Decision will be entered for the petitioner in docket No. 4230-65.
Decision will be entered for the respondent in docket No. 1739-66.
H and W were divorced on Nov. 5, 1953. On Oct. 15, 1953, they entered into a property settlement agreement under which H became obligated to pay W a lump sum of $ 5,000 and monthly payments of $ 125 until such monthly payments equaled $ 15,000, the making of said payments being conditioned on the subsequent entry of a divorce decree. The laws of the State in which H and W resided (Maryland) provided that such an agreement was valid and binding on the parties thereto and would be set aside or modified by the divorce court only upon proof of collusion, mistake, or fraud. H paid W $ 5,000 on Nov. 5, 1953, and made the first monthly payment to W on Dec. 5, 1953. Held, that the legal obligation of H to make the payments to W was incurred under the agreement of Oct. 15, 1953, that the date when the last payment was due and payable was not before Nov. 4, 1963, and that, therefore, such payments were periodic payments under sec. 71(c)(2), I.R.C. 1954.
*452 In docket No. 4230-65, respondent determined deficiencies in the income tax liability of petitioner Gordon L. Munderloh in the amounts of $ 393.79, $ 390, and $ 446.63, for the calendar years 1959, 1960, and 1961, respectively.
In docket No. 1739-66, respondent determined deficiencies in the income tax liability of petitioners Walter and Ruth Posch in the amounts of $ 305.59, $ 300, and $ 155.77, for the calendar years 1960, 1961, and 1962, respectively.
The two cases have been consolidated for trial and opinion.
Ruth Posch was at one time the wife of Gordon L. Munderloh. They were divorced on November 5, 1953. On October 15, 1953, they entered into a property settlement agreement providing inter alia that, upon the entry of a decree of divorce, Gordon would pay to Ruth a lump sum of $ 5,000 and monthly payments of $ 125 until such payments equaled $ 15,000. The $ 5,000 was paid on November 5, 1953, the date of the divorce decree. The first monthly payment was made on December 5, 1953.
Gordon deducted these monthly payments from his gross income in the years in question. Petitioners Posch failed to include in income any of the payments so received. *85 Respondent, in order to protect the revenue, determined deficiencies in the tax of both petitioners. His *453 position is similar to that of a stakeholder, conceding that the tax is due in only one of the two dockets.
FINDINGS OF FACT
Some of the facts have been stipulated by the parties, and we incorporate their stipulation, together with attached exhibits, by this reference.
The petitioner in docket No. 4230-65, Gordon L. Munderloh, sometimes referred to herein as Gordon, is a resident of Baltimore, Md., and filed a joint income tax return with Christine A. Munderloh for the calendar years 1959, 1960, and 1961 with the district director of internal revenue, Baltimore, Md.
The petitioners in docket No. 1739-66, Walter H. Posch and Ruth Posch, sometimes referred to herein as Ruth, are residents of Allentown, Pa., and filed joint income tax returns for the calendar years 1960, 1961, and 1962 with the district director of internal revenue, Philadelphia, Pa.
Ruth and Gordon were married on August 10, 1941. On October 15, 1953, they entered into an agreement referred to by the parties as a stipulation, hereinafter referred to by us as the agreement, which reads as follows:
This Stipulation made *86 this 15th day of October in the year Nineteen Hundred and Fifty-three, by and between RUTH S. MUNDERLOH, of the first part, (hereinafter sometimes called "wife") and GORDON L. MUNDERLOH, of the second part, (hereinafter sometimes called "husband"), witnesseth as follows:
Whereas, the parties hereto intermarried on the tenth day of August, 1941, in the City of Baltimore, State of Maryland, with two children having been born to them, whose names and ages are as follows:
Roger Alan Munderloh, eleven years old
Genie Ann Munderloh, three years old
Whereas the parties hereto now live separate and apart because of differences which have existed and which do now exist between them, and
Whereas it is the desire of both of the parties hereto to enter into an agreement regarding personal and property rights, as authorized by Chapter 220, of the Acts of 1931 of the General Assembly of Maryland.
