*993 1. Where the evidence establishes that certain stock was owned by petitioner, his wife, and sister in approximately equal amounts and was issued in blocks corresponding to such ownership, though stock belonging to petitioner's sister was issued in petitioner's name solely to facilitate business dealings therein, and petitioner's books showed that all dividends were distributed to the real owners, and it appearing that petitioner acted as agent for himself, his wife, and his sister, the income realized as liquidated damages for failure of another to complete purchase of the stock is taxable to the three owners and not solely to petitioner, who made the contract to sell in his own name.
2. The proof revealing no intentional misrepresentation by petitioner or reliance thereon by the respondent to his injury, but showing, on the other hand, that a complete disclosure was made and full opportunity afforded respondent to ascertain the facts, estoppel does not lie.
*156 This proceeding*994 was brought to redetermine a deficiency in the income tax of the petitioner for the year 1929 in the sum of $42,019.18.
The petitioner, by amended petition, alleges that the respondent erred in:
(1) Including in the petitioner's gross income the sum of $286,500 which was not income to the petitioner.
(2) Taxing such income as was his as ordinary income instead of as capital net gain.
By his amended answer the respondent raised the issue of estoppel against the petitioner.
FINDINGS OF FACT.
In 1902 the petitioner, then a man of about thirty years of age, was administrator of the estate of his father, whose heirs were the petitioner's mother, Rebecca A. Johnson, his sister, Cliffe U. Johnson (who later married one Merriam), and himself. No distribution was made of the estate, but its funds were held in the name of the petitioner as trustee and its business affairs were so conducted. Later, the designation "trustee" was dropped, but the joint interests of the petitioner, his mother, and sister remained in the common account.
Farly in 1902 the petitioner, for the heirs, purchased a one-half interest in a note of O. D. Wetherell, secured by a majority of the *157 *995 stock of the National Life Insurance Co. of the United States of America (hereinafter called the company). In June of that year the petitioner purchased that stock for himself, his mother, his sister, and C. B. Shedd, a former associate of his father. The stock Purchased in his own name, was owned equally by Rebecca A. Johnson, Cliffe U. Johnson, and the petitioner. In 1907 the petitioner purchased Shedd's interest in the company and reduced its capital from $1,000,000 to $500,000. In that transaction he contributed some of his own property, thus increasing the proportion of his own interest in the company. Certificates of stock were made out in the name of the petitioner, his mother, and his sister, representing their respective interests, but since the petitioner had the control and the management of the financial affairs of his mother and sister, who lived in distant cities and traveled extensively, and since it was more convenient to carry all of the stock in his name, these certificates were never issued. New certificates, made out in the name of petitioner, but in blocks corresponding to the interests of the several owners, were accordingly issued. In 1908 the petitioner*996 gave his wife, Bessie M. Johnson, 1,050 shares, and certificates therefor were issued to her. From time to time he purchased small blocks from other stockholders, so that by 1915 he owned 1,000 shares.
In 1915 the petitioner's mother died, owning 1,210 shares. His sister owned a like number. Upon the mother's death her stock was divided equally between him and his sister. The petitioner later purchased 30 additional shares from R. E. Sackett. Therefore, the petitioner owned 1,635 shares, his wife 1,050, and his sister 1,815. That ratio of interest was preserved thereafter.
The petitioner's books of account showed in detail the respective interests of his wife, his sister, and himself. Subsequent to 1915 the dividends from he company stock owned by Bessie M. Johnson were paid directly to her, while dividends due to the petitioner and his sister were covered by two checks payable to him and representing their respective stockholdings. Thereupon petitioner credited to his sister on his books the proportion of each check represented by her stockholdings.
Subsequently the company declared two stock dividends of 100 percent each. Certificates for such dividends were issued*997 in blocks corresponding to the interests then held by the petitioner, his wife, and his sister and in the same names as the original certificates.
Through successive tax years the petitioner caused individual income tax returns to be prepared for himself, his wife, and his sister, reflecting the dividends from the company stock received by each through the petitioner, and proper taxes were paid accordingly.
On January 26, 1929, P. W. Chapman & Co. (hereinafter called the Chapman Co.) offered to purchase from the petitioner 90 percent *158 of the company stock at $1,000 per share. Upon the acceptance of the offer the petitioner, acting for himself, his wife, and his sister, agreed to sell and deliver such stock upon the following material conditions:
Upon your acceptance of this offer, you are to give to us, or to our duly authorized representatives, full and complete opportunity to make an examination and investigation of the affairs and financial condition of the Company, as disclosed by its books, records, accounts and contracts.
