Honorable Claude A, Williams
Chairman and Executive Director
Texas Unemployment Compensation Commission
Brown Bldg.
Austin, Texas
Dear Sir: Opinion No. o-3781
Re: Application of Article
5221b, Section 17 (f) (4),
V.A.C.S., to certain re-
lated fact situations.
Our answer to your questions, subsequently stated
in this opinion, has been delayed by the appeals In the ap-
pellate courts of this State on fact situations involving the
above enumerated statute,
You have asked that we assume in the fact situations
inquired about that there were sufficient persons in emplog-
ment in the required days and weeks to constitute coverage
under the Unemployment;Compensation ACt provided Section 17
(f) (4) of the Unemployment Compensation Statute is applicable.
We are also to assume that, unless specifically
stated 20 the contrary, in each partnership all 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 employing unit liable as an employer under the following
facts:
"A owns and operates and individual business. A
with B operates a partnership. A's investment in the
partnership amounts to 60% of the assets thereof,
B's to 40$."
The Texas Unemplo ent Compensation Act defines
"employer" in Section 17 (f$ (4) as follows:
"(4) Any employing unit which together with
one or more other employing units, is owned or con-
tro:Lled(by legally enforceable means or otherwise)
Han, Claude A. Williams, page 2 O-3781
directly or indirectly by the same interest, or
which owns or controls one or more other employing
units (by legally enforceable means or otherwise),
and which, if treated as a single unit with such
other employing unit, would be an employer under
paragraph (1) of this subsection;"
We are requested to advise you whether under the
fact situation stated above the individual business of A and
the partnership business of A and B is owned or controlled
(by legally enforceable means or otherwise) directly or in-
directly by the same interest.
In our opinion No, O-1724, issued January 4, 1940,
we held that an individual owning six-sevenths of the assets
of a partnership and active in the management of the part-
nership and the same individual operating his own business
owned and controlled both imploying units within the meaning
of Section 17 (f) (4) of our Unemployment Act. This opinion
WEiS released prior to the release of the opinion in the case
of Texas Unemployment Commission vs. Bass, 151 S. W. (2d) 567.
In our present situation, it is confessed that A
owns and controls his individual business. With respect to
the partnership business of A and B it is generally held that
each partner, 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 partnerships are legally under the control of a
majo,rit,y
of tha partners. Texas Unemployment Compensation
Commissi:onvs. Bass, 151 S. W0 (2d) 567. There is no majority
of partners as between two members of a partnership; it,
therefore, appears to us that the ownership and control of
the partnership in this fact situation is in both A and B.
It is true that A may dissolve the partnership by withdrawing
from it and in that sense he controls the partnership, but
B, the investor of 40% In the business, may likewise dis-
solve the partnership business.
In the case of Texas Unemployment Compensation Com-
mission vs. Bass, supra, the cour,theld that the three com-
mon partners in the three partnerships were not owned by the
same interests because there was an additional partner in two
of the ,threepartnerships. That decision indicates to us
that the court does not believe that this statute means that
it is s.lfficientif 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 individual business and who
owns 60$ of the assets of the partnership, owns both of the
employing units within the provision of the Act under con-
Hon. Claude A. 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 part-
nership business than does B. It is a business that may be
controlled equally by either partner.
Further, the court stated in the oplnion 1n the
Bass case that the control intended by the statute is that
control which is enforceable. As in the Bass case, the only
control that i.senforceable is that which the partners have
agreed to. In this instance, there is an equal power of
control in A and B.
We are of the opinion that Section 17 (f) (4) may
not be applied to render liable for unemployment taxes the
employing units owned by A and the partnership of A and B.
The construction rsfthe statute given by the Supreme Court
of Texas in the Bass case does not permit us to indulge in a
broad interpretation of this provision of the statute.
Your question No. 2 asked if there Is liability
upon both employing units for unemployment taxes if,
"A and B are equal partners in a grocery businessA
A and B are lIkewise equal partners in a drug business.
The statute specifies only ownership and control.
There are two owners and partners, the same persons, In each
of the t;wobusinesses under consideration. There are only
the two owners in each busfness; therefore, we believe that
the two businesses are owned and controlled by the same in-
terest.
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 of Vernon's Annotated Civil Statutes, upon the
Construction of Laws; it is:
"The singular and plural numbers shall ea:h include
the other, unless otherwise expressly provided.
