Dresser v. United States

Full title: DRESSER et al. v. UNITED STATES

Court: Court of Claims

Date published: Jan 18, 1932

55 F.2d 499 (Fed. Cir. 1932)

Opinion

No. H-362.

January 18, 1932.

Suit by Robert B. Dresser and another, administrators cum testamento annexo de bonis non of the estate of Frank A. Sayles, deceased, against the United States.

Judgment for the defendant.

This suit was brought to recover $735,537.58, income tax for 1918 and 1919, alleged to have been erroneously paid by Frank A. Sayles on account of his failure to take certain deductions from gross income on the returns for these years on account of certain alleged worthless stock. In an amended petition filed April 26, 1930, the amount sought to be recovered is stated in the sum of $298,113.32, together with interest thereon from the dates of payment.

Prior to 1918 Sayles owned certain shares of stock of certain corporations hereinafter mentioned, and to some of them he had advanced certain sums of money. During 1918 and 1919 the decedent acquired certain shares of stock of these corporations and the estate claims that the amounts paid therefor should be allowed as deductions as losses sustained for 1918 and 1919 on the ground that the stock was worthless at the time it was acquired and at the end of those taxable years. The losses claimed as a deduction for 1918 on account of the worthless stocks referred to are $243,800, and the losses claimed for 1919 on account of such worthless stocks are $63,450. A further deduction of $243,579.33 is claimed for 1919 as a loss sustained by the decedent on certain stock acquired by him in April, 1913, being the difference between the alleged value on March 1, 1913, of certain contract rights under which the stock was subsequently acquired and the amount received in liquidation of the corporation.

The tax return made by the executors of the income of the decedent for the period January 1 to March 9, 1920, showed a tax of $61,239.73, which was paid. December 18, 1923, the executors filed a claim for refund of the total tax paid for this period on the ground that the stocks here in question acquired in 1918 and 1919 became worthless during that period and that certain other deductions not shown in the return should be made from gross income. Also, within the time allowed by law, the executors filed claims for refund on the ground that the deductions on account of the worthless stocks and the loss on liquidation were proper deductions from gross income for 1918 and 1919. On December 2, 1925, the Commissioner of Internal Revenue held that the stocks of the corporations in question in this suit became worthless at the time of the death of Frank A. Sayles and allowed the losses on account thereof as a deduction from gross income for the period January 1 to March 9, 1920, which resulted in no tax liability for this period. He therefore refunded $61,239.73, the entire tax paid for this period. The commissioner rejected the claims for refund for 1918 and 1919 on the ground that the decedent sustained no loss in 1919 upon the liquidation of the corporation in which the decedent had owned stock, and that the other corporations, the stocks of which were claimed to have been worthless in 1918 and 1919, were in existence and operating and that the stock did not actually become worthless in those years but merely declined in value.

Special Findings of Fact.

1. Plaintiffs are administrators cum testamento annexo de bonis non of the estate of Frank A. Sayles, who died March 9, 1920, a resident of Pawtucket, R.I. The decedent left six written instruments purporting to be the last will and testament and five codicils thereto, naming James R. MacColl, Charles O. Read, and Kenneth F. Wood, of Pawtucket, as executors thereof. These instruments were duly admitted to probate by decree of the probate court of Pawtucket on March 31, 1920. On appeal therefrom the decree was affirmed by the superior court of Pawtucket June 25, 1920, subject to certain provisions of the decree of the superior court referring to a certain compromise authorized and approved by the decree of the superior court entered May 25, 1920. MacColl, Read, and Wood duly qualified as executors April 1, 1920, and letters testamentary were issued to them. They continued at all times from the date of their appointment to act as executors of the will until September 22, 1925, when Wood died, and plaintiff and Read continued to act as executors from that date until July 7, 1926. On the latter date Read died, and thereafter MacColl continued to act as the sole surviving executor of the will until he died November 23, 1931.

2. The decedent maintained a complete set of books of account which were kept on the calendar-year basis, and his income-tax returns for the years in question, which were made on the calendar-year basis, were due on March 15 of each year.

March 15, 1919, Charles O. Read, as attorney for the decedent, filed with the collector of internal revenue at Hartford, Conn., a tentative return of income for Frank A. Sayles for 1918 disclosing an estimated tax for that year of $335,612.96. April 25, 1919, Read, as attorney for the decedent, filed with the same collector a final income-tax return for Frank A. Sayles for 1918 disclosing a net income of $609,141.95 and a tax of $332,560.21, which was duly assessed by the commissioner and paid. The return for 1918 was made by Mr. Sayles' attorney because Mr. Sayles was ill. October 21, 1920, Read, as one of the executors of the will of the decedent, filed with the collector at Providence an amended return for Frank A. Sayles for 1918 disclosing a net income of $633,641.95 and a tax of $348,240.21; the additional tax of $15,680 was duly assessed by the commissioner and paid. Subsequently the commissioner assessed a further additional tax of $135.87 upon the income of Sayles for 1918, which was duly paid.

The total tax of $348,376.08 assessed for 1918 was paid in six installments of $84,000 on March 14, 1919; $83,560.21 on June 13, 1919; $82,500 each on September 12 and December 12, 1919; $15,680 on October 20, 1920; and $135.87 on July 1, 1921.

3. Frank A. Sayles died before his return for 1919 was due. March 13, 1920, MacColl, Read, and Wood, as executors of the will of the decedent, filed with the collector at Providence a return of the income of the decedent for the calendar year 1919 disclosing a net income of $1,187,841.22 and a tax of $704,534.97 which was duly assessed and paid, or otherwise satisfied, as follows:

Date of payment: Amount

March 12, 1920 ...................................... $176,534.97 June 14, 1920 ....................................... 176,000.00 September 14, 1920 .................................. 176,000.00 December 14, 1920 — Cash payment ....................... $152,980.47 Claims for credit based on 1916 and 1917 overassessments .... | 15,707.06 | 7,312.47 ___________ 176,000.00 ___________ Total ............................................ $704,534.97

4. No losses were claimed in the returns for 1918 and 1919 on account of the stocks of any of the corporations hereinafter mentioned which it is claimed in this suit were worthless when acquired in 1918 and 1919 and at the end of those years. No deductions for losses were claimed in any of the returns made by the decedent for any prior year on account of the worthlessness of the stock of the corporations acquired prior to 1918 and 1919. Neither were any deductions claimed by the decedent in the returns for 1918 or 1919, or in his return for any prior year on account of the worthlessness of any loans or advancements by him to the corporations as hereinafter mentioned. Neither were any such loans or advancements charged off on his books of account.

