The opinion of the court was delivered by: FORMAN
On June 22, 1933 an agreement of merger was entered into between the following corporations, being building and loan associations incorporated under the laws of the State of New Jersey: Mt. Prospect Building and Loan Association of the City of Newark, the Standard Building and Loan Association of the City of Newark, the Square Deal Building and Loan Association, the United Building and Loan Association of the City of Newark, the Globe Building and Loan Association of Newark, New Jersey, and the Ace Building and Loan Association.
This agreement in so far as the present controversy is concerned contemplated a segregation of desirable and undesirable assets of the associations forming the combination. The former were to be conveyed to the Mt. Prospect Building and Loan Association of the City of Newark as merged, and the latter were to be conveyed by each merging association to their respective trustees pursuant to the merger agreement for administration and liquidation, the merging associations receiving trust certificates in "exchange" or in "payment" for the property transferred. Provision was also made for the return by Mt. Prospect Building and Loan Association of the City of Newark as merged to the proper merging association of property originally considered desirable, but which had depreciated in value.
In so far as the individual shareholders of the merging associations are concerned the plan contemplated their interest should be the same in Mt. Prospect Building and Loan Association of the City of Newark as merged as was their interest in the merging association, and with reference to their interest in the undesirable property conveyed in trust the plan undertook to give them the same interest in the trust estate as they had owned in the merging association.
The transactions taxed fall into two general categories: 1. Conveyances by the original merging associations to their respective trust estates in August, 1933, and 2. conveyances by the Mt. Prospect Building and Loan Association, as merged, of property foreclosed by said association or reacquired by deed from defaulting mortgagors, and then transferred back to the trust estates pursuant to the terms of the merger agreement.
The texes were assessed under the following act of Congress: "8. Conveyances: Deed, instrument, or writing, delivered on or after the 15th day after the date of the enactment of the Revenue Act of 1932 and before July 1, 1934 (unless deposited in escrow before April 1, 1932), whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers, or any other person or persons, by his, her, or their direction, when the consideration or value of the interest or property conveyed, exclusive of the value of any lien or encumbrance remaining thereon at the time of sale, exceeds $100 and does not exceed $500, 50 cents, and for each additional $500 or fractional part thereof, 50 cents. This subdivision shall not apply to any instrument or writing given to secure a debt." Revenue Act 1932, § 725, 47 Stat, 275, 26 U.S.C.A. Int.Rev.Acts.
The assessments have been paid and claim for refund has been made. This case comes up on plaintiffs' motion for judgment on the pleadings under Rule 12 of Civil Procedure, Rules, 28 U.S.C.A. following section 723c.
Carpenter v. White, D.C., 9 F.Supp. 391, affirmed, 1 Cir., 80 F.2d 145, certiorari denied 297 U.S. 720, 56 S. Ct. 598, 80 L. Ed. 1005, is the only case on the subject called to the attention of the court by counsel. Therein, the Amoskeag Company, a business trust, and the Parkhill Company, a corporation, both executed deeds of conveyances, including real and personal property, to the Amoskeag Manufacturing Company, a business trust. The trustees of the latter in exchange issued shares in agreed amounts to the two grantor firms, which shares were by them distributed to their original, respective shareholders. The question involved was whether the deeds were subject to a stamp tax under the same provisions of the Revenue Act as is herein involved.The taxpayers claimed that the deeds of conveyances were not in connection with a "sale" of the beneficial interest in the property conveyed, but merely a substitution of new trustees to manage the former trust and corporate property. To this argument the court stated: "The facts hardly support this argument. The old trust was not continued in the hands of new trustees; it was wiped out as to the property conveyed.A new trust was established to which the conveyances were made. The entire interest, legal and equitable, in the property of the Amoskeag Company was conveyed to the trustees of the new trust, and new equitable interests, not of identical character with the old ones, were created, evidenced by the shares in the new trust, issued to the grantors in return for the conveyance. There was therefore a complete change in both the legal title and the beneficial ownership of the property, not a continuance of the same beneficial ownership in the hands of new trustees. Nor were the equitable interests of the new shares in the same property as those of the old shares; the latter represented interests only in the property of the Amoskeag Company; the former, interests in all the property conveyed to the new trust." 80 F.2d 145, 146.
The difference between the situation involved in the case of Carpenter v. White, supra, and that presently before the court is apparent. In the case of Carpenter v. White, supra, shareholders in the Amoskeag Company received certificates representing a participating interest in property of the Parkhill Manufacturing Company as well as the Amoskeag Company, and vice versa. They received as pointed out by the court a different interest from that with which they parted. Hence, there was not a naked transfer from one group of representatives of the shareholders to another. In the present case, however, there is precisely that situation. The property conveyed to each of the trustees of the merging associations was held for the benefit of the associations from whence title came. The original interest in it was never upset.
Accordingly, we conclude that this distinction is controlling, and that plaintiff's motion for ...