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            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:




                                              .
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             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<otes, 0160.. . ."
                          Froln the foi-csgoin,~ we are led~ to the oonolusioli that
              tbG  $16,500,03O.OO note dated Deoe:i!ber 31, 1943, has all the
              legal charaotsristics      of a renewal of the unpaid bnlaocs of the
              original   note for ~~19,000,000.00,    dated Jan. 1, 1935, am3 falls
              olearly   in the follcwir~g part OS the statute:

                           “. . . and all such instrumnts   vihJch bear a mturity
                     date of lesn than one (1) year fro!2 date of issue but which
                     rapresent indebtsdness  which has rcnaln#    outstanding for a
                     period of oz0 (1.) year oFyore   from dare of inception,     but
                     which have been renewed or x&ended!    or refinsnoed    by the
                     issuance of other sviden~eg of the mdebtedno8s,       . . ."
      hi                         \.


 .         ‘.




                Hon. Sidney Latham, page 5



                and is one of the taxable     elements upon which the franohise
                tax of the oorporation   is   to be calculated,  and you are
                aooora ngly 80 advised,'
                      2
                                                      Yours Very truly
                                                 ATTORN~ZY
                                                         GENIZERAL
                                                                OF T@XAS




                                                                  Assistant
                LPL : AF.%?
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