,500 shares class A common stock, and 5,000 shares class B common stock. The Southern Coach Company was incorporated 19 February, 1926, and the \u201cagreement of merger\u201d executed by the Carolina Coach Company and the Southern Coach Company was filed in the office of the Secretary of State on 26 March, 1929.\nIn 1901 the General Assembly enacted a statute imposing prescribed taxes for filing in the office of the Secretary of State certificates of incorporation, of increase or decrease of capital stock, of extension or renewal of corporate existence, of change of name or of business, and other certificates relative to corporations. P. L. 1901, ch. 2, sec. 96; Revisal of 1905, sec. 1233. This section was amended in 1920 and the tax was increased. P. L., Ex. Ses. 1920, ch. 1, sec. 7c. Under modified phraseology the amended act appears in the- Consolidated Statutes as section 1218. The act authorizing the merger or consolidation of corporations did not go into effect until 27 February, 1925. P. L. 1925, ch. 77. It was perhaps for this reason that at the session of 1929 the General Assembly amended section 1218 by making it conform to the act of 1920, the amendment becoming effective on 20 February, 1929. The two pertinent sections of the latter statute are as follows :\n\u201cOn filing any certificate or paper relative to corporations in the office of the Secretary of State, the following tax shall be paid to the State Treasurer for the use of the State:\n1. For certificates of incorporation, forty cents for each thousand dollars of the total amount of capital stock authorized, but in no case less than forty dollars.\n3. Extension or renewal of corporate existence of any corporation, the same as required for the original certificate of incorporation by this section.\u201d P. L. 1929, eh. ,36.\nIf the written instrument executed by the plaintiff and the Southern Coach Company, referred to in the statement of facts as an \u201cagreement of merger,\u201d or a \u201cmerger agreement,\u201d is in law a certificate of incorporation or an extension or renewal of corporate existence, the tax is undoubtedly collectible. The question of the plaintiff\u2019s liability for the tax turns, therefore, upon the legal effect of the agreement, taken in connection with the facts disclosed by the attached exhibits.\nIt may first be noted that in view of the statement of facts we are not concerned with the law relating to the voluntary conveyance of corporate property (O. S., 1138), or a sale of stock by one corporation to another (C. S., 1166), or a sale of corporate property under execution (C. S., 1201), or a sale of the property and franchises of a public service corporation to satisfy a mortgage or other encumbrance as provided in section 1221. But, as hereafter pointed out, we are primarily concerned with the construction of certain other statutes.\nA corporation is a creature of the law. \u201cIt cannot be created by mere agreement of the associates, but it is necessary to obtain sovereign sanction, for corporations today can be created only by or under legislative authority. The privilege which the Legislature confers upon human beings enabling them to act as a legal unit is the corporate franchise.\u201d 1 Fletcher, Cyc. Corp., sec. 14. The franchise is distinguishable from the capital and from the tangible property and assets of the corporation. A corporation may acquire, hold, and transfer property; but the sovereign is not indifferent to the public interest. Having granted the franchise, the State retains jurisdiction to exercise visitorial or supervisory powers over the management of the internal affairs of domestic corporations.\nLegislative sanction is essential, not only to the creation, but to the merger or consolidation of corporations. Morawetz on Corp., secs. 544, 545. Recognizing this principle the coach companies based their agreement upon the act of 1925, which is cited above; and the legal effect of the agreement must be sought in the terms and purpose of the act which purports to authorize its execution. The plaintiff argues that under the provisions of this act corporations existing under the laws of the State may at their election enter into an agreement of merger .or of consolidation, and that the agreement of the companies is a merger of one into the other, and not the creation of a new corporation as the result of consolidation. The defendants say that the agreement is in legal effect the consolidation of the two companies resulting in the creation of a new corporation.\nThere is, of course, a technical distinction between consolidation and merger. Merger has been defined as the absorption of a thing of lesser importance by a greater, whereby the lesser, ceases to exist, but the greater is not increased. It is the uniting of two or more corporations by the transfer of property to one of them, which continues in existence, the others being merged therein. But ordinarily the legal effect of consolidation is to extinguish the constituent companies and create a new corporation. Bouvier\u2019s Law Die., Cen. Ed., 799, 801; Black\u2019s Law Die., 774; 12 C. J., 530; 40 O. J., 649. The distinction is clearly stated by Fletcher in 7 Cyclopedia, sec. 4662: \u201cA merger, using the word in its strict legal sense, exists only where one of the constituent companies remains in -being, absorbing or merging into itself all the other constituent companies, while in the case of a consolidation a new corporation is created and generally all the consolidating companies surrender their existence.