Court Opinion

ID: 6880118
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:13:47.194108+00
Date Added: 2024-06-11T16:05:34.057239
License: Public Domain

STEPHENS, Circuit Judge.
I dissent. In order to fully set forth my views, I desire to file the following opinion:
Appeal by the Collector of Internal Revenue from the judgment of the District Court allowing recovery of certain income taxes paid by appellee for the calendar year 1930. The income in question consisted of dividends from two separate blocks of stock, namely, 1,100 shares of Delaney Petroleum Corporation and 1,500 shares of Delaney Producing & Refining Company. The Collector contends that each of these blocks of stock constituted community property in which the wife did not have a present existing interest, but rather a mere expectancy, and hence that the entire income therefrom was properly taxable to the husband [taxpayer]. The appellee-taxpayer on the other hand argues, and in this he is supported by the findings of the District Cour-t 1, that the stocks were community property belonging to the taxpayer and his wife, and that under the applicable laws the wife had a present and existing interest therein, permitting the dividends to be reported for taxation one-half by each spouse. The two blocks of stock should be considered separately, since they were purchased at different times and under varying conditions.
The Delaney Petroleum Corporation was incorporated in California on November 10, 1926, by taxpayer and others. On November 27, 1926 a permit to sell and issue stock was given by the State Corporation Department, authorizing the corporation to issue 5,000 shares of its stock to the persons named in the application (including among others, the taxpayer) at par for cash so as to net the corporation the full amount of the selling price thereof.
On February 9, 1927, the taxpayer subscribed for 1,224 shares of the stock of the company and agreed to pay for the same in cash at the price of $100 per share “as called for by the directors of said corporation”.
The corporation received payment for said 1,224 shares in the following sums and at the following times:
December 31, 1926 $ 5,000.00
January 5, 1927 5,000.00
February 10, 1927 6,400.00
March 21, 1927 23,600.00
June 21, 1927 27,466.67
June 21, 1927 27.466.66
June 21, 1927 27.466.66
June 21, 1927 .01
Total $122,400.00
Certificates representing said shares in taxpayer’s name are dated as follows:
January 7, 1927 1 share
June 21, 1927 99 shares
June 21, 1927 1,024 shares
June 21, 1927 100 shares
Total 1,224 shares
*342Prior to 1930 the taxpayer transferred 124 shares of said stock, leaving in his name in 1930, 1,100 shares which are involved in this appeal.
The District Court found as a fact that said' shares of stock were “acquired by plaintiff and his wife on September 14, 1927, and were paid for with community funds acquired after July 29, 1927” (the effective date of the California statute giving the wife a present existing and equal interest in community property). These findings are challenged by the Collector.
At the outset it is necessary to deal with a contention made by the taxpayer that the date of acquisition of the stock is immaterial — that if the stock was paid for with community funds acquired after July 29, 1927, that fact gives the wife a present existing interest therein. We are referred to the California case of Vieux v. Vieux, 80 Cal.App. 222, 251 P. 640, in support of this contention. The cited case involved the question as to the ownership of certain property which the husband had contracted to purchase before marriage, but which had been paid for after marriage with community' funds.. It was held that thfe property was community property. It should be noted, however, that the same statute relative to community ownership of property was in effect during the entire period of time involved in the cited case. There- was no question of giving a retroactive effect to a statute. At the time the husband acquired the property by his contract of purchase he knew that if the same was paid for with community funds it would belong to the community. In the instant case, however, assuming for the purpose of discussion without so deciding, that the stock was acquired before the effective date of the California statute giving the wife a present existing interest in community property, to say that the payment for the same with community funds acquired after the effective date of the statute had the effect of giving the wife a present existing interest in the stock would be to give the statute a retroactive effect. This it has definitely been decided cannot be done. Hirsch v. United States, 9 Cir., 1932, 62 F.2d 128, and cases therein collated. It is therefore necessary to look into the question of the date of the acquisition of the stock. If it be determined that the' stock was acquired prior to July 29, 1927, then the decision of the District Court to the effect that the wife had a present existing interest therein must be reversed. If it be found that the stock was acquired after July 29, 1927, then the type of community property that went into its purchase becomes important. If in that circumstance the funds which went to pay for the stock were community property in which the wife had a mere expectancy, the decision of the District Court is erroneous. If they represented community property acquired after July 29, 1927, then the decision of the trial court should be affirmed.
Considering the record with respect to the date' of acquisition of the stock, the District Court based its conclusion to the effect that the stock was acquired on September 14, 1927 upon the following findings of fact: “The, first two payments of $5000 each were originally advanced by plaintiff to the corporation to be later credited on stock subscriptions. The remaining payments of $112,400 were made from funds advanced by Messrs. Weather-wax, Hunt and Kaime, pursuant to an oral agreement that plaintiff would become owner of said 1124 shares when and if he paid to Messrs. Weatherwax, Hunt and Kaime the amounts so advanced, and pursuant to a written agreement that plaintiff was obligated to pay such advances only out of any salary he might receive from Delaney Petroleum Corporation. Said shares were, on June 21, 1927, made out in plaintiff’s name but subject to said agreements.”
