
    SAMUEL LLOYD IRVING v. THE UNITED STATES
    [No. J-288.
    Decided November 3, 1930]
    
      The Reporter's statement of the case:
    
      Mr. John 0. Kramer for the plaintiff. Speer & Woodis were on the brief.
    
      Mr. Assistant Attorney General Charles B. Rugg for the defendant. Mr. Ralph C. Williamson was on the brief.
   Littleton, Judge,

delivered the opinion:

The question in this case is whether the dividend of $15,100, representing plaintiff’s proportion of an 8 percent dividend declared by the Irving Worsted Company-on December 30, 1922, was a cash or a stock dividend. We-are of opinion upon the facts that it was a stock dividend..

The facts in this case bring it within the principle announced in United States v. Mellon, 279 Fed. 910, affirmed 281 Fed. 645, and United States v. Davison, 1 Fed. (2d)-465.

The Irving Worsted Company did not have sufficient cash or surplus to pay the 8 per cent dividend to the majority stockholders. Cf. Henry Vogt Machine Company v. United States, 39 Fed. (2d) 986. [69 C. Cls. 656.] It had already-borrowed almost to the limit of its credit, and there was a; definite binding agreement by the majority stockholders,,, of which the plaintiff was one, with the corporation through its board of directors that they would receive stock for. their proportion of dividend. All of these stockholders; made this agreement with the directors before the dividend, was declared. Prior to the declaration of the dividend, and" in view of this agreement, the stock of the corporation was--. increased to permit of the payment of the dividend in stock, and it was so paid. The formality of issuing checks, for the payment of which there was no fund, and the endorsement thereof by the plaintiff and the stockholders who were parties to the agreement, did not change the situation. It was never intended that the dividend to these stockholders should 'be paid in cash, and they could not have enforced such payment. The decision of the United States Board of Tax Appeals in Hunt v. Commissioner, 5 B. T. A. 356, is not in point. In that case the stockholders merely agreed among themselves that they would take stock and presumably the corporation had sufficient funds with which to pay the cash dividend.

Plaintiff is entitled to recover. Judgment will be entered in his favor for $2,274.03 with interest. It is so ordered.

Wh/liams, Judge; GREEN, Judge; and Booth, Chief Justice, concur..

Whalex, Judge, did not hear this case and took no part in .the decision thereof.  