The United States, claiming that certain refunds of income tax had been made erroneously, by these actions sought to recover the amounts thereof, with interest. The actions were consolidated for trial and from an adverse consolidated judgment, the United States has appealed. The facts out of which the controversies arose are these:
The Gates Rubber Company1 is a Colorado corporation. On January 1, *681956, 97.6 per cent of its stock was owned by members of the Gates family of Denver, Colorado, and by trusts certain of such members had created. The remainder of such stock was owned by employees of the Corporation, each of whom had agreed to resell his stock to it at a certain stipulated percentage of its book value on his retirement from employment with the Corporation. During 1957 and 1958, the Corporation repurchased stock of three of its employees.
In the year 1956, Charles C. Gates, Jr., created a trust to which he irrevocably transferred 90 shares of stock of the Corporation. In 1957, he created a trust to which he irrevocably transferred 100 shares of stock of the Corporation. In 1957, Charla Gates Cannon created a trust to which she irrevocably transferred 111 shares of stock of the Corporation, and in 1958 she created a trust to which she irrevocably transferred 81 shares of stock of the Corporation.2 The trusts are similar in all material respects. By the provisions of each trust, the trustees are to pay to the Gates Foundation,3 a charitable corporation, in annual or more frequent installments the entire net income from the trust estate, during a designated term, being 20 years under each of the Gates, Jr., trusts and 18 years under each of the Cannon trusts.
Each of the Gates, Jr., trusts provides that from and after the expiration of the term during which such income is to be paid to the Foundation, the trustees shall distribute the entire net income of the trust estate in annual or more frequent installments among the settlor’s lineal descendants surviving at the time of each distribution, in equal shares per stirpes, and if none of the settlor’s lineal descendants so survive, then to the set-tlor’s wife, June S. Gates, if living, and if not, among the settlor’s sisters and their lineal descendants surviving at the time of each distribution, in equal shares per stirpes.
Each of the Cannon trusts provides that from and after the expiration of the term during which the net income is to be paid to the Foundation, the trustees shall distribute the entire net income of the trust estate in annual or more frequent installments among the settlor’s lineal descendants surviving at the time of each distribution, in equal shares per stirpes, and if none of the settlor’s lineal descendants so survive, then among the-settlor’s sisters and her brother, Charles C. Gates, Jr., and their lineal descendants surviving at the time of each distribution, in equal shares per stirpes.
Each of the Gates, Jr., trusts provides that upon its termination, as provided for therein, the trustees shall distribute the principal and undistributed income thereof among the settlor’s lineal descendants then surviving in equal shares per stirpes, and if none of such descendants of the settlor then survive, then among the surviving lineal descendants of the settlor’s sisters, in equal shares per stirpes.
Each of the Cannon trusts provides-that upon its termination, as provided for therein, the trustees shall distribute the principal and undistributed income thereof among the settlor’s lineal descendants then surviving, in equal shares per-stirpes, and if none of the settlor’s lineal descendants then survive, then among the surviving lineal descendants of the set-tlor’s brother, Charles C. Gates, Jr., and the settlor’s sisters, in equal shares per stirpes.
Each of the Gates, Jr., trusts contains the following provision:
“No stock in The Gates Rubber Company shall be sold to any purchaser whomsoever until after a written offer *69to sell such stock on the same price and terms has been made and communicated to each of the Settlor’s sisters named in paragraph 4 then surviving, to each Gates Family Trust then in existence, to the Gates Rubber Company and to Gates Foundation, and not until such offer has remained in force and unaccepted for a continuous period of thirty days.”
Each of the Cannon trusts contains the same provision, except that they also include with the settlor’s sisters, her brother, Charles C. Gates, Jr.
In defining the powers of the trustees, each of the Gates, Jr. trusts in part provides:
“To litigate, compromise, adjust and settle all claims arising out of or in connection with the Trust Estate or its administration.”
Each of the Cannon trusts gives the same powers to its trustees.
Charles C. Gates, Jr., made a gift tax return for the shares transferred by him to the trust created in 1956. In such return, he stated what he considered to be the total value of the 90 shares transferred and apportioned 49.734 per cent thereof to the income interest of the Foundation, as directed in Table II of 'Treasury Regulations 20.2031-7(c). He apportioned the balance to the remainder interests of the persons designated as remaindermen in the trust and reported that balance as a taxable gift and paid a gift tax thereon.
The 49.734 per cent apportioned to the income interest of the Foundation was deducted as a charitable contribution in the 1956 joint income tax return of Charles C. Gates, Jr., and June S. Gates, his wife.
The Commissioner of Internal Revenue determined that the value of the shares transferred was greater than that reported in the gift tax return. This increased the value of the remainder interests, resulting in an additional gift tax, which Charles C. Gates, Jr., paid. The additional gift tax was assessed only on the remainder interests and no gift tax was asserted on the value of the income interest of the Foundation.
Charles C. Gates, Jr., and June S. Gates, his wife, filed a claim for an income tax refund, asserting that because of the increase in the value of the stock transferred, made by the Commissioner of Internal Revenue, the value of the income interest of the Foundation should be increased proportionately, and that their deduction for contributions in the 1956 return should be increased accordingly.
The claim for refund was audited by the Internal Revenue Service. It increased the amount of the charitable contribution based on 49.734 per cent of the increased value of the 90 shares and ordered a refund, which was paid, and is now attacked as erroneous.
The facts with respect to a gift tax return made by Charles C. Gates, Jr., for the 1957 transfer; a joint income tax return for 1957, made by Charles C. Gates, Jr., and June S. Gates, his wife; an action of the Commissioner of Internal Revenue in increasing the value of the shares transferred in 1957; a resulting claim for refund; an audit thereof by the Internal Revenue Service, and a refund ordered and paid, differ in no material particular from the facts stated in the preceding five paragraphs, except as to the tax year involved, and except the differences resulting from the fact that the number of shares transferred in 1957 was 100, instead of 90.
