dissenting: The deficiency herein is based on the respondent’s determination that petitioner realized unreported gain on the sale by petitioner of the apartment house property to Louben, Inc. If such sale was made by petitioner, unreported gain thereon was realized as determined by respondent. The sole issue presented is whether petitioner made the sale in question or whether it was made by the individuals who were the stockholders of petitioner. Respondent contends that petitioner made the sale. Petitioner contends contra. Most of the facts warranted by the evidence and some that are not are set forth in the majority report. I will point out and discuss below what I deem to be erroneous findings of fact in the majority report.
In support of the conclusion reached by the majority that petitioner made the sale in question, reliance is placed principally upon the holding in Commissioner v. Court Holding Co., 324 U. S. 331, affirming 2 T. C. 531, and Fairfield Steamship Corporation, 5 T. C. 566. The Fairfield case was affirmed (CCA-2), 157 Fed. (2d) 321, but reference thereto is made in the majority report only in an incidental way. It is apparent that the reason for the slight attention paid to the Circuit Court’s opinion rests in the fact that the Circuit Court affirmatively rejected as untenable the ground (here relied upon by the majority) on which this Court based its holding and affirmed this Court’s decision on a ground which is not present under the facts in the instant case.
Unquestionably, all the evidence in the instant case supports the fact that the sale here in question was intended to be made, and was made, not by petitioner, but by the individuals who were the stockholders of petitioner. Moreover, the evidence in the instant case conclusively establishes that there was a complete liquidation of petitioner before the sale in question to Louben, Inc., was effected.
A similar state of facts was established in the Fairfield case, except in that case the Circuit Court held that there was not a liquidation. Tho Circuit Court, in its opinion in the Fairfield case, said:
A majority of the Tux Court thought, because the negotiations had neon concluded by a satisfactory offer before the Fairfield Company transferred the ship, that tlie sale was to be imputed to that company. They did not hold, and Indeed they could not properly have held, that as matter of fact the shareholders of the Atlantic Company ever meant the Fairfield Company to sell the ship; on the contrary the shareholders had most carefully provided the contrary. Thus, so far as tiie transaction depended upon the actual intent of the only parties who could have any intent, It is impossible to find support in the record for a finding that the Fairfield Company made the sale; and if that was the legal result of what they did, it was imposed upon the transaction in spite of their intent. The case is further complicated by the fact that the majority relied for their decision upon an interpretation of Commissioner v. Court Holding Co., 324 U. S. 331, to which we cannot agree. On the contrary we think that the minority were right in believing that that case turned upon the fact that all the preliminary negotiations had been made expressly with the corporation; and that it was only after the bargain had been struck, that the service of a liquidation was brought in as deus ex machina. The contrary was true here.
The Circuit Court’s statement above quoted carries its own proof of correctness and slips from under the majority opinion in the instant case the ground upon which the conclusion therein is based.
The Court Holding Co. case is not comparable in its facts either to the instant case or the Fairfield case. The Court Holding Co. owned as its sole asset an apartment house. Negotiation between it and its lessees of the property for sale to the lessees was entered into and the terms of sale were agreed upon. A certain amount of the purchase price was paid to the corporation. To avoid heavy taxes the property in question was transferred in the form of a liquidating dividend to the corporation’s stockholders, who in turn completed the sale by conveying the property to the vendees on substantially the same terms agreed upon between the latter and the corporation. Also, in that transaction credit of the purchase price for the amount paid the corporation was given.
It is apparent, therefore, that the Court Holding Co. case can not properly be deemed authority for the holding of the majority in the instant case.
The evidence and the facts found by the majority show conclusively that on March 31, 1944, the stockholders surrendered for cancellation all of the outstanding shares of petitioner’s stock and on that day received as a liquidating dividend all of petitioner’s assets, including the apartment house property. This constituted a complete liquidation of petitioner and effected its dissolution. Fairfield Steamship Corporation (CCA), supra. The Circuit Court affirmed this Court in the Fairfield case on the ground that there had not been a liquidation of the Fairfield Steamship Corporation and hence no dissolution thereof at the time of the sale of the property there involved. Hence, the ground upon which the Circuit Court affirmed this Court in the Fairfield case does not exist in the instant case. It follows that on the basis of the facts here the Circuit Court’s opinion is in direct opposition to the holding of the majority in the instant case.