Now Therefore, in consideration of the premises, promises and agreements herein contained and the sum of one dollar ($ 1.00) paid by each party to the other, the receipt of which is hereby acknowledged, the parties mutually covenant and agree as follows:
1. The husband does hereby
(a) agree that in the event a *87 decree for a divorce a vinculo matrimonii is entered in favor of the wife, that he will immediately thereafter in lieu of any claims that the wife may have against him for the payment of alimony pendente lite, permanent alimony, maintenance and support, pay unto the wife the sum of Five Thousand Dollars ($ 5,000.00); and in addition to the payment of said lump sum of Five Thousand Dollars, he shall pay the wife the sum of One Hundred Twenty-five Dollars ($ 125.00) per month during her lifetime until the aggregate of said monthly payment [sic] of One Hundred Twenty-five Dollars shall equal the sum of Fifteen Thousand Dollars ($ 15,000.00); and if the wife *454 shall die before all of the aforesaid monthly payments have been made totaling Fifteen Thousand Dollars ($ 15,000.00), then the balance of said monthly payments shall be made payable to the guardian of said children of the parties until the total sum of Fifteen Thousand Dollars ($ 15,000.00) shall have been paid and if the husband shall die before all of the aforesaid monthly payments have been made then the balance of said monthly payments shall be payable out of his Estate.
(b) agree to pay direct unto the wife the sum of twenty-five *88 dollars ($ 25.00) per week for the support of each of the two minor children of the parties until each child attains his or her majority or becomes self-supporting, whichever shall first occur, subject to the further order of the court in the premises.
(c) agree that all of the furniture, silverware, china, and household effects and equipment presently located in the premises at 3106 Walbrook Avenue, Baltimore, Maryland, shall be the sole property of the wife upon termination of the lease presently existing on said premises.
(d) agree to release, waive, surrender and assign to the said wife, her heirs, personal representatives, legatees, devisees, and assigns, all his right, claim or title to participate in any manner whatsoever in the enjoyment of the real or personal estate of which the said wife may be possessed at the time of her decease, or to obtain or receive any dower or husband's rights therein; and the said husband hereby covenants and agrees that at any time after the execution of these presents, he will, at the request and expense of said wife, execute, acknowledge and deliver to the said wife or her grantee or grantees, any proper deed or conveyance so as to bar the dower *89 or other marital rights of the husband in any property now or heretofore owned or which may hereafter be acquired by the said wife wherever said property may be situate, and the said husband hereby expressly covenants and agrees that he will at any time in the future at the request and expense of said wife execute and deliver such deeds and assurances as may be necessary to carry out the purposes of the agreement.
(e) agree that he will not contract any debts, charges, or liabilities for which his wife may be liable and that he will at all times keep the wife free, harmless and indemnified from any and all debts, charges and liabilities hereafter contracted by him.
(f) agree that said wife may at all times hereafter live separate and apart from the said husband free from his authority and that he will not hereafter endeavor to compel said wife to cohabit with him or use any violence or restraint to her person or molest her in her way of living or interfere with her or her liberty.
2. The wife does hereby
(a) agree to release and discharge the husband from all other and further obligations to pay for her support and maintenance, except as provided herein.
(b) agree that she will not contract *90 any debts, charges or liabilities for which her husband may be liable and she will at all times keep the husband free, harmless, and indemnified from any and all debts, charges, and liabilities hereafter contracted by her.
(c) agree to release, waive, surrender and assign to the said husband, his heirs, personal representatives, legatees, devisees, and assigns, all her right, claim or title to participate in any manner whatsoever in the enjoyment of the real or personal estate of which the said husband may be possessed at the time of his decease, or to obtain or receive any dower or wife's right therein; and the said wife hereby covenants and agrees that at any time after the execution of these presents she will at the request and expense of said husband, execute, acknowledge and deliver to the said husband or his grantee or grantees, any proper deed or conveyance so as to bar the dower or other marital rights of the *455 wife in any property now or heretofore owned or which may hereafter be acquired by the said husband wherever said property may be situate, and the said wife hereby expressly covenants and agrees that she will at any time in the future at the request and expense of said *91 husband execute and deliver such deeds and assurances as may be necessary to carry out the purpose of this agreement.
