number of shares, and is not declared by the corporation to represent earnings or profits, and it is not shown on the trial that it does so in fact, it is not a stock dividend.

test of a critical examination. If it proves anything it proves too much. It can be as well said of a cash as of a stock dividend, that "when it is made nothing is added to the value of the proIf, therefore we find in this case that the shares perty." In either case whatever is received by distributed to the stockholders in the company the shareholder is subtracted from—not added to defendant, represented earnings or profits made the value of the capital. Let it be known by the use of the actual capital of the company, that a corporation has in its treasury a large unwe must hold that the distributions were stock divided surplus, and the value of its shares will dividends; if otherwise, no liability results from be correspondingly enhanced. Each holder of such distribution. The president of the com- shares will have a proportionate interest in this pany defendant testifies as to the first distribu- surplus, and if he sell his shares before the divition made in 1881: "The stock distribution of dend is made he will receive it in the increased 1881 was provided for in the tripartite contract price. Or, if he receive it in the shape of a with and for taking in the American Union dividend the value of his shares will be by so Telegraph Company and the Atlantic and Paci- much diminished. "Nothing will have been fic Telegraph Company added to the value of his property" by such cash dividend, yet no one would say that the capital was not taxable in respect of it.

. it being a part of this agreement that before the new parties should come into the company and receive stock in payment for their stock, the company as it was should capitalize its surplus which had been invested in the plant and in the purchase of stocks and bonds of leased lines and of other companies, and should on account thereof distribute to its existing stockholders, previous to the combination $15,526,590. That represented so much of the cost value of the investments of earnings made and carried to account of surplus, being within a few thousand dollars of all the surplus shown on the balance sheet of the company." This is a declaration as distinct as words could make it, that this was a distribution of "earnings made and carried to account of sur-mony, the price of the stock declined after the plus."

The source of the $4,320,600 of stock distributed at the same time is not so distinctly stated, but from all the evidence we conclude, and have so found the fact, that it represents earnings of the company previously invested in the stock for which it was exchanged. The stock distribution of $39,645 also represented earnings.

The fallacy of the argument lurks in the assumption that if the distribution of stock does not, per se, increase the value of the property held by the stockholder, it is not a stock dividend. Whereas, in the case of any dividend, cash or stock, nothing is added to his property, but he simply receives his several and separate share of that which, before, he held in common with all the shareholders. The distributions, under the facts in this case, are evidence that earnings and profits represented by them, had previously been made. And if, as stated by the Auditor of the company defendant, in his testi

making of these dividends, it proved, merely, that the price of the stock had been previously enhanced by the possession of this surplus by the company; if indeed we can assume that the fluctuations of price on the stock exchange prove anything.

capital, is a stock dividend; while a mere arithmetical increase of the shares, without a transfer to the shareholders of anything out of the treasury or property of the corporation, is not such a dividend.

The true test, as is shown by all the cases, is that a distribution of stock which severs earnings We fully agree with the able counsel for the or profits from the mass of the property of the defendant that where the company itself has not corporation, and divides them among the sharedeclared the distribution of stock to be a "divi-holders in proportion to their interest in the dend," and is not therefore, as in Atlantic & Ohio Telegraph Company v. Comth. (16 P. F. S. 57), estopped from claiming otherwise, the burden rests upon the Commonwealth to make out her case, and we think she has done so by the testimony of the officers of the company defendant, added to the fact shown by its report that it made and paid dividends amounting to six per centum upon eighty millions of capital in this same year 1881. The argument by which counsel seeks to prove that because "the issuing of new shares did not convey to the shareholders any interest in any property which they did not before possess;" therefore there has been no 'dividend' within the legal definition of that term," is ingenious; but it cannot stand the

We are unable to see how the question whether the capital of the company was impaired or not, at the time either of these dividends was made, can be of any moment here, as the learned counsel seem to think. The president of the company testifies that the dividends were made out of the earnings and profits of the corporation, and we have no reason to doubt his testimony when it relates to matter of fact; if these earnings had been divided in cash, no one would have doubted that a tax would have been

never been supposed that a result mathematically exact can be reached by the adoption of this method of apportionment, but if this be an objection, it is one that can be successfully urged against any mode of valuing property of this nature, which has ever been adopted or suggested. It must be remembered that while it is

due therefor, even if it had been shown that the | tained by means of the proportion which the property of the company had depreciated in length of the whole line of the company bears value; and if the question of impairment of to the length of its line within the State. It has capital were in the case, it might be easy to show that it would be less impaired by retaining earnings in the treasury and dividing stock, than by dividing the earnings in cash. Moreover, it is the paid-up capital which the law forbids the directors to impair by the declaration of dividends, and as it appears from the reports of the company defendant made to the Auditor-Gene-true that the tangible property of a corporation ral for the years 1879, 1880, and 1881, given in evidence, that the amount of capital paid up is unknown to the company, it would seem to be impossible to determine, in any event, whether it were impaired or not.

