*872 Certificates for common stock of a corporation were issued in the name of petitioner and delivered to an escrow agent under an agreement providing that when certain photoplays were delivered to the corporation the certificates would be released to him. The agreement also provided that in the event of failure to deliver such photoplays to the corporation the certificates were to be returned to the corporation, but petitioner was permitted to vote the stock while it was held in escrow. Dividends upon the stock were deposited in a trust account and accumulated until delivery of the certificates to petitioner. Under the evidence it is held that it was the intention of the parties complete ownership of the property should vest only when the certificates were delivered by the escrow agent. The fair market value of the stock when delivered to petitioner in the taxable year was properly included in his gross income. Held, further, that the amounts accumulated in earlier years and paid over to petitioner in the taxable year are dividends rather than ordinary income.
*385 The Commissioner determined a deficiency in petitioner's income tax for the calendar year 1935 in the amount of $65,208.48. The petitioner claims an overpayment in the amount of $24,938.04.
*386 The petition alleges that the respondent erred: (a) In including in income the amount of $104,709, representing the fair market value of certain stock of the United Artists Corporation released from escrow in 1935; (b) in treating as ordinary income $44,532.22 representing accumulated dividends of the United Artists Corporation released from escrow and paid over to petitioner in 1935; (c) in reducing the credit for dividends received by $44,532.22 in computing the normal tax; and (d) without prejudice to (a), (b), and (c), in including as income $44,532.22 dividends paid on the escrowed stock prior to 1935 and released to petitioner in that year.
The proceeding was submitted on a stipulation of facts, oral testimony, and documentary evidence.
FINDINGS OF FACT.
The petitioner is a resident of Los Angeles, California. He filed his income tax return for 1935 with the collector*874 of internal revenue at Los Angeles, California, on March 16, 1936, showing a total tax due of $224,135.58 which was paid to the collector on the following dates:
| March 16, 1936 | $56,033.90 |
| June 15, 1936 | 56,033.90 |
| Sept. 12, 1936 | 56,033.89 |
| Dec. 15, 1936 | 56,033.89 |
| Total | 224,135.58 |
On February 8, 1938, a deficiency of $7,487.89 principal and interest, assessed against petitioner for 1935, was paid to the collector according to agreement. A claim for refund of any overassessment resulting from the inclusion of the $44,532.22 in petitioner's income was filed by petitioner on March 8, 1939.
On February 5, 1919, the petitioner, Douglas Fairbanks, and Mary Pickford, artists, and David W. Griffith, producer, entered into an agreement to associate themselves together in the distribution of motion pictures thereafter produced by them. All of the parties were favorably known in all parts of the world where motion pictures were exploited and exhibited and their respective names had exceptional trade value. The agreement provided, among other things, that they would organize a corporation to be known as the United Artists Corporation (hereinafter sometimes referred*875 to as the corporation) with two classes of stock, class A - 6,000 shares of 8 percent cumulative preferred stock, par value $100 per share, and class B - 9,000 shares of common stock, no par value. Each of the parties was to purchase 1,000 shares of the preferred stock at $100 per share, it being contemplated that this stock would be *387 redeemed by the corporation. The common stock was to be issued and paid for in the following manner:
One thousand (1,000) shares to each of the above named persons in part consideration of the execution and fulfillment of the contract pertaining to the exploiting, marketing, distributing and turning to account of his or her motion pictures with the said corporation. The details concerning the delivery of the aforesaid common shares of stock to each of the aforesaid persons shall be more fully set forth in the agreement between said person and said corporation pertaining to the exploiting, marketing, distributing and turning to account the motion pictures produced by such person and included in such contract.
One thousand (1,000) shares to William G. McAdoo who is to become the General Counsel of said corporation.
All of the common*876 stock was to be issued "subject to the right of the corporation for its then existing stockholders to repurchase the same in the event of such stockholder desiring to sell any portion or all of his or her shares of common stock in said corporation to any person who is now [sic - not] actively associated with such stockholder in the business of producing photoplays * * *." The substance of this provision was included in the bylaws subsequently adopted by the corporation.
On April 17, 1919, the certificate of incorporation of United Artists Corporation was filed with the Secretary of State of Delaware. It authorized the issuance of 5,000 shares of preferred stock, $100 par value, and 9,000 shares of common stock. The preferred stock was to have no voting rights. Each holder of shares of common stock was entitled to as many votes at all elections of directors as his number of shares multiplied by the number of directors to be elected.
