Mott v. COMMISSIONER OF INTERNAL REVENUE
| Decision Date | 18 December 1936 |
| Docket Number | Docket No. 71903. |
| Citation | 35 BTA 195 |
| Parties | DEE FUREY MOTT, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Prewitt Semmes, Esq., for the petitioner.
E. L. Corbin, Esq., for the respondent.
A deficiency in income tax in the amount of $1,316.51 for the year 1930 was determined by the respondent as the result of adjustments of losses claimed on the sale of three blocks of corporate stocks. The issue as to one block is whether or not a loss was sustained, and as to the other two whether losses admittedly sustained are deductible in the taxable year. The facts were stipulated.
FINDINGS OF FACT.
Petitioner, an individual, resides in Detroit, Michigan.
In August 1929 the petitioner purchased through a brokerage firm in Detroit 50 shares of stock in Fourth National Investors for $3,058.75. She sold the stock in June 1930, through a New York brokerage firm, for $1,571.25. On this sale the petitioner sustained a loss, deductible in 1930, in the amount of $1,487.50.
In December 1930 petitioner had in her safety deposit box 100 shares of common stock of Westinghouse Electric and 100 shares of stock of the United States Steel Corporation. On December 30, 1930, she directed a brokerage firm to sell both blocks, and at the same time she informed the brokers that the stock was in the safety deposit box and that she would deliver it immediately after the holidays. Both blocks were sold by petitioner through the brokerage firm on December 30, 1930. The petitioner did not go downtown in Detroit to the safety deposit box until January 2, 1931, and on that date she took from the box the certificates for the shares sold and delivered them to the brokers.
Petitioner sustained a loss of $9,372 on the Westinghouse stock, and a loss of $4,755.50 on the United States Steel stock. She sold the stock on December 30, 1930, for the purpose of establishing her loss in the year 1930.
The loss claimed on the sale of Fourth National Investors stock was disallowed solely because of petitioner's inability to substantiate cost and sales price figures at the time her return was audited. These figures were supplied at the hearing, and we have found them as facts with the amount of resulting loss which is deductible in 1930.
There is no issue as to the amount of the losses sustained on the Westinghouse and United States Steel stocks; the controversy is as to the year in which the losses are deductible. They are claimed as deductions for 1930. The respondent disallowed them as 1930 deductions, taking the position, as we understand it, first, that the sales were short sales and not covered until 1931, and, second, that if not short sales they were nevertheless not completed in 1930 because of petitioner's failure to deliver stock certificates in that year.
The first proposition is unsound. "A short sale is a contract for the sale of shares which the seller does not own or the certificates for which are not within his control so as to be available for delivery at the time when, under the rules of the Exchange, delivery must be made." Provost v. United States, 269 U. S. 443. Here the petitioner owned the shares and they were within her control and available for delivery. She intended to sell the shares that she owned, and it is stipulated that they were sold. Mere failure to deliver certificates is not alone enough to establish a short sale. C. B. Ferree, 32 B. T. A. 725; affd., 84 Fed. (2d) 124. Accordingly, it is held that the sales of Westinghouse and United States Steel shares were not short sales.
Respondent's second proposition brings us into a field in which there is some confusion among the cases. His claim is that section 9520 of the Michigan Compiled Statutes of 1929 requires delivery of the certificates to complete the sale. That section, and those immediately following it enact into the Michigan statutes the provisions of the Uniform Stock Transfer Act, which has been adopted in twenty some states. That section, so far as material here, provides:
9520 Section 1. (How title to certificates and shares may be transferred.) Title to a certificate and to the shares represented thereby can be transferred only,
(a) By delivery of the certificate indorsed either in blank or to a specific person * * *, or
(b) By delivery of the certificate and a separate document containing a written assignment of the certificate or a power of attorney to sell, assign, or transfer the same or the shares represented thereby * * *.
The Michigan statutes also contain, like those of many other states, the provisions of the Uniform Sales Act, among which are the following, as numbered in Michigan Compiled Statutes of 1929:
9457 Section 18. Property in specific goods passes when parties so intend. Where there is a contract to sell specific or ascertained goods, the property in them is transferred to the buyer at such time as the parties to the contract intend it to be transferred.
