General Motors Acceptance Corporation v. Higgins

• Decision Date: 14 May 1947
• Docket Number: Docket 20502.,No. 202,202
• Citation: 161 F.2d 593
• Parties: GENERAL MOTORS ACCEPTANCE CORPORATION v. HIGGINS.
• Court: U.S. Court of Appeals — Second Circuit

161 F.2d 593 (1947)

GENERAL MOTORS ACCEPTANCE CORPORATION v. HIGGINS.

No. 202, Docket 20502.

Circuit Court of Appeals, Second Circuit.

May 14, 1947.

John Thomas Smith, of New York City (Anthony J. Russo, of New York City, of counsel), for plaintiff-appellee.

John F. X. McGohey, of New York City, U. S. Atty (Nathan Skolnik, of New York City, of counsel), for defendant-appellant.

Before SWAN, CHASE and FRANK, Circuit Judges.

CHASE, Circuit Judge.

The plaintiff in 1935 borrowed $25,000,000 from eight corporations and delivered to them eighty-four unsecured instruments ranging in face amounts from $100,000 to $1,000,000. In some of these instruments it promised to pay the amount stated therein to the named holder, and in the others to bearer. Interest was payable on all of them at designated places at intervals of six months at 3¼ per cent, and the principal was payable on various maturity dates none of which were less than four and one half, nor more than five, years from the date of issue.

The Commissioner of Internal Revenue assessed a stamp tax on these instruments, which amounted in the aggregate to $25,000, on the ground that they were taxable pursuant to the provisions of Schedule A-1 of Title VIII of the Revenue Act of 1926, § 800 et seq., as amended by § 721(a) of the Revenue Act of 1932 which is found in Title 26 U.S.C.A. Int.Rev.Code, § 1801. The plaintiff paid the tax under protest to the defendant who was the Collector of Internal Revenue for the Third District of New York and, after a claim for refund had been duly filed and rejected, brought this suit in the District Court for the Southern District of New York to recover it. Trial was had by court without a jury upon stipulated facts. From a judgment for the plaintiff to recover the full amount paid with interest, the defendant has appealed.

The appellee is a New York corporation whose only business is to provide financial assistance to dealers in the products of the General Motors Corporation and to their retail customers. Its board of directors passed a resolution on December 17, 1934, authorizing its officers to borrow from not more than ten investors approximately $30,000,000 on its promissory notes provided that could be done at rates and on terms which were in the judgment of the officers "to the interests of the corporation." It was also resolved that "prior to the sale of such promissory notes the officers of the corporation shall obtain the authorized statement in writing of each purchaser to the effect that its purchase is for investment account and not with the view of distribution to the public."

The instruments previously mentioned were sold pursuant to the provisions of the resolution, and subject to the opinion of counsel for the investors that the purchase of them, or their resale, would not violate the Securities and Exchange Act of 1933, 15 U.S.C.A. § 77a et seq., or any rule or regulation promulgated thereunder.

These so-called notes under discussion were unsecured instruments printed on tinted papers with engraved borders. They were issued in series form designated H to K and each bore a serial number, but they were not issued with interest coupons nor in registered form. The serial numbers served to identify them and the sale of each was entered upon the appellee's books. They all bore the corporate seal of the appellee and were redeemable prior to the maturity date on sixty days' notice at a premium of one quarter of one per cent for each six months the term was shortened. Each note provided that the appellee would not, so long as it was outstanding, "at any time pledge or otherwise subject to a lien any of its property or assets without thereby expressly securing the due and punctual payment of this note equally and ratably with any and all obligations and indebtedness secured by such pledge or other lien," with the proviso that this restriction should "not apply to any financing by the Corporation in connection with the export or marketing of goods in foreign countries other than the Dominion of Canada and in said connection the Corporation reserves the right, in accordance with customary and established banking practice, to deposit or otherwise to subject to a lien receivables for collection or as a basis for the issuance of bankers' acceptances or in aid of other similar borrowing arrangements." The appellee further agreed in each note that the authentication, therein required by means of the signature of its Comptroller, or of some person acting in his behalf should not be performed "unless the Corporation at the time of such authentication owns receivables, installment payment obligations, cash or cash on deposit to its order, pledged or unpledged, in the aggregate to an amount at least equal to the total of all its obligations outstanding, secured or unsecured, including the notes and obligations then being authenticated and issued," excluding any receivable or installment obligation it owned or held which had been in default for longer than sixty days. There were also provisions for acceleration of payment of principal in the event of default for thirty days in any payment of interest; or of the insolvency, bankruptcy, or reorganization of the appellee; or of the institution of proceedings in bankruptcy or reorganization; or of an assignment for the benefit of creditors or the appointment of a receiver of all or substantially all of the appellee's property.

In so far as now pertinent, Schedule A-1, Title VIII of the Revenue Act of 1926, puts under the coverage of the stamp tax "* * * all bonds, debentures, or certificates of indebtedness issued by any corporation, and all instruments, however termed, issued by any corporation with interest coupons or in registered form,...