December 1, 1933.
Before GREENE, J., Anderson, October, 1931. Reversed, and plaintiff given judgment against defendant.
Action by the State of South Carolina against the Liggett Myers Tobacco Company. From a decree dismissing the complaint, plaintiff appeals.
The decree directed to be reported is as follows:ORDER
This case was heard by me at my chambers in Anderson without a jury under the written consent by counsel of both of the parties.
This is a suit by the State of South Carolina against the defendant, Liggett Myers Tobacco Company, for a penalty under Section 5 of the Act of the General Assembly of South Carolina approved March 24, 1922 (32 Stat., 1023, 1026).
Summing up the complaint briefly it alleged that Chapter 47, Vol. 3 Code of Laws for South Carolina 1922 (Section 4028, et seq.), except in so far as its provisions might have been repealed or superseded by the Act of March 24, 1922, supra, are still in force and effect; that said Act of 1922 provided that "each and every foreign corporation now doing business in the State of South Carolina, or that may hereafter apply for admission, shall, within sixty days, file with the Secretary of State a written stipulation or declaration" (Section 1), setting forth the matters to be set forth in said document under the terms of the Act; that Section 2 of said Act provides in addition that such corporations shall file in the office of the Secretary of State copies of its charter, by-laws, etc., as provided by said Act, and shall file annually thereafter with the Secretary of State certain statements relative to its corporate organization; that the defendant is a tobacco manufacturing corporation chartered under the laws of New Jersey with a capital stock of several million dollars, and is extensively engaged in the manufacture and marketing of tobacco products and in the buying of tobacco for such purposes, and that for some time prior to the approval of the Act of 1922 and since that date such corporation has been continuously doing business in South Carolina, and that it has property, agents, and representatives in this State in connection with the transaction of said business; that the said defendant has failed and continued to fail to comply with the provisions of the Act of 1922 and with the requirements of Chapter 47, Vol. 3, Code of 1922, not superseded or repealed by said Act, and is therefore liable to the penalties for such default described by Section 5 of the Act of 1922, to wit, penalty of $10.00 per day for each day of such default, for a period beginning sixty days after the approval of said Act, to wit, March 24, 1922. The prayer for judgment is for the sum of $34,200.00, being the $10.00 per day penalty from and inclusive of the 25th day of May, 1922, to the date of suit.
The amended answer of the defendant admits the sovereignty of the State and the incorporation of the defendant, denies all of the remaining allegations except such as may be thereinafter admitted, and denies that it is doing business in the State in such a sense as to be subject to the provisions and penalties of the Act referred to in the complaint.
By way of further answer the defendant alleges that the Act of March 24, 1922, supra, is entitled, "An Act to Provide a Schedule of Fees For The Admission of Foreign Corporations to do Business in The State," sets forth the requirements of said Act as to the filing of papers by a foreign corporation and the payment of fees therefor, and alleges that the payment of domestication fees called for by Section 3 thereof was to precede or be coincident with the filing of any papers required to be filed. It further admits that it has not paid the filing fees for domestication under the terms of Section 3 of said Act, and alleges that the said Act is unconstitutional, null, and void, in that the provisions thereof requiring payment by a foreign corporation of domestication fees in order to do business in the State of South Carolina, on the basis of its authorized capital, constitutes a regulation of and a burden on interstate commerce in violation of Article 1, § 8, cl. 3, of the Constitution of the United States, and amounts to the taking of property without due process of law and in denial of the equal protection of the laws in violation of the Fourteenth Amendment of the Constitution of the United States, and of Article 1, § 5, of the Constitution of South Carolina of 1895.
Other parts of said amended answer related to the filing of the annual statements required under Section 2 of said Act, and alleged the unconstitutionality of said section as requiring the payment of fees based on the authorized capital. At the hearing counsel for the State admitted that in the complaint in this action they were not making any claim for a penalty on account of the failure of the defendant to file the annual statements, as the corporation could not be required to file annual statements until it had become domesticated. Such parts of the answer as attack the statute in reference to the filing of annual statements are, therefore, immaterial.
The amended answer further sets up the claim that, as the suit is for a penalty by the State of South Carolina and the cause of action arose and accrued more than two years prior to the commencement of the action, the same is barred by the two-year Statute of Limitations of force in South Carolina, and alleges that in any event the said penalties which accrued more than two years prior to the commencement of this action are barred by the said statute.
The allegations of Paragraphs 8, 9 and 10 of the amended answer setting up certain facts in connection with the defendant's business in South Carolina and elsewhere are admitted to be true by the stipulation, which will be hereinafter referred to, and such allegations will be set forth in connection therewith.
