*511OPINION.
Morris: The solution of the question presented by this appeal depends upon the construction to be placed on the contract entered into on March 10, 1910, by and between the Edgewood Improvement Association and the partnership of Grover and Layman, outlined in *512tbe findings of fact. The taxpayer contends that, regardless of the form of the written instrument, it was intended by the parties thereto to be a contract for the sale by the Association to the partnership of the lots therein described, and that the partnership had, on March 1, 1913, an interest in the unsold lots and outstanding contracts of sale, which should be taken into consideration in determining the partnership income for the years 1917 to 1920, inclusive, arising from the sale of the lots and the collections on the contracts. The taxpayer also urges that, even if the contract of March 10, 1910, be construed as merely creating the partnership the agent of the Association to sell the lots in question, the partnership acquired, in addition to the power to sell the lots, an interest therein and in all contracts of sale thereof, and that the interest so acquired had a value on March 1, 1913, Avhich must be considered in computing the partnership income in subsequent years. The Commissioner contends that the contract of March 10, 1910, created the partnership the agent of the Association to perform certain services for which payment was to be made upon completion, and that the partnership did not on March 1, 1913, have any interest in the lots and sales contracts involved herein.
Even if the Commissioner’s construction of the contract of March 10,1910, be correct, which, for the reasons hereinafter set forth we do not think is the case, his determination of the partnership income for the years 1917 to 1920, inclusive, is, nevertheless, incorrect. The services rendered by the partnership were completed in the year 1917, and the unsold lots and outstanding contracts of sale were conveyed to it by. the Association in the year 1918. Therefore, if the contract was only for services to be performed by the partnership and to be paid for on completion, it follows that the compensation for such services was income to the partnership in the year 1917 or the year 1918, depending on whether it kept its books on the cash receipts and disbursements basis or the accrual basis. If its books were kept on the accrual basis, the unsold lots and outstanding contracts of sale were income to the partnership in the year 1917, to the extent of their fair market value at the time the partnership completed the services under the contract of March 10, 1910. If the partnership’s books were kept on the cash receipts and disbursements basis, the partnership received income in the year 1918, to the extent of the fair market value of the unsold lots and outstanding contracts of sale, at the time they were conveyed or assigned to it by the Association.
The evidence in this appeal establishes that the partnership agreed to purchase and the Association agreed to sell to it certain lots for $253,608.85, payable over a term of years. The Association was, *513however, unwilling to convey the legal title to the lots unless it received a substantial initial payment, which the partnership was unable to make at that time. The partnership therefore suggested to the officers of the Association that the Association retain the legal title to the lots as security for payment of the purchase price, that it .accept and receive annual payments thereon of not less than $30,000 ■cash, and that the partnership, in lieu of the down payment, would enter upon and improve, advertise and market the lots at its own expense in the same manner as if it held legal title thereto, substantially all of the amounts derived from the sale thereof to be turned •over by the partnership to the Association and credited upon the agreed purchase price of $253,608.85 for the entire tract. The Association agreed to the terms proposed by the partnership and instructed its president to enter into a contract of sale to carry out those terms. The result was the written instrument herein referred to as the contract of March 10, 1910. The partnership, under that contract, immediately entered upon the lots and improved, advertised .and sold them at its own expense. As the selling price of the lots was collected, 90 per cent thereof was turned over to the Association and applied on the amount for which the Association had agreed to sell the entire tract to the partnership. The payment of the entire amount of $253,608.85 was finally completed by the partnership in the year 1917 and the Association.shortly thereafter conveyed to the •partnership the legal title to the lots remaining unsold and also assigned to it all outstanding contracts of sale.
At the hearing, two members of the partnership, and also the president of the Association, who executed the contract of March 10, 1910, on behalf of the Association, testified that it was intended by the parties to that contract to provide thereby for the sale by the Association to the partnership of the lots described therein for $253,608.85, the Association to retain title thereto merely as security for the payment of the purchase price. Counsel for the Commissioner objected to the admission of this testimony on the ground that the instrument is free from any ambiguity and speaks for itself and that its terms can not be varied or changed by parol evidence. We think the testimony is competent and admissible. As this Board has said heretofore, in the Appeal of Converse & Co., 1 B. T. A. 742:
The rule against varying or contradicting writings by parol evidence obtains only in suits between and is confined to parties to the writing- and tbeir privies and has no operation with respect to third persons nor even upon the parties themselves in controversies with third persons. Sigua Iron Co. v. Greene, 88 Fed. 207; O’Shea v. New York, C. & St. L. R. Co., 105 Fed. 559; Mitchell v. McShane Lumber Co., 220 Fed. 878.
From the evidence in this appeal, we are of the opinion that it was intended by the parties to the instrument of March 10, 1910, to con*514tract for the sale to the partnership of the lots in question for the sum of $253,608.85, and that the partnership on March 1, 1913, had an equitable interest in the lots, which at that time had not been conveyed to third parties, and in the outstanding contracts of sale.
In view of what we have hereinabove said, there only remains for determination the question as to the value on March 1, 1913, of the interest of the partnership in the lots and sales contracts referred to. The evidence clearly shows, to our mind, that on that date there were 481 of the 1,462 lots involved herein unsold or not under contract of sale to third parties and that these lots had a fair market value at that time of $197,008.48. The fair market value of the outstanding contracts of sale, on which payments were being made, is shown by the evidence to have been $225,977.13 on March 1, 1913. The partnership at that time still owed the Association, under the contract of March 10, 1910, the amount of $143,555.24. The value of the partnership’s interest in the lots and sales contracts was, therefore, $279,430.37 on March 1, 1913, and that value should be taken into consideration in computing the partnership income for the years 1917 to 1920, inclusive, arising from the sale of the lots and collections on the contracts, and the taxpayer’s distributive share of the partnership income should be adjusted accordingly.