\u201d It has accordingly been held that where one corporation loses its identity and is merged in another, tbe latter preserving its identity and issuing new stock in favor of tbe stockholders of tbe former, tbe transaction is not a consolidation or tbe creation of a new corporation, but is merely tbe enlargement of tbe old one. News Put. Co. v. Blair, 29 Fed. (2d), 955. But if a statute provides for tbe consolidation of corporations and not for merger in tbe technical sense, an apparent merger by tbe retention of tbe name of one and tbe abandonment of tbe name of tbe other does not prevent tbe operation of tbe rule that consolidation creates a new corporation and puts an end to tbe separate existence of tbe constituent companies. Chicago Title & T. Co. v. Doyle, 259 Ill., 489, 47 L. R. A. (N. S.), 1066.\nWhether, therefore, uniting two or more corporations works their dissolution and creates a new corporation depends upon tbe statutes under which tbe union is accomplished. And here we encounter tbe pivotal question whether under tbe act of 1925 tbe coach companies were merged or consolidated.\nIn an analysis of tbe statutes it is noticeable that they do not observe tbe technical distinction between \u201cmerger\u201d and \u201cconsolidation.\u201d Tbe terms are loosely applied; \u201cmerger\u201d appears in tbe headlines of four sections of tbe act and once in tbe body of tbe several sections. It is not clear that it was not used indiscriminately as synonymous with consolidation; and tbe words \u201cconsolidated corporation\u201d manifestly import a separate and distinct entity. This is obvious from tbe frequent recurrence of tbe word \u201cnew\u201d as descriptive of tbe corporation created by tbe consolidation. Provision is made for converting tbe shares of each of tbe old corporations into stock of tbe \u201cnew corporation.\u201d Section 1224(a). Before receiving stock in tbe \u201cnew\u201d or consolidated corporation, tbe shareholders of tbe old corporations must surrender to tbe \u201cnew\u201d corporation their certificates of stock in the old corporation, and these certificates shall be canceled by tbe \u201cnew\u201d corporation. Section 1224(b). If a person owning a lost, destroyed, or misplaced certificate of stock in one of tbe old corporations is dissatisfied with tbe terms of tbe \u201cmerger\u201d be may have bis stock appraised and paid for upon indemnifying tbe \u201cnew\u201d corporation against loss. Section 1224(b). Tbe statutes thus express tbe primary purpose of creating a new corporation by tbe consolidation of corporations existing under tbe laws of this State.\nTbe plaintiff\u2019s contention is based upon tbe first clause in section 1224(a)': \u201cAny two or more corporations organized under tbe provisions of this chapter, or existing under tbe laws of this State, for tbe purpose of carrying on any bind of business, may consolidate into a single corporation which may be either one of said consolidated corporations or a new corporation to be formed by means of such consolidation.\u201d It is insisted that the plaintiff is the \u201csingle corporation\u201d; that it has absorbed the other; and that its identity and existence continue.\n\"Whatever force would otherwise attach to this position is neutralized by other statutory provisions. An agreement signed by a majority of the directors is prerequisite to consolidation and to the so-called merger, whether the \u201csingle corporation\u201d be one of the consolidated corporations or a new corporation formed by means of such consolidation. Without the agreement there can be neither merger nor consolidation; but the instant the agreement is signed, acknowledged, filed, and recorded the separate existence of the constituent corporations ceases and the consolidating corporations become a single corporation in accordance with the agreement. Section 1224(b). When the separate existence of the constituent corporations comes to an end the new corporation acquires not only the property, but the powers, privileges and franchises of the old corporations, which thereafter have neither property nor franchise. It is provided that all interests of the old corporations shall thereafter be the property of the consolidated corporations as effectually as they had previously been the property of the constituent corporations. Section 1224(b).\nThe single or consolidated corporation may issue bonds or other obligations, negotiable or otherwise, to an amount sufficient with its capital stock to meet such obligations as may be necessary to effect the consolidation and to secure the payment of its obligations by mortgaging its corporate franchise and its real and personal property. Section 1224(f).\nThe fact that the agreement is styled a merger is immaterial; it cannot affect our decision. The law controls the corporations; the corporations do not control the law.'\nWe therefore conclude that the agreement of the coach companies was in contemplation of law a certificate of incorporation and that the plaintiff was liable for the tax imposed by the act of 1929.\nJudgment reversed.",
        "type": "majority",
        "author": "Adams, J."
      }
    ],
    "attorneys": [
      "Attorney-General Brummitt and Assistant Attorney-General Nash for appellants.",
      "Smith & Joyner for appellee."
