text:
    Bob BULLOCK, Comptroller of Public Accounts, et al., Appellants, v. ENSERCH CORPORATION, Appellee.
    No. 6065.
    Court of Civil Appeals of Texas, Waco.
    June 28, 1979.
    Rehearing Denied July 19, 1979.
    Mark White, Atty. Gen., Martha E. Smiley, Gilbert J. Bernal, Jr., Asst. Attys. Gen., Austin, for appellants.

      Sander W. Shapiro, William R. Volk, Clark, Thomas, Winters & Shapiro, Austin, for appellee.
   OPINION

McDONALD, Chief Justice.

This is an appeal by the Comptroller, Treasurer and Attorney General of Texas from summary judgment decreeing Enserch Corporation recover $139,019.63 and $290,-814.75, assessed by the Comptroller against Enserch, under the Franchise Tax Act, and paid by Enserch under protest pursuant to Article 1.05 Title 122A VATS.

Appellee Enserch sued appellants to recover franchise taxes, penalty and interest paid by appellee under protest. Both appel-lee and appellants moved for summary judgment. The trial court denied appellants’ motion and granted appellee’s motion and decreed appellee recover from appellants the sums of $139,019.63 and $290,-814.75.

Appellants appeal on 4 points contending among other matters the trial court erred in granting appellee’s motion for summary judgment because appellee failed to show that the Comptroller’s assessment was arbitrary, illegal, fundamentally wrong and substantially injured appellee.

Appellee is a public gas utility company and owns all the stock in a numb'er of subsidiary corporations.

Article 12.01 Title 122A VATS requires every corporation doing business in Texas to pay an annual Franchise Tax of $4.25 per $1000. on the corporation’s capital and surplus, on the percent of the corporation’s business done in Texas. A corporation’s surplus includes its investment in its subsidiary corporations.

The Comptroller’s rules in effect at the time required a corporation to report and calculate its franchise tax on whichever method of accounting (cost or equity) the corporation used in its general ledger account. Prior to 1973 appellee’s general ledger account reflected its investment in its subsidiary corporations utilizing the cost method of accounting; that is appellee’s actual cost in investing in the stock of its subsidiaries. And such method of accounting was accepted by the Comptroller and used as the basis for assessing appellee’s corporate Franchise Tax. In 1973 the Federal Energy Regulatory Commission (formerly the Federal Power Commission) which regulates appellee, ordered gas utilities to report their unappropriated undistributed subsidiary earnings. For the sole purpose of meeting the reporting requirements of the Federal Energy Regulatory Commission (and the Railroad Commission) appellee amended its system of accounting to show such assets by “Subaccount 216.1” as an entry in general ledger account. Such subaccount entry utilized the equity method of accounting to report the earnings of appellee’s subsidiaries as required by the regulatory commission. Such entry was never utilized by appellee to present its financial condition to stockholders or to the financial community in general, and such entry was eliminated by an adjusting entry after the close of the accounting year to the regulatory commission. For presentation of its financial condition to stockholders or the financial community appellee uses the consolidated method of reporting, which is not acceptable by the Comptroller for franchise tax purposes. This is true because such method incorporates into the report all subsidiary corporations owned by the parent corporation. And Articles 12.01, 12.02 and 12.08 requires: Each and every corporation to pay franchise tax. Texaco, Inc. v. Calvert (Austin, Tex.Civ.App.) NRE, 526 S.W.2d 630.

The evidence shows that the equity method of accounting is substantially the same as the consolidated method, which is unacceptable to the Comptroller.

Appellee was required to use the equity method of accounting by the regulatory commission for the narrowly limited purpose of reports to the commission; and such subaccount entry evidencing same was eliminated after the close of the accounting year. The balance of the general ledger account reflects the appellee’s investment in the stock of its subsidiaries on the cost method.

And the Comptroller amended its ruling in 1977 to assess franchise taxes on the cost method of corporations in appellee’s category, irrespective of the reporting requirement of the regulatory commission, but did not make such retroactive. Assistant Comptroller Anderson in his deposition, testified the 1977 change was made because the requirement of the ruling appellee complains of in this case, taxes the parent on the same earnings as have been taxed to the subsidiary, and that such was “unfair”; and that the wording of the applicable statutes had not been changed.

We think appellants’ method of assessing appellee franchise tax arbitrary, fundamentally wrong and that same resulted in substantial injury to appellee.

All appellants’ points are overruled.

AFFIRMED.


source: Caselaw Access Project

author: AKIN, Justice.

license: Public Domain

text:
    Ollie M. HENLEY et al., Appellants, v. CITY OF DALLAS, Appellee.
    No. 19976.
    Court of Civil Appeals of Texas, Dallas.
    June 29, 1979.
    Jack C. Pate, Bob Gorsky, Burleson, Pate & Gibson, Dallas, for appellants.

      Carol Laakso, Asst. City Atty., City of Dallas, Dallas, for appellee.
    Before AKIN, ROBERTSON and HUM-PHREYS, JJ.
   AKIN, Justice.

This class action under Tex.R.Civ.P. 42 was filed when the City denied a policeman overtime pay earned during the work week in which he was injured. According to the stipulated facts, the policeman in this case was injured in the line of duty on Wednesday after having worked eleven hours on Monday, eight hours on Tuesday, and eleven hours on Wednesday. Under an ordinance of the City he was entitled to salary continuation benefits commencing on Thursday, in addition to workmen’s compensation benefits. Because appellant had worked less than forty hours of the week in which he was injured, the City refused to pay him overtime pay for the extra hours worked earlier in the week. Appellant sought a declaratory judgment to construe the relevant sections of the ordinance providing for salary continuation pay and for overtime pay.

The City denied the claim on the ground that overtime pay earned during the work week in which the employee was injured while on duty is not required to be paid when the policeman commences receiving salary continuation pay during that week. The trial judge accepted this view and rendered judgment in the City’s favor. Appellant contends that the ordinance providing for salary continuation pay does not affect his right to overtime pay, which is based on a separate ordinance providing for overtime pay computed on a daily basis. We agree with appellant and, accordingly, reverse and render.

The relevant provisions for salary continuation payments are found in Chapter IX of Ordinance No. 13016, as follows:

9.1 Subject to the provisions contained below, an employee who as the result of an injury sustained in the course of his employment with the City of Dallas, is being paid weekly workmen’s compensation payments, or would be paid such workmen’s compensation payments had his disability continued for a period of more than seven (7) days, will receive salary payments, as injured employee salary continuation payments, separate and distinct from and in addition to the weekly workmen’s compensation payments.
9.2 Injured employee salary continuation payments shall be an amount which is equal to the difference between the weekly workmen’s compensation benefit payable and the employee’s regular weekly straight time pay. [Emphasis added.]

The provision for overtime pay is found in section 2.10A(3) of the same ordinance, as follows:

Nonexempt sworn employees of the Police Department and Park Police, who work more than eight hours in one day will either be paid at an overtime rate of one and one-half times their straight time hourly rate or be granted compensatory time for all hours in excess of eight.

Neither party contends that the language of these sections is ambiguous; instead, each insists that the language of sections 9.1 and 9.2 supports their respective interpretations. Additionally, appellant asserts that section 2.10A(3) reinforces his interpretation of sections 9.1 and 9.2.

Appellant argues that nothing in the language of sections 9.1 and 9.2 supports the City’s method of computing salary continuation payments so as to divest an employee of earned and vested overtime pay if the employee has worked less than 40 hours in the work week in which he becomes entitled to receive salary continuation payments under section 9.2. We agree. We perceive no justification for the denial of vested overtime pay from the language of section 9.2, which states that salary continuation payments shall be computed on the employee’s regular weekly straight time pay. Nothing in this section mentions overtime pay nor suggests that it be denied under these circumstances. In our view, since the salary continuation payments commenced on Thursday, these payments should be viewed prospectively from that date. Whether the employee had worked overtime earlier in the work week is immaterial to the amount of his salary continuation payments.

This view is supported by section 2.10A(3) which provides that officers who work more than eight hours in one day are entitled to receive overtime pay at one and one-half times their straight time hourly rate. As we read section 2.10A(3), overtime pay is computed and vested on a daily basis rather than on a weekly basis. This supports appellant’s interpretation of section 9.2. We conclude and hold that section 9.2 does not permit the City to divest appellant of his earned overtime pay under section 2.10A(3) merely because he became eligible to receive salary continuation pay under section 9.2.

The City contends, nevertheless, that it does not have to pay overtime pay to employees who become eligible to receive salary continuation payments because section 2.10A(3), defining overtime pay, does not apply to section 9.2 which determines salary continuation pay. We agree that section 2.10A(3) is separate and apart from section 9.2 and need not be resorted to in order to construe the language of section 9.2. It does, however, show the intent of The Dallas City Council not to divest employees of overtime pay when an employee becomes eligible to receive salary continuation payments.