This forecloses any 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 busi-
nesses operated, there being a drug business and a grocery
business.
. -
- -
Hon, Claude A. Williams, page 4 o-3781
One of the earliest decisions on this question
was by the Supreme Court of North Carolina in the case of
Unemployment Compensation Commission vs. City Ice & Coal
Company, 3 S-E, (2d) 290, in which there were three cor-
porations 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 should be considered
as one unit under a statute similar to Article 5221b, Sec-
tion 17 (f)(4), Vernon's Annotated Civil Statutes.
More recently, the Court of Civil Appeals at
Beaumont;,Texas, affirmed the judgment of the trial court
in the case of Washington Oil Corporation vs. 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 refused writ of error in this
case. The Mississippi Supreme Court in Avent et al vs.
Mississi.ppiSupreme Court,,decided November 24th, not yet
repor,ted,held that a drug store and a dairy were controlled
by the same interest and applied a similar statute. The
courts make no distinction in the application of this pro-
vision of the statute because the types of businesses in-
volved 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 partnerships may be treated as a single unit.
Your third question recites that:
"A, B and C are equal partners in a business.
A, B and D are equal partners in an ano,therbusiness.'
You have asked that we assume that control of each
partnership is in all of ,thepartners 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 Compen-
sation Commission vs. Bass, supra, the two partnerships are
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 there were three partnerships. As said
by Judge Critz in the Bass case:
"As a general rule partnerships are legally under
the control of the majority of the partners, but as be-
tween themselves, the members of a partnership may 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. Claude A. 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
control partnership No. 1 and A, B and D control the other
partnership. Applying the previously stated rule 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 partnership No. 1 and they
are siml.larlyactive and equal in the control and management
of partnership No. 2. Therefore, we are of the opinion that
the two partnershi s are controlled by the same interest and
that Section 17 (ff (4), supra, is applicable to this fact
situation rendering both units "employers" under the Act.
Your fourth fact situation is:
"H and W are husband and wife. g manages a
business which is community property. W manages
a business which is her separate property. The
receipts of W's business go into a bank account
maintained in the business name, separate and a-
part from H's bank account, into which the receipts
of the community business go. H does not in any
manner interfere with 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 business which is the
community property of H and W and under Article 4619, Vernon's
Annotated Civil Statutes, the control of this communItg pro-
perty is in the husband. We must now determine whether H
owns or controls the business operated by W.
You have recited that the receipts from W’s business
go into a bank account maintained in the business name sepa-
rate and apart from H'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 or wife shall be
presumed to be the separate property of the party in whose
name thieystand, regardless of who 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 evidence designed
primari~lyfor the protection of the bank in paying out such
monies. The presumption that property is that of the spouse
in whose name the deposit is carried may be rebutted. 'Tech-
nically, a married woman 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 community profits 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 separate property, and in
this instance the business that she is operating. In gen-
eral, profits, whether by way of interest, dividends or re-
venues do not belong to the separate estate of the husband
or wife. 23 Tex. JuP., Section 60, page 85= The earnings
of the business operated by W being community property, it
will be necessary for you to determine whether these profits
go back into the business operated by W. If the profits go
back into the business and are commingled, the separate
estate loses its identity and assumes the character of com-
munity property. W must be able to identify the separate
estate in order to sustain a claim of the property being 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 be-
comes community business, and under the statute is legally
under the control of H, the husband, even though it is
operated by the wife.
The decisions of our a pellate courts reflect that
the application of Section 17 (fP (4) depends upon the facts.
If, in fact, the business is run solely and exclusively by
W, without consultation or advice from H, there is no actual
control of that business by H.
There is, however, the legal conception that hus-
band 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 a-
vailable 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 re-
flecting such control by H, we believe that the two units
may be considered as one employing unit.
If you should decide that H is controlling the bus-
iness of W, we believe that you would also have the burden
of proving the community profits were commingled with the
separate estate.
Han, Claude A, Williams, page 7 o-3781
Yours very truly
ATTORNEY GENERAL OF TEXAS
By s/Morris Hodges
Morris Hodges
Assistant
MH:N:wc
APPROVED FEB 27, 1942
s/Grover Sellers
FIRST ASSISTANT
ATTORNE'YGENERAL
Approved Opinion Committee By s/BWJ3Chairman