Certain assurances as to the amounts of the outstanding capital stock and the insurance in force and as to possible commitments, were*998 to be verified.
If you accept this offer, then we will deposit with a responsible bank or trust company in the City of Chicago, which shall be mutually satisfactory, as escrowee, the sum of Ninety Thousand Dollars ($90,000.) in cash, or United States Government bonds, (as we may elect) of an equivalent market value, which shall be applied upon the purchase price of said stock if and when we purchase same, in accordance with the terms hereof. If we find the condition of the Company as stated above, but do not purchase said stock, then you agree to accept said sum as liquidated damages and payment thereof shall discharge us from any and all claims that may arise out of this agreement.
Upon acceptance of the offer the Chapman Co. was to complete the examination of the affairs of the company within 45 days. If the condition of the company was as represented, the Chapman Co. was to notify the company in writing and within 30 days after the date of such notice, was to pay the balance of the purchase price. but upon the delivery of such notice the petitioner was to deliver properly endorsed stock certificates to the escrowee, whereupon the Chapman Co. was to deposit with it $360,000*999 additional to be applied on the purchase price.
If we do not consummate said purchase within said thirty (30) days, then said stock deposited by you and the sums specified above, in the hands of the escrowee, immediately shall be delivered to you by the escrowee, which sums you agree to accept as liquidated damages, and payment thereof shall discharge us from any and all claims that may arise out of this agreement.
If we purchase said stock in accordance with the terms hereof, then upon payment by us to the escrowee for your account of the balance of the purchase price, all of said stock held by the escrowee shall thereupon be delivered to us and the Ninety Thousand Dollars ($90,000.00) and the Three Hundred Sixty Thousand Dollars ($360,000.00), plus the balance of the purchase price, shall be delivered by the escrowee, to you.
In the event that the commitments, stock and outstanding insurance in force were not as represented, the Chapman Co. had the election of completing the purchase or terminating the agreement.
The offer was accepted and the Illinois Merchants Trust Co. agreed to act as escrowee.
*159 On February 26, 1929, the petitioner deposited with the*1000 escrowee certificates for 18,000 shares of the company stock, properly endorsed, and the Chapman Co. deposited the additional $360,000.
The certificates were listed as follows:
| Certificate | Name | Date | Shares |
| No. | |||
| 751 | A. M. Johnson | October 20, 1927 | 2,000 |
| 752 | A. M. Johnson | October 20, 1927 | 2,000 |
| 753 | A. M. Johnson | October 20, 1927 | 2,000 |
| 754 | A. M. Johnson | October 20, 1927 | 400 |
| 755 | A. M. Johnson | October 20, 1927 | 140 |
| 756 | Bessie M. Johnson | Octber 20, 1927 | 2,000 |
| 757 | Bessie M. Johnson | Octber 20, 1927 | 2,000 |
| 758 | Bessie M. Johnson | Octber 20, 1927 | 200 |
| 759 | A. M. Johnson | October 20, 1927 | 2,000 |
| 760 | A. M. Johnson | October 20, 1927 | 2,000 |
| 761 | A. M. Johnson | October 20, 1927 | 2,000 |
| 762 | A. M. Johnson | October 20, 1927 | 800 |
| 763 | A. M. Johnson | October 20, 1927 | 400 |
| 764 | A. M. Johnson | October 20, 1927 | 60 |
| Total | 18,000 |
On March 14, 1929, the petitioner agreed to extend the time for the payment of the remainder of the purchase price to May 15, 1929, provided the Chapman Co. would authorize the immediate payment to the petitioner of the $450,000 then on deposit. The Chapman Co. accepted the proposal and the payment was so made. *1001 On March 16, 1929, the entire $450,000 was placed to the credit of the petitioner and his wife in their joint bank account. The Chapman Co. failed to complete the contract. The $450,000 was forfeited and the company stock returned to the petitioner. Said sum of $450,000 was thereupon credited to the joint account of himself and wife and to the account of his sister on petitioner's books in amounts proportionate to their stock interest in the company.
