*2134 1. Certain parties entered into a contract of sale of an interest in a partnership in November, 1921, and part of the consideration was paid at that time and on December 31, 1921, and vendor retired from partnership activities in November, 1921, but final papers and notes for deferred payments were not signed until January 5, 1922. Held that the sale was made in 1921.
2. Vendor and purchaser agreed that vendor should make draft on purchaser for $24,000 on December 31, 1921, and vendor did so through third party, who credited the drawer therewith on December 31, 1921, and was ready, able, and willing to pay same, if demanded. Held that this constituted a payment and receipt on December 31, 1921, although it was not called for or paid until January 3, 1922.
3. Facts of this case constitute installment sale.
*106 The Commissioner determined a deficiency in income tax of $10,871.65 against each of the petitioners for 1922. Petitioners are husband and wife and are residents*2135 of Texas, where community property laws prevail. The husband was a partner in an insurance agency and upon a sale of his interest therein the respondent determined the deficiencies above mentioned. Petitioners claim that respondent erred (1) in finding that the sale was a cash transaction concluded in 1922, instead of an installment sale made in 1921; (2) in finding that the payments of $1,000 to petitioner B. P. Bailey in November, 1921, and of a $24,000 draft on December 31, 1921, were received in 1922 instead of in 1921, and (3) in finding that the unsecured note of $175,000 of E. B. Trimble, payable in 60 monthly equal installments with 6 per cent interest, had a fair market value of the face of the note on January 5, 1922.
At the hearing the petitioners abandoned the last specification of error. It was agreed that the cases should be heard and considered together.
FINDINGS OF FACT.
The petitioner, B. P. Bailey, was for a number of years prior to 1922 an equal partner with Carr P. Collins in an insurance agency under the firm name of Bailey & Collins, with its principal office at Dallas, Tex. Bailey wished to dispose of his interest in the partnership. Collins undertook*2136 to interest E. G. Trimble, of Kansas City, Mo., in the purchase of Bailey's share and agreed with Trimble that he would take one-half of the Bailey share, thus making a new partnership in which Collins would own three-fourths and Trimble one-fourth. A personal conference was held on or about November 8, 1921, between Bailey and Trimble at Kansas City, and on November 9, 1921, Trimble wrote a letter to Bailey in which he offered to purchase Bailey's interest in the firm of Bailey & Collins for $200,000 and the payment of whatever income tax that might be assessed against Bailey on account of the transaction. The consideration was *107 to be paid $25,000 cash and 60 notes of $1,000 each, payable monthly, and one note for $115,000, payable in five years.
This offer culminated in the following written agreement of November 26, 1921:
MEMORANDUM OF AGREEMENT
WHEREAS, B. P. Bailey, member of the firm of Bailey & Collins of Dallas, Texas, desires to sell all of his interest, being one-half interest in the firm of Bailey & Collins, and WHEREAS E. G. Trimble of Kansas City, Missouri, desires to purchase said interest from B. P. Bailey, it is agreed as follows:
In consideration*2137 of $1,000 paid, receipt of which is hereby acknowledged, and the further agreement to pay $24,000 in cash on January 2, 1922, and the conveyance to said B. P. Bailey of 600 shares of the capital stock of the Ineeda Laundry & Cleaning Company, Houston, Texas, and note for $115,000 bearing interest at the rate of 6% per annum - note payable in sixty equal payments, the monthly payments being payable on or before the 2nd day of each month, together with interest on all unpaid instalments.
It is agreed that E. G. Trimble will pay any income tax which may become payable by B. P. Bailey to the United States Government on account of this sale and purchase.
It is further agreed that on or before January 2, 1922, B. P. Bailey will convey in formal manner all of the right, title and interest of every character which he may have in he firm of Bailey & Collins, and it is agreed by him that his interest is a one-half interest.