A written stipulation between the parties admits certain facts to be true, to wit:
That the defendant is a corporation of New Jersey engaged in manufacturing and marketing tobacco products and buying tobaccos for such purposes, and is doing an extensive business consisting in the aggregate of foreign, domestic, interstate, and intrastate business.
That, while the defendant was under the impression that the acts done in furtherance of its business in South Carolina did not constitute doing business in said State within the terms of the statutes requiring foreign corporations to domesticate, such company is now willing to agree, in view of the decisions of the Courts with reference to similar courses of practice by other corporations, that it was doing business at the time of the enactment of the Act of 1922, and is now doing business in the State within the meaning of the terms of the statute. That said defendant has not at any time since March 24, 1922, tendered the requisite papers for filing to the Secretary of State and is not domesticated under any law of this State at present.
That the allegations of Paragraphs 8, 9 and 10 of the amended answer are admitted. These paragraphs allege that at the time of the passage of the aforesaid Act in 1922 it had an authorized capital of $65,752,700.00, and an outstanding capital of $55,933,700.00, and at the time of the commencement of this action the authorized capital of said defendant company was $134,139,800.00, and the outstanding issued capital was $100,937,075.00, and at all times between the year 1922 and the present time the authorized capital of said corporation has been in excess of the amount of the outstanding capital thereof.
That the defendant is a manufacturer of cigarettes, smoking and chewing tobacco and other forms in which tobacco is used, and the sale of such products in interstate and foreign commerce, and that said company has no manufacturing plant in South Carolina, and all of its products sold in said State are shipped therein from other states.
That the business of the defendant company in the State of South Carolina is only a very small fractional part in amount of the interstate business done in said State; and the total business done in said State is a very small percentage of the total business thereof. That in the year 1922 the property owned by this defendant in South Carolina was valued at $33,099.00, whereas the total value of all of its property was $138,770,849.00. In 1930 the value of the property of said company in South Carolina was $33,099.00, whereas the value of all of its property was $174,793,201.00. The leaf tobacco purchased in South Carolina in 1922 was of the value of $437,348.00, whereas the total leaf tobacco purchased in that year by said defendant was of the value of $35,040,764.00. In 1930 the leaf tobacco purchased in South Carolina amounted to $522,341.00, and the total purchases of leaf tobacco amounted to $18,947,581.00. In 1922 the intrastate business done in said State by the defendant company was $102,000.00, the interstate business done in said State was $2,622,000.00, and the total business of the company in 1922 was $168,000,000.00. In 1930 the intrastate business in South Carolina amounted to $75,000.00, the interstate business in said State amounted to $1,949,000.00, and the total business of said company amounted to $250,000,000.00.
There being no dispute as to the facts involved, on the legal questions raised, I have concluded as follows:
1. The statement of the defendant in the stipulation to the effect that it was not aware that it was doing business in the State within the terms of the statute is no defense.
2. Section 333, Code Civil Proc., 1922, states the period of limitation as "within two years: * * * 2. An action upon a statute, for a forfeiture or penalty to the State."
The defendant invokes this statute to limit the penalty sought to be recovered to a period of two years prior to the commencement of this action. Section 5 of the Act of 1922, which fixes the penalty, provides that a foreign corporation violating the statute in the particulars named "shall be liable to a fine of ten dollars per day for each day they fail to comply with the provisions of this Act, and be recovered at suit of the State. * * *"
The penalty under this section accrued from day to day, is a penalty which accrued to the State, and the limitation statute seems to me applicable to the penalty herein sued for. It is not a penalty for the failure to pay a tax as contended by the plaintiff, as the suit is for failure to file papers.
I therefore hold that, if the Act itself were constitutional, there could be no recovery of the prescribed penalty for a period in excess of two years from the date of the commencement of the action.
3. The defendant attacks the constitutionality of Section 3 of the 1922 statute on the ground that the fees therein required are based on authorized capital on a graduated scale. These fees start with a minimum of $15.00 for each corporation with $5,000.00 or less authorized capital, and there is no maximum fee fixed.
The right of the states to regulate the doing of business within their borders by foreign corporations has received a great deal of consideration by the Courts. There is no question that a state has a complete right to tax the property within its borders of a corporation engaged in interstate commerce, and the right to impose a license fee or excise tax in respect of that business, but it is also well settled that the power of the State to regulate the transaction of local business within its borders by a corporation of a sister state is not unrestricted or absolute, but must be exerted in subordination to the limitations which the Constitution places on State action. Western Union Telegraph Co. v. Kansas, 216 U.S. 1, 30 S.Ct., 190, 197, 54 L.Ed., 355; International Paper Company v. Massachusetts, 246 U.S. 135, 38 S.Ct., 292, 62 L.Ed., 624, Ann. Cas., 1918-C, 617.
