Opinion
No. 46475.
November 1, 1948.
Charles W. Gross, of Hartford, Conn. (Reese H. Harris, Jr., and Gross, Hyde Williams, all of Hartford, Conn., on the brief), for plaintiffs.
Joseph H. Sheppard, of Washington, D.C., and Theron L. Caudle, Asst. Atty. Gen. (Andrew D. Sharpe and A.F. Prescott, both of Washington, D.C., on the brief), for defendant.
Before JONES, Chief Judge, and MADDEN, HOWELL, WHITAKER and LITTLETON, Judges.
Proceeding for refund of estate taxes by Gladys May Bickford-Smith and another, executors under the will of John Clifford Bickford-Smith, deceased, against the United States.
Judgment for the plaintiffs.
This case having been heard by the Court of Claims, the court, upon the evidence and the report of a commissioner, makes the following
Special Findings of Fact
1. Plaintiffs are British citizens, residents of Helston, Cornwall, England, and are executors of the last will of John Clifford Bickford-Smith, hereinafter referred to as the "decedent," who died a British citizen and resident of Helston, Cornwall, England, on October 3, 1941. That will was duly proved by them as executors in His Majesty's High Court of Justice and then admitted to probate on March 27, 1942. Plaintiffs then duly qualified as executors and have since acted and are still acting as such executors
The British Government accords to citizens of the United States the same rights to bring suit against that Government as are accorded to British subjects.
2. On August 7, 1941, the decedent owned 5,391 shares of the capital stock of The Ensign-Bickford Company, a corporation duly organized under the laws of the State of Connecticut and located in the town of Simsbury, in that State.
3. At all times material hereto, England was at war with Germany.
4. Under date of July 21, 1941, the Government of the United Kingdom of Great Britain and Northern Ireland entered into a loan agreement with the Reconstruction Finance Corporation, a corporation of the United States Government organized by the United States of America as a governmental agency, for a loan of approximately $425,000,000, to be made by the Reconstruction Finance Corporation to the British Government. This loan is secured by a pledge of collateral consisting of securities, principally shares of capital stock of American corporations, owned by British citizens or corporations and listed in Schedules B-1, B-2, and B-3 attached to the loan agreement. The respective classes of securities are defined in Article Third of the loan agreement as follows:
"THIRD. 1. The loan shall be secured by the pledge of the Collateral, consisting of securities of corporations incorporated under the laws of the United States of America or one or more of the States thereof, as follows:
"(1) British-owned shares (other than directors' qualifying shares and shares deposited with any insurance department of any State of the United States of America) of subsidiary companies, operating in the United States of America, of British insurance companies, which subsidiary companies are set forth in Schedule B-1 annexed hereto.
"(2)(a) Securities of corporations (other than directors' qualifying shares) in which corporations the shares in British ownership are controlling, as set forth in Schedule B-2(a) annexed hereto, and (b) securities of corporations (other than directors' qualifying shares) in which corporations the shares in British ownership are substantial, as set forth in Schedule B-2 (b) annexed hereto.
"(3) Securities of other corporations, as set forth in Schedule B-3 annexed hereto."
The loan agreement is Exhibit B to a stipulation filed in this proceeding and is made a part hereof by reference. It is also printed as Exhibit A to the petition.
5. The British Parliament under date of July 29, 1941, enacted an act known as the "Financial Powers (U.S.A. Securities) Act, 1941, 4 5 Geo. 6, Ch. 36," entitled "An act to confer on the Treasury powers for giving effect to a loan agreement made between His Majesty's Government in the United Kingdom and the Reconstruction Finance Corporation, and to provide for payments in respect to the disposal of securities, income and other payments for the purposes of the agreement; and for purposes connected with the matters aforesaid." A copy of that act of Parliament is attached to the stipulation filed in this proceeding as Exhibit C and is made a part hereof by reference. It is also printed as Exhibit B to the petition.
6. Pursuant to the act of Parliament referred to in the preceding finding, the British Treasury issued regulations entitled "Financial Powers (U.S.A. Securities) Regulations, 1941, dated July 29, 1941, made by the Treasury under Section 1 of the Financial Powers (U.S.A. Securities) Act, 1941 (4 5 Geo. 6, c. 36)," a copy of which is Exhibit D attached to the stipulation filed in this proceeding and is made a part hereof by reference. It is also printed as Exhibit C to the petition.
7. Pursuant to the Financial Powers Act and the Financial Powers Regulations, referred to in the preceding findings, the British Treasury under date of August 7, 1941, made a written demand upon the decedent that he place his shares of the capital stock of The Ensign-Bickford Company at its disposal and comply with the directions contained in the written demand. That written demand read in part as follows:
"I am directed by the Lords Commissioners of His Majesty's Treasury to refer to paragraph (1) of Regulation 1 of the Financial Powers (U.S.A. Securities) Regulations 1941 under which the Treasury are empowered, if and insofar as they are of opinion that it is necessary or expedient to do so for the purpose of carrying out an Agreement dated the 21st day of July 1941 and made between His Majesty's Government in the United Kingdom and the Reconstruction Finance Corporation, to require securities to be placed at their disposal and documents to be executed and acts to be done in relation thereto.
"In pursuance of the Powers referred to above My Lords, being of opinion that it is necessary or expedient to do so for the purpose of carrying out the said Agreement, hereby direct and require you as the owner of securities issued by Ensign-Bickford Company (hereinafter referred to as "the said corporation") to place those securities at Their disposal, to deliver the securities and any documents of title relating thereto to the order of the Bank of England and to comply with such detailed directions as the Bank of England on Their behalf may give to you for the purpose of securing that the requirements specified in subparagraph (b) of paragraph (1) of the said Regulation 1 are fulfilled."
