author: OTIS, District Judge. BOOTH, Circuit Judge.

text:
    F. M. HUBBELL SON & CO., Inc., v. BURNET, Commissioner of Internal Revenue.
    No. 9064.
    Circuit Court of Appeals, Eighth Circuit.
    July 20, 1931.
    J. G. Gamble, of Des Moines, Iowa, for petitioner.
    Hayner N. Larson, Sp. Asst, to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., Sewall Key, Sp. Asst, t© Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and R. N. McMillan, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for respondent.
    Before KENYON and BOOTH, Circuit Judges, and OTIS, District Judge.
   OTIS, District Judge.

This is a petition to review a decision of the Board of Tax Appeals approving deficiencies in the income and profits tax of the appellant for the years 1924, 1925, and 1926 in the respective amounts of $913.88, $1,351.-74, ’and $1,685.68.

The appellant is an Iowa corporation with, its principal place of business in Des Moines, where it is engaged in the ownership, development, and rental of real estate. In the years 1924,1925, and 1926 it was required by special assessments to make expenditures on account of paving, curbing, and sidewalk improvements in connection with property owned by it in Des Moines and used in its business. The estimated average life of paving in the districts in which appellant’s property is located is ten years and that of curbing, sewers, and sidewalks twenty years. Upon such basis of estimated average life of paving, curbing, sidewalks, and sewers the appellant charged as expenses on account of depreciation for the years 1924, 1925, and 1926, respectively,, the amounts of $7,262.25, $7,245.70, and $6,912.88. The Commissioner of Internal Revenue ruled that appellant was not entitled to these deductions. If in computing its net income for the years in question, it was entitled to deductions by reason of the depreciation referred to, then the decision of the Board of Tax Appeals sustaining the Commissioner must be reversed.

Section 234(a) (7) of the Revenue Act of 1924, 26 USCA § 986(a) (7), provides that: “In computing the net income of a corporation subject to the tax imposed by section 981 of this title there shall be allowed as deductions: * * * (7) A reasonable allowance for the exhaustion, wear and tear of property used in the trade or business, including a reasonable allowance for obsolescence.”

1. Under this section (and it is upon this section appellant relies), before an allowance for exhaustion, wear and tear, that is, for depreciation, is allowable it must be shown that the property in connection with which depreciation is claimed is “used in the trade or business” of the taxpayer. So much is clear from the very words of the statute. Whether it is also essential that either an absolute or qualified ownership of the property shall be in the tax payer or that the depreciation shall result from the use of the property in the taxpayer’s trade or business are matters of interpretation. Obviously the first question here is this: Are the pavements, curbs, sidewalks, and sewers in the streets abutting on appellant’s properties “used in the trade or business” of appellant?

Appellant’s argument, supporting an affirmative answer to the question put, is this: Appellant’s business is the rental of properties; street improvements of the nature of those here increase rental incomes just as would improvements erected on the lands of appellants; in the same sense as the latter would be property used in appellant’s business, the former are property used in its business.

It must be conceded that the laying of a pavement in front of a business or residence property does increase its rental value. That rental value is increased also by pavement other than that immediately abutting the property, without which other pavement the pavement in front of the particular property would be useless. And the rental value is increased without regard to who pays for the pavement, whether it is constructed from special assessments or the general revenue. It is increased also by the building of churches and schools and street railways in the immediate vicinity. In the face of these instances it can hardly be said that any improvement, not located on the taxpayer’s property, which increases rental value, is on that account property used in the business of renting property.

Why is a street railway running in front of a business property, a street railway that undoubtedly increases that property’s rental value, not “used in the trade or business” of renting that property? Because it is something independent of and separate from that business; because it is not exclusively devoted to that business, only incidentally serving it and others; because it is not subject to the control of the owner of that' business. It benefits the business but it is not “in” the business, not a part of it. To secure its benefit the owner may have joined with a hundred others in constructing it but it is still separate from and independent of the business of renting the particular business property. All of this is likewise true of pavements, cui’b-ings, sidewalks, and sewers. Incidentally they benefit properties and businesses conducted thereon but primarily they are used in the business and for the service of the publie.

2. While the statute does not in so many words declare that before a deduction from net income may be made on account of “the exhaustion, wear and tear of property used in the trade or business” it must appear that the property depreciated is property in which the taxpayer has an absolute or qualified ownership and that the “exhaustion, wear and tear” has resulted from the use of the property in the taxpayers business, those are necessary implications.

Unless the taxpayer has some sort of ownership in the property which has depreciated, its depreciation directly causes him no loss and has therefore no proximate relation to his income. He must have some special proprietary interest in the property (Weiss v. Wiener, 279 U. S. 333, 337, 49 S. Ct. 337, 73 L. Ed. 720), although, of course, the whole title need not be in him. A taxpayer upon whom a special assessment is levied for the construction of a pavement has no peculiar financial interest in that pavement. It is as much the. property of the publie and wholly so as is any publie building. Certainly that is true as to a pavement in Iowa under Iowa law. It is not the theory of special assessments that the taxpayer acquires in compensation for what he has paid a special interest in that which is constructed. The theory is that he is compensated by a value added to what he already had. The increased value of his property will diminish as the value of the pavement decreases from exhaustion, wear, and tear, but the increase in value which the taxpayer has received, while it diminishes, does not diminish by reason of its exhaustion, wear and tear, but by reason of the exhaustion, wear and tear of property in which the taxpayer has no special pecuniary interest and on account of whose exhaustion, wear and tear the taxpayer is entitled to no deduction.

3. If the “exhaustion, wear and tear” is from other uses than that of the taxpayer’s trade or business, then the property, to that extent, is not “used” in such trade or business and is not the property described in the statute. Suppose, for example, a motortruck owned by one business but jointly used by it and by another. Obviously the owner would be entitled only to the depreciation resulting from its use of that truck and would have the burden of showing what part of the total depreciation resulted from its use. Similarly, even if it is conceded that in the sense of the statute a street pavement is used in a trade or business conducted on abutting property, it is likewise used by every other trade or business on that street and by the public generally. No method could be devised for allocating its depreciation to its various users.

There are then three things, among others, which must be shown before a deduction on account of depreciation may be allowed: (1) that the property is used in the taxpayer’s trade or business and not merely that it is of incidental benefit thereto; (2) that the taxpayer has either absolute or qualified ownership of the property; and (3) that the depreciation has resulted from use of the property in the trade or business of the taxpayer. The appellant’s case does not satisfy any of these requirements.

The decision of the Board of Tax Appeals is affirmed.

KENYON, Circuit Judge, concurs in the result.

BOOTH, Circuit Judge.

I concur in the result, but prefer to place my concurrence upon the ground that there has been no showing by the taxpayer of the extent to which the exhaustion, wear and tear of the paving, curbing, sidewalk, and sewer were due to use in the taxpayer’s trade or business.


source: Caselaw Access Project

author: WILBUR, Circuit Judge.

license: Public Domain

text:
    THE RETHALULEW, OFFICIAL NO. 227860. DANIELS v. UNITED STATES.
    No. 6352.
    Circuit Court of Appeals, Ninth Circuit.
    Aug. 4, 1931.
    Otto Christensen, of Los Angeles, Cal., for appellant.
    Samuel W. McNabb, U. S. Atty., and Ignatius F. Parker and Louis J. Somers, Asst. U. S. Attys., all of Los Angeles, Cal.
    Before WILBUR and SAWTELLE, Circuit Judges, and ST. SURE, District Judge.
   WILBUR, Circuit Judge.

The libelant charged respondent vessel with having engaged in a trade other than that for which she was licensed, -in violation of 46 USCA § 325, Rev. St. § 4377, and with having been fraudulently registered in violation of 46 USCA § 60, Rev. St. § 4189.

Ward Daniels, claimant and appellant, filed an intervening petition and answer denying the allegations of the libel and alleging that he was the owner of the respondent vessel by purchase thereof from the registered owner, James H. Curwin, on December 5, 1928, for the sum of $9,542; that at the time he purchased said vessel he did not know that it had violated any law or any of the conditions of its enrollment or license or had committed any of the acts alleged in the libel, or that the enrolled owner, James H. Curwin, or the enrolled master, John Mc-Cluskey, had made or executed any false oath for the purpose of obtaining a license for said vessel. The matter was heard by a commissioner in pursuance of stipulation. The commissioner made findings and reported his conclusions and recommendations to the court, to the effect that the charges of the libel hereinbefore stated were true, and holding that the vessel should be forfeited therefor. Claimant filed exceptions to this report, which were heard and overruled by the court on September 19, 1930.

It appears from the evidence that the Rethalulew is an American vessel of 16 tons net, powered with three liberty motors. She was registered and licensed on July 30, 1928, at Los Angeles, Cal., to James H. Curwin as owner, and John MeCluskey, master. The license provided that she should be “used and employed exclusively as a pleasure vessel, and designed as a model of naval architecture,” and should not “while this license continues in force, transport merchandise or carry passengers for pay, or engage in any unlawful trade, nor in any way violate the revenue laws of the United States,” and should “comply with the laws in all other respects.”

On September 30, 1930, the respondent vessel was engaged in transporting intoxicating liquor from the sehooner Przemysl to the L’Aquila, another vessel nearby, both vessels lying some miles off the coast of Southern California, for the purpose of smuggling intoxicating liquor into the United States. It is not questioned that the evidence is sufficient to establish that the vessels were so engaged, if the testimony of Kruger and Johnson, members of the crew of the Pr-zemysl, who testified by deposition, is to be believed. Appellant’s principal contention is that these two witnesses are unworthy of credit, although their testimony, corroborated in some salient features by testimony given before the commissioner, was evidently accepted by him and by the trial court as truthful, and that this court should reject such testimony as unworthy of belief and for that reason reverse the decision of the trial court.

