Court Opinion

ID: 6880102
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:13:45.392623+00
Date Added: 2024-06-11T16:05:34.159971
License: Public Domain

HANEY, Circuit Judge
(dissenting).
Elaborate argument may be made that as a general rule the charter of a corporation is considered to be a contract1 in certain branches of the law in order to bind a corporation for acts of its promoters, but I believe such an argument is inapposite here. A question as to the liability of a cor- - poration for the acts of a promoter, or for violation of its charter is not presented. The question presented is whether a corporate charter is “a written contract executed by the corporation!’ within the meaning of § 26 (c) (1 and 2) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev.Acts.
It is clear that the quoted words might have been used in either of two senses, i. e. (1) a written contract “binding on” the corporation; or (2) a written contract “signed by” the corporation. The majority hold that the first sense was intended. I disagree, because such a construction renr ders the words “executed by” superfluous. Had such words been intended in the sense of “binding on” such idea would have been as fully expressed by simply saying “a written contract of a corporation”. If there was a contract, it was binding on the corporation, and it was unnecessary to say more. Furthermore, had such sense been intended, it could and, I believe, would have been expressed unambiguously by saying “a written contract binding on the corporation”. It seems clear to me that the construction given the words “executed by” by the majority renders them superfluous and meaningless.
One rule of statutory construction is stated in Platt v. Union Pacific R. R. Co., 99 U.S. 48, 58, 25 L.Ed. 424, that: “* * a legislature is presumed to have used no superfluous words. Courts are to accord a meaning, if possible, to every word in a statute. * * *” I believe the construction of the majority violates that rule. On the other hand, the word “executed” is given significance by construing it as being used in the sense of “signed”. I believe that meaning should be given to the word here.
In this connection, both parties rely on the legislative history of the statute. I think such history is not helpful here because considerable revision of proposed bills leading to enactment of the statute in question was made “in conference without any new statement of legislative intent”. 3 Paul & Mertens, Law of Federal Income Taxation § 32A.01 (1938 Cum. Supp.).
Independently of the foregoing I think we are required to construe the word “executed” in the sense of “signed” because of the following from White v. United *291States, 305 U.S. 281, 292, 59 S.Ct. 179, 184, 83 L.Ed. 172: “* * * Moreover, every deduction from gross income is allowed as a matter of legislative grace, and ‘only as there is clear provision therefor can any particular deduction be allowed. * * * A taxpayer seeking a deduction must be able to point to an applicable statute and show that he comes within its terms.’ * *” Here it is not at all “clear” that appellant is entitled to the deduction.
Having reached the conclusion that “executed” in the statute means “signed”, it is necessary to determine whether “a written contract” includes a corporate charter. I think it does not. Properly construed, I think the statute means only those written contracts which are “signed” on behalf of the corporation. The articles of incorporation which become the charter of the corporation, are not signed by the corporation, but are signed by the incorporators. The articles are simply a step in the formation of the corporation. “The promoters of a corporation are 'not in any sense the agents of the corporation before it comes into existence, for there cannot be an agency unless there is a principal.” 18 C. J.S., Corporations, page 522, § 120.
The remaining contentions argued are that the act in question is unconstitutional. The historical background of the act may be found in Martin, Taxation of Undistributed Corporate Profits, 35 Mich. L. Rev. 44.
Petitioner contends that the act is an attempt to control distribution of profits, a matter reserved to the states by the Tenth Amendment of the Constitution. Amici curiae contend that the tax is one on the stockholder’s share in the petitioner’s accumulated profits which is not authorized by the Sixteenth Amendment; that the actual purpose of the act is to regulate economic conduct under the thin guise of raising revenue and is, a penalty on conduct; and that actually the tax is one on capital which is not authorized by the Sixteenth Amendment.