Mrs. Charla Gates Cannon made a gift tax return for the shares transferred by her to the trust created by her in 1957. In such return she stated what she considered to be the total value of the 111 shares transferred and apportioned 46.-1639 per cent thereof to the income interest of the Foundation, as directed in Table II of Treasury Regulations 20.-2031-7(c). She apportioned the balance to the remainder interests of the persons designated as remaindermen in the trust and reported such balance as a taxable gift and paid the gift tax thereon.
*70Charla Gates Cannon and Brown W. Cannon made a joint income tax return for 1957 and deducted as a charitable contribution the 46.1639 per cent; apportioned to the income interest of the Foundation. The Commissioner of Internal Revenue found that the value of the shares transferred was greater than the value reported in the gift tax return of Charla Gates Cannon and determined an additional gift tax, which was paid by Charla Gates Cannon. The additional gift tax was levied only on the remainder interests and no tax was asserted on the value of the income interest of the Foundation.
Charla Gates Cannon and Brown W. Cannon filed a claim for an income tax refund, asserting that because of the increase in the value of the stock transferred, made by the Commissioner of Internal Revenue, the value of the income interest of the Foundation should be increased proportionately, and that their deductions for contributions in their 1957 return should be increased accordingly.
The claim for refund was audited by the Internal Revenue Service. It increased the amount of the charitable contribution on the basis of 46.1639 per cent of the increased value of the 111 shares and ordered a refund, which was paid, and is now attacked as erroneous.
The facts with respect to a gift tax return made by Charla Gates Cannon for the year 1958 transfer; a joint income tax return for 1958, made by Char-la Gates Cannon and Brown W. Cannon; an action of the Commissioner of Internal Revenue in increasing the value of the shares transferred in 1958; a claim for refund; an audit thereof by the Internal Revenue Service; and a refund ordered and paid, differ in no material particular from the facts stated in the preceding four paragraphs, except as to the tax year involved, and except the differences resulting from the fact that the number of shares transferred in 1958 was 81 shares.
Charles C. Gates and John G. Gates, father and uncle, respectively, of Charles C. Gates, Jr., first entered the rubber business in Denver, Colorado, in 1911, using the name, “Colorado Tire and Leather Company.” In 1913, they organized the Corporation. Charles C. Gates was its first president and continued to hold that office until after December 31, 1958. At the time of the transfers here involved, and for a number of years prior thereto, John G. Gates was vice-president and Charles C. Gates, Jr., was secretary and treasurer of the Corporation, and Charles C. Gates, John G. Gates and Charles C. Gates, Jr., constituted its board of directors. At the time of the trial in 1965, Charles C. Gates, Jr., had succeeded his father as president of the Corporation.
The Corporation enjoyed a continuous and healthy growth. That was in large part due to the fact that for many years prior to the time of the trial below its officers and directors followed a fixed policy to retain in the Corporation at the end of each fiscal year a substantial part of its earnings for such year, in order to provide working capital needed by reason of its continuous growth and to maintain it in a financially sound and healthy condition.
Attached hereto as Appendix I is a chart showing the amounts of the gross and net income, of dividends declared and paid, of earnings retained in the business, of net income per share of common stock outstanding and of dividends declared and paid per share on such common stock for each of the years 1947 to 1964, inclusive, except the year 1962.4
*71In fiscal 1947 the net earnings after taxes were $5,275,675;
the amount paid in cash dividends was 362,075;
and the amount retained in the business was 4,913,600.
In fiscal 1951 the net earnings after taxes were $6,462,746;
the amount paid in cash dividends was 868,920;
and the amount retained in the business was 5,593,826.
In fiscal 1955 the net earnings after taxes were $6,880,270;
the amount paid in cash dividends was 723,440;
and the amount retained in the business was 6,156,830.
In fiscal 1956 the net earnings after taxes were $7,832,358;
the amount paid in cash dividends was 721,900;
and the amount retained in the business was 7,110,458.
In fiscal 1958 the net earnings after taxes were $6,787,376;
the amount paid in cash dividends was 719,790;
and the amount retained in the business was 6,067,586.
The Corporation declared and paid dividends of $1 per share for each of the years 1935 to 1941, inclusive, $3 per share in 1942, $3.50 per share in 1943, $3 per share in 1944, $5 per share in 1945, 1946 and 1947, $7 per share in 1948 and 1949, $10 per share in 1950, $12 per share in 1951, $10 per share in the years 1952 to 1963, inclusive, and $12 per share in 1964. It was the consistent policy of the Corporation to transfer to surplus sufficient earnings each year to guarantee the payment of dividends in future low-income years, if any occurred.
At the time of the transfers here involved, in terms of position in the rubber industry, the Corporation had become sixth in size of the American rubber companies, although it was only about one-ninth the size of each of the five major companies. The Corporation has survived and prospered, when other small rubber companies were forced to merge with or sell to a larger company or go out of business.
The Corporation is at a disadvantage competing with the major rubber companies. It costs the Corporation just *72as much to design, develop and prove a new automobile tire as it does a major company, yet the latter will sell about 20 times the number of such new tires as will the Corporation. The officers and directors of the Corporation believed that in order to meet such competition and to maintain it as a financially strong and healthy organization and to insure the payments annually of dividends to its stockholders, it was compulsory for it to plow back into the Corporation each year a very substantial amount of its net earnings entirely adequate to meet future needs, keep its plan up-to-date and modernized and its operation as streamlined and efficient as the operations of the major rubber companies; and they consistently followed that policy. The continuous growth of the Corporation, its ability to meet competition, and to pay substantial dividends and transfer sufficient funds to surplus to maintain adequate reserves over a long period of years, demonstrate the wisdom of that policy and that its business and operations were very well managed by its officers and directors.
Attached hereto as Appendix II is a chart showing the financial position of the Corporation at the end of the years 1947 to 1964, inclusive, except the year 1962.
