Citations
- 84 F.2d 901
Full opinion text
SPARKS, Circuit Judge.
The government appeals from a judgment ordering the refund to the taxpayer of certain sums paid under protest upon assessment for stamp taxes. It raises the question of whether or not certain transactions known in the parlance of the Board of Trade as “accommodation trades” or “position loans” are sales, agreements of sale, or agreements to sell, and as such, subject to the excise tax levied under section 800, et seq., Schedule A (4) of the Revenue Act of 1926, 44 Stat. 101, 26 U.S. C.A. § 901 (4), now 26 U.S.C.A. §§ 903, 921(b) (2), and § 900 note.
There is no dispute as to the facts which were shown by stipulation, by a series of exhibits, and by the testimony of one witness, but the parties do dispute the conclusion to be drawn from those facts. Appellant contends that they prove a series of sales, agreements of sale, or agreements to sell grain for future delivery; appellee contends that they conclusively prove no such sale or agreement.
With the exception of sales by the actual producers of the grain, all sales for future delivery of grain in the Chicago market are conducted through the clearing house of the Board of Trade. For the purpose of keeping the records of all such sales, an elaborate system of bookkeeping has been devised whereby the position of each trader is shown on each day. Under the rules of the clearing house, every contract must be cleared through it, and upon such clearing, the clearing house becomes substituted for the buying and selling parties, and entitled to all the rights and subject to all the liabilities of each with respect to the particular contract. (It will be noted that the transfer of the contract involved in this substitution is specifically exempted by the statute from the incidence of the tax.) The clearing house requires a daily settlement of all open accounts, and in addition, a graduated scale of margin deposits in order to protect itself from loss in case of failure or forced liquidation which might result in flooding the marltet with the particular commodity thereby causing violent fluctuations in the price of the commodity. Under this margin rule, a trader who carried contracts for short sales of 10,000,000 bushels of a grain would be required to make a deposit with the clearing house at a higher rate than one who carried similar contracts for 2,-000,000 bushels. To avoid this requirement, trading members have devised a system of so-called accommodation trades or position loans. Thus, a member having a short position of, say, 2,000,000 bushels, will accommodate a member having a short position of 10,000,000, by permitting the latter to transfer temporarily to him part of his contracts, with the understanding that the transferor is to retain all the benefits or burdens of the contracts which are to be transferred back to the original contracting party upon demand of either party to the accommodation trade. The margin deposits are to be supplied by the original party, so that the other in no way changes its status except for one very important feature, namely, in case of default of the party accommodated, the party accommodating must assume the liability of the contract. In other words, in lending its position to the original party, both contemplate that the transaction is a purely nominal one, and that the lender will be called upon for nothing, and that when the time comes for performance, the original party will resume its position under the contract and perform it. If, in the meantime, it becomes impossible for it to .perform, the lender is obligated to the clearing house to do so, in spite of the original intention of both parties.
The taxes which appellee was permitted by the District Court to recover arose out of a number of transactions. Since they all involve similar facts and identical principles, we examine only one of them. On March 11, 1929, appellee was short 15,-000,000 bushels of wheat, for the top 2,000,-000 of which it was required to maintain a deposit of seven and a half cents a bushel. On the same day, the Continental Grain Company was short only 3,000,000 bushels. It was required to maintain a deposit of only three cents a bushel on all contracts up to 5,000,000. As an accommodation, therefore, it took over contracts for 2,000,-000 bushels, thereby enabling the appellee to withdraw $150,000 from deposit on its own account, $60,000 of which it thereupon deposited for the Continental for the contracts the latter assumed. The contracts were turned back on April 22, 1929. All parties agree that the sole purpose of the transfer of the contracts was to enable appellee to avoid the requirement of the larger margin rate. The transaction was brought about by means of a telephone communication or an office meeting, rather than in the wheat pit, as required by Board of Trade rules for regular contracts of purchase or sale. The loan and the return of the position were reported respectively by appellee and the Continental Company as accommodation trades to the Grain Futures Administration of the Department of Agriculture in the daily reports which were required by law to be made to that Department.
In support