The City next argues that it has no obligation to pay the employee overtime pay at time and one-half, in addition to the salary continuation payments, because the salary continuation payments make the employee whole in the sense that they bring him up to a normal weekly salary, even though he has worked less than a 40-hour week. We cannot agree with this contention because nothing in the language of section 9.2 supports such a construction. Indeed, section 9.2 specifically provides that salary continuation payments are to be calculated on the basis of the “employee’s regular weekly straight time pay.” No mention is made of overtime pay nor of denying overtime pay when an employee is injured in the middle of a work week.

Finally, we take judicial notice of the hazardous working conditions policemen face. Here, appellant suffered his injury in the line of duty. From a policy viewpoint, we do not believe that the ordinances of The City of Dallas should be construed so as to minimize the amount of compensation that vital employees such as policemen receive.

We hold that appellant and others similarly situated may not be divested of their overtime pay when they receive salary continuation payments, and under the present City of Dallas ordinance, the City must compute salary continuation payments without regard to overtime pay already earned and vested by employees. Accordingly, the judgment of the trial court is reversed and judgment here rendered that the City of Dallas pay earned overtime pay to all members of the class of officers similarly situated in accordance with this opinion.

      . Salary continuation pay under sections 9.1 and 9.2 is the difference between weekly workmen’s compensation payments and the employee’s regular weekly straight time pay.

      . Appellant and others in this situation are classified as “Non-exempt sworn employees.”


text:
    Wilma F. DEAN, Appellant, v. PAULA STRINGER REALTORS, INC., Appellee.
    No. 19923.
    Court of Civil Appeals of Texas, Dallas.
    July 2, 1979.

      John E. Wright, Huntsville, for appellant.
    J. Frank Kinsel, Jr., Hoppenstein & Prager, Dallas, for appellee.
    Before GUITTARD, C. J., and AKIN and HUMPHREYS, JJ.
   AKIN, Justice.

This is a venue appeal from an order overruling defendant’s plea of privilege under Tex.Rev.Civ.Stat.Ann. art. 1995(5a) (Vernon Supp.1978-79). Appellee Paula Stringer Realtors sued defendant on a written contract for a real estate commission on the sale of defendant’s former residence in Collin County. This contract provided that the commission was payable in Dallas County. Defendant filed a plea of privilege to be sued in Bell County, her present domicile. At the venue hearing, the parties stipulated the facts upon which the trial judge rendered his decision overruling the defendant’s plea. One of the documents included within the stipulation was a contract identical to the one sued upon by plaintiff except that it specified payment of the commission in Collin County and required defendant to list the property with the Real Estate Board of Collin County. This second contract was executed so that the property would be included in the Collin County multiple listing service. In the trial court and on appeal, defendant contends that there was only one obligation to pay a commission, but the obligation was payable, by virtue of the two contracts, in Dallas County and in Collin County. Consequently, appellant argues that subdivision 5(a) of article 1995 is inapplicable. We agree. Accordingly, we reverse the order of the trial judge and sustain the plea of privilege.

Tex.Rev.Civ.Stat.Ann. art. 1995(5a) (Vernon Supp.1978-79) provides:

[I]f a person has contracted in writing to perform an obligation in a particular county, expressly naming such county, or a definite place therein, by such writing, suit upon or by reason of such obligation may be brought against him, either in such county or where the defendant has his domicile. [Emphasis added.]

Appellee-plaintiff argues that subdivision 5(a) applies because it sued on the contract payable in Dallas County and thus the county designated in that contract is the county in which the obligation is payable. Appel-lee urges that the separate contract designating Collin County as the place of payment was executed solely for the purpose of using plaintiff’s membership with the Collin County multiple listing service to list the property with realtors in Collin County and was not intended to fix venue in Collin County.

We agree with appellant that there is but one obligation to pay a commission on the sale of the property in question. Regardless of the reason for executing two almost identical contracts, the two contracts obligating the defendant to pay a real estate commission must be read together, and, consequently, to provide for payment of the obligation in either Dallas County or Collin County. A contract providing for payment in more than one county is not performable “in a particular county” within subdivision 5(a). Albin v. Hughes, 304 S.W.2d 371 (Tex.Civ.App.—Dallas 1957, no writ). Accordingly, the order of the trial court is reversed and this cause is transferred to Bell County.


author: JAMES, Justice.

text:
    Dale ROBERTSON, d/b/a Sportsman’s Den, Appellant, v. Ed POHORELSKY, Appellee.
    No. 6055.
    Court of Civil Appeals of Texas, Waco.
    July 5, 1979.
    Rehearing Denied July 19, 1979.
    Bill M. Payne & Bobby L. Freeman, Lawrence, Thornton, Payne & Watson, Bryan, for appellant.
    Kent A. Caperton, Gandy, Mauro & Ca-perton, Bryan, for appellee.
   OPINION

JAMES, Justice.

This is a suit on an oral contract of employment. The defense is that the contract is unenforceable because it is within the Statute of Frauds. After jury verdict the trial court entered judgment in favor of Plaintiff-employee against Defendant-employer for $3,135.39, interest and costs, from which Defendant-employer appeals. We affirm.

The facts consist of jury findings in answer to special issues plus certain admissions by Plaintiff-employee (hereinafter discussed) which are made a part of the statement of facts by written agreement of the parties.

Plaintiff-Appellee Ed Pohorelsky brought" this suit against Defendant-Appellant Dale Robertson, individually and doing business as Sportsman’s Den, alleging that in the summer of 1976, Plaintiff and Defendant discussed the pending opening of a business in the City of Bryan, Texas, known as the Sportsman’s Den, which business was to be owned by Defendant Robertson. Plaintiff further alleged that the parties orally agreed that at such time as the Sportsman’s Den should be opened, that Plaintiff Poho-relsky would commence working at said business for Defendant Robertson as assistant manager for a salary of $500.00 per month plus 5% of the gross profits of said business; that pursuant to such agreement the business was opened on October 1,1976, and that about two weeks prior to said opening Plaintiff went to work for Defendant, to wit, on or about September 15,1976, and worked until on or about August 15, 1977, at which last-named date Plaintiff and Defendant had some disagreements which culminated in Plaintiff’s ceasing to work for Defendant. Plaintiff alleged that he had been paid his agreed $500.00 per month salary for the period of time in which he worked; however, he had not been paid any percentage of the gross profits. Plaintiff’s suit is for 5% of the gross profits of said business prorated for the period of time in which he worked, and for interest, attorneys fees, and costs.

Trial was had to a jury, which found:

(1)That Plaintiff Pohorelsky diligently and dutifully performed all tasks and duties required of him by his agreement with Defendant Robertson during his employment from October 1, 1976, to August 15, 1977;

(2) On or about August 15,1977, Plaintiff and Defendant agreed that Plaintiff would receive 5% of the gross profits on the sales he personally made, as a final payment;

(3) That Plaintiff Pohorelsky made such agreement only under duress; and

(4) The jury failed to find that Plaintiff was entitled to any attorneys fees.

As hereinabove stated, after jury verdict the trial court entered judgment in favor of Plaintiff Pohorelsky against Defendant Robertson for $3,135.39, interest and costs, from which Defendant appeals.

Defendant-Appellant’s three points of error assert that the oral contract in question is one which by its terms is not to be performed within one year from the date of its making, and therefore same is unenforceable as falling within Section 26.01, Texas Business and Commerce Code, commonly known as the Statute of Frauds. We do not agree with this contention.

Section 26.01 in its pertinent parts provides:

“(a) A promise or agreement described in Subsection (b) of this section is not enforceable unless the promise or agreement, or a memorandum of it, is
(1) in writing; and
(2) signed by the person to be charged with the promise or agreement or by someone lawfully authorized to sign for him.
“(b) Subsection (a) of this section applies to
(6) an agreement which is not to be performed within one year from the date of making the agreement; . . . ”

Admissions were made by Plaintiff which are stipulated by the parties to be included in the statement of facts on appeal, to wit:

(1) The oral agreement sued upon was made prior to June 30, 1976.

(2) The business in which Plaintiff Poho-relsky was to be employed was not in existence at the time of making the agreement.

(3) The sporting goods store began business on October 1, 1976, at a time in which the oral contract had been in existence at least three months.

(4) Plaintiff commenced working at the store about two weeks prior to October 1, 1976, doing work on shelves and stocking merchandise.

(5) The oral employment agreement provided for payment to Plaintiff of 5% of the gross profits at the conclusion of the first year’s operation of the store.

Defendant-Appellant Dale Robertson asserts that this contract is one which could not be performed within one year, because (he contends) it was made at a time prior to June 30, 1976, and contemplated a year’s performance which was to begin at the time of opening the store for business, to wit, October 1, 1976. Therefore, Appellant says, the contract could not be fully performed until September 30, 1977, which is at least fifteen months after the time the contract was made, citing Chevalier v. Lane’s, Inc. (1948) 147 Tex. 106, 213 S.W.2d 530, 6 A.L. R.2d 1045, and Paschall v. Anderson (Comm.App.1936) 127 Tex. 251, 91 S.W.2d 1050, opinion adopted. We do not agree with Appellant’s contentions, and do not believe that Chevalier and Paschall control the case at bar.