It is further agreed on the part of E. G. Trimble that he will enter into an agreement through which he guarantees B. P. Bailey against loss during six years next succeeding January 2, 1922, to the extent of $100 per share on the 600 shares of Ineeda Laundry and*2138 Cleaning Company Stock to be conveyed under definite agreement; and further agrees that on six months' notice at the end of the six years, that he will re-purchase the stock, if necessary, to prevent B. P. Bailey from having a loss thereon. The agreement shall provide that B. P. Bailey shall not sell any of this stock at a loss without giving said Trimble at least sixty days notice of his intention to sell it at a price lower than $100, and shall not be permitted to sell more than 100 shares of said stock at a loss within any one calendar year during the six years that this guaranty shall continue.
In connection with this guaranty, it is agreed that if obtainable, said Trimble shall procure $25,000 of life insurance payable to B. P. Bailey, and in the event of the death of said E. G. Trimble during the period of this guaranty, the assignment of $25,000 of insurance shall be in full liquidation of any damages that might accrue to said Bailey on this stock.
It is further understood and agreed that in the event of the inability of said Trimble to complete this transaction as of January 2, 1922, said Bailey shall have the right to retain the $1,000 as liquidated damages because*2139 of the failure of said Trimble to complete the contract.
Signed in duplicate at Kansas City, Missouri, this 26th day of November, 1921.
(Signed) B. P. BAILEY
E. G. TRIMBLEThis writing was endorsed by Collins, the other partner, on December 3, 1921, as being agreeable and satisfactory to him. When the agreement was signed it was agreed between Bailey, Collins, and *108 Trimble that Bailey was to take no further active part in the management of the business, that Collins was to continue in active management of the business and that any consultations thereafter necessary in the conduct or policy of the business should be held by Colins with Trimble instead of petitioner Bailey. This agreement was earried out by Bailey's retirement from active participation in the business. Collins took full control, advising Trimble by letter from time to time as to its condition and future plans, and seeking his aid for the purpose of raising money. Collins considered Trimble his partner after the signing of the agreement of November 26, 1921, and did not consult Bailey about any matters elative thereto.
It was the practice of the firm to advance to insurance companies premiums*2140 on insurance policies, which had not been collected, and it was frequently necessary to borrow money from banks to cover these remittances to the insurance companies. At the close of 1921 it was found necessary to borrow approximately $100,000 for this purpose. Collins arranged to borrow from a bank partly on Trimble's credit, and on December 29, 1921, Trimble wired a Dallas bank as follows: "Will sign $50,000 note with Carr P. Collins proceeds to be used by Bailey and Collins." Upon receipt of this telegram the bank furnished the money to Bailey & Collins. It was needed and was used prior to December 31, 1921. Trimble signed the note January 4, 1922.
On December 13, 1921, entries were made on the books of Bailey & Collins, excluding from partnership assets certain real estate standing in the name of Carr P. Collins and B. P. Bailey, which were excepted from the sale.
Between the signing of the agreement of November 26, 1921, and December 31, 1921, it was agreed between Bailey and Trimble that the stock of the Ineeda Laundry Co. should be eliminated from the consideration and a note for $175,000 payable in 60 monthly installments be given instead of the laundry stock and*2141 note for $115,000.
It was further agreed between Bailey, Collins, and Trimble that the $24,000 cash provided to be paid on January 2, 1922, should be paid as follows: Bailey was to draw on Trimble for $24,000 by draft dated December 31, 1921, Trimble agreed to pay the draft when presented, the draft was to be drawn through Bailey & Collins and Collins agreed to cash it upon presentation. Pursuant to this agreement, Bailey drew the draft and presented it to Bailey & Collins, who immediately credited his account with $24,000, December 31, 1921, and entered it as a cash receipt on their books. On the same day the draft was deposited in bank as a cash item, Bailey & Collins received credit therefor and it was subsequently paid by Trimble on presentation on January 4, 1922. At the time the draft was presented *109 to Bailey & Collins, Bailey was indebted to the firm in the amount of $781.97 for certain advances, and the difference between the amount of the draft and these advances, to wit, $23,218.03, was paid to Bailey on January 3, 1922, when he first called for it. At all times between the presentation of the draft to Bailey & Collins and the payment of the $23,218.03, *2142 Bailey & Collins were willing, able, and had the money on hand to make the payment whenever demanded.
