Gleason v. McKay

• Decision Date: 05 March 1883
• Citation: 134 Mass. 419
• Parties: Daniel A. Gleason v. Gordon McKay
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

134 Mass. 419

Daniel A. Gleason v. Gordon McKay

Supreme Court of Massachusetts

March 5, 1883

Argued November 20, 1882 [Syllabus Material] [Syllabus Material]

Suffolk. Contract by the treasurer of the Commonwealth against the trustee of the McKay Sewing Machine Association, to recover a tax assessed upon said association for the year 1879, in pursuance of the St. of 1878, c. 275. The case was submitted to the Superior Court, and, after judgment for the defendant to this court, on appeal, on agreed facts, in substance as follows:

Previously to May 10, 1866, Gordon McKay had acquired, by invention assignment or license, interests in letters patent of the United States for improvements in machinery for sewing the soles of boots and shoes to the vamps, and had been carrying on the business of manufacturing machines under these letters patent, and licensing shoe manufacturers to use them. From the proceeds of the business, he had purchased land in Lawrence, and built a machine-shop on it for the manufacture of such machines, and accumulated some personal property. The legal title in the business and in all the property, both real and personal, including the interests in the letters patent, was and has continued to be in himself; but other persons were and are equitably interested in various proportions.

On May 10, 1866, McKay executed an instrument under seal, ^[*] in which, after reciting the foregoing facts, he declared that he had held and should continue to hold the business and property in trust for the benefit of all persons who were or might become interested therein, upon the terms and conditions therein set forth.

Upon the execution of this instrument by McKay, all the persons then interested in the property or business signed an agreement in the following terms: "In consideration that the said Gordon McKay has agreed and does hereby bind himself and agree to deliver to each and every party having an interest in the property set forth in the foregoing certificate and declaration of trust, a certificate and declaration similar to the foregoing, expressing the several interests of each party, in case all of the persons interested in said property shall sign this agreement, we do hereby severally bind ourselves and agree to receive from said McKay such certificate and declaration of trust, as the sole evidence of our respective interests in the above-described property; and upon the receipt thereof, any other certificate or evidence of title which we may hold to said property shall become cancelled and void, and the same shall be surrendered to him, the said McKay."

Each person then interested received a certificate, signed by the trustee, certifying that he was the owner of a certain number of shares "in the property of the McKay Sewing Machine Association," and that the "shares are transferable by an assignment in writing on this certificate, and a surrender of this certificate to the trustee."

After the execution of the papers, and issue of the certificates, the shareholders, on May 28, 1866, held a meeting, as provided for by the declaration of trust, and chose an executive committee and adopted by-laws for the regulation of the business of the association.

Since said date, the business of the association has been conducted by its executive committee under the provisions of said declaration and by-laws, McKay holding the legal title of all its property as trustee, under said declaration, the title of the property never having passed from him. The place of business of the association is and always has been in Boston, except that it has a factory in Lawrence for the manufacture of machines and tools. Except its machine-shop in Lawrence, and the tools and machinery connected therewith, the property of the association and the value of its shares consist chiefly of its interests in the letters patent.

Its income is chiefly derived from license fees received from licensees of its machines, and the net amount of this income is divided from time to time, generally quarterly, among its members, in proportion to their respective shares or interests.

Its machines are all leased under a form of lease, the legal title to them remaining in McKay as trustee. On May 1, 1879, there were 1216 of these machines in the hands of licensees, distributed throughout the United States; and the interest of McKay, trustee, and of said association therein, exclusive of the interest of the lessees, was taxed to said trustee for that year, in Boston, at the rate of $ 1 per machine. The total value of the machines at that date, May 1, 1879, was, on an average, $ 100 for each machine, which had been paid by each lessee on the delivery of the machine to him. By a provision in all of said leases, the lessee upon the termination of the lease, if he has complied with its terms, is entitled to the machine absolutely, upon the payment of $ 1 to the trustee.

Whenever a member sells his shares, or any of them, new certificates are issued to the purchaser, and such purchasers thereupon become members of the association. Said shares are frequently sold, and such sales reported at auction sales in Boston, and are subject of transfer upon assignment of certificates of shares, as set forth in said certificates; and, upon such assignment, the assignee is entitled to receive new certificates, and to demand and receive of the association his proportionate share of the net profits of the association, under said declaration and by-laws. Such shares are held by the person holding the certificate thereof, free from the control of any other person, and are subject to no restrictions or conditions whatever, except such as are set forth in said certificate and declaration of trust.

McKay, as trustee of said association, was taxed for its real estate, machinery and tools in Lawrence for the year 1879, as well as in all previous years, and the tax was duly paid; said real estate was assessed at $ 63,500, and said machinery and tools at $ 71,216. He was also taxed in said year, as in all previous years, in Boston for the personal property held by him for said association, consisting of office furniture, money on hand, book accounts and interest in said machines in the hands of licensees, all valued at $ 52,291.99, and upon which he duly paid the assessed tax, amounting to $ 653.75. This valuation did not include the interests in the letters patent held by him, it being contended by the trustee that letters patent of the United States were not subject to taxation.

The tax sought to be recovered in this action, $ 14,253.33 was assessed upon the aggregate value of the shares of the association on May 1, 1879, as ascertained by the tax commissioner in pursuance of the provisions of the St. of 1865, c. 283, after deducting therefrom only the value of said real estate, machinery and tools taxed at Lawrence, said assessed valuation being $ 1,115,284.

Upon notice of said taxation, the said trustee, in behalf of the association, duly applied to the board of appeal for a correction of said tax, upon the ground that said valuation and assessment included the interest in said letters patent, and also the personal property taxed in Boston, as it did in fact, at the same time claiming that no tax whatever was assessable against said trustee or association. Upon the hearing, the foregoing facts appeared; but the board of appeal declined to reduce or alter the amount of said valuation or assessment.

Judgment for the defendant.

C. H. Barrows, Assistant Attorney General, for the plaintiff. The St. of 1878, c. 275, may be declared constitutional:

First. As imposing an excise on the franchise of an unincorporated association, the franchise belonging to the...