Haiku Sugar Co. v. Johnstone

• Decision Date: 01 April 1918
• Docket Number: 3090.
• Citation: 249 F. 103
• Parties: HAIKU SUGAR CO. et al. v. JOHNSTONE.
• Court: U.S. Court of Appeals — Ninth Circuit

249 F. 103

HAIKU SUGAR CO. et al. v. JOHNSTONE.

No. 3090.

United States Court of Appeals, Ninth Circuit.

April 1, 1918

Suit to recover certain moneys paid under protest in September, 1916 as income taxes under the federal Income Tax Law of October 3, 1913 (Act Oct. 3, 1913, c. 16, 38 Stat. 114). Demurrer to the complaint was sustained, and judgment went against the plaintiffs. The facts as alleged are: That the Maui Agricultural Company is made up of several corporations, each of which was incorporated under the laws of Hawaii; that the plaintiffs, since January, 1904, have been copartners under the firm name and style of Maui Agricultural Company, sugar growers of Hawaii; that the partnership has existed under an agreement of partnership, dated October 30, 1903, and adopted by-laws in 1904; that it was intended to be a general partnership, each partner a general partner therein, with unlimited liability upon each of the partners or members for the debts of the partnership; that by the laws of Hawaii (Session Laws of 1903, entitled 'An Act Concerning Corporations,' approved April 28, 1903; sections 2631 and 2632 of the Revised Laws of 1905; sections 3388 and 3389 of the Revised Laws of Hawaii of 1915) corporations in Hawaii are authorized to enter into general or special partnership with each other; that the general partnership was duly registered, pursuant to the registration law of Hawaii (chapter 28, Session Laws of Hawaii of 1880, re-enacted as chapter 162, Revised Laws of 1905, and chapter 189, Revised Laws of Hawaii, 1915); that under the provisions of the indenture of partnership the several partners or members have definite shares in the capital of the partnership, and that, while the by-laws provided that the respective interests of the partners or members shall be evidenced by a certificate, no stock or shares of stock or certificate of stock in the partnership or company has ever been issued, except as to certificates of the respective interests of the partners or members; that it never was intended that the partnership should have any capital stock as distinguished from capital assets or working capital, nor has the capital of the partnership, or any share or interest therein, of any of the partners, ever had any par or face value; that it was never intended that the respective shares or interests of the partners in the capital assets of the company should be sold or transferred in any manner, whereby any assignee or transferee could succeed to the rights of the assignor or transferror to continue in the business of the partnership or to carry on the business with the other partners without their consent, and that the shares or interests of the partners in the partnership have never been divisible; that the capital assets consist mainly in the use during the existence of the partnership of the property and rights of the several partners which were contributed by them, respectively, to the partnership as required by the indenture of partnership, and are to revert to the respective partners or members upon the termination of the partnership or company; that the Maui Agricultural Company was never intended to be a corporation, joint-stock company, or association within the provisions of the Corporations Tax Law of August 5, 1909 (Act Aug. 5, 1909, c. 6, 36 Stat. 112), or within the meaning of the Income Tax Law of October 3, 1913; that the company as a partnership has made statements of profits to which its partners would be entitled after the same were divided, and given the names of the partners or members who would be entitled to the same, if distributed in compliance with the act of October 3, 1913, and particularly the fifth proviso of paragraph D of section II of the said act, and made statements to the revenue officials accordingly for the year 1914; that the plaintiffs, members of the company, have been liable for corporation excise tax and income tax only in their several individual capacities, and have returned statements accordingly for taxes for the years previous to 1915, showing the respective shares of the profits of the company for the said years, and the profits to which each member would have been entitled if they had been divided; and plaintiffs say they were assessed accordingly and paid the assessment so made, but that in 1916 the revenue authorities took the position that the company was not subject to the special corporation excise tax under the act of August 5, 1909, but was subject to the income tax under the act of October 3, 1913, and that plaintiffs, members of the company, are severally subject to the corporation excise tax for 1909, 1910, 1911, and 1912, inclusive, and to the income tax for 1913, 1914, and 1915, inclusive, in respect to the shares distributed to and received by them, respectively of the net income of the company in each of the said years, as distinguished from their respective shares in the net income of the company earned and distributed in each of the said years, whether distributed or not.

Smith, Warren & Whitney and Frear, Prosser, Anderson & Marx, all of Honolulu, T.H., for plaintiffs in error.

John W. Preston, U.S. Atty., and Caspar A. Ornbaun, Asst. U.S. Atty., both of San Francisco, Cal., and S. C. Huber, U.S. Atty., and J. J. Banks, Asst. U.S. Atty., both of Honolulu, T.H., for defendant in error.

Before GILBERT, ROSS, and HUNT, Circuit Judges.

HUNT Circuit Judge (after stating the facts as above).

The question for decision is whether the Maui Agricultural Company is an organization excepted from the Income Tax Law of 1913, which, besides applying to persons, applies, subject to certain enumerated exceptions, to:

'Every corporation, joint-stock company or association, and every insurance company, organized in the United States, no matter how created or organized, not including partnerships.'

It is clear, we think, that the company is not a legally created corporation. It was originally formed in 1903, solely by agreement of its members. The statute of Hawaii (section 1, act 51, Session Laws of Hawaii 1903) permitted any two or more corporations, organized under the laws of Hawaii, to enter into partnership with each other for the transaction of any lawful business; but a partnership formed of corporations is not in itself a corporation. The right given to a corporation to become a member of a partnership pertains to the power of the corporation to gain membership in a partnership, but does not make the aggregation of partners itself a corporation. There may yet be upon a corporation member the liability of a partner as to third persons. Butler v. Am. Toy Co., 46 Conn. 136; Bates on Partnership, Sec. 1; Lindley on Partnership, p. 86. The partnerships into which corporations may enter in Hawaii are general and special. Chapter 70, Sec. 1, Session Laws 1886. In the association in question there were no special partners, nor was there limited liability; nor, indeed, was any attempt made to form any but a general partnership. Strong evidence of this is the fact that the company registered as a general partnership under the law. Chapter 189, Revised Laws of Hawaii 1915.

In so far as intent may serve to determine the character of the...