During the interim between November 26, 1921, and December 31, 1921, Trimble had his lawyer redraft the written agreement to conform to the change relative to the elimination of the laundry stock from the consideration and the substitution of a note for $175,000 instead of $115,000. In addition a supplementary agreement was prepared which gave Trimble the right within a specified time to deliver said laundry stock to Bailey and receive credit for a specified sum on the note of $175,000, and also bound Bailey not to engage in the business of certain branches of insurance for a specified time and granted the new firm the right to use the name of Bailey & Collins. These papers were sent by Trimble to Collins with the request that Bailey examine them at once, and if he had any suggestions or alterations to make them at once and return them to him, and if the papers were satisfactory for Collins to wire Trimble.
On December 31, 1921, Bailey wrote Trimble:
The contracts are, as Collins wired you, practically "O.K." The time during which I agree to remain out of competitive business*2143 should be five years, not ten, but this can be changed. It might as well be for life, so far as my going back into business is concered, but it, as a matter of equity, should not run longer than the payments. * * * It is agreeable to me, as I wired you, to postpone until the 5th the signing up of contract, but the contract should date the 1st, as we don't want to carry the old firm over into this year.
On January 5th, 1922, the parties met in Dallas, and the following agreements were entered into:
AGREEMENT OF SALE
WHEREAS, B. P. Bailey, a member of the firm of Bailey and Collins, of Dallas, Texas (said firm being composed of B. P. Bailey and Carr P. Collins), desires to sell all of his one-half interest in said firm and in all of the business and properties owned, operated and conducted by said firm, and -
WHEREAS, E.G. Trimble, of Kansas City, Missouri, desires to purchase said interests and properties from B. P. Bailey, IT IS AGREED, as follows:
1. In consideration of the payment by said Trimble to said Bailey of the sum of Twenty-five Thousand Dollars ($25,000.00) in cash on or before January 5th, 1922, and the delivery to said Bailey by said Trimble of his promossory*2144 note for One Hundred Seventy-five Thousand Dollars ($175,000.00), dated January 1st, 1922, bearing interest at the rate of six per cent (6%) per annum, payable in sixty (60) equal monthly payments of Two Thousnd Mine Hundred *110 Sixteen Dollars Sixty-six and two thirds Cents ($2,916.99 2/3) each, said monthly payments being payable on or before the second day of each month, together with interest on all unpaid installments, said Bailey agrees to transfer and deliver to said Trimble, by proper legal conveyances, all of the properties scheduled in "Exhibit A" hereto attached; also including all of his right, title and interest of every character which he may have in the firm of Bailey and Collins, and in all of the business and activities owned, operated and controlled by said Bailey and Collins, including good will.
2. Upon payment of the moneys and the delivery of the properties mentioned in Section One hereof by said Trimble to said Bailey, THIS AGREEMENT shall operate as a conveyance from said Bailey to said Trimble of all the properties provided to be conveyed from said Bailey to said Trimble under the terms of said Section. In addition thereto, said Bailey agrees to*2145 execute such additional conveyances of said properties as may be required by said Trimble.
3. In connection with the purchase of the properties herein specified, said Trimble assumes one-half of the liabilities of the firm of Bailey and Collins specified in "Exhibit B" hereto attached.
Signed in duplicate this 5th day of January 1922.
(Signed) B. P. BAILEY
E. G. TRIMBLEWitness
H. B. HOUSTON GEO. A. CHATFIELDThe undersigned Carr P. Collins, member of the firm of Bailey and Collins, referred to in the foregoing agreement, hereby consents to and approves the sale of the partnership interest of B. P. Bailey in said firm to E. G. Trimble in accordance with the provisions of said agreement.