• With reference to the transportation of liquor by the respondent vessel on the 30th of September, the two sailors testified by deposition as to the presence and activities of the Rethalulew at the time and place above referred to, and their testimony is corroborated by the testimony given before the commissioner, by the boatswain’s mate and the master machinist’s mate on Coast Guard boat No. 253, to the effect that on September 30, 1928, they sighted a speedboat near two “big boats,” both of the latter being identified by the boatswain’s mate, from reading the names visible thereon, on nearer view, as the Przemysl and L’Aquila, the motor machinist’s mate identifying one of them, from reading the name, as the Pr-zemysl, but failing to notice the name of the other big boat; that this speedboat came out from behind the vessel identified by both witnesses, and by the deposition of the sailors, as the Przemysl, and then put about and fled at high speed, using both of the larger vessels as a protection and screen; and that the cutter pursued the fleeing speedboat, and, after clearing the two larger vessels, opened fire on the speedboat with a one-pounder, and attempted to overhaul her. The motor machinist’s mate testified that the speedboat was gray in color, and was about 65 feet long, and that they approached within 500 yards of the speedboat before it started its flight; that they chased the speedboat about fifteen minutes, when they burned out a bearing and had to stop, and that he had never before chased so speedy a boat, Prom a logbook entry of the Coast Guard boat, dated September 30, 1928, covering the incidents of the sighting and pursuit of the speedboat, it appeared that it made off in a westerly direction at about thirty miles per hour. Prom the testimony of these witnesses it appeared that visibility was not good, so that the crew of the Coast Guard vessel could not positively identify the speedboat by name, but the descriptions given by them, as regards the dimensions, color, and speed of the boat, correspond with those of the respondent vessel. There is no evidence to contradict this testimony, and appellant, in his statement of the evidence, assumes it to be a fact that the Przemysl and the L’Aquila were, and had been for some weeks, lying off the coast of Southern California engaged in smuggling their cargo of liquor into the United States.

It appears from the record that the commissioner inspected the respondent vessel, and he was evidently satisfied that she was capable of carrying out the mission assigned to her by the witnesses. There was no evidence to contradict the testimony of these witnesses as to the occurrences on September 30. The claim of appellant is that the testimony of the two sailors on the Przemysl is so completely contradicted in other particulars to which they testified that their testimony as to the activities of respondent vessel on September 30 should be disregarded as unworthy of credit, and that without their testimony the corroborating evidence alone is insufficient to establish the identity of the respondent vessel as the offending speedboat. It is true that these two sailors testified to a large number of visits made by this speedboat to the above-mentioned vessels lying off the coast of Southern California during the months of August and September. The evidence which tended to contradict them was to the general effect that the respondent vessel was not fully completed before the 1st of September. It is therefore argued that the testimony of the two sailors is for that reason willfully false. It would be unnecessary and unprofitable to analyze this testimony. It is sufficient to say that we see no reason for disregarding their testimony and for accepting the testimony of witnesses who were evidently disbelieved by the trial court.

Appellant further contends that the findings and decree were non judicial acts and void. This contention is based on a written stipulation, dated November 3, 1930, between the parties, to the effect that District Judge Paul J. McCormick, who tried the cause, signed the findings and decree herein while he was in the city of New York. We are in effect asked, by appellant, to take judicial notice of the fact that Judge McCormick is a member of the National Commission on Law Observance and Enforcement, and that in all probability he was in New York, as a member of that commission, when he signed the findings and decree; and, by appellee, we are requested to take judicial notice of an order in our files, by the Chief Justice of the Supreme Court, assigning Judge McCormick to sit in the United States District Court for the Southern District of New York during the period beginning October 1st and ending December 31, 1930. This stipulation was not submitted to the trial court. No ruling of the trial court was invoked thereon, and no ruling of the trial court was based thereon. Such a stipulation is no proper part of the record (Malony v. Adsit, 175 U. S. 281, 287, 20 S. Ct. 115, 44 L. Ed. 163; Metropolitan R. Co. v. Dist. of Columbia, 195 U. S. 322, 332, 25 S. Ct. 28, 49 L. Ed. 219). Moreover, this is an appeal from a decree. Our jurisdiction, which is invoked by appellant, is predicated upon the existence of a final decree! That the decree, entered October 27, 1930, is the final decree of the court is asserted by appellant in his petition for the allowance of the appeal. If there is no final decree to be appealed from, this appeal should be dismissed. Appellant does not wish or request that his appeal be dismissed;-on the contrary, he prays for a reversal of the decree. Under these circumstances he cannot assert here that the decree from which he appeals is void or that it is not a decree of the court.

We hold further that the evidence introduced in behalf of claimant, upon which he seeks to avoid forfeiture of respondent vessel because of lack of knowledge on his part that it had been engaged in violation of law, cannot avail him. It is unnecessary for us to refer to the evidence showing the somewhat unusual circumstances under which the vessel was purchased and paid for, or to the failure of claimant to make the inquiries touching the vessel’s antecedents, which in the circumstances under which the sale and purchase was made should have suggested its misconduct to a person having appellant’s business experience; nor need we comment on the failure of claimant either to produce, or to excuse the nonproduction of material absent witnesses manifestly having knowledge of the whereabouts or activities of respondent vessel during the period covered by the charges set forth in the libel; for it is well settled that, upon an adjudication of violation of statutes of the nature of those upon which the charges herein are based, forfeiture of the offending res relates back to the time of the offense and cuts out all intervening rights or claims in the property affected, even rights acquired in good faith and for value. United States v. Nineteen Hundred and Sixty Bags of Coffee, 8 Cranch (12 U. S.) 398, 403, 3 L. Ed. 602; United States v. Stowell, 133 U. S. 1, 17, 10 S. Ct. 244, 33 L. Ed. 555; Goldsmith, Jr-Grant Co. v. United States, 254 U. S. 505, 510, 41 S. Ct. 189, 65 L. Ed. 376; United States v. 26 Cases of Intoxicating Liquors (D. C.) 287 F. 540, 541; United States v. One Reo Sedan (D. C.) 39 F.(2d) 120, 122.

The decree appealed from 'is therefore affirmed.


author: LEWIS, Circuit Judge.

text:
    HOLLINGSWORTH v. MULTA TRINA DITCH CO. et al.
    No. 322.
    Circuit Court of Appeals, Tenth. Circuit.
    July 29, 1931.
    L. E. Kenworthy, of Denver, Colo. (S. E. Naugle, of Denver, Colo., on the brief), for appellant.
    Frank Delaney, of Glenwood Springs, Colo. (Will Shafroth, of Denver, Colo., on the brief), for appellees.
    Before LEWIS, PHILLIPS, and McDERMOTT, Circuit Judges.
   LEWIS, Circuit Judge.

Appellant’s bill of complaint was dismissed on final hearing.

She named as defendants the Multa Trina Ditch Company, a Colorado corporation, and five individuals constituting the last board of directors of said corporation. She alleges that she is a citizen and resident of the state of California and all of the defendants are citizens and residents of the state of Colorado ; that the corporate charter of said corporation expired and it became defunct on July 1, 1927, and under the Colorado statute (section 2295, Compiled Laws 1921) all of the property owned by said corporation thereupon passed to and vested in said individual defendants as trustees for its creditors and stockholders; that the capital stock of said corporation, all issued, was $50,000.00, divided into 50,000 shares each of the par value of $1.00; that its property consisted of water rights, ditches and laterals for irrigation, — for that purpose, they were worth in excess of the amount of its capital stock —; that plaintiff is the owner of 18,178 shares of said capital stoek, evidenced by twelve named certificates theretofore issued to different persons, all of said certificates having been endorsed in blank by the parties to whom they were issued; that the individual defendants are also the owners of stock in said defunct corporation, and they deny the claims of plaintiff and her claimed right to participate in the distribution of the eompa^ ny’s assets, and they refuse to give her a statement of the affairs of said defunct corporation or to advise her whether there are unpaid assessments against the stock she claims to own, and that she is ready and willing to pay any legitimate assessments against her stoek and their purpose is to deprive her of all her rights as such stockholder. She asked to be adjudged the owner of said shares and that the. individual defendant-trustees be decreed to convey to her her proportionate interest in the assets of said corporation after its debts, if any, have been paid, measured pro rata by stoek ownership. It is observed that she does not claim that any shares were ever issued’to her by the corporation.

When it came to the trial she showed that the twelve certificates for the shares she claimed to own, endorsed in blank by the several parties to whom they were issued, were seized and levied upon by the United States Marshal under execution issued in a ease in which she had recovered a judgment against a third party, and sold by the Marshal in partial satisfaction of said judgment. She was the purchaser at execution sale.

Conceding, without deciding, that the procedure resulting in the execution sale complied with the provisions of section 13 of the Legislative Act of May 6,1927 (Colorado Sess. Laws 1927, p. 271), and transferred to plaintiff the legal title to the certificates and shares she claims as against her judgment debtor and all others that might claim an interest in them, still we are unable to see that plaintiff thereby became a stockholder in the Multa Trina Ditch Company so as to qualify her to maintain this suit in that capacity. That company was defunct. It did not exist and, of course, had no officers. Morawetz on Private Corporations (2d Ed.) states the rule on this subject (section 168) thus:

“The right of a shareholder to transfer his shares necessarily ceases upon a dissolution of the corporation; for, after a dissolution, the contract of membership is at an end, and no further novation is possible. . The interest of a shareholder in the assets of a corporation after its dissolution is a purely equitable claim, and an assignment of this interest will be recognized only by a court having jurisdiction in equity.”

