Untitled Texas Attorney General Opinion ( 1972 )

August 29, 1972
Honorable Byron Tunnell Opinion No. M-1201
Chairman
Railroad Commission of Texas Re: Consideration of cir-
P. 0. Drawer 12967, Capitol Station cumstances under which
Austin, Texas 78711 payment may be owing
to the Railroad Commission
of Texas of lC% of consider-
ation for transfer of certifi-
cate of convenience and
necessity (common carrier
and Specialized Motor
Carrier) (Art. 9llb,
Dear Mr. Tunnelk Sec. 5 and Sa (a), V. C. S. ).
You request our opinion concerning three questions of law under the
Texas Motor Carrier Act, Article 911b. Vernon’s Civil Statutes.
In relation to the first question, you advise us of the following facts:
A corporation which is not a motor carrier extended credit to a motor
carrier and took a security interest in the debtor’s equipment and its
specialized motor carrierl certificate. : When the debtor motor carrier
was adjudicated a bankrupt, the bankruptcy referee transferred the certifi-
cate to the corporate creditor. Although not a motor carrier,’ the secured
corporate creditor obtained approval from the Railroad Commission pur-
suant to Article 911b, Section 5a (a), for the transfer of the certificate
from the bankrupt motor carrier to itself and paid the 1% transfer tax
rt=m~iredrtnrter Arri~ln011h Canclnr. C- lo\ n.n CnmnrnrP r+dicrrt
1~1 alki p,alu uit: requirea luy, transrer tax upon me purcnase prrce.
You ask us .whetber the transfer of the certificate from the bankrupt
.motor carrier to the corporate creditor in satisfaction of the security in-
* terest is a transfer within the scope of Article 911b, Section Sa (a).
In order to qualify as a transferee .of a motor carrier certificate, it
must be shown that
“(1) the transfer is in good faith, (2) the successor to the
certificate is able and capable of continuing the . *
. *
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Hon. Byron Tunnel& page 2 (M- 1201)
operation of the equipment in such manner as to
render the services demanded by the public necessity
and convenience.. . and (3) the proposed transfer is
in the public interest. ” Brown Express, Inc. v.
Railroad Commission, 415 S. W.‘2d 394, 396 (Tex.
Sup. 1967) (bmphasis added. ); also Article 911b,
Section 5a (a), V. C. S.
Cnly when such a showing can be made is the recipient of the certificate
a “transferee” within the contemplation of Article 911b, Section 5a (a).
Because it is not a motor carrier, the corporate creditor in the present
situation may be unable to make the required showing of ability and
capability to continue service under ‘the certificate.
Nevertheless, the corporate creditor may exercise control over the
certificate without being a transferee in the sense of Article 91lb, Section
Sa (a). It is our opinion that the’nature of this control is analogous~to
the control of a certificate that may pass by virtue of the merger or pur-
chase of a business association which holds such a certificate. There-
fore, the corporate creditor is within the scope of Secdon 17.5, Motor
Transportation Regulations of the Railroad Commission of Texas
(April 29, 1970), which specifies, as here pertinent.
“(a) It shall be lawful to acquire control over a
motor carrier or for any carrier (whether one or
more) to acquire control over another carrier (whether
one or more), whether through ownership’of stock, merger,
consolidation, or otherwise.
***
‘(c) The term ‘control’ as used in this section shall
include, without limitation, actual control as well as
legal control, whether maintained or exercised through
or by reason of the method of or circumstances sur-
rounding organization or operation, through or by
common directors, officers, or stockholders, a voting
trust or trusts, a holding or investment company or
-companies, or through or by any other direct or in-
direct means: and shall include the power to exercise
control. ” Motor Transportation Regulations, supra,
Section 17.5 (a), (c).