At the end of the fiscal year 1947 the total current assets of the Corporation were $25,321,527
The current liabilities were 8,119,500
The net current assets were 17,202,027
Investments and other assets were 241,216
Property, plant and equipment were 8,811,236
Less reserves 1,164,024
Leaving an excess of assets over liabilities of 25,090,455
At the end of the fiscal year 1951 the total current assets of the Corporation were $29,586,505
The current liabilities were 8,099,845
The net current assets were 21,486,660
Investments and other assets were 506,215
Property, plant and equipment were 17,912,825
Less reserves None
Leaving an excess of assets over liabilities of 39,905,700
At the end of the fiscal year 1956 the total current assets of the Corporation were $46,685,877
The current liabilities were 9,526,870
The net current assets were 37,159,007
Investments and other assets were 2,944,293
Property, plant and equipment were 22,899,337
Less reserves None
Leaving an excess of assets over liabilities of 63,002,637
At the end of the fiscal year 1958 the total current assets of the Corporation were $51,925,199
The current liabilities were 11,364,074
*73The net current assets were $40,561,125
Investments and other assets were 3,462,108
Property, plant and equipment were 29,922,813
Less reserves None
Leaving an excess of assets over liabilities of 73,946,046
In 1958, the Foundation received $5,200 in dividends on stock of the Corporation, the income interest in which for stated periods had been transferred to it by Charles C. Gates, Jr., Charla Gates Cannon, and Hazel Gates Woodruff. It also received $700 in dividends on stock of the Corporation, which it owned.
The Corporation, as stated above, was a family-owned corporation. In order for the directors of the Corporation, Charles C. Gates, John G. Gates, and Charles C. Gates, Jr., to deprive the Foundation of such $5,900 in income annually, on the basis of the 1958 dividend rate, they would have to deprive themselves and Charla Gates Cannon and Hazel Gates Woodruff of $388,738 in dividends annually, on the basis of the 1958 dividend rate. They would also have to deprive Mrs. Charles C. Gates, LeBurta Gates Atherton, Berenice Gates Loughridge, and the children of Harry F. Gates, deceased, of $298,982 in dividends annually, on the basis of the 1958 dividend rate. They would also have to depart from a dividend policy which had been followed consistently each year since 1935. Moreover, they would expose the Corporation to the probable imposition under §§ 531 and 532 of the Internal Revenue Code of 1954 of an accumulated earnings tax. Those sections provide that a corporation shall be subject to such tax, when for the purpose of avoiding the income tax with respect to its shareholders, it permits earnings and profits to accumulate, instead of being divided or distributed, and § 533 of the Internal Revenue Code of 1954 provides that for the purpose of § 532 the fact that the earnings and profits of a corporation are permitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid income tax with respect to its shareholders, unless the corporation by the preponderance of the evidence shall prove the contrary. It has been held that by so accumulating dividends and subjecting the corporation to an accumulated earnings tax, the directors subject themselves to personal liability to reimburse the corporation for any such tax.5
The actions were consolidated for trial. At the close of the evidence, the United States moved the court to direct the jury to return a consolidated verdict in its favor in the actions. The motion was denied. The jury returned a consolidated verdict in favor of Charles C. Gates, Jr., June S. Gates, Brown W. Cannon and Charla Gates Cannon. The United States then moved for a consolidated judgment in its favor in the action, notwithstanding the consolidated verdict. The motion was denied.
Treasury Regulations on Income Tax, 1954, § 1.170-1 (e), in part here pertinent, reads:
“(e) Transfers subject to a condition or a power. — If as of the date of a gift a transfer for charitable purpose is dependent upon the performance of some act or the happening of a precedent event in order that it might become effective, no deduction is allowable unless the possibility that the charitable transfer will not become effective is so remote as to be negligible. If an interest passes to or is vested in *74charity on the date of the gift and the interest would be defeated by the performance of some act or the happening of some event, the occurrence of which appeared to have been highly improbable on the date of the gift, the deduction is allowable. The deduction is not allowed in the case of a transfer in trust conveying a present interest in income if by reason of all the conditions and circumstances surrounding the transfer it appears that the charity may not receive the beneficial enjoyment of the interest. * * ”
The complaint in No. 8618 alleged that the refunds of income taxes for the years 1956 and 1957, paid to Charles C. Gates, Jr., and June S. Gates, and the refund of income tax for the year 1957, paid to Brown W. Cannon and Charla Gates Cannon, were erroneously made, for the reasons:
“(a) Under the provisions of Section 1.170-1 (e) of the Treasury Regulations under the Internal Revenue Code of 1954, the defendants were not entitled to any deduction as a contribution to charity for the property transferred in trust by the defendants Charles C. Gates, Jr., and Charla Gates Cannon during the years 1956 and 1957, because by reason of all the conditions and circumstances surrounding the transfers, Gates Foundation might not receive the beneficial enjoyment of the interest in income of the property transferred; and
“(b) The defendants were not entitled to any deduction as a contribution to charity for the property transferred in trust by the defendants Charles C. Gates, Jr., and Charla Gates Cannon during the years 1956 and 1957, because under all the facts and circumstances, the interest in such property transferred to Gates Foundation had no fair market value, since Gates Foundation might never receive any income or the beneficial enjoyment of such property.”
The complaint in No. 8619, as grounds for the action, contained substantially the same averments, except they referred to a refund of income tax paid for the year 1958, made to Charla Gates Cannon and Brown W. Cannon.
The court instructed the jury in part as follows:
“Insofar as pertinent to this controversy, the regulations provide in effect that * * * the transfer by trust of the income of corporate stock to a charity for a period of time is an allowable deduction under certain circumstances.
“Now the regulations provide in effect that the deduction is not allowed, however, if by reason of all the conditions and circumstances surrounding the transfer it appears that the charity may not receive the beneficial enjoyment of the interest.
“Now that is the question that we are here to determine, and the plaintiff contends that from the evidence of the conditions and circumstances surrounding the transfers here involved, it appears that the charity may not receive the beneficial enjoyment of income.
“Now the burden of proof is upon the Government to prove its contention by a preponderance of the evidence. The defendants contend that it does not appear from the conditions and circumstances surrounding the transfer that the Gates Foundation may not receive the income from the trust property.