But "if the statute, reasonably interpreted, either directly or by its necessary operation, burdens interstate commerce, it must be adjudged to be invalid, whatever may have been the purpose for which it was enacted, and although the company may do both interstate and local business." Western Union Telegraph Company v. Kansas, supra.
In this case the business of the defendant is largely interstate, and it manufactures no goods within the State of South Carolina; everything that is sold within the State being manufactured in other states and shipped to South Carolina.
As will appear from the figures set forth in the stipulation, the property of the defendant in South Carolina as compared with the value of all of its property is infinitesimal; the tobacco purchased in South Carolina is a very small percentage of the total purchases of tobacco; the intrastate business in South Carolina in 1922 was about 1/25 of the interstate business in the State in that year and inconsiderable in comparison with the total business done. The value of the intrastate business in South Carolina in 1930 was also approximately 1/25 of the interstate business in the State for that year, and the interstate business was in South Carolina approximately 1/125 of the total business of the company.
It thus appears that the property and business of the defendant within the State of South of South Carolina and subject to proper forms of taxation by the State is a very small percentage of the business of the company. That capital stock of the corporation represents the property owned by the corporation, and it seems that a tax levied on the total capital stock of a foreign corporation is a tax not only on that part of the capital which is used in the transaction of its business within the State, but is a tax on the property of the corporation represented by the capital used outside of the State.
Under decisions of the United States Supreme Court this cannot be sustained.
In the case of Looney v. Crane Co., 245 U.S. 178, 38 S.Ct., 85, 87, 62 L.Ed., 230, there was under consideration a statute of the State of Texas which fixed a fee for a foreign corporation to do business in the State of Texas which was based on the authorized capital stock. The Crane Company had an authorized capital of $17,000,000.00 which was issued and paid up; its surplus and undivided profits amounted to $8,129,000.00; the total assessed value of its property in Texas was $301,179.00; the gross receipts in all states amounted to $39,831,000.00, of which only $1,019,750.00 was from business in the State of Texas, and nearly one-half of this amount was the result of interstate business. The company owned real estate in Dallas and at another point in said state.
The Court in its opinion says:
"It may not be doubted under the case stated that intrinsically and inherently considered both the permit tax and the tax denominated as a franchise tax were direct burdens on interstate commerce and moreover exerted the taxing authority of the State over property and rights which were wholly beyond the confines of the State and not subject to its jurisdiction and therefore constituted a taking without due process."
It further states that it is now "settled that the States are without power to use their lawful authority to exclude foreign corporations by directly burdening interstate commerce as a condition of permitting them to do business in the State in violation of the Constitution, or because of the right to exclude to exert the power to tax the property of the corporation and its activities, outside of and beyond the jurisdiction of the State in disregard, not only of the commerce clause, but of the due process clause of the Fourteenth Amendment," citing Western Union Telegraph Co. v. Kansas, supra, and other cases.
And again, "It is thus manifest on the face of all of the cases that they in no way sustained the assumption that because a violation of the Constitution was not a large one, it would be sanctioned, or that a mere opinion as to the degree of wrong which would arise if the Constitution were violated was treated as affording a measure of the duty of enforcing the Constitution."
The statutes were held to be unconstitutional and their enforcement enjoined.
It will be noted that in the case of Looney v. Crane Co., supra, while the tax was assessed on the authorized capital, it appeared that the authorized and issued capital of the Crane Company were the same.
The authorities go further where the tax is on the authorized capital and that amount is in excess of the issued and outstanding capital.
In the case of Western Union Telegraph Company v. Kansas, 216 U.S. 1, 30 S.Ct., 190, 197, 54 L.Ed., 355, the Court construed the statute of Kansas which exacted a charter fee from foreign corporations for the benefit of the permanent school fund of 1/10 of 1 per cent, on the authorized capital on the first $100,000.00 and a graduated scale for additional amounts, with no maximum. The statute permitted the telegraph company to carry on its strictly interstate business without domestication, but provided that, if it did not pay the domestication fees and domesticate, it should cease to do intrastate business.
The United States Supreme Court, after a full discussion of all of the pertinent cases, held that the requirements of the statute of a fee on the entire authorized capital stock was invalid under the commerce and due process clauses of the Federal Constitution.