The only right she has is that of the registered owners of said shares which she acquired by assignment at the execution sale. Glass v. Concordia Parish Police Jury, 176 U. S. 207, 20 S. Ct. 346, 44 L. Ed. 436. Those rights are choses in action, Morawetz, § 225,—made so by the Colorado Session Laws of 1927, p. 265 et seq., if not theretofore of that character. See Central Savings Bank v. Smith, 43 Colo. 90, 101, 95 P. 307. None of the certificates was issued to bearer. They had been assigned in blank by the persons to whom they had been issued, who, the proof tends to show, .were citizens of Colorado. • They could not have maintained this suit in the court below, and plaintiff, their assignee, could not. The Act of Congress (U. S. Code, title 28, § 41 [28 USCA § 41]) conferring jurisdiction on Federal district courts contains this restriction:

“No district court shall have cognizance of any suit (except upon foreign bills of exchange) to recover upon any promissory note or other chose in action in favor of any as-signee, or of any subsequent holder if such instrument be payable to bearer and be not made by any corporation, unless such suit might have been prosecuted in such court to recover upon said note or other chose in action if no assignment had been made.”

For construction of this restriction as applied to the facts here, see New Orleans v. Quinlan, 173 U. S. 191, 19 S. Ct. 329, 43 L. Ed. 664; Kolze v. Hoadley, 200 U. S. 76, 26 S. Ct. 220, 50 L. Ed. 377; State National Bank v. Eureka Springs Water Co. (C. C.) 174 F. 827.

The decree appealed from contains this:

“And the court having heard the testimony produced herein and the arguments of counsel finds the issues herein joined to be with the defendants, and that the court hath no jurisdiction of this ease.”

This might be construed as a decision on the merits. To avoid that the excerpt will be modified to read thus:

And the court having heard the arguments of counsel finds that the court hath no jurisdiction of this case.

As so modified the order of dismissal is affirmed.


author: THOMPSON, Circuit Judge.

text:
    JACKSON v. COMMISSIONER OF INTERNAL REVENUE. CRELLIN v. SAME (two cases).
    Nos. 4325, 4329, and 4330.
    Circuit Court of Appeals, Third Circuit
    July 31, 1931.
    H. Maurice Darling, of New York City (Darling & Daley, of New York City, of counsel), for petitioners.

      G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, Andrew D. Sharpe, and F. Edward Mitchell, Sp. Assts. to Atty. Gen. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and J. K. Polk, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.
    Before BUFFINGTON, DAYIS, and THOMPSON, Circuit Judges.
   THOMPSON, Circuit Judge.

These cases come up upon petitions for review of the decision of the Board of Tax Appeals entered in proceedings for the re-determination of deficiencies in income taxes assessed by the Commissioner of Internal Revenue for the year 1917. -The cases of William H. Jackson and Edward W. Crellin were consolidated for hearing, and decision by the Board, and it was stipulated that the decisions in those cases should control the decision in the case of Amy H. Crellin.

The question for decision is whether, under the facts found by the Board of Tax Appeals, dividends declared by the PittsburghDes Moines Company in January, 1917, and in August, 1917, and paid by checks to the petitioners and indorsed back to the company, and stock issued therefor, were taxable as cash dividends under the provisions of the Revenue Act of 1917, § 31 (a) of section 1211 of that act (40 Stat. 337), or were stock dividends and not taxable in accordance with the decisions in Peabody v. Eisner, 247 U. S. 347, 38 S. Ct. 546, 62 L. Ed. 1152, and Eisner v. Macomber, 252 U. S. 189, 40 S. Ct. 189, 64 L. Ed. 521, 9 A. L. R. 1570.

The Board of Tax Appeals found the following facts:

“The petitioners are individuals residing at Pittsburgh, Pennsylvania. The petitioner Amy H. Crellin is the wife of the petitioner Edward W. Crellin.

“Prior to March, 1900, the petitioners Edward W. Crellin and William H. Jackson formed a partnership with one Berkley N. Moss, each owning a one-third interest therein, to carry on the business of manufacturing structural steel for bridges, water tanks, and other purposes. In March, 1900, they organized the Des Moines Bridge and Iron Works, hereinafter called the Des Moines Company, under the laws of Iowa, which succeeded to the assets and business of the partnership. Each of the three former partners owned an equal number of shares of the capital stock .of this corporation, and there was an oral agreement that their interests would remain equal. In 1911 Moss sold his stock in the corporation to Crellin and Jackson, and from that date Crellin and Jackson, and their families, owned in equal amounts the greater part of the shares of the corporation. There was an oral understanding between Jackson and Crellin that they would continue to own the capital stock of the corporation in equal shares, it being understood that the shares held by their respective families would be considered their shares for the purposes of the agreement.

“In the year 1907 the Des Moines Compa^ ny established a branch office at Pittsburgh, Pennsylvania. Within a few years this branch became more important than the main office, and in the year 1916 it was incorporated as the Pittsburgh-Des Moines Company under the laws of Pennsylvania. Crellin and Jackson owned practically all of the Pittsburgh Company’s stock in equal proportions, and they had an oral agreement that they would keep their interests and those of their families equal. The original capital of the Pittsburgh Company was paid in as follows: The Des Moines Company issued dividend checks to Crellin and Jackson; they endorsed the checks back to the company, and it in turn transferred the amount of the cheeks to the Pittsburgh Company, which issued its stock therefor.

“The Pittsburgh Company was created in order to escape the Pennsylvania tax on foreign corporations doing business in that State. No change was made in the manner of conducting the business; separate books were" kept, but the Des Moines Company and the Pittsburgh Company were thought of, and referred to by the officers and employees thereof, as the Des Moines branch and the Pittsburgh branch. The two corporations worked as a unit. Tools, material, workmen and orders were freely shifted from Des Moines to Pittsburgh, and vice versa, as the needs of the moment required. The salaries paid to Crellin and Jackson were made up by the corporations in practically equal amounts.

“Beginning in 1902 certain of the more valued employees of the Des Moines Company were given the opportunity to purchase stock in that corporation at par, and beginning some time in 1917 the employees of the Pittsburgh Company were given the opportunity to purchase stock of that corporation at par. The shares so issued constituted a special class of common stock, known as ‘Employees Stock’, which differed from the common stock issued to Crellin and Jackson, and their families, in that the employee could not sell or transfer his stock to any other person, and upon leaving the employ of the company he was required to return his stock to the company, which bound itself to take the stock at par. Employees owning stock could cash their dividend cheeks or turn them back to the company for more stock, as they wished. If the employees elected to turn back their dividend cheeks and take stock, they were given the privilege of taking stock in either of the companies.

“From March, 1900, to the end of the year 1917 only small amounts were drawn by Crellin and Jackson as salary, and all the profits of the two corporations were turned hack into the business, except as hereinafter noted.

“In the years prior to 1908 the surplus of the Des Moines Company was capitalized at the end of each year by transferring it by means of entries debiting the shop accounts, or gain and loss account, and crediting the capital stock account. Beginning in 1908 checks were drawn when the directors authorized a dividend, and these checks were endorsed and returned to the company by Crellin and Jackson and stock issued to them for the amount of the cheeks. There was always an understanding between Crellin and Jackson that this'would be done. Moss was also a party to this arrangement until his retirement in 1911. Except in the years 1911, 1913, and 1914, the total amounts of the dividend checks largely exceeded the amount of the cash on hand, the surplus of the corporation being represented principally by materials and supplies on hand, and buildings and equipment.

“During the year 1917 the officers of the Des Moines Company and the Pittsburgh Company were E. W. Crellin, president; W. H. Jackson, secretary-treasurer, and G. A. Smith, vice-president.

“On January 22, 1917, the directors of the Des Moines Company declared a 37 per cent, dividend by the following resolution:

“The Secretary and Treasurer made the financial report of the Corporation as of December 31, 1916, showing surplus of $206,-442.33, and reported that after paying the dividends on the Preferred Stock due January 15, 1917, and providing for the Government Income Taxes, the general taxes and bonuses on Capital Stock, that a dividend of 37 per cent, might be paid on the Common Capital Stock moved that such dividend be paid upon such stock for the pro-rata portion •of the year 1916. Seconded by G. A. Smith, the motion carried and a dividend of 37 per cent, on the Common Stock was ordered paid in accordance with the schedule appearing on the following page. * * *

“A cheek for the amount of the dividend due each stockholder, pursuant to the foregoing resolution, was drawn by the company and actually delivered to the stockholder. The Crellin family received dividend cheeks in the total amount of $73,260, and the Jackson family received cheeks in the total amount of $73,260, and the stockholders received cheeks in the total amount of $50,678.-16. All of the cheeks received by the Jackson family, and all of the checks received by the Crellin family, excepting two cheeks in the amount of $629; were endorsed back to the Des Moines Company.

“When these dividend checks were endorsed back to the Des Moines Company the amounts thereof were credited to the Pittsburgh Company by the following entry on the books of the Des Moines Company:

January 26, 1917. Debit to Cash.

