Opinion
This case having been heard by the Court of Claims, the court, upon the evidence adduced, makes the following special findings of fact:
1. Plaintiff is a New Hampshire corporation with its principal office and place of business at Lancaster.
2. Early in 1933 stockholders of plaintiff started an agitation to have the plaintiff pay an extra dividend of 100 per cent. and held an informal meeting at which that matter was discussed. Plaintiff's president and general manager felt that such a large dividend should not be paid, for the reason that he was of the opinion that the money necessary to pay it should be kept in the business, but other stockholders who held substantial amounts of stock and who were not active in the company's management were insistent upon payment of the large dividend. At that time plaintiff had a surplus of $119,000, of which there was available for dividends the following:
Bonds and 10 shares of treasury stock..........................
$52,750.00
Cash in Siwooganock Guaranty Savings Bank....................
26,099.75
Cash on hand and in Lancaster National Bank....................
9,931.00
----------
Total ........................
$88,780.75
Because of the objection of the president, referred to above, and the fact that the savings bank would have to sell some of its securities to get cash to allow the withdrawal from plaintiff's savings account, the stockholders decided upon an 80 per cent., instead of a 100 per cent., dividend. The dividend was to be paid on the outstanding stock and in the amount of $39,200. It was agreed that the dividend would be paid within a reasonable time and that a reasonable time would be from thirty to sixty days, although the treasurer of the savings bank thought he could get the money for the withdrawal within thirty days.
3. As a result of the informal meeting of the stockholders referred to in finding 2 a resolution was adopted at a formal meeting of the stockholders held January 16, 1933, which provided in so far as here material as follows: "Resolved by the Stockholders in Annual Meeting assembled that the continued maintenance of a surplus as large as that shown by the treasurer's report is unnecessary, and we urge and recommend that the directors declare a dividend of not less than eighty per cent (80%)."
On the same day plaintiff's board of directors adopted a resolution which read in part as follows: "The following resolution presented to the Stockholders' Meeting was considered instruction to the directors to reduce the surplus: Resolved by the Stockholders in Annual Meeting assembled, that the continued maintenance of a Surplus as large as that shown by the treasurer's report is unnecessary, and we urge and recommend that the directors declare a dividend of not less than eighty per cent (80%). Voted: to declare a dividend of 80% payable soon as convenient."
The qualification as to the time of payment of the dividend was placed in the resolution entirely for the convenience of the savings bank.
At the time the above resolutions were adopted it was understood that the dividend of $39,200 should be paid by taking $18,000 out of the savings account and securing the balance by selling State of New Hampshire bonds in the amount of $20,000 and using a small amount from plaintiff's checking account, which was the plaintiff's working capital. The rules of the savings bank required ninety days' notice in writing when withdrawals were made which exceeded $1,000, but it was not the custom of that bank to enforce that rule.
4. The treasurer of the savings bank was also a stockholder of plaintiff and attended the stockholders' meeting of January 16, 1933. It was his policy not to accept extremely large deposits because the bank might be called upon at any time to permit their withdrawal, and in 1932 he asked plaintiff's president to reduce the size of plaintiff's deposit which was then much larger than it was in 1933. Plaintiff complied with that request.
The savings bank was given informal notice on January 17, 1933, of plaintiff's intention to withdraw $18,000 and because of that notice the trustees of the savings bank adopted the following resolution on January 17, 1933: "Voted that William H. McCarten, Treasurer of the Siwooganock Guaranty Savings Bank of Lancaster, N.H., be and he is hereby authorized to sell the following securities belonging to said bank: Ten thousand dollars ($10,000) par value of Pacific Gas & Electric Co. 6% bonds due December 1, 1941, at 111 net or better; fifteen thousand dollars ($15,000) par value Consumers Power Company 5% bonds due November 1, 1952, at 106 1/2 net or better."
The bonds were immediately sent by the savings bank to the Shawmut Bank in Boston for sale in accordance with the resolution. Sale at the price indicated would have resulted in a profit to the bank of approximately $3,200. At that time bond prices were dropping off and the bonds were not sold.
5. March 2, 1933, and before the funds were made available to plaintiff, a bank holiday was declared in New Hampshire, effective March 4, 1933. Because of the restrictions of the bank holiday the savings bank could not make the $18,000 available to plaintiff until October 10, 1933, when a meeting of the trustees authorized the payment of the $18,000 "promised them last January."
October 13, 1933, plaintiff sold the $20,000 State of New Hampshire bonds. These bonds were readily salable on the market at a premium but they were not sold before October as i was considered good business to hold them. Shortly thereafter plaintiff paid the extra dividend of 80 per cent. ($39,200) referred to in the resolutions of January 16, 1933, quoted in finding 3.
6. It was the policy of plaintiff to declare a regular dividend of 6 per cent. each January and an extra dividend of 6 per cent. in April, although one year it was 8 per cent. and another year 10 per cent. In 1923, 1926, and 1928, plaintiff paid extra dividends of 50 per cent. The 1923 extra dividend of 50 per cent. in addition to the regular dividend of 6 per cent. was voted January 1 and paid May 5, 1923, out of the proceeds of the sale of bonds. The 1928 extra dividend of 50 per cent. was voted January 26 and paid April 3, 1928.
7. The Commissioner of Internal Revenue held that the extra dividend of 80 per cent. ($39,200) paid as shown in finding 5 was subject to the 5 per cent. tax imposed by section 213 of the National Industrial Recovery Act, 48 Stat. 207. As a result of that ruling plaintiff was called upon to pay, and on July 14, 1936, did pay, a tax of $2,470.57.
July 29, 1936, plaintiff filed a claim for the refund of the foregoing payment of $2,470.57, plus interest, on the ground it was not liable for a tax on such dividends because the statute provided that: "The tax imposed by this section shall not apply to dividends declared before the date of the enactment of this Act [June 16, 1933]."
The Commissioner duly rejected the claim for refund. Robert Ash, of Washington, D.C., for plaintiff.
George H. Foster, of Washington, D.C., and James W. Morris, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
GREEN, Judge.
This is an action to recover upon a claim for refund duly filed a tax of $2,470.57 paid on dividends.
On January 16, 1933, the plaintiff's board of directors voted "to declare a dividend of 80% payable soon as convenient." In order to obtain the cash to pay this dividend it was necessary for the plaintiff to withdraw a considerable amount of the money which it had on deposit in a savings bank and to sell some bonds. The payment of the dividend was not made until some time in October 1933. The tax upon dividends imposed by section 213 of the National Industrial Recovery Act does not apply to--(a) Dividends declared before midnight June 15, 1933.
It is urged on behalf of defendant that the dividend resolution was inconclusive and did not show that the dividend was actually declared. In support of this claim United States v. Murine Co., 7 Cir., 90 F.2d 549, is cited, but in that case the language used with reference to the dividend was not definite or final. In the opinion a number of cases are cited showing that a declaration to pay dividends "is not invalid on account of language used which merely extends or makes uncertain the time of payment." The provision that the dividend was to be paid "soon as convenient" merely made the time of payment uncertain and did not invalidate the declaration of it which was expressly made. It follows that the tax upon the dividends was wrongfully collected.
Judgment will be rendered for plaintiff in the amount of $2,470.57 with interest as provided by law. It is so ordered.