Court Opinion

ID: 6913464
Source: CourtListenerOpinion
Date Created: 2022-07-23 22:32:36.245849+00
Date Added: 2024-06-11T16:06:34.967052
License: Public Domain

McALLISTER, Circuit Judge
(dissenting) .
The sole issue in this case is whether the notes executed by the corporation to petitioners constituted an indebtedness of the corporation. It is conceded that the corporation received full value in property for the notes. The price was fair. The notes are straight promissory notes. They were always reflected on the books of the corporation as indebtedness; and they were always reflected as indebtedness upon any financial statement given out for any purpose. Interest was accrued and paid each year *167upon the unpaid notes. Several of the notes were paid prior to the time the Commissioner indicated that he would not recognize the notes as indebtedness.
It is said by the Tax Court that the subordination of petitioners’ notes to the claims of others is too marked to permit a conclusion that the notes constituted a bona fide indebtedness. Yet there was never any subordination, in a legal sense, of the notes to the claims of others. The fact that the Goodings temporarily withheld enforcement of their claims as creditors in order to assist the company in difficult times is not a circumstance that should be considered as depriving them of their standing as creditors. They had the right to share equally with other creditors, and their forebearance does not change their status. Petitioner corporation borrowed considerable money from the banks, but the corporation always showed petitioners’ notes as an indebtedness when it borrowed. The banks and all creditors who relied upon the corporation’s financial statement were informed that the corporation was indebted on these notes. If the banks repeatedly loaned money to the corporation, recognizing these notes to be an outstanding indebtedness, at the time; if the creditors extended credit to the corporation, knowing that these notes were carried as an indebtedness at the time such credit was extended; and if the stockholders and the corporation itself recognized these notes as a real and bona fide indebtedness, I am unable to see how the Tax Court could find that the corporation and the holders of such notes never intended them to be an indebtedness of the corporation. Such findings, in my view, are without any support in the evidence; and I am unable to see that there is any evidence from which reasonable inferences could be drawn that the parties did not intend that the notes should create a bona fide indebtedness. In fact, all of the evidence supports the conclusion that it was intended that the notes be executed in payment for the property conveyed, and that they were intended to constitute a bona fide indebtedness of the company.
In my opinion, the decision of the Tax Court was clearly wrong, and should be reversed.