Since Defendant-Appellant is the party asserting that the contract violates the statute of frauds, said Defendant-Appellant had the burden of showing that the contract required that Plaintiff-Appellee Pohorelsky would work for one year. There is nothing in this record that shows that the parties agreed that Pohorelsky would work for one year. It is true that the contract provided for payment to Poho-relsky of 5% of the gross profits of the business at the conclusion of the first year’s operation of the store; however, the mere fact that the parties had to wait for the year to be up before ascertaining the gross profits so that Pohorelsky could be paid his pro rata share does not within itself bring the contract within the statute of frauds. Miller v. Riata Cadillac Co. (Tex.1974) 517 S.W.2d 773.

We believe that this oral employment agreement was one calling for an indefinite period of time, and being so, does not violate the statute of frauds; and that this case is governed by Miller v. Riata Cadillac Co. supra, and Bratcher v. Dozier (1961) 162 Tex. 319, 346 S.W.2d 795. Both Miller and Bratcher, like the case at bar, dealt with oral employment contracts in which no period of performance or duration was provided. These two last-named decisions of our Supreme Court hold that indefinite term employment contracts are considered performable within one year, and therefore do not fall within the statute of frauds.

In the case at bar, the record is silent as to how long Pohorelsky was supposed to work; therefore, in our opinion the contract does not violate the statute of frauds.

For the foregoing reasons, the judgment of the trial court is affirmed.

AFFIRMED.


author: GUITTARD, Chief Justice.

text:
    Rose Mary COLE, Appellant, v. Mary CHAPMAN and Janice Gragg, Appellees.
    No. 20052.
    Court of Civil Appeals of Texas, Dallas.
    June 12, 1979.
    Paul T. Fanning, Dallas, for appellant.
    John Henvey, Dallas, for appellees.
    Before GUITTARD, C. J., and STOREY and CARVER, JJ.
   GUITTARD, Chief Justice.

This petition for a writ of mandamus concerns an appeal that has already been transferred to another court of civil appeals. We hold that this proceeding has been transferred also, even though it was docketed as an original proceeding.

The petition seeks a writ of mandamus to require the official court reporter of the 255th District Court, and another reporter who recorded a portion of the proceedings, to prepare and deliver to petitioner a statement of facts. Petitioner perfected an appeal from the judgment of that court and filed the transcript in this court. Subsequently, the Supreme Court transferred the appeal to the Court of Civil Appeals for the Eleventh Supreme Judicial District at East-land, as authorized by Article 1738 of the Texas Revised Civil Statutes. Because of that transfer, respondent contends that we have no jurisdiction to issue a writ of mandamus. Petitioner suggests that the proceeding be transferred to the Eastland court.

We agree that we have no jurisdiction, since our authority to issue writs of mandamus is found in Article 1823 of the Texas Revised Civil Statutes, which provides that courts of civil appeals “may issue writs of mandamus and all other writs necessary to enforce the jurisdiction of said courts.” Since the appeal has been transferred, this court no longer has any jurisdiction that can be enforced by mandamus. Taft v. Schraub, 557 S.W.2d 172 (Tex.Civ.App.—San Antonio 1977, no writ).

When the petition for mandamus was filed, we had jurisdiction because the appeal was then pending in this court. We hold, however, that the Supreme Court’s order transferring the appeal has the effect of transferring also this ancillary original proceeding. Accordingly, we direct our clerk to transmit to the clerk of the Eastland court all the papers filed in this proceeding.


author: MURRAY, Justice.

text:
    Peggy Rose SKUBAL, Appellant, v. Terry Otis SKUBAL, Appellee.
    No. 16230.
    Court of Civil Appeals of Texas, San Antonio.
    June 13, 1979.
    Rehearing Denied July 11, 1979.
    Nick Duncan, Del Rio, for appellant.
    William J. Stroman, Del Rio, for appellee.
   OPINION

MURRAY, Justice.

This is a divorce case. The trial court, without a jury, entered judgment granting Terry Otis Skubal, appellee, a divorce. Peggy Rose Skubal, appellant, has perfected her appeal to this court.

Appellant attacks the judgment on the grounds that there is no evidence and, in the alternative, insufficient evidence to support the implied finding that the resident requirement of Article 3.21 of the Texas Family Code had been met. Article 3.21 requires that the petitioner or the respondent be a resident of the county in which the suit is filed for ninety days prior to filing. This requirement is not jurisdictional, but prescribes qualifications that must be met before the court is authorized to grant a divorce. Allen v. Allen, 397 S.W.2d 99 (Tex.Civ.App.—Amarillo 1965, no writ).

It is undisputed that both appellant and appellee are domieiliaries of the State of Texas and have been all of their lives. Ap-pellee is a member of the United States Air Force. Before he joined the Air Force, he resided in Bexar County, Texas. At the time he filed suit for divorce in Val Verde County, he had been stationed at Laughlin Air Force Base in that county for six years. When he arrived in Val Verde County he bought a home, but lived in it only a couple of months before he moved onto the base with his wife and children. For the past six years appellee has been working, eating, sleeping, playing, and voting in Val Verde County. Three years ago appellee applied for and was granted a five-year assignment in Val Verde County. He would like to spend the rest of his fourteen years in the Air Force in Val Verde County, but being in military service, appellee realizes that he could be ordered to serve elsewhere.

This evidence shows that the resident requirement of Article 3.21 has been satisfied. Residence requires that a person be living and physically present in a particular locality, Wilson v. Wilson, 494 S.W.2d 609 (Tex.Civ.App.—Houston [14th Dist.] 1973, writ dism’d), but domicile requires that a person live in that locality with the intention of making it a fixed and permanent home. Schreiner v. Schreiner, 502 S.W.2d 840 (Tex.Civ.App.—San Antonio 1973, writ dism'd).

The evidence in this case is sufficient to meet the requirement for showing actual residence in Val Verde County for ninety days prior to the filing of appellee’s petition.

The case relied on by appellant, Klingler v. Klingler, 254 S.W.2d 817 (Tex.Civ.App.—Eastland 1953, no writ), is not in point. In Klingler, a soldier from the State of New York filed suit in Texas for divorce and claimed Texas as his domicile. The court held that the evidence failed to show an intention to change domicile from the State of New York to the State of Texas. To establish domicile there must be an intention to establish a permanent home, and mere physical presence in a particular place is not enough. See 20 Tex.Jur.2d Divorce and Separation § 65 (1960). Nevertheless, Section 3.23 of the Texas Family Code would now permit the district court to grant the soldier in Klingler a divorce.

The judgment of the trial court is affirmed.


author: DODSON, Justice.

text:
    STATE of Texas, Appellant, v. U. T. L. AERONAUTICS, INCORPORATED, Appellee.
    No. 9024.
    Court of Civil Appeals of Texas, Amarillo.
    June 22, 1979.
    Rehearing Denied July 18, 1979.
    Henry M. Wade, Dist. Atty., Giles E. Miller, Asst. Dist. Atty., Dallas, for appellant.

      Andrew R. McCulloch, Dallas, for appel-lee.
   DODSON, Justice.

The State of Texas obtained a judgment against U.T.L. Aeronautics, Inc., for delinquent personal property taxes, penalty, interest, and costs in Cause No. CC-76-4699-a in County Court at Law No. One of Dallas County, Texas. A writ of execution was ordered and was returned nulla bona.

In a separate suit, Cause No. CC-77-6269-a, the State filed a Bill of Discovery to obtain, through oral interrogatories, the location and nature of all property owned or claimed by U.T.L. Aeronautics. On motion of the State, the court ordered the Bill of Discovery dismissed without prejudice. Costs were taxed to the State. The State appeals on the sole ground that the trial court erred in taxing it with costs.

The State predicates its appeal on Tex. Rev.Civ.Stat.Ann. art. 7297 (Vernon 1960). This statute provides, in part, that:

The district or county attorney of the respective counties of this State, by order of the commissioners court, shall institute suit in the name of the State for recovery of all money due the State and county as taxes due and unpaid on unrendered personal property; and in all suits where judgments are obtained under this law, the person owning the property on which there are taxes due the State and county shall be liable for all costs. The State and county shall be exempt from liability for any costs growing out of such action (emphasis added).

This language exempts the State from liability for any costs growing out of an action to secure a judgment for recovery of taxes due and unpaid on unrendered personal property. See Nacogdoches Independent School District v. McKinney, 513 S.W.2d 5 (Tex.1974); City of Waco v. Owens, 442 S.W.2d 324 (Tex.1969); Electra Independent School Dist. v. Waggoner Estate, 140 Tex. 483, 168 S.W.2d 645, 653 (Tex.Comm’n App.1943, opinion adopted).

The State maintains, in effect, that article 7297 exempts it from liability for costs in a proceeding indirectly related to a suit for recovery of delinquent taxes. We disagree. In the case at bar, the State has not been taxed with costs growing out of its suit to recover due and unpaid taxes from U.T.L. Aeronautics. Rather the State has been charged with costs stemming from a separate and distinct suit against U.T.L. Aeronautics to obtain discovery. Such a suit does not fall within the statutory exemption of article 7297.