“Therefore, the only question submitted to you — and it will be submitted in substantially this form — is whether or not from a preponderance of the evidence as to the conditions and circumstances surrounding the transfers it appears that [the] charity may not receive the beneficial enjoyment of income from the stock.”
Throughout the trial, including the oral arguments, the theory upon which the United States predicated its case, as stated by its counsel, was that under the facts and circumstances surrounding each of the transfers, the charity, here the Foundation, might not receive the *75beneficial enjoyment of the interests transferred, and in the course of the trial counsel for the United States stated:
“The issue in this case * * * is in substance whether a certain section of the Treasury regulations result in disallowance of the deduction here involved, and in disallowing or attempting to disallow the deduction the Government relies on specifically a certain part of that regulation which reads as follows :
“ ‘The deduction is not allowed in the case of a transfer in trust conveying a present interest in income if by reason of all the conditions and circumstances surrounding the transfer, it appears that the charity may not receive the beneficial enjoyment of the interest.’ ”
And in his charge to the jury the court presented the issue and the theory on which the United States relied, as it was stated by counsel for the United States in the course of the trial. Yet in this court, counsel for the United States, in their brief and in oral argument, place reliance on the language in the first sentence of the Regulation, and contend that the transfers did not result in allowable charitable deductions, because the possibility that the Foundation (the charity) would not receive any beneficial interest was not “so remote as to be negligible.”
The United States, having led the court to try the case and to charge the jury on the theory that the third sentence of the Regulation is the pertinent and applicable part thereof, may not in this court “change its hold” and depart from the theory on which it tried the case below and advance a new theory as a basis for a claim of trial error.
Moreover, the first sentence of the Regulation deals with transfers subject to conditions precedent that are not to become effective until the performance of some act or the happening of a future event. Here, the transfers made were not subject to conditions either precedent or subsequent and the gifts vested immediately for the benefit of the Foundation. As we view the case, the only question is whether, under all the facts, conditions and circumstances surrounding the transfers, it appeared that the Foundation might not receive the enjoyment of the beneficial interests.
We do not think the third sentence of the Regulation requires that under the existing facts, circumstances and conditions surrounding the transfer, it must appear with absolute certainty that the charity will receive the beneficial enjoyment of the interest transferred to it, in order for the deduction to be allowable as a charitable gift. Very few things in life are absolutely certain. Future events cannot be predicted with positive certainty. The certainty required by the Regulation is that degree of certainty with respect to the occurrence of a future event that would cause an ordinarily prudent person in the usual affairs of business and of life not to hesitate to act in reliance on it occurring.
Hence, the test here is whether the assurance of certainty that the Foundation would receive such beneficial interest was such that an ordinarily prudent person possessed of the same assurance of certainty with respect to a like future event in the ordinary affairs of life and business, would regard the occurrence of such event sufficiently certain to warrant his acting in reliance on its occurrence, and would believe that in so doing he would risk only “the general uncertainty that attends human affairs.”
The deduction as a charitable gift will be allowed, unless the uncertainty that the charity will not receive the beneficial enjoyment thereof is “appreciably greater than the general uncertainty that attends human affairs.” 6
Of course the Commissioner, in passing on the claims for refund, had to deter*76mine whether or not, under the facts, circumstances and conditions surrounding each transfer at the time it was made, any uncertainty that the Foundation would receive the beneficial enjoyment thereof was appreciably greater than “the general uncertainty that attends human affairs.”
The Commissioner found and determined, with respect to the gifts here involved, that the requisite certainty to warrant the granting of the claimed refunds was present, and he experienced no difficulty in fixing the value of the gifts to the Foundation, when he determined the amounts of the deductions. It is well settled that such a finding and determination by the Commissioner is presumptively correct.7
It is our opinion that the undisputed facts, with respect to the business of the Corporation, the efficiency of its operations, the keeping of its plant modernized and up-to-date, the high quality of its management, its financial condition, the amount of its profits — gross and net, the amounts declared and paid as dividends, the amount of net earnings transferred to surplus, and the policies consistently followed by the officers and directors, in the respective years such transfers were made, namely, 1956, 1957 and 1958, and the undisputed facts with respect to all of such matters during a long period of years immediately preceding 1956, all reflected in the record in detail, would lead a reasonably prudent person, competent by training and experience to judge the future of the Corporation, unhesitatingly to conclude that during the period of 21 years immediately following 1956, it would continue to grow and prosper and would be able to and would transfer amounts to surplus entirely adequate to meet all of its future requirements and also would be able to pay and would pay substantial dividends. And it is further our opinion that under undisputed facts in the record and reasonable inferences that may be drawn therefrom, a prediction that such events would occur would be attended with as much certainty as are predictions regularly made and acted upon, in the ordinary affairs of business and of life, and would be accompanied only with “the general uncertainty that attends human affairs.”
The contention is made that since the directors of the Corporation are members of the Gates family, which owns practically all of the stock in .the Corporation, and the remainder beneficiaries under the trusts will be either living members of the Gates family, or in the event of their demise during the life of the trusts, the lineal descendants or close relatives of such members, such directors, 'to serve a selfish purpose to benefit such remaindermen, might pass dividends and accumulate earnings for a period of 21 years after 1956, most of which would ultimately inure to the benefit of such remaindermen and the other members of the Gates family, if the well justified assumption is made that the family will continue to own almost all of the Corporation’s stock. The facts and circumstances as they existed when the respective transfers were made, the past history, referred to above, the consistent policy of the directors to declare and pay dividends, the risk of an accumulated earnings tax, if earnings are accumulated beyond the needs of the business, and the very large reduction in the income of the directors and other members of the Gates family that would ensue each year a dividend was passed, seem to us to make such contention wholly untenable.
