Honorable ClaudeA, Williams

Chairman and ExecutiveDirector Texas Unemployment CompensationCommission Brown Bldg. Austin, Texas
Dear Sir: OpinionNo. o-3781 Re: Application of Article 5221b, Section 17 (f) (4), V.A.C.S., to certain related fact situations.
Our answer to your questions, subsequently stated in this opinion,has been delayed by the appeals In the appellate courts of this State on fact situations involving the above enumerated statute,

You have asked thatwe assume in the fact situations inquiredabout that therewere sufficientpersons in emplogment in the required days and weeks to constitute coverage under the Unemployment; CompensationACt provided Section 17 (f) (4) of the Unemployment CompensationStatute is applicable.

We are also to assume that, unless specifically stated 20 the contrary, in each partnershipall partners are active in the management and that no control or management of the partnership has been delegated to one of the partners.

You have first inquired if Section 17 (f) (4) of Article 5221b,Vernon's Annotated Civil Statutes, renders each employingunit liable as an employerunder the following facts:
"A owns and operatesand individualbusiness.A with B operates a partnership. A's investment in the partnershipamounts to 60% of the assets thereof, B's to 40$." The Texas Unemplo$ ent CompensationAct defines "employer"in Section 17 (f (4)as follows:

"(4) Any employingunit which togetherwith one ormore other employingunits, is owned or contro:Lled(by legally enforceablemeans or otherwise)Han, ClaudeA. Williams, page 2 O-3781

directly or indirectlyby the same interest, or which owns or controls one or more other employing units (by legally enforceablemeans or otherwise), and which, if treated as a singleunit with such other employingunit,would be an employerunder paragraph (1) of this subsection;"
We are requested to advise you whether under the fact situation statedabove the individualbusiness ofA and the partnershipbusiness of A and B is owned or controlled (by legally enforceablemeans or otherwise)directly or indirectly by the same interest.

In our opinionNo, O-1724, issued January 4, 1940, we held that an individual owning six-sevenths of the assets of a partnershipand active in the management of the partnership and the same individual operating his own business owned and controlledboth imployingunits within the meaning of Section 17 (f) (4) of our UnemploymentAct. This opinion WEiS released prior to the release of the opinion in the case of TexasUnemployment Commissionvs. Bass, 151 S. W. (2d) 567.

In our present situation, it is confessed thatA owns and controls his individualbusiness. With respect to the partnershipbusiness of A and B it is generally held that eachpartner, in the absence of an agreement to the contrary, has an equal right to control and manage the business. 49 COP. Jur., Set, 295" It is likewise true that it is generally held that partnershipsare legallyunder the control of a majo,rit,y

of tha partners. Texas Unemployment Compensation Commissi:on

vs. Bass, 151 S. W0 (2d) 567. There isno majority of partners as between two members of a partnership; it, therefore, appears to us that the ownershipand control of the partnership in this fact situation is in both A and B. It is true that A may dissolve the partnershipby withdrawing from it and in that sense he controls the partnership,but B, the investor of 40% In the business,may likewisedissolve the partnershipbusiness.

In the case of Texas Unemployment CompensationCommission vs. Bass, supra, the cour,t held that the three common partners in the three partnershipswere not owned by the same interestsbecause therewas an additionalpartner in two of the ,three

partnerships. That decision indicates to us that the court does not believe that this statutemeans that it is s.lfficient

if the same interests own a majority of the stock 0.rof the assets of a partnership. Therefore,we do not belleve that A, who has his individualbusiness and who owns 60$ of the assets of the partnership, owns both of the employingunits within the provision of theAct under con-Hon. ClaudeA. Williams, page 3 o-3781

struction. The power of each partner to trade and to incur liability on behalf of the partnership is unquestioned; aside from this power,A has no more authority In the partnership business than does B. It is a business that may be controlled equallyby eitherpartner.

Further, the court stated in the oplnion 1n the Bass case that the control intendedby the statute is that controlwhich is enforceable. As in the Bass case, the only control that i.senforceable is thatwhich the partnershave agreed to. In this instance,there is an equalpower of control inA and B.

We are of the opinion that Section 17 (f) (4)may not be applied to render liable for unemployment taxes the employingunits owned by A and the partnership of A and B. The constructionrsfthe statute given by the Supreme Court of Texas in the Bass case does not permit us to indulge in a broad interpretationof this provision of the statute.

Your questionNo. 2 asked if there Is liability upon both employingunits for unemployment taxes if,

"Aand B are equalpartners in a grocery businessA A and B are lIkewise equalpartners in a drug business. The statute specifies only ownershipand control. There are two owners and partners, the samepersons, In each of the t;wo

businesses under consideration. There are only the two owners in eachbusfness; therefore,we believe that the two businesses are owned and controlledby the same interest. The question has been raised as to the meaning of "interest,'whether it is to be construed as singular or plural. Our answer to that question is found in Article 10, paragraph 4 ofVernon's Annotated Civil Statutes,upon the Construction of Laws; it is:

"The singularand plural numbers shall ea:h include the other, unless otherwise expresslyprovided. This foreclosesany doubt that the use of the term "interest" may also include 'interests."

The next question arising under this fact situation would arise by reason of the difference in the types Of businesses operated, there being a drug business and a grocery business.. -

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Hon, Claude A. Williams, page 4 o-3781

One of the earliestdecisions on this question was by the Supreme Court of North Carolina in the case of Unemployment CompensationCommissionvs. City Ice & Coal Company, 3 S-E, (2d) 290, inwhich therewere three corporations involved, two of them being in the ice and coal business and the third one in the dairy business, The court there held that the three businesses shouldbe considered as one unit under a statute similar to Article 5221b, Section 17 (f)(4),Vernon's Annotated Civil Statutes.