(d) agree that said husband may at all times hereafter live separate and apart from the said wife free from her authority and that she will not hereafter endeavor to compel said husband to cohabit with her or use any violence or restraint to his person or molest him in his way of living or interfere with him or his liberty.
3. It is expressly stipulated and agreed between the parties hereto that the wife shall have the custody of the two minor children, Roger Alan Munderloh and Genie Ann Munderloh, and the husband shall be permitted to see the said children at all reasonable times, subject to the further order of the court in the premises.
4. If a decree of divorce, annulment of marriage or separation shall be made in any jurisdiction in any action or other proceedings between the parties hereto, the said decree shall make no provision for alimony or otherwise for the support and maintenance of the wife except as is herein provided, and this agreement and stipulation and all the essential parts thereof shall be incorporated in any decree hereinafter passed by any Court *92 of competent jurisdiction in any divorce proceedings that may be instituted; and the husband further agrees to pay the Court costs in any proceeding instituted by either party to obtain a decree of divorce.
5. It is expressly stipulated that neither of the parties hereto do waive or condone any cause for a divorce which either may now have or may hereafter have against the other; nor do either of the parties waive, relinquish or abandon any defense which either of them may have against any proceedings instituted by the other, said wife and husband to each retain and reserve unto herself and himself the right to begin and conclude such a proceeding or proceedings as he or she may deem convenient, necessary or proper to obtain a decree of divorce against the other.
6. That each of the parties hereto agrees that in the event of the death of the other, the surviving party will waive all rights to letters of administration to which such survivor might be entitled, and that each will permit any Will of the other to be probated and letters testamentary to be taken out by any person or corporation therein named as executor without opposition.
7. Any property now owned or hereafter acquired by *93 either party shall not be affected by the Community Property Laws of any State affecting such property, and each party hereby waives all rights which he or she now has or may have under the Community Property Laws of any State and agrees to execute such deeds, releases, or other instruments as may be necessary from time to time to bar, release or extinguish any rights which he or she may have by virtue of such Community Property Laws.
8. Each of the parties hereto does hereby covenant and agree to execute such other further instruments and to perform such acts as may reasonably be required to effectuate this agreement and stipulation.
9. And to these covenants and promises the parties hereto severally bind themselves, their heirs, executors, administrators and assigns.
In Witness Whereof the parties hereto have set their hands and seals the day and year first above written.
| James Cook | Ruth S. Munderloh [seal] |
| Gilbert I. Friedel | Gordon L. Munderloh [seal] |
*456 A decree of divorce dated November 5, 1953, in the Circuit Court of Baltimore City divorcing Ruth and Gordon approved the agreement of October 15, 1953. The copy of the decree stipulated by the parties herein reads as follows:
Decree of *94 Divorce Ruth S. Munderloh vs. Gordon L. Munderloh
In the Circuit Court of Baltimore City
November Term, 1953
This cause standing ready for hearing and being duly submitted, the proceedings were by the Court read and considered.
It is Thereupon, This 5th day of November, A.D. 1953 by the Circuit Court of Baltimore City, Adjudged, Ordered and Decreed, that the said
RUTH S. MUNDERLOH
the above named Complainant, be and She is hereby DIVORCED A VINCULO MATRIMONII, from the Defendant, the said GORDON L. MUNDERLOH.
And It Is Further Ordered that the Stipulation between the parties dated October 15, 1953, relative to the custody of the minor children of the parties, payments for the maintenance and support of said children, payments to the said complainant, and settlement of the property rights of the parties, be and the same is hereby approved; and in accordance with said Stipulation the said complainant shall have the guardianship and custody of ROGER ALAN MUNDERLOH and GENIE ANN MUNDERLOH, the minor children of the parties hereto, with the right to said defendant to see said children at all reasonable times, and the said defendant shall be charged with the maintenance and support of said children *95 in accordance therewith and the payments to the complainant as provided in said Stipulation, provided, however, that the said matters of guardianship, custody, maintenance and support of said children shall be subject to the further Order of the Court in the premises.
And it is Further Ordered, That the said Defendant, GORDON L. MUNDERLOH pay the cost of this proceeding.