The Court in the course of its opinion says:
"If the statute, reasonably interpreted, either directly or by its necessary operation, burdens interstate commerce, it must be adjudged to be invalid, whatever may have been the purpose for which it was enacted. and although the company may do both interstate and local business. * * *
"Looking, then, at the natural and reasonable effect of the statute, * * * it is clear that the making of the payment by the telegraph company, as a charter fee, of a given per cent of its authorized capital, representing, as that capital clearly does, all of its business and property, both within and outside of the State, a condition of its right to do local business in Kansas, is, in its essence, not simply a tax for the privilege of doing local business in the State, but a burden and tax on the company's interstate business and on its property located or used outside of the State. * * * It strikes at the company's entire business, wherever conducted, and its property, wherever located, and, in terms, makes it a condition of the company's telegraph right to transact purely local business in Kansas that it shall contribute, for the benefit of the State school fund, a given per cent of its whole authorized capital, representing all of its property and all its business and interests everywhere."
The case of International Paper Company v. Massachusetts, 246 U.S. 135, 38 S.Ct., 292, 62 L.Ed., 624, Ann. Cas., 1918-C, 617, held a statute of Massachusetts to be unconstitutional which required every foreign corporation upon filing its annual statement of condition to pay an excise tax of 1/50 of one per cent. on the par value of its authorized capital, with a minimum of $2,000.00, and another statute requiring the payment of an additional tax of 1/100 of 1 per cent. on its authorized capital in excess of $10,000,000.00. This holding was on the basis that the tax constituted a direct burden on interstate commerce as taxing all property of the corporation inside and out of the State of Massachusetts.
The case of Air-Way Electric Appliance Corporation v. Day, 266 U.S. 71, 45 S.Ct., 12, 14, 69 L.Ed., 169, involved the construction of a statute of Ohio imposing an annual fee on foreign corporations of a certain per cent. on the portion of the authorized capital stock of the corporation represented by property owned and used and business transacted in Ohio, with a further provision for a tax of a certain percentage upon the portion of authorized preferred stock and a tax of 5 cents per share upon the portion of authorized common stock where the common stock was of no par value.
The company was engaged in interstate business, but all of its property was located in Ohio. Of the authorized capital of 400,000 shares only 50,485 shares had been issued. The State undertook to assess the tax on the proportion of the total number of shares authorized to the value of plaintiff's property in Ohio, plus its local business in that State.
The Court in its decision says: "All plaintiff's business, intrastate and interstate, and all its property wherever located were represented by the 50,485 shares of stock outstanding. * * * The inevitable effect of the Act is to tax and directly burden interstate commerce of foreign corporations permitted to do business in Ohio, and engaged in interstate commerce, wherever the number of shares authorized, subject to the charge of 5 cents each, exceeds the number of outstanding shares attributable to or represented by the corporation's property and business in that State. * * * We hold that the Act violates the commerce clause."
The case principally relied upon by the defendant is Cudahy Packing Company v. Hinkle, 278 U.S. 460, 49 S.Ct., 204, 73 L.Ed., 454.
The statute of Washington involved required every local and foreign corporation to pay graduated fees not in excess of $3,000.00 on its authorized capital stock, and to pay fees on any increase in authorized capital. It also required annual license fees from all corporations based on authorized capital stock, such fees not to exceed $3,000.00.
The Cudahy Packing Company had an authorized capital of $45,000,000.00, less than $30,000,000.00 of which had been issued. The company carried on interstate and intrastate business in Washington and owned property in the State worth $40,000.00. The gross sales for the year in question were $231,750,000.00, of which amount $1,315,275.00 was made in Washington; less than one-half of that amount being intrastate business.
The Act was held unconstitutional in requiring permit and franchise taxes based on authorized capital stock, as imposing direct burdens on interstate commerce and exerting the tax authority of the State over property and rights wholly beyond the State boundaries and not subject to its jurisdiction. The Court further held that the maximum limitation of $3,000.00 could not save the constitutionality of the Act; that, if the Act burdened interstate commerce, the amount of said burden was unimportant.
This case seems to be the last expression of the United States Supreme Court on the subject and reviews and harmonizes prior decisions of the Court.
The authorities are voluminous on the point, but I do not deem it necessary to cite other cases, as the cases above cited refer to all of the leading decisions.
As the provisions of the Act of 1922 require the payment of domestication fees of a foreign corporation based solely on its authorized capital without regard to the issued and outstanding capital and with no consideration of the amount of its capital which is employed or involved in the business done within the State of South Carolina, I must hold that such provisions of the Act of 1922 are unconstitutional as constituting a direct burden on interstate commerce and as violating the due process clauses of the Federal and State Constitutions. While the provisions of Section 4 of the Act, fixing the fees to be paid for filing the annual statement, are not directly involved in this proceeding, it should be noted that such annual fees are also based on authorized capital.
4. The contention of the plaintiff is that, even if Sections 3 and 4 of the Act of 1922 be declared unconstitutional, this action may be sustained under the remaining Sections, 1,2 and 5 of said Act.