8. Likewise, on August 7, 1941, the Bank of England addressed a letter to the decedent which read as follows:
"I have to refer to the Treasury Directions dated the 7th August 1941, requiring you as the owner of securities issued by the Ensign Bickford Company to place the securities at the disposal of H.M. Treasury and to deliver the securities and any documents of title relating thereto to the order of the Bank of England and to comply with such detailed directions as the Bank of England may give to you for the purpose of securing that the requirements specified in sub-paragraph (b) of Regulation 1 of the Financial Powers (U.S.A. Securities) Regulations 1941 are fulfilled.
"In this connection I have to inform you that the documents of title relative to the securities should be delivered to the Chief Cashier, Securities Registration Office, Bank of England, London, E.C. 2., and should be accompanied by a lodgment form (Form R F C. 1) completed in duplicate and by the following documents:
"Where the securities are registered in the name of individuals —
"(a) the enclosed Power of Attorney (form of assignment) executed by the registered holder(s), whose signature(s) must be duly witnessed and must also be confirmed by the Manager of a Bank (with Bank Stamp) or guaranteed by a stockbroker. The spaces provided for the names of the Attorney and of the Transferee must be left blank and the Power should not be dated. (Where there is a printed form of transfer on the reverse of the document of title relating to the security, this may be executed, in the same manner as that stated above, in place of a separate Power).
"(b) the enclosed voting proxy and dividend mandate duly completed except that in the case of the dividend mandate the name and address of the transfer agent must be omitted.
"Where the securities are registered in the name of a corporate body —
"(c) extracts from the Articles of Association governing the use of the seal and showing the constitution of a quorum. These extracts must be given under seal and must therefore be signed in accordance with the sealing regulations of the corporate body; in addition they must be certified as being true copies and also that they are still in full force and effect.
"(d) a specimen of the seal certified by the Secretary and a list of the signing officers of the corporate body in office at the date of the Meeting.
"(e) a copy of the Resolutions authorizing the preparation of the necessary documents to effect a transfer of the security. This must be given under seal and one of the directors or officers signing should be other than those authorized to attest the affixing of the seal on the Power of Attorney [mentioned in (f) below]; in addition this must be certified by the Secretary as being a true copy.
"(f) a separate Power of Attorney (form of assignment) duly sealed and attested.
"(g) a dividend mandate and voting proxy addressed to the Company and duly executed but otherwise blank.
"Lodgment forms, a dividend mandate and a proxy form are enclosed for use in this connection.
"Bonds in respect of which interest is represented by coupons should be accompanied by all relative coupons maturing on or after the 8th day of August, 1941.
"Should any documents to enable a transfer of the securities be already lodged with the Company and/or its Transfer Agent, such documents must be cancelled.
"Where the documents of title are held abroad, they may be delivered to The Agency, Bank of Montreal, New York, in accordance with the instructions set forth on the reverse of the lodgment form (Form RFC. 1); the relative lodgment form must, in any case, be delivered to the Bank of England but the other documents described above may accompany the security when delivered to The Agency, Bank of Montreal, New York, or may be delivered to the Bank of England.
"I have also to inform you that:
"(1) The Treasury will carry the War Risk in respect of securities in transit in the United Kingdom for lodgment at the Bank of England provided that:
"(a) Such securities are despatched by Registered Post and the relative receipt given by the Postal Authorities is retained for production, if required.
"(b) Full particulars of the securities are kept, such details to include the amount and definitive number of each Bond or Certificate and, where applicable, the full names and titles of the persons in whose names the securities are registered.
"(2) The relative Registration Certificates [Forms S. 1(B) or S. 2] should be retained and should not accompany the securities.
"I shall be glad if you will furnish the Bank of England with details of the normal record dates and payment dates in respect of dividends payable on the securities."
9. Pursuant to the demand, the decedent under date of August 20, 1941, delivered 5,391 shares of the capital stock of The Ensign-Bickford Company to the Governor and Company of the Bank of England by a written statement on a form entitled "Securities Placed at the Disposal of H.M. Treasury" which read, insofar as here material, as follows:
"(a) I beg to hand you herewith 5,391 shares (Nominal amount or number of Shares) of the above-mentioned Security as detailed on the reverse hereof to be held at the disposal of H.M. Treasury.
* * * * * *
"Please issue a formal receipt therefor in due course in the name(s) of Barclays Nominees (Branches) Ltd., 4 George Yard, London E.C. 3.
"I/We request that the sterling equivalent of any dividends or interest be paid to: Barclays Bank Ltd., at Cambourne.
"LODGED BY John Clifford Bickford-Smith. Address: Trevarno, Helston, Cornwall.
"Signature of person making lodgment:
"J.C. Bickford-Smith.
"Date 20 Aug. 1941.
"NOTES. — In order to facilitate all transactions affecting the Security and the eventual return of the documents of title, holders are recommended to arrange that the name in which the receipt is to be issued should be that of a corporate body (e.g., the nominee company of a bank)."
The shares so delivered were accompanied by a power of attorney, dividend mandate, and voting proxy. Subsequent to the death of the decedent, his executors executed a new voting proxy and a new dividend mandate. These documents were furnished to the Federal Reserve Bank, as custodian for the Reconstruction Finance Corporation, and the Federal Reserve Bank furnished to The Ensign-Bickford Company the dividend mandate which directed the company to pay dividends to the Reconstruction Finance Corporation, care of the Federal Reserve Bank of New York. The Ensign-Bickford Company never received the new voting proxy executed by the plaintiffs subsequent to the decedent's death and the shares registered in the name of the decedent have never been voted either in person or by proxy since his death. The dividend mandate referred to above read in part as follows:
"Until this Order shall be revoked in writing by the undersigned, please issue dividend cheques on, and all rights of, Stock dividends and dividends in the nature of liquidating dividends pertaining to, 5391 Shares of the above-mentioned class of Stock now registered in the names of the undersigned on the books of the Company, to the order of Reconstruction Finance Corporation and mail to Reconstruction Finance Corporation, care of Federal Reserve Bank of New York, as fiscal agent and custodian, 33 Liberty Street, New York, New York.
