$5,000 donation to surplus by petitioner's wife, does not change the fundamental nature of petitioner's position.

As a guarantor, petitioner's liability was contingent; and even though Hollyvogue became irredeemably insolvent the following year and he knew without question that he, personally, must pay its debt at Silverman's demand, he was not entitled to a deduction until payment was, in fact, made. Eckert v. Burnet, 283 U. S. 140 (1931). In 1944, petitioner's contingent liability was realized by the payment of $2,000 in settlement of Bessie Silverman's suit on his note.

Any resulting deduction must be on account of a nonbusiness bad debt under section 23 (k) (4) of the Code. When a guarantor "is forced to answer and fulfill his obligation of guaranty, the law raises a debt in favor of the guarantor against the principal debtor." Kate Baker Sherman, 18 T. C. 746, 751 (1952). It does not matter that the obligation raised by the law was totally worthless when it arose. Agnes I. Fox, 14 T. C. 1160 (1950), revd. 190 F. 2d 101 (C. A. 2, 1951); Barnhart-Morrow Consolidated, 47 B. T. A. 590 (1942), affd. 150 F. 2d 285 (C. A. 9, 1945). The cases of Abraham Greenspon, 8 T. C. 431 (1947), and Frank B. Ingersoll, 7 T. C. 34 (1946), relied on by petitioner are distinguishable on their facts.

Having determined that petitioner, as guarantor of the corporation's obligation, sustained a nonbusiness bad debt under section 23 (k) (4), it follows that he incurred no taxable gain from the note settlement transaction.

Reviewed by the Court.

Decision will be entered under Rule 50.

BLACK, J., dissenting: I think the facts clearly show that in the taxable year petitioner incurred a loss of $2,000 and that he is entitled to deduct that loss under section 23 (e) (1) or (2) of the Code. I am unable to agree with the majority opinion in this case that petitioner's loss was of a nonbusiness bad debt within the meaning of section 23 (k) (4) of the Code. When petitioner paid the $2,000 in 1944 in compromise of his indebtedness of $5,000 to Silverman, he had no debt against anyone. No debtor was in existence.

SEC. 23. DEDUCTIONS FROM GROSS INCOME.

In computing net income there shall be allowed as deductions:

(4) NON-BUSINESS DEBTS.-In the case of a taxpayer, other than a corporation, if a non-business debt becomes worthless within the taxable year, the loss resulting therefrom shall be considered a loss from the sale or exchange, during the taxable year, of a capital asset held for not more than 6 months. The term "non-business debt" means a debt other than a debt evidenced by a security as defined in paragraph (3) and other than a debt the loss from the worthlessness of which is incurred in the taxpayer's trade or business.

The petitioner testified, and other evidence indicates, that the corporation liquidated and went out of business in 1938. The majority opinion found merely that the corporation carried on no further business activity after 1938. I think that the record justifies a finding that the corporation not only went out of business in 1938, but that it also ceased to exist at that time. If that be true, it follows that when the petitioner settled the suit by the payment of $2,000 in 1944, no debt from the corporation to the petitioner could then arise. Abraham Greenspon, 8 T. C. 431. See also Fox v. Commissioner, 190 F. 2d 101. In the case of Frank B. Ingersoll, 7 T. C. 34, we held that a stockholder of a corporation who guaranteed a mortgage note of the corporation and subsequently had to pay about $12,000 under his guarantee, after the reorganization of the corporation in a bankruptcy proceeding, sustained a business loss. So it seems to me that under the foregoing decisions petitioner is entitled to an ordinary loss of $2,000 and that his loss should not be limited by the provisions of the Code applicable to nonbusiness bad debts.

ESTATE OF GEORGE MCNAUGHT LOCKIE, DECEASED, GUARANTY TRUST COMPANY OF NEW YORK, ANCILLARY EXECUTOR, PETITIONER, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 32102. Promulgated October 15, 1953.

1. ESTATE TAX-GROSS ESTATE-DIVIDEND-SECTION 811.-A dividend declared prior to the death of the decedent but payable to stockholders of record on a date after his death is not includible in the gross estate.

2. ESTATE TAX-NONRESIDENT ALIEN-GROSS ESTATE-PROPERTY WITHIN THE UNITED STATES-SECTION 861.-Certificates connected with decedent's ownership of Bank of Nova Scotia stock and loans by the decedent to the British Treasury which were located in the United States at the time of decedent's death were not the property itself, the stock and the loans were not situated within the United States, and they were not subject to the estate tax.

PURCHASE

3. ESTATE TAX-NONRESIDENT ALIEN-GROSS ESTATE
OF SECURITIES-SECTIONS 861, 862.-Where the decedent contracted
on the day before his death in the regular way on the New York
Stock Exchange for the purchase two days later of certain securi-
ties, the value of the securities is not includible in his gross estate.
The contract had no value on the date of decedent's death since it
required the payment of an amount of money greater than the then
value of the securities.

Edgar A. Kniffin, Esq., and Horace N. Taylor, Esq., for the petitioner.

Clay C. Holmes, Esq., for the respondent.

The Commissioner determined a deficiency of $42,905.41 in estate tax. The issues for decision are:

(1) Whether the value of a dividend on General Electric stock declared prior to the death of the decedent but payable to stockholders of record on the day after his death is includible in the gross estate,

(2) Whether loans of $111,200 and 5,000 shares of stock of the Bank of Nova Scotia had siti in the United States which would make them subject to estate tax, and

(3) Whether the value of securities, for the purchase of which the decedent's broker had contracted on the day before the decedent died, was properly included in the gross estate.

FINDINGS OF FACT.

The return was filed with the collector of internal revenue for the second district of New York.

The decedent, George McNaught Lockie, a British subject, died at 4 a. m. on September 20, 1945, at Sosua, Dominican Republic, where he was domiciled.