The Act contemplates the payment of the fees at the time of, and to effectuate the filing of the papers required to be filed. Section 1 requires the filing of a stipulation or declaration, and Section 2 provides "in addition to the said declaration, each corporation is hereby required to file in the office of the Secretary of State, together with the written stipulation or declaration aforesaid, copies of their charter," etc., so that the charter, etc., under Section 2 must be filed with the stipulation or declaration under Section 1. Section 3 provides that "for the filing of the papers above referred to in Section 1 the Secretary of State is hereby authorized and required to collect the following fees on authorized capital."
I construe this to mean that the declaration under Section 1 must be accompanied by the charter, etc., under Section 2, and that these papers cannot be filed without the payment of the fees. The Secretary of State is not only authorized but is required "for the filing" to collect the fees. Clearly he could not accept the papers for filing without the accompanying payment of the fees, as the statute so requires. I have heretofore found that the fees fixed by Section 3 of said Act were on an unconstitutional basis, and therefore the defendant could not be required to comply with an unconstitutional provision; and, as it could not file the papers without submitting to such unconstitutional exaction I hold that no penalty can be assessed against it for its failure to file the papers.
The penalty is for the failure to file the papers or pay the fees prescribed. This evidently meant that the penalty would be invoked for failure to file the papers and pay the fees, as I have construed the Act to mean that the two must be done at the same time.
The case of Crutcher v. Kentucky, 141 U.S. 47, 11 S. Ct., 851, 35 L.Ed., 649, is somewhat analogous to this situation. The State of Kentucky required every agent in the State of a foreign express company to procure a license, but provided that the agent could not procure a license until the company had filed a copy of its charter and a statement of its assets, for which a fee was charged. Crutcher was an agent of the United States Express Company, and without obtaining a license acted as an agent for said company. The Court held that the Kentucky statute was unconstitutional in that it was an attempt to burden intestate commerce and to limit the operations of the company in the State by the indirect method of a license for its agents which could only be obtained after the company itself filed certain papers and paid certain fees. As the company was doing only interstate business, it could not be required to file the papers and pay the fees.
The 1922 Act was passed for the purpose of regulating and fixing the fees for domestication of foreign corporations as clearly expressed in its title. There was no necessity to pass the Act for any other purpose, as Sections 4029 and 4030, Civ. Code 1922, required the filing of the identical papers required under Sections 1 and 2 of the 1922 Act.
One of the fundamental rules of construction of statutes is to ascertain the intention of the Legislature, and in doing this the purpose of the Act — the thing it was designed to accomplish — is important. As evidence of such intention, the title of the Act is persuasive.
"Where the mind labours to discover the design of the legislature, it seizes every thing from which aid can be derived; and in such case the title claims a degree of notice, and will have its due share of consideration." United States v. Fisher, 2 Cranch, 358, 386, 2 L.Ed., 304; Coosaw Mining Company v. South Carolina, 144 U.S. 550, 12 S.Ct., 689, 36 L.Ed., 537.
"Where the language of a statute is of doubtful import, the Court may consider the purpose of the Act as well as the title." Kaufman v. Carter, 67 S.C. 312, 45 S.E., 211, 212.
In considering whether a part of the Act may be discarded, it should be considered whether the Legislature would have passed the Act without the objectionable portions — whether there was any thing or purpose to be accomplished without such portions.
I cannot but conclude that the Act of 1922 must be considered as a whole, and that the portions thereof requiring domestication fees based on authorized capital are unconstitutional. Section 4 is subject to the same criticism as basing the annual fees on authorized capital. The Act cannot be subdivided, as the several sections are interdependent and inseparable. The provision for the fees is the paramount purpose of the Act, and, with that purpose removed, and the purpose of Sections 1 and 2 of the 1922 Act still provided by the Code provisions, they should not be allowed to stand alone, or with Section 5 of said Act, the penalty provision. I cannot conceive that the Legislature would have passed the 1922 Act as it would stand with the fee provisions eliminated, as it would simply have duplicated the Code provisions, with an added penalty provision which sought to insure prompt payment of the prescribed fees.
The suit is specifically for the penalty imposed by Section 5 of the 1922 Act — $10.00 per day for each day in default. As the Act of 1922 must fall, the present action cannot be maintained for a violation of Sections 4029 and 4030 of the Code, as the penalty imposed by the Code is $500.00 under Section 4032.
Having reached the foregoing conclusions, it follows that the judgment of this Court must be for the defendant, and that the complaint be dismissed, and it is so ordered.