Signed this 5th day of January 1922.
(Signed) CARR P. COLLINS
Witness
H. B. HOUSTON GEO. A. CHATFIELD.BAILEY & COLLINS
DALLAS, TEXAS, January 5, 1922.
Mr. E. G. TRIMBLE,
Kansas City, Mo.
DEAR SIR: Supplementing the Agreement of Sale entered into this day between yourself and the writer, I hereby agree to accept, if offered for delivery within sixty days, the six hundred shares of stock of the Ineeda Laundry and Cleaning Company specifically mentioned*2146 in the supplementary agreement entered into between the writer and yourself this day, and to credit on the notes provided in the Agreement of Sale above mentioned $60,000, said credits to apply at the rate of $1,000 per month upon the installment payments which it is agreed shall be made on the major note, it being understood that I am to receive the dividends on this stock from January 1st, and to credit you with interest at the rate provided in the notes for the same period upon the $60,000 above mentioned as a consideration for this stock.
Yours very truly,
(Signed) B. P. BAILEY.
*111 SUPPLEMENTARY AGREEMENT
WHEREAS, on the 5th of January, 1922, B. P. Bailey, of Dallas, Texas, and E. G. Trimble, of Kansas City, Missouri, entered into a written contract providing for the sale of certain properties by said Bailey to said Trimble, a copy of said contract being hereto attached and marked "Exhibit A", -
NOW, THEREFORE, in connection with and supplementary to said contract, IT IS AGREED, between said Bailey and said Trimble, as follows:
1. Said Bailey agres that for a period of five (5) years he will not engage directly or indirectly, or directly or indirectly become*2147 interested, in any business or activity of the kind and character engaged in by the firm of Bailey and Collins prior to the date on which the contract above referred to was executed except that this provision shall not be construed to prohibit said Bailey from engaging in the business of life insurance or in the business of accident and health insurance in connection with life insurance.
2. Said Trimble agrees to pay any income tax which may become payable by said Bailey to the United States Government on account of the sale and purchase of the properties mentioned and in accordance with the contract above referred to. By "income tax" as used in this section, it meant any tax which may be assessed by the government on account of increase of capital as applied to said properties.
3. It is further agreed on the part of said Trimble that he shall guarantee said Bailey against loss during six years next succeeding January 1st, 1922, to the extent of One Hundred Dollars ($100.00) per share on the six hundred (600) shares of Ineeda Laundry and Cleaning Company stock if and when conveyed in accordance with said contract. And said Trimble further agrees that on six months' notice, *2148 at the end of six years, he will repurchase said stock, if necessary, to prevent said Bailey from having a loss thereon. In this connection said Bailey agrees that he will not sell any of said stock at a loss without giving said Trimble at least sixty (60) days' notice of his intention to sell same at a price lower than One Hundred Dollars ($100.00) per share, and said Bailey shall not be permitted to sell more than one hundred (100) shares of said stock at a price of less than One Hundred Dollars ($100.00) per share within any one calendar year during the six (6) years that this guaranty shall continue.
4. In connection with the guaranty referred to in Section 3, it is agreed that, if obtainable, said Trimble will procure and carry during the period covered by Section Three, Twenty-five Thousand Dollars ($25,000.00) of life insurance, payable to said B. P. Bailey, and in the event of the death of said Trimble during the period covered by this guaranty, he assignment of Twenty-five Thousand Dollars ($25,000.00) of insurance shall be in full liquidation of any and all damages that might accrue to said Bailey because of any and all losses on any or all of said stock in said company.
*2149 5. It is agreed by said Bailey that for a period of ten (10) years following the date of this agreement, said Trimble, by himself or in connection with said Collins, or through his heirs, administrators, executors, successors or assigns, may, in so far as said Bailey is concerned, use the partnership name of Bailey and Collins in and for the transaction of the various business activities covered by the contract above referred to, or other business activities which may be added thereto; and said Bailey further agrees that said Trimble may have the right, at his option, to incorporate the name of Bailey and *112 Collins with such other names or designations attached thereto as may be required by law for the purpose of incorporation.