The State also relies on Tex.Rev.Civ.Stat. Ann. art. 7333 (Vernon 1960). This statute relates to fees that shall be taxed as costs against lands to be sold under a judgment for taxes and is not applicable to the case at bar.

We conclude that the trial court properly assessed costs against the State in its suit for discovery. Where the State enters the court as a litigant and does not come within a statutory exception, it places itself upon the same basis as any other litigant and costs may be taxed against it. City of Amarillo v. Paramount Terrace Christian Church of Amarillo, 530 S.W.2d 323, 324 (Tex.Civ.App.—Amarillo 1975, writ ref’d n. r. e.); Glass v. Great Southern Life Ins. Co., 170 S.W.2d 247, 249 (Tex.Civ.App.—Galveston 1943, writ ref’d w. o. m.).

The order of dismissal taxing costs against the State is affirmed.

COUNTISS, J., not participating.

      . We accept as correct these unchallenged statements of appellant regarding the facts and record in this case. Tex.R.Civ.P. 419.


author: STERNBERG, Justice.

text:
    Jack Richard HUSH et al., Movants, v. James ABRAMS d/b/a Abrams Sanitation, Respondent.
    Supreme Court of Kentucky.
    June 12, 1979.
    Garis L. Pruitt, Jerry P. Vincent, Ash-land, for movant Hush.
    Ralph T. McDermott, David 0. Welch, Ashland, for respondent Abrams.
   STERNBERG, Justice.

This is a workmen’s compensation case. Movant, Jack Richard Hush, who was a well and active male, 25 years of age, sustained a work-related fracture of the neck of the right femur (the big bone in the thigh) when he fell from a truck on June 18,1974. The Board awarded him occupational disability of 20% “for so long as his disability continues.” The employer appealed to the Greenup Circuit Court, where the award of the Board was affirmed. The Court of Appeals of Kentucky reversed and “remanded to the Greenup Circuit Court with directions to enter a new judgment and order directing the Workmen’s Compensation Board to delete that portion of its award allowing the establishment of an indeterminate period of partial occupational disability benefits for appellee.” This court granted discretionary review on January 30, 1979, and reverses.

The parties stipulated to the Board that, “the only question presented for the Board is to the extent, if any, of the Plaintiff’s permanent disability arising out of the occurrence of June 18, 1974.” Counsel for Hush states, “The issue is whether there was substantial evidence to support the Workmen’s Compensation Board,” and answers in the affirmative. Counsel for respondent argues that there is not substantial evidence to support the opinion and award of the Board. The opinion of the Court of Appeals states, “The sole question presented in this appeal is whether the decision of the Board is supported by substantial evidence.” The only issue before this court, as was before the Court of Appeals, is whether the decision of the Board is supported by substantial evidence.

The only issue being one of fact, we need to analyze the evidence and measure it by the substantial-evidence test. In Holman Enterprise Tobacco Warehouse v. Carter, Ky., 536 S.W.2d 461 (1976), we said:

“ ‘* * * It is the general rule that any finding of the Board on a question of fact will not be set aside on an appeal to either the circuit court or this court if, as is the situation here, there is any substantial evidence of probative value to support it.’ ”

When Hush fell from the truck he hit his hip, the back of his neck and his head on the concrete street below. He was immediately taken to a hospital where he was treated for a subcapital fracture of his right hip. On June 21, 1974, the third day after his injury, Dr. William C. Roland, an orthopedic surgeon, pinned Hush’s hip in a surgical procedure. He was discharged from the hospital on July 3, 1974, and was seen by Dr. Roland on two subsequent occasions, August 15 and October 18, 1974. He was not seen or examined thereafter by Dr. Roland. When the doctor gave his deposition, he testified that Hush was temporarily totally disabled from June 18, 1974 to October 18, 1974, but that he expected him to have full recovery by May 1975. The doctor suggested that there was a possibility of post-operative complications associated with this type of treatment. As a matter of fact, Dr. Roland said there would be scar tissue left from the break either with or without surgery. Since Dr. Roland had not seen Hush since his last visit in October 1974, and his deposition was not taken until September 7,1976, the doctor admitted that he could not give an up-to-date evaluation, but he did evaluate Hush’s condition at the time he last saw him as 10% temporary functional disability to the lower right extremity and 5% to the body as a whole.

Hush consulted Dr. Jaldir Lobo, a neurosurgeon, for headaches and forgetfulness. Dr. Lobo examined him on May 25, 1976, and found no functional impairment due to the June 18,1974, trauma from a neurological standpoint. He found Hush’s complaints to be subjective and incapable of justification on an objective basis. In other words, the doctor could not find any present physical condition which would evidence or cause to bring about a headache or forgetfulness. He observed Hush at the time of his examination and saw him walk with a limp in his right leg; however, he did not feel qualified to assess orthopedic disability. The doctor did not testify that Hush was not actually experiencing the pain of which he complains.

Hush testified that since his stint in the hospital he has had problems trying to remember things that occurred before his injury; that he has pain in his neck that radiates down the right side of his neck to his shoulder and thence to his right hip; and that medication is required for relief. He said that he had none of the complaints prior to the accident. Hush stated that by reason of the pain he suffers, he is unable to hold full-time employment. He held a janitorial job for about six months in 1975, but had to give it up by reason of the pain in his hip. Prior to his injury, Hush was able to play basketball, to bowl, to mow the lawn, to mop floors, and to do other physical work, none of which he can do now without suffering severe pain.

Mrs. Juanita Frazier, Hush’s aunt, with whom he has lived since 1972, supported Hush’s testimony of his inability to properly function.

Medical testimony must be clear and convincing. The testimony of Dr. Roland was not currently reliable since at the time his deposition was taken he had not seen Hush for two years. His testimony related only to the time during which Hush was under his care. Any testimony by Dr. Roland relating to Hush’s physical condition as it existed subsequent to the time of his treatment is wholly speculative and conjectural.

As to the testimony of Dr. Lobo, it could be evaluated as supportive of Hush’s complaints of pain and forgetfulness. The sum and substance of his testimony is that he could find no present condition which would be conducive of pain. It is not that Hush did not actually suffer from the pain of which he complains, but that the doctor could find nothing which would suggest the presence of pain, even though Hush walked with a limp in his right leg.

The testimony of Hush, supported by the testimony of his aunt, clearly and without equivocation delineated a change for the worse in his physical condition subsequent to his injury and surgery.

If there is any evidence of a substantial probative nature tending to support the Board’s conclusions, this court is without authority to substitute its findings of fact for those of the Board. Three Point Coal Co. v. Moser, 298 Ky. 868, 184 S.W.2d 242 (1944); Armco Steel Corporation v. Mullins, Ky., 501 S.W.2d 261 (1973).

In the instant case, what we have is lay testimony descriptive of and supportive of a permanent disability, together with medical testimony that is not in conflict with lay testimony. The Court of Appeals concluded that the Board based its opinion and award on lay evidence as opposed to medical testimony. To this premise the Court of Appeals applied Walker v. Porter Product Finishers, Ky., 505 S.W.2d 178 (1974), and concluded that the decision of the Board was not supported by substantial evidence. In Walker the Workmen’s Compensation Board granted an award for so long as Walker remained disabled (open-end award), not to exceed 425 weeks. On appeal to the Jefferson Circuit Court, the open-end portion of the award was reversed. In doing so, the circuit judge wrote:

“ * * that this action be and hereby is remanded to the Board for a determination of plaintiff’s disability based upon the medical evidence * * *.’”

This court said:

“The circuit court has misapplied the law; we are unaware of any requirement that the Board need consider only medical evidence in making its determination. As we have stated before:
«<* * * ag for an award * * * there must be some evidence showing to what extent the claimant is “disabled.” This is not always exclusively a matter of medical testimony * * *. In many cases, particularly those involving internal injuries, medical evidence may be the only competent evidence to prove the actual bodily condition of the employe * * *; but once the bodily condition has been established, lay testimony may be competent on the question of the extent of the disability that has resulted from the bodily condition.’ ”

In our analysis of the evidence in the subject action, we are influenced by the fact that Dr. Roland found that Hush was totally disabled from June 18,1974, to October 18,1974, and that as of October 18 Hush was suffering a 10% disability to his right lower extremity and a 5% disability to the body as a whole. He was on crutches for over one year. There was a possibility that Hush might fully recover, but there is no medical testimony that he has recovered or that his condition has changed for the better. As a matter of fact, the lay testimony is that Hush’s condition has changed for the worse. As to the testimony of Dr. Lobo, even though he witnessed Hush’s walking with a limp, he did not find that Hush does not actually suffer the pains about which he has complained. The medical evidence clearly and unequivocally shows the actual bodily condition. The lay testimony is competent on the question of the extent of disability which has resulted from the bodily condition. In City of Olive Hill v. Parsons, 306 Ky. 83, 206 S.W.2d 41 (1947), we wrote:

“Appellant also raises a question concerning the extent and duration of appel-lee’s disability. It suggests that the testimony of the employee without any medical evidence is not sufficient to support a finding of permanent disability. Disability is a question of fact to be determined by the Board, and we know of no rule which requires the employee to produce medical proof. Appellee himself testified at length with respect to his condition and his inability to obtain regular employment. He stated that since March 1943 he had worked about one-fourth of the time, and that was principally light work. There seems to be no question that he is suffering from a recurrence of the hernia, and is to some extent disabled. A review of all the evidence in the case convinces us that it was sufficient as a basis for the Board’s finding of seventy-five percent partial permanent disability.”

