of any legislative purpose that the Central Railroad Company should cease to exist. The Macon and Western Railroad Company was undoubtedly intended to go out of existence; for provision was made for the surrender of all the shares of its capital stock; and without stockholders it could not exist. The existence of such a provision in regard to the one company, and its absence in regard to the other, is a strong argument in support of the conclusion that it was not intended the Central Railroad and Banking Company should surrender its charter, or dissolve. And still more, that company was authorized to increase its capital, plainly for the purpose of making room for the new shareholders entitled to come in by virtue of their ownership of shares of the dissolved company's stock. The language of this provision is significant. It is, that, upon the union and consolidation, the capital stock of the Central Railroad and Banking Company "shall not exceed the amount of the authorized capital thereof, and the present authorized capital of the Macon and Western Railroad Company added thereto." This refers plainly to the corporation which it was contemplated should exist after the union and consolidation of the two companies. What, then, was intended by the expression "authorized capital thereof;" that is, authorized capital of the Central Company? Had this reference to a new company? Certainly not; for no new company had any authorized capital. It must have referred, therefore, to the old Central Railroad and Banking Company, in existence when the act was passed; and that was the company the amount of whose stock was to be limited after the union had taken place. That company was to continue in existence, and its capital was restricted to the amount of what had been previously authorized, augmented by a sum equal to the capital of the absorbed company.

* It is of no importance to the inquiry, * that the Central acquired under the act new and enlarged powers as well as new stockholders. It was authorized to own and operate a railroad from Macon to Atlanta; to operate it as its own. It was also authorized to increase its capital stock. But the gift of new powers to a corporation has never been thought to destroy its identity, much less to change it into a new being. *

Our opinion, therefore, is, that the charter granted to the Central Railroad and Banking Company of Georgia, by the act of 1835, was not surrendered by its action under the later act of 1872; that it still has all the rights that were originally conferred upon it, holding them under the charter originally granted to it; and, consequently, that it is not in the power of the legislature to impose upon it a greater tax than one-half of one per centum of its net annual income.

The obvious purpose of the act was to vest in the Central Company the rights, privileges, immunities, property, and franchises which had belonged to the Macon and Western Company; not to enlarge those rights, or to bestow new immunities. If, therefore, the Macon and Western held its franchises and property subject to taxation, the Central, succeeding to the franchises and property, holds them alike subject. It took them just as they were, acquiring no additional or enlarged rights as against the State.

In Railroad Co. v. Georgia, 98 U. S. 359, it appeared that in April, 1863, the legislature of the State of Georgia passed an act whereby two railroad companies were empowered to consolidate their stocks upon such terms as might be agreed upon by the directors and ratified by a majority of the stockholders; and the act provided that, when so consolidated, they should be known as "The Atlantic and

Gulf Railroad Company," with a proviso that nothing therein contained should relieve or discharge either of them from any contract theretofore entered into by either, but that this company should be liable on the same. By the second section it was enacted that the stockholders of said consolidated railroad companies, by such corporate name, and in such corporate capacity, should be capable in law to have, purchase, and enjoy such real and personal estate, goods, and effects as might be necessary and proper to carry out the objects therein specified, and to secure the full enjoyment of all the rights therein and thereby granted, and by said name to sue and be sued, plead and be impleaded, in any court of competent jurisdiction; to have and use a common seal, and the same to alter at pleasure; to make and establish by-laws, and generally to exercise corporate

powers.

The third section of the act declared that the several immunities, franchises, and privileges granted to the said Savannah, Albany and Gulf Railroad Company, and the Atlantic and Gulf Railroad Company, by their original charters and the amendments thereof, and the liabilities therein imposed, should continue in force, except so far as they might be inconsistent with the act of consolidation. The court said:

It is conceded that under this act a consolidation took place. It is, therefore, a vital question, What was its effect? Did the consolidated companies become a new corporation, holding its powers and privileges as such under the act of 1863? Or was the consolidation a mere alliance between two pre-existing corporations, in which each preserved its identity and distinctive existence? Or, still further, was it an absorption of one by another, whereby the former was dissolved, while the latter continued to exist? The answer to these inquiries must be found in the intention of the legislature as expressed in the consolidating act. We think that intention was the creation of a new corporation out of the stockholders of the two previously existing companies. The consolidation provided for was clearly not a merger of one into the other, as was the case of Central Railroad & Banking Co. v. Georgia, 92 U. S. G65. Nor was it a mere alliance or confederation of the two. If it had been, each would have preserved its separate existence, as well as its corporate name. But the act authorized the consolidation of the stocks of the two companies, thus making one capital in place of two. It contemplated, therefore, that the separate capital of each company should go out of existence as the capital of that company; and, if so, how could either have a continued separate being? True, the proviso to the first section declared that nothing therein contained should relieve or discharge either of the companies from any contract theretofore entered into by either, adding: “But this company [that is, the company created by the act] shall be liable on the same." It is thus distinguished between the two original companies and the one contemplated to be formed by their consolidation. And the proviso would have been quite unnecessary, had it not been thought by the legislature that the consolidation would work a dissolution of the amalgamated companies. Hence it was considered necessary to preserve the rights of parties who might have contracted with them.

Only their contracts were mentioned in the proviso, and that in order to authorize a novation. The third section continued in force the several immunities, franchises, and privileges granted by the original charters and the amendments thereof, and the liabilities therein imposed, but plainly for the benefit of the consolidated companies. Why speak of original charters, if a later charter was not intended by the act? That such was the intention appears still more clearly in the third section. That conferred upon the consolidated stockholders complete corporate powers. It granted to them, when consolidated, not only a corporate name, but the right under that name to acquire and hold property, to sue and be sued, to have a common seal, to make by-laws, and generally to do every thing that appertains to corporations of like character. This full grant of corporate power must have been intended for some purpose. What was it, if not to create a corporation? For that purpose it was amply sufficient. For any other it was unmeaning. If the two original companies were to continue in being, if it was not contemplated that they should be dissolved by consolidation, a new grant of corporate power and existence was unnecessary. They had it already.

Looking thus at the legislative intent appearing in the consolidation act, we are constrained to the conclusion that a new corporation was created by the consolidation effected thereunder in the place and in lieu of the two companies previously existing, and that whatever franchises, immunities, or privileges it possesses, it holds them solely by virtue of the grant that act made. That generally the effect of consolidation, as distinguished from a union by merger of one company into another, is to work a dissolution of the companies consolidating, and to create a new corporation out of the elements of the former, is asserted in many cases, and it seems to be a necessary result.

These are the two leading cases upon the subject: When does a corporate charter continue in existence? In the one it was held that the act of consolidation worked a merger under which one of the corporations continued its existence with the additional rights, privileges, franchises, and liabilities of the merging corporation. In the other it is found that a new corporation came into existence. Under which of these two cases does the present situation fall?

The act which we must consider, which is set out in full in the opinion in the Musser appeal, provides that any two or more national banking associations may consolidate into one under the charter of either existing bank, on terms to be agreed upon, subject to certain limitations. Section 2 provides that associations consolidating with another association shall not be required to deposit money for their outstanding circulation, but that their assets and liabilities shall be reported by the association with which they have consolidated, and further provides that all property rights of the national bank so consolidated shall be deemed transferred to the bank into which it is consolidated. There is here the plain expression of an intention that one or more existing corporations shall be merged into another existing corporation under the charter of the latter, which is to acquire the assets and assume the liabilities of the former. The statute uses the word "consolidate " and not "merge", but this was

likewise true in the case of Central Railroad & Banking Co. v. Georgia, supra, and most, if not all, of the other cases cited above. It will also be noted that nowhere in the statute is there any grant of corporate power to any new corporation, one of the principal distinctions drawn by the Supreme Court between the cases of Central Railroad & Banking Co. v. Georgia, supra, and Railroad Co. v. Georgia, supra. In our opinion the present situation falls squarely within the decision of the Supreme Court in the first of these cases. We must conclude that the Mechanics-American and St. Louis Union National banks were merged into The Third National Bank, the corporate existence of which continued under its new name.