5. In 1921 the executors filed a return of the income of the decedent for the period, January 1, 1920, to the date of his death, March 9, 1920, showing a total tax of $61,239.73, which was paid in four installments on March 12, June 15, September 13, and December 13, 1921. No deduction was claimed in this return on account of any of the losses involved in this suit. The claims of the plaintiffs in this suit do not relate to the taxable period in 1920, but the defendant contends that the losses here claimed by the plaintiffs in 1918 and 1919 occurred to the extent that they were sustained in the taxable period in 1920, for which period he allowed certain of the losses and refunded the entire tax paid for that period.

6. December 18, 1923, the executors of the estate of the decedent filed a claim for refund of $61,239.73, the entire tax paid on the income of the decedent for the period January 1 to March 9, 1920, the date of death of Frank A. Sayles. The basis of this claim was that the return for the decedent for the period, January 1 to March 9, 1920, which was then under investigation by the Bureau of Internal Revenue, showed an excess taxable income "in that it did not include as a deduction the losses sustained by the taxpayer with respect to various securities owned by him which became worthless during the said taxable period." January 30, 1926, an amendment to this claim was filed in which the refund was claimed on the specific ground that 5,000 shares of stock of the East Providence Water Company, 615 shares of the common stock of the Erie Specialty Company, 1,913 shares of stock of the Nitrogen Products Company, and 500 shares of the stock of the Nitrogen Corporation, all "owned by the decedent became worthless during that period." This claim also asserted losses on certain advances made by the decedent to these corporations alleged to have become worthless during said taxable period. This claim also asserted a loss of $652,430.12 with respect to 7,500 shares of common stock of Clarence Whitman Co., Inc., resulting from the liquidation of that company. Certain other stock and debt losses were claimed in this amended claim, but are not in issue here and need not be mentioned.

On or about January 14, 1924, prior to the filing of the above-mentioned claim for refund for the period January 1 to March 9, 1920, the executors filed an amended claim for refund of $348,376.08, the total tax paid for the calendar year 1918, on the ground that the losses above mentioned were sustained in that year. And on the same date they filed an amended claim for refund of $681,515.44 for 1919 on the ground, among others, that these losses were sustained in 1919. The claims for refund for 1918 and 1919 were amendments of the claims filed for these years on December 18, 1923. The losses claimed in this suit with respect to the stocks of the East Providence Water Company, the Nitrogen Products Company, and the Nitrogen Corporation are confined to the amounts paid by the decedent for certain shares of stock of these corporations acquired by him in 1918 and 1919, as will be more specifically stated hereafter. This suit seeks the deduction of a loss on account of Clarence Whitman Co., Inc., stock for 1919.

7. The Commissioner of Internal Revenue, in his final determination upon these claims for refund, held that the stocks of the East Providence Water Company, the Nitrogen Corporation, the Nitrogen Products Company, and the Erie Specialty Company did not become worthless in 1918 or 1919, but that they were worthless as at the date of death of Frank A. Sayles. He, therefore, allowed losses on account thereof as deductions from gross income for the period January 1 to March 9, 1920. The commissioner further held that no loss had been sustained by the decedent in 1919 on the stock owned by him in Clarence Whitman Co., Inc., as a result of that corporation passing into the hands of liquidating trustees. The commissioner rejected the claim for refund for 1918 in its entirety. He made certain adjustments to income for 1919 and refunded $34,617.80 of the tax paid for that year. As a result of the losses allowed by him for the period January 1 to March 9, 1920, he determined that the entire tax paid for that period constituted an overpayment and the same was refunded to the estate with interest of $15,945.40.

8. At the time of his death and for many years prior thereto Frank A. Sayles was a man of great wealth. His executors returned a total gross estate of the value of $38,508,385.31 and a net estate subject to estate tax of $35,665,116.98 upon which return a total estate tax of $8,097,779.25 was shown and was duly paid. The Commissioner of Internal Revenue finally determined in November, 1923, that the correct value of the gross estate was $39,913,327.45 and that the net estate subject to tax was $37,387,640.97, and that the correct tax on the transfer thereof was $8,528,410.24. The increase in the tax above that shown on the return was duly paid.

9. The first item of loss claimed for 1918 in this suit is with respect to 3,232 shares of stock of the East Providence Water Company acquired by the decedent, Frank A. Sayles, in 1918 at an alleged cost of $177,800.

The East Providence Water Company was organized in 1895. Its charter was enacted by the Rhode Island General Assembly May 22, 1895, which enactment has at all times contained the provision in section 3 thereof that "said corporation may distribute water through all pipe lines owned and controlled by said corporation and may regulate its use and the price to be paid therefor: Provided, That within the limits of any fire district which may convey its property to this corporation, such price shall never exceed the price fixed in such district at the time of the passage of this act." The East Providence Water Company operated with very minor exceptions wholly within the limits of the East Providence fire district and the East Providence Fire District Company conveyed its property to the East Providence Water Company October 8, 1895. The company was therefore subject to the above rate limitation. The rates in effect in the East Providence fire district at the time plaintiff was organized were never increased. Subsequent to the taxable years here involved, efforts were made to secure an increase in rates, without success. The record does not disclose whether this corporation had earnings or losses in years prior to 1910. With the exception of 1915 and 1916, this corporation operated at a large loss each year from 1910 to 1919, inclusive. Its losses and earnings for this period were as follows:

================================================== Year | Loss | Profit --------------------|---------------|------------- 1910 .............. | $13,213.97 | ............ 1911 .............. | 12,124.94 | ............ 1912 .............. | 20,286.46 | ............ 1913 .............. | 20,509.05 | ............ 1914 .............. | 30,303.00 | ............ 1915 .............. | ............. | $546.74 1916 .............. | ............. | 159.41 1917 .............. | 6,255.76 | ............ 1918 .............. | 75,185.69 | ............ 1919 .............. | 9,299.05 | ............ ---------------------------------------------------

The loss in 1918 from operations was $34,008.94; the remainder of the loss shown of $41,176.75 was occasioned by the fact that the company was compelled in this year to pay back taxes for the years 1908 to 1917 in the last-mentioned amount. Until 1917 the corporation had $185,000 of 4½ per cent. mortgage bonds outstanding and thereafter it had such bonds outstanding of the amount of $150,000.