Prior to his injury Hush could regularly engage in hard, common labor and actively take part in physical sports such as basketball and bowling. He could help around the house by mopping the floors for his aunt and by cutting the grass and raking the leaves. After his injury he could do none of these by reason of pain. He frequently has real bad headaches, especially when he stoops over. Subsequent to his injury he has been able only to find employment for a period of a few months and was caused to quit that by reason of pain. Hush is a high school graduate and has had one year of vocational training. He weighed 180 pounds prior to his injury, but has fallen off to 130. Also, since his injury he is nervous, makes unusual jerking movements of his neck, and cannot think clearly or remember things that happened before he was injured.

There is medical testimony from which the Board could have concluded that Hush did suffer from the trauma of June 18, 1974. Having reached that conclusion, the Board could then use lay testimony to determine the extent, if any, of occupational disability. In the case at bar, the Board is charged with the responsibility of translating functional disability, which it did.

We are of the opinion that the Board’s findings are not erroneous and that the Court of Appeals erred in directing the Workmen’s Compensation Board to delete that portion of its award allowing the establishment of an indeterminate period of partial occupational disability benefits for Hush.

The decision of the Court of Appeals is reversed and the judgment of the Greenup Circuit Court is affirmed.

All concur.


author: MARTIN, Chief Judge.

text:
    William W. HALL, M. D., Movant, v. J. R. MILLER, Reybum Ford, and Waitman Taylor, Respondents.
    Court of Appeals of Kentucky.
    March 16, 1979.

      Garland W. Howard, McKinley & Howard, Owensboro, for movant.
    James M. Miller, Sandidge, Holbrook & Craig, P. S. C., Owensboro, for respondents.
    Before MARTIN, C. J., and GUDGEL and REYNOLDS, JJ.
   OPINION AND ORDER

I.

MARTIN, Chief Judge.

We have before us on this appeal a special proceeding allowed by KRS 118.176 to challenge the candidacy of J. R. Miller for the office of Mayor of Owensboro. The movant Hall has sought to set aside, under paragraph (4) of KRS 118.176, the decision of the Daviess Circuit Court declaring unconstitutional the three-year voter and residency requirements for mayoral candidates in second-class cities. KRS 84.280(2). Upon consideration of the record before us we deny the motion to set aside the order of the Daviess Circuit Court.

Also before us is the cross-motion of respondents Miller, Ford, and Taylor to set aside so much of the circuit court’s order as finds that KRS 84.280(2) applies to mayoral candidates in second-class cities operating under a city manager form of government, in the event we were to find the statute constitutional.

The facts are not in dispute and have been stipulated by the parties.

On January 15,1979, J. R. Miller filed his papers for the May 29, 1979 Owensboro mayoral primary. On January 26, 1979, Hall filed his motion pursuant to KRS 118.-176 to question the bona fides of Miller, alleging that Miller had not satisfied the three-year voter and residency requirements of KRS 84.280(2). Miller filed his answer, and respondents Ford and Taylor filed an intervening complaint, alleging that their rights as voters would be infringed upon if Miller’s name were not allowed ,to be on the ballot.

Miller concedes that he did not move into his home in Owensboro until February 1, 1977, and that he did not register to vote until March 28,1977, but he points out that he had lived in Owensboro proper from April, 1946, to October, 1952.

In its order of February 16,1979, the trial court first found that the durational provisions of KRS 84.280(2) applied to mayoral candidates in second-class cities under the city manager form of government. The court went on to conclude that these provisions infringed upon the nonfundamental right of Miller to seek public office, and the fundamental rights of Miller, Ford, and Taylor to vote, travel, and to associate for political purposes, and declared these provisions to be violative of the equal protection clause of the Fourteenth Amendment, and thus void and unenforceable.

II.

The question presented for our resolution in this proceeding is whether the three-year voter and residency requirements for mayoral candidates in second-class cities contained in KRS 84.280(2) are unconstitutional as violative of the equal protection clause of the Fourteenth Amendment to the United States Constitution. A further issue raised by the parties is whether this statutory section is applicable to cities of the second class who have adopted the city manager form of government.

A related sub-issue is whether KRS 84.280(2) conflicts with the Kentucky Constitution. Section 156 of the Kentucky Constitution divides the cities of the Commonwealth into six classifications. This section is an exception to Section 59 of the Kentucky Constitution that prohibits special legislation. However, an act, such as KRS 84.280(2), based on a classification merely according to classes of cities cannot be upheld unless it pertains to the organizations or government of the classified cities or unless the classification has a reasonable relation to the purpose of the act. Mannini v. McFarland, 294 Ky. 837, 172 S.W.2d 631 (1943). The wide disparity of residency requirements for the office of mayor in the six classifications appears not to meet this standard. However, because this case can be determined on the first two issues, we need not resolve this third issue.

III.

We believe that before reaching the constitutionality of KRS 84.280(2), we must dispose of the question of its applicability to mayoral candidates in second-class cities that have adopted, as has Owensboro, the city manager form of government. In arguing the inapplicability of KRS 84.280(2), respondents rely on the inconsistencies between this section and KRS 89.470, which establishes the qualifications for elected officers in the city manager form of government.

KRS 84.280(2) provides:

The mayor shall be not less than thirty (30) years of age, shall possess the same qualifications and be under the same disabilities as members of the general council, and shall also have been a resident and voter of the city for not less than three (3) years next preceding his election.

KRS 89.470 provides:

Any legal voter not less than twenty-five (25) years of age and possessing the other qualifications prescribed by law shall be eligible to election to any office under the city manager form of government.

While there are inconsistencies, these differences are not significant. KRS 89.470 requires each officer in the city manager form of government to be at least twenty-five years old, while KRS 84.280(2) sets out the minimum age as thirty. KRS 89.470, however, opens the way for the applicability of KRS 84.280(2) by providing that in addition to being at least twenty-five years of age, the officer must possess “the other qualifications prescribed by law.” While Miller insists that the provision of § 234 of the Kentucky Constitution, that a mayor must live within the city from which he is elected, is the only other qualification contemplated by KRS 89.470, we believe that “other qualifications” is broad enough to include the durational voter and residency requirements found in KRS 84.280(2).

In arguing for the constitutionality of KRS 84.280(2), movant Hall argues that the number of people affected by the voter and residency requirements are just not great enough to justify declaring “a time honored” statute unconstitutional. In addition, he contends that the state has a right to regulate elections and access to the ballot, and that the voter and residency requirements achieve the legitimate governmental interest of insuring the candidate’s familiarity with the people and the area, and in turn the peoples’ familiarity with the candidate.

Miller, on the other hand, contends that KRS 84.280(2) infringes on the right to run for public office, to vote, to travel, and to associate for the advancement of political beliefs. In addition, he argues that a suspect classification is created by dividing potential candidates on the basis of whether they have lived and been registered to vote in Owensboro for at least three years. Miller insists that because fundamental rights are affected and a suspect classification is involved, a compelling state interest must be demonstrated to justify these restrictions. He then argues that as no such showing of a compelling state interest was made, the durational provisions of KRS 84.-280(2) must be stricken as violative of the equal protection clause of the Fourteenth Amendment.

Neither party contests the right of a governmental unit to require that a candidate for public office be a bona fide resident of the community which he wishes to serve. IV.

To determine the equal protection issue, the court must consider the facts and circumstances behind the law, the interests protected, and the interests of those disadvantaged by the classification made by the statute. Williams v. Rhodes, 393 U.S. 23, 89 S.Ct. 5, 21 L.Ed.2d 24 (1968). In reviewing these factors, the court must determine whether the “rational basis,” or the “compelling state interest” standard should be applied in considering the law’s constitutionality. The traditional and more flexible standard is whether there is a rational basis for the distinction that is made by the statute in question. Kramer v. Union Free School District # 15, 395 U.S. 621, 89 S.Ct. 1886, 23 L.Ed.2d 583 (1969). However, when the statute affects a fundamental right, Shapiro v. Thompson, 394 U.S. 618, 89 S.Ct. 1322, 22 L.Ed.2d 600 (1969), or the classification made by the statute is based on suspect criteria, Graham v. Richardson, 403 U.S. 365, 91 S.Ct. 1848, 29 L.Ed.2d 534 (1971), the compelling state interest test should be applied.

While the constitutional question presented here is one of first impression in Kentucky, there are other decisions regarding the constitutionality of various durational provisions imposed on candidates for public office. A review of these cases indicates a divergent view both as to the proper standards to be used as well as the result that should be reached in each case. The decisions are in agreement regarding the constitutional rights that are involved, the non-fundamental right to seek public office, and the fundamental rights to vote, to travel, and to associate for political beliefs. The disagreement occurs when determining the extent to which these fundamental rights were affected by the restrictions contained in the various durational statutes.