"All notices, proxies and other communications are to be mailed to the undersigned at ____
"(Signature) GLADYS M. BICKFORD-SMITH, "M.G. BICKFORD-SMITH, "Executors of John Clifford Bickford-Smith deceased."
10. Under date of September 11, 1941, the Bank of England, as agent for the British Treasury, executed a temporary receipt styled "Call Ticket" with respect to the 5,391 shares placed at the disposal of His Majesty's Treasury, pending examination and approval of the documents, which read as follows:
"RECEIVED Securities placed at the disposal of H.M. Treasury stated to amount to — 5391 — Nominal or Number of Shares.
"[Sgd.] T.R. SMITH.
"This Call Ticket should be presented on ADVICE to be exchanged for a FORMAL RECEIPT for the Securities which will be ready for issue provided that the documents are in order."
11. Pursuant to the instructions contained in the instrument signed by the decedent placing the securities at the disposal of H.M. Treasury, a formal receipt dated October 14, 1941, was issued by the Bank of England reading as follows:
"Received from Barclays Nominees (Branches) Ltd., of 4 George Yard, London, E.C. 3., the following security which has been placed at the disposal of H.M. Treasury in accordance with an Order made or Directions given in pursuance of the Financial Powers (U.S.A. Securities) Act, 1941, and of the Financial Powers (U.S.A. Securities) Regulations, 1941, made thereunder.
"____ 5391 say Five thousand three hundred and ninety-one shares of $100 of ENSIGN BICKFORD COMPANY CAPITAL STOCK represented by Certificates numbered 11, 64 and 119 registered in the name of John Clifford Bickford-Smith ____
"BANK OF ENGLAND, this 14th day of October 1941.
"[Sgd.] K.O. PEPPIATT, "Chief Cashier.
"EXD. W.D. SARGEANT.
"The security and this Receipt are subject to the provisions of the Financial Powers (U.S.A. Securities) Act, 1941, and Regulations, Orders and Directions issued thereunder.
"NOTICE may at any time be given to the registered holders named above requiring the surrender of this RECEIPT to the BANK OF ENGLAND in exchange for the security or other security as provided by Section 2(8) of the said Act. This Receipt must be surrendered before any transaction affecting the security will be authorized."
12. The aforesaid certificates for these 5,391 shares of The Ensign-Bickford Company with power of attorney for transfer were forwarded by the Bank of England to The Agency, Bank of Montreal, which bank, pursuant to instructions from the Bank of England, deposited them with the Federal Reserve Bank of New York to be held by it as collateral as provided in the loan agreement, the Bank of England and the Bank of Montreal both acting for and on behalf of the British Treasury in receiving and delivering the securities. Those shares are still held in the form in which they were received by the Federal Reserve Bank of New York as part collateral for the loan by the Reconstruction Finance Corporation to the British Treasury as heretofore outlined. There is on file with The Ensign-Bickford Company the dividend mandate referred to in finding 9 by virtue of which all dividends payable on the 5,391 shares are paid to the Reconstruction Finance Corporation.
13. On or about February 19, 1942, the plaintiffs, Gladys May Bickford-Smith and Michael George Bickford-Smith, executors as aforesaid, duly filed with the High Court of Justice (Probate, Divorce and Admiralty Division) in England a return on official form A-7 of the property owned by the decedent at the date of his death for estate duties. In such return under account No. 2, a schedule was included disclosing the "true account of the particulars and gross value as at the date of the Deceased's death * * of all the personal or movable property of the Deceased, whether in possession or reversion, situate out of Great Britain * *." Included in the property so returned were 5,391 shares of The Ensign-Bickford Company stock at a value of $94 per share, which when translated to pounds disclosed a value of that stock of £ 125901:12:2. The rate of exchange used in that computation was $4.025 per pound, and at that rate, the above shares would have a dollar value of $506,751.525. Estate duty was assessed on this valuation by the British Government at the rate of 41.6% and duly paid by the plaintiffs.
On or about December 14, 1942, the plaintiffs filed with the Comptroller, Estate Duty Office, Inland Revenue, St. George's Hotel, Llandudno, England, on official form D-1 a "corrective Affidavit for Inland Revenue" in which an overpayment of estate duty was alleged in amount of £ 5273:5:6. The items which resulted in the alleged overpayment have no reference to the Ensign-Bickford stock which is involved in this proceeding.
On or about June 21, 1944, the plaintiffs filed with the Comptroller, Estate Duty Office, Inland Revenue, a further "Corrective Affidavit for Inland Revenue" in which it was alleged that the estate duty to that date had been understated and that further estate duty was due and payable in amount of £ 114:15. The items which resulted in this correction in the value of decedent's estate have no relation to the Ensign-Bickford stock involved herein.
On or about March 12, 1945, the plaintiffs filed with the aforesaid Comptroller, Estate Duty Office, Inland Revenue, a further Corrective Affidavit for Inland Revenue, alleging therein that to that date the value of decedent's estate had been overstated in the sum of £ 27631:7:1. In a schedule attached to that affidavit, increases and decreases in the value of certain stocks were set forth and therein the value of the 5,391 shares of Ensign-Bickford stock which, as aforesaid, had been returned at a value of $94 per share, was increased to $100 a share, which resulted in an increase in the value of that stock for British estate duties of £ 8036:5:7. This increase in the value of the Ensign-Bickford stock resulted in an increase of the dollar value of that stock from $506,754 as originally returned to $539,100. In that computation the rate of $4.025 per pound was used.