The petitioner, acting for himself, his wife, and his sister, used the $450,000 in the construction of a rayon plant at Burlington, North Carolina, supplementing that amount with other funds from the joint account. The entire investment in the enterprise totaled between $1,500,000 and $1,750,000 and the interests of the owners were in the same proportion as their ownership of the company stock. During the construction of the rayon plant the legal title to it was taken in the petitioner's name. When it was completed the title was transferred to a corporation whose stock was owned by the petitioner, his wife, and sister in the same proportion as mentioned above.
On several occasions, in connection with other transactions, the*1002 petitioner made to the respondent's representatives a full disclosure of the true ownership of the company's stock. Such information also appeared on various forms or reports submitted by the company *160 to the Commissioner of Internal Revenue, prepared under the petitioner's direction. The books and records of the petitioner reflecting the ownership of the petitioner, his wife, and sister of the company stock were submitted to the respondent's agents long before the statute of limitations tolled against the taxation of Mrs. Merriam and Bessie M. Johnson.
In the petitioner's original petition he made no claim for relief on the ground that a portion of the $450,000 received in 1929 was the property of his wife and sister, but by amended petition filed October 20, 1932, he asserted his right to divide such sum.
A deduction of $72,893.13 for depreciation of the rayon plant depreciable assets was taken in the petitioner's return for 1929.
The petitioner and his wife made joint contributions to charity, but he claimed credit for the larger portion of them in his return.
OPINION.
VAN FOSSAN: The first issue for disposition is that of estoppel, raised by the respondent. *1003 The respondent, by amendment to his answer, alleges various facts as to petitioner's conduct, specifically, that he originally reported all of said sum of $450,000 as his income; that in his petition as originally filed, he made no claim that the whole thereof was not taxable to him; that thereafter in an amended petition, and after the statute of limitations had run against the right of the Commissioner to assess additional sums against petitioner's wife and sister, he, for the first time, asserted that he was not taxable on all of the sum of $450,000; wherefore, respondent claims petitioner is, and should be, estopped from now denying that said sum was all income to him for the year 1929.
We thus face the question whether the respondent's proof established the estoppel so pleaded. It is elemental that to establish an estoppel there must be a misleading. The party claiming estoppel must have been misled into altering his position to his injury. Such facts must appear in the proof. Lifewise, it is fundamental that the doctrine of equitable estoppel is essentially that of "good conscience." Therefore, where one with convenient opportunity to ascertain the real facts by the exercise*1004 of reasonable diligence neglects to do so, he will not be permitted to defeat another's just rights by urging an equitable estoppel upon his having acted to his disadvantage or having failed to act to his advantage in reliance upon the other's innocently mistaken representation regarding those facts, such representation not having been made for the purpose of inducing him so to act.
Here we fail to find in the record any proof that petitioner made any intentional misrepresentation intended to cause the Commissioner *161 to alter his position or to lull him into inaction. Moreover, the proof does not establish that respondent was without opportunity to ascertain the real facts before the statute of limitations had run against him. In fact, there is evidence showing that a complete disclosure of the respective holdings was made in reports to the Commissioner and in conferences with his representatives. Furthermore, the books reflected the ownership and were made available to the Commissioner's agents. Again, we are uninformed of any change in the Commissioner's conduct brought about by the alleged misrepresentation or of any injury caused him. In short, we are of the opinion*1005 that the facts adduced fail to establish a basis for applying the doctrine of estoppel. See .
The next question for decision is whether or not the $450,000 received as liquidated damages for the failure by Chapman Co. to carry out the contract of purchase of stock was ordinary income or was a capital gain.
The petitioner proceeds on the theory that the payments of $90,000 and $360,000 were made pursuant to the terms of a contract of sale of the company stock and, hence, related to the disposition of a capital asset held for more than two years. The petitioner's theory is based on a false premise. The payment was made not because of the disposition of a capital asset. It was a payment of liquidated damages for failure to complete a sale.
After the payment the petitioner had exactly the same capital assets as before the transaction was entered into. The entire transaction took place during the taxable year of 1929. Consequently, there is no basis for contending that the $450,000 income arose from the disposition of a capital asset. The income was ordinary income, taxable at the prescribed rates.