    ],
    "corrections": "",
    "head_matter": "CAROLINA COACH COMPANY v. J. A. HARTNESS, Secretary of State, and NATHAN O\u2019BERRY, Treasurer of the State of North Carolina.\n(Filed 26 March, 1930.)\n1. Corporations A a \u2014 Statutory authority is necessary to creation, consolidation, and merger of corporations.\nStatutory authority is necessary to create a corporation or to merge or consolidate existing corporations, and the State retains visitorial and supervisory powers over corporations created, consolidated, or merged under its sanction.\n2. Corporations J a \u2014 Statute under which union of corporations is accomplished controls as to whether union is merger or consolidation.\nWhether the union of two corporations is a merger or consolidation is not determined by appearance of a merger from the retention of the name of one and the abandonment of the name of the other, nor the use of the word \u201cmerger\u201d in the statute under which the union is accomplished when it is apparent that it is not used in its technical sense, but the provisions of the statute under which the union is accomplished controls, whether it provides for a merger in the technical sense or whether it provides for a consolidation.\n3. Taxation B b \u2014 Where two corporations consolidate a new corporation is created which is liable for franchise tax.\nWhere two public-service corporations enter into an agreement for their union and the continuance of the business under the name of one with the combined assets of both, and file their application therefor with the Secretary of State, the statute under which the union is accomplished controls as to whether the union is a merger in the technical sense or a consolidation, and where the statute provides for converting the shares of stock of the old corporations into stock of the \u201cnew corporation,\u201d and for the surrender to and cancellation by the \u201cnew corporation\u201d of the stock of the old ones: Held, the statute provides for the creation of a new corporation by consolidation, and the new corporation created thereunder is liable for the franchise tax imposed by chapter 36, Public Laws of 1929.\nAppeal by defendants from Harris, J., at October Term, 1929, of Wake.\nReversed.\nSubmission of controversy without action under C. S., eh. 12, Art. 25. The agreed facts are as follows:\n1. The Carolina Coach Company is a North Carolina corporation chartered by the Secretary of State\u2019s office on 20 November, 1925, its certificate of incorporation being recorded in the office of the clerk of the Superior Court of Wake County, on 25 November, 1925: A copy of an amendment to the certificate of incorporation dated 2 October, 1926, also was duly filed in the office of the clerk of Superior Court of Wake County. The corporation is engaged in the motor bus transportation of passengers under franchises or permits issued by the Corporation Commission of the State.\n2. The defendant, James A. Hartness, was Secretary of State on 26 March, 1929, and prior thereto, and has since that date been and-still is Secretary of State, performing the functions of that office. The defendant, Nathan O\u2019Berry, was Treasurer of the State of North Carolina on 26 March, 1929, and prior thereto, and has since that date been and still is Treasurer of the State, performing the functions of that office.\n3. Prior to 26 March, 1929, the Southern Coach Company was a corporation of North Carolina, having its principal office and place of business in the city of Greensboro and conducting a transportation business similar to the business of the Carolina Coach Company.\n4. On 25 March, 1929, following an agreement between the stockholders and the directors of the Carolina Coach Company on the one hand and the stockholders and directors of the Southern Coach Company on the other hand, an agreement of merger was executed by both corporations, whereby the Southern Coach Company was merged into the Carolina Coach Company under and by virtue of the provisions of Article 13 of chapter 22 of the Consolidated Statutes of North Carolina, sections 1224-A to 1224-F, inclusive, said merger agreement being-filed in the office of the Secretary of State of North Carolina on 26 March, 1929, said merger agreement with other exhibits attached hereto containing all of the facts necessary to an understanding of the question being presented to the court.\n5. When the plaintiff corporation offered to file in the office of the Secretary of State the said merger agreement under the provisions of the law, the Secretary of State demanded and exacted of the plaintiff the payment of the sum of $1,100, being forty cents on each $1,000 of the authorized capital stock of the Carolina Coach Company, before filing or allowing said merger agreement to be filed. Thereupon, the plaintiff, Carolina Coach Company, paid under protest to the defendant, J. A. Hartness, Secretary of State, the sum of $1,100, and thereafter within 30 days filed a written demand for the return of the $1,100 with the said J. A. Hartness, Secretary of State, and Nathan O\u2019Berry, State Treasurer. Thereafter the said J. A. Hartness, Secretary of State, and the said Nathan O\u2019Berry, State Treasurer, refused to return or refund the said $1,100 and still hold same, as plaintiff contends, contrary to law. And the plaintiff, Carolina Coach Company, has performed all the requirements of the law with respect to payment under protest and demand and notice for refund.\nThe articles of incorporation and the merger agreement are made a part of the statement of facts. The question at issue is whether the plaintiff should have been required to pay $1,100 into the office of the Secretary of State before filing the merger agreement. Upon consideration of the agreed facts Judge Harris held that payment of the sum in controversy had been exacted without warrant of law and adjudged that the plaintiff recover of the defendants the sum of $1,100, the amount paid under protest by the plaintiff, and interest thereon from 26 March, 1929, together with costs. The defendants excepted and appealed.\nAttorney-General Brummitt and Assistant Attorney-General Nash for appellants.\nSmith & Joyner for appellee."
  },
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