On February 5, 1919, petitioner signed a proposed distribution agreement which was subsequently executed by the corporation on June 13, 1919. Similar agreements were signed by Douglas Fairbanks, Mary Pickford, and D. W. Griffith. The agreement*877 signed by petitioner provided, among other things, that he would produce and deliver to the corporation nine photoplays of between 1,600 and 3,000 feet in length within three years from the date thereof. The corporation obligated itself to give petitioner's name "chief prominence" in the advertisements of his pictures, to use its best efforts to market the films upon a basis of sharing in gross receipts, and agreed that no franchise or territorial right for the use of such photoplays should be made without his written consent. Subdivision (i) of the "Third" paragraph of this agreement reads as follows:
(i) And in addition to the above consideration, one thousand (1,000) shares of the common stock of the said corporation to be delivered in escrow to a person or corporation to be agreed upon by the parties hereto and to be held by said person until said artist delivers to said corporation, nine (9) photoplays. Should said artist be unable to deliver nine (9) such photoplays because of *388 illness or incapacity during the said entire period of three (3) years, said artist shall receive so many of the aforesaid one thousand (1,000) shares of the common stock of this corporation*878 as the number of photoplays delivered by said artist to this corporation pursuant to this agreement bears to the number of nine. The balance of the shares of such common stock shall be delivered by such escrow agent to this corporation.
At a special meeting of the board of directors of United Artists Corporation held on May 29, 1919, the following resolution was adopted:
WHEREAS in the judgment of the Board of Directors the photoplays agreed to be delivered to this Corporation under said contracts are necessary for the business of this Corporation and constitute good and sufficient consideration for the issue of five thousand (5000) shares of the common stock of this corporation, the same being without par or nominal value:
RESOLVED that, in consideration of the delivery of said contracts to this Corporation the proper officers of this Corporation be, and they hereby are, authorized to issue and deliver to William G. McAdoo, Esq., one thousand (1,000) shares of no par value of this corporation fully paid and non-assessable, said shares to include the shares of no par value subscribed for by the signers of the certificate of incorporation of this Corporation, assignments of*879 said subscriptions being held by him; and
RESOLVED that, in consideration of the delivery of said contracts of this Corporation, the proper officers of this Corporation be, and they hereby are authorized to issue to said Charles Chaplin, Douglas Fairbanks, David W. Griffith and Gladys Mary Moore (professionally known as Mary Pickford) one thousand (1,000) shares of no par value each, making a total of four thousand (4,000) shares of no par value to a person or corporation to be agreed upon by said Charles Chaplin, Douglas Fairbanks, David W. Griffith and Gladys Mary Moore (professionally known as Mary Pickford) and this Corporation, and to no other person, said four thousand (4,000) shares to be held by said person or corporation in escrow in accordance with the provisions of said contracts between said Charles Chaplin, Douglas Fairbanks, David W. Griffith and Gladys Mary Moore (professionally known as Mary Pickford) and this Corporation; and
RESOLVED that the proper officers of this Corporation be, and they hereby are, authorized and directed to execute an escrow agreement for the holding and delivery of said four thousand (4,000) shares of non-par value in accordance with the*880 terms and provisions of said contracts between said Charles Chaplin, Douglas Fairbanks, David W. Griffith and Gladys Mary Moore (professionally known as Mary Pickford) and this Corporation dated February 5th, 1919, said escrow agreement to provide that while said four thousand (4,000) shares are held in escrow, each of the aforesaid artists shall have the right to vote his or her respective holdings thereof; provided that said escrow agreement shall be approved by the general counsel of this corporation before execution of the same by its officers.
On June 9, 1919, the corporation issued 9 certificates of stock - 8 for 111 shares each and one for 112 shares - in which petitioner was shown as the owner. The certificates were not delivered to petitioner, but were kept in the possession of the corporation until subsequently delivered to and deposited with the escrow agent in accordance with *389 the agreement between petitioner and his associates and with the corporation.