Cr. Pgh. D. M. Co. (Per a/e Amy H. Crellin) $31,820.00

Cr. Pgh. D. M. Co. (Per a/e E. W. Crellin) 40.182.00

Cr. Pgh. D. M. Co. (Per a/e W. H. Jackson) 67.710.00

Cr. Pgh. D. M. Co. (Per a/e W. H. Jackson) 5,550.00

$145,262.00

“On the books of the Pittsburgh Company the personal accounts of Amy H. Crellin, E. W. Crellin, and W. H. Jackson, were respectively credited with the amount of the cheeks which had been turned back to the Des Moines Company, and the Des Moines Company was charged on the books of the Pittsburgh Company with the total amount so credited. Thus there resulted an increased credit of $73,260 to, the Jacksons on the books of the Pittsburgh Company, an increased credit of $72,003 to the Crellins on the books of the Pittsburgh Company, and a total debit to the Des Moines Company of $145,262. At the time the January dividend was declared and paid by the Des Moines Company, there were 5444 shares of capital stock outstanding, of which 1980 shares were held by the Crellin family, 1980 shares by the Jackson family, and 1444 shares by outsiders. Of the 1444 shares held by outsiders, the holders of 658 shares took Des Moines Company stock in' exchange for their dividend cheeks, the holders of 625 shares took Pittsburgh stock, and the holders of 161 shares elected to take cash.

“On January 29, 1917, the directors of the Pittsburgh Company declared a 37 per cent, dividend by the following resolution:

“The Secretary-Treasurer read the Financial Statement of the Corporation as of December 30, 1916, showing a surplus of $94,-043.59, and reported that after paying the dividends on the Preferred Stoek due January 15, 1917, and providing for the Government Income Taxes, the general taxes, and 'bonus on capital stoek, that a dividend of 37 per cent, might be paid on the common capital stoek, and moved that such a dividend he paid on such stoek.

“Seconded by E. W. Crellin. The motion carried and a dividend of 37 per cent, on the common capital stock was ordered paid in accordance with the following schedule:

Distribution of Pittsburgh-Des Moines Company Common Stoek Dividends.

37 Per Cent.

Name Shares Dividend.

W. H. Jackson 1225 $45,325.00

E. W. Crellin 1053 38,961.00

Amy H. Crellin 172 6,364.00

G. A. Smith 2 74.00

Max Whitaere 45 1,665.00

2497 $92,389.00

“Dividend checks were issued to the Crel-lins and the Jacksons in the amount of $45,-325 to each family. Upon the receipt of the 'dividend cheeks the Crellins and the Jacksons endorsed them back to the Pittsburgh Company and the amounts thereof were credited to their personal accounts on the books of that company, making a total increase of $118,585 to the personal credit of the Jackson family, and a total increase of $117,327 to the personal credit of the Crellin family on account of the dividends declared on January 22, 1917, by the Des Moines Company, and on January 29, 1917, by the Pittsburgh Company. On January 31, 1917, the Pittsburgh Company issued to the Crellin family 1160 shares of its capital stoek of a total par value of $116,000, and also issued to the Jackson family 1160 shares of its capital stock of a par value of $116,000. Since the total credit to the Jackson family on account of the dividends mentioned amounted to $118,585, and the total credit to the Crellin family on account of said dividends amounted to $117,327, there remained, after the issuance to each family of stoek of the Pittsburgh Company of the par value of $116,000, a balance of $2585 to the credit of the Jackson family and a balance of $1327 to the credit of the Crellin family on account of said dividends.

“Max Whitaere and G. A. Smith, who were, on the dates the January dividend of the Pittsburgh Company were declared and paid, the owners of 45 shares and 2 shares, respectively, of the capital stock of the Pittsburgh Company, turned hack their dividend cheeks to the company for shares of the capital stoek of the Pittsburgh Company and the Des Moines Company, respectively.

“On August 27, 1917, the Des Moines Company declared a 10 per cent, dividend by the following resolution:

“The Secretary-Treasurer called attention to the financial statement of the Corporation and to the amount which had been carried as Material Inventory Reserve Account from the earnings of 1916, and after discussion it was decided that owing to the high prices which steel had maintained during the year, that this reserve was unnecessary, and therefore, moved that a dividend of 10% be paid from this 1916 material reserve account upon the common capital stock- of this Company as shown by the books outstanding July 1, 1917, in accordance with the rule for participation which has been followed in the past by the Company.

“The motion was seconded hy G. A. Smith and carried, a dividend of 10% on the common capital stoek was ordered paid in accordance with the schedule appearing on the following page. * * *

“On August 31, 1917, dividend checks were issued to the Crellin and Jackson families in the amount of $19,800 each and” these checks, except two amounting to $340, were endorsed back to the company, which on September 6, 1917, and September 8, 1917, debited cash and credited the Pittsburgh Company ‘(Per a/c of W. H. Jackson)’ etc., with the amounts thereof. The Pittsburgh Company took up these credits hy charging the Des Moines Company and crediting the personal accounts of the Jacksons and Crel-lins with the same amount. No stoek was issued by the Pittsburgh Company to the Jack-sons and Crellins at this time for the reason that the Pittsburgh Company had issued to each family $14,500 of stock in February, 1917, and $19,500 of stock in March, 1917, under the circumstances hereinafter set forth.

“On August 27, 1917, and August 31, 1917, the Crellins and the Jacksons owned 3960 shares out of 5812 shares of the capital stock outstanding in the Des Moines Company, the remaining 1852 shares being held by employees. As to these 1852 shares, the holders of 709 shares took Des Moines Company stock in exchange for their dividend cheeks, and the holders of 1143 shares elected to take cash.

“The Pittsburgh Company in the spring of 1917 was insufficiently capitalized and unable to properly care for the business incidental to war conditions. In order that the company might make as good a showing as possible in obtaining contracts, and have its capital stand as high as possible-, Jackson and Crellin arranged in February, 1917, that instead of having the company borrow additional capital on its own notes, they would borrow on their notes $50,000 in February and $40,000 in March, and make advances to the company from the proceeds of the notes. However, in order to prevent these advances from appearing as accounts payable, Crellin and Jackson agreed to take stock in the company to the extent of the advances so that on the financial statement of the company the stock so issued would balance the advances. Crellin and Jackson each transferred to the Pittsburgh Company from the proceeds of personal loans the amounts of $19,500 on February 8,1917, and $14,500 on March 27, 1917. The company debited cash and on the same dates it issued capital stock in the same amounts to Crellin and Jackson and their families. These issues of stock had the form of purchases and sales, but by agreement between Crellin and Jackson they were issued in anticipation of a subsequent dividend. On August 8, 1917, the Pittsburgh Company paid the joint note for $40,-000 from the proceeds of which Crellin and Jackson loaned the company $39,000, and on August 28, 1917, it paid the joint note for $50,000, from the proceeds of which they had loaned the company $29,000. The amounts so paid were charged to the personal accounts of Crellin and Jackson and cash was credited with the same amount.

“On August 27, 1917, the Pittsburgh Company declared a dividend of 10 per cent, by the following resolution:

“The Secretary and Treasurer called attention to the financial statement of the Corporation and to the amount which had been carried as Material Inventory Reserve Account, from the earnings of 1916, and after discussion it was decided that owing to the high prices which steel had maintained during the year, that this reserve was unnecessary, and therefore moved that a dividend of 10 per cent, be paid from this 1916 material reserve account upon the common capital stock of this company as shown by the books outstanding July 1, 1917, in accordance with the rule for participation which has been followed in the past by the company.

“The motion was seconded by G. A. Smith and carried, and a dividend of 10 per cent, on the common capital stock was ordered paid in accordance with the schedule appearing on the following page. * * *

“On August 31, 1917, the company issued dividend cheeks to the Crellin family in the amount of $26,703.27 and dividend checks in the same amount were also issued to the Jackson family. These cheeks-were duly endorsed by the Crellins and Jacksons and were returned to the Pittsburgh Company and the amounts thereof were credited to the personal accounts of the Jacksons and Crellins, cash being debited.

“On September 30, 1917, the Pittsburgh Company issued capital stock to the Jackson family and the Crellin family in the amount of $25,000 each and charged the same to their personal accounts.

“On August 27, 1917, and August 31, 1917, the Crellins and the Jacksons held 5450 shares of the 6042 shares of the capital stock of the Pittsburgh Company outstanding, the remaining 59-2 shares being held by employees. As to these 592 shares the holders of 309 shares elected to take cash.

“The Des Moines Company and the Pittsburgh Company, at the times they declared the dividends hereinbefore mentioned, had surplus at least equal to the amounts of the dividends. However, the cash available on January 22, 1917, to meet the dividend of the Des Moines Company declared on that date, which amounted to $197,198.16 was $5,163.20. The cash available on August 30, 1917, to meet the dividend declared by the Des Moines Company on August 27, 1917, which amounted to $57,988.39, was $14,645.-26. The cash available on January 30, 1917, to meet the dividend declared by the Pittsburgh Company on January 29, 1917, which amounted to $9-2,389, was $7,248.51. The cash available on August 30, 1917, to meet the dividend declared by the Pittsburgh Company on August 27, 1917, which amounted to $59,014.94, was $32,733.17.

“The Crellins and the Jacksons had personal accounts only with the Pittsburgh Company; they had no personal accounts with the Des Moines Company.

“The petitioners in their income tax returns for the year 1917 treated the dividends as above set forth as stock dividends and not taxable as income. The respondent, upon audit of the returns, determined that the dividends were taxable and that there were deficiencies in tax as hereinbefore set forth.”

The Board of Tax Appeals was of the opinion that the two dividends declared and paid in 1917 by the Pittsburgh Company were cash dividends and taxable to the recipients. As the petitioners introduced no evidence in support of the issue concerning the dividends of the Des Moines Company, that issue was decided in favor of the Commissioner. The petitioners have abandoned their contentions regarding tax upon the Des Moines Company dividends paid in 1917.

