Com. of Va. v. South. Iron Corp.

• Citation: 142 Va. 107
• Court: Supreme Court of Virginia
• Decision Date: 11 June 1925
• Parties: COMMONWEALTH OF VIRGINIA AND COUNTY OF ROCKBRIDGE v. SOUTHEASTERN IRON CORPORATION.

Page 107

142 Va. 107

COMMONWEALTH OF VIRGINIA AND COUNTY OF ROCKBRIDGE v. SOUTHEASTERN IRON CORPORATION.

Supreme Court of Virginia, Wytheville.

June 11, 1925.

Argued before Judge Chichester took his seat.

1. TAXATION — Erroneous Assessments — Capital of Corporation — Community of Interests between Corporations — Assessment against Either — Case at Bar. — In the instant case, ore and manufactured products therefrom belonging to one corporation was assessed as capital of another corporation. It was contended that the two corporations should be held to be one and the same in the eyes of the law; that there was such a community of interest in the property that an assessment against either or both corporations would be proper. The corporation to whom the property belongs owned sixty per cent of the stock of the corporation to whom the property was assessed, but they had different directors and officers. The contract under which the corporation assessed held the property of the other was a fair business arrangement between the corporations and there was no suggestion of fraud.

Held: That while the principle relied upon was sound, the testimony did not bring the instant case within it.

2. CORPORATIONS — Disregarding the Separate Corporate Entity of Two Corporations — Two Corporations Regarded as the Same. — There are instances where the separate corporate entity of two corporations may be disregarded and the corporations held to be one and the same in the eyes of the law. But the cases in which the courts have enforced this rule are either when the corporate entity is used to conceal a fraud, or when a corporation is so organized and controlled as to make it a mere instrumentality of another corporation.

3. TAXATION — Partnership — Partnership Property — Listed by and Taxed to the Firm. — Under Code of 1919, section 2307, as amended by Acts 1923, page 120, property belonging to a company or firm should be listed by and taxed to the company or firm and not by or to the individual members of the firm.

4. PARTNERSHIP — Definition. — An accurately inclusive and exclusive definition of partnership seems to have eluded the capacity of courts to express.

5. PARTNERSHIP — Test of Partnership — Sharing of Profits and Losses. — The sharing of profits and losses is not a conclusive test of partnership.

6. PARTNERSHIP — Test of Partnership — Community of Interest in and Control over the Partnership Property. — In order to charge parties as partners, it is necessary that they have a community of interest in and control over the partnership property and business.

7. PARTNERSHIP — Sharing of Profits — Relationship of Principal and Agent. — If the parties merely occupy the relation of principal and agent, or employer and employee, no partnership can be predicated upon the fact that such agent or employee receives a share of the profits as compensation for his services or other benefits conferred.

8. PARTNERSHIP — Corporations — Compensation Based on Profits — Case at Bar. — A corporation undertook to manufacture ore for another, its compensation to be a proportion of the profits made by the other corporation. The manufacturing corporation loaned money to the other corporation for the purchase of ore, which the borrowing corporation was required to return with interest. The contract clearly showed that the manufacturing corporation had no ownership in either the ore or the manufactured products.

Held: That as there was no community of interest in or a joint ownership of the property, there was no partnership.

9. TAXATION — Trusts and Trustees — Technical Trustees — Section 2307 of the Code of 1919. — Section 2307 of the Code of 1919 providing that property held in trust shall be listed by and taxed to the trustee refers to technical trusts and not to those implied from a contract.

10. TAXATION — Trusts and Trustees — Assessment of Property of one Corporation against Another — Cast at Bar. — In the instant case, the property of one corporation was assessed as the capital of another corporation. It was contended that the corporation assessed was a trustee of the corporation owning the property; and, therefore, under section 2307 of the Code of 1919 the assessment was not erroneous. But there was no assessment against the corporation as trustee, but only against it on its capital alleged to have been employed in its business, and omitted from taxation. If the property could have been assessed against the corporation as trustee, it would appear that it could only be assessed as tangible personal property, and such property carries a rate of taxation different from that imposed on capital employed in business.