The decisions in Walker v. Yucht, 352 F.Supp. 85 (D.Del.1972), upholding a three-year residency requirement for state representatives in Delaware, and in Chimento v. Stark, 353 F.Supp. 1211 (D.N.H.1973), affirmed, no opinion 414 U.S. 802, 94 S.Ct. 125, 38 L.Ed.2d 39 (1973), and Sununa v. Stark, 383 F.Supp. 1287 (D.N.H.1974), affirmed 420 U.S. 958, 95 S.Ct. 1346, 43 L.Ed.2d 435 (1975), upholding a seven-year restriction for gubernatorial and state senate candidates in New Hampshire, have much to recommend them. However, we are of the opinion that the better reasoning is found in those decisions which have found that the restrictions placed on a person’s nonfundamental right to run for public office significantly affect certain of the public’s fundamental rights, and, therefore, apply the compelling state interest test in determining the constitutionality of these restrictions.

In Mogk v. City of Detroit, 335 F.Supp. 698 (E.D.Mich.1971), the court struck down a three-year residency requirement for membership on the city charter commission, holding the right of a person to become a candidate and the voters’ rights were “inextricably intertwined.” Id. at 700. The court reasoned, “a restriction upon who may be a candidate necessarily affects the efficacy of a person’s vote.” Id. at 701. In Green v. McKeon, 468 F.2d 883 (6th Cir.1972), the court upheld a district court’s finding that a two-year residency requirement for holding elective office was unconstitutional. The court noted the durational provision classified residents on the basis of recent travel, and stated that such a “classification alone requires that the requirement be strictly scrutinized because it operates to penalize the exercise of the basic constitutional right to travel.” Id. at 884. The court further pointed out that the fact that the residency requirement denied something that was not a constitutional right, that is, the right to run for public office, was not material in deciding that the restriction be closely examined.

In a factual situation quite similar to the one before us, the court in Bolanowski v. Raich, 330 F.Supp. 724 (E.D.Mich.1971), struck down a three-year residency requirement for mayoral candidates. While the Supreme Court has not accorded candidacy the status of a fundamental right, Bullock v. Carter, 405 U.S. 134, 92 S.Ct. 849, 31 L.Ed.2d 92 (1972), the court in Bolanowski noted that there does exist “a federal constitutional right to be considered for public service without the burden of invidiously discriminatory disqualifications,” citing Turner v. Fouche, 396 U.S. 346, 362, 90 S.Ct. 532, 541, 24 L.Ed.2d 567 (1970). The court went on to find that as both the right to vote effectively and to associate for the advancement of political beliefs were burdened by the restriction of the three-year residency requirement, a showing of a compelling state interest was necessary to justify such a restriction. The court found there was no compelling state interest in the argument that the three-year requirement was necessary to insure that candidates for public office understand the local problems and are familiar to the voters. The court concluded that such a provision did not meet “the exacting standard of precision” required of “statutes which selectively distribute the franchise.” Kramer, supra, 395 U.S. at 632, 89 S.Ct., at 1892. While precise in its aim to exclude those not familiar with local problems, the court held the statute gave no assurance that all those who were excluded were “substantially less interested in and knowledgeable about the community and its problems than those [that could] file.” Id. at 731.

V.

Here, we have a durational provision requiring that a candidate for mayor be both a voter and a resident of Owens-boro for three years before he is eligible to run. Not only are recent arrivals in Owens-boro excluded by these provisions; those who have lived there more than three years but, for one reason or another have not been registered to vote for three years, are also excluded. In light of such a broad exclusionary effect, we find that KRS 84.-280(2) has “a real and appreciable impact” on the voters and their choice of candidates, Bullock, supra; and, therefore, we believe that the compelling state interest test is appropriate in this case. An additional reason for the application of the compelling state interest test is that the statute disenfranchises on the basis of recent travel and, therefore, requires a closer scrutiny because the statute “operates to penalize the exercise of the basic constitutional right to travel.” Green, supra at 884.

The state interests the movant has argued in an attempt to justify the infringements on the right to vote effectively and to travel, are those of insuring that the candidate is familiar with the people in the area which he wishes to represent, the prevention of frivolous candidacies, and insuring that the voters are familiar with the candidate.

The need for familiarity with the voters of Owensboro and the issues that concern them was answered when the court in Bola-nowski, supra, aptly pointed out the failings of durational requirements in that regard at 731.

It requires little imagination to conceive of an adult citizen of the city of Warren who has lived his entire life there without taking any interest whatsoever in municipal problems, and who would thus not fit the articulated qualifications sought to be insured by the requirement. It is also easy to conceive of a person who may have lived in this city for two and one-half years and gathered sufficient knowledge to be able to have a good understanding of all aspects of the municipality’s difficulties.

The court in Mogk, supra, at 701 declared:

It is a matter of common knowledge that those who seek public office go to considerable effort and expense to secure exposure, and it may be safely assumed that opponents in an election race will seek out and make known the shortcomings of their opposition and assert their own superior qualifications for a particular post. If a short sojourn in the community is considered to be a disqualification the electorate may voice its sentiment at the ballot box.

The statements made in Bolanowski and Mogk are equally applicable to the present case. The true strength of our Constitution rests with its ability to grow and meet the needs of modern society. In the past KRS 84.280(2) served a useful purpose. Today with a mobile society lengthy durational requirements are violative of the equal protection clause of the Fourteenth Amendment.

The motion to set aside the order of the Daviess Circuit Court is DENIED. The motion of respondents is also DENIED.

All concur.


text:
    C. Thomas WHITE and Adelyn S. White, Individually and d/b/a The White House, Inc., and Julianna M. White’s Administrator, Appellants, v. WINCHESTER LAND DEVELOPMENT CORPORATION, the Winchester Bank, and The White House, Inc., Appellees.
    Court of Appeals of Kentucky.
    June 8, 1979.
    As Modified June 29, 1979.

      Janet R. White, White, McCann & Stewart, Winchester, for appellant, Julianna M. White’s Administrator.
    John Paul Moore, Rick J. Thomas, Winchester, for C. Thomas White and Adelyn S. White, Individually and d/b/a The White House.
    Henry L. Rosenthal, Jr., Winchester, for appellee, The Winchester Bank.
    Edsel T. Jones, Winchester, for appellee, Winchester Land Development Corp.
    Before MARTIN, C. J., and REYNOLDS and WINTERSHEIMER, JJ.
   MARTIN, Chief Judge.

Charles T. and Adelyn S. White appeal from a decision of the circuit court holding that certain stock pledged as security on appellants’ personal loan could be sold by the appellee bank to discharge the indebtedness on subsequent loans executed by appellants in the name of their corporation. The rather unusual facts of this appeal present several significant questions as to the extent of individual liability on corporate loans.

On February 2,1973, Charles T. and Ade-lyn White jointly executed a $15,000.00 personal note to The Winchester Bank. To secure this note, Charles’ mother, Julianna M. White, executed a pledge agreement and delivered 670 shares of Allied Stores Corporation common stock to the bank. The loan ledger of The Winchester Bank, filed as an exhibit, shows that the note on February 2 increased the indebtedness of the borrower, Charles T. White, to $22,-932.00. This indebtedness was gradually reduced, and after an increase on April 11, the loan ledger indicated a balance of zero by June 8.

Appellants incorporated their card and gift shop as The White House, Inc. on May 23. On June 6, Charles T. White signed a note in the amount of $20,000.00 to The Winchester Bank in his capacity as president of the corporation. On July 1, 1974, Adelyn White, the Secretary-Treasurer of The White House, Inc., signed a third note. This note was signed on behalf of the corporation in the amount of $19,630.36. Based upon requests for admissions filed in the trial court, these two notes, less payments, represented the indebtedness of The White House, Inc. to The Winchester Bank in the amount of $18,350.02 prior to this law suit. In 1975, The White House, Inc. became insolvent.

The crucial problem in this case centers upon whether the 670 shares of stock pledged by Julianna White on the appellants’ personal note may be considered continuing security for the notes made in the name of The White House, Inc. Those shares of stock were originally issued by the Allied Stores Corp. to Charles R. White and Julianna White as joint tenants with the right of survivorship. Charles R. White died on November 26,1972, and Julianna M. White died on October 10, 1974. Thus, a claim is now being made by the bank for the stock certificate upon the grounds that the stock is security for the corporate loans. Julianna’s surviving heirs, on the other hand, contend that the stock was released as security upon the appellants’ payment of the indebtedness on the original loan.

The trial court held that the second and third notes were mere renewals of the original notes, denying the Whites’ motion for summary judgment on the issue and ordering them to pay the bank the amount of $15,000.00, “the amount of the original loan to the individuals which the pledge secured.” The trial court thus granted summary judgment in favor of the appellees.

We are of the opinion that the decision below is erroneous. In reaching that result, we must consider the following questions.