Furthermore, such contention is otherwise refuted. While, generally, whether a dividend shall be declared and paid by a corporation is a matter to be determined by the board of directors in the exercise of a sound discretion and honest business judgment,8 such discre*77tion is not unlimited. It must be honestly exercised for the benefit of the corporation and all of its shareholders.9 A director of a corporation occupies a fiduciary relationship to the corporation and its stockholders, and a dominant or controlling stockholder or group of stockholders occupies a fiduciary relationship to the minority stockholders.10
With respect to the standards of conduct to which the law requires a trustee to conform, this court in Wootten v. Wootten, 10 Cir., 151 F.2d 147, at 149, 161 A.L.R. 1027, said:
“Many forms of conduct regarded as permissible for those acting at arm’s length are forbidden to those bound by fiduciary ties. The standards of conduct'for a trustee rise far above the ordinary morals of the market place. Not honesty alone, but a punctilio of honor the most sensitive is the standard of behavior required of a trustee. He must completely efface self-interest. His loyalty and devotion to his trust must be unstinted. Its well-being must always be his first consideration. These principles are inveterate and unbending.” 11
Here, the members of the Gates family form a dominant group of stockholders of the Corporation, and they and the directors whom they elect control the Corporation. It follows that the directors, in their official capacity and as members of such dominant group of stockholders, occupy a fiduciary relationship to the holders of minority stockholder interests, and that they owe a duty to exercise their powers as directors with unbending fidelity to their cestuis que trustent and to manage the affairs of the Corporation in a way that will be fair and impartial between the Gates family group, as majority stockholders, and the Foundation and other holders of minority stock interests, and not to the personal advantage of themselves or other members of the Gates family or to the disadvantage or detriment of the Foundation and other holders of minority stock interests. We think the evidence clearly demonstrates and establishes that, subject to the general uncertainty that attends human affairs, the Corporation, during the 21 years immediately following 1956, will continue to realize net earnings sufficient to pay substantial dividends, to transfer substantial amounts to surplus, and to maintain reserves entirely adequate for its future needs. If such earnings are so realized, *78it will be the duty of the directors, because of their fiduciary relationship to the holders of common stock, and particularly to minority stockholder interests, to continue to declare and pay dividends on the corporate stock and it will further be their duty not to accumulate earnings beyond the reasonable needs of the business and subject the Corporation to the danger of an accumulated earnings tax.
And if such net earnings are realized, it will be the duty of the trustees of the trusts to lay aside all personal interests, to faithfully perform their duties as trustees and take whatever steps may be necessary, including a suit in equity, to compel the payment of the dividends.12 And equity would grant them relief in such an action.13
It is well settled that it will be presumed that a trustee will efface personal interests and faithfully and honestly perform his duties to his cestui que trust.14 Here, there was no evidence that would overcome the presumption, and the evidence as to actions of the directors and trustees in the years 1956 to 1964, inclusive, showed they were faithfully performing their duties as such fiduciaries.15
Counsel for the United States assert that during the 19-year period following 1958 conditions may so change that the directors will properly conclude that for sound business reasons dividends' should not be paid, or that it would be wise business policy to use all the earnings for research, plant modernization, development and expansion, or other business purposes.
The steady growth and uninterrupted business success of the Corporation, the amount of current gross and net earnings, the amount of earnings transferred to reserves, the adequacy of such reserves to keep the plant modernized and to expand the business, the high quality of the management and the efficiency of the operations, in 1958 and for many years immediately prior thereto, made it appear exceedingly improbable at the times the transfers were made that either financial needs of the Corporation or business conditions would cause the directors^ to pass dividends during any of the years 1959 to 1977, inclusive. That is confirmed by the data shown on Appendices I and II, with respect to the years 1959 to 1964, inclusive. We think, under the evidence, it is abundantly clear at the times the transfers were made that the payment of dividends by the Corporation during the years 1959 to 1977, inclusive, would be attended with no greater uncertainty than “the general uncertainty that attends human affairs.” Indeed, we think the stockholders of the Corporation at the times the transfers were made could look forward to receiving dividends during those years with a high degree of assurance.
Each of the trusts here involved provides that the trustees thereof are not required to sell and may retain nonproductive property.
Counsel for the United States assert that should dividends not be paid during the respective periods the Foundation is to' receive the dividends paid on the stock transferred to the trusts, the trustees nevertheless may retain the nonproductive stock and therefore the Foundation *79may not receive the enjoyment of the beneficial interests transferred.
It is true that the trustees are hot compelled to sell nonproductive property, but they also have power to sell it, and in determining whether they shall sell or hold it, they must exercise good faith and an honest business judgment, wholly effacing their personal interests and fully conscious of their fiduciary obligations to the Foundation. We must presume, there being no evidence to the contrary, that the directors will do so, and that they will not hold nonproductive stock of the Corporation to the detriment of the Foundation for the long period of 18 or 20 years, in order to benefit others.
Moreover, we think the facts, circumstances, and conditions surrounding the several transfers, considered in the light of the prior business history of the Corporation, fully warranted the conclusion that the stock would not become nonproductive, due to inadequate earnings, during the respective periods the Foundation is to receive the dividends paid thereon. That conclusion is confirmed by the net earnings realized, dividends paid and policies followed by the Corporation in the respective periods between the years in which the several transfers were made and the end of fiscal 1964. Those periods covered one-third of the period the Foundation is to receive the dividends under the 1958 Cannon trust and more than one-third of the respective periods it is to receive the dividends under the three earlier trusts.
With respect to the contention asserted by counsel for the United States “that the officers, directors, or stockholders of” the Corporation “have the power to refuse to declare any dividends on the stock of” the Corporation, the court instructed the jury as follows:
“ * * * that power in and of itself is not sufficient for you to find that the deduction in question is not allowable.
“The burden of proof is upon the Government to prove not only that the power exists to accomplish that, but also that the circumstances surrounding the transfer make it appear that the officers, directors or stockholders of The Gates Rubber Company may exercise that power for the purpose of depriving the Gates Foundation of the income from this stock.”
With respect to the contention asserted by counsel for the United States that “the trustees of these trusts have the power to sell” the Corporation “stock and to reinvest the proceeds in non-income producing property,” the court instructed the jury as follows:
“ * * * this power standing alone is not sufficient for you to find that the deduction is not allowable.
