Court Opinion

ID: 6890334
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:39:40.33129+00
Date Added: 2024-06-11T16:05:49.331968
License: Public Domain

HOLMES, Circuit Judge
(dissenting).
I'think -the holding of the Tax Court that the installment notes constituted income of the taxpayer in 1939 is in accord with well-settled principles of tax law and should be upheld.
These notes, in form, were interest-bearing unconditional promises to pay, and were negotiable. They were executed in payment of the purchase price of a leasehold interest from the taxpayer, and were delivered to a creditor of the taxpayer at the instance of the taxpayer for the purpose of paying the debt of the taxpayer. The receipt of such property is the equivalent of the receipt of cash on the date of delivery to the extent of the fair market val*939ue of tile property,1 and the delivery to a third person at the request and for the benefit of the taxpayer is regarded, for tax purposes, as delivery to the taxpayer.2 Not a single decision is cited, or can be, holding contrary to these principles; but it is said that, since the notes were accepted “as collateral to” the obligation of the taxpayer, and since the debt of the taxpayer was not cancelled when the notes were received, the taxpayer received no actual benefit until the notes were paid. Let us examine this argument.
Except in legal or business parlance, the word “collateral” means subsidiary, indirect, or complementary. In legal terminology, when used in connection with a deposit of promissory notes, the word ordinarily means something of value pledged to guarantee performance of an obligation.3 These contracts all recited that the notes were delivered or accepted “as collateral to the obligation,” not as “collateral to secure the payment of the obligation,” and other recitations of the instruments and the acts of the parties make it clear that the notes were not delivered as collateral security in the legal sense. Davis executed and delivered the notes pursuant to its contractual agreement to induce Kellogg to accept the primary obligation of Davis to pay the balance remaining of $100,000, which balance should be paid by Davis to Kellogg in twelve equal monthly installments. The maturity date of the taxpayer’s debt then was extended to the maturity date of the last installment note, and, most enlightening of all, without any further negotiations the installment notes were paid as they matured and credited to the debt of the taxpayer. Plainly this was not the liquidation of collateral security to defray an overdue and unpaid debt, for the primary debt was not overdue. The notes were given in payment of the debt, not merely as collateral to secure it.
The Tax Court found, upon ample evidence that the face value of the notes was their fair market value in 1939. This being true, the payee had in its hands in 1939 the equivalent of cash in an amount sufficient to discharge in full the indebtedness of the taxpayer, and it was legally bound to use the notes for that purpose. In these circumstances, the amount of the notes was taxable income to the petitioner in 1939.4 Therefore, I dissent.

 Pinellas lce & Cold Storage Co. v. Commissioner, 287 U.S. 462, 53 S.Ct. 257, 77 L.Ed. 428; Holvering v. Bruun, 30.9 U. S. 431, 60 S.Ct. 631, 84 L.Ed. 864; Whitlow v. Commissioner, 8 Cir., 82 F.2d 569; Masselmaa Hub-Brake Co. v. Commissioner, 6 Cir., 139 F.2d 65.

 United Stales v. Boston & M. R. Co., 279 U.S. 732, 49 S.Ct 505. 73 L.Ed. 929; Lucas v. Earl. 281 U.S. 111. 50 S.Ct. 241, 74 L.Ed. 731; Helvering v. Clifford, 309 U.S. 331, 60 S.Ct. 551, 84 L.Ed. 788; Helvering v. Horst, 311 U.S. 112, 61 S.Ct. 144, 85 L.Ed. 75, 131 A.L.R. 655.

 See City Investment & Loan Co. v. Wichita Hardware Co., Tex.Civ.App., 57 S, W.2d 222, 223; Words and Phrases, Perm. Ed., VoL 7, pages 571 et seq.

 Cases cited in notes 1 and 2, supra.