Joseph R. Byrnes
I, HENRY J. RIPPERGER, Clerk of the Circuit Court of Baltimore City, do hereby certify that the above is a true copy of the decree taken from the record of proceedings in said cause.
In Testimony Whereof, I hereunto set my hand and affix the seal of the said Court, this 5th day of Nov. 1953.
(Signed) Henry J. Ripperger
Clerk Circuit Court of Baltimore City.
Pursuant to the agreement approved by the decree of divorce a $ 5,000 payment was made on November 5, 1953, by Gordon to Ruth. One month later, on December 5, 1953, Gordon made the first $ 125 payment, and thereafter made the $ 125 monthly payments until 1962, in which year he made payments for only the first 6 months. He has given a confessed judgment note to Ruth in the amount of $ 2,250, representing a $ 750 arrearage for 1962 and a $ 1,500 arrearage *96 for 1963.
The first four of the monthly checks received by Ruth were dated as of the 5th of December 1953, and the 5th of January, February, and March 1954, respectively. These checks were stamped "Paid" *457 by the payor bank, the Equitable Trust Co., a Baltimore, Md., bank, on December 10, 1953, January 11, February 9, and March 5, 1954, respectively. These checks were signed by Gordon but drawn and mailed by Gordon's attorney, Gilbert R. Friedel, because Gordon was living in Florida at the time. These were the only checks prepared and mailed by Friedel.
An analysis of Gordon's check stub books indicated that all of the monthly checks from December 5, 1953, to January 5, 1959, were dated as of the fifth of the month. These books further indicated that the checks were drawn "ahead of time" as they appeared out of chronological order with the other checks. For example, the stub for the monthly check dated February 5, 1954, was immediately followed in the book by two stubs dated December 16, 1953, and other stubs dated in December 1953 and January 1954.
The agreement was drafted primarily by Ruth's attorney, although counsel for Gordon participated in some changes in its final form.
OPINION
Periodic *97 payments received by a divorced wife after a divorce decree in discharge of a legal obligation arising out of the marital relationship and "imposed on or incurred by the husband under the decree or under a written instrument incident to [a] divorce" are includable in the wife's gross taxable income. Sec. 71(a)(1), I.R.C. 1954. 1 Section 215(a) 2*98 provides that such payments thus includable in the wife's gross income may ordinarily be deducted by the husband.
However, "installment payments discharging a part of an obligation the principal sum of which is * * * specified in the decree, instrument, or agreement shall not be treated as periodic payments" unless "by the terms of the decree, instrument, or agreement the principal sum * * * is to be paid or may be paid over a period ending more than 10 years from the date of such decree, instrument, or agreement*458 * * *." 3*99 (Emphasis supplied.) In the latter case the payments are to be considered as periodic payments includable in the wife's gross income and deductible from the husband's gross income rather than installment payments not includable in the wife's income and not deductible from the husband's gross income.
In these two cases, consolidated for trial and opinion, the respondent, in order to protect the revenue, has taken inconsistent positions. In the wife's case he has determined that the payments here involved were periodic payments taxable to the wife and deductible by the husband, and in the husband's case he has determined that the payments were installment payments not deductible by the husband since they were not includable as periodic payments in the wife's gross income. On brief he correctly likens *100 his position to that of a stakeholder. The real litigants herein are the divorced husband and divorced wife; if one prevails, the other must lose.
In determining whether the obligation referred to in section 71(c) is payable over a period more than 10 years or less than 10 years, it is necessary to determine the date when the obligation comes into existence and the date when the last payment called for thereunder becomes payable. The date when the obligation in this case came into existence depends upon whether the obligation was incurred under a written instrument incident to the divorce, i.e., the agreement, or was imposed by the divorce decree.
In the instant case the written agreement or instrument was executed by the husband and wife on October 15, 1953, but the payments called for thereunder were to be made by the husband only "in the event a decree for a divorce a vinculo matrimonii is entered in favor of the wife." 4 Therefore, the first question to be resolved in determining the date when the obligation came into existence is whether the condition stated in the agreement was a condition relating to the existence of the contract or was a condition relating to the duty of performance *101 thereunder.