The following statement was included in the last above-mentioned affidavit: "The value of the shares domiciled in the United State and held by deceased have now been agreed with the Internal Revenue agent [U.S.A.] and the duty as assessed paid."
The plaintiffs, as executors, have paid to the aforesaid Commissioner of Inland Revenue, for estate duty and interest on the estate of the decedent, the sum of £ 143736:19:1, including estate duty on the value of the 5,391 shares of stock of The Ensign-Bickford Company.
14. On December 2, 1941, plaintiffs through counsel filed with the appropriate United States Collector of Internal Revenue on Treasury form 705 "Preliminary Notice — Estate of Non-Resident Alien." That notice contained inter alia the following statements:
"I also have information that property or an interest in property of the character described above was in the actual or constructive possession of others, as shown below:
Name of possessor Address Description of Property
Reconstruction Finance Care of Federal Reserve Certain stocks" Corporation. Bank, New York, N Y
A statement signed by counsel for plaintiffs accompanying the preliminary notice and entitled "Statement Qualifying the Disclosure of Property of the Estate of J.C. Bickford-Smith, a nonresident Alien, within the United States" read as follows:
"It is my understanding that prior to his death on October 3, 1941, the decedent J.C. Bickford-Smith, had loaned to the British Government stocks of American corporations owned by him for the purpose of enabling the British Government to use the same as collateral for a loan to it from the Reconstruction Finance Corporation. I am further informed and advised by the representatives of the British Government that the stock in question, with accompanying documents, was actually delivered to the Reconstruction Finance Corporation pursuant to that authority at the Federal Reserve Bank in New York some time in the month of October, after his death. This information has been obtained from sources which I believe to be entirely credible and responsible, but authoritative information from the Estate has not been furnished me as yet; and I have only recently been advised by letter from the son of the decedent that the English solicitors for the Estate have been instructed to place the matter of federal taxation on the American assets in my hands as attorney for the Estate.
"Accordingly, as such attorney, I am undertaking to give the notice required by Regulations 80, Article 60, in the case of a nonresident alien within two months after the date of death, but it is uncertain whether or not I am a `person in actual or constructive possession of any property of the decedent,' as I am simply an attorney now retained in the matter and I have no certificates of stock in my possession and to the best of my knowledge and belief none of such certificates of stock were in the United States at the date of death and none of such certificates are in this country except such certificates as were delivered to the Reconstruction Finance Corporation at the Federal Reserve Bank in New York, as above stated.
"This qualifying statement is made to clarify my situation and as a basis from which to explore further the relative rights of the parties, including the British Government and the Reconstruction Finance Corporation."
15. Under date of October 17, 1942, application was made by counsel for decedent's estate to the Commissioner of Internal Revenue for a preassessment ruling concerning the status for Federal estate tax purposes of the shares of The Ensign-Bickford Company which had been placed at the disposal of H.M. Treasury as set out above. Under date of December 4, 1942, the Commissioner ruled that those shares were "owned and held by the decedent as of the date of his death" within the meaning of Section 862 of the Internal Revenue Code, 26 U.S.C.A. § 862.
16. Under date of April 3, 1943, plaintiffs filed with the appropriate Collector of Internal Revenue a Federal estate tax return for the decedent's estate on form 706 showing an estate tax of $5,922, which amount with interest thereon aggregating $6,010.83, was duly paid and is not now in dispute. In that return plaintiffs disclosed under protest the facts concerning the 5,391 shares of the stock of The Ensign-Bickford Company; the circumstances of the request for a preassessment ruling; and the ruling by the Commissioner. It was averred that the ruling of the Commissioner that the 5,391 shares were "owned and held" by the decedent at the date of his death was in error and that the estate would desire to have the matter reviewed by an appropriate court. The value of the 5,391 shares was not included in the estate in the return and the tax thereon was not paid at the time the return was filed.
17. Under date of February 16, 1944, the internal revenue agent in charge of the Second New York Division issued his sixty-day letter claiming a deficiency estate tax, the principal item of which was due to the inclusion in decedent's estate of the value at date of death of the aforesaid shares of The Ensign-Bickford Company. On April 20, 1944, protest was filed on behalf of the estate of decedent against the asserted deficiency, and a hearing was had on May 11, 1944, at which the prior ruling of the Commissioner as to the shares of The Ensign-Bickford Company was sustained. On August 29, 1944, plaintiffs executed a waiver of restriction against assessment and collection of deficiency in estate tax and on his October 1944 special list, the Commissioner duly assessed against the estate of decedent estate taxes in the amount of $177,040.05, together with interest in the amount of $18,333.34, that is, an aggregate of $195,373.39.
18. Notice of the assessment and demand for payment of the deficiency tax in the amount of $177.040.05 was thereafter issued by the Collector, and the tax was paid with interest by the plaintiffs as follows: $120,750 on September 14, 1944, and $74,623.39 on October 17, 1944.
19. On January 25, 1945, plaintiffs duly filed a claim for refund of $189,128.61 on the ground that the 5,391 shares of The Ensign-Bickford Company heretofore referred to were not "owned and held" by the decedent at the date of his death and were therefore improperly taxed by the Commissioner for Federal estate tax purposes. The Commissioner disallowed that claim March 3, 1945.
20. The shares of stock in The Ensign-Bickford Company which were placed at the disposal of the British Treasury by the decedent as outlined above have never been presented for transfer by the Federal Reserve Bank or anyone else and have never been transferred on the stock register of the company to the name of any other person but are still recorded in such register in the name of the decedent.