The following entry appears in the journal of United Artists Corporation:
| June 9 [1919] ARTISTS' CONTRACTS | A-4 | $25,000.00 | |
| Consideration for contracts with the four artists for delivery of photoplays to Corporation as per resolution of Board of Directors adopted May 29, 1919 (ratified by stockholders Sept. 9, 1919) | |||
| Capital Stock - Common | C-7 | $25,000 | |
| Issued 5,000 shares at no par value, but regarded to have a value of $5.00 per share (verbal advice of General Counsel) |
*881 On July 5, 1919, the petitioner, Douglas Fairbanks, Mary Pickford, and D. W. Griffith entered into an agreement with the United Artists Corporation amending subdivision (i) of paragraph 3 of their respective agreements of February 5, 1919, as follows:
And in addition to the above consideration, one thousand (1,000) shares of the common stock of the said corporation to be issued in the name of the said Artist in the form of nine (9) certificates, eight (8) of which shall be for one hundred and eleven (111) shares each and one of which shall be for one hundred and twelve (112) shares, said certificates to be delivered in escrow to a person or corporation to be agreed upon by the parties hereto. Upon delivery by the said Artist to the said corporation of each one (1) of the first eight (8) photoplays called for by this contract, such escrow agent shall deliver to the said Artist one (1) of said certificates for one hundred and eleven (111) shares, and upon delivery by the said Artist to the said corporation of the ninth (9th) photoplay called for hereunder, such escrow agent shall deliver to the said Artist said certificate for one hundred and twelve(112) shares. Upon the expiration*882 of the three-year period herein provided for, so many of said certificates as are then still held by such escrow agent in accordance with the provisions of this paragraph shall be delivered by such escrow agent to the said corporation.
On August 5, 1919, the petitioner, the United Artists Corporation, and one Dennis F. O'Brien, as escrow agent, entered into an agreement providing inter alia as follows:
FIRST: The Corporation shall forthwith deliver to, and deposit with, the Depositary the nine (9) stock certificates, representing in the aggregate one thousand (1,000) shares of the common stock of the Corporation, which have been issued in the name of the Artist as aforesaid.
SECOND: Upon receipt of said stock certificates, the Depositary shall issue in respect thereof in the name of the Artist a certificate of deposit. * * *
THIRD: Upon delivery by the Artist to the Corporation of each one (1) of the first eight (8) photoplays called for by the aforesaid contract, the Corporation shall notify the Depositary in writing that the Artist is entitled to one (1) of said certificates for one hundred and eleven (111) shares, whereupon the Depositary shall deliver one (1) of*883 the same to the Artist upon surrender by the latter of the certificate of deposit herein provided for and shall issue to the *390 Artist a new certificate of deposit, substantially in the form of that annexed hereto, in respect of the number of shares remaining in escrow. Upon delivery by the Artist to the Corporation of the ninth (9th) photoplay called for by the aforesaid contract, the Corporation shall notify the Depositary in writing that the Artist is entitled to said certificate for one hundred and twelve (112) shares, whereupon the Depositary shall deliver the same to the Artist upon surrender by the latter of the certificate of deposit which he then holds. At the expiration of said period of three years, the Depositary shall deliver to the Corporation so many of the certificates deposited hereunder as then remain in escrow and are not the property of the Artist, and the Artist shall return to the Depositary the certificate of deposit which he then holds.
FOURTH: Any and all dividends which may be declared upon the shares of stock represented by the certificates deposited hereunder while the same, or any part thereof, are held in escrow by the Depositary shall be*884 deposited by the Corporation in the Central Union Trust Company, No. 80 Broadway, New York City, in an account to be known as "United Artists Corporation, Trust Account No. 1." Upon delivery to the Artist by the Depositary, in the manner hereinbefore provided for, of each of the certificates deposited hereunder, the Corporation shall pay to the Artist one-ninth (1/9) of all dividends which at the time of such delivery shall have been deposited in said account, together with accrued interest thereon. At the expiration of said period of three years, so much of such dividends and interest thereon as remain in said account and are not due the Artist shall become the property of the Corporation.
FIFTH: The Depositary shall not have the right to vote the shares of stock deposited hereunder.
* * *
SEVENTH: This agreement shall be binding upon the heirs, legal representatives, successors and assigns of the parties hereto.
The form of the certificate of deposit was as follows:
Certificate of Deposit.
No.
No. of Shares
Certificate of Deposit
representing the Common Stock of United Artists Corporation.