Messrs. John M. Daniel, Attorney General, Cordie Page and J.I. Humphrey, Assistant Attorneys General, and S. M. Wolfe, for the State, appellant, cite: Right of State to regulate foreign corporation: 93 S.C. 109; 122 S.C. 222; 83 S.C. 418; 65 S.E., 433. What constitutes doing business: 246 U.S. 147; 62 L.Ed., 632; 38 S.Ct., 295; 76 S.C. 218; 5 R.C.L., 765; 84 S.C. 253; 65 S.E., 290; 73 L.Ed., 454; 216 U.S. 56; 216 U.S. 1; 223 U.S. 280. As to taxing interstate commerce: 246 U.S. 147; 62 L.Ed., 632; 38 Sup. Ct., 295; 231 U.S. 68; 58 L.Ed., 127; 34 Sup. Ct., 15; 150 S.C. 29; 180 U.S. 276; 204 U.S. 453; 210 U.S. 324. Construction of statutes: 235 U.S. 350; 178 U.S. 77; 258 U.S. 66; 122 S.C. 476; 41 S.C. 220; 42 S.C. 293; 166 S.C. 99; 100 S.C. 481; 138 S.C. 374; 86 S.C. 94; 166 S.C. 117; 164 S.E., 588; 76 L.Ed., 852; 146 S.C. 225; 143 S.E., 796; 125 R.C. L., 1060; 272 U.S. 425; 71 L.Ed., 331; 270 U.S. 466; 70 L.Ed., 688; 147 S.E., 122; 122 S.E., 162.
Messrs. D.W. Robinson and D.W. Robinson, Jr., as Amicus Curiae, cite: Unconstitutionality of an Act must be shown beyond reasonable doubt: 166 S.C. 117; 164 S.E., 588; 162 S.C. 218; 160 S.E., 596; 138 S.C. 445; 136 S.E., 757. Statutes in pari materia should be construed together: 166 S.C. 117; 77 A.L.R., 709; 36 S.W. (2), 973; 138 S.C. 374; 131 S.C. 1; 126 S.E., 747; 139 S.C. 107; 68 S.E., 905; 76 L.Ed., 685; 253 U.S. 103; 68 L.Ed., 191; 264 U.S. 157; 68 L.Ed., 615. Domestication statutes: 277 U.S. 548; 72 L.Ed., 983; 101 U.S. 356; 25 L.Ed., 890; 155 U.S. 647; 83 S.C. 418; 90 S.C. 547; 108 S.C. 369; 77 S.C. 443. As to foreign corporations: 239 U.S. 559; 60 L.Ed., 439; 282 U.S. 440; 75 L.Ed., 450; 93 S.C. 109; 257 U.S. 129.
Messrs. Benet, Shand McGowan, for respondent, cite: Constitutional question: 246 U.S. 135; 216 U.S. 1; 54 L.Ed., 355; Ann. Cas., 1918-C, 617; 127 U.S. 640; 141 U.S. 47; 278 U.S. 460; 73 L.Ed., 454; 245 U.S. 178; 62 L.Ed., 230. Separation of constitutional and unconstitutional parts of statutes: 52 F.2d 256; 94 A.S.R., 481; 6 R.C.L., 129; 257 U.S. 478; 278 U.S. 515; 73 L.Ed., 287; 264 U.S. 286; 92 S.E., 81; 30 S.C. 360; 76 S.C. 21; 109 S.C. 1; 87 S.C. 270; 112 S.C. 67.
December 1, 1933. The opinion of the Court was delivered by
It is regretted that a decision in this appeal has been delayed, but, owing to the importance of the case and an unfortunate misunderstanding which arose in the Court as to the preparation of the opinion, the delay was caused.
This action was commenced on October 29, 1931, by the State of South Carolina against Liggett Myers Tobacco Company, and was for the purpose of collecting, from the tobacco company, the sum of $34,200.00; this being the amount claimed under the domestication statute of this State for failing to comply with the terms thereof.
The answer of the defendant alleged that the Act was unconstitutional in that it denied to defendant equal protection of the laws and amounted to a taking of the property of the defendant without due process of law as opposed to the provisions of the Constitution of the United States and of the Constitution of this State (Const. S.C. Art. 1, § 5; Const. U.S., Amend. 14).
The answer also set up, as a partial defense, an allegation that the claim of the State was for a penalty, and that the two-year statute of limitations applied against said claim.
The Act under consideration was passed March 24, 1922 (32 St. at Large, p. 1023), and related to business being done by foreign corporations in this State, prescribing the method by which they could become domesticated, and providing for a penalty of $10.00 per day for failure to carry out the provisions of the Act. Further reference to the Act will be made later in this opinion.
The parties agreed to a certain stipulation as to the facts in the case; it being admitted that the allegations of the complaint were true to the effect that the defendant was a foreign corporation doing business in this State and had made no effort to comply with the terms of the statute.
