HQ 222402: A corporation may not be licensed as a Customs cartman whena second corporation provides the vehicles and drivers under alease arrangement; 19 U.S.C. 1565; 19 CFR Part 112; C.S.D. 82-26.

Native CBP ruling rendition. Applicability is fact-specific; modification/revocation relationships and original publisher date are retained. Publisher sentinel year0001 means unknown date, not a historical legal adoption.

                            HQ 222402

                          July 26, 1990

CAR-3-02-CO:R:C:E  222402 PH

CATEGORY:

Mr. John S. Wetherill
Vice President
Hatboro Delivery Service, Inc.
Post Office Box 269
Warminster, Pennsylvania 18974

RE:  A corporation may not be licensed as a Customs cartman when
a second corporation provides the vehicles and drivers under a
lease arrangement; 19 U.S.C. 1565; 19 CFR Part 112; C.S.D. 82-26.

Dear Mr. Wetherill:

    Your letter of May 18, 1990, concerns the application of your
corporation to become a licensed and bonded cartman.  Our ruling
on this matter follows.

FACTS:

    You state that Hatboro Delivery Service, Inc. ("Hatboro"), is
a corporation of the State of Pennsylvania.  The company was
founded by James C. Wetherill in 1952 and incorporated in 1970.
A few years after Hatboro was started, the brother of the founder
of that corporation, Joseph B. Wetherill, Sr., founded J.W.
Rental, Inc. ("J.W.").

    You state that the two brothers "went into business
together."  Hatboro is the certified common carrier. It "hold[s]
all of the authorities and handle[s] all of the insurances and
bonds for the operations."  J.W. owns the vehicles and employs
the drivers.  J.W. "solely leases it's service to [Hatboro]."
All operations of the corporations are "done in the same office
together and are run by the same office personnel and corporate
board members."

    You state that James C. Wetherill, the founder of Hatboro, is
the president and treasurer of that corporation and is also the
secretary of J.W.  Joseph B. Wetherill, Sr., is the president and
treasurer of J.W.  You are the vice president and secretary of
Hatboro and the vice president of J.W.

    You state that on May 4, 1990, Hatboro applied to the Customs
office in Philadelphia for a cartman's bond.  You were notified
on May 16, 1990, that the application was being denied because
of the corporate structure of Hatboro and J.W. (i.e., that "only
one bond can be issued, and there are two corporations").  With
the encouragement of Customs in Philadelphia, you have written us
for advice in this matter.

ISSUE:

    May a corporation be licensed as a Customs cartman under 19
CFR Part 112 when a second corporation, founded and the president
of which is a brother of the first corporation, provides the
vehicles and employs the drivers under a lease arrangement with
the first corporation?

LAW AND ANALYSIS:

    The law governing Customs cartage, section 565 of the Tariff
Act of 1930, as amended (19 U.S.C. 1565) provides that:

        The cartage of merchandise entered for warehouse
        shall be done by cartmen to be appointed and
        licensed by the appropriate customs officer and
        who shall give a bond, in a penal sum to be fixed
        by such customs officer, for the protection of
        the Government against any loss of, or damage to,
        such merchandise while being so carted.  The
        cartage of merchandise designated for examination
        at the appraiser's stores and of merchandise
        taken into custody by the customs officer as
        unclaimed shall be performed by such persons as
        may be designated, under contract or otherwise,
        by the Secretary of the Treasury, and under such
        regulations for the protection of the owners
        thereof and of the revenue as the Secretary of
        the Treasury shall prescribe.

    The Customs Regulations on the licensing of cartmen issued
under the authority of this law are found in Part 112 of the
Customs Regulations (19 CFR Part 112).  A "cartman" is defined in
19 CFR 112.1(b) as "one who undertakes to transport goods or
merchandise within the limits of the port."  Under 19 CFR
112.2(b), "[a] bond and license provided for in this part [i.e.,
Part 112] are required to transact business as a cartman ... for
the cartage ... of merchandise entered for warehouse, designated
for examination, taken to container stations, or taken into
custody as unclaimed."