21. All dividends payable on the 5,391 shares of stock of The Ensign-Bickford Company which were placed at the disposal of the British Treasury payable after the death of the decedent have been paid to the order of the Reconstruction Finance Corporation pursuant to the terms of the dividend mandate executed by the executors of his estate after his death. Such dividends have been applied by the Reconstruction Finance Corporation to the service of the loan in accordance with the provisions of paragraph Fifth of the loan agreement.
22. In paying the dividends referred to in the preceding finding, The Ensign-Bickford Company withheld from the amounts thereof appropriate sums representing income taxes applicable thereto as prescribed by the taxing statutes of the United States and the amounts so withheld were duly paid over by the company to the appropriate collector of internal revenue. Income taxes paid on account of such dividends in excess of the amounts withheld have been paid by the executors under protest.
23. Pursuant to the terms of the ultimate paragraph of paragraph Fifth of the loan agreement, the Reconstruction Finance Corporation duly reported to the Bank of England, as agent of the British Government, the amounts paid as dividends to such Reconstruction Finance Corporation, described in findings 21 and 22, and thereafter, in each instance of payment, the Bank of England, as agent, paid to plaintiffs, as executors, the sterling equivalent of those dividends in accordance with the provisions of paragraph 2, subparagraph (3) of the Financial Powers (U.S.A. Securities) Act, 1941. In each instance of payment, the Bank of England deducted from the amount reported the British income tax applicable thereto. The net sums received by the plaintiffs represented the sterling equivalent of the amounts of dividends declared by the company, less the United States income tax withheld by the company and less the British income tax computed on that remainder. The amounts deducted by the Bank of England, as aforesaid, were duly paid over to the Commissioners of Inland Revenue of Great Britain.
Each of the aforesaid payments to the plaintiffs was accompanied by a statement or memorandum disclosing the details of the transaction, such statement or memorandum also serving as a receipt for or proof of payment of the income taxes involved.
24. Under the last will and testament of the decedent, Mrs. Gladys May Bickford-Smith, decedent's widow, was the residuary legatee of his estate. Upon the settlement of decedent's estate by his executors, there was duly distributed to the residuary legatee a certificate from the Bank of England reading as follows:
"This is to certify that GLADYS MAY BICKFORD-SMITH of Trevarno, Helston, Cornwall, Widow, is/are registered, in accordance with arrangements made by the Treasury, as the person(s) in whom is vested any right conferred by Section 2 of the Financial Powers (U.S.A. Securities) Act, 1941, to release or payment in respect of the following security, — 5391 — say Five thousand three hundred and ninety-one Shares of $100 of Ensign Bickford Company Capital Stock.
"BANK OF ENGLAND, this 3rd day of January 1947.
"[Sgd.] K.O. PEPPIATT, " Chief Cashier. "Exd. L.V. BEAN.
"The security and this Certificate are subject to the provisions of the Financial Powers (U.S.A. Securities) Act, 1941, and Regulations, Orders and Directions issued thereunder.
"Notice may at any time be given to the registered holders above-named requiring the surrender of this Certificate to the BANK OF ENGLAND in exchange for the security or other security as provided by Section 2(8) of the said Act.
"This Certificate must be surrendered before any transaction affecting the security will be authorized."
25. The transfer referred to in the preceding finding was effected through various letters and forms executed by the appropriate parties passing between Messrs. Nicholl, Manisty Few Co., of London, solicitors, and the Bank of England and others, including Barclays Bank Ltd., Barclays Nominees (Branches) Ltd., the Westminster Bank, and Gladys May Bickford-Smith. In one of these letters, Messrs. Nicholl, Manisty Few Co., wrote the Bank of England under date of November 27, 1946, as follows:
"Under the Will of the above-named deceased the widow, Mrs. Gladys May Bickford-Smith, is entitled to the residue of his estate, such residue includes 5,391 shares of the Capital Stock of 100 dollars of Ensign Bickford Co. which is, amongst other securities, one of those mentioned in the agreement with the Reconstruction Finance Corporation dated 21st July 1940, which was confirmed by the Financial Powers (U.S.A. Securities) Act 1941, and in accordance with the requirements of the Treasury the late Mr. John Clifford Bickford-Smith lodged the Certificate of the above shares and a receipt was issued for such Certificate to Barclays Nominees (Branches) Limited of 4 George Yard, London, E.C. 3.
"It is now desired that a new receipt should be issued to take the place of that given to Barclays Nominees (Branches) Limited in the name of Mrs. Gladys May Bickford-Smith.
"We may mention that we understand that the matter can be effected by the execution of a transfer common form by Barclays Nominees (Branches) Limited in favour of Mrs. Bickford-Smith. We shall be glad to hear that there is no objection to the transaction being completed at an early date."
The Bank of England replied to that letter on December 10, 1946, as follows:
"I write to acknowledge the receipt of your letter of the 27th November and in reply would inform you that the Bank of England will raise no objection to the proposed transfer of the right to the release of 5,391 shares of 100 dollars Ensign Bickford Company Capital Stock to Mrs. Gladys May Bickford-Smith.
"The transfer may be effected by means of a common Form of Transfer which should be executed in the usual manner, but the following wording should be inserted on the Form in the space provided thereon for the description of the security:-
"`The right conferred upon us by Section 2 of the Financial Powers (U.S.A. Securities) Act of 1941, to the release of 5,391, say, Five thousand three hundred and ninety one shares of 100 dollars of Ensign Bickford Company Capital Stock placed at the disposal of the Treasury by virtue of that Act.'