Frank A. Sayles owned 40,000 shares, representing the entire capital stock of the Sayles Finishing Plants of which the Glenlyon Works was a branch. This stock at the time of Sayles' death had a value in excess of $6,000,000. These manufacturing establishments and their employees received their entire supply of water from the East Providence Water Company, and the manufacturing plants constituted the largest consumers of water supplied by the East Providence Water Company, using considerably over 50 per cent. of the water company's entire output. From February 6, 1905, to the date of his death, Frank A. Sayles owned the entire outstanding capital stock of the East Providence Water Company, 3 shares being held by others as qualifying shares. He acquired 615 shares on March 23, 1900, in exchange for certain land and water rights, and on February 6, 1905, he acquired the remaining 1,150 outstanding shares from one Mersden J. Perry for $143,750 in cash. He acquired 3 shares at a date and for a price unknown. The capital stock was increased on December 31, 1918, to 5,000 shares and this additional stock was issued to Sayles as will be hereinafter set forth.

In years prior to March 1, 1913, Sayles had made advances from time to time to the East Providence Water Company in the total amount of $290,800, for some of which the company gave its notes; the balance being represented by open account. Some portion of this indebtedness drew interest. Thereafter from December 29, 1913, to December 27, 1918, Sayles made twenty-eight further advances from time to time to the water company in the total amount of $118,030.40. The largest of these advances was made on June 28 and September 10, 1917, in the amounts of $18,000 and $34,280.40, respectively. The remaining advances were in amounts ranging from $1,000 to $6,500. Only $23,000 of these advances made on December 29, 1913, and June 28, 1917, were covered by notes of the corporation. The aforementioned advances brought the indebtedness of the East Providence Water Company to Sayles on December 31, 1918, up to $408,830.40, and on that date interest of $108,350.54 had been accrued by the corporation on its books in favor of Sayles on advances from 1909 to 1914. Only $32,000 of the notes given to Sayles by the corporation provided on their face for interest. Of the total advances made by Sayles from 1913 to 1918, inclusive, $10,500 represented advances made on eight different occasions between January 23, 1918, and December 27, 1918.

At December 31, 1912, the deficit in working capital of the East Providence Water Company, the excess of current liabilities over current assets, was $349,891.45. Prior to the issuance by the corporation in 1918 of certain stock to Sayles, as hereinafter mentioned, in satisfaction of certain indebtedness of the corporation to him, this deficit amounted to $608,266.29, a net increase in the deficit during this period in the amount of $258,374.84. After the issuance of stock to Sayles in 1918, the excess of current liabilities over current assets amounted to $285,066.29.

On December 31, 1918, it was voted to increase the capital stock of the water company from 1,768 shares to 5,000 shares, which increased shares Sayles had agreed to take, and during that day the increase of 3,232 shares was issued by the corporation to Sayles in exchange for the cancellation of $323,200 of the indebtedness of the corporation to Sayles. After the issuance of this stock, the indebtedness of the company to Sayles was $194,880.94.

The stock of the East Providence Water Company was worthless on March 1, 1913, and had no value at any time thereafter. The 3,232 shares of stock of the Water Company issued to Sayles on December 31, 1918, were worthless upon the authorization by the corporation of the issuance thereof and at the time of acquisition thereof by Sayles. The value of the indebtedness of the water company to Sayles for the cancellation of which the stock was issued in 1918 was not in excess of $80,800.

Frank A. Sayles was at all times familiar with the affairs and conditions of the business of the East Providence Water Company. The acquisition by him of 3,232 shares of stock of the Water Company during 1918 was not a transaction entered into for profit.

10. The next item of loss claimed in this suit for 1918 is $48,500, representing the total of the amounts paid by Frank A. Sayles to the Nitrogen Products Company between March 6 and May 10, 1918, for which that company issued to him 485 shares of its stock of a par value of $100 a share. The basis upon which this loss is claimed for 1918 is that the stock was worthless at the time of its acquisition by Sayles and the money paid by him to the corporation constituted a deductible loss at the time of payment.

This corporation was organized December 18, 1913, for the purpose of carrying on experimentations in the development of a process patent for the manufacture of anhydrous ammonia. The company never progressed beyond the experimental stage. The patent covering the process for the manufacture of anhydrous ammonia, with respect to which this corporation from the date of its organization carried on experiments, was not commercially practical, was of no commercial value, and never had any value. The corporation carried on its experiments until early in 1920 and was finally dissolved in 1927. The corporation never owned a plant. The machinery and equipment used by the corporation were especially designed, and adapted only to the special purpose of carrying on its experimentations. It consisted principally of heavy autoclaves not suitable for any other use and had very little, if any, value. The cost of dismantling and removing the equipment of this corporation and the equipment of the Nitrogen Corporation, hereinafter mentioned, engaged in similar work, was $12,965.49. All of the machinery was later sold for junk for $3,000.

The original shares of stock issued by this company amounted to 1,000 shares of the par value of $100 each; they were issued to Frank A. Sayles, Edward E. Arnold, Max Mauran, W.D. Mount, C.P. Hidden, and Howard C. Ripley; Sayles and Arnold received 270 shares each, Mauran and Mount 150 shares each, Hidden 20 shares, and Ripley 20 shares, for all of which they paid cash into the corporation. Ripley was at all times secretary, treasurer, and accountant for the corporation. The record does not disclose the amount paid in in each instance.

Sayles paid the corporation $25,000 for his 270 shares which were issued to him December 22, 1913.

Certain additional stock was issued by the corporation to the individuals mentioned from time to time, up to and including 1918, with the result that at the last-mentioned date Edward E. Arnold held 2,270 shares, Frank A. Sayles 1,913 shares, Mauran 262 shares, Mount 245 shares, Ripley 100 shares, and Hidden 90 shares, totaling 4,880 shares. In addition certain loans and advances were made by these individuals to the corporation from time to time, up to and including 1920. The amounts paid to the corporation for stock and the advances made to it were used by the corporation in acquiring its equipment and for paying its running expenses.

