Court Opinion

ID: 4471062
Source: CourtListenerOpinion
Date Created: 2020-01-09 22:00:48.683452+00
Date Added: 2024-06-11T12:23:14.244448
License: Public Domain

Disney, J., dissenting: I am unable to concur in the majority view. In allowing a substitute for actual payment of dividends, by section 26(c) (1) of the Revenue Act of 1936, Congress pointedly and definitely intended to be strict, for the prerequisite to allowance of credit was a provision, written, express, dealing with payment of dividends, which would be violated by payment. Language could hardly be more explicit. So definite is it, that it does not refer to the contract in general, but to the particular provision. Perhaps other portions of the contract could be garnered from implications; but not the one described in section 26 (c) (1). That provision must be written, and not only so, but express on the point of dividends. Nothing is to be left to uncertainty, conjecture, or implication. This, I think, is the clear meaning of that language from Helvering v. Northwest Steel Rolling Mills, 311 U. S. 46, which says: * * * True, obligations not set out at length in a written contract may be incorporated by specific reference, or even by implication. But Congress indicated that any exempted prohibition against dividend payments must be expressly written in the executed contract. It did this by adding a precautionary clause that the granted credit can only result from a provision which “expressly deals with the payment of dividends.” To me this means that though ordinarily a written contract may, by reference or even implication, include other matter, in this case Congress intended that the provision in question “must be expressly written in the executed contract” (italics supplied), and not left to be supplied. Not only so, but this is only to accentuate the principle of strict interpretation of a provision relied upon for an exemption. I do not think that the requisite provision is found here. The written agreement here was merely not to declare dividends without first consulting. In Hewey v. Metropolitan Life Ins. Co., 62 Atl. 600, “consult” is defined as: “To apply to or for direction or information ; ask the advice of, — as to consult a lawyer.” An agreement to consult is, obviously, not in and of itself an agreement to obey the advice of the consultee. The petitioner did not agree not to declare dividends; it agreed only that it would first consult. Only by implication and equity doctrine, if indeed at all, can we import into, or add to the language involved here, any element of agreement to be governed by the consultation. In the last analysis the agreement relied on by the majority is seen to lie, not in the written provision, but in the fact that the bank relied thereon. No written acceptance appears. In substance and effect, the conclusion of the majority has its basis in equitable estoppel, because of reliance by the bank upon the statement made by the petitioner. Congress, in my view, particularly intended to permit the credit upon no application of equitable doctrine, but only upon an express written provision. It was just the sort of loose and equivocal arrangement here found, having to rest upon something outside of written and express language, which the legislators, I think, did not intend to be base for the credit. In Hobbs-Western Co. v. Commissioner, 133 Fed. (2d) 165, the court was urged to approve credit under section 26 (c) by consideration of the purpose of the agreement, the practical construction given the parties, and the fact that the payment could have been made from no source other than surplus profit or earnings. The reaction of the court was: “To concede arguendo that such a construction of the contract is reasonable does not aid the petitioner. So to construe the contract one must supply by implication' a provision not expressly stated. One must by implication insert in section 10 a provision requiring the notes to be paid out of current earnings and profits. There is no such express provision in section 10.” Not finding such express provision,, the court denied the credit, citing Helvering v. Northwest Steel Rolling Mills, 311 U. S. 46, and Helvering v. Ohio Leather Co., 317 U. S. 102. In Helvering v. Nelson Co., 133 Fed. (2d) 846, considering the language of section 26 (c) (2), it is said: * * * The requirement that the contract must deal “expressly” with the disposition of “earnings and profits of the taxable year” cannot be satisfied by “implication” nor inference. The provision must be specific. Nothing less satisfies the requirements of the statute. The word “consult” does not mean “agree,” or to obey advice. The meaning of the word is almost a negation of that meeting of minds which is required for contract. The distinction between consultation and agreement is clear even in common parlance. In my opinion, no written provision within the purview of the statute can be found. I respectfully dissent. Smith, Leech, Hill, and Opper, JJ., agree with this dissent.