Upon the pleadings and upon these agreed facts, the matter was heard by his Honor, Circuit Judge G.B. Greene, at Anderson, S.C.; a jury trial of all issues having been waived. The decree of the Circuit Judge sustained the defense interposed by the defendant, declared the entire Act unconstitutional and dismissed the complaint. From this order an appeal was taken to this Court upon exceptions which fairly present the issue to be decided. A full statement of the facts and of the holding of the Circuit Judge will be found in the decree of the Circuit Judge which will be reported with this opinion.
It seems to be conceded that Sections 3 and 4 of the Act are unconstitutional unless they can be saved by the doctrine of in pari materia. This seems to be sustained by the decisions of the Supreme Court of the United States, a few of them being as follows: International Paper Co. v. Massachusetts, 246 U.S. 135, 38 S.Ct., 292, 62 L.Ed., 624, Ann. Cas., 1918-C, 617; Western Union Tel. Co. v. Kansas, 216 U.S. 1, 30 S.Ct., 190, 54 L.Ed., 355; Postal Tel. Cable Co. v. Adams, 155 U.S. 688, 15 S.Ct., 268, 39 L.Ed., 311; Norfolk W.R. Co. v. Penn., 136 U.S. 114, 10 S. Ct., 958, 34 L.Ed., 394; Cudahy Packing Co. v. Hinkle, 278 U.S. 460, 49 S.Ct., 204, 73 L.Ed., 454; and numerous other cases of similar import. There seems to be considerable variance of opinion in the Supreme Court of the United States itself as to the tax relation existing between the States and foreign corporations. The Cudahy case, decided in 1929, is very nearly in point to the present case, but even in that case two of the Justices dissented, one filing a very strong dissenting opinion. However, a majority of the Court held that a statute of the State of Washington which required foreign corporations to pay filing fees and annual license fees, reckoned on authorized capital stock, was invalid as being a burden on interstate commerce and as depriving the packing company of its property without due process of law. This doctrine was followed in the more recent case of Anglo-Chilean Nitrate Sales Corporation v. Alabama, 288 U.S. 218, 53 S.Ct., 373, 77 L.Ed., 710.
Numerous earlier decisions of the Supreme Court of the United States are somewhat conflicting in their holdings, but, as construing the Constitution, we feel constrained to follow the decision in the Cudahy case, although the writer of this opinion is more impressed with the correctness of the dissenting opinion in that case than in the majority opinion. The cases above mentioned are very full in treating the question from both sides, and a synopsis of those cases is hardly necessary in this opinion.
In pari materia means in the same matter, and it is well recognized that, when two or more statutes relating to the same matter are ambiguous or inconsistent in their provisions, the Court may reconcile them into one harmonious whole. This is especially true in order to preserve the constitutionality of both Acts. Gregg Dyeing Co. v. Query, 166 S.C. 117, 164 S.E., 588. It is likewise especially true when both Acts are passed at the same legislative session, as these Acts were. Smith v. South Carolina State Highway Commission, 138 S.C. 374, 136 S.E., 487.
On March 1, 1922, there was approved by the Governor an Act passed by the General Assembly (32 St. at Large, p. 947), requiring certain corporations to make annual reports and to pay annual license fees and to provide methods of enforcement and rates. This Act applied to both domestic and foreign corporations. In the case of the latter a license fee was to be charged upon the value of the property of such corporation used within this State. It contemplated a license for business done, not for the privilege of engaging in business.
On March 24th of the same year (32 St. at Large, 1023) the Governor approved another Act, passed at the same session of the General Assembly, which had for its purpose the domestication of foreign corporations now or hereafter engaged in business in this State and to provide the necessary steps for business dealings. This Act contemplated fees for the privilege of doing business, not for business done. While the first Act imposed a license for business done within the State, the second imposed graduated fees upon the authorized capital of such foreign corporations.
For the doctrine of in pari materia to apply these two Acts must refer to the same matter. We are unable to say that a fee based upon authorized capital, whether issued or not, is equivalent to a license tax based upon property or business done within the State. Nor can we say that an Act referring to domestic and foreign corporations, requiring them to pay a license tax for business done in the State, is, as a matter of law, directly connected with a fee to be charged a foreign corporation for the privilege of entering the State for the purpose of beginning to do business. The one is for business done; the other is for preparing to do business. Being unable to see how the two Acts refer to the same matter, we are forced to the conclusion that the doctrine of in pari materia does not apply and that the Act cannot be sustained upon this ground.