is represented by its capital stock, yet the property and capital stock are not identical, and it is the latter which is to be valued and taxed in these cases. (Railroad Companies v. Gaines, 7 Otto, 697.) But the capital stock of a corporaHaving found that the defendant has made tion whose activities extend into and through stock dividends, and is taxable in respect thereof, many States is not, like tangible property, suswe must next determine the basis upon which ceptible of division by State lines. The value the amount due is to be calculated. The taxing of all the property, wherever situated, enters Act, in terms, imposes the tax upon all the into and is diffused throughout the whole capital, capital stock of corporations liable thereto, and no particular shares or number of shares whether foreign or domestic, but a long course can be said to represent any definite portion of of practice in the office of the Auditor-General, the property. Certain kinds of this property, and a series of decisions in the courts, have as, for example, real estate, are in their nature settled the law to be that, where the property of a corporation is owned, and its business is carried on partly within and partly without the State, a ratable proportion, only, of its capital stock can be taxed. How, then, is this ratable proportion to be ascertained? The case of Commonwealth v. Standard Oil Company (12 WEEKLY NOTES, 293), recognizes that in the case of a foreign mining and manufacturing company, the capital stock of which is represented by tangible property, situated partly within and partly without the State, the value of each such portion being known, the proper mode of assessing the tax is to impose it upon so much of its capital stock as represents the proportion which the value of its property in the State bears to the value of all its property. And this Court has recently adopted the same principle in the case of a domestic mining company. In each of these cases the relative values of the property within and without the State were, virtually, agreed upon by the parties, and they, therefore do not decide what should be the basis in a case in which the relative values are not agreed upon, or cannot be definitely ascertained. And a different basis of apportionment has been with rare exceptions depending upon special facts-applied to transportation companies, by the Accounting Department with the sanction of this Court and of the Supreme Court, whenever it has been called to pass upon the question.

fixed within one jurisdiction, yet their influence upon the value of the capital cannot be confined to the State within which they are situated, for the obvious reason that they contribute to the capacity of the company to do business over its whole line. The valuable warehouses and other terminal facilities of the Pennsylvania Railroad Company at Jersey City undoubtedly add to the earnings of the line of its road between Pittsburgh and Philadelphia, and hence to the value of its capital stock in Pennsylvania. And the value of the stock would be at once diminished by the destruction of their New Jersey properties. And so with their equipment; the cars, engines, and other movable property would of necessity be sometimes in one jurisdiction, and again in another, but their influence upon the value of the capital stock taxable in Pennsylvania would in either case be the same. A like effect would be produced by ownership of intangible property by the corporation, such as its franchises, rights of various kinds, and choses in action. All these, though in contemplation of law situated in the State creating the corporation, would add to its capacity to do business wherever it was engaged, and hence their value would be diffused proportionately throughout all its capital stock.

The original cost and present value of the property in Pennsylvania, belonging to a transportation company, having property and doing business both within and without the State, would, if they could be actually determined, This is what is known as the mileage basis, no doubt be important elements to aid in fixing according to which the proportionate value of the value of the capital which is represented by the capital stock taxable in the State is ascer-it, but there is another and more important

element of value which is not susceptible of creased to eighty millions by issuing new stock.” division by State lines, or of valuation in detail, And as the penalty prescribed in the Act is for which, as we have already indicated, is the neglect or refusal to report, and there was no extent to which the several parts contribute to neglect or refusal in this instance, it cannot be the success of the business as a whole. This exacted. If the report when made does not could in no case be definitely ascertained unless contain all the information which the Auditorwe could determine the relation which the pro- General has the right to require, he is clothed by perty and business within the State, bore to the law with ample power to compel it to be furwhole property and business of whatever kind nished. and wherever situated or carried on, and this we need hardly say could never be accurately done. This is the nature of the value, no doubt, which was in the mind of the President of the company defendant, when he said in his testimony: "I believe that the true test of the value of a property like that is its permanent establishment, its earning capacity, whether increasing or decreasing, and its good-will."

In Standard Oil Company v. Commonwealth, supra, it is said "that the Commonwealth can only claim interest from the time of notice and demand by the Auditor General." There was no notice given or demand made in these cases until after the settlement of the account, and therefore the charge of interest for the time prior thereto must be stricken out.

Defendant has filed a number of specifications of objections to the settlement which we do not deem it necessary to discuss. They are to be considered overruled so far as they are not sustained by these Conclusions of Law, which we sum up as follows:—

But where are this "permanent establishment," this "earning capacity," this "good-will," to be found? Are they within the State or with out it? Do they not rather inhere in the mass of the property and capital of the company as a whole, and would they not vanish in any attempt 1. Defendant in March, 1881, made and deto estimate the capital by the value of the tangi-clared a stock dividend of $15,590,000, on its ble property, as such, which must be circum- then capital of $41,073,410, and it is liable to a scribed by State lines? Manifestly, State lines tax at the rate of one-half mill upon said capital become important in this inquiry only after the stock for each one per centum of dividend so value of the whole capital has been ascertained; made and declared. for the true value of any given number of miles of a transportation line can be ascertained only by considering it as a proportionate part of the whole.

