l.* /,’ T.’
OFFICE OF THE ATTORNEY GENERAL OF TEXAS
AUSTIN
.
Hon. SMnep Latham
Seoretary of State
Austin, Texas
Dear Sir: \ \
:’
. Opinion No, O-5988
Re: Under the Paots, 9
“renewal” note
for franchise
You subdit for the the
question, contained in your le 24, 1944, reading
as follows:
“A franohise~ tax re filed with this
shows an outstanding
en.ting the unpaid
G0,000,00,
of the report under
ion’ the date -Jandary 1,
1935, is QkWf Schedule x under the
Extens.ion or Refinanoel the
It was shown by the tax-
E that t.+ note. was ‘payable‘-
ormat ion’ shown on the
unpaid balanoe of
taxable ,item under Article 7084, R. C. S,
being an Indebtedness evidenced by a note
an one year which had been renewed since
and served notice on tha taxpayer
that an additional ?d of $977.00 was due by reason of suoh
note.
*Xvidenoe has now been subnitted to this office which
the taxpayer offers to reauoe to affidavit form to be executed.
by an authorized representative of the colnpsny having knowledge
of all the facts, trhich shows that an ori&innl.:note was ex-
eouted on January 1, 1935, in the sum of ;~19,000,000.00.
Hon. SiUney.Latham, page 2
This advanoe of money was made from the parent company of
whioh the taxpayer is a wholly own&l subsidiary. On
December 31, 1943, another note was execute8 .oovering
$~~,~OO,OOOCOO, representing the unpaid balanoe of the
original obligation. Copies of the two notes .are enolosed
herewith, omitting only the names of the maker and payee.
Kit fs to be noted that the only difference in the
language of the’two notes is that the phrase ~‘provitiions
.-for insuranoe and for contingent liabilities’ is aaaea in
the tote of December 31, 1943, and the seritence appearing
in the original note reading ‘In case of .a~y ilispute or
uncertainty in this respect, the determination made for
Fedesal income tax purposes shall govern’ is ,deletea.
A slight ohange wa8 nade in the last paragraph vihich appears
to be of no consequonoe in this inquiry,
t
“The ta’xpayer represents that the note of Deoenber 31,
1943, was executed not -as a renewal of ths original indebted-
ness, but for the sole and only purpose of clarifying the
method of computing net inoose for purposes of interest
payments on the note and to compute the interest entirely
by a msthoii agreed upon between the parties rather than
according to the regulations governing Fedjral income taxes.
It is further represontea that the interest based upon net
profits had always been oomgutsd under the original note
in the manner now ?rovidet?t Under the note cf Deoember 31,
1943, and that. no dispute had ever arisen between the maker
and payee of the note such as would neoessitnte resorting
to Federal income tax regulations. The taxpayer further
contenas that it has receive8 no financial gain or benefit
by reason of the exeoution of the latter note an& that no
demand for payment of the original note haa been made prior
to the execution of the latter note, and that suoh dazana
hris not shoe been made at any time.
“In the light of the above facts, will you please advise
th~is Departrlent upon the following inquiry:
HIS the note dated Deoenber 31, 1943, a renewal of the
note date& January 1, 1935, as the term *rens7id1 is used in
Subdivision (a) of Article 7084 so as to renc?er~ the note
taxable for franchise tax purposes?*
Under the oiroumstanoes disolosed by your letter we
are to determine if the note of Deoedber 3&, 191!3, in the sum of
~16,500,000.00, representing the unpaid baltince of the note of
Hon. Sidney Latham, page 3
January 1, 1975, for ~19,000,000,00, Is a renewal of said note
as that term is used in Subaeotlon a of Artiole ‘7.084, R. C. S,.