Signed in duplicate this 5th day of January 1922.
(Signed) B. P. BAILEY
E. G. TRIMBLEWitness
H. B. HOUSTON GEO. A. CHATFIELDThe undersigned, Carr P. Collins, member of the firm of Bailey and Collins, referred to in the foregoing Supplementary Agreement, hereby consents to and approves the sale of the partnership interest of B. P. Bailey in said firm to E. G. Trimble in accordance with the provisions of said Supplementary Agreement.
*2150 Signed this 5th day of January 1922.
(Signed) CARR P. COLLINS
Witness
H. B. HOUSTONGEO. A. CHATFIELDThe books of Bailey & Collins were closed as of December 31, 1921, and the partnership profits determined for the year 1921, which were divided equally between Bailey and Collins. After December 31, 1921, Bailey had no interest in the business whatever, either as a salaried officer or employee, or as a partner. The book value of the assets was $640,016.17; the liabilities were $557,524.98, leaving a net book worth of $82,491.19, of which Bailey's net one-half was $41,245.59. Against this amount Bailey had drawn $10,717.50, so that the net cost of the partnership interest sold was $30,528.09. Bailey did not dispose of the note for $175,000 during 1922, and payments of the regular monthly installments and interest were made regularly by Trimble on the due dates or a few days thereafter.
OPINION.
LITTLETON: The question presented here is whether or not the sale of Bailey's half interest in the partnership of Bailey and Collins was an installment sale under section 212(d) of the Revenue Act of 1926. In order to determine this question it is first necessary to determine*2151 in what taxable period or year the sale was made, and, second, whether or not the payments during that year or taxable period exceed one-fourth of the purchase price.
Three requisites are necessary to constitute or create a simple contract such as the one here involved, viz., (1) parties having legal capacity; (2) mutual assent to its terms, and (3) an agreed valid consideration. There is no doubt of the first and third requirements. and none as to the second except as to the time it occurred.
*113 In ; , will be found an interesting and instructive opinion on (1) a sale of lands; (2) an agreement to sell lands; and (3) what is popularly called an "option." There, an option had been given supported by no consideration. The court held that it had no validity as an option, but was good as an offer to sell and a valid contract resulted if accepted before withdrawal. After discussing the various kinds of sales, offers, and options, the court said in part:
Examine the two options granted in the case before us. L. sold I. an option for 10 days from September 24th for one dollar. He then gives an option*2152 for another 10 days from October 3d, for what? For nothing. L. transfers this option, this incorporeal valuable something, for nothing. The transfer of the option was nudum pactum, and void. But, the point just discussed being conceded, appellant still contends that this second instrument or option was a continuing offer to sell, at a given price, and was accepted by the respondent before retracted, and that such acceptance, evidenced by, and accompanied with, the tender of the price, and demand for a deed, constitute an agreement to sell land, which may be enforced in equity. We leave behind now our views of options, and consideration therefor, and meet a wholly different proposition.