The corporate creditor is thus subject to the reporting requirement of
part (b) of the regulation:
-SRRl-
Hon. Byron Tunnell, page 3 ~’(M- 1201)
“(b) When a transaction is proposed under subsection
(a), the person, carrier, or carriers acquiring con-
trol shall present written nodficadon of such acquisi-
don to .the Commission by filing with the Director such
nodficadon which should state the manner in which con-
trol is being acquired and list any changes in officers,
directors or shareholders. ” ‘Motor Transportation Re-
gulations, supra, Section 17.5 (b).
If such a creditor applies under Article 911b. Section 5a (a), for a
transfer of the certificate to him, the Railroad Commission should decline
jurisdiction to approve the transfer and should require the creditor to
comply with Sec%on 17.5 (b), Motor Transportation Regulations, supra.
Therefore, it is our opinion that the transfer of the motor carrier
certificate from the bankrupt motor carrier to the corporate creditor which
is not a motor carrier in satisfaction of the security interest is not a transfer
within the scope of Article 911b, Section Sa (a).
In relation to the second question, you provide us with these facts:
A motor carrier certificate is transferred between three corporations,
the original holder, the intermediateholder (transferor) and the final
holder (transferee). The transferor made a promissory note to the origi-
nal holder as consideration for the transfer of the certificate to it, and
obtained Railroad Commission approval, ‘paying the 10% tax on the amount
of the note as required by Ardale.‘911bi: Section 5a (a). The transferee
contracted to purchase the certificate from the transferor. The contract
recites that the consideration for this transfer consists, in part, of the
transferee’s assumption of the primary obligation to pay the balance of
the promissory note to the original holder. The transferee has applied
to the Railroad Commission, ‘under Article 911b, Section 5a (a), to approve
the transfer of the certificate to it.
You ask us whether the amount of the obligation which the transferee
.has contracted to assume is subject to the losV,tax required by Article
911b, Secdon 5a (a). We conclude that it’is.
. This situation is unlike that presented in your first question,. where we
found that there was no sale or tranfer within the scope of Article 91lb,
Section 5a (a). Here, there is an outright sale of the motor carrier
certificate, clearly within the contempladon of the statute.
‘*
-5882-
. .
Hon. Byron l%nnell, page 4 (M- 1201)
By assumpdon of the obligation entered into by the transferor, the trs
feree became primarily liable on the promissory note, and the transfer01
obligation receded to that of a surety. Straus v. Brooks, 136 Tex. 141, :
148 S.W.2d 393, 396 (1941). But for the fact that the original holder ma
look to the transferor as surety after pursuing the transferee upon the
latter’s default, (V. C. S. , Business and Commercial Code, Section 3.415
comment 1) the present situadon cannot be distinguished from a parallel
situation in which the transferee might make a promissory note payable t
the transferor for the same amount as the obligation assumed in this cast
In the parallel situation, the amount of the promissory note would clearly
be subject to the 10% tranfer tax under Article 911b, Section 5a (a). We
do not believe that there is sufficient difference between the two cases to
provide a basis for distinguishing them.
Therefore, it is our opinion that the amount of the obligation which th
transferee assumed is subject to the 18 tax, as it is part of the “amount
paid as consideration” for the transfer. Article 91lb, Section 5a (a).
Regarding your third quesdon, you provide us with the following facts
One corporation has purchased all of the outstanding shares of the capital
stock of another corporadon. One of the assets of the latter corporation
is a motor carrier certificate.
You ask us whether the Railroad Commission has jurisdiction under
Article 9llb, Section 5, to approve the transfer of the motor carrier
certificate and to impose the 1% transfer tax. We believe that it does
not, because no transfer within the scope of Article 911b, Section 5a (a)
takes place.
In our Texas Attorney General Opinion No. O-2644 (1940), the Direct1
\ of the Motor Transportation Division of the Railroad Commission request
an opinion whether Article 911b, Section 6 (f), Vernon’s Civil Statutes,
conferred jurisdiction upon the Railroad Commission to approve applica-
tions for the sale and transfer of the capital stock in corporations hold-
ing certificates issued under the authority of Article 911b. We were then
of the opinion that no such authority existed, reasoning that a sale of the
capital stock of the corporation was not a sale or transfer of the assets,
since:
.