THIS IS TO CERTIFY that there have been deposited with DENNIS F. *885 O'BRIEN (herein called the "Depositary"), under a written agreement, dated , 1919, (a copy of which is on file at the office of Depositary), for the benefit of CHARLES CHAPLIN (herein called the "Beneficiary"), nine (9) stock certificates representing in the aggregate one thousand (1000) shares of common stock of United Artists Corporation, without par value, and that under said agreement the Beneficiary will be entitled to a delivery of said stock certificates or some portion thereof upon surrender hereof and upon receipt by the Depositary of a written notice from United Artists Corporation that the Beneficiary is entitled thereto under the terms of said agreement.
The holder of this certificate of deposit shall have the same voting rights as a holder of a regular certificate of common stock of United Artists Corporation.
Petitioner did not deliver any motion pictures to the corporation during the three-year period contemplated in the agreement of February 5, 1919, nor was any modification of the agreement made during the three-year period extending the time in which the nine motion *391 pictures should be delivered; but all the parties to the agreement continued*886 to treat the agreement as in full force and effect. Upon the expiration of the three-year period none of the 1,000 shares of stock held in escrow under the contract with petitioner was delivered back to the corporation, nor was any demand made upon the escrow agent by the corporation, or any of its officers, directors, or stockholders that such shares of stock be returned to the corporation. At the end of the three-year period none of the parties to the agreements had delivered all of the nine pictures required by their contracts to the corporation; but the depositary did not turn back to the corporation any of the stock standing in their names and held by him in escrow.
In 1923 petitioner delivered to the corporation one photoplay, "Woman of Paris" which was released November 4 of that year. At that time the escrow agent turned over to him one certificate for 111 shares of stock. This left eight pictures undelivered by petitioner under his contract and eight certificates of stock still held by the escrow agent.
On November 22, 1924, the petitioner, Mary Pickford, Douglas Fairbanks, Joseph Schenck, and United Artists Corporation entered into an agreement further modifying*887 the distribution agreement of February 5, 1919. As modified, it recites that "Miss Pickford, Chaplin, Fairbanks and Griffith are the owners of all of the preferred and common stock of the corporation, now issued and outstanding" except certain qualifying shares, and provides, among other things, that in addition to the nine pictures originally contracted for, Pickford will produce six feature photoplays and Fairbanks will produce five, all to be delivered by November 1, 1928; but neither "shall receive any additional common stock" beyond the amounts provided to be delivered to them during the term of their original contract. The agreement also provides that petitioner will produce five pictures to be delivered one each year, all to be delivered on or before January 1, 1929, instead of the eight undelivered pictures provided for in the original contract, and "The balance of the common stock of the corporation, which is now held in escrow for the benefit of Chaplin shall be delivered to him in the proportion of one-fifth (1/5) thereof upon the delivery of each motion picture photoplay by Chaplin to the corporation."
Thereafter petitioner produced and delivered to United Artists Corporation*888 three pictures which were released on the following dates: "The Gold Rush" - August 16, 1925; "The Circus" - January 7, 1928; and "City Lights" - March 1, 1931.
On October 31, 1928, petitioner delivered to the corporation the certificate for 111 shares of its common stock which had been released from escrow upon the delivery of the photoplay "Woman of *392 Paris", and at said time the 889 shares still held in escrow by Dennis F. O'Brien were delivered to the corporation. All of the certificates of stock were forthwith canceled, and on the same date the corporation issued in the name of petitioner the following certificates of common stock: #83 for 166 shares; #84 for 167 shares; #85 for 166 shares; #86 for 167 shares; #87 for 167 shares; and #88 for 167 shares, a total of 1,000 shares. All of the foregoing certificates were placed in escrow with Dennis F. O'Brien pursuant to the agreement dated February 5, 1919, as amended. Thereafter on November 8, 1928, there were released from escrow and delivered to petitioner certificates #83 for 166 shares; #84 for 167 shares, and #85 for 166 shares of the common stock of the corporation.
On February 27, 1931, certificate #86*889 for 167 shares was released from escrow and delivered to petitioner upon completion of the picture "City Lights."
All of the pictures delivered by petitioner to the corporation were much longer than the 1,600 to 3,000 feet specified in the agreement.
On September 20, 1938, an agreement was entered into between petitioner and the corporation under which certificates Nos. 87 and 88 for 167 shares each were released to petitioner, together with accumulated dividends thereon in the sum of $44,532.22, which had been paid to the escrow agent in the following years:
| 1930 | $6,680.00 |
| 1931 | 3,340.00 |
| 1932 | 3,340.00 |
| 1934 | 31,172.22 |
| Total | 44,532.22 |
The dividends had been deposited in a special bank account and interest on such deposits in the amount of $995 was paid to the petitioner when the stock and dividends were released. This amount was included in gross income in petitioner's income tax return for 1935.
