A-55723, JUNE 20, 1934, 13 COMP. GEN. 453

A-55723: Jun 20, 1934

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CORPORATIONS - PARENT AND SUBSIDIARY - DISSOLUTION - ASSIGNMENT OF PARENT CORPORATION FOR BENEFIT OF CREDITORS A PARENT CORPORATION OWNING ALL STOCK OF A SUBSIDIARY CORPORATION IS ENTITLED UPON DISSOLUTION OF THE SUBSIDIARY CORPORATION TO ONLY SO MUCH OF THE PROPERTY THEREOF AS IS NOT LIABLE FOR THE DEBTS OF THE CORPORATION. HENCE THE TRUSTEE OR ASSIGNEE UNDER SUCH ASSIGNMENT HAS NO VALID CLAIM FOR THE PROCEEDS OF A GOVERNMENT CHECK BELONGING TO THE SUBSIDIARY CORPORATION WHEN THE SUBSIDIARY CORPORATION IS SHOWN SUBSEQUENTLY TO HAVE BEEN DISSOLVED BECAUSE OF THE FORFEITURE OF ITS CHARTER FOR NONPAYMENT OF THE STATE FRANCHISE TAX. APPEARS TO HAVE BEEN RETURNED TO THE COMMISSIONER OF INTERNAL REVENUE.

A-55723, JUNE 20, 1934, 13 COMP. GEN. 453

CORPORATIONS - PARENT AND SUBSIDIARY - DISSOLUTION - ASSIGNMENT OF PARENT CORPORATION FOR BENEFIT OF CREDITORS A PARENT CORPORATION OWNING ALL STOCK OF A SUBSIDIARY CORPORATION IS ENTITLED UPON DISSOLUTION OF THE SUBSIDIARY CORPORATION TO ONLY SO MUCH OF THE PROPERTY THEREOF AS IS NOT LIABLE FOR THE DEBTS OF THE CORPORATION, AS IN THE CASE OF AN ORDINARY STOCKHOLDER. THE ASSIGNMENT OF THE GENERAL PROPERTY AND ASSETS, ETC., OF A PARENT CORPORATION TO A TRUSTEE FOR THE BENEFIT OF CREDITORS DOES NOT AFFECT THE ASSETS AND PROPERTY OF THE SUBSIDIARY CORPORATION. HENCE THE TRUSTEE OR ASSIGNEE UNDER SUCH ASSIGNMENT HAS NO VALID CLAIM FOR THE PROCEEDS OF A GOVERNMENT CHECK BELONGING TO THE SUBSIDIARY CORPORATION WHEN THE SUBSIDIARY CORPORATION IS SHOWN SUBSEQUENTLY TO HAVE BEEN DISSOLVED BECAUSE OF THE FORFEITURE OF ITS CHARTER FOR NONPAYMENT OF THE STATE FRANCHISE TAX.

COMPTROLLER GENERAL MCCARL TO EDGAR R. AILES, JUNE 20, 1934:

CONSIDERATION HAS BEEN GIVEN TO YOUR CLAIM FOR THE PROCEEDS OF CHECK NO. 875592, FOR $238.18, DRAWN APRIL 21, 1933, ON THE TREASURER OF THE UNITED STATES, TO THE ORDER OF STEP-N-DRIVE TRUCK CORPORATION, BY J. L. SUMMERS, DISBURSING CLERK, TREASURY DEPARTMENT, SYMBOL NO. 14-342.

THE CHECK IN QUESTION REPRESENTS REFUND OF AN OVERASSESSMENT AGAINST THE PAYEE CORPORATION OF INCOME TAXES FOR THE YEAR 1930, PLUS INTEREST, AND APPEARS TO HAVE BEEN RETURNED TO THE COMMISSIONER OF INTERNAL REVENUE, WASHINGTON, D.C., BY THE COLLECTOR OF TAXES, DETROIT, MICH., FOR THE REASON THAT THE PAYEE CORPORATION APPEARED TO BE IN PROCESS OF LIQUIDATION. SAID CHECK WAS FORWARDED HERE FOR APPROPRIATE DISPOSITION IN ACCORDANCE WITH THE ESTABLISHED PROCEDURE IN SUCH CASES.

