Brief for Respondent — United States v. Seattle-First National Bank

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CHAPLES FLMCee CRePeEY

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No.: = | ; :

The Supreme. Court of the united States

@rtober Term, _.

UNITED STATES OF AMERICA, pene |

v"

- SEATTLE-FIRST NATIONAL BANK,

a National Banking Association

ON WRIT OF CERTIORARI TO THE UNITED STATES

Vs CIRCUIT COURT OF APPEALS FOR

_ . * THE NINTH CIRCUIT

BRIEF FOR RESPONDENT °:

Question presented”.

“Statement ss es \-

‘

Argument:

_ National Lead Co. v. U.'$., 252 U.S. 140.

I. The National Bank Act .

Il. Documentary Stamp Taxes Under" the Revenue. Act of 1926,

: :. £_—eaton

“TIL. Regulations 71, Relating to Stamp Taxes Under Title val

of the Revenue Act of 1926, as Amended .

JV. Come Cie... skaceiaiacstiseeni cogil

'V. Conclusion

. \

. _° CITATIONS

* Cases: °

ae ap

Adams V. Nagle, 303 U. S. 532

Carpenter V: White, 40 Fed. (2), 145

City Bank Farmers Trust Co. V. Hoey,"125 Fed. (2) 575 |

Dixon, V. Cannon, 32 Fed. Sup. 626: 115. Fed. (2)-913

First National Bank V. Fellows. 244 U. S, 416

Haggar Co. V. Hetvering. 308 U. S. 389

Helvering V. Reynolds Tobacco’ Co., 306 U. S. 110

Helvering V. Wilshite Oil Co., 308 U. S: 90

Hightower V. American Nat'l Bank, 263 U. S. 351

Hofheimer V. Seaboard Citizens Nat’! Bark, 154 Va. 392. Af

153 S. E656. .

Koppers Coal & Trans. Co. Vv. U.'S., ‘107 Fed. (2) —

McCulloch V. Maryland, 4, Wheat. 315 :

Metropofitén Nat'l Bank V. Claggett, 141 U. S. 520.

Raybestos: Manhattan Co. V. U. S., 296 U. S. 60.

State Street. Trust Company V. Hassett., 134 Fed. (2) 156

“a/nited States V. Merchants Nat'l Trust & — Bank,

101 Fed. (2) 399 seiceheetl .

United States V. Winston, 170 Us s. 522

Worcester Net'l Bank, Ex parte, 279 VU. S. 347

13.

Page

.

Page

18, 19

25

16. 20

CITATIONS——Contintied

. e iY . h% .. : Page ve

ne Kos er :

of November 2, 1918, } LU. S. A Sa. a. 7

* $21 - 6

§ 22 e.

§ 23 ‘ : 6

§ 27 ae an EI, ERB det eee De re ee

328. ‘ me. 6

$33. pnd : Nis ee + ee

2 See SPS AT ERE eve oe oe ELans 9, 18

— MN kak case oo tf, 3. Ss

War Revenue ‘Act of 19%? sath of Oct. 3, 1917; 40. ah 319° Sige 2 ies

Schedule A-7 - ea. a

Revenue Act of 1918. 8. (Act 0 of Feb. 24, 1919; 40 Stat. - 1057) A

Schedule A-7 . é —s an:

Revenue Act of 1926, Title VII” ig 13. 15

$ 800. Schedule A-3 * : 14. 15

ees Schedule A-8 sta es 14, 16, 2!

Schedule-—-A-2. eS a es: 49

: Revenue Act of 1942. c. 619. 56 Stat. 957 ;

Miscellaneous: |

Congressional Record. Vol. 77. i 4. pp. 3227. 3827 and 3840 6

, Treasury Regulations 55 (Revised October 1920) a ~

Treasury Regulations 55 (Revised July 3.71924) 23

Treasury Regulations 71 (i932 ed.) . 16

* Chapter III, Art. 31 _. 16

_ Art. 34 | 16. 17

he. 35 Seen a a ee ; 16. 17

Art. 35 (h) : eee ; 19, 20. 26

Art. 35 (m) Ne : 17

fe Art. 35 (n) : ae. 17

F . Art. 35. (r) the \ 17. 26 ‘

a Se. as \ 16

Art. 37 we : : : \ 16

. A. -3§..... - 16

Chapter VII, Art. 75 : . 22. 27. 28:

Art. 79 | . : - 22: 27,, 28

Art. 84 | ; ne ‘ ee, 2F. ae

Art. 91 2. 27. 20

Art. 92 22. 27. 28

Art. 100 a2. 37 2

S Art. 101 - e a2, 27, 2

Art. 102 Za. afi 20

Art. 103 22, 27. 28

Art. 105 . 22. 29:28

eas Art. 106 22. 27° 28

Art. 111 22. 27, 28

Art, 113 Ze.. 27. 28

Rules of Civil Procedure, Rule 16

The fvgcrae Court of the Muited _—

@rtober Tern, 1943

ae

. << ee ae ae —— No. 267

UNITED STATES OF AMERICA, Petitioner

i v.

SEATTLE-FIRST NATIONAL BANK,

a National Banking Association

/

ON. WRIT OF ‘CERTIORARI TO THE UNITED STATES

CIRCUIT COURT OF APPEALS FOR

THE NINTH CIRCUIT

BRIEF FOR RESPONDENT

QUESTION PRESENTED

| Does the organization of a national banking associa-

tion by consolidation under The National Bank Act :

inv olve.liability for documentary stamp tax under the

Internal Revenue Act? |

STATEMEN ae

Reapeaibet: Seattle-First National Bank, is a na- :

tional banking association organized on December 28,

1935, under Section 34a of The National Bank Act (12

‘U.S.C. A. § 34a). The constituent banks participat-,

ing in this consolidation were the Spokane and East-

ern Trust. Company, of Spokane, Washington {a state -

bank - incorporated under the laws of the State of

Washington),, and First Nationat Bank of. Seattle (a’

national banking association organized under The Na-

tional Bank Act). :

*

"The proceedings taken were those required liy The

National Bank Act, namely; an agreement of consolida-

tion entered into by the directors of the constituent :

’ banks participating (R. 25), ratification of this-agree-

ment by the stockholders of both banks (R. 38). and

the issuance of a certificate of approval by the Comp-

troller of the Curreney (R. 16). No deed, conveyance,

* assignment or other instrument was executed to trans-

fer to the resulting consolidated association, Seattle-

First National Bank, the assets of either of. the con-

' stituent institutions _participating in the consolidation

°

(R. 77-78), The National Bank Act by its terms sub-.

jecting the consolidated association to all liabilities of

the. constituent members and vesting in the consolidat-

- ed association all assets of the constituent members.

~S "The consolidation agreement (R, 25) was in the form

_ prescribed by the organization division of the Bureau |

‘of the Comptroller of the Currency (R. 25), and con-

‘tained. stipulations on the part of both banks as re--

quired. by Section 34a of The National Bank Act. For.

example, the agreement of consolidation stipulated for

consolidation under the charter of the First National

Bank of Seattle, provided for the name of the result-

ing: consolidated: association, the Iocation of its main

banking house; the amount of its capital, the contribu:

_ tion’ of assets by each of the constituents to the con-

solidation, the vesting of these assets in the eonsolidat-

ia

‘ed association’ and an ‘aisumption by it of the liabilities

of each of the constituents, the allotment of shares and:

such other matters as. The National Bank Act required. .

