*1076 Where a corporation was the owner and operator of a certain oil and gas lease on which there were three producing wells and its two sole stockholders, who were also directors of the corporation and in charge of its affairs, entered into a contract to sell the lease to a proposed purchaser and the contract was signed by the two stockholders in their individual names as sellers instead of in the name of the corporation, and subsequently the corporation conveyed the lease to one of the two stockholders, its president, and on the same day the two stockholders conveyed the lease to the purchaser for the consideration named in the contract; held, the contract of sale signed by the two stockholders in their individual names was for and on behalf of the corporation and the sale of the lease when consummated was the sale of the corporation and it is taxable on the profits derived therefrom.
*1255 In Docket No. 93112 is involved a deficiency of $20,773.61 in income tax liability for the fiscal year ended July 31, 1935, of the*1077 petitioner, Texota Corporation, and a deficiency of $7,223.96 in excess profits liability. These deficiencies are due to one adjustment made by the Commissioner in petitioner's income tax return for the taxable year in question. That adjustment was the addition to the petitioner's income of "profit from sale of oil, gas and mineral leases, $151,080.82." Petitioner, by an appropriate assignment of error, contests this determination by the Commissioner.
In Docket Nos. 93100 and 91111, the Commissioner has determined transferee liabilities against R. G. Trippett and A. H. Meadows, respectively, of the full amount of the deficiencies determined against the petitioner, Texota Corporation. Petitioners Trippett and Meadows admit their liability as transferees for any deficiency in income tax or excess profits tax that the Board may determine against the Texota Corporation for the taxable year in question. Each petitioner, however, contests by appropriate assignments of error the correctness of the Commissioner's determination of the deficiencies against the Texota Corporation.
FINDINGS OF FACT.
The Texota Corporation, sometimes hereafter referred to as Texota, was duly incorporated*1078 under the laws of Texas on August 1, 1931. Its charter provided for two classes of stock known as "A" and "B", which were equal except that the class B stockholders had the right to elect two of the three directors, and the property of the corporation could not be sold without the consent of the holders of the class A stock. The class B stock was issued in exchange for an oil and gas lease in the East Texas field and the class A stock was issued for $20,000 in cash. On April 5, 1934, the class A stock was owned by six different shareholders, and the class B stock by nine different shareholders. On that date petitioners R. G. Trippett and A. H. Meadows (sometimes referred to hereinafter as Trippett and Meadows) jointly acquired by purchase 188 2/3 shares (slightly more than a majority) of the class B stock. After Trippett and Meadoes purchased this class B stock, considerable dissension arose between them and the other stockholders, resulting in the bringing of some lawsuits, which need not be described at length in these findings of fact. These lawsuits had no direct bearing on the issue which we have here to decide.
Meantime the corporation had drilled three producing oil*1079 wells on its oil and gas lease. The stockholders opposed to Trippett and Meadows and strenuously objected to the drilling of any additional wells, one of the grounds alleged in an application for the appointment of a receiver having been that Trippett and Meadows were threatening to drill a fourth well on the lease.
*1256 On or about December 10, 1934, D. W. Josey, of the Rancho Oil, Co., Fort Worth, Texas, sometimes hereinafter referred to as Rancho, advised S. A. Cochran, an independent broker of Tyler, Texas, that Rancho would be interested in purchasing said oil and gas lease if it could be bought for $175,000, with four wells completed on it. Cochran's communication with Josey was after he had received a letter from R. G. Trippett, in which Trippett stated that he and Meadows owned a one-fourth interest in the lease, and could possibly acquire all of the interests and might consider selling it along with some other properties. Cochran was advised that the tentative offer above mentioned was not acceptable and so reported to Josey on or about December 15, 1934. No other offer was made at that time.
On December 17, 1934, Trippett and Meadows telegraphed the "opposition*1080 stockholders" (being the holders of the class A stock and some of the holders of the class B stock) an offer to purchase their stock. The representative of said stockholders replied with a counter proposition, which was received by Trippett and Meadows December 19, 1934, and accepted by them by telegram of the same date. The acceptance instructed said stockholders to send their stock to the People National Bank at Tyler, Texas, with draft attached, settlement to be made in any event not later than December 31, 1934. In purchasing this stock and thus becoming the owners of all the capital stock of Texota, Trippett and Meadows had in mind to later liquidate the corporation.
On December 18, 1934, Josey called Cochran, the broker, and indicated to him that the Rancho Oil Co. might be willing to pay $180,000 for the lease, with a fourth completed well on it. This conversation was reported to Trippett and Meadows by Cochran at Shreveport, Louisiana, on December 19, 1934; and at the same time he stated to them that he (Cochran) would drill a fourth well on the lease for $10,000. Thereupon, Trippett and Meadows stated to Cochran that they would be glad to meet with Josey and discuss*1081 the matter further and try to arrive at a deal; whereupon, Cochran called Josey by telephone and requested him to meet with Trippett and Meadows at Tyler, Texas, on the following day, December 20.