YOUR CLAIM FOR THE PROCEEDS OF THE CHECK IS PREDICATED ON THE GROUND THAT YOU HAVE BEEN APPOINTED TRUSTEE OF THE ASSETS, ETC., OF DIVCO DETROIT CORPORATION PURSUANT TO A TRUST CHATTEL MORTGAGE AND ASSIGNMENT AGREEMENT ENTERED INTO ON NOVEMBER 18, 1931, FOR THE BENEFIT OF THE CREDITORS OF SAID CORPORATION. IT IS ALLEGED THAT THE PAYEE CORPORATION--- STEP-N- DRIVE TRUCK CORPORATION--- WAS A SUBSIDIARY OF AND WHOLLY OWNED BY THE DIVCO-DETROIT CORPORATION, AND THAT ITS ASSETS WERE COVERED BY THE AGREEMENT JUST REFERRED TO, YOUR CONTENTION THUS BEING THAT, AS TRUSTEE OR ASSIGNEE OF THE ASSETS, ETC., OF THE PARENT CORPORATION, YOU ARE ENTITLED TO RECEIVE AND DISPOSE OF THE PROCEEDS OF THE CHECK BELONGING TO THE SUBSIDIARY CORPORATION.

IN A LETTER DATED DECEMBER 22, 1933, FROM THE LAW OFFICES OF BRYANT, LINCOLN, MILLER, AND BEVAN, WRITTEN IN YOUR BEHALF, THE FOLLOWING WAS STATED IN REPLY TO AN INQUIRY BY THIS OFFICE:

THE PAYEE COMPANY HAS NOT BEEN DISSOLVED. IT HAD ABSOLUTELY NO ASSETS AND DID NOT HAVE EVEN ENOUGH CASH TO PAY THE EXPENSES NECESSARY TO GO THROUGH A DISSOLUTION. HOWEVER, ITS CHARTER HAS BEEN CANCELLED BY THE STATE OF NEW YORK FOR FAILURE TO PAY FRANCHISE TAX.

THE AGREEMENT REFERRED TO ABOVE RECITES THE FOLLOWING WITH RESPECT TO ITS PURPOSE, AND THE EXTENT OF THE PROPERTY TRANSFERRED THEREUNDER TO THE TRUSTEE OR ASSIGNEE:

WHEREAS SAID MORTGAGOR HAS BECOME AND IS INDEBTED TO THE AFORESAID SEVENTY-ONE CERTAIN PERSONS, FIRMS, AND CORPORATIONS IN VARIOUS AMOUNTS AGGREGATING APPROXIMATELY ONE HUNDRED EIGHTY-SIX THOUSAND DOLLARS ($186,000.00); AND

WHEREAS SAID MORTGAGOR DESIRES TO SECURE THE PAYMENT OF SAID INDEBTEDNESS, TOGETHER WITH THE DEBTS WHICH MAY HEREAFTER BE INCURRED BY IT IN CONNECTION WITH THE OPERATION OF ITS BUSINESS IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS AGREEMENT; AND

WHEREAS THE SAID TRUSTEE IS WILLING TO ACT AS TRUSTEE FOR THE BENEFIT OF THE SAID CREDITORS OF SAID MORTGAGOR UNDER THIS AGREEMENT.

NOW, THEREFORE, THIS AGREEMENT WITNESSETH:

THAT FOR THE PURPOSE OF SECURING THE PRESENT AND FUTURE INDEBTEDNESS HEREINAFTER REFERRED TO, THE SAID MORTGAGOR, FOR AND IN CONSIDERATION OF THE SUM OF ONE ($1.00) DOLLAR AND OTHER VALUABLE CONSIDERATIONS, AND IN CONSIDERATION OF THE MUTUAL COVENANTS HEREIN CONTAINED, HAS GRANTED, BARGAINED, SOLD, CONVEYED, AND MORTGAGED, AND BY THESE PRESENTS DOES GRANT, BARGAIN, SELL, CONVEY, AND MORTGAGE, UNTO THE SAID TRUSTEE THE FOLLOWING-DESCRIBED GOODS, CHATTELS, AND PERSONAL PROPERTY, TO WIT:

ALL OF THE ASSETS OF DIVCO-DETROIT CORPORATION, CONSISTING OF ACCOUNTS RECEIVABLE, WORK IN PROCESS, FINISHED TRUCKS, MACHINERY, EQUIPMENT, TOOLS, DIES, JIGS, PATTERNS, FURNITURE, FIXTURES, DELIVERY EQUIPMENT, PATENTS, PATENT RIGHTS, APPLICATIONS FOR PATENTS, LICENSES AND ALL SHOP RIGHTS, AND ALL OTHER GOODS, WARES, MERCHANDISE, PROPERTY, ASSETS, EFFECTS, AND CHOSES IN ACTION OF EVERY KIND, NAME, AND NATURE NOW BELONGING TO THE SAID DIVCO- DETROIT CORPORATION AND/OR USED BY IT IN CONNECTION WITH ITS BUSINESS AT 2435 MERRICK AVENUE, IN THE CITY OF DETROIT, WAYNE COUNTY, MICHIGAN, AND ALSO ALL GOODS, WARES, MERCHANDISE, FIXTURES, FURNITURE, AND PERSONAL PROPERTY OF EVERY KIND AND NATURE WHICH AT ANY TIME HEREAFTER MAY BE PURCHASED FOR, OR ADDED TO, OR USED IN CONNECTION WITH THE AFORESAID PROPERTY OR BUSINESS, OR COMINGLED WITH THE SAME, AND ALSO ALL ACCOUNTS RECEIVABLE, NOTES RECEIVABLE, AND RECEIVABLES OF EVERY KIND AND NATURE WHICH MAY HEREAFTER ACCRUE OR BECOME OWING TO THE SAID DIVCO-DETROIT CORPORATION.

TO HAVE AND TO HOLD THE SAME FOREVER UNTO THE SAID TRUSTEE AND TO HIS SUCCESSORS IN TRUST, HOWEVER, AND BY WAY OF MORTGAGE SECURITY ONLY, UPON THE TERMS AND CONDITIONS HEREIN PROVIDED.

WHILE YOU ASSERT YOUR CLAIM ON THE BASIS OF THE TRANSFER OF THE ASSETS AND PROPERTY OF THE PARENT CORPORATION TO YOU AS TRUSTEE OR ASSIGNEE PURSUANT TO THE AGREEMENT, SUPRA, THE ONLY PERCEIVABLE THEORY UNDER WHICH SUCH ASSERTION MAY BE MADE IS THAT THE PROPERTY SO ASSIGNED TO YOU INCLUDED SUCH SHARES OF STOCK OF THE SUBSIDIARY CORPORATION AS MAY HAVE BEEN OWNED BY THE PARENT CORPORATION--- THE AGREEMENT ITSELF, IN THIS CONNECTION, MAKING NO SPECIFIC REFERENCE TO ANY STOCK OWNED IN THE STEP-N- DRIVE TRUCK CORPORATION. IF, AS ALLEGED, THE PARENT CORPORATION, DIVCO- DETROIT CORPORATION, WHOLLY OWNED THE SUBSIDIARY CORPORATION, STEP-N-DRIVE TRUCK CORPORATION, THIS IS UNDERSTOOD TO MEAN NOTHING MORE THAN THAT THE PARENT CORPORATION OWNED ALL THE SHARES OF STOCK ISSUED BY THE SUBSIDIARY CORPORATION. A PERSON OWNING SHARES OF STOCK IN A CORPORATION HAS NO RIGHT TO THE PROPERTY OF A CORPORATION, AS SUCH, BUT ONLY A RIGHT TO PARTAKE, ACCORDING TO THE AMOUNT PUT INTO THE FUND REPRESENTING THE CAPITAL STOCK, OF THE SURPLUS PROFITS OF THE CORPORATION, AND ULTIMATELY, ON ITS DISSOLUTION, OF SO MUCH OF THIS FUND AS IS NOT LIABLE FOR THE DEBTS OF THE CORPORATION. IT IS ELEMENTARY LAW THAT AN ASSIGNEE CAN ACQUIRE NO GREATER RIGHT THAN THE ASSIGNOR HIMSELF HAS, CONSEQUENTLY, IF THE PARENT CORPORATION HERE HAS NO RIGHT TO THE PROPERTY, AS SUCH, OF THE SUBSIDIARY CORPORATION, BUT ONLY IN THE CAPACITY OF A STOCKHOLDER, THAT IS, ONLY A RIGHT TO PARTICIPATE IN THE SURPLUS OF SUCH CORPORATION, IF SUCH THERE BE, IT APPEARS CLEAR THAT YOU, AS TRUSTEE OR ASSIGNEE, MAY NOT ASSERT A VALID CLAIM TO THE CHECK IN QUESTION HERE, WHICH IS, IN FACT, THE PROPERTY OF THE SUBSIDIARY CORPORATION. IT EVEN MAY BE SAID THAT SINCE THE SUBSIDIARY CORPORATION HAD NO ASSETS, AS HAS BEEN ALLEGED, CERTAINLY NONE COULD BE TRANSFERRED BY THE AGREEMENT.