The theory of the Collector is that the $112,400 advanced by Messrs. Weatherwax, Hunt and Kaime constituted a personal loan to the taxpayer, and that the taxpayer with the proceeds of that loan purchased the shares of stock, and that consequently the stock was owned by the taxpayer at all times subsequent to the payment to the corporation therefor. This theory, however, entirely overlooks the findings of the trial court to the effect that the advances were made upon the oral agreement that plaintiff was not to become the owner of the stock until and unless the taxpayer had repaid said sums so advanced. This finding is amply supported by the evidence. For instance, the taxpayer testified,
“Q. Prior to that time [the time of the first advance] had you had conversation with these three gentlemen relating to the ownership of this stock? A. Yes. * * *
“Q.' Did these gentlemen say anything to you regarding ownership of your interest *343or stock in the company? A. Yes, 1 wouldn’t have it until I paid for it.
Jji * * * *
“O. He [Weatherwax] said that they would put up the full amount of $500,000 and when — ii and when the company was a success, in which I had to do the work,— . I had been in the business some twenty-six years before, and so they told me to go ahead and manage the Delaney Petroleum Corporation and as soon as we got it on a paying basis, why, then I could go ahead and pay for my stock out of the salary which they were going to vote me later. When I did that, why, some of the stock was mine. That is all I can say.”
Furthermore it should be noted that if the Collector’s theory [that the moneys advanced by Weatherwax, Hunt and Kaime constituted a personal loan to taxpayer, and that taxpayer with the proceeds of that loan purchased the shares of stock] is correct, under the normal procedure the indebtedness would continue whether or not the venture was successful. However, the taxpayer gave these parties no promissory note for the amounts advanced, but instead gave them receipts which recited that the amounts were “payable by me from salary to be received from the Delaney Petroleum Corporation. Said salary being subject to the surplus of the said corporation”. These receipts substantiate the taxpayer’s version of the transaction.
In other words, the stock was owned by Messrs. Weatherwax, Hunt and Kaime regardless of the fact that the certificates therefor were made out in the taxpayer’s name. It is also clear from the record that the certificates so made out in the taxpayer’s name were left in the stock certificate hook, and were not delivered to the taxpayer until September 14, 1927, the day he repaid his associates the amounts advanced by them. It has been suggested that since the stock certificate book was in the custody of the secretary of the corporation, and since the secretary of the corporation was also the taxpayer’s personal secretai'y and office manager, the secretary’s possession of the certificates was in fact the taxpayer’s possession. However, the secretary of the coi'poration testified that the stock certificates were not delivered to the taxpayer until after September 14, 1927. This evidence further supports the conclusion of the trial court that the stock was not acquired by the taxpayer until September 14, 1927.
Having determined that the shares of stock were not acquired by the taxpayer until after July 29, 1927, it is next necessary to determine whether the trial court was correct in its conclusion that community property acquired subsequent to July 29, 1927 went to pay for the same.
As stated above, the trial court found that the first two payments of $5,000 each were originally advanced by the taxpayer to the corporation to be later credited on stock subscriptions. The 100 shares represented by these payments are not involved herein. It is the $112,400 advanced by the taxpayer’s associates and repaid by taxpayer with which we are concerned. This amount was paid by taxpayer out of a bonus of $125,000 which he received from the Delaney Petroleum Corporation on September 14, 1927. In this connection the trial court found that said bonus constituted payment for services of the taxpayer to the corporation, all of which were rendered subsequent to July 29, 1927. This finding is also challenged by the Collector.
The bonus in question was voted by the corporation to the taxpayer on August 4, 1927.' The resolution authorizing the payment of the bonus recited that an offer had been made by Richfield Oil Company of California to purchase from the corporation certain described property and on certain terms. It was then resolved that a conditional sales contract be entered into as of August 1, 1927. The resolution also contained the following:
“Resolved that Whereas, A. J. Delaney [taxpayer] has been instrumental in bringing about a sale of certain properties on Signal Hill to the Richfield Oil Company, and
“Whereas, the profit on the sale of these properties is largely due to his individual dealing,
“Now, Therefore, Be it Resolved, that a bonus of One Hundred and Twenty Five Thousand ($125,000.00) Dollars be paid to A. J. Delaney out of the surplus earnings of the corporation when earned.”
The evidence as to the exact dates of the negotiations leading to the sale is conflicting. There is testimony, however, to the effect that the negotiations required only two or three days and that the final negotiations were had after the meeting of the directors on August 4th at which the above resolution was adopted.
*344The Collector, however, points to a deposit of $25,000 which was made by the Richfield Company to the Delaney Petroleum Corporation on July 22, 1927, and contends that this is proof that the negotiations were pending at that time. However, the effect of this is taken away by testimony of the taxpayer to the effect that it was- a good faith deposit required before the taxpayer would undertake any negotiations, and that the actual negotiations took place later.