’ The Collector of Internal J evenue required the pay-

ment.of documentary stamp ‘tax under Schedules A:3,

A8,A-9, Title VIII -of the Revenue Act of 1926, as

. amended, claiming (R. 19, 2i) that as a result of the

consolidation the Spokane and Fastern Trust Com-

"+ pany was merged into and became a branch of the First

National Bank of Seattle (R. 19), as a result oft which

-+the assets of the Trust Company. beeame the property

“of the continuing corporation,‘ the First. National

Bank of Seattle’? (R. 19). Accordingly, s stamps in the

amount. of the asserted liability. w were™ purétiased, and

there being no conveyance, assignments or ther trans-

fers to which stamps might be attached the Deputy

Collector affixed them to letters which he wrote to the

Spokane and Eastern Branch of the First National

'. Bank pf Seattle. Claim for refund having been made

and denied this suit was brought to recover the sums

‘Paid.

The pleadings consisted of the complaint and the

“answer of the United States. The court ordered a pre-

‘trial ‘conference under Rule 16. of the Rules of Civil

Procedure (R. 11) and made‘findings of fact: At the,

trial plaintiff introduced evidence of J. ‘L. Campbell,

George H. Westerman and C. A.N icholson, officers of

the Bank, and exhibits consisting of the certificate of

the Comptroller, minutes of the meetings of the stock-

holders‘and directors of: the Spokane‘and Eastern -:

ray 4

<

Trust Company and letters from the Deputy Collector

of Internal Revenue with the stamps. for the amount

of the tax, assessed affixed and cancelled by him. The -

United States offered no testimony (R. 54).

~The’ opinion of the court (R. 55) contains the fol-

lowing factual finding:

\“e *# * As a consequence of. the consolidation,

without the issuance of any deed or other instru.

ment of conveyance as to the rea] estate and with-

out the execution of any instrument of transfer

as to the stocks and bonds and other securities, the

title to all of such property became vested in the

plaintiff.* * *”’

The court ‘concluded that as to the shi: ed tale. ,

the reasoning employed by the United States Circuit

Court of Appeals for the Ninth. Cireuit in United -

States v. Merchants National Trust d Savings Bank,

101 Fed. (2) 399, applied (R. 71). Secondly, the court

concluded that as to the real estate there had been no

. Sale, no conveyance, ‘‘no purchaser to whom.any lands,

tenements or realty were granted, assigned, trans-

. ferred or otherwise conveyed to or vested in’’ (R. 72). -

and accordingly concluded that as to each.category the’

_ tax had been improperly assessed (R. 75). Findings

| of fact (R. 76) and judgment (R. 82) were entered ir

~ accordance with the court’ S opinion.

‘Upon appeal to the United. States Cireuit Court of:

Appeals the United. States omitted from its designa- |

tion of the portions of the record the evidence intro;

duced at the trial (R. 85). Accordingly, there i is before -

this court a partial record onl® The testimony of the

5.

officers of the Bank introduced by the plaintiff is omit-

ted (R. 54). | |

ARGUMENT

I. THE NaTIONAL BANK Act.

‘In this case no question of fact is presented_for -re--

view. The plaintiff did that which the Bank Act pre-

scribed, nothing more. The effect of such a consolida-

tion depends upon a construction of The National Bank

Act, its purpose and effect. |

The National Bank ‘Act’ is to be construed by the

same principles as any other act of Congress. .The com-

prehensive terms. of no act of Congress. ought to be

_ restricted by technical refinements or by specious rea-

soning. Statutes ought to be construed in the light of _-~

their purpose. Where that purpose is unmistakable, it

should be given effect. They are to be given a. reason-

able application consistent ,with their words and with

the legislative purpose. Haggar Co. v. H elvering, 308

U.S. 389,394 0 * ah Pee at

The canflict between the theory embodied :in the state

‘An examination of the opinion of the court (R. 55), the find- -

_ ings of fact numbers 5 and 6 (R. 77), will disclose that the court

had before it evidence that, as stated by the Circuit Court of Ap-

peals, ‘‘no deed, assignment or other instrument. was executed to

_ transfer real estate, stacks, bonds, or other property whether held in’

a fiduciary capacity or owned outright by the bank. The certificates

_ were not endotsed, nor was there any delivery or change of pos- ~

session other than that which may be implied from the consolida-

tion” (R. 94). We suggest, accordingly that under the universally

accepted rule of appellate practice this court ‘Will presume that proper -

_- evidence. to sustain the finding of fact was introduced at the trial.

United States v. Winston, 170 U. S. 522,525. a

J: bank system and the — banking system has long

been familiar to everyone. ey 1 the. process of time it. ..

‘ has become the establish “poliey. of Congress to en-.

- courage the conversion of state banks into national.

. banking associations. The tragedy of the last depres-

sion and bank holiday has strengthened this-congres-_

sional purpose and gone far to reduce the opposition

on the part of the states and \s state banks. Opposition

. ‘remains, however.’ ei

~The present statute (Title 12, U:8. C. A. ) is.derived -

from the Act of, June 3, 1864. Under the act national

banking associations may be formed | in’ one of four

ways:

First. An association may be formed under §§ 21 to

_ 28, inclusive of The National Bank Act.-The formali-

. ties required are that the persons uniting to form the

~ association shall sign articles of association (§ 21, Title

12, U. S.C. A.), and shall execute an organization cer-

tificate (S 22, Title 12, U. s. C. A.), which shall be

"acknowledged and. filed. with the Comptroller of the

Currency (§ 23, Title 12, U.S. C,"A.). "Thereupon the

Comptroller issues : his certificate of authority to com-

“The names of Hamilton, Jefferson, Jackson and Webster and .

the cases of McCulloch v. Maryland, 4 Wheat. 315: First National

Bank V. Fellows,.'244 U. S. 416; and Ex parte Worcester Nat'l

Bank, 297 U. S. 347, instantly remind everyone of the wealth of

eloquence which has been devoted to the subject in the _——-

state ; and national, ‘as well as in the courts. ~

Sefhainu v. Seaboard Citizens Nat’! Bank, 154 Va: 392, 153

S. E. 656. See also Congressional Record, Vol--77, Part 4, p. 3227

et seq., Senators Glass, Costigan ‘and Cousins; p. 3827, Congress-

men oe and — and Pp 3840, Congressman Patman. - -

~

;

¢

7

mence ve banking (61, Title 12, U. 8. C. A.). .

Second. Under Section 35a state bank may be con-

verted into a ‘national banking association (§ 35, Title

12, U. 8: C..A.). The formalities of organization,: in =

brief, are the affirmative vote of the stockholders to

the conversion, execution of articles of association and

ae organization certificate by the directors and ap-

_ proval by the Comptroller of the Currency. |

Third. The Act of November 1, 1918 (§ 33, Title 12,

U. 8. C. A.), authorizes the consolidation of two or

more national banking associations , -into one associa-

tion... The required | procedure, affirmative vote of

shareholders, execution of agreement by . directors

and approval by the Comptroller « does not differ mate-

‘rially from that required for the formation. of an asso-

ciation by conversion under Section 35.