Having determined*1006 that the $450,000 received by the petitioner as liquidated damages constituted income taxable at ordinary rates, we must determine to whom such income is taxable. The respondent has held that the entire amount is taxable to the petitioner. In this we find him to be wrong. The evidence unmistakably shows that during the year 1929 and for many years before, the petitioner owned only 36.33+ percent of 90 percent (or 32.7 percent of the whole) of he outstanding capital stock of the National Life Insurance Co. of the United States of America. He had held the record title to the stock owned by his sister only in order to facilitate any possible transaction therein required to be made during her absence. His wife held the certificates to her own stock. He was the manager of the business affairs of all of them and had acted as such for many years. Though all dividends from the stock due to his sister and *162 himself were paid to him, they were in amounts based on the stock owned by them and in items corresponding to the real stock ownership, issued in his name, but in blocks of certificates segregated according to actual ownership. The dividends from stock owned by petitioner's*1007 wife were paid directly to her. The proof leaves no doubt as to the real ownership of the stock.
Similarly, we conclude that though the contract, the breach of which gave rise to the income in question, was negotiated by petitioner and signed in his own name, in this, as in other transactions, he was acting as a trustee or agent for his wife and sister, as well as for himself. That the stock was actually owned by the three persons in approximately equal amounts, though title to the sister's stock stood in petitioner's name, is clearly established. At all material times the stock belonging to petitioner's wife stood in her own name and was so listed in the notice to the escrowee. That all business affairs of the three were handled by petitioner is likewise clear. The proceeds from the Chapman transaction, i.e., the $450,000, were credited to the joint account of petitioner and his wife and the separate account of the sister in proportion to their stock ownership, and subsequently invested in the rayon plant, the stock of which was later issued in amounts corresponding to the three several interests in the National Life Insurance Co.
The practice of the family group by which*1008 all business affairs of the family generally were carried on in petitioner's name was a long established custom. The Chapman transaction was no exception. When he entered into the contract agreeing to sell the stock he was acting for and on behalf of his wife and sister as well as for himself. It follows that the $450,000 was received in this capacity and that only $163,500 of such sum was income to him.
Reviewed by the Board.
Decision will be entered under Rule 50.
SEAWELL, dissenting: I disagree with the conclusion reached in the foregoing case and with at least one statement of fact appearing therein. This statement of fact, which is the basis of the opinion, is indicated by the underscoring in the two excerpts copied as follows: "The proof leaves no doubt as to the real ownership of the stock. Similarly, we conclude that though the contract, the breach of which gave rise to the income in question, was negotiated by petitioner and signed in his own name, in this, as in other transactions, he was acting as a trustee or agent for his wife and sister, as well as for himself." and "when he [petitioner] entered into the contract [with *163 *1009 P. W. Chapman & Co.] agreeing to sell the stock he was acting for on behalf of his wife and sister as well as for himself."
A thorough perusal of the record will disclose no word of evidence to sustain the statements underscored, and there was no stipulation of any fact. Neither the wife nor the sister was a witness and although the petitioner was sworn and examined in his own behalf, his counsel, purposely or otherwise, failed to ask him any question tending to elicit any such testimony and petitioner volunteered none. No writing or oral evidence was produced for the purpose of showing that the wife or sister ever attempted in any way to constitute petitioner a "trustee" or "agent" for either of them in this transaction or any transaction looking to the sale of this or any other stock owned by them or either of them; and there was no evidence that the wife or sister ever knew the contract "which gave rise to the income in question" was executed or contemplated until after the forfeiture and payment of the "liquidated damages" to petitioner.
Apparently the ownership of the stock placed with the escrow agent has been permitted to determine the ownership of the "liquidated*1010 damages", although the contract was not for the sale of that particular stock, but any which petitioner might obtain.
Petitioner filed his income tax return, swearing that the $450,000 was his individual income (which was certainly not in conflict with the clear meaning and purport of the contract itself). The returns of petitioner's wife and sister, made out at practically the same time and apparently under the supervision of petitioner, included no part of that sum as income to either of them. Ordinarily it would require there is no basis for contending that the $450,000 income arose from under the three income tax returns and the subscribed oaths of the three interested persons. No mere conjecture arising from some remotely related circumstance would suffice.
Respondent had a right to rely and did rely, he says, upon the tax returns. Petitioner himself so relied and filed his petition before the Board. based on that reliance and continued to so rely until the statute of limitations had run in favor of the wife and sister, and then he changed front for his own advantage and to the disadvantage of the Commissioner. The Board and the courts have frequently said such change*1011 of attitude under such circumstances and with such a result will not be permitted.
BLACK agrees with this dissent.