“Again, the burden of proof is upon the Government to prove not only that the trustees have the power to deprive the Gates Foundation of income from the trust property, but must also prove that the conditions and circumstances surrounding the transfer make it appear that the trustees may utilize this power * * * for the purpose * * * of depriving the Gates Foundation of the income.”
Counsel for the United States objected to that part of the instructions which required the Government to show that the powers referred to may be exercised “for the purpose * * * of depriving the * * * Foundation of the income.”
In accord with the position he had taken during the trial, counsel for the United States in his argument to the jury asserted: That the members of the Gates family group own 98 per cent of the stock of the Corporation and by virtue thereof dominate and control it; that they cooperate in determining its policies; that they have a fixed purpose to maintain family control of the Corporation; that their voting power enables them to select as its board of directors members of such group; that Charles C. Gates, Jr., and Charla Gates Cannon can control the action of the directors with respect to the payment of dividends and being members of an interlocking trus*80teeship under the six Gates family trusts can control the actions of the trustees in administering such trusts; that the directors have authority, even though sufficient net earnings are realized to enable the Corporation to transfer to surplus amounts sufficient to maintain fully adequate reserves and provide for its future needs, and also to pay substantial dividends, to determine that dividends shall not be paid and that all of the net earnings shall be accumulated; and that the trustees have power to retain and not dispose of the stock, even though it becomes nonproductive because of the nonpayment of dividends; that each member of the Gates family group has a large income in addition to his or her income from dividends, which additional income is entirely adequate for his or her needs; and that if dividends are not paid during the respective periods the Foundation is to receive dividends if paid, on the stock transferred to the trusts, the earnings accumulated as a result of such nonpayment of dividends, other than the earnings that would have been paid to the Foundation had dividends been paid, will not be lost, but will enhance the value of the Corporation’s stock and may be paid out in deferred dividends after 1977, when all of such periods will have ended, and thus ultimately will inure to the benefit of the members of the Gates family group; and if dividends are not paid during such periods, the earnings which would have been received by the Foundation had dividends been paid, likewise will not be lost, but by reason of the increased value of the Corporation’s stock or the payment of deferred dividends after all of such periods have ended, will ultimately inure to the benefit of the surviving remaindermen under the trusts — the then living lineal descendants of Charles C. Gates, Jr., and Charla Gates Cannon, or other near relatives.
And counsel for the United States, in his argument to the jury, strongly intimated that because net earnings not paid out in dividends, but accumulated during the periods the Foundation is to receive dividends on the stock transferred to the trusts, would not be lost, but would inure, as stated above, and particularly because that part of the net earnings which the Foundation would receive if dividends were declared, as a result of their nonpayment would not go to the Foundation but would inure ultimately to the surviving remaindermen under the trusts, the directors, being members of the Gates family group and subject to the influence of other members thereof, would be inclined not to declare dividends during such periods. In other words, that the directors, influenced as they would be by the members of the Gates family group, would be inclined to violate their solemn fiduciary duties and obligations to the minority stock interests, including the Foundation, by conducting the affairs of the Corporation during such periods to the advantage of the members of the Gates family group and the remainder beneficiaries under the trusts and to the detriment of the Foundation and other minority interests.
It is true that counsel for the United States in his argument denied he had any intent to impugn the integrity of either Charles C. Gates, Jr., or Charla Gates Cannon. We think he did so impugn their integrity when he suggested they would be inclined to violate their solemn fiduciary duties and obligations as trustees or influence other trustees to violate their duties and obligations.
In his argument, counsel for the United States further stated that the Gates family group, or Charles C. Gates, Jr., and Charla Gates Cannon “may exercise that control” — the control of the Corporation and its board of directors — “to deprive the charity of the income.” He reiterated in substance the last-quoted phrase several times in his opening argument and in his closing argument said: “All we say is under the conditions and circumstances existing as of the day of each transfer, the control — the family control may be exercised to deprive the Foundation of dividends.”
The court, in his instructions, in using the words “exercise that power *81for the purpose of depriving the Gates Foundation of the income from this stock” merely employed in substance the phrase repeatedly used by counsel for the United States in his argument to the jury. Counsel put the words of such phrase in the mouth of the court. For that reason and because of the plain implications inherent in counsel’s argument to the jury that during the period the Foundation was to receive the dividend income, the directors, in violation of their solemn duties and obligations to the minority interests, would be inclined to manage the affairs of the Corporation to the advantage of the members of the Gates family group and their lineal descendants and to the detriment of the Foundation and other minority interests, we conclude the United States may not now complain of such instructions.
Finally, counsel for the United States contend that the trial court erred in admitting evidence as to the settlors’ intentions in creating the trusts, and as to the Corporation’s contributions to the Foundation. Counsel for the United States impugned the good faith of the settlors in creating the trusts in the trial below. In his argument to the jury he said: “I submit that the only purpose, or the primary purpose, of the transfer was for tax reasons.” In the case in chief, counsel for the United States introduced evidence that Charles C. Gates, Jr., at a luncheon in 1965 stated in effect that the stock of the Corporation was closely held and not owned by members of the general public and consequently the directors could plow back earnings into the Corporation for research and development and would be under no obligation to declare and pay out earnings as dividends on the stock.
Moreover, the testimony with respect to intent was not a mere ipse dixit of the subjective intent of the settlors of the trusts, but rather, of the existing facts and circumstances which obtained at the time the transfers were made, and which led the settlors to provide for the withholding of income from their children until they reached mature ages, and in the meantime to give the income to the Foundation.
Accordingly, we conclude that there was substantial evidence to support the verdict returned by the jury, and that there were no trial errors of such consequence as would warrant a reversal of the judgment below.
Affirmed.