The corporation sustained losses from the beginning. Its losses from 1913 to 1918, inclusive, were as follows:

============================================= Year | Loss ------------------------------|-------------- 1913 (½ month) .............. | $ 298.55 1914 ........................ | 9,020.49 1915 ........................ | 23,863.81 1916 ........................ | 16,629.75 1917 ........................ | 70,596.16 1918 ........................ | 76,379.67 |-------------- | $196,788.43 ---------------------------------------------

The total stock issued to Frank A. Sayles and the amounts paid by him to the corporation in cash therefor were as follows:

============================================ Year | Shares of | Amount | stock | ------------------|------------|------------ 1913 ............ | 270 | $ 25,000 1915 ............ | 135 | 13,500 1916 ............ | 241 | 24,100 1917 ............ | 782 | 78,200 1918 ............ | 485 | 48,500 |------------|------------ Total ........ | 1,913 | $189,300 --------------------------------------------

The stock issued to Edward E. Arnold by the corporation and the amounts paid by him therefor in cash were as follows:

=========================================== | Shares of | Year | stock | Amount ------------------|------------|----------- 1913 ............ | 323 | $ 30,300 1915 ............ | 230 | 23,000 1916 ............ | 277 | 27,700 1917 ............ | 955 | 95,500 1918 ............ | 485 | 48,500 |------------|----------- Total ........ | 2,270 | $225,000 -------------------------------------------

During the period 1914 to 1920, inclusive, Frank A. Sayles made ten advances from time to time to the Nitrogen Products Company, ranging from $732 to $5,000 in the total amount of $30,928.59, as follows:

1914, $6,428.59. 1918, $15,000. 1919, $6,500. 1920, $3,000.

The amount of $5,764.25 was entered by the corporation on its books to 1920 as accrued interest on advances theretofore made by the decedent. The sums advanced by the decedent were used by the corporation for paying its running expenses.

The stock of the Nitrogen Products Company was worthless on and prior to December 31, 1917. The 485 shares of stock acquired by the decedent from this corporation on March 6, March 25, April 12, and May 10, 1918, in the amounts of 178, 25, 37, and 245 shares, respectively, were worthless at the time they were acquired by the decedent and at December 31, 1918.

Frank A. Sayles was at all times familiar with the affairs and conditions of the business of the Nitrogen Products Company. The acquisition of the above-mentioned stock by the decedent was not a transaction entered into for profit.

The debts due the decedent by this company for advances made to it by him in 1914 were worthless at the end of that year and at all times thereafter. The indebtedness of this company to the decedent, represented by the advancements made to it by him on July 18 and October 5, 1918, in the total amount of $15,000, was worthless at the time of the receipt of the money by the company and at all times thereafter. The indebtedness of the company to the decedent for advances made to it on January 6, 1919, in the amount of $5,000 and on February 11, 1920, in the amount of $3,000, was likewise worthless at the time of receipt of those amounts by the company. None of the advances made to this company was charged off by the decedent on his books.

11. The next two items of losses claimed in this suit for 1918 and 1919 are $17,500 for 1918 and $22,500 for 1919, representing the total payments made by Frank A. Sayles to the Nitrogen Corporation between March 12 and December 16, 1918, for which that corporation issued to him 175 shares of its stock of a par value of $100 a share, and between February 12 and September 17, 1919, for which the corporation issued to him 225 shares of its stock of a like par value. The basis upon which these losses are claimed is that the stock was worthless at the time of its acquisition by Sayles and that the money paid by him to the corporation constituted a deductible loss for the year in which the payments were made.

This corporation was organized April 4, 1917, for the purpose of carrying on experiments for manufacturing anhydrous ammonia, and its operations were confined to making such experiments. The venture never went beyond the experimental stage and the corporation never made any money. The process patent under which the manufacturing experiments were carried on was not commercially practicable, was of no commercial value, and had no commercial possibilities. The corporation never had assets of any substantial value. The amounts paid to it for which it issued stock and certain loans made to it by its stockholders were used in acquiring certain equipment, and for paying running expenses. The equipment used by this corporation was especially designed and adapted only to the special purpose of carrying on the experiments and was not suitable for any other use and had only a junk value. The amounts expended for the equipment were small, the cost thereof to March 31, 1920, being $1,616.26. This corporation ceased operations in March, 1920. It was dissolved in December, 1927. The corporation's losses from the time of its organization until it ceased operations were as follows: 1917, $13,099.85; 1918, $33,710.06; 1919, $61,333.82; 1920 (3 months), $11,108.60. The capital stock of this corporation consisted of 1,000 shares of a par value of $100 each which, on September 18, 1919, was owned in equal amounts by Frank A. Sayles and Edward E. Arnold.

The stock issued to the decedent and the amounts paid by him to the corporation in cash therefor were as follows:

1917 — May 14th, 50 shares ......... $5,000 October 8th, 50 shares ......... 5,000 ______ $10,000 1918 — April 1st, 50 shares ......... 5,000 May 29th, 50 shares ......... 5,000 October 1st, 50 shares ......... 5,000 December 31st, 25 shares ......... 2,500 ______ 17,500 1919 — May 5th, 50 shares ......... 5,000 20th, 50 shares ......... 5,000 August 12th, 50 shares ......... 5,000 September 18th, 75 shares ......... 7,500 ___ ______ 22,500 _______ 500 shares ........ $50,000

The decedent made advances to this corporation of $8,500 on November 15, 1919, and $7,000 on February 15, 1920.

The stock owned by the decedent in this corporation on December 31, 1917, was worthless on and prior to that date. The stock issued to the decedent in 1918 and 1919 by this corporation, for which he paid it the amounts above shown, was worthless at the time of its acquisition by the decedent. The indebtedness of this corporation represented by the advances made to it by the decedent in 1918 and 1919 was worthless at the time the advances were made. These debts were not charged off by the decedent on his books.

The decedent was at all times familiar with the affairs and conditions of this corporation. The acquisitions by him of the 175 shares of stock in 1918 and 225 shares in 1919 were not transactions entered into for profit.

12. The next item of loss claimed in this suit for 1919 is $40,950, representing the amount paid by the decedent to the Kelsey Textile Corporation in that year for 615 shares of the common capital stock of the Erie Specialty Company. The basis upon which this loss is claimed for 1919 is that the stock acquired by the decedent in 1919 was worthless at the time of its acquisition by him and that the money paid therefor constituted a deductible loss at the time of payment.