IT IS A WELL-KNOWN RULE OF LAW THAT PROPERTY AND ASSETS OF A CORPORATION ARE HELD IN TRUST, FIRSTLY, FOR THE PAYMENT OF CREDITORS AND, SECONDLY, FOR DIVISION AMONG THE STOCKHOLDERS, AND THE FACT THAT A CORPORATION MAY BE SUBSIDIARY TO ANOTHER CORPORATE BODY DOES NOT ALTER SUCH RULE OF LAW. IN THE INSTANT CASE IT WOULD APPEAR THAT AT THE TIME OF REVOCATION OF THE CHARTER THE SUBSIDIARY CORPORATION WAS INDEBTED, AT LEAST TO THE STATE OF NEW YORK FOR FRANCHISE TAXES, AND IT IS ASSUMED ALSO THAT SINCE SAID CORPORATION HAD NO ASSETS AT THE TIME OF THE FORFEITURE OF ITS CHARTER, AS HAS BEEN ALLEGED, IT MUST HAVE BEEN INSOLVENT AT THE TIME. IT IS UNDERSTOOD THAT STATE STATUTES PROVIDE GENERALLY FOR THE CONTINUANCE OF THE CORPORATE FUNCTIONS AFTER DISSOLUTION, BY FORFEITURE OF A CHARTER OR OTHERWISE, FOR THE PURPOSE OF SAVING THE RIGHTS OF INTERESTED PARTIES, AND, IN THE ABSENCE OF SUCH STATUTES, THE RIGHTS OF CREDITORS WOULD ORDINARILY BE SAVED AND PROTECTED BY THE APPLICABILITY OF THE LIBERAL EQUITABLE DOCTRINE THAT PROPERTY AND FUNDS OF A CORPORATION ARE HELD IN TRUST FOR PAYMENT OF CREDITORS. THERE HAS BEEN NO SHOWING MADE HERE THAT THE BUSINESS OF THE SUBSIDIARY CORPORATION HAS BEEN LIQUIDATED PURSUANT TO THE APPLICABLE STATE STATUTE OR OTHERWISE.

THE GOVERNMENT IN MAKING PAYMENTS OF ITS OBLIGATIONS MUST BE ASSURED OF A FULL AND COMPLETE ACQUITTANCE SO THAT NO OCCASION WILL THEREAFTER ARISE FOR THE MAKING OF FURTHER PAYMENTS TO PERSONS WHO MIGHT ASSERT SUPERIOR RIGHTS.

IN VIEW OF WHAT HAS BEEN STATED HEREIN, THE EVIDENCE OF RECORD DOES NOT ESTABLISH THAT YOU AS TRUSTEE OR ASSIGNEE OF THE ASSETS AND PROPERTY OF THE PARENT CORPORATION ARE ENTITLED TO THE PROCEEDS OF THE CHECK IN QUESTION HERE. ACCORDINGLY, YOUR CLAIM MUST, ON THE PRESENT RECORD, BE DENIED. THE CHECK WILL BE RETAINED IN THE FILES OF THIS OFFICE UNTIL SUCH TIME AS A VALID CLAIM THEREFOR IS PRESENTED.