Fourth. The Act of February 25, 1927 (§ 34a, Title.

12, U. S. C. A.),.amended the. Act of November 7,

1918, by adding a third section authorizing the con-

solidation of’ a state bank with a national’ banking |

‘association. The required procedure, affirmative vote |

of. shareholders, exe¢ution of. agreement’ by direct

vote of shareholders, ¢xecution of agreement by direc-

tors and approval by /the Comptroller is. identical with |

that required’ under | /Seetion 33.

_ It thus appears that national banks may be formed —

under four different acts of Congress and that in each

- ease the procedure is substantially the same. Likewise _

state banks may be converted into national banking

associations under two separate acts of Congress which

_ have now been included in The National Bank Act as

8

paragraphs 35 and 34a. Also, since 1864 it has. been the

congressional policy to encourage the organization of

national banking associations out of state banks.

Of course, it is apparent that the effect of the de-

st ruction of its corporate existence and identity and

the interruption of its banking business would be such

as to discourage any state bank from changing over

into a national banking association by conversion or -

‘ by consolidation ‘unless provision was made for con-

tinuity of corporate existence, banking ‘operations, -

property rights and liabilities.‘ The necessity for con-

tinuity of corporate existence has been recognized by.

this court in cases of the conversion of a state bank

into a national banking association. Mctrepetion Nat'l

Bank v. Claggett, 141 U.S : 520.

Through some ‘oversight the Act of November 7,

1918, providing for the consolidation of national hank-

ing associations (ss 33 and 34, ‘Title 12 U. S.-C. A.)

*The business of banking is complicated. Practically no ind

vidual remains unaffected by even: the momentary suspension of

their operations. The bank holiday, is an example. © A large city

-baak has many millions of deposits. Its saving deposits. ate evi-

denced by savings bank books, constituting a contract between the

bank and the depositor. It has outstanding negotiable instruments.

of various kinds. notes, letters of credit, certificates of deposit and

in times past currency. If it is authorized to do a trust business it is

presumably acting as trustee, executor, administrator, registrar of

stocks and bonds, guardian of estates, assigneé, receiver, committee

of estates of lunatics and in many other fiduciary capacities. If it

were necessary for the state bank to resign as trusteee, executor,

administrator, guardian, etc., file its accounts with the court having

jurisdiction with the attendant publication of notice, hearing, etc..

it would be a task beyond undertaking. At the same time the na-

tional banking association would have to be reappointed after the

formal application, notice, hearing; etc., and qualify according to

the requirements of different a

>

,

e

9

incorporated language which might give rise to the

_ contention that the effect of the consolidation was an

absorption by one bank of the others so that the cor-

porate existence of only the one bank continued in the

resultant consolidated association.

To correct this oversight the Act of February 25,

1927,‘ 34a, enacted to provide for the consolidation of

a state bank with a national banking association, con-

tained the following language: |

- “Upon such a consolidation, or upon a consoli-

dation of two or more national. banking associa-

tions under section 33 of this title, the corporate .

existence of each of the constituent banks and na-

tional banking associations participating_in such

- eonsolidation shall be ‘merged into and continued

in the consolidated national banking association

- and the consolidated .associatien shall be deemed

ti be the same corporation as each of the constitu-

ent institutions.”’ (Italics ours)

It likewise provided for the continuity of corporate

titles in language to be quoted later. “a .

It is not important whether formation of national

banks by what the Bank Act describes as consolida-

tions is’ in faet a consolidation or a merger of those

words are employed in state statutes. Whether the .

formation of a national] banking association is

similar to a consolidation or similar to a merger has

no ‘bearing upon the question before this court—-for

what purpose did Congress insert the language em-

ployed in preseribing the effect of the formation of a

banking association by a consolidation.

10.

“The policy of Congress has long been to foster the

progressive strengthening of the banking structure of

- - the country by consolidations, and. to encouraging the - |

growth of the national banking system through the .

gradual absorption of state banks; and to. simplify

the cumbersome procedure incident to the consolida-

tion or merger of corporations under state statutes by

limiting the number of documents and steps and for-

malities required.

In the face of this plain purpose the court is asked

to say that Congress intended to eliminate only some

of the formalities, documents and steps incident to the

normal transfer of legal title to property but not all.

Documentary stamp taxes are not the least of the for-

malities incident to-the transfer of property. It is to

be remembered that most of the states have excisé tax

‘laws similar to the documentary stamp tax laws of

the Internal Revenue Act. Presumably, also, the vari-

ous municipal and quasi-municipal entities within a

state having power to levy excise taxes would gladiy

impose them upon one of the giant national banking

associations formed by consolidation if that involves *

taxable incidents.

ibe

. We suggest that some confusion is occasioned by the —

failure to keep distinct the entities involved in the

consolidation in this case.. The agreement of consolida-

‘tion was made between the Spokane and Eastern Trust

Company of Spokane, Washington, a bank organized.

’

Ss a

under the laws of the State of Washington, and. the

First National Bank of Seattle, a national banking

~ association formed under The National Bank Act. Re-

spondent here; Seattle-First National Bank, a nation-

al banking association was organized on December 28,

1935, by consolidation of the two foregoing entities.

' Of course, the Spokane. and Eastern Trust Company

had stockholders, officers and directors, as did the First

National Bank of Seattle,. and so-has the respondent,

Seattle-First National Bank.

"At no time were the assite of the Spokane and East- .

ern Trust Company or the First National Bank of

Seattle vested in their respective stockholders. “They

(stockholders) did not own them and could not convey.

‘them. If it could be said that the stockholders.of. the

two. banks owned the assets and could convey legal

title to them, to whom is it claimed that they eon-

veved them? -At page 10 and page 19 of the Gov-

ernment’s’ brief it is elaimed apparently that the

agreement of consolidation was a conveyance by the

_ stockholders of the Spokane and Eastern Trust Com-

pany to respondent. It is even stated at page 10 that

the agreement of consolidation ‘Efected a transfer of .

title to the securities held by the state bank as a fidu- —

ciary. Why is it permissible to disregard the corporate

entity of the two constituent banks and elaim that their

assets are owned by their stockholders and. yet insist

upon the corporate entity of the. resulting: consoli-

dated association. If we disregard the corporate entity

all around, | sinee the shareholders are the same, the

2B

Government. is in the position of claiming that the —

stockholders of the Spokane’ and Eastern Trust Com-

pany and the First National Bank of Seattle have

sold and transferred to themselves as stockholders of -

the Seattle-First National Bank the same assets. As

pointed out at page 19 of the Government’s brief they

- have been paid full value for these assets, yet they

still own them. A remarkable feat of financial leger-

demain.

Nor can we refrain from noting that at page 10 of

the Government’s brief it is claimed that the.consolida-

tion agreement is a transfer of legal title to seeurities’

held by Spokane and Eastern Trust Company in its

various fiduciary capacities. For instance, the Spo-

kane and Eastern Trust Company, let us say, was exec- —

utor under the will of John. Jones, deceased, and as :

such held legal title to certain bonds. As a result of the _

consolidation the Seattle-First National Bank is now

the executor under the will of John Jones, deceased, -

and holds the legal title to these same bonds.. Is it the

Government’s position that the stockholders of the

_ Spokane and Kastern Trust Company—by-the-eonsoli-

dation agreement sold or convey ed the legal title to.

these bonds ?