*459 The distinction between these two conditions (a distinction which we consider vital in cases such as the one before us) is described in 5 Williston, Contracts, 5 sec. 666 (3d ed. 1961), as follows:
Sec. 666. What It Is Which Conditions Qualify. * * * In the law of contracts, conditions may relate to the existence of contracts or to the duty of immediate performance under them. n1 It is a source of confusion of thought that the word "condition" is frequently used without exact recognition of what the supposed condition qualifies.
Generally in contracts, when reference *102 is made to conditions, what is meant are conditions which become operative after formation of the contract and qualify the duty of immediate performance of a promise or promises thereunder -- not conditions which qualify the existence of a contract or promise. n2 * * *
* * * *
A condition may qualify the duty of immediate performance of one party or of both parties to the contract. 7 The fact that no duty of performance on either side can arise until the happening of a condition does not, however, make the validity of the contract depend upon its happening. 8*115 Whether there is a contract depends upon the right of the respective parties to enforce it in spite of an attempt by the other to revoke his promise. * * *
[Footnotes omitted.]
In our opinion the contingency or condition recited in the agreement was a condition relating to the duty of performing under the contract rather than a condition relating to the existence of the contract itself and, therefore, the obligation to make the payments here involved came into existence by reason of and at the time of the execution *103 of the agreement even though the duty of performance (i.e., the payments called for by the agreement) was contingent upon the occurrence of a future event (i.e., the entering of a divorce decree). Thus it was an obligation incurred by the husband under a written instrument incident to the divorce.
We base this conclusion on two interrelated considerations. We have first considered the law of Maryland, the State in which the petitioners resided and which was the forum for their divorce proceeding. The statutes of Maryland authorize husbands and wives contemplating divorce to enter into agreements regarding property rights. Article 16, Md. Ann. Code sec. 28, added by "Chapter 220 of the Acts of 1931 of the General Assembly of Maryland" (referred to specifically by the agreement), provides as follows:
Sec. 28. Effect of agreement and settlements between parties.
Any deed or agreement made between husband and wife respecting support, maintenance, property rights, or any settlement made in lieu of support, maintenance, property rights or personal rights shall be valid, binding and enforceable to every intent and purpose, and such deed or agreement shall not be a bar to an action for divorce, *104 either a vinculo matrimonii or a mensa et thoro, as the case may be, whether the cause for divorce existed at the time or arose prior or subsequent to the time of the execution of said deed or agreement, or whether *460 at the time of making such deed or agreement the parties were living together or apart; provided, that whenever any such deed or agreement shall make provision for or in any manner affect the care, custody, education or maintenance of any infant child or children of the parties the court shall have the right to modify such deed or agreement in respect to such infants as to the court may seem proper, looking always to the best interests of such infants. (An. Code, 1951, § 37; 1939, § 42; 1924, § 39A; 1931, ch. 220.)
Such agreements regarding property rights are binding on the parties thereto as executed and cannot be modified or set aside by the court granting the divorce except on those grounds, such as collusion, mistake, or fraud, which would cause any contract to be modified or set aside by a court of equity. 6*105 Grossman v. Grossman, 234 Md. 139">234 Md. 139, 198 Atl. 2d. 260.
The parties to the agreement before us, after acknowledging the law of Maryland as enacted by chapter 220, of the Acts of 1931 of the General Assembly of Maryland, referred to above, as authorizing the agreement, and after reciting the contemporaneous passing of consideration, including the promises of the parties therein contained, used words in their present tense to state the fact that an agreement is made. For example, after stating that "it is the desire * * * of the parties * * * to enter into an agreement" it is provided that "now * * * the parties mutually covenant and agree" to do certain things, that "the wife does hereby agree" to do certain things, that "each of the parties * * * agrees" to certain things, and that "each party * * * waives" certain rights. Thus, the terms used by the parties in the agreement indicate that they intended to enter into a contract which would effectively impose mutual obligations upon its execution even though the *106 duties and obligations assumed were to be performed in the future and as to one obligation (the duty of the husband to make payments to the wife) was conditioned as to performance upon the occurrence of a future event. And, as we have pointed out, under the law of Maryland the parties were authorized to make such an agreement with regard to property rights which could be set aside or modified by the Maryland courts only upon a showing of grounds for equitable relief such as collusion, mistake, or fraud, none of which is even suggested by the parties as existing in this case.
