Memphis Natural Gas Co. v. Pope

• Decision Date: 17 May 1941
• Citation: 161 S.W.2d 211,178 Tenn. 580
• Parties: MEMPHIS NATURAL GAS CO. v. POPE et al.
• Court: Tennessee Supreme Court

161 S.W.2d 211

178 Tenn. 580

MEMPHIS NATURAL GAS CO. v. POPE et al.

Supreme Court of Tennessee.

May 17, 1941

Appeal from Chancery Court, Davidson County; R. B. C. Howell Chancellor.

Suit in equity by the Memphis Natural Gas Company against Lewis S Pope and others for an injunction against collection of excise taxes and a declaration of rights, status and legal relations. From a decree granting a permanent injunction complainant appeals.

Reversed injunction dissolved, and bill dismissed.

Affirmed by United States Supreme Court, Memphis Natural Gas Co. v. Beeler, 315 U.S. 649, 62 S.Ct. 857, 86 L.Ed. 1090.

CHAMBLISS, J., dissenting.

Armstrong, McCadden, Allen, Braden & Goodman, of Memphis, for complainant.

Roy H. Beeler, Atty. Gen., William F. Barry, Asst. Atty. Gen., and Lewis S. Pope and Whitworth Stokes, both of Nashville, for defendant.

FANCHER Special Justice.

The complainant, a Delaware corporation, domesticated in Tennessee with its chief place of business in Memphis, Tennessee, filed the bill against certain officials and tax collectors of the State of Tennessee to enjoin the collection of excise taxes for the years 1932 to 1936 and for a declaration of rights, status and legal relations. An injunction was obtained to prevent the levies by distress proceedings.

The excise tax is that provided by 1932 Code, Sec. 1316 et seq. It is alleged that the assessments are in violation of constitutional rights, asserting that the taxes are on the right to do business which is exclusively interstate commerce.

The bill was sustained by the Chancellor and the injunction made permanent.

Upon appeal and proper assignments of error, extensive briefs and argument, the case is here. The essential facts which are presented by evidence supported by the pleadings are as follows:

The Memphis Natural Gas Company was promoted and organized in 1928 and so was Memphis Power and Light Company. They were associated together by contract in furnishing natural gas brought from the gas fields at Monroe, Louisiana, into the State of Tennessee. Complainant brings the gas in pipe lines, the entire line with its branches in Tennessee extending 370.5 miles in length. Complainant has a contract with Memphis Power and Light Company to distribute the gas to consumers in Shelby County, Tennessee, and with West Tennessee Power and Light Company which distributes the gas to other places in West Tennessee.

The excise taxes for the years 1932-1936, both inclusive, enjoined, amounted to $57,156.83. Since the bill was filed the taxes for 1936 were withdrawn from the litigation by the defendants.

There are compressor stations along the transportation line at intervals to force the flow of gas.

Complainant furnishes one buyer in Arkansas, the Arkansas Power and Light Company, and none in Mississippi.

The gas is delivered to Memphis Power and Light Company at Brooks Avenue in Memphis, and nine other stations in Shelby County, with measuring meters at each. The gas is measured by the cubic foot, or in thousands of cubic feet. These meter instruments act by means of recorded pressure on charts.

The deliveries to West Tennessee Power and Light Company are at seven points by like measures of gas flow. By contract with West Tennessee Power and Light Company complainant extended its pipe line at its own expense for purposes of delivery by main lines and laterals from Memphis to the towns of Covington, Brownsville, Ripley, Jackson, and Humbolt, in West Tennessee, and these lateral lines are owned and operated by complainant.

The flow from the fields in Louisiana is continuous until delivered at these stations. There is an attempt to obtain a constant pressure along the main pipe line at a much higher pressure than can be used in the distribution lines.

At these meter stations, where the gas is delivered by Memphis Natural Gas Company to the distributing corporations, an attempt is made by Memphis Natural Gas Company to obtain a constant pressure in order that the gas may be measured, and an apparatus is used to reduce the pressure as it enters the distribution systems. To do this it is necessary to keep in touch with the requirements of the various markets from hour to hour, and men are kept on the operations for this purpose. The stations are so operated to suit the conditions that prevail at any time. During certain hours of use, the load is diminished more rapidly and a regulator machine is used to control pressure.

