On appeal from Division of Tax Appeals.
McGeehan, Donges and Colie. The opinion of the court was delivered by McGeehan, S.j.a.d.
[1 NJSuper Page 287] A writ of certiorari was allowed by the former Supreme Court to review a judgment of the Division of Tax Appeals of the Department of Taxation and Finance affirming the assessment of $689,705.14 levied for the
year 1946 on the shares of capital stock of the National Bank of New Jersey.
In 1934, following the national bank holiday, the bank was recapitalized. Its articles of association were amended to provide for 50,000 shares of preferred stock "A", each share having a par and retireable value of $15, and 10,000 shares of preferred stock "B", each share having a par and retireable value of $50, and these shares were issued. All the preferred stock "A" was purchased by the Reconstruction Finance Corporation at its par and retireable value of $15 per share, and all the preferred stock "B" was purchased by the directors of the bank. The result was that $1,250,000 was paid into the capital of the bank for the purchase of these preferred shares, and this additional capital was reflected immediately in the statement of the bank's condition by including "par value preferred 'A' stock $750,000, par value preferred 'B' stock $500,000."
In 1937 bank examiners from the office of the Comptroller of the Currency insisted that the bank charge off its books certain assets of the bank which had resulted in losses. The capital structure of the bank at that time was such that a charge-off of these assets would have resulted in a serious impairment of the stated capital. The Reconstruction Finance Corporation consented to a one-half reduction of the par value of the bank's preferred stock, provided that the questionable assets were charged off the books of the bank and that the dividend and liquidation or dissolution preferences of the preferred stock remained unchanged. Accordingly, the articles of association of the bank were amended on January 12, 1937, to reduce the par value of the preferred "A" stock from $15 a share to $7.50 a share, and to reduce the par value of the preferred "B" stock from $50 a share to $25 a share. In all other respects the provisions of the 1934 amendments to the articles of association relating to the preferred stock remained unchanged. As a result, the aggregate retireable value of both classes of preferred stock became equal to double the aggregate par value thereof as shown in the amended articles and as shown on the books of the bank. Between August 1937 and December
31, 1945, the bank retired preferred stock to the extent that on December 31, 1945, the outstanding aggregate par value of preferred stock "A" amounted to $150,000 and of preferred stock "B" to $168,750. In all cases the preferred stock of both classes was retired at its retireable value, namely, double its par value.
As of January 1, 1946, the bank carried on its books, under liabilities, the following:
Par value preferred stock "A" $150,000.00
Par value preferred stock "B" 168,750.00
Par value common stock ...