Reading the two instruments together we find that on October 3d L. extended to I. an offer to sell his lands at the price of $1,000. There was no consideration for the offer, and it could have been nullified by L. at any time by withdrawal. But it was accepted by I., while outstanding, the price tendered, and deed demanded. It must be plain from the previous discussion that we do not hold the offer, when made, or at any moment before acceptance, was a sale of lands, an agreement to sell*2153 lands, or an option. But upon acceptance and tender was not a contract completed? If one person offers to another to sell his property for a named price, and while the offer is unretracted the other accepts, tenders the money, and demands the property, that is a sale. The proposition is elementary. The property belongs to the vendee, and the money to the vendor. Such is precisely the situation of the parties herein. L. offered to sell for $1,000, I. accepted, tendered the price, and demanded the property. Every element of a contract was present, parties, subject-matter, consideration, meeting of the minds, and mutuality. And as to the matter of mutuality we are now beyond the defective option. We have simply an offer at a price, acceptance, payment or tender, and demand. That this was a valid contract we cannot for a moment doubt. In discussing a transaction of this nature, in , BECK, C.J., in one of his clear opinions, says: "Its legal effect is that of a continuing offer to sell, which is capable of being converted into a valid contract by a tendor of the purchase money, or performance of its conditions, whatever they*2154 may be, within the time stated, and before the seller withdraws the offer to sell," LURTON, Jr., in , says: "Before acceptance, such an agreement can be regarded only as an offer in writing to sell upon specified terms the lands referred to. Such an offer, if based upon no consideration, could be withdrawn by the seller at any time before acceptance. It is the acceptance while outstanding which gives an option, not given upon a consideration, vitality." In , we find the following, by FLETCHER, J.: "In the present case, though the writing signed by the defendants was but an offer, and an offer that might be revoked, yet while it remained in force and unrevoked it was a continuing offer during the time limited for acceptance, and during the whole of that time it was an offer every instant; but as soon as it was accepted it ceased to be an offer merely, and then ripened into a contract."
The case of *2155 , was an income and profits-tax case and involved the question of in what year a sale was made. The facts are stated in the opinion, where the court said:
II. We come now to the sale of real estate by the corporation. Was this sale for the purpose of assessing income or profit taxes under the act of 1918 made in the year 1919 or the year 1920?A contract of sale by the corporation of certain real estate on which it had operated a lumber yard was made to solvent purchasers, able to pay at any time, on November 20, 1919. At that time $10,000 was paid in cash and a contract in writing was entered into between the corporation and the purchasers, conditioned alone on the title being found satisfactory to the purchasers. Some time in the month of December, 1919, the purchasers, having examined the title, removed this condition from the contract by advising the corporation the title to the property was satisfactory to them, and the contract of sale was thus made absolute. The contract provided for the payment of the remainder of the purchase price, $100,000, on June 1, 1920, and that conveyance should be delivered*2156 by the corporation to the purchasers at this time. Also the corporation, not being able to remove its business from the property, agreed to pay one-half the taxes for the year 1920 as a consideration for being permitted to remain on the premises. However, the dominion, control, burdens, and benefits of the property were passed to the purchasers in the year 1919 at the time the contract of sale was made absolute. The Revenue Act provides, in regard to the assessment of property under such conditions, as follows:
"Sec. 213(a) That for the purposes of this title * * * the term 'gross income' includes gains, profits, and income derived from * * * sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property." Comp. St. Ann. Supp. 1919, § 6336 1/8 ff.
The question is, who owned this property in the latter days of the year 1919? As the right of the corporation to compel compliance with the terms of the contract was by the contract made dependent on the corporation delivering a good title to the purchaser, the contract remained conditional and dependent until the title had been examined and approved by the purchasers. *2157 As the corporation was notified this condition was met in the month of December, 1919, thereafter the conditional contract of sale became absolute in its terms, and any loss to the property or any benefits or advantage accruing thereto was the loss or benefit of the purchasers. To this end come not only the adjudicated cases on the question but the very reason of the thing itself. The Supreme Court of this state in , said:
"The purchaser of land in possession under an agreement for a conveyance is considered the owner in equity, subject to the payment of the purchase money, and the vendor is treated as the trustee of the legal title. * * * The fact that possession was not transferred in this instance may be accounted for by the relationship of the parties."
* * *
As *115 the contract for the sale of the property, fixing the terms of the sale made, the amount of the purchase price to be paid, and all other of its terms, including the present payment of $10,000, was performed in the year 1919, the amount of profits taxable must have been determined as of that year as readily*2158 and absolutely as of the date the conveyance was delivered and the deferred payment made. I therefore find as a fact the sale of the real estate in this case, while not perfected by conveyance and full payment of the purchase price until June, 1920, was made in the year 1919, as contended by the plaintiff in this case, and that the profit made in the transaction should have been included in the income and excess profits taxes of the corporation for the year 1919.