While the Act refers to foreign corporations entering this State or already engaged in business in this State, it is reasonable to say that the prime object of the Act was applicable to foreign corporations preparing to engage in business in this State. Up to the time of engaging in business, such foreign corporation presumably had no property in the State nor was any part of its capital stock used in this State, for the reason that it had not, up to then, engaged in any business in the State. It would therefore be impossible, under these conditions, for the initial fee to be based upon the property held or business done within the State and the Act approved March 1st could not have a direct relation to the Act approved March 24th. The Act of March 1st undoubtedly had a basis upon which the tax could be levied whereas the Act of March 24th had no such basis, as no property was presumably then in the State and no business had been transacted.
Section 390 of the Code of 1932 fixes a limitation of two years on "an action upon a statute, for a forfeiture or penalty to the State." Section 5 of the Act of 1922 provides in the title for "penalties" and the body of the Act refers to "a fine." The two words, "fine" and "penalty," are frequently used in an interchangeable manner when the real purpose is for similar designation. They were so used in the statute now under consideration, although the true meaning of the words is very different. Ruling Case Law says that a fine is usually a sum of money exacted from a person guilty of a crime as pecuniary punishment, while a penalty is that which is demanded for the violation of a statute which may or may not be a crime. 21 R.C.L., 207. In this case the defendant is charged with the violation of a statute, the violation of which is not criminal, and the limitation of the statute, as to a penalty, is clearly applicable.
The Act of 1922 certainly refers to two distinct subjects, although only one subject is expressed in the title. The primary object of the Act was to give the State some authority over foreign corporations doing business or preparing to do business in this State without being domesticated. There are five sections of the Act which are applicable to this appeal and, in brief, they provide as follows:
1. A place and manner for service of papers.
2. Filing copies of charter, by-laws, etc., with the Secretary of State, together with names and addresses of officers and directors.
3. Collection by the Secretary of State of graduated fees upon authorized capital for filing papers.
4. Collection by the Secretary of State of graduated fees upon authorized capital for each annual statement.
5. Penalty for failure to file any of the papers or pay any of the fees.
Under the federal decisions, above referred to, it would appear that Sections 3 and 4 are unconstitutional, but there can be no such objection to Sections 1, 2, and 5 unless the word "or" in Section 5 be construed "and," as held by the Circuit Judge. It is quite apparent that the use of the word "and" in the penalty provision would connect the two grounds for the penalty into such an indivisible union as to render the entire Act void. The word "or," used in the Act, permits the imposition of the penalty if either condition should exist. The rule seems to be well recognized that the Courts would prefer to sustain the constitutionality of an Act rather than to destroy it, and to this end will strike out objectionable words and insert others, or construe a word to mean other than its ordinary meaning, if by so doing the Act may be preserved, but we know of no law which permits the Court to change the wording of a statute in order to destroy such statute. And this is the result if "or" be construed as "and" in this Act.
But it may be said that to make a complete Act from Sections 1, 2, and 5 would produce an Act without a title; the title of the Act being "An Act to Provide a Schedule of Fees for The Admission of Foreign Corporations to do Business in The State." This, we must admit, is true. If the question had been raised by the respondent and the Court below had passed upon it, it would have been properly before this Court, but such is not the case. Nor was the question raised by the respondent as an additional ground for affirmance of the decree. It is not within the power of this Court to raise questions, other than jurisdictional, for the first time and decide them suo motu.
The result of the views herein expressed may be summarized as follows:
(1) Sections 3 and 4 of the Act must be stricken out as opposed to the Federal Constitution.
(2) Sections 1, 2, and 5 are retained as forming a complete Act, the violation of which is the basis of the complaint.
(3) The two-year statute of limitations applies to the demand for penalty.
(4) There are now no valid filing fees or annual statement fees under this Act and will not be until the General Assembly may make the necessary corrections in the law.
As sustaining the view that Sections 3 and 4 may be stricken out and that a valid statute will remain, reference is made to the following quotation from Gillespie v. Blackwell, 164 S.C. 115, 161 S.E., 869, 872: "Where a part of a statute is constitutional and a part unconstitutional, the former may be sustained in proper cases while the latter falls. Such a result, however, depends upon certain conditions, namely: (1) That the constitutional part of the Act is capable of being severed from the unconstitutional part so that each part may be read and may stand by itself; (2) that the striking out of the unconstitutional part will not destroy the apparent intention of the Legislature in its enactment of the law; and (3) that it is not necessary to insert words or terms to separate the constitutional part from the unconstitutional part and to give effect to the former alone."
The judgment of this Court is that the judgment of the Circuit Court be reversed and that the plaintiff have judgment against the defendant as herein expressed.
MR. CHIEF JUSTICE BLEASE, and MESSRS. JUSTICES STABLER, CARTER, and BONHAM concur.