- 26 -
Solv-Ex had recently demonstrated, at its initial stage plant,
the viability of its oil sands technology. Merrill Lynch’s
motivation for demanding repayment of the margin loan when it did
is irrelevant. Pursuant to the pledge agreement, Mr. Rendall’s
margin loan was payable on demand, and there is no dispute that
he failed to repay the loan during the period Merrill Lynch
allotted for repayment. Also, Mr. Rendall benefitted by having
his debt to Merrill Lynch discharged by the sale of pledged
shares.14
As the pledgor of the Solv-Ex common stock held by Merrill
Lynch, Mr. Rendall remained the owner of and, therefore, was
taxable on Merrill Lynch’s sale of the pledged shares. As stated
by the Court of Appeals for the First Circuit in Old Colony Trust
Associates v. Hassett, 150 F.2d 179, 182 (1st Cir. 1945): “A
pledgee who has not foreclosed has only a special interest or
property in the stock during the continuance of the pledge. The
pledgor retains the title and gains from sales of the collateral
are taxed to the pledgor.” See also Joyce v. Commissioner, 42
14 Petitioners do not address the consequence of the
discharge of Mr. Rendall’s indebtedness to Merrill Lynch if
Merrill Lynch, pursuant to petitioners’ theory, sold the Solv-Ex
shares in question for its own account. On brief, petitioners
claim “the proceeds were assigned to cover Rendall’s debt to
Merrill Lynch”. Perhaps petitioners’ position is that they
sustained a theft loss equal to their basis in the shares sold
and an item of (ordinary) gross income equal to the amount of
debt discharged. See secs. 61(a)(12), 165(b).
Page: Previous 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 NextLast modified: May 25, 2011