In the circumstances, the finding of the trial court that all of the services rendered by the taxpayer to the corporation were rendered subsequent to July 29, 1927, is not clearly erroneous. This being true, the court was not in error in determining that community property acquired subsequent to July 29, 1927 went to pay for the stock in question, and that the stock was therefore community property of the time in which the wife had a present existing interest.
Turning now to the 1,500 shares of Delaney Producing & Refining Company stock, the District Court found that these shares were paid for with funds borrowed from Delaney Petroleum Corporation on the community credit, and therefore constituted community property of the type in which the wife had a present existing interest. The Collector argues that this finding is erroneous, but that the money which went into the purchase of the stock was traceable directly to community property earned and owned in 1923 or prior thereto.
The stipulated facts - show that the taxpayer owned in 1923, certain stock of the Dabney Oil. Syndicate, and that the taxpayer acquired in 1927, as a' result of a merger of the Dabney Oil Syndicate and the California Petroleum Corporation, certain stock of the latter company. It was further stipulated that this California Petroleum stock was turned over by the taxpayer to the Delaney Petroleum Corporation in 1927 and that the taxpayer was given a cash credit on the books of the Delaney Petroleum -Corporation in the amount of $106,250. On May 28, 1928 this account showed a remaining credit of $37,500.
The 1,500 shares of stock with which we are here concerned were a part of a block of 5,007 shares purchased by the Delaney Petroleum Corporation for its stockholders, taxpayer and Messrs. Weatherwax, Hunt and Kaime. The books of the Delaney Petroleum Corporation show the first purchase of 2,707 shares to have been made on May 28, 1928. The next purchase was made on June 6, 1928. On June 1, 1928, prior to the date of the second purchase, taxpayer’s account with the Delaney Petroleum Corporation above referred to was debited with $15,000 for 1,500 shares of Delaney Producing & Refining Company’ stock. This substantiates the finding of the trial court that the 1,500 shares of stock were purchased by the Delaney Petroleum Corporation for the taxpayer on May 28, 1928.
During the period between May 28, 1928, and June 1, 1928, the purchase price of said 1,500 shares of stock was carried on the books of the Delaney Petroleum Corporation as an account receivable. The trial court found that there was in fact a loan of this amount from the company to the taxpayer, which was thereafter paid off by debiting the taxpayer’s account in the sum of $15,000 as above set forth. This finding the Collector argues is erroneous, since the cash credit was in excess of the cost of the 1,500 shares of stock. However, this fact alone is not enough to overturn the finding of a loan in fact by the trial court. The finding of the trial court is substantiated by the taxpayer’s personal books, in which the following entry appears as of May 31, 1928: “Loan by D. P. Corp. to purchase 2707 sh of D.P.&Refg.Co. at $7 per sh from Jos. B. Dabney” — and is not clearly erroneous.
Since there was a loan by the Delaney Petroleum Corporation to the taxpayer of the funds used to purchase the stock, and since no security was given for the debt, the presumption is that the husband pledged the credit of the community. Schuyler v. Broughton, 70 Cal. 282, 11 P. 719. The entire transaction having taken place subsequent to July 29, 1927, it is obvious that the trial court’s determination that the' stock- constituted community property of the type in which the wife had a present existing interest is correct, unless the situation was changed by the fact that community property acquired prior to July 29, 1927, in which the wife had merely an expectancy was used to repay the amount borrowed. It would appear that it does not, and that the property acquired subsequent to July 29, 1927, on the community credit retained its character of community property in which the wife had a present existing interest. It is settled that a transfer from *345husband to wife, or the payment by the husband of an encumbrance on the wife’s property, raises a presumption of gift to the wife. Tilden v. Tilden, 81 Cal.App. 535, 542, 254 P. 310. It must be presumed, therefore, that the taxpayer when he paid off the loan with community funds in which the wife had a mere expectancy made a gift to the wife of whatever right, title and interest was necessary in order to preserve her present existing community interest in the stock.
The decision of the District Court should be affirmed.

 Rule 52 (a), Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, provides tliat the trial court’s findings are not to be disturbed on appeal unless they are clearly erroneous, and that “due regard shall be given to the opportunity of the trial court to judge of the credibility of the witnesses”. In the instant case the trial judge emphasized the fact that he believed the taxpayer and his witnesses, by the following language: “During the course of the trial, the Court followed the testimony with very careful attention, giving particular note to the attitude of the witnesses on the stand, their apparent sincerity and their general manner of answering questions, and so forth. The Court is of the opinion that plaintiff’s witnesses told the truth and that the testimony they presented constituted the true version of what actually happened. This finding of the Court extends to all of the testimony covering all of the issues in the ease. The simple forthrightness of the witnesses, and the inherent plausibility of their version of the facts, contributed to the Court’s finding in this regard.”