The fact that petitioner’s stockholders did not have title to the apartment house property during the negotiations for its sale by them was no legal deterrent to such negotiations and contract of sale. The stockholders were in control of petitioner. They knew that they could cause petitioner to carry out the liquidation plan whereby they would acquire title to the property through a liquidation distribution. They knew by reason of such circumstances that they would be in a position to effect a sale of the property in accordance with their contract so to do. In Howell Turpentine Co. v. Commissioner (CCA-5), 162 Fed. (2d) 319, the Circuit Court said:
But he may validly contract to sell it before any steps are taken towards liquidation, if he has a reasonable prospect of obtaining title to it within the time fixed by the contract for the conveyance. This is true of stockholders as it is of people in general who have a prospect of obtaining title and are willing to assume a personal liability if they should fail. “It Is not unusual for persons to agree to convey by a certain time notwithstanding they have no title to the land at the time of the contract, and the validity of such agreements is upheld. In such cases the vendor assumes the risk of acquiring the title and making the conveyance, or responding in damages for the vendee’s loss of his bargain. * * * Whenever one is so situated with reference to a tract of land that he can acquire the title thereto, either by the voluntary act of the parties holding the title, or by proceedings at law or in equity, he is in position to make a valid agreement for the sale thereof, without disclosing the nature of his title.”
It may be appropriately noted at this point that the majority opinion goes contra to the Circuit Court’s holding in the Howell Turpentine case, which case I here cite as authority in support of my individual views herein expressed.
The majority report recites as one of its findings of fact that:
A firm of attorneys was retained in connection with drafting the contract to sell the Center Court Apartments to Louben, Inc. Their charge for this was $1,500. Columbia’s return for 1944 showed a deduction in the amount of $1,500 for “legal expenses.”
It is obviously intended from this finding to convey the meaning that petitioner paid for attorneys’ services in connection with the transaction of sale of the apartment house property to Louben, Inc. The evidence is positive and uncontradicted that the $1,500 for legal expenses referred to in the quoted finding of fact had no connection with the apartment house sale transaction. The úncontradicted evidence is that $1,500 for legal services was paid by the West Penn Eealty Co., a partnership composed of petitioner’s stockholders, and was paid for and on their behalf.
Among the findings of fact in the majority report is the following:
During the above negotiations and during subsequent transactions with Louben, Inc., Samuel Hyman was president of, and as such was authorized to negotiate for, petitioner. He was also authorized to act for his wife and daughters.
I respectfully submit that there is no evidence in the record to support the statement in such finding that Samuel Hyman was authorized to negotiate the sale in question for petitioner. The uncontradicted evidence on this point is to the effect that Hyman was authorized to negotiate the sale for the stockholders of petitioner, and that the negotiations and sale were accordingly made. Samuel Hyman was neither a stockholder nor a director of petitioner. To authorize him to negotiate the sale for petitioner, action therefor by the board of directors, ratified by the stockholders, would have been necessary. No such action either by the board of directors or by the stockholders is in evidence or was had. Certainly, Hyman had no such authority merely by virtue of the fact that he was president of petitioner. ■
Finally, the majority makes the following finding of fact as the capstone of its fact edifice herein: “The executed sale of the Center Court Apartments was in substance the sale of petitioner.” This alleged finding is a mere conclusion, but whether it is one of fact or of law appears debatable. If it is a finding of fact, it is without basis in the evidence, and, lacking such basis, it is incorrect as a conclusion of law. Therefore, in the light of the evidence it is unwarranted either as a conclusion of fact or of law. It is a conclusion which in effect holds that, since petitioner, if it had so chosen, might have sold the property to Louben, Inc., it will be held to have done so even though the evidence is positive and uncontradicted that petitioner never intended to make the sale, conducted no negotiations for the sale, made no conveyance of the property to Louben, Inc., received none of the purchase price therefor and, in short, did not in fact make the sale. In other words, such conclusion of the majority is based solely on speculative potentialities which had no factual fruition. Imaginary concepts based on mere potentialities may be formulated in many entertaining ways, but never properly as the basis of judicial inference.
For the reasons above indicated, I respectfully dissent.
ARUNdell, VaN Fossan, Murdock, Black, and Tyson, JJ., agree with dissent.