The 1,000 shares of common stock issued to William Gibbs McAdoo were surrendered to the corporation in 1920. Subsequently, in 1924, 1,000 shares were issued to Joseph M. Schenck. The stock referred to in this paragraph was never put in escrow.
When the*890 original 9 certificates totaling 1,000 shares of stock were put in escrow, petitioner did not sign them. When these certificates were canceled by the corporation and 6 certificates totaling 1,000 shares were issued in their stead and placed in escrow, petitioner signed these 6 certificates in blank.
After the organization of the corporation petitioner attended stockholders' meetings, voted at such meetings for directors and otherwise, *393 received notices, and signed proxies the same as any stockholder. He was carried on the books of the corporation as the owner of 1,000 shares of common stock. The dividends upon the stock standing in his name were deposited in a trust account in a New York bank in accordance with the escrow agreement.
In computing the deficiency here in issue the respondent determined the fair market value of the 334 shares of common stock of the United Artists Corporation, delivered to petitioner from escrow in 1935, to be $104,709 and added this amount to petitioner's income for that year.
In his income tax returns for 1935 petitioner treated the $44,532.22 as dividends received in that year and not subject to the normal tax. The respondent*891 determined that the $44,532.22 did not represent "dividends" received in the taxable year and the amount was treated as ordinary income in determining the deficiency in tax.
OPINION.
MELLOTT: The first question is whether respondent erred in including in petitioner's income the fair market value of the stock released from escrow and delivered to him in 1935. This question may be answered by determining whether petitioner owned the shares prior to their delivery to him in that year.
Petitioner contends that ownership vested in him on June 9, 1919, when certificates for 1,000 shares were issued; that the consideration for the issuance of the shares was the execution by him of the distribution agreement of February 9, 1919; that the shares were placed in escrow merely as security for the performance of his part of the contract; that the "dividends" were impounded "to encourage compliance by each artist with his distribution contract"; that he was regarded by the corporation as the owner, at all times, of the stock and "exercised all incidents of ownership", except physical possession; and that he realized no taxable income when the stock was released from escrow and delivered*892 to him.
Respondent determined that "the fair market value of the 334 shares * * * received * * * in the taxable year which value has been determined to be $104,709, represents income taxable to [petitioner] under the provisions of section 22(a) of the Revenue Act of 1934." In support of this determination respondent places considerable reliance upon the provisions of the agreement of August 5, 1919 (escrow agreement); contends that the entire record shows petitioner was not the owner of the 334 shares until they were released and delivered to him in 1935; argues it was the intention of the parties, as indicated by the various exhibits, that petitioner should not become the owner of the stock until and unless the photoplays were delivered; and insists that petitioner acquired no vested interest in it until he delivered *394 the photoplays according to his agreement. The value of the stock at the time it was released from escrow and delivered to petitioner is not contested.
Title to personal property generally passes when the parties to a transaction intend that it shall pass. *893 . Intention is primarily a question of fact. In determining it the agreements which they signed, if unambiguous, are entitled to great weight, though consideration may also be given to the circumstances under which they were executed, the objects sought to be accomplished, the interpretation placed upon them by the parties prior to the controversy in issue, and any and all relevant facts and circumstances tending to show what the actual intention was. The basic facts, which are not seriously in dispute, are shown in our findings. No attempt will be made to summarize them. Brief allusion will, however, be made to some of them.
On February 5, 1919, petitioner and other artists, for reasons immaterial here, agreed in writing to become associated in the organization of a corporation for the purpose of exploiting, distributing, and exhibiting motion pictures produced by them. This agreement provided that 1,000 shares of the common stock of such corporation should be issued to each of the parties and paid for "in part consideration of the execution and fulfillment" by each of a contract pertaining*894 to the exploiting, marketing, and distributing of his or her motion pictures. Pursuant to this agreement petitioner entered into a contract with the corporation for exploiting, marketing, and distributing 9 motion pictures to be produced by him, and an agreement with the corporation and an escrow agent was prepared and signed. These agreements set out the terms and conditions under which the 1,000 shares of common stock (which included the 334 shares here in question) were to be issued and delivered to petitioner. The terms and conditions were specific and definitely provided that petitioner should not receive any of the 1,000 shares of common stock unless and until he had produced and delivered one or more photoplays, and that all of the stock should be received when, and only when he had delivered the required number of photoplays.
