Court Opinion

ID: 6884039
Source: CourtListenerOpinion
Date Created: 2022-07-23 21:23:23.386772+00
Date Added: 2024-06-11T08:50:47.009070
License: Public Domain

EVANS, Circuit Judge
(dissenting).
Whether the dividend declared by Ajax Hand Brake Company, and paid by check to the petitioner, on the 4,000 shares of stock, the title to which is the controverted question in this case, should be included in petitioner’s taxable income, turns upon the effect of the written contract which she made with George M. DeGuire. If she, by that contract, sold the said four thousand shares of stock to DeGuire, then the dividend, as such, was not properly included in her income. In such case, it was received by her as a part payment of the purchase price.
Whether a contract is a sale or an option is ordinarily a legal question, although it might become a factual dispute in the absence of express agreement coverage. In case the issue involves a factual question, the Board’s finding in respondent’s favor would be binding on us.1
I believe the question in this case is a legal one, and we are not precluded from deciding it, by the findings and conclusions of the Board of Tax Appeals. Where the agreement is silent, on the second party’s agreement to pay the purchase price, a court or board may nevertheless find an obligation to pay, from the surrounding facts and circumstances. In such a case, the agreement would be a sale.
If, however, there is an express provision in the written agreement, as here, whereby it is agreed that second party shall not be liable for the payment of any further sums on the purchase price, then there is no basis for a contrary fact finding. The contract is then an option.
The provisions of the agreement which lead me to the conclusion that this was an option and not a sale, are:
(a) “ * * * in the event of the failure of the party of the third part to pay the principal and accrued interest of any of the said notes as and when such principal shall become due and payable, such note shall be delivered to the party of the third part and the certificate or certificates of stock attached thereto shall be delivered to the party of the first part or the party of the second part as the case may be.”
(b) “It is understood and agreed that the party of the third part (the alleged purchaser) shall not be liable under this agreement or otherwise upon any of the said notes and that the only remedy of the parties of the first and second part in the event of the failure of the party of the third part to pay any of said notes and accrued interest thereon shall be the right to the redelivery of the certificates of stock attached hereto.”
(c) “The parties of the first and second part shall have the right at all times to vote the stock owned by them and standing in their names on the books of the company notwithstanding the certificates therefor shall have been indorsed in blank and attached to said notes.”
(d) “The party of the second part agrees to sell2 to the party of the third part” four thousand shares, etc.
Whether an agreement is a sale or an option depends upon the existence or absence of an obligation of the second party to pay the price agreed upon. In the absence of such an obligation there is no sale. Obviously the amount of the down payment has no bearing on the determination of a sale or an option. An optionee would pay more for an option on a land supposedly underlaid with oil when the drill is near the oil well and signs are favorable, than for a farm which has no price fluctuating influences. Moreover, the evidence shows that a dividend was near at hand, and was actually declared and paid within a few months of the execution of the option, which was about one-half the down payment referred to in the majority opinion. The character of the contract depends on something more certain that the down payment. It is the obligation to pay the purchase price, and that only, which makes it a sale.
*995In Western Union Tel. Co. v. Brown, 253 U.S. 101, 40 S.Ct. 460, 462, 64 L.Ed. 803, we have a case which is helpful in that it emphasizes the need of the existence of an obligation to pay the purchase price to make a contract a sale.
The court said,
“What, then, is the nature of this agreement? It contains the positive undertaking of the owner to sell and the purchaser to buy 625,000 shares of stock upon terms which are named. Upon the first payment being made, the certificates are to be deposited with the bank in escrow, to be delivered when the final payment agreed upon is made, and in event of default in payment the bank is authorized to deliver the shares of stock to Pitt and Campbell, and all payments are to be forfeited, and the rights of the parties to cease and determine. We are of opinion that this is far more than a mere option to purchase, terminable at the will of the purchaser upon failure to make the payments required. The agreement contains positive provisions binding the owner to sell and the purchaser to buy upon the terms of the instrument. * * * There was no understanding that Pitt and Campbell should take back the stock when the payments were not made, and no agreement which put it in the power of the purchasers to relieve themselves of the obligations of their contract by failing to keep up the payments.
“The written agreement contains a positive undertaking to sell, upon the one part, and, upon the other part, to buy shares of the mining stock.”
In the contract before us, the express provision, twice set forth, affirmatively stated the second party did not agree and was not required to pay the purchase price. At his option, the previous payments could be forfeited and an obligation to make the balance of the payments was expressly denied. This, in my opinion, determined the legal status of the parties under the contract. Until second party obligated himself to pay the purchase price it was an option contract.
As there was no sale of the stock until after the dividend was declared, the dividends belonged to petitioner who was the owner. They were, under the Federal income tax law, properly included in the income of the petitioner.

 Elmhurst Cemetery Co. v. Commissioner, 300 U.S. 37, 57 S.Ct. 324, 81 L.Ed. 491.

 The agreement does not sell. The owner agrees to sell.