But it does not follow, because the corporation which merged was the same legal entity as the corporation in which taxpayer held stock before the merger, that no taxable gain results. Section 202 (b) of the Revenue Act of 1918 provides as follows:

When property is exchanged for other property, the property received in exchange shall for the purpose of determining gain or loss be treated as the equivalent of cash to the amount of its fair market value, if any; but when in connection with the reorganization, merger, or consolidation of a corporation a person receives in place of stock or securities owned by him new stock or securities of no greater aggregate par or face value, no gain or loss shall be deemed to occur from the exchange, and the new stock or securities received shall be treated as taking the place of the stock, securities, or property exchanged.

When in the case of any such reorganization, merger, or consolidation the aggregate par or face value of the new stock or securities received is in excess of the aggregate par or face value of the stock or securities exchanged, a like amount in par or face value of the new stock or securities received shall be treated as taking the place of the stock or securities exchanged, and the amount of the excess in par or face value shall be treated as a gain to the extent that the fair market value of the new stock or securities is greater than the cost (or if acquired prior to March 1, 1913, the fair market value as of that date) of the stock or securities exchanged.

Under the statute the same result follows a merger as follows a consolidation, and it remains only to determine whether there was an exchange of property for other property so that a taxable gain resulted.

It is contended that, since the corporate identity is preserved, the new stock is the equivalent of a stock dividend and is not subject to tax under the decision of the Supreme Court in Eisner v. Macomber, 252 U. S. 189. On first impression this reasoning appears sound. However, an examination of the decisions dealing with the effect of mergers convinces us that the transaction differs from a stock dividend, both in legal theory and in substance.

Under the agreement the taxpayer received 340 shares of stock in place of 255 shares previously owned. The shares received and the shares surrendered evidenced interests in different properties.

Instead of owning 255/25,000ths, he now owns 340/100,000ths, or 85/25,000ths, reducing his pro rata voting interest from approximately 1 per cent to approximately one-third of 1 per cent. This is not the result which follows a stock dividend.

It is said that the increase in the property of the corporation and the decrease in the pro rata holdings arise from what is, in effect, a purchase of additional property for stock, and that an increase in the assets of a corporation is not a transaction which subjects the stockholders to tax. The effect of the merger is more than a purchase of assets. The assets are not taken as they would be by a purchaser for value, but are subject to all infirmities in title and all liabilities of the merging corporation, whether or not made known to the corporation which acquires these assets. People's National Bank v. Board, 103 Pac. 682; Collinsville National Bank v. Esau, 74 Okla. 45; 176 Pac. 514. The stockholder has no right to subscribe for the additional shares to be issued, as would ordinarily be the case, but, on the other hand, a stockholder who does not consent to the merger has the right to have his stock appraised and to receive its value in cash. None of these results follows from the purchase of assets or from the declaration of a stock dividend. They follow from the fact that, while in legal contemplation the corporation continues its existence, it has, in effect, taken a step not authorized by its charter whereby its stock, stockholders, assets, liabilities, and powers are enlarged. When it emerges, the rights of the original stockholders have been changed in material respects and it is because this is so that a taxable transaction results.

The two most recent decisions of the Supreme Court which appear to have a bearing upon the case are Weiss v. Stearn, 265 U. S. 242, and Marr v. United States, 268 U. S. 536. Both of these arose out of reorganizations by which the assets of a corporation were transferred intact to a new corporation. In Weiss v. Stearn, it was held that no taxable transaction took place. In the course of its opinion the court says:

We cannot conclude that mere change for purposes of reorganization in the technical ownership of an enterprise, under circumstances like those here disclosed, followed by issuance of new certificates, constitutes gain separated from the original capital interest. Something more is necessary-something which gives the stockholder a thing really different from what he theretofore had.

In Marr v. United States, the court, holding that a taxable transaction resulted from the reorganization under consideration, said:

In Weiss v. Stearn, as in Eisner v. Macomber, the transaction was considered, in essence, an exchange of certificates representing the same interest, not an exchange of interests.

In the case at bar the new corporation is essentially different from the old.