The later agreement of November 22, 1924, is equally positive in its terms. Under it petitioner became "obligated to deliver to the corporation for distribution only five (5) additional photoplays, described in the original contract instead of eight (8) undelivered pictures provided for in said contract. The balance of the common stock of the corporation, *895 which is now held in escrow for the benefit of Chaplin shall be delivered to him in the proportion of one-fifth (1/5) thereof upon the delivery of each motion picture photoplay by Chaplin to the Corporation." (One-sixth of the total 1,000 shares was delivered to petitioner leaving five-sixths in escrow.) This agreement *395 was partially carried out and under it the escrow agent delivered three additional certificates of stock to petitioner prior to 1935. The other two - the two in issue in this proceeding - were released by the corporation and delivered to petitioner in September 1935.
The terms and conditions of the agreements briefly referred to above and the actions of the parties under them indicate, in our judgment, it was the intention of the parties that ownership of the stock should not pass to petitioner until and unless he "fulfilled" the terms and conditions of his contract and delivered to the corporation the photoplays stipulated therein. In reaching this conclusion we have not overlooked the fact that the corporation prior to 1935 treated petitioner, for many purposes, as the owner of 1,000 shares of its common stock. *896 Clearly, all parties intended that he should ultimately become such owner; and, since he was permitted under the escrow agreement to vote the stock, it is not surprising that he was given the usual notice of meetings, participated in elections, and exercised other rights commonly exercised only by a stockholder. The right to vote corporate stock may be conferred by contract, as it was in the instant proceeding, even though no property in the stock has passed, cf. . Stock is frequently voted by persons having no beneficial ownership of it. . Nor do we think that the recitation in the corporate resolution of May 29, 1919, to the effect that the corporation was authorized to issue stock to the artists "in consideration of the delivery of [the distribution] contracts", justifies a conclusion that the artists thereby became the "owners" of the stock; for the shares were to be held "in escrow in accordance with the provisions of said contracts" and were so held.
The whole idea of the enterprise was cooperative. The corporation*897 was formed for the specific purpose of distributing pictures of the artists. Each agreed to execute a contract with the corporation for the exclusive right "to market, exploit, distribute and turn to account the motion pictures that each shall produce." The contract ultimately entered into by petitioner with the corporation granted it "the exclusive right and privilege to market and turn to account, exhibit, distribute or cause to be distributed or exhibited" the pictures which he was to produce. "All moneys derived from the license to use" the pictures were to be divided 70 or 80 percent to the artist and 20 or 30 percent to the corporation. It is apparent the corporation would have no income unless the pictures, either those produced by petitioner or those produced by the other artists, were delivered to it for distribution and exploitation. The artists did not contemplate that one of them should share in the profits of the corporation - except to a limited extent as purchasers and owners of the preferred stock - unless he delivered his proportion of the pictures which were to produce *396 the income. The mere execution of the contract was not sufficient. *898 The "fulfillment" of the contract was equally important. Indeed it was the very essence, the sine qua non of the contract, a condition precedent to petitioner acquiring either equitable or legal ownership of the common stock. Cf. . We are therefore of the opinion that petitioner's contention, to the effect that ownership of the stock vested in him on June 9, 1919, is untenable. He became the owner of the stock in 1935 when it was released from escrow, by the corporation, and delivered to him. In this connection it may be pointed out that the escrow agreement required the depositary to hold the stock until "the corporation shall notify * * * [it] in writing that the artist is entitled" to receive it and this agreement was carried out.
Petitioner places considerable reliance upon the decision of the District Court for the District of New Jersey in , and . The cited cases are, in our judgment, distinguishable upon their facts. In the first mentioned case there was a conditional*899 assignment to the taxpayer of an equitable ownership in 1,500 shares of stock in consideration of his agreement to remain with the corporation for five years. He was "to receive and enjoy all dividends declared and paid from the date" of the assignment, including any distribution "of money, property, stocks or rights that the common stockholders * * * become entitled to * * *." One-fifth of the shares were to be delivered to him at the end of each year during the five-year period; but in the event of his death or refusal to carry out his obligation, the equitable assignment as to the undelivered stock was to be null and void. In deciding that the parties intended ownership of the stock to vest when the contract was signed rather than when delivery was made at the end of the year, the court emphasized the fact that the taxpayer acquired a present, fixed right to the enjoyment of all the income of the property when the contract was signed and that the parties had specifically agreed the undelivered stock was "intended only as collateral security" that the employee would carry out his obligation. In the instant case the dividends were to be held in escrow and delivered to the petitioner*900 only when and if the stock should be delivered to him. Here, also the stock was not held as collateral security for the performance of petitioner's obligation but remained the property of the corporation until "delivery by the artist to the corporation" of the photoplay as agreed.
