Court Opinion

ID: 9637705
Source: CourtListenerOpinion
Date Created: 2023-08-22 15:16:23.295738+00
Date Added: 2024-06-11T18:09:59.458908
License: Public Domain

L. HAND, Circuit Judge
(concurring).
If the transaction between Preston and the trustee had been such that if Preston had changed his mind after giving the trustee the cheque and had refused to give the bond, the trustee would have still been obliged to return' the money, I think I should have said that the payments were not interest. But I do not so understand the facts, nor did the Appellate Division so understand them in United States Trust Co. v. Preston, 264 App.Div. 152, 34 N.Y.S.2d 646. Although the trustee had agreed to lend the money in exchange for the bond, Preston could not have reclaimed it without executing the bond, and the trustee would have been liable to the beneficiaries if it had returned the money gratis: being bound to lend is not being bound to give. Hence it seems to me that the transaction was like any other loan and that the interest was interest in the strictest sense.
Moreover I do not see how such a transaction could ever be made the means of tax evasion. If Preston had used as the trust res the securities, on whose pledge he raised the money in the first place, he need not have included any interest or dividends accruing upon them in his income tax; the beneficiary would have paid the tax. If the trustee — being authorized in its discretion to lend the money to Preston, but not being bound to do so — had nevertheless chosen to lend it to him, any tax on the interest would also have been payable by the beneficiary and Preston could certainly have deducted it. It would have been deductible as part of the cost of obtaining whatever profit he might make by using the borrowed money. The only gift would have been made when the money was put where Preston had to execute the bond to get it back. Nor do I see why the result should be different because the trustee was bound to lend the money in exchange for the bond; any more than if its discretion in investing had been limited in any other way. If the interest reserved had been higher than Preston had any bona fide expectation of earning on the money, it would have been pro tanto a colorable device merely to make gifts, but there is no suggestion of anything of that kind. For these reasons I concur.