*82APPENDIX I
1964 1963(A)*
Net sales $170,031,202 $145,536,553
Other income 1,293,421 898,754
$171,324,623 $146,435,307
Cost of products sold $100,678,538 $ 89,231,841
Selling and administrative 51,183,098 43,534,806
$151,861,636 $132,766,647
Net income before taxes on income $ 19,462,987 $ 13,668,660
Taxes on income 10,158,846 6,810,649
Net income Cash dividends $ 9,304,141 692,106 $ 6,858,011 800,119
Earnings retained in business 6,057,892 $ 8,612,035
Per share of Common Stock (1)**
Net income $102.85 $139.54
Cash dividends $ 12.00 $ 10.00
1961 1960
Net sales $126,804,702 $126,742,307
Other income 689,691 719,854
$127,494,393 $127,462,161
Cost of products sold $ 82,755,501 $ 83,260,437
Selling and administrative 34,231,035 31,991,755
$116,986,536 $115,252,192
Net income before taxes on income $ 10,507,857 $ 12,209,969
Taxes on income 5,151,468 6,696,854
Net income $ 5,356,389 $ 5,513,115
Cash dividends 688,516 688,515
Earnings retained in business 4,667,873 $ 4,824,600
Per share of Common Stock
Net income 77.80 $ 80.07
Cash dividends 10.00 $ 10.00
*831959 1958
Net sales $129,519,546 $107,449,262
Other income 1,177,197 823,741
$130,696,743 $108,273,003
Cost of products sold $ 79,265,848 $ 67,084,259
Selling and administrative 30,704,944 27,500,501
$109,970,792 $ 94,584,760
Net income before taxes on income $ 20,725,951 $ 13,688,243
Taxes on income 10,638,939 6,900,867
Net income • $ 10,087,012 $ 6,787,376
Cash dividends 701,096 719,790
Earnings retained in business $ 9,385,916 $ 6,067,586
Per share of Common Stock
Net income $145.23 $ 96.81
Cash dividends $ 10.00 $ 10.00
1957 1956
Net sales $104,025,115 $102,068,970
Other income 623,376 453,948
$104,648,491 $102,522,918
Cost of products sold $ 66,735,431 $ 62,218,934
Selling and administrative 24,384,062 24,117,468
$ 91,119,493 $ 86,336,402
Net income before taxes on income $ 13,528,998 $ 16,186,516
Taxes on income 6,992,526 8,354,158
Net income $ 6,536,472 $ 7,832,358
Cash dividends 721,900 721,900
Earnings retained in business $ 5,814,572 $ 7,110,458
Per share of Common Stock
Net income $ 90.55 $ 98.50
Cash dividends $ 10.00 $ 10.00
*841955 1954
Net sales $ 93,811,905 $ 82,353,402
Other income 619,018 679,377
$ 94,430,923 $ 83,032,779
Cost of products sold $ 59,148,119 $ 52,588,597
Selling and administrative 21,902,928 22,809,096
$ 81,051,047 $ 75,397,693
Net income before taxes on income $ 13,379,876 $ 7,635,086
Taxes on income 6,499,606 3,941,160
Net income $ 6,880,270 $ 3,693,926
Cash dividends 723,440 723,440
Earnings retained in business $ 6,156,830 $ 2,970,486
Per share of Common Stock
Net income $ 95.10 $ 51.06
Cash dividends $ 10.00 $ 10.00
1953 1952
Net sales $ 80,028,928 $ 74,714,983
Other income 619,078 394,525
$80,648,006 $ 75,109,508
Cost of products sold $ 50,130,305 $ 47,671,774
Selling and administrative 21,765,557 20,705,349
$ 71,895,862 $ 68,377,123
Net income before taxes on income' $ 8,752,144 $ 6,732,385
Taxes on income 4,084,599 2,956,002
Net income $ 4,667,545 $ 3,776,383
Cash dividends 723,440 724,100
Earnings retained in business $ 3,944,105 $ 3,052,283
Per Share of Common Stock
Net income $ 64.52 $ 52.15
Cash dividends $ 10.00 $ 10.00
*851951 1950
Net sales $ 85,199,169 64,804,964
Other income 874,564 1,117,401
$ 86,073,733 65,922,365
Cost of products sold $ 50,699,352 40,672,574
Selling and administrative 19,359,994 17,218,576
$ 70,059,346 57,891,150
Net income before taxes on income $ 16,014,387 8,031,215
Taxes on income 9,551,641 3,418,280
Net income $ 6,462,746 4,612,935
Cash dividends 868,920 724,150
Earnings retained in business 5,593,826 $ 3,888,785
Per share of Common Stock
Net income 89.25 63.70
Cash dividends 12.00 10.00
1949 1948 1947
Net sales 45,016,933 55,291,368 62,260,905
Other income 291,958 277,347 452,993
$ 45,308,891 55,568,715 62,713,898
Cost of products sold 27,331,254 34,962,950 38,855,355
Selling and administrative 14,471,661 15,513,203 15,488,647
$ 41,802,915 $ 50,476,153 $ 54,344,002
Net income before taxes on income 3,505,976 $ 5,092,562 8,369,896
Taxes on income 1,149,926 2,295,151 3,094,221
Net income $ 2,356,050 2,797,411 5,275,675
Cash dividends 506,905 506,905 362,075
Earnings retained in business $ 1,849,145 $ 2,290,506 $ 4,913,600
Per Share of Common Stock
Net income 32.54 $ 38.63 72.85
Cash dividends 7.00 $ 7.00 5.00
*86APPENDIX II
1964 1963 1961
Cash 8,664,629 $ 10,118,884 $ 10,893,947
U. S. Government and other marketable securities -0-1,789,602 3,660,595
Receivables 22,064,503 21,012,666 17,094,006
Inventories 35,549,113 32,754,365 30,749,972
Deferred charges 992,033 929,792 655,599
TOTAL CURRENT ASSETS 67,270,278 $ 66,605,309 $ 63,054,119
Less current liabilities:
Accounts payable, taxes, etc. 18,075,922 15,508,324 14,257,458
NET CURRENT ASSETS $ 49,194,356 51,096,985 48,796,661