"A statement setting forth the exact nature of the transaction, duly signed by the transferor and the transferee, should appear on the reverse of the Deed, which should be forwarded to the Bank unstamped as Stamp Duty will be borne by H.M. Treasury. The Deed should be accompanied by the relative Formal Receipt, Registration Certificate (Form S.1(B) or S.2) and Forms S.2 A and S.2, copies of which are enclosed. I also enclose a Form of Mandate for completion by the transferee if desired."
December 31, 1946, Messrs. Nicholl, Manisty Few Co. wrote to the Bank of England as follows:
Referring to your letter of the 10th instant. We now enclose herewith:
"(1) Transfer of the right to the release of 5,391 shares of $100 of the Ensign Bickford Company Capital Stock duly executed.
"(2) Receipt number RFC 22303/1/1 for the certificates of the above shares.
"(3) Form S.2 in duplicate. | Signed by "(4) Form S.2A. MRS. BICKFORD-SMITH. "(5) Dividend Mandate. |
"We shall be glad of your acknowledgment and to receive a new receipt in the name of Mrs. Bickford-Smith in due course.
"You will, no doubt, observe for the purposes of stamp duty a short statement of the transactions is endorsed on the reverse of the Transfer and signed by Mrs. Bickford-Smith."
26. Among the forms executed by appropriate parties and required to be lodged by Gladys May Bickford-Smith with the Bank of England in making the transfer referred to in finding 9 were forms designated as S.2(A) and S.2. Form S.2(A) which was executed by Gladys May Bickford-Smith December 27, 1946, contained the following instructions at the top thereof: "To be completed and attached to a Form S.1(B) or S.2 (old type) on behalf of the owner(s) named therein (see the Bank of England's Notice F.E. 192)."
Form S.2 contained as part of its text the following: "The transferee(s) (who will be new owner(s) of the above-mentioned security for the purposes of Regulation 1) is/are resident in the United Kingdom and to the best of our knowledge and belief is/are not acquiring the security as the nominee(s) of any person(s) resident outside the United Kingdom."
In the lower right-hand corner of form S.2, the following statement appears: "The duplicate of this Form has been retained by the Bank of England and accepted as a return of the security on behalf of the new owner(s) named above."
Form S.2 contained the following provision at the bottom thereof: "Before the owner(s) named herein transfer(s) all or part of the above-mentioned security, Section 2 (overleaf) must be completed on his/their behalf and this Form lodged with the Bank of England."
Both Form S.2 and S.2(A) contained the following notation as to the use of the form: "For use when security restricted under Regulation 1 is transferred between residents of the United Kingdom."
27. During the exchange of correspondence between the parties referred to in finding 25, Gladys May Bickford-Smith wrote the following letter to the Bank of England on December 27, 1946: "Please forward all warrants for payments made under Section 2(3) of the Financial Powers (U.S.A. Securities) Act 1941 in respect of any income or other payment arising from the security mentioned overleaf or from the amount for the time being of such security in respect of which the right to release is vested in me to Westminister Bank, 41, Lothbury, E.C. 2."
During the year 1946, the specific date not being otherwise indicated, Gladys May Bickford-Smith addressed the following letter to The Manager, Westminster Bank, 41, Lothbury, E.C. 2.: "I request and authorize you until further order to carry all warrants for payment made under sections 2 and 3 of the Financial Powers (U.S.A. Securities) Act of 1941 in respect of 5,391 shares of the Ensign Bickford Company as and when received to the credit of my account with you."
28. The transfer form executed by Barclays Nominees (Branches) Limited and Gladys May Bickford-Smith read as follows:
"We, Barclays Nominees (Branches) Ltd., of 4, George Yard, London, E.C. 3, in consideration of the sum of Ten shillings paid by Gladys May Bickford-Smith of Trevarno, Helston, Cornwall, Widow (hereinafter called "the said Transferee") Do hereby transfer to the said Transferee the right conferred upon us by Section 2 of the Financial Powers (U.S.A. Securities) Act 1941 to the release of 5391 say Five thousand three hundred and ninety one shares of 100 dollars of Ensign Bickford Company Capital Stock placed at the disposal of the Treasury by virtue of that Act.
"To hold unto the said Transferee, subject to the several conditions on which we held the same immediately before the execution hereof AND I the said Transferee, do hereby agree to accept and take the said ____ subject to the conditions aforesaid.
"As Witness our hands and seals, this 27th day of December One thousand nine hundred and forty-six.
"SEALED by the above named BARCLAYS NOMINEES (BRANCHES) LIMITED in the presence of —
"Signature: L.H. BURROW, "Address: Director. [SEAL] "Occupation: R.F. LEWIS, "Secretary.
"SIGNED, SEALED, and DELIVERED by the above named GLADYS MAY BICKFORD-SMITH in the presence of —
"(Sgd.) GLADYS MAY BICKFORD-SMITH. "Signature: William T. Slee. "Address: Trevarno, Helston. "Occupation: Private Secretary."
The certificate from the Bank of England of January 3, 1947, is set forth in finding 24.
29. Prior to 1941, namely on August 24, 1939, and May 22, 1940, the British Parliament enacted the so-called "Emergency Powers (Defense) Act, 1939" and the so-called "Emergency Powers (Defense) Act, 1940," respectively. These acts of Parliament appear in the stipulation filed by the parties in Paragraphs XXVIII and XXIX and are incorporated herein by reference.
On November 23, 1939, the "Defense (Finance) Regulations, 1939" were promulgated by the British Government pursuant to the powers conferred by the Emergency Powers (Defense) Act, 1939. A copy of certain parts of such regulations is attached to the stipulation filed by the parties as Exhibit OO and it is made a part hereof by reference.