Of course, national banks do sadinke the assets of

ether banks, either state or national,.and pay for them.

. See, for example, Diron v. Cannon, 32 Fed. Sup. 626;

115 F. (2) 913. . °

Likewise, national banks on‘ occasion pledge their

assets or loan money upon the security of a pledge of

-*

“a

another. bank’s a) Hightower v.. American Nat’

Bank, 263 U, S. 351.

‘Likewise, national banks enter upon other plans for .

the acquisition .or disposition of assets. Adams Vv.

Nagle, 303.U. S. 532.

None of these or similar. transactions* ‘are a consoli-

dation as prescribed -by The National Bank Act. The

Seattle-First National Bank, a national banking asso-

ciation,.was formed by consolidation under Section 34a

of The National. Bank’ Act. It did not buy its assets

‘from the Spokane and Eastern Trust Company, or its

stockholders, nor from. the First National Bank of

. Seattle, or its stockholders, nor from any combination

of the four. ,° |

Il. Documentary Stamp TAXES Unper THE event F

Act or 1926, As AMENDED. |

The present act is identical in language with previ-

ous acts, except that Congress from time to time has

added or eliminated from the subjects enumerated in

Schedule A. It is noteworthy, however, that when sales _

‘or transfers of stock, sales or transfers of bonds and

deeds of conveyance of land have been added or -elim-:

- inated from Schedule A, the language employed has

heen the same as that in previous acts.

The language of Seetion 800 is ‘‘* * * there shall .

be levied, .* * * in respect of the several bonds, de-

bentures, or certificates of stock and of indebtedness,

‘and other documents, instruments, matters and things

mentioned in Schedule A of this title, * * *’? Tn other

-

14

words, the Act levies ati excise tax on certain named -

and described things or transactions.

_ Turning to Schedule A-3, the thing or transaction

upon which the ‘excise ae is levied is “Capital Stock,

Sales or Transfers.’’ .A-8. /**Conveyances.”” A-9,

: “Bonds, ete., Sales or War A y Under 3 the excise

is on a sale or transfer of legal title; under 9 upon sales -

or transfers of legal title * * * (bonds, ete.) ; under 8

upon conveyances (deed, ete.) by which land which has

been sold is conveyed. In‘all three eases a sale is re-

quired and in all three a transfer of legal title is re-

quired. In one, namely, 8, the levy is upon the instru-

mienf, not upon the sale and not upon the land. There

must be'a sale, transfer or delivery of legal title from —

one person or entity to another hefore the tax attaches.

In Reybestos- Manhattan Co.v. U. S., 296 U.S. 60,

“62, this court had oceasion to eddie this excise tax.

The court held that the transfer of the right to receive

shares was equivalent to the transfer of the shares :

themselves. Speaking of the Act the court said:

ee language discloses the general pur-

‘pose to tax every transaction shane the right.

to be or become a shareholder of a corporation or

to receive any eertifieate. of any interest in its

property is surrendered by one and vested in an-

le ade :

.

and again:

“* * * It is enough if the right or interést trans-

ferred is, by sny form of procedure, relinquished

by one and vested i in another *..*-*"*-

and further (p. 63): | .

15

a It is relinquishment of the ownership

for thé benefit of another, and the resultant ‘ac-

quisition of it by him which calls the mates into

operation.”’

In the language of the Bank Act .fespondent, is

“deemed to be. the same corporation’’ as the Spokane

.:. and Eastern Trust Company whose corporate exist-

ence is “continued in’? respondent. The Spokane and

‘Eastern Trust Company has not sold or parted with

ownership. On the contrary, it has retained it. It has.

remained tlie same body corporate with the same stock-

holders, the same: officers, banking quarters, assets and

liabilities, but has assumed a new hame and operates

under a changed jurisdiction. There has been “no re-

linquishment of the ownership’ by the Spokane and

Eastern Trust Company ‘for the benefit of’ the re-

spondent.. Nor. has there been ‘‘the resultant acquisi-

tion of it’? by respondent ‘which calls the statute into

operation.”” |

TL. Reaunations 71, Recatine to Stamp Taxes UNDER:

TitLe VIII or THE Revenue, Act oF 1926, As

AMENDED. -

* The ‘Commissioner of Internal Revenue has prom-

| ulgated regulations for the enforcement of Title VII

of the Revenue Act. We will refer to several articles |

in these regulations. It will he convenient, however,

to segregate, consideration of the regulations into two

parts, the first being those ‘prese ‘ribed under Schedules

A-3 and AO for the sales and transfers of stocks and |

honds (the . regulations covering such transitions —

heing identical), the second being these prescribed for

16 -

the conveyance of real estate under Schedule AS.

First. ‘The applicable regulations are: . Z pe:

Chapter HI of Regulations 1 (revised July 1932).

The regulations follow the lenguage. of the statute by

using the words ‘‘Sales and Transfers”’ as the subject

matter with which the regulations deal. They do not

purport to: deal with matters which are neither sales

nor transfers unless some similarity of form or sub-

- stance requires a particular transaction to be specially

considered. Thus, Article 31, ‘‘Basis of Tax,”’ com-

mences as follows: ‘Sales or transfers of stock.’’ Ar-

ticle 34. ‘‘Sales or transfers subject to the tax.’’ Arti-

cle 35. ‘¢Sales.or transfers not subject to tax.’’ Article —

36. ‘*Memoranda of sales.’’ Article 37..‘‘Records of

‘ sales or transfers of stock.’’ Article 38. ‘‘Returns by

persons making salés.’’? The Collector of Internal Rev-

enue did. not attempt by the regulations to extend the

scope of the Act to transactions beyond the language

of the Act.

The veindadteine attempt definition of. the scope of

the Act by illustration. -The examples given. do not

. purport to be all inclusive. They do not exclude other |

transactions. On the contrary, it is implied that simi- -

lar transactions to those given as examples would in

like ‘mantier be. — or excluded. * Thus, Article

“en eT seas Penman Trust Company v. Hoey, 125 Fed. (2).

575, the court failed to notice the fact that the 1932 edition of

Regulations 71 attempts to define the scope of the Act by giving

examples, thus clearly indicating that it was intended that other

transactions ot a like kind would be treated in. the same manner.

17

44 gives examples of transactions subject to the tax and:

Article 35 gives examples of transactions not subject —

~ to the tax. Subparagraph (m) of ‘Article 35 gives as an

example the mere delivery of a certificate by or on

behalf.of a customer to his broker for the purpose of

sale. Art. 35 (n) gives as another example the mere —

delivery of a certificate of stock from a broker to his -

customer. Certificates of the fact and other formalities |

are required. Delivery by the customer to his mes-

senger for delivery to the broker would not be a tax-

able sale or transfer, even-though not given as an ex-

ample in the regulations. Also a delivery to one’s séc-

retary, cashier, or office manager, would not be subject

to tax, even though not mentioned as examples in the

regulations. .In short, to say that the regulations were

intended to be or are an all inclusive d@inition of ‘trans-

actions subject or not subject to the tax leads to an

immediate absurdity.

