Empire Fuel Co. v. Hays

• Decision Date: 08 February 1924
• Citation: 295 F. 704
• Parties: EMPIRE FUEL CO. v. HAYS, Internal Revenue Collector.
• Court: U.S. Court of Appeals — Fourth Circuit

295 F. 704

EMPIRE FUEL CO. v. HAYS, Internal Revenue Collector.

United States District Court, N.D. West Virginia.

February 8, 1924

Arthur S. Dayton, of Charleston, W. Va., and Melvin G. Sperry, of Clarksburg, W. Va., for plaintiff.

T. A Brown, U.S. Atty., of Parkersburg, W. Va., Harry H. Byrer Sp. Asst. U.S. atty., of Martinsburg, W. Va., and Charles A Mapes, Sol. of Internal Revenue, and H. M. Darling, Sp. Atty Bureau Internal Revenue, both of Washington, D.C., for defendant.

BAKER District Judge.

This is an action of trespass on the case in assumpsit, commenced on July 14, 1920, by the Empire Fuel Company, a West Virginia corporation, chartered on the 5th day of April, 1917, under the laws of the state of West Virginia, plaintiff, against S. A. Hays, United States collector of internal revenue for the district of West Virginia, defendant, to recover the sum of $35,668.23, with interest thereon from the 30th day of August, 1919, additional excess profit tax assessed against the plaintiff corporation for the year 1917, alleged to have been illegally collected by said Hays, collector, acting under the authority of the Act of Congress approved October 3, 1917, commonly known as the 'Excess Profit Law' (Comp. St. 1918, Sec. 6336 3/8a et seq.).

Contentions of Parties-- Plaintiff.

That the West Virginia Gas Coal Company owned a coal lease and a limited amount of equipment and a leasehold estate upon a certain coal mining property, situate in Kanawha county, W. Va., and was engaged in mining and producing coal. Desiring to sell its properties, its officers opened negotiations for that purpose with Senator Gohen C. Arnold, and the four Messrs. Hutchinson. These negotiations culminated in a contract for the sale of the properties under date of March 20, 1917, the sale to be consummated on the last day of the month-- the purchasers to be entitled to the properties from and after April 1, 1917. The contract provided that the conveyance of the properties was to be made to Arnold and the Hutchinsons, or to their nominee or nominees, as they might elect. During all the negotiations that led up to the contract, it was understood by both buyers and seller that either a corporation in existence should be the real purchaser of the properties, or that nominal purchasers would organize a corporation to acquire the properties under the contract of purchase, and to own, hold, and operate them.

After the making of this contract of purchase exigencies arose, which made it desirable on the part of the seller to convey the legal title to the properties before the time fixed in the contract of purchase, and this desire was made known to Senator Arnold, and it was arranged that a deed should be forthwith made and delivered to Senator Arnold for the properties, and, under date of March 20, 1917, such deed was executed and deposited with Union Trust Company, a banking institution of Charleston, W. Va., for the grantee and his associates. Not having anticipated taking title to the properties until the 1st day of April following, the purchasers had not organized the corporation to take title, and therefore it became necessary, for the time being, to vest the legal title, at least, in one or more of the promoters, or in some other person, for the benefit of the corporation to be organized. While the deed was made at an earlier date than contemplated by the contract, the sale was made in compliance with the original terms of the contract of purchase, as of the 1st day of April, 1917.

It was understood, in the making of the deed to Arnold on March 20, 1917, the selling company should conduct the mining operations, and all operations be paid by it up to the 1st day of April following, and that it should receive, appropriate, and own all the income, earnings, and profits from the property up until that date. So that from March 20 to April 1, 1917, Senator Arnold held the naked legal title only of the property, for the use and benefit of the seller, the West Virginia Gas Coal Company. In other words, the property was held and operated by the representative of the seller until the date of the final consummation of the sale, which, April 1 falling on Sunday, was, by virtue of West Virginia statute, on the Monday following, or April 2. On April 2, 1917, the delivery of the property to Arnold, as trustee for his associates and for the corporation in process of organization, was in fact made, and the sale by the West Virginia Gas Coal Company became completed.

The promoters speedily completed the organization of a corporation (the Empire Fuel Company), and by deed dated April 2, 1917, but executed on the completion of the organization of said Empire Fuel Company, the plaintiff corporation, on the 21st day of April, 1917, Senator Arnold conveyed, assigned, and transferred to the plaintiff company, as of April 2, 1917, all of the mining property, estates, rights, and franchises of every kind and description whatsoever acquired from the West Virginia Gas Coal Company; the purchaser assuming all obligations incurred in the purchase of the property and in the promotion of the corporation, and all operating expenses incurred in the operation of the property from and after the date of April 2, 1917, and the Empire Fuel Company acquiring all rentals, incomes, and profits accruing upon or derived from the property from and after April 2, 1917. At no time did Senator Arnold, by virtue of any of the transactions, own or hold for himself or for his individual associates any beneficial interest whatsoever in and to the properties or any part of them; nor did he derive for himself personally, or for his associates, any profits or benefits whatsoever from the said properties, except such as he later acquired by reason of his ownership of a part of the capital stock in the plaintiff corporation, Empire Fuel Company.

The purchase price from the West Virginia Gas Coal Company was $125,000, and the assumption by the purchasers of any damages that might be recovered by Jewett-Bigelow and Brooks against the West Virginia Gas Coal Company in excess of $10,000, as stipulated in said contract. Senator Arnold and his associates borrowed $41,000 to make the cash payment on this property and gave notes aggregating $84,000. Later, in order to provide working capital, there was borrowed $50,000, which was used to pay the $41,000 original cash payment, and the residue to be used to provide working capital. In addition, Senator Arnold personally advanced the discount on the notes of the Pittsburgh Bank and the Empire National Bank, amounting to something over $1,200, and some other minor sums were advanced. It is admitted that these debts were assumed by plaintiff, Empire Fuel Company.

The plaintiff commenced its corporate existence with an indebtedness of $84,000 to Mason Crickard, trustee for the West Virginia Gas Coal Company, its own notes having been substituted for those of Senator Arnold and others; also with indebtedness to the Empire National Bank of $25,000, and a like indebtedness of $25,000 to the Bank of Pittsburgh, and an indebtedness of something over $1,200 to Arnold for discount, etc., advanced. Senator Arnold, in purchasing the property of the West Virginia Gas Coal Company, was acting for the benefit of the plaintiff company in contemplation of its organization, and under the rule of 'qui facit per alium facit per se' plaintiff company, in effect purchased this property and borrowed all the purchase money and all of the money for its working capital and corporate organization, and, all of said...