In , a sale of the taxpayer's interest in a partnership was agreed upon in 1919, but the price to be paid was not finally settled until 1921 and it was held that the sale was made in 1919. The Board said:
The last issue to be considered concerns the Commissioner's action in holding that the sale of the partnership's assets and business constituted a completed transaction for the year 1919, and that any gain or loss realized therefrom should be reflected in the partnership net income for that year. The petitioners contend that since there was no determination within the year 1919 of the actual amount to be paid by the purchaser for the partnership assets and businesses, and*2159 that final payment was not made by the purchaser until December, 1921, the sale was not completed until the year 1921, and any gain or loss resulting therefrom should be reflected in the partnership net income for the latter year. The books of the partnership were maintained upon the accrual basis. According to the terms of the sale contract, the purchaser, on May 1, 1919, took possession of the business and of all offices, and thereafter the partners conducted the business for the account of the purchaser. The transaction was completed so far as the partnership was concerned and, in the event of the purchaser's failure to make payment according to the terms of the contract, the partnership could not have repossessed the properties, but would have been limited to an action to enforce payment under the contract to pay. It appears that it was not until some time later than the year 1919 that the specific amount to be paid by the purchaser for the partnership assets and businesses was determined. But, all circumstances considered, we do not think this fact sufficient to justify the postponement until a later year of the accounting for the gain or loss realized from the sale. The*2160 sale was consummated in the year 1919; the liability of the purchaser to pay the purchase price arose in that year; and, in our opinion, whatever gain or loss resulted from the sale accrued to the partnership in the same year. * * *
A similar case is , where the Board said:
The second question presented is whether the profits arising from the sale of certain art objects to one Morton F. Plant, as set forth in the findings of fact, were income to the taxpayer in the year 1918 or in the year 1919. The Commissioner contends that they were income for the year 1918. In its petition the taxpayer raised the point that the sale was one on the installment plan and that the profits arising therefrom should be allocated to the several payments. It abandoned that contention, however, at the hearing. It reported the profits in question as income for the year 1919 and now contends that *116 they were in fact income for that year. The amount of the profits involved is conceded to have been $61,268.75.
We are of the opinion, upon consideration of the evidence presented, that the position of the Commissioner as to this point is correct*2161 and should be approved. The transaction was clearly a sale of merchandise in the year 1918. The art objects were delivered to Plant and the terms of purchase were communicated to him in writing. On May 8, 1918, he wrote to the taxpayer that "I beg hereby to confirm the purchase," and contracted to pay certain amounts of money at certain specified dates in accordance with the proposition made to him by the taxpayer. The transaction was completed so far as the taxpayer was concerned, and, in the event of Plant's failure to make payment, as set forth in his letter of May 8, 1918, the taxpayer could not have repossessed the art objects, but would have been limited to an action to enforce payment under the contract to pay. The transaction was a completed sale in the year 1918, and, as the taxpayer kept its books of account on the accrual basis, the sale price was properly accruable in that year. We hold, therefore, that the profits arising from the sale in question were income to the taxpayer in the year 1918.