The record does not disclose when the Erie Specialty Company was organized. It was originally engaged in making soda-fountain specialties. To January 1, 1918, it had sustained operating losses which, on that date, amounted to $115,332.82. For about nine months of 1918 it engaged in making airplane parts; this work ceased in November, 1918, and the company attempted to manufacture automobile parts, without success. The company made a profit of $359.68 for the calendar year 1918, and for the calendar year 1919 it sustained an operating loss of $282,714.91. For three months of 1920 it sustained an operating loss of $21,164.63. The company continued to lose money thereafter, and in September, 1920, it ceased taking orders, and its plant was closed in April, 1921. Some time thereafter the plant was reopened in an attempt to dispose of it as a going concern. This was without success, and the plant was again closed and the company liquidated.

At December 31, 1919, the capital stock of the Erie Specialty Company consisted of 2,000 shares of common and 5,000 shares of preferred stock of a par value of $100 a share. Of these amounts the decedent, Frank A. Sayles, owned at December 31, 1918, 1,235 shares of common stock and 4,960 shares of preferred stock. During 1918 the Kelsey Textile Corporation, the entire capital stock of which was owned by Frank A. Sayles, acquired 615 shares of common stock of the Erie Specialty Company for $40,950. The circumstances under which the textile corporation acquired this stock and the nature of the transaction are not disclosed by the record. On May 19, 1919, the decedent, Frank A. Sayles, took over the 615 shares of common stock of the Erie Specialty Company held and owned by the Kelsey Textile Corporation and paid the textile corporation $40,950. The common stock of the Erie Specialty Company was worthless on December 31, 1918, and at all times thereafter. It had neither asset nor earning value; nor was there anything in the situation respecting the company's business at that time to indicate a possible future value. The 615 shares of common stock of the Erie Specialty Company acquired by Sayles in 1919 were worthless prior to the year 1919 and at the time of acquisition thereof by him.

Frank A. Sayles was at all times familiar with the affairs and conditions of the Erie Specialty Company. The acquisition by him from the Kelsey Textile Corporation of 615 shares of common stock of the Erie Specialty Company on May 19, 1919, was not a transaction entered into for profit.

13. The last item of loss claimed is $243,579.33 for 1919 on 7,500 shares of common capital stock of Clarence Whitman Co., Inc. The basis upon which this loss is claimed for 1919 is that the stock had cost the decedent $346,125, or $46.15 a share; that the liquidation of the corporation was to all intents completed at December 31, 1919; and that the difference between the cost of the stock and $102,545.67, representing a liquidating dividend of $90,000 paid to the decedent during 1919 and $12,545.67, the maximum amount which he could receive as a liquidating dividend on the remaining tangible assets undisposed of on December 31, 1919, or $243,579.33, was the loss sustained by him upon the stock of this corporation.

The firm of Clarence Whitman Co., a proprietorship, was organized in 1880. It was made a partnership in 1890, which continued until the organization of Clarence Whitman Co., Inc., on April 1, 1913. The business of the proprietorship, the partnership, and the corporation was the selling of cotton textiles on a commission basis, the company acting as the selling agent for various cotton mills engaged in the manufacture of cotton cloth. The partnership to a small extent had also carried on the business of converting cotton goods and selling them. Certain cotton mills, for which the company was selling agent, required large sums of money with which to carry on their manufacturing business. These manufacturing companies would make notes for the money needed from time to time, deliver them to Clarence Whitman Co., selling agent, and that company would indorse the notes, secure the money from New York banks on the notes, and deliver the proceeds to the various makers of the notes. Early in January, 1913, certain New York banks with which Clarence Whitman Company did business held notes which the partnership had indorsed in an amount in excess of $2,920,000. Although the makers of the notes, which the partnership had indorsed, were solvent at that time, the partnership was experiencing considerable difficulty in securing further loans from the banks on such notes on its indorsement. This made it necessary to bring new capital into the business and to secure additional financial support within its own organization. As a result, a written agreement was entered into January 31, 1913, between Clarence Whitman, as party of the first part, and Clarence Whitman, Edmund S. Twining, C. Morton Whitman, James S. Whitman, and Lyman B. Frieze, Jr., members of the partnership of Clarence Whitman Co., parties of the second part, the Whitman Textile Company, a corporation engaged in the business of converting cotton goods, party of the third part, and Frank A. Sayles, party of the fourth part, which provided that the partnership of Clarence Whitman Company and the Whitman Textile Company should be united and that the partnership and said corporation be dissolved and a new corporation, to be known as Clarence Whitman Co., Inc., be formed under the laws of the state of New York for the purpose of taking over the business and assets of the partnership and the corporation mentioned. It was agreed that the capital stock of the new corporation should be $4,500,000 par value, divided into $1,500,000 of preferred and $3,000,000 of common stock, the voting power to be vested solely in the holders of the preferred stock.

Frank A. Sayles owned the entire capital stock of the Whitman Textile Company, consisting of 2,997 shares. The Whitman Textile Company agreed upon the organization of the new corporation to transfer and pay over all its property and assets, tangible and intangible, to the new corporation for the assumption by the new corporation of all liabilities of the textile company and the issuance by the new corporation of preferred stock at par to the amount of the net value of the assets so transferred to it. It was agreed that Frank A. Sayles as the owner of all of the capital stock of the textile company should receive $300,000 par value of the preferred stock of the new corporation; that preferred shares to be issued by the new corporation on the basis of the surplus of the Whitman Textile Company should be issued one-half to Frank A. Sayles, and one-half to Clarence Whitman and Edmund S. Twining; Sayles to receive $300,000 par value of the preferred stock for the capital of the Whitman Textile Company and 50 per cent. of the preferred shares issued for its surplus and undivided profits.

The partnership of Clarence Whitman Company agreed to transfer to the new corporation all its assets, tangible and intangible, for a consideration of $3,000,000, par value of the common stock at $100 a share, to be issued 7,500 shares to Frank A. Sayles, 7,500 shares to Clarence Whitman and C. Morton Whitman, 6,300 shares to Edmund S. Twining, 1,800 shares to William F. Adam, 1,500 shares each to Herbert Smith, Lyman B. Frieze, Jr., and Henry L. Angell, and 1,200 shares each to Charles Twining and Sinclair Richardson; the remaining $783,000, par value of the common stock, to be held in the treasury of the corporation as full-paid stock, and thereafter to be issued to certain persons in the employ of the corporation in certain amounts. This agreement is in evidence as plaintiff's Exhibit 10, and is made a part thereof by reference.