I think each of these contentions confuses purpose with motive. The purpose of the act is expressed therein when it levies a tax upon “net income” to be measured by a percentage of “undistributed net income”. It may be that the things or reasons which motivated the expression of the purpose by Congress were not, considered alone, within the power of Congress. However, we are not concerned with the motives of Congress. Sonzinsky v. United States, 300 U. S. 506, 513, 57 S.Ct. 554, 555, 81 L.Ed. 772, contains much of pertinence:
“Every tax is in some measure regulatory. To some extent it interposes an economic impediment to the activity taxed as compared with .others not taxed. But a tax is not any the less a tax because it has a regulatory effect * * * and it has long been established that an Act of Congress which on its face purports to be an exercise of the taxing power is not any the less so because the tax is burdensome or tends to' restrict or suppress the thing taxed. * * *
“Inquiry into the hidden motives which may move Congress to exercise a power constitutionally conferred upon it is beyond the competency of courts. * * * They will not undertake, by collateral inquiry as to the measure of the regulatory effect of a tax, to ascribe to Congress an attempt, under the guise of taxation, to exercise another power denied by the Federal Constitution. * * *”
It is enough if one purpose is within the Congressional power, notwithstanding there may have been other purposes, which, considered alone, Congress had no power to make effective. Stephenson v. Binford, 287 U.S. 251, 276, 53 S.Ct. 181, 77 L.Ed. 288, 87 A.L.R. 721; Hampton & Co. v. United States, 276 U.S. 394, 412, 48 S.Ct. 348, 72 L.Ed. 624. See also: Henneford v. Silas Mason Co., 300 U.S. 577, 586, 57 S.Ct. 524, 81 L.Ed. 814. Wholly apart from these views, I think Helvering v. Nat. Grocery Co., 304 U.S. 282, 58 S.Ct. 932, 82 L.Ed. 1346, precludes us from upholding the contentions made.
Finally, both petitioner and amici curiae contend that the act unreasonably discriminates between written and oral contracts prohibiting distribution of earnings and profits in violation of the Fifth Amendment of the Constitution. “The power of Congress in levying taxes is very wide and where a classification is made of taxpayers that is reasonable, and not merely arbitrary and capricious, the Fifth Amendment cannot apply”. Barclay & Co. v. Edwards, 267 U.S. 442, 450, 45 S.Ct. 348, 349, 69 L.Ed. 703. “A legislature is not bound to tax every member of a class or none. It may make distinctions of degree having a rational basis, and when subjected to judicial scrutiny they must be presumed to rest on that basis if there is any conceivable state of facts which would support it” *292Carmichael v. Southern Coal Co., 301 U.S. 495, 509, 57 S.Ct. 868, 872, 81 L.Ed. 1245, 109 A.L.R. 1327. The rule applies to the federal government. Steward Machine Co. v. Davis, 301 U.S. 548, 584, 57 S.Ct. 883, 81 L.Ed. 1279, 109 A.L.R. 1293.
Respondent states in his brief: “It is a comparatively easy matter for the Bureau of Internal Revenue to. ascertain whether an ordinary written contract prohibits payment of dividends. But it would be an almost insuperable burden for the Bureau to determine the validity and scope of oral contracts of that nature.” I think it is apparent that the difficulties which would arise regarding the proof of an oral contract, and its validity, including the effect of statutes of fraud, form a rational basis for the classification. “Administrative convenience and expense in the collection or measurement of the tax are alone a sufficient justification for the difference between the treatment of small incomes or small taxpayers and that meted out to others.” Carmichael v. Southern Coal Co., supra, 301 U.S. at page 511, 57 S.Ct. at pages 868, 873, 81 L.Ed. 1245, 109 A.L.R. 1327. See also Madden v. Kentucky, 60 S.Ct. 406, 84 L.Ed. -, 125 A.L.R. 1383, January 29, 1940. Reason compels the conclusion here that likewise administrative convenience and expense are a rational basis for the classification made.
I think the decision should be affirmed.

 See 3 Paul & Mertens, Law of Federal Ii jome Taxation § 32A.43 (p. 352 et seq. 1938 Cum.Supp.).