11. TRUSTS AND TRUSTEES — Who are Trustees — Bailee. — It is perfectly clear that a bailee is not a technical trustee.

12. TAXATION — Capital — Erroneous Assessment — Property of one Corporation Assessed as Capital of Another — Case at Bar. — In the instant case the S. corporation entered into a contract with the M. corporation, which owned sixty per cent of its stock, to manufacture pig iron for the account of the M. corporation. The M. corporation to furnish the ore and the S. corporation to ship the manufactured products as ordered by the M. corporation. The S. corporation loaned the M. corporation four hundred thousand dollars, bearing interest, to purchase ore. The compensation of the S. corporation was to be based upon the profits of the M. corporation from the sales of the manufactured products. The S. corporation was assessed upon the ore and manufactured products on hand under the contract at its furnace as part of its capital under section 8 of the tax bill, Acts of 1918, page 171. The assessment was as of omitted capital of the S. corporation and when made the property in question was no longer in the possession of the S. corporation.

Held: That this assessment was erroneous.

Error to a judgment of the Circuit Court of Rockbridge county in a proceeding to correct an erroneous assessment. Judgment for plaintiff. Defendant assigns error.

The opinion states the case.

A. Willis Robertson, Henry M. Gould, and E. Warren Wall, for the plaintiffs in error.

Munford, Hunton, Williams & Anderson and Writ P. Marks, Jr., for the defendants in error.

PRENTIS, J., delivered the opinion of the court.

The Commonwealth and the county of Rockbridge are here seeking the reversal of an order entered upon the petition of the Southeastern Iron Corporation, relieving it from certain assessments for taxation upon its capital which it is alleged was illegally omitted for the years 1919 and 1920.

The essential facts may be thus stated: Southeastern Iron Corporation, hereinafter called Southeastern, was incorporated under the laws of Virginia May 21, 1917, with its principal office in the city of Richmond. It maintained an office in the city of Chicago, Ill., and was authorized to do business there. The Iroquois Iron Company, an Illinois corporation, hereinafter called Iroquois, for many years prior to 1918 had been operating five furnaces at South Chicago, Ill. The Miami Metals Company, an Illinois corporation, hereinafter called Miami, commenced the business of developing the production of domestic ferro-manganese ore in 1915 or 1916. During the World War this company largely acquired control of the domestic ore, and made contracts with Brazilian producers for high grade ferro-manganese ore mined there. Miami owned no furnaces, however, and in 1916 it entered into contract with Iroquois under which that corporation agreed to manufacture ferro-manganese and spiegeleisen from the ore owned and furnished by Miami. As compensation to Iroquois for manufacturing the ore, a fixed proportion of the profits which Miami derived from the operations was agreed upon, and this arrangement continued during 1916 and 1917.

Southeastern was capitalized at $500,000.00, of which capital stock Miami owned about sixty per cent, but none of the other forty per cent of the capital stock of Southeastern was owned by any of the officers or directors of Miami. The board of directors of Miami consisted of three members, while the board of Southeastern consisted of seven. None of the directors of either corporation was a director of the other. Each had a different president and secretary. At one period three directors of Miami were vice-presidents of the Southeastern. Miami did not own any of the capital stock of, and was not financially interested in, Iroquois.

After its organization, Southeastern acquired from furnace property located at Goshen, Rockbridge county Virginia, which included a large acreage with a blast furnace and its usual accessories. The early operations of the Southeastern proved unprofitable, but to January 1, 1918, these were conducted solely for its own account. Thereafter it operated under the contracts hereinafter referred to.

It appears that the demand for ferro-manganese was greatly increased during the World War, and the chief sources of production were the mines of Brazil, India and Russia, little being mined in this country prior to that time. It was impossible on account of war conditions to procure high grade ore from India and Russia, and therefore the owners of the Brazilian mines controlled the manganese ore market in this country. As a result of this control and the large demand incident to the war, this Brazilian ore advanced about 600 per cent over the normal pre-war price, and when it became necessary to negotiate contracts for this ore in 1918, the Brazilian producers required contracts for the entire amount needed during the whole year at the then prevailing high price. Southeastern was therefore, in the latter part of 1917, under the necessity either of contracting in advance with Brazilian producers for manganese ore for all of its 1918 requirements at war prices, or of changing its methods. It was anticipated that at the end of the war there would be a sudden decline in the price of this ore, so...