    Subpart C of Part 112 of the Customs Regulations provides for
the licensing of cartmen.  Under section 112.21, a customhouse
cartage license is required to perform Customs cartage, with
certain exceptions inapplicable in this case.  Section 112.22
contains the requirements for applying for a cartage license.  An
applicant for such a license is required to file with the
appropriate district director:  (1) a bond on Customs Form 301
containing the conditions provided in 19 CFR 113.63 in an amount
specified by the District Director; (2) a fee of $100; and (3) if
required by the District Director, a list of the names and
addresses of the managing officers and members of the
organization or of the persons who will receive or transport
imported merchandise which has not been released from Customs
custody, or a list of all such persons and their addresses.  In
addition, a cartman licensed by city or State authorities is
required to present to the district director his city or State
license.  Vehicles licensed by Customs for cartage must be marked
with the Customs license number (19 CFR 112.27).  Customs may
require licensed cartmen to make, keep, and submit to Customs
records of cartage and a current list of the organization's
managing directors and persons who will receive or transport
imported merchandise which has not been released from Customs
custody (19 CFR 112.29).  Customs may require licensed cartmen
and each employee thereof who handles imported merchandise which
has not been released from Customs custody to carry, and display
upon request, an identification card (19 CFR 112.41).

      It is a basic principle of corporate law that a corporation
is a separate and distinct legal being (i.e., a "legal person")
(see, e.g., Moberly v. United States, 4 Cust. Ct. 91 (C.D. 294,
1940) (two corporations with the same name, same president, same
secretary-treasurer, and interlocking directorates, and engaged
in the same business, held to be separate and distinct entities).
The Customs Regulations pertaining to Customs bonds explicitly
provide for co-principals (see 19 CFR 113.34; see also Treasury
Decision 84-213, "[t]wo separate corporations may be co-
principals on the same bond and it makes no difference whether
they have a common owner").  This is not the case with the
Customs Regulations pertaining to cartmen.  There is no provision
permitting two entities to be a cartman.  Accordingly, the
binding of one corporation or legal person to the conditions of a
cartman's license cannot bind another corporation (i.e., a
separate and distinct legal being) to those conditions.

    In this case it is proposed that one corporation would be the
licensed and bonded cartman and another corporation would own the
vehicles and employ the drivers.  The first corporation would
lease the services of the second.  Thus, the corporation which is
not bound to the conditions of the cartman's license would be the
responsible entity with regard to many, if not most, of the
requirements for cartmen under the Customs Regulations (i.e.,
provision of the names and addresses of the managing officers and
persons who will handle imported merchandise which has not been
released from Customs custody, marking of the vehicles with the
Customs license number, keeping of records of cartage, and
carrying and displaying of identification cards by the cartman
and employees who will handle imported merchandise which has not
been released from Customs custody).  We concur with Customs in
Philadelphia in its denial of your application for a cartman's
license for Hatboro in the described situation.

    For an analogous case, see Customs Service Decision 82-26,
copy enclosed for your information.  In that case a Customs
cartman who owned a bonded warehouse desired to let its warehouse
customers deliver bonded merchandise from the cartman's warehouse
to vessels located in the same port under its cartage license.
Customs held that "[a] bonded cartman may not use vehicles
belonging to another person nor persons who are employees of
another firm to conduct its own cartage operations."

    For your general information, we can think of no way in which
Hatboro could qualify for a cartman's license under its current
corporate structure.  We suggest that you may wish to consider
restructuring Hatboro and J.W. (e.g., by merging the
corporations).

HOLDING:

    A corporation may not be licensed as a Customs cartman under
19 CFR Part 112 when a second corporation, founded and the
president of which is a brother of the first corporation,
provides the vehicles and employs the drivers under a lease
arrangement with the first corporation.

                              Sincerely,


                              John Durant
                              Director, Commercial
                              Rulings Division


Enclosure