dissenting: On December 1, 1917, resolutions were duly adopted by the directors and by the stockholders of the Merchants Bakery, Inc., increasing the capital stock from $65,000 to $100,000, the additional stock to be offered to stockholders at par. Subsequently the stockholders, who were also the directors, agreed that they would subscribe for all of such stock, payment to be made from a dividend to be declared by the corporation. On December 24, 1917, the directors declared a dividend of $60 per share, a total of $39,000.* At the same meeting at which the dividend was declared the stockholders delivered to the treasurer of the company their checks aggregating $35,000. Hone of the stockholders had funds on deposit sufficent to pay such checks, and it was agreed that they should be deposited for collection at the same time the corporation deposited the dividend checks. On January 2, 1918, the treasurer of the company deposited the dividend checks to the credit of the stockholders. These checks totaled $39,000. At that time the company had only $10,600 cash on hand or on deposit, but at the same time the treasurer deposited to the credit of the company the checks of the stockholders for $35,000, the checks serving to offset each other, except as to $4,000 admittedly paid as a dividend.
In my opinion this appeal falls squarely within the decision of the Circuit Court of Appeals in United States v. Mellon, 281 Fed. 645; 2 Am. Fed. Tax Rep. 1726, and the decision of this Board in Appeal of Theresa Zellerbach, 2 B. T. A. 1076. While in form a cash dividend, it is apparent that the company was in no position to pay sucli a dividend, and that the stockholders did not at any time expect to receive any cash dividend, other than $4,000. Except as to such $4,000, there was never any distribution of the corporation’s assets among its stockholders, and at the close of the transaction the stockholders had nothing more than at the beginning.
It is said that the stockholders had the right to take cash and either retain it or use it to purchase stock. If this is so, there can be no doubt the dividend was taxable, but this is not my understanding of the situation. Before any dividend was declared all of the stockholders had agreed that stock and not cash was to be taken. These stockholders were also the directors. Furthermore, at the same meeting of the directors at which the dividend was declared, checks were delivered to the treasurer for the stock and he was authorized to deposit the dividend checks in such manner that the stockholders’ checks would be paid from the dividend checks. To say that in such circumstances the stockholders had the right to receive their dividends in cash, or that the agreement was not binding because it was not made with the corporation, would seem to be to mistake the facts. The agreement was not only recognized at the *366directors’ meeting at which the dividend was declared, but was carried out at that same meeting by the delivery of checks to the treasurer, such checks to be collected from the dividend checks. All of the parties recognized the existence of such an agreement and acted upon it, and it is not within the authority of the taxing power, a third party, to disregard an agreement which the parties have so recognized.
It is unnecessary to determine whether a corporation is bound by an agreement made by all of its stockholders who are also all of its directors. Nor need we determine whether the corporation could ratify and enforce a contract made between others for its benefit. In the instant appeal the declaration of the dividend and the subscription for the stock were all part of the same transaction to which both the corporation and the stockholders were parties.
While the transaction took the form of the declaration of a dividend and an exchange of checks, there never was any right upon the part of this taxpayer at any time to receive such dividends in cash, and no tax liability accrued. Eisner v. Macomber, 252 U. S. 189. For the reasons stated I can not agree with the result which has been reached.
Smith concurs.