More recently, the Court of Civil Appeals at Beaumont;,

Texas, affirmed the judgmentof the trial court in the case ofWashington Oil Corporationvs. The State of Texas, not yet reported, in a fact situation involving several corporations engaged in different types of the Oil business:.The Supreme Court refusedwrit of error in this case. The Mississippi Supreme Court inAvent et al vs. Mississi.ppi

Supreme Court,,

decided November 24th, not yet repor,ted,

held that a drug store and a dairy were controlled by the same interestand applied a similar statute. The courtsmake no distinction in the application of this provision of the statutebecause the types of businesses involved are different.

In our opinion the facts related in your situation No. 2 are within the inclusion of Section 17 (f)(4)and the two partnershipsmay be treated as a single unit.

Your third question recites that: "A,B and C are equalpartners in a business. A, B andD are equalpartners in an ano,ther business.'
You have asked thatwe assume that control of each partnership is in all of ,the partners and that there has been no delegation of control to any one of the partners. Under the holding of the Supreme Court in the Unemployment Compensation Commissionvs. Bass, supra, the two partnershipsare not owned by the same interests. Further, the fact situation present here and that in the Bass case are similar except that in the Bass case therewere three partnerships. As said by Judge Critz in the Bass case:

"Asa general rule partnershipsare legallyunder the control of the majority of the partners, but as between themselves, the members of a partnershipmay vest the sole control in one of the partners to the exCbX3iOn of all others. Thompson v. Schmitt, 115 Tex, 53; 274 S. W, 554; Oil Lease & Royalty Syndicate vs. Beeler, 217 s, w. 1054,"._ . -

Hon. ClaudeA. Williams, page 5 o-3781

There has been no delegation of partnership control, but on the contrary the facts are that A, B and C controlpartnershipNo. 1 and A, B and D control the other partnership. Applying the previously statedrule of law that ordinarily control of the partnership is in the majority of the partners,A and B are active and equally in control and compose the majority in the partnershipNo. 1 and they are siml.larly

active and equal in the control and management of partnershipNo. 2. Therefore,we are of the opinion that the two partnershi that Section 17 (f fs are controlledby the same interestand (4), supra, is applicable to this fact situationrendering both units "employers"under theAct.

Your fourth fact situation is:
"Hand W are husband and wife. g manages a businesswhich is communityproperty. W manages a businesswhich is her separateproperty. The receipts of W's business go into a bank account maintained in the business name, separate and apart from H's bank account, intowhich the receipts of the communitybusiness go. H does not in any manner interferewith or attempt to manage W's business, although he has made no gift of the profits of W's business to her as they accrue." H, the husband,manages the businesswhich is the communityproperty of H and W and underArticle 4619, Vernon's Annotated Civil Statutes, the control of this communItgproperty is in the husband. We must now determinewhether H owns or controls the business operatedby W.

You have recited that the receipts from W’s business go into a bank account maintained in the business name separate and apart fromH's bank account. Article 4622, Vernon's Annotated Civil Statutes, provides that the funds on deposit in a bank whether in the name of the husband orwife shallbe presumed to be the separateproperty of the party in whose name thieystand,regardless ofwho made the deposit. 23 Tax. JUr., Section 72, page 96, states that the enactment of this statute is not for the purpose of controlling the status Of the property, but is merely a rule of evidencedesigned primari~ly

for the protection of the bank in paying out such monies. The presumption that property is that of the spouse inwhose name the deposit is carriedmay be rebutted. 'Technically, a marriedwoman may be a merchant or trader at will,,, so far iasthe immediate transaction of business is concerned. 23 Tex. Jur. p* 304. However, the profits of the business engaged in by W, in our opinion,are communityprofits and property. See Speer's Law of Marital Rights in Texas,"p. 367.Won. Claude A.Williams, page 6 Q-3781

Article 4714 of Vernon's Civil Statutes gives the wife the authority to control her separateproperty, and in this instance the business that she is operating. In general,profits, whether by way of interest,dividends or revenues do not belong to the separate estate of the husband orwife. 23 Tex. JuP., Section 60, page 85= The earnings of the business operatedby W being communityproperty, it will be necessary for you to determinewhether these profits go back into the business operatedby W. If the profits go back into the business and are commingled, the separate estate loses its identityand assumes the character of community property. W must be able to identify the separate estate in order to sustain a claim of the propertybeing her separate estate. We do not have all of these facts,but if the profits, representing community funds, have gone back into the business, the business changes its character and becomes community business, and under the statute is legally under the control ofH, the husband, even though it is operatedby the wife.

The decisions of our a pellate courts reflect that the application of Section 17 (f P(4)depends upon the facts. If, in fact, the business is run solely and exclusivelyby W, without consultation or advice fromH, there is no actual control of that business by H.

There is, however, the legal conception that husband and wife are one person and the husband is in control of the community property.

In our opinion,you will have to obtain all the available facts before determining if this is a situation covered by Section 17 (f) (4). You must bear in mind the requirement of actual control; if there are any facts reflecting such control by H, we believe that the two units may be considered as one employingunit.

If you shoulddecide thatH is controlling the business of W, we believe that you would also have the burden of proving the communityprofitswere commingledwith the separate estate.Han, ClaudeA, Williams, page 7 o-3781

Yours very truly
ATTORNEY GENERAL OF TEXAS

By s/MorrisHodges MorrisHodges Assistant
MH:N:wc

APPROVED FEB 27, 1942 s/Grover Sellers FIRST ASSISTANT ATTORNE'Y

GENERAL Approved Opinion CommitteeBy s/BWJ3 Chairman