(2) For the purpose of ascertaining the intention of the parties, regard shall be had to the terms of the contract, the conduct of the parties, usages of trade and the circumstances of the case.
9458 Section 19. Rules for ascertaining intention. Unless a different intention appears, the following are the rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer:
Rule 1. Where there is an unconditional contract to sell specific goods, in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment, or the time of delivery, or both, be postponed.
The presence of the above provisions in the same statute books has given rise to the question of whether corporate stocks are subject to the provisions of the Uniform Sales Act (), or whether they are in all respects governed by the Uniform Stock Transfer Act. No uniform rule has been laid down by the courts in the various jurisdictions. In Agar v. Orda, 144 Misc. 149; 258 N. Y. S. 274, it is said:
* * * The question whether shares of stock are "goods" within the meaning of the Sales Act has long been the subject of controversy. 44 Harv. Law. Rev. 998; 32 Col. Law Rev. 547, 896. The passage of the Uniform Stock Transfer Act () has further complicated the problem.
Williston and Benjamin both hold that shares of corporate stock do not fall within the definition of "goods" laid down in the Sales Act. Williston, Sales, Section 619; Benjamin, Sales (5th Ed.) p. 173.
In some jurisdictions it has been expressly held that shares of stock are not subject to the Sales Act. Millard v. Green, 94 Conn. 597, 110 A. 177, 9 A. L. R. 1610; Goodhue v. State Street Trust Co., 267 Mass. 28, 165 N. E. 701; Guppy v. Moltrup, 281 Pa. 343, 126 A. 766; Smith v. Lingelbach, 177 Wis. 170, 187 N. W. 1007. In other jurisdictions a contrary view prevails. Postal v. Hagist, 251 Ill. App. 454; Davis Laundry & Cleaning Co. v. Whitmore, 92 Ohio St. 44, 110 N. E. 518, Ann. Cas. 1917C, 988; Corwin v. Grays Harbor Washingtonian, 151 Wash. 585, 276 P. 902. In numerous cases the question was not squarely decided, the courts resorting to various sections of the Sales Act, as declaratory of the rules at common law. Walker v. Northern & Western Finance & Trading Corp'n., 199 App. Div. 471, 191 N. Y. S. 722; State ex rel. Spillman v. Central Purchasing Co., 118 Neb. 383, 389, 225 N. W. 46.
In concluding the opinion the court refers to an earlier New York case, Friedman v. Bachmann, 234 App. Div. 267; 254 N. Y. S. 689, in which it was held without discussion that corporate shares were subject to the Sales of Goods Act, and holds:
* * * The decision in Friedman v. Bachmann purports to lay down a definite rule on a subject of widespread commercial interest. Although the historical correctness of this rule may be challenged, it reflects a practical rather than a legalistic conception of the status of shares of corporate stock, and tends to conform to the needs of modern business practice.
In affirming Agar v. Orda, the Court of Appeals said (264 N. Y. 248; 190 N. E. 479):
* * * a strong argument may be made that the Legislature did not intend to include certificates of stock in its definition of "goods." Assuming that to be true, yet the fact remains that certificates of stock, like other "goods", are freely bought hand to hand, and analogy so complete may dictate that the rules governing sales be applied alike to "goods" and other personal property freely bought and sold and passing from hand to hand.
In Louisiana the Uniform Stock Transfer Act was enacted in 1910. The limited purpose of section 1, prescribing how title may be transferred, is described by the Supreme Court of that state in State v. Schofield, 136 L. 720; 67 So. 557, as follows:
The statute does not undertake to prescribe an exclusive mode of evidencing as between the parties a sale of stocks; its object is merely to regulate the mode of transfer upon the books of the corporation and to furnish a rule for deciding between claimants contesting over the ownership of the stock.
From a consideration of the above cases it seems to us sound to conclude that the Uniform Stock Transfer Act is not intended to prescribe an exclusive method for transferring property in shares of stock and that the question of when the property passes may be determined under the provisions of the Uniform Sales Act (Sale of Goods Act). The courts of Michigan do not appear to have passed on this question, although it has been held in that State that corporate stock is "goods" within the statute of frauds. Sprague v. Hosie, 155 Mich. 30; 118 N. W. 497. Under the provisions of the Uniform Sales Act quoted above it is not necessary that the goods be actually delivered in order to have a completed...
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