Complainant uses a private telephone line extending the length of the pipe lines and a dispatcher is kept at Memphis to control the input of gas and to report troubles. Line walkers and repair crews keep up the lines.

The books and records of Memphis Natural Gas Company are kept at Memphis in its main office, and its entire business is conducted from Memphis as its general headquarters. It owns its own pipe lines and purchases the gas from a producing company. The president of Memphis Natural Gas Company lives in Memphis. The offices consist of eight rooms, and approximately twelve people are employed in the offices.

The distributing lines and appliances for sale and distribution belong to Memphis Power and Light Company. Each of these companies employs its own men and makes its own purchases of materials.

The percent of revenues of Memphis Natural Gas Company derived from Memphis Power and Light Company, to its total revenues, was:

1932, 83.24%

1933, 83.08%

1934, 81.47%

1935, 80.06%

So that the bulk of all complainant's revenues from every source is derived from its business done with and through Memphis Power and Light Company.

These two corporations were promoted and organized for the purpose of doing the business now in hand, that is, bringing natural gas into Memphis and distributing it to the consuming public. For this purpose and co-incidentally a franchise was obtained from the City of Memphis. This franchise runs in the name of Memphis Power and Light Company. However, at the same time, the contract hereinafter set forth was executed by and between Memphis Natural Gas Company and Memphis Power and Light Company and this contract was filed with the city as a part of the contract with the city by which the twenty-five year franchise was granted. A provision in the contract, which materially affects the obligations to the City of Memphis, representing the public and affecting the material rights of both these companies financially, will be referred to and explained later. The case, as we view it, largely turns upon the contract between these two companies and with the city. This contract between the two companies is named a contract of bargain and sale. Memphis Natural Gas Company is called seller and Memphis Power and Light Company is called buyer; and it is argued that by its terms, seller sells to buyer all the gas it will need. The contract is complicated and long. A study of it leaves one with an impression that there was a studied effort to cover up a pooling of interests with the varnish of a sale. To understand it there is required more than surface inspection of the varnish. We must look through the gloss finish and see what is underneath.

It is argued by counsel for complainant that there is a sale of gas at a fixed price, subject to future adjustment; and that the gas is delivered to the buyer in direct flow of interstate commerce. Counsel for defendants contend that the provision for sale at a stipulated price is but part of a scheme of partnership in which the so-called seller is a partner with the buyer and engaged with it in the sale and distribution of gas to local consumers and that each party is interested in the business conducted by the other.

At the present time, under the Uniform Partnership Act in Tennessee, the word person includes corporations; and in the provisions defining partnerships the word person is used in such way as to indicate that a corporation may be a partner. Code, §§ 7841, 7845.

The sharing by a person of profits of a business is prima facie evidence he is a partner in the business. Code, § 7846.

But, whether a corporation can technically become a partner, or whether it requires charter authority to become a partner, a corporation can make contracts in pursuance of its corporate powers that will bind it in joint adventures or undertakings. And, even without joint control of the operations that produce profits, persons or corporations may establish relationships that will result in a sharing of profits, each with the other. There is no law against two public utilities engaged in supplying gas to a community to so divide or parcel their work as to give each separate management of a portion and then pool their earnings, regardless of the technical rules of partnership. The right to contract is free enough to include such an arrangement, and there is no vice in it.

One may be an agent of the other in details, but activities do not have to be classified to make them lawful.

In this contract of May 24, 1928, which was executed between Memphis Natural Gas Company and Memphis Power and Light Company, and presented to the City of Memphis to induce the city to grant the franchise, it was stipulated that the seller agrees to sell and the buyer agrees to buy, take and pay for such amounts of natural gas as may be requisite to fulfil all contracts for sale; and, second, for the use by the buyer for its electric generating plant.

By the fifth article, the seller was to furnish, install, operate and maintain at its own expense a regulating and measuring station and meter the gas with certain temperature and specific gravity tests.

By the sixth article subject to adjustment provisions in article eleventh, certain graduated prices or rates, according...