Pursuant to the agreement a new corporation of Clarence Whitman Co., Inc., was organized. It acquired all the assets of the partnership and assumed its liabilities, and issued in exchange for such assets 30,000 shares of common stock of the par value of $100 a share. At the same time it acquired all the assets of the Whitman Textile Company and assumed its liabilities, and issued $300,000 par value of the preferred stock for the capital of the textile company, and $454,900 par value of the preferred stock for the accumulated surplus and profits of the textile company. Sayles received all 3,000 shares of the preferred stock issued for the capital of the textile company and one-half of the 4,549 shares of the preferred stock issued for its accumulated surplus and profits, the remaining one-half of the last-mentioned preferred stock being issued to Clarence Whitman and Edmund S. Twining in the proportion of two-thirds and one-third, respectively. At this point Sayles owned 5,275 shares of the preferred stock of the new corporation and he purchased from the corporation 383 additional shares of preferred stock for $38,300. He was thereafter at all times the owner of a majority of the preferred voting stock of the corporation.

Common stock of Clarence Whitman Co., Inc., of the par value of $2,217,000, was issued 7,500 shares to Frank A. Sayles, 7,500 shares to Clarence Whitman and C. Morton Whitman, 6,300 shares to Edmund S. Twining, 1,800 shares to William F. Adam, 1,500 each to Herbert Smith, Lyman B. Frieze, Jr., and Henry L. Angell, and 1,200 shares each to Charles Twining and Sinclair Richardson; 7,830 shares of common stock were held by the corporation under the agreement of January 13 to be subsequently issued from time to time to certain employees.

The Whitman Textile Company was organized in 1904 and was at all times thereafter engaged in the business of purchasing cotton cloth known as gray goods in the unfinished state, converting them and selling them in the finished state. The partnership of Clarence Whitman Company had always acted as its selling agent on a commission basis. Sayles acquired all the stock of this corporation upon its organization and continued to own the same until May 24, 1910, when he sold and transferred it to the Anchor Company for $250 a share, or $749,000, together with other securities, all of an aggregate value of $2,259,541.77, in payment for 4,995 shares of the capital stock of the Anchor Company. The Anchor Company owned this stock until it was liquidated March 6, 1912, at which time Sayles reacquired it. He continued to own the stock until the merger of the textile company with Clarence Whitman Co. in April, 1913.

Prior to the organization of Clarence Whitman Co., Inc., the partnership of Clarence Whitman Co. had acted as selling agent for the American Bleached Goods Company, the entire capital stock of which, consisting of 15,000 shares, was owned by Frank A. Sayles. The partnership was also selling agent for the Ponemah Mills. Since 1900 Sayles owned more than a majority of the voting stock of the Ponemah Mills. In 1901 this corporation increased its capital stock and divided it into 15,000 shares of common and 15,000 shares of preferred. Sayles at all times thereafter continued to own more than a majority of the common stock. He also owned 2,000 shares of the preferred stock and held in his name, as trustee, several thousand shares under several trusts. For five years prior to May 31, 1912, about 28 per cent. of the gross sales of Clarence Whitman Co., the partnership, represented sales made for the American Bleached Goods Company and the Ponemah Mills. The new corporation of Clarence Whitman Co., Inc., continued as selling agent for these mills and their business constituted 42 per cent. of the earnings of Clarence Whitman Co., Inc., between 1913 and 1918.

The partnership of Clarence Whitman Company had a valuable good will which was acquired by Clarence Whitman Co., Inc., in 1913.

Upon the organization of Clarence Whitman Co., Inc., Mr. Sayles, who was a large stockholder in the Chase National Bank, of New York, and also a stockholder of the First National Bank, of Boston, and who was well known by these and other large banking institutions, used his personal influence to secure from banks additional credit for the new corporation which it could not have secured on the strength of its balance sheet alone. Mr. Sayles had large dealings, on behalf of other concerns which he owned and in which he was interested, with the banks from which such credit was secured.

14. The cost to Frank A. Sayles of 7,500 shares of the common capital stock of Clarence Whitman Co., Inc., acquired by him April 2, 1913, was $46.15 a share, or $346,125. The charter of Clarence Whitman Co., Inc., recorded in the office of the secretary of state of New York, of April 1, 1913, provided that: "The duration of the corporation shall be five years. The consent of the stockholder owning not less than 90% in amount of the issued and outstanding capital stock of the corporation shall be requisite to effect an extension of the existence of the corporation, as authorized by section 37 of the General Corporation Law." The charter expired by limitation March 31, 1918. No action was taken by the stockholders to effect an extension thereof with the result that the corporation passed into the hands of the directors as trustees in liquidation, and its liquidation was commenced on that date. The trustees then proceeded to liquidate the business. It was not sold as a whole. The tangible assets were sold in parcels as seemed most expedient to the trustees. Some time after liquidation commenced the mills for which the corporation had been selling agent placed the business of selling their product with other concerns, and the tangible assets of Clarence Whitman Co., Inc., were not very large. No disposition was made of the good will or any other intangible asset of the corporation prior to December 31, 1919. During 1919 the trustees in liquidation paid a liquidating dividend to the common stockholders, of which the decedent received $90,000 as his share. At December 31, 1919, the remaining tangible assets of the corporation undisposed of were listed and a net value of $50,185.69 was placed thereon by the liquidating trustees. The matters remaining to be attended to by the trustees were final settlement of tax claims, settlement of possible future claims and miscellaneous incidental matters, and the disposition and realization upon the remaining assets. No business was carried on by the corporation after December 31, 1919, except the liquidation of its assets. The statement of the net assets, their value, exclusive of the value of good will, the trade-name and trade-marks at December 31, 1919, of the corporation was as follows:

Current Assets:

Cash .......................................... $21,707.46 Notes receivable .............................. 6,747.22 United States certificates of indebtedness .... 64,614.70 Accrued interest .............................. 1,092.76 Employees' accounts ........................... 7.63 __________ Total current assets .................................... $94,169.77

Less current liabilities:

Accounts payable ............................. $ 1,426.50 Customers' credit balances ................... 491.42 Estimated liability for — Allowances to customers .................... 364.98 Additional taxes ........................... 38,209.37 Expenses ..................................... 3,494.81 __________ 43,987.08 __________ Net current assets ...................................... $50,182.69

On December 31, 1919, the tangible assets were of such character that there was no possibility of their increasing in value to any substantial amount. The maximum possible realization by the common stockholders of Clarence Whitman Co., Inc., upon the tangible assets above mentioned at December 31, 1919, was $50,182.69, the value of the net current assets over liabilities. The decedent's share thereof was one-fourth, or $12,545.67. Clarence Whitman Co., Inc., at all times had a valuable good will, trade-name, and trade-marks. No disposition was made of the corporation's good will. There is no proof as to the value of good will or other intangible assets of Clarence Whitman Co., Inc., on December 31, 1919. The liquidation of the corporation was finally completed in May, 1924, and the net amount realized from the tangible assets hereinabove listed in possession of the liquidating trustees at December 31, 1919, was $39,182.01.