Art. 35 of the Regulations:

“Article 35. Sales or transfers not subject to. ,

tax.—The following are examples of transactions

not subject to the tax * * '

‘“(r) Transfers of shares or certificates of stock

which result. wholly by operation of law are not

subject to the tax. Transfers of this character are

those which the law itself will effect without any ~

voluntary act of the parties, such as transfer of -

stock from decedent to’executor.”’

Even though it should be held that a consolidation

necessarily involves a sale and a transfer of the stocks

and bonds of the constituent banks to the resulting con-

‘solidated association, it is a transfer solely by opera-

. 18

tion of law. It is scarcely possible to conceive of a

more perfect example of a transfer by operation of

‘law than that given by the Bank Act. .

“«* * * All the rights, franchises and interests

of each of such constituent banks * * * in-and to

every species of property, * * * shall be deemed

to be transferred to and vested in such consolidat-

ed national banking association without any deed

or other transfer; * * *’ ©

ee ad such consolidated national banking

association, by virtue of such consolidation and -

without any order or other action on the part of

any court or otherwise, shall hold and enjoy the

same and all rights of property, franchises and in- -

wel, ***”: a

We note the argument that the consolidation agree-

-ment was executed by the directors of the constituent —

‘bauks participating in the consolidation and that this

was required by the Bank Act and that, therefore, —

Section 34a of the National Bank Act requires the _

affirmative act of the directors and stockholders ‘of -

each of the constituent institutions and therefore the

transfer is. not wholly by operation of law. The argu-

* ment might also have included the fact that the Bank

Act requires the affirmative act of the Comptroller of

the Currency. No one step in a consolidation would

affect a transfer of assets. Adams v. Nagle, 303 U.S.

. \ 582. The consolidation agreement, when executed by

~ the officers and directors of the constituent banks. did

not transfer assets even when ratified by the stock-

holders. Every act which either of the constituent

banks, their officers, directors and stockholders, could

or did .do would be wholly insufficient to create the

19

‘Seattle-First National Bank or vest tlié assets of either

of the constituent banks: in it. Adams v. Nagle, 303 U.-

S. 532. soe

Obviously, a consolidation is one thing; transfer (if

“it bea transfer) of assets pursuant to it is another and

a different thing. Just as death, marriage, divoree, in-.

solvency, ete., are one thing and the devolution of prop-.

erty pursuant thereto another. Marriage, divorce or.

insolvency require affirmative acts of the parties. They

| may or may not have as their result a transfer of legal

title-to property but that transfer is not by the affirm-

ative act of the parties but is wholly by operation of

law. The assets of the constituent banks participating.

in a consolidation vest in the resulting national bank-

jing association, but they vest pursuant to the consolida-

tion, in the language of the Bank- Act, ‘“‘by virtue of |

- such consolidation.””- meer

We turn to Article 39) (h):

“Article 35. Sales or transfers hot subject to |

tax.—The following are examples of transactions © —

not subject to fax: * \*- Fe)

‘‘(h) The transfer of stock from the name of a

deceased or resigned trustee to the name of a sub--

- stituted trustee appointed) in accordance with the

terms of the original trugt agreement, which is a

- transfer resulting wholly by operation of law.”

-

This article is applicable to the stocks and bonds held

in fiduciary capacities by the Spokane and Eastern

. Trust Company. eee . a

A trust is an entity in and of itself. It is not de-

stroyed, changed ner its efficacy in anywise impaired

. 20

by a change in the person who is trustee. If a trustee

dies, resigns, or is removed because of incapacity .or

other: reasons, the trust_has-net-thereby failed. It is

submitted that if the trust as an entity sells and con-

-veys bonds to another trust, or to another entity, then ~

there is, in the language of ‘this Court ‘‘a relinquish- |

ment of the ownership’”’ by one entity for‘‘the benefit

of another” entity and there is. ‘‘the resultant acquisi-

tion” of that ownership by the second entity. But.

‘,when a trustee dies, ‘resigns or is otherwise removed

from his office and a new trustee is appointed, {heir

there has been no relinquishment of ownership of the ~

assets of the trust by the trust for’ the benefit of any -

other entity and no resultant acquisition of the owner-

s ship of the assets by any, other. entity. In the words of

the statute and of the regulations, there has not been i j

sale nor a transfer.

‘The regulations recognize this. Congress also recog-

nized the’ point in, the ‘Revenue Act of 1942, ¢. 61%,

56 Stat. 957.

We note the fact that i in two cases, City Bank Far me!

ers Trust Co. v. Hoey, 125 Fed. (2d) 577), and State

Street Trust Company ¥. Hassett, 134 Fed. (20) 156. it”

has been held that .assets-held in trust by one of the |

parties to a statutory merger under the Massachusetts /

or New York statutes pass by a‘transfer which is not

- within the scope of Article 35 (h). However, it is’re- *

spectfully submitted that these ‘decisions © overlook

the legal attributes of a trust and the relation of:

a trustee to it, and 1 in attempting to disregard the tech--

2r

‘nieal legal relationships of a trustee to the trust and

its assets and beneficiaries have misapplied the decision -

of this court in Raybestos-Manhattan Co. vy. U. S., 296

U.8.60.0 ei Sake Chae fone

*

Whether or not. we are “eorreet in this| criticism of

‘these decisions, and whether or not there’ v w ere in fact

_actual- taxable transfers in each’ of. ‘thesé. cases, and

whether or not’ apart from the mere fact of entering

into a merger there were strictly technical transfers

of trust assets by assignment ot stocks, surrender and |

re-issue of new certificates as suggested i in our brief in

opposition to certiorari, none the less these cases can-

uot, be applied jto a consolidation under ‘The National

Bank Act, where >; °

.

i? fa

“6* * * auch consolidated. national banking asso-

ciation, by virtud of such consolidation and with-

out any’ “order ov other action on the part of any

court or otherwise, shall held and enjoy the same

ll gall es appointments, * * * as trustee, executor,

administrator, registrar of stocks and bond's;

guardian of estates, assignee, receiver, committee

of estates of Innatices and in every other fiduciary

capacity, in:the same manner and to the same ex-

tent as such rights, franchises, and interests were

held or enjoyed by any such constituent institu-

tion at the time of such consolidation.’ ;

ya /

Ne cond. Real: Estate, pets eae

The i ghage of Schedule AB, abbreyi ated, follows: |

as ‘Conveyanees: Deed, instrumeiit. ‘or writing, '

- delivered * * *, whereby any latids, tenements, or

other realty sold shall he granted, assigned; trans-.

ferred, or otherwise conveyed to or vested in, the

“pure haser or pure ‘chasers ** *?’

_t | 92

A levy under this Schedule is upon a conveyance but

not upon all conveyances. The levy is upon-only those

conveyances whereby lands are granted. It is further

limited to conveyances granting lands which have been

sold; and further limited to conveyances which. vest

title in the purchaser. Under the terms of the Act,

then, there must be a deed, which is a technical instru-

nent of conveyance &ffective under state law to conivey

lund which has been sold to the purchaser.

The regulations interpreting this Schedule empha-

size this interpretation. The regulations are contained

in Chapter 8 of Regulations 71 (1932 ed.) commenc-

ing at page 38. The regulations are too numerous to

be set out in full and ‘we have accordingly printed

them in an appendix. In general they contemplate a

grantor and a grantee; a ‘technical deed; ‘a technical

sale; a valuable consideration; and a technical vesting

of title." |

As noted previously the Internal Revenue statutes:

have contained a provision for a documentary. stamp

tax for many years. The documentary stamp, tax on

conveyances was ‘included in the War Revenue Act of

1917 (Act of October 3, 1917; 40 Stat. 319) as Sched-

ule A-7. The same language was included: in the Rev-

enue Act of 1918 (Act of February 24, 1919; 40 Stat.