If it is, then said renewal note must be inoluded by the oor-
poration in dotermining the franchise tax due by it. It is
helpful Ii we have the statute before us, and espeoially that
portion of it whioh we have undersoored, It reads as follows:
“(a) Exoept as herein provided, every domestio and
foreign corporation heretofore or hereafter chartered or
authorized to do buslnoss in Texas, or doing business in
Texas, shall, on or before May 1st of eaoh year, pay in
aavanoe to the Seoretary, of State a franohlse tax for the
year following, baaed upon that proportion of the outstand-
ing oapital stock, surplus and undivided profita, plus the
amount of outstanding bonus, notes and debentures, (outstand-
ing bonas, notes, and debentures shall include all written
evidenoea of indebtedness which bear a maturity date of,one
(1) year or more from date of Issue and all such instruments
-which bear a maturity date of less than on%-(i) year from
date of issue but which rspresent indebtedness ~wh-ich has
remained outstanding for a period of one (lY)i%Zyoaror m-ore
$1: from date of inception, but which have been renewed or
ztended, or refinanoed by the issuanoe of other. evidences
of the indebtedness, whether to the same or other parties
and it is further provided that this term shall not inolude ”
instruments whiah have previously been classified as surplus)
. . . ” (Rmphasis ours)
That the note for $l9,000,000.00, dated January 1, 1935,
has remained outstanding for a period of more than one year is
patent on the face of it, hence this need not give us further
concern. We, ~therefors, turn our attention to the question of
whether or cot the note for $16,500,000.00, rspresenting the ,
balance due on the $19,000,000.00 note, as of December 31, 1943,
is a ren6wal of this unRaia balance. Vhat is a renewal of a note?
The Legislature has not elcoted in its,use of the Eerm Venewal”
to define its meaning as used In the not; hence the oommonly
accepted definition in a comercial sense is the one that should
be adopted; The Supreme Court of South Dakota, in the case of
Wilcox v. XoCain Land and Live Stock Co., et al., 159 N. I?. 49,
defines it thus: “A renewal of a note is the giving of a new note
in the place of t ho former one.*
In Clifford V. United States Fidelity Guaranty Co.,
(Supreme Court of Oklahoma) 249 Rr 938, it is said:
.
‘*
,
t
(
Hon. Sldaey Latham, page 4
I
"The courts have also held that the word ‘renew* or
trenenal,' as applied to or used in notes, certificates of
deposit, and bills of exchange ilzplies, and for that matter
requires the exocut,ion of a new instrumnt; in other words,
the oroation oS a new oontraot. Parchen v. Chessman, 53
)Zont. 430, 164 P. 531; gponhaur v. Kalloy, 21 Ind. App. 287,
52 N; E. 245; state v. icider, 163 Iowa, 319,163N. 7. 698;
I'iiloox v. HcCain Land C: Live Stock Co., 37 S. D. ,511, 159
N. 71,49."
A definition perhaps no& oomprehensive then the two
noted above, Is found in the Case of Grace &*Co, v, Strickland;
.(~upr0ne Court OS North Carolina) 35 A. I,. R. 1296, in the
following language: '
n As applied to negotiable instruments the word
++ *ssncvrLil; & 'renewed' signifies more than the substitution
of one obligation for another. It means the substitution
In plaoe of one engsgemeht of a new obligation on the same
terms and oanditions; that Is, the m-establishment of a
partioular oontmct 'for ahother period of tim."(~iting
*;.. 0a 3 e 3 )
- =-~
me find the following language in King v. Xdeil,et al.,
26 S. X. (2d) 365 (Court of Civil Appeals of Ceorgia)r
- ". . , The term *rene?val,* as applied to a note, means
the reestablisime::t of the particular. oontraot for another
period OS tim. There my be a change of parties or an
. increase of' security, but there is'no renewal unless the
obligation 18 the mm. A renewal, as distinguished from
a nsre extension, 13 usually evidenoed by a ne:v note or
other lnstrumnt.~ 8 C, J. p. 425 0626. Se; also 10 C.J.S.:
~11s and l