The attorneys have stipulated the following additional facts based on the testimony produced:

“Before the various dividends of the Des Moines Bridge and Iron Works were declared in the years 1912 to 1917, inclusive, and before the two dividends of the Pittsburgh-Des Moines Company were declared in 1917 all of the three directors, including George H. Smith, who was a director in each company and all of the three officers, including George H. Smith, vice-president in each company, knew in advance that the dividend cheeks, of the two associates, Mr. Jackson and Mr. Crellin — under a very definite understanding between Jaekson aud Crellin— would be endorsed back by them into the business, and that capital stock of the Des Moines Bridge and Iron Works, in the earlier years (or capital credits in the corresponding partnership), and capital stock of the ,Pittshurgh-Des' Moines Company in 1917, would be issued for the amounts of the checks to Mr. Jaekson and Mr. Crellin, respectively; and, in the case of the 1917 dividends, directions were given by Mr. Crellin, or by Mr. Jaekson, to the secretary of the Pittsburgh-Des Moines Company to issue the stock as aforesaid. This understanding was also known to all of the employees who held special stock.”

We think the salient facts may be briefly summarized as follows:

Jaekson and the Crellins had an understanding which extended through the history of the Des Moines Company down into that of the Pittsburgh Company that each of the two families should hold an equal number of shares of stock of the two companies. In consequence of that understanding and agreement, it would follow that, if Jaekson .did not take his dividend in stock, the Crel-lins would hold a controlling interest in the corporation, and vice versa. All the facts point to an agreement at the time the resolutions for the January dividend and the August dividend were presented and adopted that the checks should be returned to the company and stock issued. Prior to the directors’ meetings, it was agreed by Jackson and Crellin that they would exchange their dividend checks for stock. They not only owned a controlling interest in the stock of the corporation which enabled them to control the action of the board of directors, but they Were, to all practical purposes, the board. The resolutions were adopted at each of the meetings upon the faith of'the agreement between Crellin .and Jaekson that the dividend cheeks would not be cashed but would be turned in for stock.

There was not sufficient cash in the treasury of the company to pay the dividends. The cash available on January 39, 1917, to meet the dividend, amounting to $92,389, declared by the Pittsburgh Company on January 29, 1917, was $7,248.51, and the cash available on August 30, 1917, to meet the dividend, amounting to $59,914.94, declared by the Pittsburgh Company on August 27, 1917, was $32,733.17 It can hardly be conceived that Jackson and the Crellins, with knowledge of the condition of the treasury, caused the resolutions to he presented and passed expecting or intending to receive in cash the amount of their dividend cheeks. The corporation was a family affair. The outstanding stock held by Smith and Whit-acre was negligible so far as any influence in the management or control of the corporation was concerned.

It was held by the Board of Tax Appeals that this was not an agreement which was binding upon the corporation because its terms were not embodied in the resolutions declaring the dividends. But we are considering here a consummated transaction. Whether the corporation could have been compelled to comply with the terms of the oral agreement entered into by the controlling stockholders, had an objection been made by a minority stockholder or a ereditor, is not an issne here. The corporation did in fact declare the dividends and issue cheeks which were intended to be, and in fact were, converted into stoek.

The respondent contends that agreements made by stockholders or directors or trustees among themselves are not binding upon them as a board, and they cannot, under such agreements, bind the corporation. But here there are no objecting stockholders or others in interest who claim to be injuriously affected by the acts complained of. The terms of the resolution adopted at each meeting were solely for the purpose of having dividend cheeks issued when all parties knew that the dividends could not be paid in available cash. The effect of the resolution was merely to produce the checks, and the rest of the transaction was a matter of bookkeeping through which the company charged itself and credited Jackson and the Crellins with the returned checks, and accomplished the object of issuing stoek against its surplus represented “by materials and supplies on hand, and buildings and equipment.”

Jackson and the Crellins, after the stock was issued to them, held no greater proportion of the assets of the corporation than they did before as to the January dividend, because Whitaere and Smith also turned back their dividend checks for stoek, so that all stockholders, after the January dividend, held the same proportion as before. After the August dividend was declared, however, some few of the employees elected to take cash instead of shares of stoek. As is shown in the Board’s findings, that stoek was not of the same class as that owned by Jackson and the Crellins but was “Employees Stock.”

Upon all the facts in these cases, our conclusion is that the dividends declared, so far as the petitioners are concerned, were cash dividends only in name, and were intended as part of a plan by which the surplus earnings would remain in the corporation and the petitioners would receive stock in equal amounts, and continue to hold their equal interests. The issues raised in these eases have all been considered and decided adversely to the respondent’s contentions by this court in the eases of United States v. Mellon, 281 F. 645, and United States v. Davison, 9 F.(2d) 1022, certiorari denied 271 U. S. 670, 46 S. Ct. 484, 70 L. Ed. 1143.

Holding as we do that the purpose of the plan and the resolutions adopted by the directors of the corporation was not to have the corporation pay a cash dividend, and since in fact no cash dividends were received by Jackson and the Crellins, we conclude that the Board of Tax Appeals erred in its order and decision finding deficiencies in the tax of the petitioners for 1917.

The decision is therefore reversed.


author: THOMPSON, Circuit Judge. WOOLLEY, Circuit Judge

text:
    TEMPLE ANTHRACITE COAL CO. v. FEDERAL TRADE COMMISSION.
    No. 4434.
    Circuit Court of Appeals, Third Circuit.
    July 9, 1931.

      WOOLLEY, Circuit Judge, dissenting.
    Wm. J. Fitzgerald, John B. Wilson, and John P. Kelly, all of Scranton, Pa., for plaintiff.
    Robert E. Healy and Martin A. Morrison, both of Washington, D. C., Edward L. Smith, of Phillipsburg, N. J., and H. A. Cox, of Washington, D. C., for defendant.
    Before BUFFINGTON and WOOLLEY, Circuit Judges, and THOMPSON, District Judge (now Circuit Judge).
   THOMPSON, Circuit Judge.

This case comes here upon the petition of the Temple Anthracite Coal Company for review of an order entered by the Federal Trade Commission requiring the petitioner to cease and desist from alleged violation of the provisions of section 7 of the Clayton Act (Act of Oetoher 15,1914, e. 323, § 7, 38 Stat. 731 [15 USCA § 18]).

The uneontradieted facts developed at the hearing are as follows:

The petitioner is a corporation of the state of Delaware organized August 25,1924, with an authorized capital stock of 60,000 shares of no par value; its registered office is in Dover, Del.; and it maintains an office in Scranton, Pa.

The Temple Coal Company is a Pennsylvania corporation with its principal office and place of business in Scranton. Its capital consists of 10,000 shares of common stock of par value of $100, all issued and outstanding in October, 1924, when the Commission’s complaint was issued. It has been and is engaged in mining and selling anthracite coal from its mines in Pennsylvania. Prior to 1924, it had acquired and now owns the physical assets of the Northwest Coal Company, Edgerton Coal Company, Sterrick Creek Coal Company, Babylon Coal Company, and Forty Fort Coal Company. It owns all of the capital stock of the Mount Lookout Coal Company, engaged in the mining of anthracite coal in Pennsylvania and in the sale of such coal. It also owns 80 per cent, of the capital stock of the Lackawanna Coal Company, Limited, also engaged in mining of anthracite coal in Pennsylvania and the sale of such coal.

The collieries owned by the Temple Coal Company and those in which it owns a controlling stock interest are located in Laekar-wanna and Luzerne counties in the northern anthracite field of Pennsylvania. In August, 1924, the total coal in place in all of the properties owned, controlled, and leased by the Temple Coal Company, the Lacka-wanna Company, Limited, and the Mount Lookout Coal Company was approximately 66,730,205 tons, and the value of the physical properties of those companies was in coal $9,192,750 and in property $3,450,000. Since 1914, the coal mined by the Temple Coal Company, the Lackawanna Coal Company, Limited, and the Mount Lookout Company has been and is sold through Thome, Neale & Co., Inc., which is engaged in the business of buying and selling anthracite and bituminous coal and maintains offices in Philadelphia, Buffalo, Chicago, Baltimore, and New York. From its offices sales of coal are solicited throughout a large territory traveled by representatives of such offices. The Buffalo office solicits and makes sales in Canada also. Thorne, Neale & Co., Inc., secures orders for coal mined by Temple Coal Company, Lacka-wanna Coal Company, Limited, and Mount Lookout Coal Company, which orders are transmitted to Temple Coal Company by Thorne, Neale & Co., Inc. These orders give the name of the consignee, destination, route of shipment, the equipment of the cars containing the coal, the mine from which the coal is to be shipped, the quantities and kinds of coal ordered, and the price of the coal, f. o. b. mine. If the price mentioned in the order is satisfactory to Temple Coal Company, the coal is shipped by Temple Coal Company to the customer at the price offered. Thorne, Neale & Co., Inc., collects from the purchaser the selling price of the coal, paying to Temple Coal Company the selling price, less a commission of 4 per cent, for making the sale. In the event that the price on the order given by Thome, Neale & Co., Inc., to Temple Coal Company for the coal to be shipped is not satisfactory to Temple Coal Company, the order is not filled. Such has been the method of sale employed by Temple Coal Company, Mount Lookout Coal Company, and said Lackawanna Coal Company, Limited, with Thome, Neale & Co.-, Inc., at least since 1914.

When shipments of coal are made directly by Temple Coal Company to Thome, Neale & Co., Inc., the coal is billed to Thome, Neale & Co., Inc., at a price agreed upon between it and Temple Coal Company, which price is paid to Temple Coal Company by Thome, Neale & Co., Inc., irrespective of the price received by Thome, Neale & Co., Inc., from the ultimate purchaser.