1057) as Schedule A-7. The present Aet is in language

identical. | | eo |

‘The regulations applicable to conveyances .of real

: =

“See Articles 75, 79, 84, 91, 92, 100, 101, 102, 103, 105,

106, 111 and 113. .

»s .:

estate have likewise been promulgated for a long time.

Regulations 55, as revised October 1920; Regulations

55, as revised July 3, 1924, ete., are for present pur-

poses identical with Regulations 71, as revised July

1932. It is suggested that the enactment, re-enactment

+ and final codification of the statute while the regula-

tions were in- effect should he treated as approving

their interpretation of the scope of the statute. Helver-

ing v. Wilshire Oil Co., 308 U.S. 90, 100; Helvering V.

Reynolds Tobacco Co., 306 U. S. 110, 115; and National

Lead Co. y. U. S., 252 UL 8: 140. Test 8

We turn to the situation in this case. No deed or

any other instrument of conveyance has been exeent-

ed by any one.” The directors of the Spokane and East-

ern Trust Company of Spokane and The First Na-

tional Bank of Seattle signed an agreement for con- ;

solidation and the stockholders ratitied it. The Gov-

ernment’s position is that such an instrument may be

construed to be a conyeyance.. It does not purport to

be a conveyance. It is merely an agreement to con-

solidate in the future. It is not self-executing; it does

not operate to transfer title. The consolidation agree-

ment was an agreement to consdlidate, nothing else.

In the statutory words it was not a deed,” it. Was hot

“delivered.” it did not ‘tgrant.”’ . ,

For the sake of. the argument, however, let us con: _

*The. banking quarters occupied by the Spokane and Eastern

Trust Company are now occupied by the Seattle-First National

Bank. No deed or other instrument of conveyance +has been exe- —

cuted or delivered. The Collector of Internal Revenue affixed the

stamps to a letter which he wrote. (R. 19).

. 24

sider the consolidation agreement to be a deed. The

parties to it are the Spokane and Eastern Trust Com-

pany of Spokane and the First National Bank of

Seattle. Presumably, then, the Spokane and Eastern

Trust Company, a corporation, is the grantor, and the

' First National Bank of’ Seattle, a: national banking

association, is the grantee. Presumably, also, the in-

strument in and of itself operates when delivered to

divest the grantor of title to real property and vests

it in the grantee. The difficulty with this is that the

title to the banking quarters never vested in the First

National Bank of Seattle. Under the terms of the.

Bank Act the title is not transferred from one constitu-

ent to the consolidation to another constituent but vests

_ in the resultant consolidated association, namely, the

- Seattle-First National Bank.

A second difficuity is that the title now vested in the

‘Seattle-First National Bank did not vest in “it by

means of the consolidation agreement (only one step

in the consolidation) but by virtue of the consolidation

as a whole and the operation thereon of the terms of

The National Bank Act.

But it is said that the banking quarters were sold to

a purchaser upon a- valuable consideration beeause

stock in a corporation is a valuable consideration. We

have already remarked upon the confusion resulting

from such an argument. The legal title to the banking

- quarters of the Spokane and Eastern Trust Company

“was never in the stockholders of that institution. It»

was in the corporation.. How, then, could the stock-

‘25

holders sell it, and to whom did they sell it, and for |

what price ?. The answer is that they did not. The cor--

poration of which they were stockholders changed its

name and the jurisdiction to which it was subject, be-

coming a national bank. If this be a sale, so is con-

version of a state bank into a national bank and so is

every change of name,

a

There was an absence of every element necessary to

the levy of an excise tax under Schedule A-8—deed,

sale, grantor, gr antee, transfer, consideration.

The ease of C ‘arpenter vy. W hite, 80 Fed. (2) 145, is

cited as applicable. It involved a transfer of real estate

_ by deeds of two corporations in a non-statutory merger.

»

There having been deeds of conveyance the only ques-

tion was whether there was a consideration. This is too

remote to be of any value.

IV. C: ASES CITED.

W e have diset ane in the course of this brief “such

of the’ cases cited in the Government’ s brief as seem

to have some bearing upon the question considered.

There are one or, two cases, however, that have not’

heen touched upon.

The ease of Koppers Coal & Transportation Co. V.

United States, 107 Fed. (2) 706, was a merger under

the laws of Delaware, which contained no provision for

the automatic transfer of property. Accordingly, one

of the constituents to the merger endorsed and deliv-

-ered to the transfer agent stock, which it held as an

26

: ° . . . ¥ i

asset for registration in the name of the resultant cor-

poration. . heecets 7 .

The cases of State Street Trust Co, V. Hassett, 134

Fed. (2) 156, and City Bank Farmers Trust Co. vy.

~ Hoey, 125 Fed. (2) 577, have been discussed in the pre-

~ ceeding pages and in, our brief opposing granting of

certiorari in this case. We there: pointed out that nei- —

ther of these cases touch upon the question of a con-

veyance of real estate under Schedule A-8 nor upon the |

question of a sale or transfer of owned assets. -

We have not discussed the ease of United States v.

Merchants Nat’l Trust & Savings Bank, 101 Fed. (2)

399, nor the opinions of the District Court or the Cir-

cuit Court of Appeals ‘in the present case. They speak

for themselves. Respectfully we submit that the rea-

soning of the Cireuit Court of Appeals for the Ninth -

Circuit construing the statute in the light of Article

35 (h) of Regulations 71 and Article 35 (r)-.of the same

regulations is correct.

V. CoNncLUSION.

_ It is respectfully submitted that this case has been

rightly decided by the courts below and ace -ordingly

should be affirmed.

Respectfully vubeaitted,

J B. H. KIZER , .

_ ARNOLD L. GRAVES

PAUL H. GRAVES

Attorneys. for Respondent.

eee

TREASURY REGULATIONS 7

(1932 ed.) |

DEEDS OF CONVEYANCE

Arr. 75. Who shall affix stamps.—The Act requires

that the person who makes, signs, or issues any instru-

ment taxable thereunder shall affix and cancel the rev-

enue stamps. It also prohibits any person from accept-

‘ing such instruments unless they are ptoperly stamped.

Arr. 79. ‘‘Sold”’ defined.—The term ‘‘sold’’ imports

the transfer of the absolute or general title: for.a val-

uable consideration or price. . ,. oe

Art. 84, What constitutes real property determin-

able by law of State where located.—(a) What consti-

tutes “lands, tenements, or other realty”’ is determin-

able by: the law of the State in which the property is

situated. Standing timber is ordinarily held to be real

estate, and where so held the deed transferring it -is

subject to the tax. oon et ia

(b) In States where common-law dower still exists |

an instriiment purporting to convey the inchoate right

~ of dower of a wife or the conummate right of dower

of a widow, prior to assignment of dower, is not sub-

ject to stamp tax; ‘but an instrument conveying the

estate acquired by a widow upon assignment of dower:

‘ is subject to tax. Where by statute dower has been

abolished and a différent interest in the husband’s: real

property conferred upon the wife in lieu thereof, the

taxability of.an instrumerft purporting to convey -such

an interest prior to its assignment will be determined

by the nature of the wife’s interest, and the statutes

and decisions of the particular State in which the real

estate is located must be consulted.