1. Did the appellants sign the second and third notes in an individual or corporate capacity?

2. If the notes were signed in a corporate capacity, should the appellants nevertheless be held personally liable on the notes on the theory that the principal, The White House, Inc., was a mere sham?

3. If The White House, Inc. was not a sham corporation, were there sufficient in-dicia of intent to evidence a novation by the bank such that the earlier pledge was released? Alternatively, did the loan by the bank to The White House, Inc. constitute a mere renewal so that the earlier pledge remained in effect.

I.

In addressing the first issue, we note at the outset that Charles T. White, the maker of the second note, and Adelyn White, the maker of the third one, signed those notes as follows:

The White House, Inc. by: Charles T. White, Pres, and The White House, Inc. by: Adelyn S. White, Sec/Tres.

KRS 355.3^03(3), in effect since July 1, 1960, provides that “[ejxcept as otherwise established the name of an organization preceded or followed by the name and office of an authorized individual is a signature made in a representative capacity.” The significance of the fact that the Whites’ signatures were made in a representative capacity is that after the identity of the principal (here, The White House, Inc.) is disclosed, the agent is not liable for his own authorized acts. This fundamental tenet of the law of agency was upheld in Potter v. Cheney, Ky., 290 S.W.2d 44 (1956), and was recently followed in American Collectors Exchange v. Auter, Smalley, and Stengle, Inc., Ky.App., 566 S.W.2d 759 (1978). The record shows that on May 31, 1973, The White House, Inc. adopted a resolution to the effect that the President and Secretary-Treasurer of the Corporation were authorized to effect loans at any time for this corporation from The Winchester Bank, “. . . and to sign any notes . of this corporation.” Further, that resolution states that a certified copy thereof was delivered to the bank. Hence, the bank had notice of the agency relationship and the resolution which authorized the Whites, in their official capacities, to make notes. To this extent the principal, The White House, Inc., was liable on the notes and the agents, the Whites, were not.

As we noted, however, merely finding that appellants signed these later notes in a corporate rather than an individual capacity does not dispose of this appeal. If The White House, Inc. is a “sham” corporation, as contended by appellees, the corporation could be held simply an “alter ego” of appellants. Under that theory, appellants could be held liable on the later notes regardless of the fact that they signed them in a corporate capacity.

II.

The second issue presented on this appeal deals with appellees’ contention that The White House, Inc. is a mere sham designed to defraud its creditors. Thus, it is argued, the corporate veil should be pierced and the Whites found to be personally liable for the obligations of the corporation upon the basis that the corporation is an “alter ego” of the Whites. Appellees regard Zanone v. Standard Oil Co., Ky., 322 S.W.2d 710 (1959), as controlling.

In the Zanone case, it was established that the corporation was a family device organized to take over the business of a partnership without any cessation of activity. Many of the assets of the partnership were transferred to the corporation without consideration. According to one of the partners who became the president of the corporation, the sole purpose of the incorporation was “ ‘to search about for some means to be able to do business and not be entangled with the past.’” The holding, then, was based upon direct and uncontroverted evidence that the corporation was merely a fraudulent device which operated to do indirectly what the partnership could not do directly, viz, to defraud its creditors. To the extent that the record in this case is utterly devoid of such evidence, we find the Zanone case to be clearly distinguishable on its facts from the instant case, and hence not controlling. However, despite the fact that a corporation is usually recognized as an entity which is distinct from its shareholders, officers, and directors, there are “specific, unusual circumstances” that will prevent the rule of limited liability from applying. Zubik v. Zubik, 384 F.2d 267, 273 (3d Cir. 1967).

Three basic “theories” have been utilized to hold the shareholders of a corporation responsible for corporate liabilities. See Campbell, Limited Liability for Corporate Shareholders: Myth or Matter-of-Fact, 63 Ky.L.J. 23, 33 (1975). These have been labeled (1) the instrumentality theory; (2) the alter ego theory; and (3) the equity formulation. Because the bank seeks to rely upon all of these theories — if indeed they are distinct — they bear some examination.

Under the instrumentality theory three elements must be established in order to warrant a piercing of the corporate veil: (1) that the corporation was a mere instrumentality of the shareholder; (2) that the shareholder exercised control over the corporation in such a way as to defraud or to harm the plaintiff; and (3) that a refusal to disregard the corporate entity would subject the plaintiff to unjust loss. The courts adopting this test have been virtually unanimous in requiring that these three elements co-exist before the corporate veil will be pierced. See Campbell, supra at 33.

In this case it cannot be doubted that the Whites exercised a great deal of control over the corporation insofar as they were the sole shareholders. However, mere ownership and control of a corporation by the persons sought to be held liable is not alone a sufficient basis for denial of entity treatment. Poyner v. Lear Siegler, Inc., 542 F.2d 955, 958 (6th Cir. 1976). As to the second element, our courts have placed a great emphasis upon fraudulent organization and have denied entity treatment upon that basis. See Poyner, supra at 958, and the authorities cited therein. The record before us is utterly devoid of the essential elements of fraud, i. e., material representation, falsity, scienter, reliance, deception, and injury. See Sanford Construction Co. v. S & H Contractors, Inc., Ky., 443 S.W.2d 227 (1969), and Scott v. Farmers State Bank, Ky., 410 S.W.2d 717, 720 (1967). A discussion of the third element, that is, a refusal to disregard the corporate entity which would subject the plaintiff to unjust loss, shall be pursued in the next section of the opinion which deals with the problems of renewal and novation; suffice it to say here that the bank’s loss was not unjust because it could have secured the loan to The White House, Inc., merely by requiring the Whites to sign those notes in their individual and separate capacities.

As regards the alter ego formulation, the elements thereof have been defined as follows: (1) that the corporation is not only influenced by the owners, but also that there is such unity of ownership and interest that their separateness has ceased; and (2) that the facts are such that an adherence to the normal attributes, viz, treatment as a separate entity, of separate corporate existence would sanction a fraud or promote injustice. G. E. J. Corporation v. Uranium Air, Inc., 311 F.2d 749, 756 (9th Cir. 1963), cited in Campbell, supra at n.60. Again, there was no evidence of fraud adduced, and whatever loss the bank has suffered or may suffer could have been mitigated entirely by securing itself to the extent that the law allows. As to any allegations of failure to adhere to necessary corporate formalities, we again find the resolution, mentioned supra at page five, instructive. The fact that such a resolution was made and passed evidences that, by observing such a formality, the Whites complied with the strictures of proper corporate existence and thus maintained the separateness of entity so vital to the legitimate corporate function.

While these two formulations are helpful as an analytical framework, issues of “alter ego” do not lend themselves to strict rules and prima facie cases: whether the corporate veil should be pierced depends upon the innumerable equities of each case. Cf. United States v. Standard Beauty Supplies Stores, Inc., 561 F.2d 744 (9th Cir. 1977). Because this issue depends not only upon close-connectedness (which is inevitable in all closely held businesses) but also upon such actions as would indicate unfair dealings, an examination of those other factors is mandated. Von Brimer v. Whirlpool Corp., Inc., 362 F.Supp. 1182 (N.D.Cal.1973). Indeed, a number of factors are considered in all the cases no matter what “test” is being applied. Dewitt Truck Brokers, Inc. v. W. Ray Fleming Fruit Co., 540 F.2d 681 (4th Cir. 1976); Dudley v. Smith, 504 F.2d 979 (5th Cir. 1975); Lakota Girl Scout Council, Inc. v. Havey Fund Raising Management, Inc., 519 F.2d 634 (8th Cir. 1975); and Amoco Chemical Corp. v. Bach, 222 Kan. 589, 567 P.2d 1337 (1977).

Generally speaking, the corporate veil should only be pierced “reluctantly and cautiously” and then only in the presence of a combination of the following factors: (1) undercapitalization; (2) a failure to observe the formalities of corporate existence; (3) nonpayment or overpayment of dividends; (4) a siphoning off of funds by the dominant shareholder(s); and (5) the majority shareholders having guaranteed corporate liabilities in their individual capacities. 1 Fletcher’s Cyclopedia of Private Corporations § 41. Because all the factors save undercapitalization are part and parcel of each other, we may dispense with them first.

There is simply no evidence in this case supporting a finding that factors (2) through (5) are true. In fact, there are some elements of this appeal which could be construed as negating those factors. For example, both Exhibit E mentioned supra and the form in which the Whites signed the notes indicate that (2) and (5) as set out above are not applicable herein.

The theory of undercapitalization, while somewhat more problematic, is not significant here because Kentucky law does not require any minimum paid-in capital before a corporation begins to do business. See Note, Organizing the Corporation under the New Business Corporation Act, a Comparison with Prior Law, 61 Ky.L.J. 95, 106 (1972). More significant are the policy reasons behind the prohibition of undercapitali-zation—to protect innocent third parties who had no way of knowing that they were dealing with an impecunious entity. An example of this is the case of Mull v. Colt Co., 178 F.Supp. 720 (S.D.N.Y., 1959), in which the court noted that a refusal to allow plaintiff (who was injured by defendant’s taxicab) to recover would be unjust because the defendant had his taxicabs and licenses as assets, even though the corporation was without value. In the instant case, the bank cannot be heard to complain that The White House, Inc. was undercapi-talized because the bank had knowledge of the financial status of the corporation and could have protected itself.