In H. L. Carnahan, the petitioner, in 1922, had performed services entitling him to receive 5,000 shares of corporate stock. The stock was issued to him and he became entitled to receive all dividends and to exercise all rights as a stockholder; but the certificate was *397 required to be, and was, delivered in escrow pending further order of the "Blue Sky" Commissioner. The certificate was released and delivered to the petitioner in 1924 and the question before the Board was whether he was in receipt of income in the earlier year or in the later year. In holding that income was realized in 1922 it was pointed out that the taxpayer had received the stock in that year, had deposited it in escrow in accordance with the requirements of the state law, and "received all the benefits possible from * * * [it] except the right of actual physical possession and unrestricted power of sale * * *. *901 " In the instant proceeding petitioner did not receive such "benefits" from the stock and could not receive them unless and until he complied with his obligation.
It is apparent we must hold, and we do hold, that petitioner became the owner of the 334 shares of stock in 1935 rather than in 1919. The following cases, in addition to those heretofore cited and discussed, tend to support this view. ; .
Issues (b), (c), and (d) require determination of the treatment to be accorded the accumulated dividends. Respondent contends that if petitioner was not the owner of the shares of stock prior to 1935, then the amount representing dividends declared on the stock prior to that date did not represent dividends to him. The gist of his contention seems to be that the sum paid over to petitioner was merely an additional amount paid for fulfilling the contract. The question is not free from doubt; but we think we are justified in resolving it in favor of petitioner. The amount deposited in escrow represented the portion of the earnings of the corporation allocable to the shares of stock*902 which, under the contract, the parties intended should ultimately belong to petitioner. The contract provided that if and when the stock should be delivered to petitioner by the escrow agent, the corporation would pay to him all dividends which had been deposited in the trust account. This was done. If the amounts deposited in the trust account represented dividends - and they seem clearly to have been distributions by the corporation out of earnings or profits accumulated after February 28, 1913, and hence within the definition of a dividend contained in section 115 of the Revenue Act of 1934 - then they did not lose their character as dividends merely because they were not actually delivered to petitioner in the year declared. The right to receive dividends may be assigned without making the assignee a stockholder, ; ; , though some question may arise as to the taxability of the dividends to the assignor under the rationale of such cases as *903 , and . *398 That question, however, is not before us. Both parties admit that the amount should be included in petitioner's income and the issue is solely whether it constituted dividends, as reported, or ordinary income. Since the amount set aside did not, in our opinion, lose its character as dividends, we think it was properly treated by the petitioner in his return. But if respondent's view be accepted that the amounts set aside in each year were not true dividends, then it would seem that the action of the corporation in the taxable year, making them unconditionally available to petitioner, was tantamount to the declaration and payment by the corporation of a dividend in the aggregate amount of $44,532.22 upon the 334 shares which petitioner had just received. In either event, we are of the opinion that the amount was "received as dividends from a domestic corporation which is subject to taxation" under Title I of the Revenue Act of 1934 and hence the credit for normal tax, as specified in section 25(a) of such act, should be allowed.
The deficiency shall be*904 recomputed in accordance with the views herein expressed and
Reviewed by the Board.
Decision will be entered under Rule 50.
STERNHAGEN, dissenting: In my opinion, the amount received by petitioner from the escrow agent which was attributable to the accumulated dividends which the escrow agent had received from the corporation was not received by petitioner as dividends and is not the subject of normal tax credit.
LEECH, dissenting: I think the two basic holdings in the majority opinion, expressed in the headnote, are inconsistent with each other and are both wrong. In my judgment, the stock in United Artists Corporation was intended to be and was received by the petitioner in 1919 when it was issued in the name of petitioner and delivered to the escrow agent. The stock was held by the escrow agent merely to guarantee performance of petitioner's contract to deliver pictures. The dividends declared and paid on this stock were taxable to petitioner as such when received by the escrow agent. See *905 , affirming .