Investments and other assets 13,280,270 6,101,739 4,797,869
Property, plant and equipment 42,393,475 41,611,485 38,284,005
$104,868,101 98,810,209 91,878,535
Less: Reserves -0--0--0-
EXCESS OF ASSETS OVER LIABILITIES $104,868,101 $ 98,810,209 $ 91,878,535
Stockholders’ equity:
Common' stock outstanding 11,283,370 11,283,370 12,963,731
Earned surplus 93,584,731 87,526,839 78,914,804
$104,868,101 $ 98,810,209 $ 91,878,535
1960 1959 1958
Cash 8,099,237 $ 11,597,811 $ 10,601,711
U. S. Government and other marketable securities 894,295 551,881 82,600
Receivables 19,971,379 18,898,889 16,174,436
Inventories 30,902,399 30,508,161 24,624,632
Deferred charges 333,479 463,426 441,820
TOTAL CURRENT ASSETS 60,200,789 $ 62,020,168 $ 51,925,199
Less current liabilities:
Accounts payable, taxes, etc. 11,537,679 14,198,959 11,364,074
NET CURRENT ASSETS 48,663,110 47,821,209 40,561,125
Investments and other assets 4,077,267 3,594,730 3,462,108
Property, plant and equipment 34,470,285 31,420,123 29,922,813
87,210,662 82,836,062 73,946,046
Less: Reserves -0--0--0-
EXCESS OF ASSETS OVER LIABILITIES $ 87,210,662 $ 82,836,062 $ 73,946,046
Stockholders’ equity:
Common stock outstanding $ 12,963,731 $ 13,413,731 $ 13,909,631
Earned surplus 74,246,931 69,422,331 60,036,415
$ 87,210,662 $ 82,836,062 $ 73,946,046
NOTE — Amounts are as of the through 1961 and ended close of fiscal years ended in February since that time. in November
*871957 1956 1955
Cash $ 12,513,495 9,513,424 $ 12,926,412
U. S. Government and other marketable securities 2,211,400 278,875 911,064
Receivables 13,696,979 13,668,841 12,917,639
Inventories 22,918,177 22,797,533 19,376,806
Deferred charges 378,094 427,204 435,647
TOTAL CURRENT ASSETS 51,718,145 $ 46,685,877 $ 46,567,568
Less current liabilities:
Accounts payable, taxes, etc. 9,633,936 9,526,870 10,296,000
NET CURRENT ASSETS 42,084,209 37,159,007 36,271,568
Investments and other assets 3,847,129 2,944,293 2,062,152
Property, plant and equipment 23,010,951 22,899,337 17,665,832
$ 68,942,289 63,002,637 55,999,552
Less: Reserves 120,000 -0--0-
EXCESS OF ASSETS OVER LIABILITIES 68,822,289 $ 63,002,637 $ 55,999,552
Stockholders’ equity:
Common stock outstanding 14,853,460 $ 14,855,550 $ 14,962,923
Earned surplus 53,968,829 48,147,087 41,036,629
$ 68,822,289 $ 63,002,637 $ 55,999,552
1954 1953 1952
Cash 5,742,394 $ 10,448,638 8,793,819
U. S. Government and other marketable securities 64,733 261,103 1,435,926
Receivables 12,207,952 9,840,432 9,030,757
Inventories 18,020,193 15,097,300 13,821,562
Deferred charges 326,604 346,197 395,304
TOTAL CURRENT ASSETS 36,361,876 35,993,670 $ 33,477,368
Less current liabilities: Accounts payable, taxes, etc. j 7,225,489 6,374,253 6,515,973
NET CURRENT ASSETS 29,136,387 29,619,417 26,961,395
Investments and other assets 1,361,857 373,430 390,924
Property, plant and equipment 19,719,479 17,249,003 15,980,663
$ 50,217,723 47,241,850 43,332,982
Less: Reserves 375,000 375,000 375,000
EXCESS OF ASSETS OVER LIABILITIES $ 49,842,723 $ 46,866,850 $ 42,957,982
Stockholders’ equity:
Common stock outstanding 14,962,923 14,962,923 14,998,159
Earned surplus 34,879,800 31,903,927 27,959,823
$ 49,842,723 $ 46,866,850 $ 42,957,982
*881951 1950 1949
Cash 4,440,912 6,103,821 $ 10,639,162
U. S. Government and other marketable securities 1,763,493 275,933 9,280
Receivables 7,963,269 8,855,848 4,169,842
Inventories 14,979,627 9,964,752 7,456,228
Deferred charges 439,204 296,892 280,737
TOTAL CURRENT ASSETS 29,586,505 $ 25,497,246 $ 22,555,249
Less current liabilities: Accounts payable, taxes, etc. 8,099,845 7,473,976 5,078,025
NET CURRENT ASSETS 21,486,660 $ 18,023,270 $ 17,477,224
Investments and other assets 506,215 387,259 279,418
Property, plant and equipment 17,912,825 15,906,647 12,668,288
39,905,700 34,317,176 $ 30,424,930
Less: Reserves -0-5,301 -0-
EXCESS OF ASSETS OVER LIABILITIES 39,905,700 $ 34,311,875 $ 30,424,930
Stockholders’ equity: Common stock outstanding 14,998,159 14,998,159 $ 3,873,693
Earned surplus 24,907,541 19,313,716 26,551,237
39,905,700 f 34,311,875 £ 30,424,930
1948 1947
Cash 7,035,090 9,251,826
U. S. Government and other marketable securities 546,297 -0-
Receivables 5,840,169 6,910,858
Inventories 11,715,019 8,776,881
Deferred charges 326,858 381,962
TOTAL CURRENT ASSETS 25,463,433 $ 25,321,527
Less current liabilities: Accounts payable, taxes, etc. 7,132,852 8,119,500
NET CURRENT ASSETS 18,330,581 17,202,027
Investments and other assets 246,992 241,216
Property, plant and equipment 9,998,212 8,811,236
$ 28,575,785 26,254,479
Less: Reserves -0-1,164,024
EXCESS OF ASSETS OVER LIABILITIES 28,575,785 $ 25,090,455
Stockholders’ equity:
Common stock outstanding 3,873,693 3,873,693
Earned surplus 24,702,092 21,216,762
$ 28,575,785 $ 25,090,455