Limiting our decision to the particular agreement before us and to the particular jurisdiction of Maryland, we conclude that the obligations set out in the agreement (including the contingent obligation to make payments thereunder) arose from and at the time of the *461 execution of the agreement on October 15, 1953, and were incurred thereunder.
The parties have referred us to three cases involving the question of whether the date of the agreement between husband and wife antecedent to a divorce or the subsequent divorce decree adopting that agreement should be deemed to be the date when the obligation to make payments *107 was "imposed * * * or incurred" as the starting point in computing the 10-year period referred to in section 71(c)(2). See Blum v. Commissioner, 177 F.2d 670">177 F. 2d 670, reversing a Memorandum Opinion of this Court; Commissioner v. Blum, 177">187 F. 2d 177, reversing 10 T.C. 1131">10 T.C. 1131; Commissioner v. Newman, 248 F.2d 473">248 F. 2d 473, affirming 26 T.C. 717">26 T.C. 717. This question was also involved in the case of Spicknall's Estate v. Commissioner, 285 F. 2d 561, reversing a Memorandum Opinion of this Court. In the instant case, as we have found, both the intent of the parties as evidenced by the language used by them in their agreement and the applicable State law regarding the validity of such an agreement require a conclusion that the obligation of Gordon arose under the agreement and the entering of a divorce decree merely conditioned performance under the agreement rather than the existence thereof. Because the language chosen by the parties in the agreements involved in the above-cited cases differed from the agreement in the instant case, and because none of those cases involved an application of the law of the State of Maryland we do not feel that any of them is controlling in this proceeding. In the Blum cases, *108 both of which involved the same written agreement, the agreement "was expressly declared by both parties to be effective only in the event that * * * [the court] shall enter a decree of divorce severing the bonds of matrimony existing between them." Tillie Blum, 10 T.C. 1131">10 T.C. 1131, 1132. We thought that the parties to that agreement had evidenced by the quoted language a clear intent that the very existence of their contract depended upon the entry of a divorce decree between the parties. We therefore decided that the 10-year period began to run from the date the divorce decree was entered. The Seventh Circuit disagreed and held that the obligation arose as of the date of the agreement. See Commissioner v. Blum, supra, and the dictum of the Court of Appeals in Blum v. Commissioner, supra.
In the Newman case, the decree of divorce made material alterations in the agreement of the parties as originally entered into by them, something which the divorce court in this case did not do and which, under the law of Maryland, it could not do. Under those circumstances we held in the Newman case that the obligation arose out of the decree of divorce, 26 T.C. 717">26 T.C. 717, and the Eighth Circuit affirmed *109 our decision, 248 F. 2d 473.
*462 In the Spicknall case, involving an agreement different from that in the instant case, we decided that the agreement indicated the parties intended that the obligation arise under the decree of divorce rather than the prior agreement, which we found to be "wholly ineffective without the decree." Estate of Fred L. Spicknall, T.C. Memo. 1959-213 (p. 8). This being the case, we felt it irrelevant whether the divorce court was or was not free to alter the terms of the prior agreement under the law of Missouri. The Eighth Circuit reversed this Court and held that the obligation arose out of the agreement rather than the divorce decree.
Because of the particular facts of this case and the law of the particular jurisdiction involved we do not consider our decision to be either compelled by, or inconsistent with the holding in any of the cases herein discussed. While we are not in disagreement with the decisions of this Court in the cited cases as limited to the facts and local law appearing therein we are disinclined to agree with any language which may have been used in the opinions in those cases indicating a view that, as a matter of law and without regard *110 to the terms of the particular agreement or the law of the State granting the divorce the obligation to make payments in connection with the settlement of property rights arises in all cases out of the divorce decree and is "imposed" thereby merely because a duty of performance with regard to making the payments called for by the agreement is conditioned upon the entry of the divorce decree.