III.

Having concluded that the corporate veil should not have been pierced in this case leads us to the third and final issue of whether the second and third loans constituted a novation or a renewal of the original note. Although the trial court found that “the renewal notes did not constitute a novation so as to release the original debtors,” we believe that there are genuine issues of fact as to this question.

Kentucky law is well-settled that a renewal note will not extinguish an obligation. Cantrill Construction Co. v. Carter, 418 F.2d 705 (6th Cir. 1969), citing Porter v. Bedell, 273 Ky. 296, 116 S.W.2d 641 (1938). A renewal note is thus distinguished from a novation which does operate to extinguish an original debt. Whether a second note is a renewal of the original obligation, or a novation thereof, depends upon the intentions of the parties. 11 Am. Jur.2d Bills & Notes, %% 307, 914. The question of intention in such cases often turns, to a large extent, on the terms of the hypothecation or pledge agreement. See Amlung v. First National Bank, Ky., 411 S.W.2d 465, 467 (1969), and Georgi v. First National Bank, Ky.App., 557 S.W.2d 442 (1977). However, unlike the Amlung and Georgi cases, the pledge agreement involved in this case does not clearly answer the renewal question.

Both Amlung and Georgi involved hy-pothecation agreements which clearly authorized the borrowing of additional funds by the same parties who actually executed the second loans. The Amlung and Georgi cases held that such authorization made the second loans mere renewal notes of the first obligation. In the case at bar, however, the pledge agreement executed by Julianna White authorizes loans to her son. The corporation is not mentioned in the agreement. Moreover, unlike most security agreements, the pledged stock was transferred and delivered to the borrower, appellant herein, rather than to the bank. Thus, the question of intention in this case is not nearly as clear as it was in Amlung and Georgi

Appellees argue, however, that the case -was proper for summary judgment because Julianna White lived with appellants. Thus, it is argued, Julianna had actual knowledge that the Allied Corporation stock had been pledged for the corporate debt. However, the evidence as to actual knowledge is also conflicting. Neither are we persuaded that the notations on the back of the later loans which showed the stock as pledged amount to conclusive proof of actual knowledge.

Given the unanswered questions as to the parties’ intentions and the conflicting evidence in the record, we are of the opinion that the summary judgment in this case was improper. See Kirk v. United Fuel Gas Co., Ky., 450 S.W.2d 504 (1970), and CR 56.03.

The rule is that property which is pledged as collateral for a certain debtor may not be applied as security for the debt of the original debtor in a different capacity. Atherton Co. v. Ives, 20 F. 894 (6th Cir. 1884). However, we are also aware that it is not the function of this Court to change obligations of a contract which the parties have made, O. P. Link Handel Co. v. Wright, Ky., 429 S.W.2d 842 (1968), nor to add a condition which was not written into the contract. Consolidated Jewelers, Inc. v. Standard Financial Corp., 325 F.2d 31 (6th Cir. 1963). Without more evidence, there exists simply too many unanswered questions to allow us to uphold a summary judgment.

For the above reasons, we find that the trial court’s entry of summary judgment was in error. In its determination of this case, the trial court should take the following factors into consideration and ascertain whether there is sufficient evidence to make findings on any of them: (1) whether Charles T. White did in fact consider the pledge valid on the substitute notes; (2) whether Charles T. White or Adelyn S. White were aware of the notations on the backs of the second and third loans (which notations evidence that the stock had been pledged for these obligations); (3) whether the fact that Mrs. Julianna M. White’s having lived with Charles T. and Adelyn S. White shows that the relationship was close and beyond that of an ordinary surety; and (4) whether the bank did in fact intend not only to substitute the new agreements for the old agreement, but also to extinguish the older ones.

The judgment of the Clark Circuit Court is reversed.

All concur.

      . We distinguish an hypothecation from a pledge. In the true hypothecation situation, there is no transfer of possession by delivery. In the typical pledge situation, which we have in the instant case, possession of the security is actually transferred by delivery to the party to be secured.

      . However, the trial court upheld the Whites’ motion for summary judgment as to any amounts over and above the first $15,000.00, stating that “the bank will have to bear the burden of poor judgment beyond that point.”

      . Although the legislature has not adopted the Official Comments to the Uniform Commercial Code (KRS ch. 355), these Comments “are by far the most useful aids to interpretation and construction of the code.” See White and Summers, Handbook of the Law under the Uniform Commercial Code 11 (1972). Thus we note that Comment 3 to U.C.C. 3-403 provides that:
      3. Assuming that Peter Pringle is a principal and Arthur Adams is his agent, an instrument might, for example, bear the following signatures affixed by the agent — (a) “Peter Pringle,” or (b) “Arthur Adams,” or (c) “Peter Pringle by Arthur Adams, Agent,” or (d) “Arthur Adams, Agent,” or (e) “Peter Pringle Arthur Adams.”
      A signature in form (a) does not bind Adams if authorized (Sections 3-401 and 3-404).
      A signature as in (b) personally obligates the agent and parole evidence is inadmissible under subsection (2)(a) to disestablish his obligation.
      The unambiguous way to make the representation clear is to sign as in (c). .

      . The interrelationship of “alter ego” and novation is, as to this case, somewhat subtle. As will be seen infra, a novation (a method by which a later contract involving the obligee vitiates an earlier one) may take place whether or not new parties are substituted. Watts v. Smith, 250 Ky. 617, 63 S.W.2d 796 (1933). We cannot doubt, however, that evidence of a “new” obligation wherein the identity of the parties thereto remained unchanged would have to be very clear indeed. Cf. Kirby v. Scroggins, Ky., 246 S.W.2d 453 (1952), and National Bank of Lima v. Deaton, 279 Ky. 606, 131 S.W.2d 495 (1939). Applying this theory to the instant case, the possibility that a novation in fact occurred is slight.
      Similarly, the two concepts are related in that a sham incorporation would be indicative of bad faith, which inquiry is always pertinent to the propriety of a novation. See White and Summers, supra footnote 4, at pp. 40-41. Finally, the issue of a sham incorporation is also material as regards the concepts of fairness and equity, which were the sole grounds upon which the trial court based its opinion.

      . This has been referred to as the “but — for” test, i. e., that, having indirectly achieved the result of having deprived a plaintiff of a remedy he would have had but for the existence of the corporation, the defendant has accomplished what he could not accomplish directly. See Thermothriñ Industries, Inc. v. Mono-Therm Insulations Systems, Inc., 450 F.Supp. 398, 405 (W.D.Ky.1978).

      . It is noteworthy that the cases that apply these tests show that the courts have been more willing to “pierce the corporate veil” when the defendant is a corporation that owns some subsidiary, rather than an individual, controlling shareholder. Hamilton, The Corporate Entity, 49 Tex.L.Rev. 979 (1971), cited in Campbell, supra, at note 49. Cf. Louisville and N. R. Co. v. Carter, 226 Ky. 561, 10 S.W.2d 1064 (1927). But see Dare to Be Great, Inc. v. Commonwealth, Ky., 511 S.W.2d 224 (1974), and Big Four Mills Ltd. v. Commercial Credit Co., 307 Ky. 612, 211 S.W.2d 831 (1948).

      . Cf. KRS 271A.280 (except as against the state or for an involuntary dissolution of a corporation, neither of which is present here, the mere issuance of the certificate of incorporation is conclusive evidence that a corporation has been properly incorporated under Chap. 271 A).

      . See N. Butler, Why Should We Change Our Form of Government 82 (1912):
      I weigh my words when I say that in my judgment the limited liability corporation is the greatest single discovery of modem times . . . . Even steam and electricity are far less important than the limited liability corporation, and they would be reduced to comparative unimportance without it.

      . The agreement executed by Julianna M. White on February 2, 1973, provides, in pertinent part, as follows:
      . . . I hereby certify' that the above described securities have been duly transferred and delivered by me to said borrower, and hereby expressly authorize said borrower to pledge or hypothecate all or any part of said security for the indebtedness aforesaid and all extension and renewals thereof; and also for any and all other indebtedness of the same debtor to you, created at any time before this authorization shall have been revoked in writing, ... I agree that all or any property pledged or hypothecated as aforesaid, shall be subject in your hands or those of your assignees, or pledges or pledgee, to all powers which would apply thereto by contract or otherwise if said property in fact so pledged or hypothecated stood in the name of said borrower himself and not in my name. The proceeds of all loans shall be accounted for and paid over to the borrower aforesaid, and said collateral securities or any surplus therefor may be accounted for and paid over, on full satisfaction of your claims to said borrower. (Emphasis added).

      . Whether such actual knowledge would be relevant depends upon whether Julianna White’s heirs and devisees assert that the contract between Julianna White and the bank was unconscionable because, by delivering the stock to her nephew and not to the bank, the bank is not automatically precluded from applying the earlier pledge to the later debt of another debtor in a different, and innocently assumed capacity.