The company defendant is not in the strict sense of the term a transportation company, yet we think it comes within the same principles; and that from the nature of its business, originating at an indefinite number of places within and without the State, and extending over great and indeterminate distances, its facilities for doing business in one State increasing it in another, and because so large an element of the value of its capital consists in its earning capacity and its good-will, the fair proportion taxable in this State can best be ascertained by adopting the mileage basis applied to its whole capital.

2. Defendant in March, 1881, also made and declared a stock dividend of $4,320,600, on its said capital and is liable to a tax at the rate of one-half mill upon said capital stock for each one percentum of dividend so made and declared.

3. Defendant in March, 1881, also made and declared a stock dividend of $39,640, on its said capital, and is liable to a tax at the rate of one-half mill upon said capital stock for each one per centum of dividend so made and declared.

4. Said tax is to be computed upon the basis of the proportion which defendants combined pole and wire mileage within the State of Pennsylvania bears to its total combined pole and wire mileage ascertained in finding of fact No. 7.

5. Defendant is not liable for any penalty for failure to report, and the penalty charged in the settlement must be stricken out.

6. Defendant is not liable for any interest prior to the date of the settlement, and the amount charged therein for such interest must be stricken out.

Defendant is charged in this settlement with penalty for failure to report dividends, and also with interest at the rate of twelve per centum per annum from the fifteenth day of February next after the declaration of the dividend up to the date of the settlement of the account. The 7. There is due to the Commonwealth from penalty is charged under the provisions of section defendant the sum of $37,624.69, for tax on its 3, Act of June 7, 1879 (P. L. 112), and the in- capital stock in respect of the dividends above terest under the provisions of section 13 of the stated; and the sum of $4540.04, interest same Act. But defendant did not fail to report. thereon from April 28, 1883, to April 28, 1884, It made a report for the year in question, and and the further sum of $1881.23, Attorneystated therein that the capital had been "in-General's commission, amounting in all to the

sum of $44,045.96, for which amount judgment | not to be entered thereon until after the rule to is directed to be entered if exceptions be not dissolve the attachment is disposed of."

The verdict was for the plaintiff, on the issue raised by the narr. in assumpsit, and the pleas, non-assumpsit, payment, with leave, etc.

rule to show cause why the attachment should On September 9, 1884, the said reinstated not be dissolved came on for a final hearing, before DREHER, P. J., upon the depositions originally filed, when the defendant filed additional reasons for dissolving the attachment, to which the plaintiff objected on the ground that they were too late, and that they had no bearing upon the question of the fraudulent contracting of the debt.

Freyman & Kiefer, for the rule.

J. Sergeant Price and Craig & Loose, contra.

October 22, 1884. THE COURT (DREHER, P. J.) filed an opinion and decree dismissing the additional reasons filed by the defendant, and discharging the rule to show cause why the attachment should not be dissolved, the Court deciding "that the debt owing by the defendant is shown by the depositions to have been fraudulently contracted."

[See next case.]

The facts and former decisions in this case C. P. No. I.

September 28, 1884.

v. Miners' Bank of Summit Hill.

are fully reported in 13 WEEKLY NOTES, 236 Mechanics' National Bank of Philadelphia and 515. Subsequently to the proceedings there reported, the defendant filed a special plea denying fraud, and after the hearing of a rule to show cause why the said special plea should not be stricken off, the Court made the said rule absolute, and in an opinion filed by DREHER, P. J., held that the ruling in the former opinion, to wit, that the question of fraud must be determined by a jury, was erroneous, that being a question for the Court under the sixth section of the Act of 1869.

Subsequently, at June Term, 1884, the cause came on for trial before MEYERS, P. J., of the Third Judicial District, then holding the Courts of Carbon County, when the defendant filed a paper stating that "the Court has not decided the question of fraud either for or against the defendant, and the questions raised upon the rule to dissolve the attachment still remain undetermined; and the defendant therefore objects to the swearing of a jury, and asks that the question of fraud be first decided." MEYERS, P. J., thereupon entered an order reinstating the rule to dissolve the attachment, and ordered that the jury be sworn, and "that in the event a verdict is rendered in favor of the plaintiff, judgment is

Attachment under Act of 1869—A corporation is within the Act-Fraud, what constitutesBanks and banking-Principal and agent— Draft remitted by one bank to another with instructions to remit proceeds immediatelyFailure to comply with instructions, when fraud within the Act of 1869.

Rule to dissolve attachment under the Act of March 17, 1869.

This was an attachment under the Act of 1869, in which the facts set forth in the affidavit and disclosed by the depositions, were identical with those in the case of Bank v. Bank, in C. P. of Carbon Co., reported in 13 WEEKLY NOTES, 236, 515.

W. W. Montgomery (J. G. Johnson, with him), for the rule.

J. Sergeant Price, contra.

THE COURT. The depositions in this case disclose a clear case of fraud, and the rule is discharged.

Per BIDDLE, J.
[Cf. preceding case.]

G. S. P.

VOL. XV.] THURSDAY, JAN. 8, 1885. [No. 22. signing for error the entry of judgment as above.