We think that the approach which we have taken in the instant case finds support in the reasoning of both the majority and the dissenting opinions in the case of Harris v. Commissioner, 340 U.S. 106">340 U.S. 106. While the Harris case involved a question arising under the gift tax provisions of the Internal Revenue Code, it was concerned with the problem of whether certain payments made by one divorced spouse to the other were "founded" on a property settlement agreement made by the parties prior to a divorce or were "founded" on the divorce decree later entered. The agreement in that case, like the agreement in the Blum cases, indicated the intent of the parties that the agreement should "not become operative in any manner nor * * * the covenants * * * [therein] become binding on either party unless a decree *111 of absolute divorce * * * should be entered in the pending Nevada action." Harris v. Commissioner, supra at 110. Nevada law, unlike the law of Maryland "not only authorized but instructed the divorce court to decree a just and equitable disposition of * * * the * * * property of the parties." Harris v. Commissioner, supra at 109. Mr. Justice Douglas, writing the majority opinion on behalf of himself and four other justices, held the view that the payments were "founded" on the divorce decree, pointing *463 out that where the divorce court was free to alter the agreement of the parties, "The happenstance that the divorce court might approve the entire settlement, or modify it in unsubstantial details, or work out material changes seems to us unimportant." Harris v. Commissioner, supra at 110. Mr. Justice Frankfurter, writing a dissenting opinion on behalf of himself and three other justices, held the view that the payments were "founded" on the agreement of the parties, because the agreement recited that it should survive the divorce decree. Although the Harris case arose under a different chapter of the Internal Revenue Code, involved an agreement materially different from that in the *112 instant case, and required consideration of State law (Nevada) differing from that relevant herein (Maryland), both the majority opinion and the dissenting opinion looked to the wording of the agreement and to the provisions of the law of the State granting divorce in a consideration of the question whether the payments involved were "founded" on the agreement or on the divorce decree. Cf. Estate of Morrison T. O'Nan, 47 T.C. 648">47 T.C. 648. 7
We now turn to a consideration of the question of when the last payment called for by the agreement was due and payable. In this connection we point out that the 10-year period referred to in section 71 is computed not from the date when the first payment "is to be paid or may be paid" to the date when the last payment "is to be paid or may be paid" but "from the date of [the] decree, instrument, or agreement" under which the obligation to make the payments "is imposed on or incurred *113 by the husband" to the date when the last payment "is to be paid or may be paid."
The divorced wife contends that the first payment was due and payable on November 5, 1953, that the last payment was consequently due and payable on October 5, 1963, which would fall within a 10-year period beginning either October 15, 1953 (the date of the execution of the agreement), or November 5, 1953 (the date of the divorce decree), and that, therefore, the payments were installment payments rather than periodic payments. She argues that the adverb "immediately" as used in the first clause of paragraph 1. (a) of the agreement which provides that husband will pay to the wife a lump sum of $ 5,000 immediately after a decree of divorce is entered should also be considered as applying to the husband's undertaking set out in the second clause of that paragraph (separated from the first by a semicolon) that he would "pay the wife the sum of One Hundred Twenty-five Dollars *464 ($ 125) per month during her lifetime until the aggregate of said monthly payment [sic] * * * shall equal the sum of Fifteen Thousand Dollars ($ 15,000)." She further argues that this construction would make the agreement truly reflect *114 the intention of the parties thereto at the time it was executed. We are unable to accept the testimony of the wife that the parties intended by the agreement that the first of the $ 125 payments was to be made immediately after the decree was entered and at the same time the lump-sum payment of $ 5,000 was called for, 8 and reject her argument that the first $ 125 payment was due and payable on November 5, 1953. Such a construction, which would entail a material revision in the literal and grammatical reading of the agreement, would be inconsistent with the contemporaneous actions of the parties thereto and contrary to customary commercial practice in transactions involving a downpayment to be followed by periodic installment payments. If the parties had intended that payments totaling $ 5,125 were to be made to the wife immediately after the entering of the decree the natural provision to have been made in the agreement would have been for the payment of a lump sum of $ 5,125 instead of two payments of $ 5,000 and $ 125 each. We are persuaded that the wife's present recollection of the transaction is distorted by the exigencies of this tax litigation.
