Hubbard v. Lowe

• Citation: 226 F. 135
• Parties: HUBBARD et al. v. LOWE, Internal Revenue Collector.
• Decision Date: 15 October 1915
• Court: U.S. District Court — Southern District of New York

226 F. 135

HUBBARD et al. v. LOWE, Internal Revenue Collector.

United States District Court, S.D. New York.

October 15, 1915

Action at law to recover a tax alleged to have been illegally assessed against and collected from plaintiffs. Heard on general demurrer to the complaint.

The tax in question was imposed under 'United States Cotton Futures Act,' approved August 18, 1914 (38 Stat. 693, c 255). The complaint sets forth in the fullest manner the origin and history of this statute, as shown by the journals of the Senate and the House of Representatives, and avers that on May 28, 1915, the plaintiffs, on the New York Cotton Exchange, made a contract for the sale of cotton for future delivery, a copy of which contract is annexed to the complaint, and is not in the form nor does it contain the provisions prescribed and provided for by section 10 of the statute and the regulations promulgated by the Secretary of the Treasury pursuant to the act under date of January 30 1915. It is further shown that shortly after the execution of this cotton futures contract the Commissioner of Internal Revenue, under the authority of the Cotton Futures Act assessed a tax upon the said contract. The defendant demanded payment of the tax so assessed and threatened to levy upon plaintiffs' property for the same, whereupon plaintiffs paid the amount of the tax under protest, and after unsuccessful appeal to the Secretary of the Treasury brought this action to recover the $1,000 so paid.

The ground of recovery is 'that said United States Cotton Futures Act is not and was not on May 28, 1915, or at any time thereafter, a law of the United States. ' The reasons assigned for its not being a law are its unconstitutionality, because:

(1) The tax is upon the privilege of dealing on exchanges, and not upon the business itself there transacted, but the tax is laid or not laid, not by the extent of the privilege, but by the manner of use of the privilege-- that is to say, a man who makes a contract on the exchange in the form approved by the statute is not taxed. but if the same or another man makes a contract of the same value or transacts the same amount of business on the same exchange, but uses any other form of contract than that governmentally approved, he is taxed. This classification of or measure for taxation is said to be unconstitutional and to vitiate the entire statute.

(2) The United States Cotton Futures Act is in the language of the Constitution 'a bill for raising revenue'; but it did not originate in the House of Representatives, and did originate in the Senate. It is therefore unconstitutional because the command is imperative that 'all bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other bills.'

The demurrer admits the history of the bill to be true, and casts upon the court the duty of deciding whether the statute is unconstitutional upon either of the grounds assigned.

Miller & Auchincloss, of New York City (David Hunter Miller, of New York City, of counsel), for plaintiffs.

H. Snowden Marshall, U.S. Atty., and Earl B. Barnes, Asst. U.S. Atty., both of New York City, for defendant.

HOUGH, District Judge (after stating the facts as above).

That an unconstitutional statute is not a law at all is a proposition no longer open to discussion. It has not, however, been so often considered that there are varieties of unconstitutionality. This fact is illustrated by the two branches of argument presented in this case.

The common and ever-recurring question arising under those laws regulating laws, which we call Constitutions, is whether a given act seeks to produce a result forbidden by the fundamental law. The much rarer and less important problem is whether the lawmakers have used the constitutional tools in the manner constitutionally prescribed.

The exercise of judicial power in respect of the first question in any of its protein forms is a matter of great seriousness, for it often amounts to a denial of the legislative will on subjects long considered and solemnly determined. The second form of unconstitutionality is far less important, for it is usually no more than a declaration that by carelessness or inadvertence something has been done in such slovenly shape that it must be done over.

