Du Pont v. Deputy

• Decision Date: 28 March 1939
• Docket Number: No. 6816.,6816.
• Parties: DU PONT v. DEPUTY et al.
• Court: U.S. Court of Appeals — Third Circuit

103 F.2d 257 (1939)

DU PONT v. DEPUTY et al.

No. 6816.

Circuit Court of Appeals, Third Circuit.

March 28, 1939.

Aaron Finger, of Wilmington, Del., James S. Y. Ivins, of Washington, D. C., and George Wharton Pepper, of Philadelphia, Pa. (Richards, Layton & Finger, of Wilmington, Del., Ivins, Phillips, Graves & Barker, of Washington, D. C., and Pepper, Bodine, Stokes & Schoch, of Philadelphia, Pa., of counsel), for appellant.

James W. Morris, Asst. Atty. Gen., Sewall Key, Norman D. Keller, and Lester L. Gibson, Sp. Assts. to Atty. Gen., and John J. Morris, Jr., U. S. Atty., of Wilmington, Del., for appellees.

Before DAVIS, MARIS, and BUFFINGTON, Circuit Judges.

BUFFINGTON, Circuit Judge.

In the court below Pierre S. Du Pont brought suit against the Collector of Internal Revenue to recover taxes alleged to be illegally collected from him. Jury was waived and the case tried by the judge. By stipulation it was agreed plaintiff was entitled to a judgment of $54,439.52 on one of the issues involved and to a judgment of $172,351.64 with interest (which would include the $54,439.52) if plaintiff was successful in maintaining his claim therefor. The court entered judgment for plaintiff for $54,439.52 with interest and held that "judgment for the plaintiff in any larger sum will be refused." Thereupon plaintiff took this appeal.

After due consideration, we are of opinion that in the latter respect the court erred and the record should be remanded with instructions to amend its judgment by making it for $172,351.64 with interest from September 24, 1935, instead of for $54,439.52 allowed. The reasons therefor we now state.

The income taxes involved are for the year 1931 as found by the court: "In 1919, the plaintiff maintained an office in Wilmington, Delaware, for the conduct of his business affairs. He had seven or eight employees in his office at that time. In 1920 he established an additional office in New York for the conduct of his business. He has maintained both such offices ever since such years. The expense of maintaining said offices was $36,310.67. * * * In 1919 he devoted more or less 50 per cent. of his time to his investments, which consisted in a large part of du Pont Company stock, although he had other investments in securities of different corporations. He changed his investments from time to time by the sale and purchase of securities but he was not a speculator and had practically no investments in brokerage accounts."

It appears that in 1919 the plaintiff borrowed from the Christiana Company, with a ten year maturity provision dating from December 23, 1919, nine thousand shares of the stock of the du Pont Company. The purpose of the taxpayer in so borrowing was found by the trial court as follows: "In order to insure good management of the affairs of the du Pont Company by enlisting permanently the services of able men, to encourage the executive committeemen in future effort to benefit themselves and other stockholders, and in recognition of the good work done by the executive committee for the company, the plaintiff, at the instance of the du Pont Company offered to sell 1000 shares of the common stock of the du Pont Company to each member of the executive committee of the du Pont Company. The plaintiff did not have the purpose or intention of making a profit by the specific transaction of the sale of the 1000 shares of the common stock of the du Pont Company to each of the committeemen, but he did have the purpose and intention to conserve and enhance the value of his own substantial beneficial stock holdings in the du Pont Company by endeavoring to secure for the du Pont Company a stable and efficient management. He deemed this result would be best accomplished by causing the members of the executive committee to become stockholders in the du Pont Company."

The court further found: "The agreement referred to was not entered into by the plaintiff with the Christiana Company with the intention or purpose of making a profit thereby."

When the ten year maturity approached, the court found "he (du Pont) did not have 9000 shares of the du Pont Company stock available for delivery * * *. The market for du Pont Company stock at this time was thin. Nine thousand shares of common stock of the du Pont Company could not have been purchased in the open market without substantially raising the price per share."

As noted above, du Pont's loan contract with the Christiana Company expired by its own terms December 23, 1929, a time, as the court takes judicial notice, of grave financial panicky conditions and at which du Pont had not the stock to return.

In order to meet his contract at maturity du Pont, on October 25, 1929, entered into a written contract with the Delaware Realty & Investment Company, of which he was not a shareholder, and which, as found by the court, "was not entered into * * * with the intention or purpose of making a profit thereby", whereby that company agreed to loan to du Pont the shares of the du Pont Company required by him to return to the Christiana Company as provided in the then maturing contract of stock loan made in 1919.

The contract with Delaware further provided that within ten years from October 25, 1929, du Pont would return to the lending company the du Pont Company stock so borrowed and pending such return he would pay to the lending company an amount in money equivalent to all...