The construction of the agreement most favorable to the position of the divorced wife which we are able to make is that it called for the payment of the lump sum of $ 5,000 immediately after the divorce decree was entered and for the payment of $ 125 during the month immediately thereafter to be followed by similar monthly payments during succeeding months until such monthly payments totaled $ 15,000. Thus the first monthly payment would be due and payable on December 4, 1953, and the last payment would be due and payable on November 4, 1963. United States v. Reis, 214 F. 2d 327. Cf. Furrow v. Commissioner, 292 F.2d 604">292 F. 2d 604, affirming 34 T.C. 931">34 T.C. 931. See, also, Brun v. Northern Life Ins. Co., 16 Wash. 2d 504, 134 P.2d 84">134 P. 2d 84.
Since November 4, 1963, is more than 10 years after October 15, 1953, we conclude that the monthly payments called for by the agreement were periodic payments rather than installment payments. Accordingly,
Decision will be entered for the petitioner in docket No. 4230-65.
Decision *116 will be entered for the respondent in docket No. 1739-66.
Footnotes
1. SEC. 71. ALIMONY AND SEPARATE MAINTENANCE PAYMENTS.
(a) General Rule. --
(1) Decree of divorce or separate maintenance. -- If a wife is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, the wife's gross income includes periodic payments (whether or not made at regular intervals) received after such decree in discharge of (or attributable to property transferred, in trust or otherwise, in discharge of) a legal obligation which, because of the marital or family relationship, is imposed on or incurred by the husband under the decree or under a written instrument incident to such divorce or separation.↩
2. SEC. 215. ALIMONY, ETC., PAYMENTS.
(a) General Rule. -- In the case of a husband described in section 71, there shall be allowed as a deduction amounts includible under section 71 in the gross income of his wife, payment of which is made within the husband's taxable year. No deduction shall be allowed under the preceding sentence with respect to any payment if, by reason of section 71(d) or 682↩, the amount thereof is not includible in the husband's gross income.
3. SEC. 71. ALIMONY AND SEPARATE MAINTENANCE PAYMENTS.
(c) Principal Sum Paid in Installments. --
(1) General rule. -- For purposes of subsection (a), installment payments discharging a part of an obligation the principal sum of which is, either in terms of money or property, specified in the decree, instrument, or agreement shall not be treated as periodic payments.
(2) Where period for payment is more than 10 years. -- If, by the terms of the decree, instrument, or agreement, the principal sum referred to in paragraph (1) is to be paid or may be paid over a period ending more than 10 years from the date of such decree, instrument, or agreement, then (notwithstanding paragraph (1)) the installment payments shall be treated as periodic payments for purposes of subsection (a) * * *↩
4. The only evidence in the record relating to the date when the decree was "entered" is the copy of the decree itself dated Nov. 5, 1953, and the certificate of the clerk of the Circuit Court of Baltimore City, appended thereto to the effect that the copy introduced in evidence was "a true copy of the decree taken from the record of proceedings in said [divorce] cause." This certificate itself is dated Nov. 5, 1953. None of the parties argues that the date when the decree was entered was later than Nov. 5, 1953. On the record before us we have taken Nov. 5, 1953, as the date when the divorce decree was "entered."↩
5. One of the few treatises of an authentic American jurisconsult which in our opinion can be properly cited as authority.↩
7. Neither the majority opinion nor the dissenting opinion in the Harris case referred to any of the four cases which we have discussed and analyzed, supra. The same observation may be made with regard to our opinion in the recent case of Estate of Morrison T. O'Nan, infra↩.
8. The testimony of the wife's attorney which was intended to corroborate her own testimony was inconclusive and to some extent inconsistent and was based on his memory of the transaction which as he acknowledged was extremely hazy.
6. This statement does not apply to alimony payments. However, the payments here involved did not constitute alimony since the obligation to make them survived the husband's death, see Woodham v. Woodham, 235 Md. 356">235 Md. 356, 201 Atl. 2d. 674; Schroeder v. Schroeder, 234 Md. 462">234 Md. 462, 200 Atl. 2d. 42↩, and none of the parties contends to the contrary.