Robert B. Dresser, of Providence, R.I. (Robert E. Jacobson, of Providence, R.I., and Joseph Fairbanks, of Washington, D.C., on the brief), for plaintiff.

Fred K. Dyar, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen (George A. Mathers and Charles B. Lingamfelter, both of Washington, D.C., on the brief), for the United States.

Before BOOTH, Chief Justice, and GREEN, LITTLETON, and WILLIAMS, Judges.

LITTLETON, Judge.

There are five issues in this case. The first four are all substantially the same, and are whether the decedent sustained deductible losses in 1918 and 1919 upon the acquisition by him in these years of certain shares of stock of the East Providence Water Company, the Nitrogen Products Company, the Nitrogen Corporation, and the Erie Specialty Company. The fifth question is whether the decedent was entitled to a deduction of $243,579.33, or any other amount, for the calendar year 1919 as a loss on 7,500 shares of common stock of Clarence Whitman Co., Inc., resulting from the liquidation of that corporation.

The first four issues are rested by plaintiffs upon the proof which establishes that the outstanding and issued capital stock of these corporations prior to January 1, 1918, and January 1, 1919, was worthless and that stock acquired by the decedent during 1918 and 1919 was worthless at the time of its acquisition, and that the amounts paid by him for the stock in 1918 and 1919 were losses sustained by him at the time the stock was acquired and were deductible under section 214(a)(5) of the Revenue Act of 1918, 40 Stat. 1057, 1067, which provides: "That in computing net income there shall be allowed as deductions: * * * Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in any transaction entered into for profit, though not connected with the trade or business. * * *" No deduction is claimed on account of the stock of these corporations acquired by the decedent prior to the years 1918 and 1919 for the reason that such stock was worthless prior to those years. These transactions do not fall under subdivision (4) of section 214(a) as losses "incurred in trade or business," and they are not claimed under that subdivision. Neither did the transactions in question give rise to a deductible loss for tax purposes under subdivision (5) of section 214(a) of the Revenue Act of 1918, inasmuch as the facts establish that the acquisitions of stock of these corporations were not "transaction entered into for profit." Before a deduction can be taken under this subdivision, it must be established that the loss claimed resulted from a transaction entered into for profit. If a taxpayer chooses to pay or contribute money in any transaction, which, under all the circumstances known to him at the time, is a hopeless venture, and from which he has no reasonable expectation of profit, he is not entitled to take the amounts paid or contributed as a deduction from income for tax purposes. A loss, in order to be deductible under the statute, must be an unintentional parting with something of value. The evidence establishes and we have found as a fact that the decedent was familiar with the affairs and conditions of the business of the corporations, the stocks of which are involved in these issues, and that the acquisitions in 1918 and 1919 of the stocks thereof were not transactions entered into for profit. The losses claimed for 1918 of $177,800 on account of 3,232 shares of stock of the East Providence Water Company, $48,500 on account of 485 shares of stock of the Nitrogen Products Company, and $17,500 on account of 175 shares of the Nitrogen Corporation, and the losses claimed for 1919 of $40,950 on account of 615 shares of stock of the Erie Specialty Company, and $22,500 on account of 225 shares of the Nitrogen Corporation, are not legal deductions from gross income.

The loss of $177,800 on account of 3,232 shares of the capital stock of the East Providence Water Company is claimed on the basis that the indebtedness of the corporation to Sayles of $323,200, for the cancellation of which the stock was issued to him, had a value of $176,900 and that in addition to the cancellation of such indebtedness the decedent paid the corporation $900 in cash. The facts establish that the value of the indebtedness of the corporation to Sayles, for the cancellation of which this stock was issued, was $80,800. We find no proof that the decedent paid $900 in cash in this transaction.

The burden is on the plaintiffs who claim a loss under section 214(a)(5) to show, in order to be entitled to the loss, that the transaction upon which it is based was one entered into for profit. In this case the estate has not shown this, but the evidence establishes the contrary. In Worcester Bank Trust Co. et al., Adm'rs v. Com'r, 13 B.T.A. 630, the United States Board of Tax Appeals allowed a deduction as a loss on the cost of stock, which it was stipulated was worthless at the time of acquisition and at the close of the taxable years, upon the sole ground that the parties had stipulated that the stock was acquired as an "investment," stating that in view of this stipulation and the absence of any evidence in the record further to explain the circumstances under which the stock was acquired there was nothing to indicate that the acquisition was not a transaction for profit or to justify a finding to that effect. In W.H. Dail, Jr. v. Com'r, 19 B.T.A. 1036, the board allowed a loss on a transaction in the year in which it was entered into, but the proof there showed the taxpayer's dealings constituted a transaction entered into for profit. It cannot be assumed that every transaction is one that is entered into for profit under section 214(a)(5), but this must be determined under the facts in each case and the record must establish that there was a transaction entered into for profit. In Edgar M. Carnrick v. Com'r, 21 B.T.A. 12, the United States Board of Tax Appeals pointed out this requirement, and one of the grounds for denying the loss there claimed was that there was nothing in the record to indicate that, even if there were a loss, there was a transaction entered into for profit, and in this connection the board said: "The statute has always confined deductible losses to certain carefully described classes, and the qualifications of these classes may not be ignored. The reasonable intendment of restricting non-business transactions resulting in losses to such as were entered into for profit is that, since the intended profit would be taxable, the loss suffered instead should be deductible. When there is no intended profit and naturally could be none, there is no just demand for a deduction of a loss. Personal losses, except by theft and other occurrences provided in section 214(a)(6), have never been broadly allowed by Congress to be deducted, and the provisions of section 214(a) (5) should not be construed so broadly as to override this general legislative purpose. In a case such as this, the taxpayer seeking the deduction must prove in fact that the transaction resulting in the alleged loss was and reasonably might have been entered into for profit." The board further said: "An unfavorable purchase is not a realized loss." E.B. Stephenson v. Commissioner of Internal Revenue (C.C.A.) 43 F.2d 348. This opinion of the board is a proper construction of the statute and, as applied to the facts in this case, precludes the allowance of the deductions here claimed as losses on account of the stocks involved in these issues. See, also, Edward J. Cornish v. Com'r, 22 B.T.A. 474, in which the board held that where a taxpayer who had sold certain stock in 1922 and reacquired it in 1923 after it had become worthless in exchange for a note, the maker of which was entirely solvent, the taxpayer was not entitled to a deductible loss. The board held that under the circumstances the transaction was not one entered into for profit and again pointed out that no losses of a character other than those to which the statute specifically refers are provided for as allowable deductions from gross income and that transactions in a taxable year, to which the taxpayer may have been influenced by motives other than profit to himself, do not result in a deductible loss in that or any other year. See, also, Snider B. Ward v. Com'r, 18 B.T.A. 326, denying a loss on the ground that it was not sustained in trade or business, nor resulted from a transaction entered into for profit.

