Northwest Steel Rolling Mills, Inc. v. Commissioner

This appeal involves the question of the validity of a levy of a surtax under the Revenue Act of 1936 [c. 690, 49 Stat. 1648 , 26 U.S.C.A. Int.Rev.Acts] upon the undistributed profits of the taxpayer. The taxpayer contends that it is entitled to a credit under Section 26 of the Act, which reads in part as follows:

Taxpayer is a Washington corporation, with its principal place of business in that State. From 1926 to 1936 the taxpayer *288 was indebted to a Seattle bank, which indebtedness was evidenced by 90 day notes which were renewed from time to time. The original indebtedness amounted to $150,000, but by January, 1934, it had been reduced to approximately $115,000. In January, 1934, when the taxpayer proposed to renew the notes the bank officers conditioned the renewal of the notes on the payment by the taxpayer of $1,000 a month in reduction of the principal amount thereof, together with the payment on the indebtedness of any available surplus in taxpayer’s treasury after the payment of its current operating expenses. Taxpayer was given to understand by the bank that any breach of this condition would result in the bank’s having a receiver appointed for the taxpayer’s…

(dissenting).

Elaborate argument may be made that as a general rule the charter of a corporation is considered to be a contract 1 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.…