Court Opinion

ID: 6878387
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:11:02.461971+00
Date Added: 2024-06-11T16:05:32.360804
License: Public Domain

SANBORN, Circuit Judge
(concurring).
The only question with which this Court is concerned in this case is whether the payments made by the Donaldson Realty Company pursuant to-the rental guaranty contract entered into on February 15, 1929, by the Donaldson Realty Company with the Northwestern Bank Building Company could lawfully be deducted by the Realty Company in determining its net income for the taxable years in question. If these payments were rentals, losses, or ordinary and necessary business expenditures, the conclusion reached by the District Court that they were deductible was a permissible conclusion which cannot be disturbed by this Court. If the evidence had been sufficient to justify a finding that the Realty Company had entered into the rental guaranty agreement for the purpose of compromising its own liability for rent under the agreement of April 3, 1928, which required the L. S. Donaldson Company to take a twenty-year lease on certain floors of the building to be erected, at an annual rental of $108,000, I would be of the opinion that the judgment should be affirmed upon the ground that the payments constituted ordinary and necessary expenses incurred in connection with the business of the Realty Company. The evidence, however, instead of disclosing that the Realty Company compromised its own liability for rent by the giving of this guaranty, clearly indicates that it made the guaranty for the sole and only purpose of relieving the L. S. Donaldson Company of its obligation under the agreement of April 3, 1928, so that the capital stock of that company could be sold to Hahn Stores. We have, therefore, a situation where one corporation has made payments under a guaranty voluntarily entered into for the benefit of its affiliate. While the District Court found that the officers of the Donaldson companies assumed that the Realty Company — which was a party to the agreement of April 3, 1928— was obligated under that agreement, which called for thd leasing of’ the third and fourth floors of the building by the L. S. Donaldson Company, it does not find — and, I think, could not find — that the Realty Company was bound to lease those floors if the L. S. Donaldson Company failed or refused to do so. Under the circumstances, it is my opinion that the payments did not constitute either rentals, losses, or ordinary and necessary expenses of the Realty Company within the meaning of the applicable revenue act. For that reason, and that reason alone, I concur.