Arr, 91. Options and contracts‘ for real estate—No

. tax is imposed upon an option for the purchase of real

property or upon a contract for the sale of real estate.

Arr. 92. Deeds of release and deeds of trust.—Deeds

of release and deeds of trust are not subject to tax.

28 |

Art. 100. “Deeds-from_agent. to, principal. — Deeds

from an agent to his principal conveying real estate ~ |

purchased for and with funds of the principal are not

‘taxable. , |

Arr. 101. Reconveyances of partnership by receiv ~

~- ers.—Conveyances of propérty of a copartnership, in

the hands of receivers, back to the owners after admin-

istration of the.estate are not taxable. |

Art. 102. Partition deeds—Partition deeds are not

subject to tax unless a consideration passes between

‘ the parties by reason*of .one or more of them taking

under the division a share of real estate of greater value

‘than his undivided interest, in which event stamp tax

-attaches:to the deeds conveying such greater shares,

calculated upon the value of such consideration.

- Art. 103. Conveyances without -consideration.—Con-

veyances of realty, not in connection with a sale, to

trustees or other persons without consideration are not

taxable. tN |

Art. 105. Deeds confirming title——Deeds that are

simply confirmatory and do not vest title not already

vested are exempt from tax. © .

_ Arr. 106. Contracts for sale ef real property.—Coi-

‘tracts for the sale of real property are not. taxable —_

‘ unless they vest title. |

Arr. 111. Conveyance by corporation to owner of:

all the capital stock,—A conveyance of real estate hy a

corporation without valuable consideration to an own-

er of all its capital stock in consequence of ity dissolu-

tion is not subject to tax.

Arr: 113. Conveyances to‘trustee, or from trustee to

cestui que trust, without consideration.—Conveyances

~ to a trustee without valuable consideration or from: . °

trustee to a cestui que trust without valuable consid-

eration ‘are not subject to tax. es:

SUPREME COURT OF THE UNITED STATES.

No. °267.- _6crorEr ‘Term, 1943.

—_——

United States of America. eemecuaat) On. Writ of Certiorari to

< vs. | the United Stater Cir- -

Seattle-First National Bank, a .Na-; cuit..Court of Appeals

_+ tional Banking Association. | for the Ninth Circuit.

{March 27, 1944.]

Mr. Justice Mereny, delivered the opinion of the ‘Court. &

Respondent initiated this suit to recover the amount of the

documentary stamp tax, penalty and. interest’ which had been

exacted under the Revenue Act of 1926, as amended, in connec-

io with a statutory consolidation of banks under Section 3 of the

National Banking Act.' The District Court entered judgment

for respondent for the amount of the tax and interest, 44 F. Supp.

$032 The Cireuit Court of Appeals held that the cane Was fOv-

erned by one_of its former decisions® and affirmed the judgment,

136 F.2d 676. We granted certiorari, 320 U.S. 723, because this *

judgment’ was alleged to eonflict with deeisigns in other cireuits?

and beeause of the desirability ef a final settlement of the prob-

lems ‘involved. uh. S ie sy .

‘In 1935 the directors:of the Spokane and. Eastern Trust Com-

pany, a-state bank, entered into a written agreement of Seonsoli-

dation with the directors of the First National Bank of Seattle.

The agreement provided that the’ hanks were to be consolidated

‘gnder the charter of the First National Bank of Seattle and under

the new corporate title_of Seattle-First National Bank, the re-

spondent herein. The agreement was ratified and- confirmed by

Act of November 7, 1918, ¢. 209, 40 Stat. 1043, See. 2, as added by. the

. Act of February 25,°1927, ¢. 191, 44 Stat. 924. See. 1, and as amended by |

_ the Bunking Act of 1933, ¢. 89, 48 Stat. 162, Sec. 24, and the Banking Act

of 1935, ¢, 614, 49 Stat. 684, See. 331; 12 U8, (. § 34a. :

2 Reeovery was denied for the $100 penalty, which was paid in compromise

‘of a threatened criminal prose¢ution, on the ground that the compromise’ Was

a final-settiement of the penalty. This matter is net now before ufé. ;

3United States vr. Merchants- National Trust & Sayings Bank, 101 F. 2d

299, i ° :

#See City Bank Farmers Trust Co. ¢. Hoey, 125 F. 2d 577; State Street

Trus: (o. tv. Hassett, 134 F. 2d 1567 ;

“5%,

.

2 United States vs. Seattle-Furst National Bank.

2 the requisite number of stockholders of both banks and the Comp-

troller of the Currency issued. the necessary certificate of ap-

proval, reciting that the directors and shareholders of both banks

had complied with the provisions of the National Banking Act.

‘The state bank owned real estate, including its banking premises,

as well as corporate stocks and bonds, to all of which it held legal

and beneficial title as part of its corporate assets. It also held

in trust certain stocks and bonds, the legal title to which «was

vested in it as trustee, executor, administrator, guardian, or in

other fiduciary capacities. Section 5 of the consolidation agree.

ment provided that ‘“All. assets of each association at the date of

consolidation shail pass to and vest in the consolidated asrocia-

_ tion, and the consolidated association ‘shall be responsible for all

of the liabilities of every kind and sii nee of. each ‘of the

consolidafing associations.’

The transfer to respondent of title to this property held by

the state bank was not evidenced by any deed, conveyance, assigu-

ment or other instriment. Nor were any documentary stamps

purehased or affixed with respect to.such transfer. Subsequettly,

a deputy collector examined the bank records and exacteil a tax

' from respondent on the theory that the consolidation had resulted

in. a taxable transfer.. The necessary stamps were pure shased |

and affixed and this siit for réfund followed.

__ First. We conclude that, as to the seeurities to which. the state

bank held both legal and beneficial titl+, there was no taxable

transfer under the stamp tax prov isions in effect at the time the

consolidation ‘took place.

‘Section 800, Schedule: A-3, of the Revenue Act of 1926, as

amended,® imposes a stamp tax transfers of legal title to any

shares of stock or Gaaihiaor “deals made upon or showri by

the books. of the corporation or other organization, or by any

assignment in blank, or ‘by any delivery, or by any paper or

agreement or memorandum or other evidence of transfer or: sale

(whether entitling the holder in any manner to the. benefit eof

such share, certificate . . . or not).’’, Sehedule A-9* imposes 2

if

; ern 2 he 44 Stat. 9, as amended by Section 723(a) of the Revenue Act «

1932, ¢. 209, 47 Stat. 169.

6, ry 44 Stat. 9, as added by Section 724(a2) of the Revenue Act of nice

209, 47 Stat. 169, ‘and as amended by Section 212 of the National Tn fust

~ Far Act, c. 90, 48 Stat. 195, and aa amended by Pub. Res. No. 36, ¢ 33,

40 Stat. 431.

» |

\

eh

United States vs. Seattle-First National Bank. . 3

samp tax on similar transfers of legal title to bortds. :

Standing alone, these statutory provisions make no exceptions

‘and clearly impose a tax on the transfer of title to the securities

_ legally and beneficially owned by the state bank. But adminis-

rrative regulations, which until recently have been left undisturbed

by subsequently enacted legislation and are to be respected as set-

‘ed ‘administrative practice,” have carved out certain exemptions

vrmane te the transfer here involved. Thus Article 34(r) of

Treasury Regulations 71. (1982 ed.) provides that the transfer of

stock pwned by a corporation which ‘is merged into another cor-

poration is subject to the stamp tax, ‘‘such a transfer being effected

by the det of the parties and not wholiy by operation of law.’”