The decedent, at the time of his death, owned 200 shares of General Electric Company, Inc., common stock on which a dividend of 40 cents per share payable on October 25, 1945, to stockholders of record on September 21, 1945, had been declared on or before September 17, 1945. The Commissioner, in determining the deficiency, erroneously included the dividend of $80 in the gross estate.

The decedent, on various dates from October 25, 1940, to April 30, 1942, loaned $106,200 in currency of the United States and $5,000 in Canadian currency to the British Treasury. Those loans were unusual war borrowings by the British Government bearing no interest for each of which the British Treasury issued a paper entitled "Treasury Certificate." Those certificates were located in the United States when the decedent died. They were not securities but merely acknowledgements that the money had been loaned. They were not transferable or negotiable. A typical one stated "This certificate entitles George McN. Lockie, Esq. to the payment of $ *** without interest, out of the Consolidated Fund of the United Kingdom, on demand." They were signed by the Secretary to the Treasury. It was further stated on each that it "should be lodged" at the Bank of England or the Treasury a few days before "payment is due" and payment would be made by check drawn to the person named in the certificate and mailed to his address. No address was given on the certificates. They represented no property right issuing from or enforceable against a resident of or a domestic corporation of the United States. They were not treated as being the property itself. The loans were payable in London, England. They had no situs in the United States at the time the decedent died.

The decedent at the time of his death owned 5,000 shares of the book stock of the Bank of Nova Scotia which were registered in his name on the registry of the Bank at Halifax, Nova Scotia. A certificate issued by the bank stating that on September 16, 1944, the decedent was the owner of the 5,000 shares was located in the United States when the decedent died. It was entitled "Stock Certificate" but was not a security. It stated that the "shares are transferable *** only at the office of the Bank of Halifax" and "The certificate shows only that the person in whose name it is drawn was the proprietor of the number of shares therein specified at its date and it is not available for any other purpose." No rights attach to it and it had no value. It could not be used to transfer ownership of the stock and was actually retained after the stock was disposed of by the estate. The stock could be transferred only by the transferor and the transferee supplying the Bank at Halifax with powers of attorney authorizing the change in registration of the stock from one name to the other, or by the personal appearances of the parties there. The certificate was not treated as being the property itself. There was no property right in connection with the shares issuing from or enforceable against a resident or domestic corporation of the United States. The 5,000 shares of stock had no situs in the United States at the time the decedent died.

Brokers in New York, pursuant to instructions from the decedent, entered into contracts on September 19, 1945, for the purchase of ten blocks of stock in the regular way on the New York Stock Exchange under which payment and delivery were to be and were made on September 21, 1945. The total cost of the securities was $68,082.90. The Commissioner, in determining the deficiency, included the securities in the gross estate at a total value of $67,989.58. The decedent was not the owner of those securities at the date of his death. The contracts to buy the securities which the decedent owned at the time of his death had no value at that time.

The stipulation of facts and all joint exhibits are hereby incorporated in these findings.

OPINION.

MURDOCK, Judge: The Commissioner states the first issue as follows: "Should the value of a dividend in the amount of $80.00, on General Electric Co., Inc. stock, which was quoted 'ex dividend' on the date of death of the decedent, be included in the decedent's gross estate?"

The answer to that question is "No." The dividend was declared before the decedent died but was payable to stockholders of record on the day after he died. Thus, the dividend was never payable to him and he never had a right to the dividend. Cf. Putnam's Estate v. Commissioner, 324 U. S. 393. The amount of the dividend should not be included in his estate in addition to the value of his shares at the date

of his death, which value would include the right which those shares then carried to the dividend and, no doubt, would be greater than the value of other shares carrying no rights to the dividend selling "ex dividend" on the date of his death.

The Commissioner relies upon a regulation and Estate of Merritt J. Corbett, 12 T. C. 163, both dealing with dividends payable to stockholders of record on a date when the decedent was still alive. The fact that General Electric shares were selling "ex dividend" on the New York Stock Exchange on the day the decedent died, a fact stressed by the Commissioner, is wholly immaterial to the question here presented. Corporations sometimes declare dividends payable in the future to stockholders of record on a date subsequent to the date of declaration, as did the General Electric Company in this case. There could be misunderstanding and controversy as to whether the seller or the purchaser would receive such dividends when contracting to buy and sell after the declaration date but prior to the record date set in the declaration. Such doubt or misunderstanding is avoided by a rule or arrangement of the exchange under which it is specified that on and after a stated date all contracts relating to a particular stock on which such a dividend has been declared will exclude rights to the dividend, i. e., the seller will retain the right to the dividend and the purchaser will acquire none regardless of when the shares are registered in the name of the new owner or his nominee. The expression used to indicate that sales will not include the right to the dividend is that the stock is being sold "ex dividend" and quotations are given "ex dividend." However, such sales prices and quotations have no application here where stock with the rights to the dividend is included in the gross estate at its value on the date of death, September 20. Obviously the price at which other stock was being sold on that day "ex dividend" would not be a proper measure of the value of this stock from which the dividend rights had not been separated. The question of the value at which the General Electric shares held by the decedent on the date of his death should be or were included in his is not in issue.

gross estate

The remaining issues arise because the decedent was an alien nonresident of the United States at the time of his death and personal property is not includible in his gross estate unless it had a situs in the United States at the time of his death. The parties agree that the Bank of Nova Scotia stock and the loans to the British Treasury had no siti in the United States unless the certificates described in the stipulation and in the Findings of Fact were "treated as being the property itself," as is the case with the ordinary certificates for stock of domestic corporations and the usual evidence of loans, or if there was in connection with them a property right issuing from or enforceable against a resident or domestic corporation of the United States.