For every reason, therefore, it seems best to first consider the objection to this statute based upon the statement that it is a bill for raising revenue originating in the Senate, and if that objection be 'good beyond rational doubt' (International Mercantile Marine Co. v. Stranahan (C.C.) 155 F. 428), to go no further. I am perhaps saved from inquiry whether the Cotton Futures Act is a 'bill for raising revenue' by the agreement of counsel on this point. They have all asserted that, though every one who has studied the investigations, reports, and discussions preceding and producing the passage of the act knows that nothing was further from the intent or desire of the lawmakers than the production of revenue, nevertheless the result of their efforts is a revenue bill within the constitutional meaning.

This familiar paradox results from McCray v. United States, 195 U.S. 27, 59, 24 Sup.Ct. 769, 49 L.Ed. 78, 1 Ann.Cas. 561, and the doctrine that the motive or purpose of Congress in adopting a statute cannot be judicially inquired into. As in the case cited the Legislature desired to suppress the sale of colored oleomargarine, so here it desired to destroy every form of contract for future delivery of cotton, except that marked out by the statute. In both instances the object was sought to be attained by a tax intended to be prohibitive; in both the statutes are by title called tax bills, and to both the same treatment must be accorded, viz.: They are revenue bills, because Congress gives them that label and provides the machinery of levy and collection. It is immaterial what was the intent behind the statute; it is enough that the tax was laid, and the probability or desirability of collecting any taxes is beside the issue.

Assuming that the constitutional phrase applies, inquiry may next be made as to the meaning of the word 'bill,' in contradistinction from 'statute' or 'act.' 'A 'bill' is a draft of a proposed statute submitted to the Legislature for enactment. ' People v. Reardon, 184 N.Y. 431, 77 N.E. 970, 8 L.R.A. (N.S.) 314, 112 Am.St.Rep. 628, 6 Ann.Cas. 515. This definition has been universally accepted, although the word is 'often used loosely as synonymous with act or law. ' Sedgwick Co. Com'rs v. Bailey, 13 Kan. 600. It follows that what the Constitution requires to originate in the House of Representatives is not the final product of the legislative will, not the statute, but a project for a statute, which may be amendment take a very different shape by the time it is ready for promulgation as law. Where, therefore, did the Cotton Futures Act originate, when it was in the chrysalis form of a 'bill'? Here contest begins, for it should first be settled as to what evidence the court must or may consider to ascertain origin, a technical point somewhat obscured by the form of the pleading.

The complaint shows (1) that the act, as it lies engrossed in the office of the Secretary of State, bears the legend 'S. 110' (meaning Senate Bill 110), and also contains the certificate of the secretary of the Senate to the effect that 'this act originated in the Senate. ' The court takes judicial notice that 38 Stat. 693, also describes this statute as 'S. 110.' It is pleaded and admitted by the demurrer that the certificate of the secretary of the Senate was affixed to the original bill pursuant to the joint rules of both houses of Congress, in existence since 1789. On argument it was discovered that these rules were abrogated in 1876; but the practice of affixing a certificate to each statute adopted, showing its house of origin, has never been departed from. Hinds, Precedents of the House of Representatives, vol. 4, Sec. 3430.

I do not think the abrogation or lapse of the formal 'joint rule' is a matter of any importance. The custom is admitted, its importance is obvious, for the President must officially know to which house to return any bill he does not approve. Const. art. 1, Sec. 7, subd. 2. The language of Field v. Clark, 143 U.S. 671, 12 Sup.Ct. 488, 36 L.Ed. 285, et seq., regarding the signature of bills by the presiding officers of the Senate and House is entirely applicable. The 'orderly conduct of legislative proceedings' requires some method of authenticating or certifying the house of origin, and it is not for the courts to cavil at the method thereof, practiced without interruption since the establishment of the government.

But the complaint also shows (2) that section 110 was a bill which prescribed a form of contract for cotton futures quite similar to that laid down in the act as passed, and put forward as the sanction of the law proposed, exclusion from the mails of all matter relating to the business of those exchanges not using the statutory contract. The Senate passed this form, but the House struck out everything after...