The last item of loss claimed is $243,579.33 for 1919 on 7,500 shares of common capital stock of Clarence Whitman Co., Inc., the charter of which expired March 31, 1918, at which time the corporation passed into the hands of its directors as trustees in liquidation. The theory upon which this loss is claimed is that the difference between the cost of this stock to the decedent of $46.15 a share or $346,125 and $102,545.67, representing $90,000 paid to and received by the decedent as a dividend during 1919 on his common stock and $12,545.67, which it is alleged was the maximum amount that he could receive at December 31, 1919, from the liquidation of the remaining tangible assets of the corporation, or $243,579.33, was the loss sustained by him upon the stock of this corporation.

The facts establish that the partnership of Clarence Whitman Co. had a valuable good will, trade-name, and trade-marks, and that these intangibles were acquired by the corporation at the time of its organization on April 1, 1913. These intangibles are in addition to all intangibles in the form of good will, trade-name, and trade-marks of the Whitman Textile Company, which were also acquired by Clarence Whitman Co., Inc.

The facts also establish that the corporation of Clarence Whitman Co., Inc., at all times had a valuable good will, trade-name, and trade-marks. It further appears that at December 31, 1919, the date on which this loss is claimed, no disposition had been made of the good will or intangible assets of the corporation. It is clear from the evidence in this case that intangible assets of this character were very valuable in a business of the kind carried on by this corporation; and where there is no proof with respect to the value or lack of value on the particular date on which the loss is claimed, a loss through the liquidation of the corporation is not susceptible of determination even if it might be said that a stockholder may claim as a deduction from gross income a loss on liquidation of the corporation when the assets of the corporation have not been disposed of and its liabilities and expenses of liquidation have not been satisfied. For the reasons just stated, the loss of $243,579.33 for 1919 on account of 7,500 shares of common stock of Clarence Whitman Co., Inc., must be denied. But we are of opinion that when it appears, as here, that it is reasonably certain that the stockholders will receive a further liquidating dividend, a loss may not be allowed under the taxing act until there is a distribution of such dividend in property or money. Until this is done the stock has a value to its owner, and the mere fact that because the corporation is in process of liquidation its value has declined in a particular taxable year to a figure which is less than cost does not entitle the stockholder to elect in which year he will take his loss. It often happens, as here, that the liquidation of a corporation extends over a period of years and a decision that a loss may be taken upon the basis of a valuation of the unliquidated assets and an estimate of the remaining liabilities and expenses would enable the taxing authorities to place the loss in a taxable year in which the taxpayer might have a very small income and would enable the taxpayer to select a taxable year in which to take the loss in which he might have a large income and thereby obtain a greater benefit from the loss.

Losses are sustained within the meaning of the taxing act when the events definitely occur which give rise thereto. Lewellyn, Collector v. Electric Reduction Co., 275 U.S. 243, 48 S. Ct. 63, 72 L. Ed. 262; Lucas v. American Code Co., 280 U.S. 445, 50 S. Ct. 202, 74 L. Ed. 538. If a loss is to be determined on the basis of a valuation or an estimate of the assets and liabilities of a corporation in liquidation, we fail to see why it should not be held that the loss is sustained in the taxable year in which the liquidation of the corporation begins rather than in some future year when a partial disposition of assets has been made. The statute allows the deduction of a loss when it has been sustained, and we think it is the clear purpose of the act to allow the deduction in the year in which it may appear that the taxpayer has received from the property all that it is possible for him to receive. A stock loss is no different from a loss on any other property, and if a taxpayer acquires property at a certain cost which has not been disposed of he may not take a deduction from gross income as a loss of any amount merely because it may appear that when the property is finally disposed of he will receive less than what he paid for it. Cf. New York Life Insurance Co. v. Edwards, 271 U.S. 109, 46 S. Ct. 436, 70 L. Ed. 859; Corn Exchange Bank v. Com'r, 6 B.T.A. 158. Partial losses are not allowable as deductions from gross income so long as the stock has a value and has not been disposed of. Of course, where a corporation is in process of liquidation and there are assets of substantial value upon which large amounts may be realized by the liquidating trustees, a loss may be taken by the stockholder upon definite proof that outstanding liabilities and claims superior to those of the stockholder will more than absorb the maximum amount that can be received from the disposition of the assets, thereby leaving nothing for the stockholder. George C. Jones v. Com'r, 6 B.T.A. 451; W.W. Hanly v. Com'r, 6 B.T.A. 613. But such a situation is just the reverse of the claim presented by the plaintiffs in this case. The liquidation of Clarence Whitman Co., Inc., was not completed until some time in 1923 or 1924, and the proof shows that upon final disposition of the assets and payment of the liabilities and expenses, the decedent's estate received a substantial amount although less than the amount with which the executor seeks to charge the decedent on December 31, 1919. It is true that this difference was not large, but we think the question whether the stockholder has sustained a deductible loss on his stock may not be made to depend upon an estimate by the liquidating trustees through a valuation of the assets and liabilities. The stockholder does not own the assets in the hands of the liquidating trustees, and a valuation thereof does no more than to fix the value of the stock.

The petition is dismissed. It is so ordered.

BOOTH, Chief Justice, and GREEN, Judge, concur.

WILLIAMS, Judge, dissents.

WHALEY, Judge, took no part in this decision, he having heard the case while commissioner of the court.