The meeting at Tyler on December 20 was for the purpose of working out a trade, if the parties could agree. Up to that time there had been no offer and acceptance or trade agreed on. At that time (on December 20), Meadows or Trippett stated that they wished to liquidate the corporation and the negotiations which were carried on to put through the sale were between themselves and the Rancho Oil Co. in their individual names. Trippett and Meadows had never told Cochran anything prior to December 20 to indicate that the corporation would sell the property.
*1257 Trippett and Meadows, on December 20, 1934, met with Josey and agreed upon the terms of a sale of the oil and gas lease in question to Rancho. This agreement was reduced to writing in the form of a formal contract made by R. G. Trippett and A. H. Meadows as sellers and the Rancho Oil Co. as purchaser, whereby Trippett and Meadows agreed to sell the oil and gas lease to Rancho and Rancho agreed to purchase it from them*1082 for $165,000, (being $180,000 less $5,000 commission to Cochran, which the purchaser assumed, and $10,000, the cost of drilling a fourth well).
Pursuant to the telegraphic order and acceptance hereinabove mentioned, the certificates representing the outstanding stock (not already owned by Trippett and Meadows) were forwarded to the Peoples National Bank at Tyler, Texas, and paid for through that bank on December 31, 1934, Trippett and Meadows, individually, borrowing the money from said bank to purchase the stock; whereupon, on December 31, 1934, all of the certificates of stock were canceled, and two new certificates, one for all of the class A stock and one for all of the class B stock, were issued in the name of A. H. Meadows (for himself and R. G. Trippett), which certificates were pledged with the Peoples National Bank of Tyler to secure the Trippett and Meadows loan.
After Meadows and Trippett had agreed to buy the stock and had it sent to them on draft, they had their lawyers prepare a paper for liquidation of the corporation, which was executed by Meadows on December 27, 1934, but in some manner the instrument got in the files of the Rancho Oil Co. instead of the files*1083 of the Secretary of State of Texas in Austin, Texas. This instrument was a consent of stockholders to dissolve the corporation, signed by A. H. Meadows as sole stockholder and certified by the president and secretary of the Texota Corporation. Never having been filed in the office of the Secretary of State of Texas, this paper was never of any legal effect.
On January 5, 1935, Texota executed a conveyance of said oil and gas lease to A. H. Meadows. This conveyance recites that it is made "in consideration of $10 and other good and valuable considerations." No actual consideration passed from Meadows to Texota. On the same day Meadows and Trippett executed an assignment of the oil and gas lease to Rancho.
The conveyance from Texota to Meadows was delivered on the date of its execution (January 5, 1935). The conveyance from Meadows and Trippett to Rancho was attached to a draft drawn on Rancho for $165,000, which was placed in the Peoples National Bank at Tyler, Texas, for collection, forwarded by it to its correspondent bank at Fort Worth, Texas, and paid at Fort Worth by Rancho on January 7, 1935, on which date the conveyance to Rancho was delivered to it and the *1258 *1084 amount paid by Rancho was remitted to the Peoples National Bank of Tyler.
The notes made by Trippett and Meadows to the Peoples National Bank, for the money borrowed to purchase the outstanding stock, which were secured, among other security, by the two stock certificates in the name of A. H. Meadows, representing the total capital stock of the Texota Corporation, were dated December 31, 1934, and were paid on January 7, 1935.
After said payment the Peoples National Bank of Tyler, Texas, had and made no further claim on the collateral. Said certificates were thereafter subject to the order of Trippett and Meadows at any time and the bank was under the impression that they had been delivered to them. The certificates themselves were mislaid by the bank and could not be located until a new search shortly prior to the hearing disclosed them in an old "dead" file.
The Texota Corporation was on August 14, 1936, formally dissolved by filing consent to dissolution with the Secretary of State of Texas, who thereupon issued his certificate of dissolution. Texota wound up all its business affairs sometime in the year 1935 and distributed the remainder of its assets to its two stockholders, *1085 Meadows and Trippett.
In addition to the foregoing findings of fact, the stipulation of facts is adopted as a part of these findings. Most of the stipulated facts have been stated above.
OPINION.