“[t]he tangible property of a corporation belongs to the
corporation as such, the stockholders merely owning
intangible interests in the corporate business. Turner
v. Cattlemen’s Trust Co., 215 S.W. 831 [Tex. Comm.
App. 1919, opinion adopted]; Automobile [Mortgage] Co.
-5883-
Hon. Byron Tunnell, page 5 z (M- 1201) :
v. Ayub, 266 S.W. 134 [Tex. Gomm. .App. 1924,
opinion adopted]. ” Texas Attorney General Opinion
No. O-2644,‘eatpage 3. ”
.‘. . .
Although we failed to find the jurisdictional basis that the Railroad Com-
mission then sought, we noted ‘that
“[ijf the service is not kept up or the permit is
otherwise abused remedies are provided in Article
911b. See section 12 (b).“’ Texas Attorney General
Opinion No. O-2644,,,- at page 3.
Necessary to’the conclusion in our former opinion was the determina-
tion that the assets of the corporadon’are separate from the interest ob-
tained by the purchase of the stock in the corporation so that, effectively,
there was no transfer of the certificate. We reaffirm this holding.
Not only does the Railroad Commission have recourse to the corrective
provisions mentioned in our prior opinion, but we believe that this case
falls squarely wi,thin the scheme of Motor Transportation Regulations of
the Railroad Commission of Texas, Section 17. 5(ApriTZP, 1Y/U), set
forth above. Subsection (a) provides that it is lawful to acquire control
over a motor carrier throu&the ownership of stock. Subsection (c)
defines the “control” within its scop~,~ that which may be maihtained or
exercised through, inter alia, any direct or fndirect means, which we
believe to include the purchase of the outstanding capital stock of a cor-
poration. This leads. us to ihe conclusion that the corporation in the
instant case is subject to the reporting requirement of Subsection (b)
of the regulation. ’
Therefoye, we are of the,opinion that the Railroad Commission is
without jurisdiction, under Article 91lb, Section 5, to approve a trans-
fer of the motor carrier certificate or to impose a transfer tax of lo%,
since there is no transfer of the certificate; Nevertheless, the pur-
chaser of the capital stock of the corporation is subject to the pro-
visions of Section17.5 (b), Motor Transportation Regulations, supra.
SUMMARY
.
When a corporate creditor, which is not a motor carrier,
receives a motor carrier certificate from its debtor’s bankruptcy
trustee in satisfaction of the creditor’s security interest, the
creditor is not a “transferee” of a motor carrier certificate
7 -5884-
,
Hon. Byron l’unnell, page 6 (M- 1201)
within the scope of Article 911b. Section 5a (a), V.C. S. In
order to become a transferee within the statute, the applicant
for transfer approval must demonstrate his ability to fulfill
the demand which justified the original issuance of the cerdfi-
cate. Although it may be unable to make such a showing, the
creditor still exercises control .over the certificate and is sub-
ject to the reporting requirement of Section 17.5 (b). Motor
Transportation Regulations.
Where part of the stated consideration for the sale of a
motor carrier certificate is the purchaser’s assumption of
the primary obligation on a promissory note. made to another
by his vendor, the amount of die obligadouassumed is sub-
ject to the 10% tax imposed by Article 9llb, Section 5 (a),
v. c. s.
A purchase of all of the capital stock of a corporate motor
carrier is not a purchase of its assets, but only a purchase of
ownership in the corporation. Therefore, there is no taxable
transfer, within Article 911b. Section 5, V. C. S., when the
capital stock of a corporate motor carrier is .purchased by
another corporation. ~There is; nevertheless, a transfer of
.control of the certificate within the scope of Section 17.5 of the
Motor Transportation Regulations. Thus, the purchaser must
comply with the repordng requirement of Secdon 17.5 (b).
Prepared by Rex H. White, Jr..
Assistant Attorney General
APPROVED
OPINIONCOMMITTEE
Kerns Taylor, Chairman
W. E. Allen Co-Chairman
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