Court Opinion

ID: 9637043
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:54:29.784882+00
Date Added: 2024-06-11T18:09:52.483946
License: Public Domain

FOSTER, Circuit Judge
(dissenting).
I agree that Regulation 94, Article 22 is valid when applied to cases coming under its provisions but I do not consider that the case at bar is at all governed by it. I do not entirely agree with the statement of facts in the majority opinion as certain important evidence is not referred to. Therefore, I will restate the facts as I find them.
Plaintiff is engaged in the business of selling merchandise on the installment plan and not in buying and selling stocks. In 1929 plaintiff adopted the policy of buying its stock when offered at less than market value for the purpose of retiring it. From time to time appellee bought 11,553 shares of its stock, cancelled and retired it. In 1930 and 1931 it bought 6,900 additional shares, not included in the 11,553 shares above mentioned, also with the intention of cancelling and retiring it. However, the depression coming on, plaintiff did not have enough cash available to complete the transaction and made an agreement with Hayden-Stone Company, brokers, under which they agreed to accept 50% of the purchase price and carry the stock for the balance. The stock was carried on plaintiff’s books as treasury stock at a nominal value of $1 per share. Finally, demand was made by Hayden-Stone Company for payment and the plaintiff then sold it on March 15, 1937, at $10 per share, realizing a profit although the intrinsic value of the stock at that time was $11 to $12.50 per share.
The decree in each case depends upon the facts peculiar to it and the regulations do not affect a transaction not within its terms.
In their ordinary meanings “deals” and “dealings” imply a course of business or a settled policy. If plaintiff had adopted a policy of speculating in its own stock and traded in it for profit, no doubt the transactions would come under the terms of Regulation 94, Article 22. But that is not the case here presented. Plaintiff’s line of business was the selling of merchandise. The stock was bought for the purpose of retiring it, which is conceded, not to sell at a profit. Plaintiff became the full owner when it purchased it, although Hayden-Stone Company held the stock subject to a lien for the balance of the purchase price. This was not a purchase on margin in the ordinary meaning of the term. The opinion of one witness that the stock was bought on margin, relied upon by the majority, is inconsistent with and rebutted by the other facts. Being unable to secure custody of the stock, plaintiff carried it as treasury stock, which it had the right to do. It may be presumed that if the stock had been purchased to be sold for profit the sale would have been completed promptly and plaintiff would have escaped the paying of interest on the balance for some six .years. One purchase and sale of stock out of the usual course of business, would not be dealing in the stock for profit as would necessarily be the case if it were dealing in the stock of another corporation. First Nat. Bk. v. National Exchange Bk., 92 U.S. 122, 23 L.Ed. 679; Union County Nat. Bk. v. Ozan Lumber Co., 8 Cir., 179 F. 710; In re Hemming, D.C., 51 F.2d 850, 851; Cf. Schafer v. Helvering, 299 U.S. 171, 57 S.Ct. 148, 81 L.Ed. 101.
Furthermore, plaintiff derived no profit from the transaction. The stock was sold for less than its intrinsic value. Stock of a corporation is a liability of the corporation and not an asset. When a corporation sells its own stock the purchaser acquires an equitable prorata ownership of the assets of the corporation, which are increased by the money paid. But the liability to the stockholder, which is also increased by the money paid, offsets the addition to the assets. National Home Owners Service Corporation v. Commissioner, 39 B. T. A. 753; Johnson v. Commissioner, 5 Cir., 56 F.2d 58; Cf. E. R. *243Squibb & Sons v. Helvering, 2 Cir., 98 F.2d 69.
I consider the transaction here involved does not come within the letter or intent of Regulation 94, Article 22 and they have no application.
For these reasons, I respectfully dissent.