On various dates during the years 1939 to 1943, both inclusive, the British Treasury, pursuant to the powers conferred by the Emergency Powers Acts of 1939 and 1940 and the regulations promulgated pursuant thereto, issued Acquisition of Securities Orders, copies of which are attached to the stipulation filed in this proceeding as Exhibit PP and they are made a part hereof by reference. Under these Acquisition of Securities Orders, the British Government acquired possession and absolute title to such of the securities listed on the schedules attached thereto as were delivered to it with the appropriate documents of transfer at the prices specified in the orders.
Conclusion of Law
Upon the foregoing special findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that plaintiffs are entitled to recover the sum of $189,128.61, with interest as provided by law.
Judgment is rendered in favor of the plaintiffs against the United States in the sum of $189,128.61, with interest as provided by law.
The plaintiffs, British citizens, are the executors of the last will of John Clifford Bickford-Smith who was also a British citizen and a resident of England, and who will hereinafter be referred to as the decedent. On August 7, 1941, the decedent owned and possessed 5,391 shares of The Ensign-Bickford Company, a Connecticut corporation located in Simsbury, Connecticut.
The British Government in 1941 desired to borrow $425,000,000 from the Reconstruction Finance Corporation, an agency of the United States Government. It proposed to deposit as collateral to secure the loan stocks of American corporations which stocks it intended to obtain from British citizens. A loan agreement was made with the Reconstruction Finance Corporation, and is referred to in our finding 4. It was made contingent upon the enactment of enabling legislation in Great Britain under which that Government could obtain from its citizens the American stocks to be used as collateral. On July 29, 1941, the British Parliament enacted the Financial Powers (U.S.A. Securities) Act 1941. See finding 5 for a reference to the Act, and finding 6 for a reference to the Regulations issued by the British Treasury pursuant to the Act. The effect of the Act and the Regulations was that a British owner of stock in an American corporation might be required to deliver the stock to the Treasury "in a form which will enable the Treasury to dispose of it for all the interest of which that person is competent to "dispose" and also to deliver, with the stock, dividend orders and voting proxies.
On August 7, 1941, the British Treasury made a written demand upon the decedent that he deliver his 5,391 shares of the stock of The Ensign-Bickford Company, and he did so on August 20, 1941, accompanying the stock, as required, with an executed power of attorney for transfer, a dividend mandate, and a voting proxy. A formal receipt was given the decedent by the Treasury, which receipt stated that the stock had been placed "at the disposal" of the Treasury pursuant to the Act and the Regulations. The Treasury sent the shares of stock to New York where they were deposited with the Federal Reserve Bank of New York to be held by it as collateral for the Reconstruction Finance Corporation loan to the British Government. The stock is still held by that bank for that purpose. No change in ownership has been requested or shown on the books of The Ensign-Bickford Company. Pursuant to the dividend order given by the decedent and to Article Fourth of the Loan Agreement with the Reconstruction Finance Corporation, all dividends which have been paid by the corporation on the stock have been paid to the Reconstruction Finance Corporation to be applied to pay the interest and principal of the loan. The Financial Powers Act provides that when dividends are paid by the corporation to the Reconstruction Finance Corporation, the British Treasury will pay an equivalent sum in British money to the person who deposited the stock.
The plaintiffs' decedent died on October 3, 1941. Section 862 of the Internal Revenue Code, 53 Stat. 131, 26 U.S.C.A. § 862, provides that "(a) Stock in a domestic corporation owned and held by a nonresident not a citizen of the United States shall be deemed property within the United States; * * *" and other pertinent provisions of the statute make such stock so owned and held subject to the federal estate tax. If, therefore, the plaintiffs' decedent at the time of his death "owned and held" the stock here in question, an estate tax was payable on its value. The Commissioner of Internal Revenue ruled that the tax was payable. A claim for refund was duly filed and rejected and this suit followed. We must, therefore, decide whether the plaintiffs' decedent at the time of his death was the owner of the stock. We think that the words "and held" in Section 862 add nothing which is relevant in this case, to the meaning of the statute.
We now examine more closely the rights which the decedent had, and the powers, privileges and immunities which the British Government had, in the stock, since we suppose that if the plaintiff didn't own it the British Government did own it, the Reconstruction Finance Corporation being only a pledgee of the stock.
The British Financial Powers (U.S.A. Securities) Act, 1941, under which the stock was taken from the decedent, provided in Section 2, (1), (2), and (8) as follows:
"2. (1) Where any security has been placed at the disposal of the Treasury by virtue of this Act, it shall be released by the Treasury as soon as may be after they have satisfied themselves, at any time while it is under their control, that it is no longer necessary or expedient for the purposes of the Agreement that they should retain control thereof:
"Provided that —
"`(a) the Treasury may, if at any time it appears to them necessary or expedient so to do for the purposes of the Agreement, by order made as respects any class of securities or by direction given as respects any particular securities, declare that the right to release conferred by this subsection shall be extinguished in the case of the securities to which the order or direction relates;
"`(b) if any security is so dealt with in pursuance of the Agreement as to prevent the Treasury regaining control thereof under the Agreement, the right to the release of that security shall be extinguished.'
"(2) If at any time the right to the release of any security is extinguished, the Treasury shall as soon as may be thereafter pay in respect of the security such sum in sterling as they may determine, being a sum which in their opinion is not less than the market value thereof at that time:
"Provided that, if the Treasury certify that the security was of such a kind as not to be capable of being valued on the basis of market value, the sum to be paid shall be such sum in sterling as may be agreed or, in default of agreement, as may be determined by arbitration to have been the fair value thereof at that time as between a willing buyer and a willing seller.
* * * * * *
"(8) Any right conferred by this section to the release of a security of any description may be satisfied by the release of any security of that description, and any such right to the release of a security may be satisfied by the release of any security substituted therefor by the exercise of any right of exchange or conversion or any similar right attaching to the security."