The greater part of the shipments of coal on orders furnished by Thome, Neale & Co., Ine., went into interstate commerce. Some shipments were made to their customers in Canada.

The East Bear Ridge Colliery Company is a Pennsylvania corporation with its principal office and place of business in Scranton, Pa. Its authorized capital is 25,000 shares of common stock of a par value of $25 each. It is engaged in the business of mining anthracite coal in Pennsylvania and in selling such coal. Its collieries are located in the southdm anthracite region in Schuylkill county, Pa., about seventy miles distant from the collieries of the Temple Coal Company and the other coal companies operated by the latter company. Its physical property in September, 1924, consisting of its mines, improvements, and developments, was valued at $893,492.42, and its coal tonnage in the mine was estimated at 4,700,700 tons. Since 1914, the coal mined by the East Bear Ridge Colliery Company has been sold through Madeira, Hill & Co., which is engaged in the business of buying and selling anthracite and bituminous coal.

Madeira, Hill & Co. maintains offices in Philadelphia, New York, Boston, and Washington, from which offices sales of coal are solicited throughout a large territory traveled by the representatives of such offices. Madeira, Hill & Co. secures orders for coal mined by East Bear Ridge Colliery Company, which orders are transmitted to East Bear Ridge Colliery Company by Madeira, Hill & Co. These orders give the name of the consignee, destination, route of shipment, the equipment of the ears containing the coal, the quantities and kinds of coal ordered, and the price of the coal, f. o. b. mine. If the price mentioned in the order is satisfactory to East Bear Ridge Colliery Company, the coal is shipped by East Bear Ridge Colliery Company f. o. b. mine consigned to the customer at the said price, Madeira, Hill & Co. paying to East Bear Ridge Colliery Company the selling price of the coal, less a commission of 4 per cent, for making such sale. Madeira, Hill & Co. collects from the purchaser the selling price of the coal. In the event that the price on the order given by Madeira, Hill & Co. to East Bear Ridge Colliery Company for the coal to be shipped is not satisfactory to East Bear Ridge Colliery Company, the order is not filled. Such has been the method of sale employed by East Bear Ridge Colliery Company with Madeira, Hill & Co. at least since 1914.

In addition to shipping coal to customers secured by Madeira, Hill & Co., East Bear Ridge Colliery Company, in the usual course of its business, ships coal directly to Madeira, Hill & Co. When such shipments of coal are made directly by East Bear Ridge Colliery Company to Madeira, Hill & Co., the coal is billed to Madeira, Hill & Co. at a price agreed upon between them and East Bear Ridge Colliery Company, which price is paid to East Bear Ridge Colliery Company by Madeira, Hill & Co., irrespective of the price received by Madeira, Hill & Co. from the ultimate purchaser.

The coal sold on orders furnished by Madeira, Hill & Co. was shipped f. o. b. mines, consigned to purchasers in Pennsylvania and interstate commerce. The Temple Coal Company, the Mount Lookout Coal Company, the Lackawanna Coal Company, Limited, and the East Bear Ridge Colliery Company sold coal of the same kinds and sizes, and Thorne, Neale & Co., Inc., and Madeira, Hill & Co. were in active competition in securing orders for coal. The orders solicited, obtained, and filled through Thome, Neale & Co. were in the same territory, in the same cities, and, in many instances, from the same dealers from whom orders for coal, mined by the East Bear Ridge Colliery Company, were solicited, obtained, and filled through Madeira, Hill & Co.

On or about October 11, 1924, the petitioner, the Temple Anthracite Coal Company, acquired by purchase, and has ever since owned, all of the outstanding capital stock of the Temple Coal Company, and on or about the same date acquired by purchase, and ever since such acquisition has owned, 98 per cent, of the outstanding capital stock of the East Bear Ridge Colliery Company. Through its stock ownership, the Temple Anthracite Coal Company has chosen the officers and directors of the Temple Coal Company and its subsidiary companies and of the East Bear Ridge Colliery Company.

The Federal Trade Commission found that the effect of the acquisition by the Temple Anthracite Coal Company of the) capital stock of Temple Coal Company and the East Bear Ridge Colliery Company and the use of such stock has been and is to substantially lessen competition in interstate commerce between the Temple Coal Company and the East Bear Ridge Colliery Company in violation of tbe second paragraph of section 7 of the Clayton Act (15 USCA § 18, par. 2). The Commission thereupon entered an order upon the petitioner in the alternative, requiring it, within ninety days of the date of service upon it of the order, to divest itself in good faith of all the capital stock of the Temple Coal Company owned by it and all of its interest therein; or, within ninety days, to divest itself in good faith of all the capital stock of the East Bear Ridge Colliery Company owned by it and all of its interest therein.

The petitioner raises the question whether the Federal Trade Commission had jurisdiction to make the order complained of, its contention being that, because it is a holding company and transacts no business except as holder and owner of the stock of the Temple Coal Company and the East Bear Ridge Colliery Company, and is not engaged in interstate commerce, it does not come within the terms of the Clayton Act. The second paragraph of section 7 of the Clayton Act, upon which the complaint was based, reads as follows: “No corporation shall acquire, directly or indirectly, the whole or any part of the stock or other share capital of two or more corporations engaged in commerce where the effeet of such acquisition, or the use of such stock by the voting or granting of proxies or otherwise, may be to substantially lessen competition between such corporations, or any of them, whose stock or other share capital is so acquired, or to restrain such commerce in any section or community, or tend to create a monopoly of any line of commerce.”

It is clear from the language of the act that it is the fact of the stock of two or more corporations engaged in interstate commerce being acquired by any other corporation, producing the effeet, through the stock-owning corporation, of either substantially lessening competition between them or restraining commerce, or, tending to create a monopoly of any line of commerce, that gives Congress power to prohibit the acquiring of such stock. The power of Congress to legislate upon the subject is not, therefore, dependent upon the corporation prohibited from such stock ownership being itself engaged in interstate commerce. The very language of the act answers the question raised by the petitioner.

It is argued quite extensively on the part of the petitioner that the sales contracts of the Temple Coal Company with Thome, Neale & Co. and those of East Bear Ridge Colliery Company with Madeira, Hill & Co., under which the coal of the respective companies are sold by the respective sales agents, are not contracts of agency, but are contracts of sale. That contention is made because'of the implied concession that, if they are agents of the coal mining companies, then the shipments of coal f. o. b. mines, consigned to customers of the sales agents, are, under the doctrine of agency, the acts of the principal, and the customers are the customers of the principal. Therefore, shipments by the coal companies at the mines f. o. b. ears constitute engagement of the coal companies in interstate commerce. If, however, Thome, Neale & Co. and Madeira, Hill & Co. are purchasers of the coal, then the delivery to the railroad company at the mines divests title in the coal when it is loaded upon the ear, which it is contended, is not interstate commerce. For the purposes of this case, we do not deem it necessary to decide whether the contracts with the sales agents are, in the law, contracts of ageney, as contended by the Commission, or contracts of sale as contended by the petitioner. In either ease, the coal, so shipped becomes a part of interstate commerce and the shipments are within the regulatory power of Congress.

Pennsylvania R. Co. v. Clark Brothers Coal Mining Co., 238 U. S. 456, 35 S. Ct. 896, 59 L. Ed. 1406; Pennsylvania R. Co. v. Sonman Shaft Coal Co., 242 U. S. 120, 37 S. Ct. 46, 61 L. Ed. 188; Swift & Co. v. United States, 196 U. S. 375, 25 S. Ct. 276, 49 L. Ed. 518.

We conclude that the case was within the jurisdiction of the Federal Trade Commission in carrying out the powers which Congress has granted it.

The Commission reached the conclusion as an ultimate fact that the effect of the purchase, acquisition, and holding of the stock of the two corporations by the respondent has been or may be to substantially lessen competition between the corporations, as alleged in its complaint. We will, therefore, consider whether that ultimate finding of fact is sustained by the basic facts as found from the evidence before the Commission. While the act provides that the findings of fact made by the Commission are final and conclusive, it still remains the duty of the supervising court to determine whether the facts found are such as to warrant the conclusion that the effect of the acquisition of the stock of the two corporations is or may be to substantially lessen competition between them. See Curtis Publishing Co. v. Federal Trade Commission (C. C. A.) 270 F. 881, 909; Federal Trade Commission v. Curtis Publishing Co., 260 U. S. 568, 579, 580, 43 S. Ct. 210, 67 L. Ed. 408; International Shoe Company v. Federal Trade Commission, 280 U. S. 291, 297, 50 S. Ct. 89, 91, 74 L. Ed. 431.

It ■ is established by the evidence and found by the Commission that Thome, Neale & Co., Inc., and Madeira, Hill & Co. have been and are in active competition in selling all of the coal of the respective collieries, excepting some small quantities sold locally.

' There are no faets found, and we find no evidence produced before the Commission, to show the relation between the percentage of coal mined and sold by the Temple Coal Company and its subsidiaries and that sold by the East Bear Ridge Colliery Company to the total output of anthracite coal of the same kind and quality in the whole anthracite region. From the faets found as to the value of the annual output of the respective mines, it is quite apparent that the percentage of these mines to the total output cannot be consequential. Therefore, if competition were lessened, its effect upon the whole interstate trade in anthracite coal would not tend to create a monopoly through substantially lessening competition. There is no fact found or evidence to show that there was, prior to the acquisition of the stock, actual direct competition between the Temple Anthracite Company and the East Bear Ridge Coal Company. The Temple Coal Company disposed of all of its coal either by sale or agency contract, through Thome, Neale & Co., Inc. The East Bear Ridge Colliery Company disposed of all of its coal either by sale or agency contract through Madeira, Hill & Co. However, the evidence shows and the faets found from the evidence show that these two wholesalers in coal were and are in active competition in obtaining orders for sale and in selling to customers through their offices in various cities.