\rticle Ge r) specifically exempts from the tax those transfers

“¢ shares. or certificates of stock *! which result wholly by opera-

‘ion of law’’; it further states that ‘‘transfers of this character

are those which the law itself wi!l effect gvithout any voluntary

act of the parties, such as transfer of stock from decedent to exe-

“ entor.’” Article 120 makes these same provisions applicable to

ules cr transfers of bonds. The problem thus resolves itself into

a determination of whether the transfer of the state bank's seecuri-

‘ties to respondent occurred ‘* wholly by operation of law”’ so as

to exempt the transfer from the stamp tax requirements.

It is clear tint the-consolidation or merger of the national bank

and tle state bank occurred through the veluntary acts of - the

mspective directors and stockholders, pursuant to..the provisions

f Section 3 of the National Banking Act, with the approval of

the Comptroller of the Currency. If the words ‘‘wholly by oper-

ation of law,’’ as used in the administrative regulations, refer

here to. the entire process, of consolidation, of which the transfer

of securities is an éssential part, the exemption cannot be applied.

But in a broad sense, few if any transfers ever take place ‘‘ wholly

by operation, of law’? for every trans er must’ necessarily be a

part of a chain of human events, rarely if ever other than voluntary

‘TSubstantially similar regulations were promulgated under-the Revenue Act

of 1996 and-were in effect when Congress, in the Revenue Act of 1932, re-

enacted the stamp tax provisions in issue. Congress did not see fit to amend

_opchange these regulations until the Revenue Act of 1942, Sectians 506 (b) (1)

and (2), e. 619, 56 Stat. 958. See Helvering rv. Reynolds Tobseco Co., 206

TS, 110, 115. ac

‘While the grammatical construction of the quoted clause gives rise to some

lubt as’to its meaning: we interpret it in aceord with Article 35(r) so as

‘o impose ga tax on transfers arising cut of mergers only if the transfer occurs

by the act of the parties and not wholly by operation of law. ;

-. : Pa

4 United States vs. Seattle First - National Bank.’

in character. “ Thus to give ‘any real substance to the exemption,

we must take a more narrow view and examine the transfer apart

froin its general background. We must look only to the immediate

_ mechanism by which the ‘transfer is made effective. _ If, that me-

chanisin is entirely statutory, effecting an automatic transfer with-

out any voluntary action by the parties, then the transfer tay truly ,

be said to be ‘‘wholly by operation of law.”

‘Here the actual transfer to respondent of the legal and bene-

ficial title to the securities owned by the state bank was not effected

by or depéndent on any of. the voluntary acts relating to the cor-

-solidation agreement or the ratification or approval thereof. Nor

was any : ae deed, conveyance, assignment or other instru-

ment utili Rather the transfer occurred solely and automati-

cally by virtue of Section 3 ot’ the Nation | Banking Act. This _

provides in pertinent part that : (1) upon ecarsolidation, the cor-

porate existence of each of the constituent banks shall be merged

and continued in the consolidated national - banking association,

which shall be deemed to be the same corporation as\the constituent

banks; (2)-all the rights, franchises and -interests of each con-

stituent bank in and to évery species of property, ‘real, personal

and mixed, and choses in action thereto belonging, ‘‘shall -he deetned

to be transferred to and vested in’’ the consolidated associatjon

without any deed or other transfer; (3) the consolidated associa-

tion, by virtue of such consolidation an without any order of (ther

action by any court or otherwise, shall hold and enjoy the satte

and all rights of property, franchises and interests. (including

fiduciary interests) in the same manner and to the same extent aS

held and enjoyed by the constituent banks.

Thus it is the National Banking Act. that is the sacs by

which the transfer of securities is made effective. No voluntary

act by the parties is hecessary. It follows that the transfer oc-

curred ‘wholly by operation of law:’’. The mere fact that the

parties here saw fit to inelude in their consolidation agreement 4

provision that all assets of each constituent bank ‘‘shall pass to

and vest-in the consolidated asseciation”’ * does ‘not make the tramis-

fer any less than one “*wholly by operation of law.’’ This was

merely an agreement’ that the’assets would be transferred in the

future and did not purport to be a present, effective conveyance

The transfer of the securities to which the state bank held leyal ”

a a

United States vs. Seattle-First National Bank. | 5

and beneficial title was therefore exempt from the stamp tax under

Articles 34(r) and 35(r). , | oo.

Second. We-reach the same conclusion as .to the transfer of

yeurities to Which the state bank held legal title in trust in various

fiduciary capacities. The intent to tax. such transfers must be

dear and-unmistakable. No such intent is apparent here. Under

section 3 oof the National Banking Act, these securities passed to

respondent ** w holly by operation of law’’ just as did the securities

previously discussed. Articles 34(r) and 35(r). make no distine-

tio between transfers ‘of stocks from a fiduciary and transfers

from one who is also the beneficial owner. The exemption therein

contained is therefore applicable.”

.

.

‘/fhird. The transfer of ‘the real property owned iy the state-

- bank is likewise, in our opinion, exempt from the stamp tax.

Section s00, Schedule A-8, of the Revenue Act of 1926, as

fended, places a stamp tax on /*Cohveyances: Deed, instru-

ment. or writing, delivered’. . . whereby any lands, tenements,

or other reality, sold) shall be vranted, assigtied, transferréd, or

otherwise conveyed to, or vested in. the’ purchaser or _purchasers

It is clear, however, from Section 3 of the National, Bank-

ing Act that the statg bank's realty” Was not conveyed to or vested

in respondent by means of any deed, instrument or writing. There

was a complete absence of arty of the formal instruments or writings

upon Which the stamp tax ixiaid. Nor can the reatty be said to

jo

- have been * “sald” or vested ima *‘ purchaser or purchasers” within.

the ordinary. meanings of those terms. Only by straining the reali-

ties of the statutory consolidation process ‘van respondent be said

— tohave **bought™ ‘* purchased ”” the real property. “That we are

\\unable to do. sores ;

\The judgment of the sourt below is therefore. :

\ wd - ee Affirmed.

9 Bee alee of the cleat applicability of Artie see Bair) “and 35(r), we have

no oecasion. to determine the applicability here of Article. 35°h), which exempts

from the stamp tax ‘‘the transfer of ‘stock from the name of a dece vased or

tsigned trustee to the name of a substituted ‘trustee appointed in accordance

with the terms\of thie original trust appoeme nt, which is a waccmetal resulting |

,

wholly ‘hy operation = law.’

10C, 27, 44 Stat. 9, as added ‘by. Section 25 of the Revenue Act of —

and 4s aménde “dbs Se etion 2]2 a the. Nz ation: 4) Industrial Re povery Act,

* as amended by Pub. ies. No. 36, ¢. 333, 49/Stat. 431. +