These provisions seem to show that it was contemplated that the stock would, normally, be ultimately returned to the depositor. No time was set, however, within which the Government would have to return or otherwise settle for the stock. And, early or late, the Government could by the making of an order, eliminate all question of a return of the stock, and become obligated to the depositor for the then market value of it. And Section 2(8), quoted above, empowered the Government to substitute "any security of that description" for the shares actually deposited, in releasing shares to the depositor.
Indicia of ownership in the plaintiffs' decedent at the time of his death were the right to receive from the Treasury the equivalent in British money of the dividends which might be paid upon the stock, and the right to be paid the then market value of the stock if the Government should decide that it would never release the stock. The right to income from property, and the chance of gain and risk of loss from later increases or decreases in its market value usually accompany ownership, and accompany no other relation to property. The provision of the British Act whereby the depositor of stock was not allowed to receive the actual dollars paid in dividends, which were to go to the Reconstruction Finance Corporation, but was to be paid an equivalent sum in British money, amounted perhaps to no more than a wartime restriction requiring British citizens to turn their dollars in to the Government for sterling, so that the Government would have the use of the dollars which it needed so badly.
Though we have adverted to strong indicia of ownership in the plaintiffs' decedent, we have nevertheless concluded that he was not the owner of the stock within the meaning of Section 862 of the Internal Revenue Code. He had no right to the return of the stock, either soon or late. He had no right even that the stock be kept available, subject to the pledge to the Reconstruction Finance Corporation, until the Government either released it to him or extinguished any possibility of a release and substituted its obligation to pay him the then value of it. The Government could, under Section 2(8) of the statute, have sold the stock in the hope of buying similar stock cheaper at a later time and releasing the substituted stock to the depositor. If Section 2(8) did not mean that, it is hard to see what it meant, as there would be no advantage to the Government in substituting other similar shares if the ones deposited were still available.
We have then, as between the plaintiffs' decedent and the British Government, the two possible owners, all the documentary indicia of ownership in the Government, plus a complete immunity from any claim for a return of the stock, and a complete power to do as it pleased with the stock at any time, being accountable only for paying the equivalent of dividends in the meantime, and for, at its option, paying the market value or returning the same or substituted shares at some time in the future. We think that the plaintiffs' decedent had a chose in action, which the obligor, the British Government, could satisfy by alternative performances, at its option, and that he did not continue to own the stock.
The plaintiffs rely strongly, and with reason, upon the decision of this court in James v. United States, 63 Ct.Cl. 379. In that case the British decedent had deposited shares in American corporations with the British Treasury pursuant to the British Finance Act, 1916, the shares to be at the "absolute disposal" of the Treasury. The court held that the same estate tax statute here in question did not apply to the shares, since the decedent did not own and hold the shares but had only a chose in action against the British Government, its obligation being "wholly contractual." The differences between the present case and the James case, that in the latter case the stock had been transferred to the British Government on the books of the corporation whereas in the instant case it had not, and that in the James case the British Government, after the decedent's death but before the litigation, had actually sold the stock, do not seem to us to be material. As to the latter point, the court mentioned it in the James case as an indication of the power which the British Government had over the stock, and it has that same power under the law and the terms of the deposit in the instant case. As to the first point, the change of ownership on the books of the corporation would add nothing to the British Government's already complete powers over the stock, including the express powers to sell it, to vote it and to collect the dividends on it. In the James case the court relied on Provost v. United States, 269 U.S. 443, 46 S.Ct. 152, 70 L.Ed. 352, where it was held that a "loan" of stock by one broker to another to enable the latter to deliver on a short sale, it being contemplated that the same shares would not be returned, and other shares later acquired would be returned in their stead, was a sale of the stock and required the payment of the stamp tax applicable to sales. In the instant case, the substitution of other shares for the deposited ones was one of the alternatives which the British Government could, at its option, resort to, hence the Provost case is pertinent here.
The Government makes a good deal of the fact that Great Britain also imposed an estate tax upon the decedent's estate, and listed in his estate these shares. Of course, the decedent owned something of value in relation to these shares, and that something was subject to the British Estate Tax, whether it was the shares themselves or the Government's promise in regard to them. The tax would have been the same whether it was the one or the other, hence we think that the designation used is not important. The Financial Powers (U.S.A. Securities) Act, 1941, itself, in Section 2(4) and (5) designates the depositor's right as a right to "release or payment", which is an accurate description and is no indication that British law regarded the decedent as the owner of the stock.
The Government urges that the British Emergency Powers (Defense) Acts of 1939 and 1940 and the Regulations promulgated pursuant to them, referred to in our finding 29, provided a method whereby the British Government, when it so desired, acquired possession of and absolute title to stocks and other securities belonging to its citizens. It argues that, if the purpose had been to acquire the absolute title to the decedent's stock here in question it would have been done under these Emergency Powers Acts. We recognize readily that the arrangement under which the British Government received the deposit of the decedent's securities was different from an outright acquisition of them with a duty to immediately pay for them. Instead, it gave the Government the use of them without paying for them unless and until it should decide that it would never release the same or equivalent securities to the depositor. There was, therefore, reason enough for the Government to have two different methods of acquiring securities for its use. But the fact that one of them was a plain and obvious acquisition of ownership by the Government does not determine that the other was not also an acquisition of ownership, by no means plain and obvious, but which, our analysis leads us to conclude, was the legal result of what was done.
The plaintiffs are entitled to recover $189,128.61, with interest as provided by law.
It is so ordered.
JONES, Chief Judge, and HOWELL, WHITAKER and LITTLETON, Judges, concur.