As to this competition, the Commission has found in paragraph 8 as follows: “Said Temple Coal Company, said Mount Lookout Coal Company, said Lackawanna Coal Company, Ltd., and said East Bear Ridge Colliery Company sold coal of the same kinds and sizes, and said Thome, Neale, and Company, Inc., and said Madeira, Hill and Company were in competition in securing orders for coal, orders for coal mined by said Temple Coal Company, said Mount Lookout Coal Company and said Lackawanna Coal Company, Ltd., being solicited, obtained and filled through said Thome, Neale and Company, Inc., in the same territory, in the same cities and, in many instances, from the same dealers from whom orders for coal mined by said East. Bear Ridge Colliery Company were solicited, obtained and filled through said Madeira, Hill and Company.”

It is shown that, at the time of the hearings and during the period covered by the testimony, these wholesalers were competing in the open market for customers, not only for this coal, but for coal mined by other collieries, and that they are still competing in the same markets and in exactly the same way as they were before the complaint was filed. As long as the contracts with the wholesalers continue in existence, and there is nothing in the ease to show that they will not continue, they are each under the same incentive to acquire and sell the output of the respective collieries as they were prior to the complaint. There is no evidence and no faets are found to show that competition between Thome, Neale & Co., Inc., and Madeira, Hill & Co., in selling the coal of these two companies, has been or may be reduced through the ownership of the stock of the respective companies by Temple Anthracite Coal Company. The only effect which the ownership may be found to have brought about is the reduction of overhead and operating expenses.

In International Shoe Co. v. Federal Trade Commission, supra, Mr. Jfistice Sutherland says:

“Section 7 of the Clayton Act, as its terms and the nature of the remedy prescribed plainly suggest, was intended for the protection of the public against, the evils which were supposed to flow from the undue lessening of competition. In Standard Oil Co. v. Federal Trade Commission, 282 F. 81, 87, the Court of Appeals for the Third Circuit applied the test to the Clayton Act which had theretofore been held applicable to the Sherman Act (15 USCA § 1 et seq.), namely, that the standard of legality was the absence or presence of prejudice to the public interest by unduly restricting competition or unduly obstructing the due course of trade. In Federal Trade Comm. v. Sinclair Co., 261 U. S. 463, 476, 43 S. Ct. 450, 454, 67 L. Ed. 746, referring to the Clayton Act and the Federal Trade Commission Act (15 USCA §§ 41-51), this court said:
“ ‘The great purpose of both statutes was to advance the public interest by securing fair opportunity for the play of the contending forces ordinarily engendered by an honest desire for gain.’
“Mere acquisition.by one corporation of the stock of a competitor, even though it result in some lessening of competition, is. not forbidden; the act deals only with such acquisitions as probably will result in lessening competition to a substantial degree, Standard Fashion Co. v. Magrane-Houston Co., 258 U. S. 346, 357, 42 S. Ct. 360, 66 L. Ed. 653; that is to say, to such a degree as will injuriously affect the public.”

We cannot conclude, because of the ownership in one corporation of the stock of two corporations whose output is sold under contracts with competing wholesalers as distributors, who are found to be in active competition, that these contracts will or are likely to be annulled or terminated. We must take the facts as they exist, and, finding as we do that Thorne, Neale & Co., Inc., and Madeira, Hill & Co. are in active competition, we assume that the interests of the public .will be preserved so long as that competition continues.

The Commission found in paragraph 10 of its finding of fact as follows: “The effect of the acquisition by respondent Temple Anthracite Coal Company of the said capital stocks of said Temple Coal Company and of said East Bear Ridge Colliery Company, and the use of such stocks by the voting or granting of proxies, or otherwise, has been and is to substantially lessen competition in interstate commerce between said Temple Coal Company and said East Bear Ridge Colliery Company.”

With no evidence in the ease to support the finding of fact that the effect of the ’acquisition of the stock “has been and is to substantially lessen competition,” our conclusion is that the actual active competition which is shown by the evidence, without contradiction, to have existed and to continue to exist between Thome, Neale & Co., Inc., and Madeira, Hill & Co., negatives, so long as it may exist, the very effect which the Commission has found to be caused by the acquisition by the Temple Anthracite Coal Company of the capital stocks of the mining companies.

It is therefore ordered that the order of the Federal Trade Commission be annulled and set aside.

WOOLLEY, Circuit Judge

(dissenting).

I am moved to dissent from the judgment •of the court because of the different way in which I view the pivotal point of the ease. Of the facts, fully and correctly stated in the opinion, I shall stress but two.

One fact is that the complaint charges a violation of the single provision of section 7 of the Clayton Act (15 USCA § 18) which forbids the acquisition of two corporations by a third “where the effect of such acquisition * * * may be to substantially lessen competition between such corporations. . * * ” The restraint of trade and monopoly provisions of the section were not invoked and are not involved.

The other faet is that prior to their acquisition by the petitioner in 1924 the two coal companies conducted business under like sales systems, through like sales agencies, with a like power reserved by each to decide when it would and would not fill orders for coal according as it found them satisfactory or unsatisfactory. Prior to the consolidation, these corporations were selling in the same markets in competition with each other.

Thus far I follow the opinion of the court. But the petitioner — the holding company-on a showing that the same sales systems operating through the same sales agencies continue in the business practices of the two companies since their acquisition, contends that, in consequence, the same competition exists — must exist — as before. This contention the court has sustained. It is just here that I am constrained respectfully to depart from its opinion for the reason that, while the two underlying, companies before their absorption could, because of their complete independence, separately refuse orders that were unsatisfactory without disturbing competition between them, the power to decide when to accept and refuse orders passed from them on their acquisition by the petitioner and became vested in the petitioner which thereafter could alone determine when orders were unsatisfactory and by directing its self-appointed officials of the two corporations to decline such orders would “substantially lessen competition” — indeed, actually end competition — between the two corporations. Therefore the competition between the underlying companies is not now even potentially the competition which existed between them before their acquisition by the petitioner. Then it was real; now it is formal. Then it arose from the desire of each for individual gain and depended on separate action; now it arises from the desire of a third corporation for gain and depends on the power of that corporation, exercised without restraint, to increase its gain by reducing losses arising from competition between wbat are now practically its own products by directing its subsidiaries not to fill orders. The petitioner thus has power, ever present, to be exercised at its will, to do the thing denounced by the law. In my judgment, when the petitioner acquired the underlying coal companies and at the samé time acquired the power to cause them to decline unsatisfactory orders, there was a complete transfer of power with respect to competition, producing a situation “where the effect * * * may be to substantially lessen competition between such corporations” and certainly will be to lessen or stop competition whenever the temptation to use the power shall arise.

In arriving at the conclusion that the evidence sustains the order of the Commission I have kept in view the fact, at different times lost sight of in this case, that we are not concerned with the lessening of competition between these two companies and other companies in the industry, but are concerned with the lessening of competition between the two companies themselves.


text:
    DAHLINGER v. COMMISSIONER OF INTERNAL REVENUE.
    No. 4558.
    Circuit Court of Appeals, Third Circuit.
    July 28, 1931.
    W. W. Booth and W. A. Seifert, both of Pittsburgh, Pa. (Smith, Shaw, McClay &
    Seifert, of Pittsburgh, Pa., of counsel), for petitioner.
    G. A. Youngquist, Asst. Atty. Gen., and A. G. Divet and Sewall Key, Sp. Assts. to Atty. Gen., for respondent.
    Before WOOLLEY, DAVIS, and THOMPSON, Circuit Judges.
   THOMPSON, Circuit Judge.

This ease comes up upon petition for review of an order and decision of the Board of Tax Appeals sustaining the Commissioner of Internal Revenue in his construction of section 206 (a) (1) of the Revenue Act of 1921 (42 Stat. 232), and section 208 (a) (1) of the Revenue Act of 1924 (26 USCA § 939 note), as applied to a salé by the petitioner of certain stock under a contract made in 1920.

In January, 1920, the petitioner and other stockholders of the Columbia Plate Glass Company entered into an agreement with Erazier & Co., brokers, for the sale of their stock, constituting a majority of the stock of the Glass Company. The stock indorsed in blank for transfer was deposited .with a bank in trust, and held for the selling stockholders and the brokers, to be delivered to the brokers upon compliance by them with the terms of the agreement. The brokers deposited $50,000 in cash with the trustee to be held by it until the sale should be consummated, and, in case of consummation, that sum was to be credited on account of the purchase price.

The agreement provided that certain notes and securities were to be delivered to the trustee as security for the payments. The delivery of the notes and other securities to the trustee, it was agreed, should release and discharge the brokers from all liability to the selling stockholders. The trustee was to make the payments for the stock to Dahlinger and the other stockholders semiannually, beginning December 30, 1920, and ending December 30, 1925. On February 11, 1920, the brokers notified the trustee that they desired to obtain delivery of the stock in accordance with the agreement of January 27, 1920, and deposited securities and cash with the trustee, whereupon the stock was delivered to Frazier & Co. Certain exchanges and substitutions of securities deposited with the trustee were made from time to time, the details of which are immaterial. The brokers paid the several installments when each became due, in accordance with the agreement of January 27, 1920.