In the instant case Bailey received $1,000 on account of the signing of the original contract November 26, 1921, and from that date had nothing more to do with the management*2162 or conduct of the business. He stepped out and so far as was necessary Trimble, the purchaser, stepped in. Collins, the remaining partner, ran the business and frequently consulted Trimble prior to January 1, 1922, as to its policy and Trimble obligated himself to the extent of $50,000 on bank paper of the firm, which, had there been no sale, Bailey would have had to assume. It seems to us that no matter whether we consider the original contract and succeeding negotiations a sale, an agreement for a sale, an option, or an offer, that the sale was complete when Bailey wrote Trimble on December 31, 1921, that the redrafted contract was satisfactory and had Collins telegraph Trimble to the same effect and at the same time drew on Trimble for $24,000 as per their agreement. This draft was to all intents and purposes cashed by Collins and over $700 of the proceeds were used that day to extinguish Bailey's debt to his old firm. It was the purpose of all the parties to close the transaction as of December 31, 1921, and the action of Bailey constituted a mutual assent and a binding contract of sale prior to the signing of the final papers on January 5, 1922. Bailey had no interest of*2163 any kind after December 31, 1921. The reference by Bailey in his acceptance to the time he was to remain out of competitive business was not a part of the original contract and was not in the final contract. It was a part of a supplemental agreement and formed no part of the contract of sale and was no real dissent in the light of Bailey's other acts. The only difference between the original contract of November 26, 1921, and the final one of January 5, 1922, was the elimination of the laundry stock from the consideration, and the purpose of the supplemental contract was to put it back again under certain conditions.
*117 The signing of the papers and delivery of the note on January 5, 1922, was merely the formal execution and reduction to written evidence of the terms of the sale made in 1921, and which had been carried out to the extent of Bailey's retirement from the business November 26, 1921, and his collection of $24,000 on account of the purchase price, on the same day he wrote Trimble the contracts were "O.K." *2164 ; .
It remains to consider the amount of the initial payment, which is the sum of all payments made during the taxable period in which the sale was made. The original agreement of November 26, 1921, provided for the payment of $1,000 on the purchase price and was paid upon the signing of the agreement. It was further provided in the agreement that, in the event that Trimble was unable to carry out his part of the agreement, Bailey should retain the $1,000 as liquidated damages. There was no provision of any kind for the return of the $1,000 to Trimble in any event or upon any condition. Upon its payment to Bailey it became his absolute property on one ground or the other and was a payment made in 1921. Cf. . By agreement of the parties, Bailey was to collect and be paid $24,000 by draft on December 31, 1921, and this was to be considered as cash. To all intents and purposes, it was cash and practically the same as if Trimble had sent Bailey his check and Bailey had deposited the check as a cash item in bank and had not checked*2165 it out for several days after. We consider the payment of $24,000 to have been made and received December 31, 1921.
The Board had a somewhat similar question before it in , where the stockholders of a large contracting firm agreed that, instead of having surety companies go on the company's contract bonds, they would go on the bonds in their individual capacities and divide the premiums they would have had to pay a bonding company. The premiums were divided according to their stockholdings and were credited on the books when the bonds were given, but in the case of John Griffiths were not collected in cash until a subsequent year. The question was whether they were taxable in the year when credited, or in that in which received in cash. The Board held they were taxable in the year when credited. The Board said:
There is no testimony, however, to the effect that the petitioner did not consider the amounts taxable because they were not received in cash.
On the other hand, the theory of the petitioner's case is that the amounts were taxable before received in cash and it is not contended that he should have waited until he withdrew*2166 the cash before reporting them in his income. *118 Under the evidence he clearly could have received the entire amount in cash in 1919 if he had desired. All that he had to do was to take it.
So in this proceeding all Bailey had to do was to ask for it and the actual cash or a check would have been given him on December 31, 1921. .
In , the Board held that interest credited to the personal account of petitioner on the books of the corporation of which he was a stockholder was constructively received where the financial condition of the debtor during the taxable years was such that the amounts credited could have been paid.
In , a number of cases are reviewed and the deduction drawn that, if the funds are available, subject to demand of taxpayer, and debtor is able to pay, and taxpayer merely omits to take possession of what is his, this constitutes a receipt of taxable income.
It results that the sale was made in 1921, that the initial payment during that year was $25,000 which is less than one-fourth of the purchase*2167 price of $200,000, and that the sale was an installment sale and petitioners' income therefrom should be computed on the installment basis.
Judgment will be entered under Rule 50.