CIR v. Murdoch, No. 14222

• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)
• Writing for the Court: McLAUGHLIN and FORMAN, Circuit , and COOLAHAN
• Citation: 318 F.2d 414
• Parties: COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. John P. and Eleanor MURDOCH. Henrietta O. MURDOCH, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE.
• Docket Number: No. 14222,14223.
• Decision Date: 07 June 1963

318 F.2d 414 (1963)

COMMISSIONER OF INTERNAL REVENUE, Petitioner,
v.
John P. and Eleanor MURDOCH.
Henrietta O. MURDOCH, Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE.

Nos. 14222, 14223.

United States Court of Appeals Third Circuit.

Argued May 9, 1963.

Decided June 7, 1963.

Rehearings Denied July 8, 1963.

318 F.2d 415

David O. Walter, Dept. of Justice, Tax Division, Washington, D. C. (Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Alan D. Pekelner, Attorneys, Department of Justice, Washington, D. C., on the brief), for Com'r of Int. Rev.

David P. Brown, Jr., Philadelphia, Pa. (Andrew B. Young, E. Eugene Mason, Philadelphia, Pa., on the brief), for John P. and Eleanor Murdoch.

Henry D. O'Connor, Philadelphia, Pa., for Henrietta O. Murdoch.

Before McLAUGHLIN and FORMAN, Circuit Judges, and COOLAHAN, District Judge.

FORMAN, Circuit Judge.

PETITION FOR REVIEW BY HENRIETTA O. MURDOCH, No. 14,223

John P. Murdoch and his brother Eugene K. Murdoch, each owned 49% of the stock of John P. Murdoch Company, a business they inherited from their father. For some years prior to his death, in September of 1945, Eugene K. Murdoch was ill and John P. Murdoch managed the business. Eugene K. Murdoch continued to draw a salary until his death, at which time his widow, Henrietta O. Murdoch, inherited his interest. Shortly thereafter John P. Murdoch and Mrs. Murdoch agreed that the physical assets, viz., the real estate and production equipment of the John P. Murdoch Company, at 3630 Haverford Avenue in Philadelphia, would be transferred to a new corporation in exchange for its stock, of which 49% would be issued to Mrs. Murdoch in place of her shares in the John P. Murdoch Company and 49% would be held by Mr. Murdoch. The new corporation was named the 3630 Haverford Avenue Corporation. On December 31, 1946 it leased the premises and equipment to the John P. Murdoch Company for $1,200 per year plus taxes and mortgage interest. This rental arrangement continued until April 1, 1955, when the rent was increased to $5,000 per year without the obligation of the lessor to pay taxes or interest. Meanwhile Mr. Murdoch had been paying Mrs. Murdoch twenty dollars per week which he reduced at this time to ten dollars.

In June 1955 Mrs. Murdoch instituted an equity action against her brother-in-law in which she charged him with having fraudulently induced her to exchange her 49% interest in the stock of the John P. Murdoch Company for 49% of the shares of the stock of 3630 Haverford Avenue Corporation; that the fair rental value of the property and machinery was $6,500 per year, and demanded:

"(a) * * * an accounting of all the profits made by him by virtue of his ownership of 50% of the stock of the John P. Murdoch Company since the 1st day of January, 1945.

"(b) 49% of the fair rental value of the real estate and machinery leased by the 3630 Haverford Avenue Corporation to the John P. Murdoch Company from December 31, 1946 until December 31, 1954.

318 F.2d 416

"(c) A complete accounting of all transactions of the John P. Murdoch Company and the 3630 Haverford Avenue Corporation from the 1st of January, 1945 to date.

"(d) Such other and further relief as this court may deem appropriate in the

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