The petitioner had owned his Columbia Plate Glass Company stock for more than two years prior to 1920. In his ineome tax returns, he reported a profit of $13,362 for each of the years 1923, 1924, and 1925 from the proceeds of the sale of the stock, and •computed his tax at the rate of 12% per cent, upon the theory that the rate for sales consummated after December 31, 1921, was applicable.

The Commissioner included the item of $13,362 with other income for each year, and •computed the tax on the ineome at normal and surtax rates, and thereby determined a ■deficiency. The case turns upon the interpretation of sections 206 (a) (1) of the Revenue Act of 1921 or section 208 (a) (1) of the Revenue Act of 1924, which are identical in their terms, and are as follows: “The term 'capital gain’ means taxable gain from the sale or exchange of capital assets consummated after December 31,1921.”

Congress has defined what “capital gain” means. The question then is, What is the meaning of the word “consummated” as applied to a sale? The dictionary meaning of “consummate,” as adopted by the Commissioner and the Board of Tax Appeals, is as follows: “To bring to completion; to raise, bring or carry to the highest or utmost point •or degree; to complete; to finish; to perfect; to achieve; to fulfill.”

The Board of Tax Appeals also applied the statements in Williston on Sales, showing the distinction between a contract to sell and •a sale as follows:

“A contract to sell goods is a contract whereby the seller agrees to transfer the property in goods to the buyer for a consideration called the price.
“A sale of goods is an agreement whereby the seller transfers the property in goods to the buyer for a consideration called the price.” Williston on Sales, vol. 1, § 1.

Williston proceeds as follows: “The distinction is often expressed by the terms 'ex-ecutory’ and 'executed’ sales. Whether a bargain between parties is a contract to sell or an actual sale depends upon whether the property in the goods is transferred. If it is transferred, there is a sale, an executed sale, even though the price be not paid.” Williston on Sales, vol. 1, § 2.

' The stock was delivered to the brokers in accordance with the agreement, prior to the effective date, December 31, 1921, of sections 206 and 208 of the Revenue Acts of 1921 and 1924, although at that time only installments had been paid upon the agreed price. If default had been made in the payment of any installment, the taxpayer could not by suit have recovered the stock, but had merely the right to recover the unpaid installments of the purchase price as they became due. The title to the stock had passed from the petitioner. As a sale, therefore, the transaction was complete. It was an executed sale, and therefore was a sale “consummated” before and not after December 31,1921. 12 Corpus Juris, 1310; Ormsby v. Graham, 123 Iowa, 202, 214, 98 N. W. 724; Micks v. Stevenson, 22 Ind. App. 475, 51 N. E. 492.

While the purpose of Congress in passing the bill is indicated in the reports of the committees and the debates before the committees to be remedial, and therefore the taxpayer is entitled to have it liberally construed, the construction which the petitioner attempts to put upon it is directly contrary to its terms. What the plaintiff is asking for is not consistent with the law of sales. He desires the court to construe the term “consummated sale” as meaning a sale not consummated or completed until the price is paid, although title to the property has passed.

Our view is that, while the intention of Congress was to relieve sellers of capital assets from the heavy taxes levied upon the profit made, as ineome, it did not intend to afford that relief except as to sales “consummated” after December 31,1921. II it were to be construed as the petitioner contends, it would mean that any sale of capital assets, in which the title to the property had passed, on or at any time before December 31,1921, where installments of the purchase price, great or small, remained unpaid, would have to be construed as an uneonsummated sale. As we construe the section in controversy, the clear intent of Congress was to exempt from the ineome tax provisions only those sales where the title to the thing sold had not passed prior to the date fixed in the act.

The petition is dismissed, and the decision of the Board affirmed.


text:
    EAVENSON v. COMMISSIONER OF INTERNAL REVENUE.
    No. 4555.
    Circuit Court of Appeals, Third Circuit.
    July 28, 1931.
    W. W. Booth and W. A. Seifert, both of Pittsburgh, Pa. (Smith, Shaw, McClay & Seifert, of Pittsburgh, Pa., of counsel), for petitioner.
    G. A. Youngquist, Asst. Atty. Gen., and A. G. Divet and Sewall Key, Sp. Assts. to Atty. Gen., for respondent.
    Before WOOLLEY, DAVIS, and THOMPSON, Circuit Judges.
   THOMPSON, Circuit Judge.

This case comes up upon petition for review of the decision of the Board of Tax Appeals in a proceeding before the Board for redetermination of a deficiency found by the Commissioner of Internal Revenue in the petitioner’s taxes for the years 1922 to 1925, inclusive.

The petitioner entered into a contract of sale which is, in part, as follows:

“Memorandum of agreement made this 17th day of November, 1920, between Howard N. Eavenson, of Pittsburgh, Pa., party of the first part, hereinafter called the Seller, and Elkhom Coal & Coke Company, a West Virginia Corporation, party of the second part, hereinafter called the Buyer, and Seaboard National Bank, New York, hereinafter called the Trustee, witnesseth:
“The Seller has' this day sold, transferred and delivered to the Buyer, Three Hundred and forty-six (346) shares of the Capital Stock of the Central Pocahontas Coal Company, a West Virginia Corporation, the par value of said shares being One Hundred ($100.00) Dollars per share.
“Price: The price to be paid for said stock by the Buyer is Two hundred and forty-two thousand, two hundred ($242,200.00) Dollars, being at the rate of Seven hundred ($700.00) Dollars per share.
“Payment: The Buyer has this day paid on account of the purchase price of said stock, in cash, receipt whereof is hereby acknowledged, the sum of Sixty thousand, five hundred and fifty ($60,550.00) Dollars. The balance of One hundred and eighty-one thousand, six hundred 'and fifty ($181,650.00) Dollars, the buyer hereby agrees to pay in ten installments to the Seaboard National Bank, as Trustee, at 18 Broadway, New York City, each installment bearing interest at the rate of Six (6%) per cent, per annum from even date, due on the following dates for the fol-' lowing amounts:
May 17th, 1921................................ $ 18,165 00
November 17th, 1921......................... 18,165 00
May 17th, 1922................................ 18,165 00
November 17th, 1922......................... 18,165 00
May 17th, 1923................................ 18,165 00
November 17, 1923............................ 18,165 00
May 17th, 1924............................... 18,165 00
November 17th, 1924......................... 18,165 00
May 17th, 1925................................ 18,165 00
November 17th, 1925......................... 18,165 0b
$181,65b 0b
“In order to secure the payment of eaeh of the above installments and interest as each becomes due, the Buyer has this day deposited with the Seaboard National Bank, as Trustee, certificates of Central Pocahontas Coal Company Capital Stock, purchased from the Seller, aggregating Three Hundred and forty-six (346) shares, as collateral security.
“Upon payment of eaeh of the above installments and interest thereon, the Trustee will forward the amount of such payment to. the Seller, and return to the Buyer Thirty-four (34) shares of said Capital Stock, together with Power of Attorney covering said Thirty-four (34) Shares, representing approximately one-tenth of amount of collateral deposited with the Trustee under this agreement as hereinafter stated. The Seller will furnish the Trustee and Buyer duplicate receipts upon the payment of each installment made hereunder. On the completion of' the payment of all of the aforesaid installments and interest thereon by the Buyer, the Trustee shall deliver to the Buyer the remainder of the said certificates of stock held as collateral hereunder, at which time the Trustee shall also return to the Buyer the Power of Attorney, which shall be cancelled and the Trust shall thereafter be no longer in effect.
“In the event of default on the part of the Buyer in making payment of any one of the said installments and interest when the same shall become due, and in ease such payment is not made after thirty days notice of such default by the Trustee to the Buyer, the Trustee is then empowered to sell this stock at the highest market price obtainable in order to satisfy the total unpaid balance due the Seller, and any amount received in excess of said unpaid balance shall be returned to the Buyer.
“The Buyer is entitled to all dividends, including stock dividends, which hereafter may become payable on this stock.
“The Trustee shall be entitled to reasonable compensation for services rendered in execution of the Trust hereby created and the Seller and Buyer each agrees to pay one-half of such compensation, as well as one-half of the expenses reasonably incurred by the Trustee hereunder.
“The Seaboard National Bank, as Trustee, hereby accepts the trusts in this Trust Agreement created and declared and agrees to perform the same upon the terms and conditions hereinabove set forth.”

The petitioner contends that the profits set out in his return of taxable income were erroneously assessed by the Commissioner at normal and surtax rates, whereas they should have been assessed as taxable gain from the sale of capital assets consummated after December 31,1921, under the provisions of section 208 (a) (1) of the Revenue Act of 1921 (42 Stat. 232) or section 208 (a) (1) of the Revenue Act of 1924 (26 USCA § 939 note).

The Board of Tax Appeals found:

“This contract was carried out in accordance with its terms. The petitioner had owned the stock sold for more than two- years prior to November 17, 1920.
“The petitioner reported as profit on the above-mentioned sale $19,849.88 in each of the years 1922 to 1925, inclusive, and computed the tax thereon at the rate of 12% per cent.; the Commissioner included these installments with other income in each year and taxed the whole at the normal and surtax rates, thereby determining the deficiencies. The sale of the petitioner’s stock in the Central Pocahontas Coal Company was not consummated after December 31,1921.”

The Board decided that the sale of the petitioner’s stock in the Central PocaRontas Coal Company was consummated before and not after December 31, 1921, and that the profits therefrom were not taxable under the capital gain provisions of the Revenue Acts of 192Í and 1924.

For the reasons stated in the ease of Dahlinger v. Commissioner of Internal Revenue (C. C. A.) 51 F.(2d) 662, we find no error in the decision of the Board of Tax Appeals, which is accordingly affirmed.