BLACK: In the instant case the facts clearly show that prior to the time that Texota conveyed the lease in question to Meadows and Meadows and Trippett conveyed it to Rancho, Meadows and Trippett had entered into a binding contract with Rancho to sell the lease. This contract was signed by Meadows and Trippett, individually, as sellers and Rancho as purchaser, and nowhere in the contract does the name of Texota appear. Meadows and Trippett both testified at the hearing that they signed the contract with Rancho, individually, because they fully intended to liquidate the corporation at an early date thereafter and thereby become the owners of the lease in their own individual right upon receiving it in liquidation. They further testified that they intended thereafter to convey the lease to Rancho as individuals in fulfillment of their contract. They contend that the transactions were consummated according to the plan and that Texota is not taxable on the profits.
*1086 Under the circumstances detailed in our findings of fact, should we hold that the contract of sale made by Meadows and Trippett with Rancho on December 20, 1934, must be treated as the contract of Texota, as seller? If, under the law, we should so hold, then we must hold that the subsequent sale which Meadows and Trippett made on January *1259 5, 1935, to Rancho was made by them as agents and representatives of Texota and that the profits from the sale are taxable to Texota. ; ; ; ; affd., .
We think we must hold that the contract entered into by Meadows and Trippett on December 20, 1934, was one entered into for the benefit of Texota and therefore must be treated as its contract. The it is that Texota's name is not mentioned in the contract, but Meadows and Trippett were the directors and sole stockholders of Texota. Meadoes was its president and the two of them were in charge of its affairs. *1087 The lease was concededly owned at that time by Texota.
In the contract of tsale which Meadows and Trippett made with Rancho on December 20, 1934, the following language appeared in the second paragraph: "Sellers shall deliver to purchaser, at its office in the Sinclair Building, Fort Worth, Texas, within three (3) days after the date of this contract complete abstracts of title certified to date, covering the above described property * * *." If this part of the contract was carried out, and there is no suggestion that it was not, then of course the abstracts of title showed that title to the property was in Texota, and Rancho must have known that it was really purchasing from Texota.
Of the several cases above cited, the one which we think comes nearest the facts of the instant case is S. A.MacQueen Co. The facts in that case are briefly as follows: On February 1, 1927, at a meeting and on the same day, a resolution was adopted by the board of of the MacQueen Co. and were also its directors, a resolution was passed authorizing the board of directors to sell real estate owned by the corporation to S. A. MacQueen, its president, director, and majority stockholder, for the*1088 sum of $85,000. Following that meeting and on the same day, a resolution was adopted by the board of directors accepting an offer by MacQueen of $8k,000 for the real estate. The following day, while the corporation was yet the owner of the property, MacQueen entered into an agreement with Henry Reed Hatfield to convey the real estate to the latter for a consideration of $150,000. On February 11, 1927, in conformity with a prior understanding among the three stockholders, MacQueen executed a declaration of trust in which he recited the agreement of the corporation to convey the real estate to him for $85,000, his agreement to convey the same to Hatfield for $150,000, and his intention to distribute the profits to the stockholders in proportion to their holdings. On March 1, 1927, the MacQueen Co. conveyed title to MacQueen and *1260 on the same day MacQueen conveyed title to Hatfield. Subsequently MacQueen, in accordance with his declaration of trust, distributed $65,324.30, representing the profits of the sale and interest thereon, to himself and the other two stockholders.
On these facts we held that the sale to Hatfield was made by the corporation, S. A. MacQueen Co.*1089 , and it was taxable on the profits resulting from the sale. The court in affirming our decision, among other things, said:
* * * Although in form there were two sales of the corporate real estate, first, the purported sale by the petitioner to MacQueen, and second, the sale by MacQueen to Hatfield, in substance the transaction was a sale by the petitioner to Hatfield through the agency of MacQueen. So also, although in form MacQueen was a trustee for the distribution of the profits earned by the sale of his own real estate to Hatfield, in substance he was the agent of the petitioner for the distribution of the profits from the sale of the corporation's real estate among its stockholders.
In the instant case the purported sale by Texota to Meadows on January 5, 1934, was for $10 and other valuable considerations. In the MacQueen case the purported consideration passing from S. A. MacQueen, president, to the corporation was $85,000. As a matter of fact no consideration at all passed from MacQueen to the corporation, just as here no consideration passed from Meadows to Texota. And, just as we held in the MacQueen case that the corporation made the sale to the purchaser, *1090 notwithstanding the intermediate conveyance by the corporation to MacQueen, its president, so we think we must hold in the instant case that Texota made the sale to Rancho, notwithstanding the intermediate conveyance by Texota to Meadows, its president. Of course, the facts and circumstances of the MacQueen case and the other cases cited above are not identical with those in the instant case, but we think they are sufficiently near the same that those decisions must control our decision here.
Petitioner relies largely upon , and , in support of its position. We think these cases are clearly distinguishable on their facts. In both of these cases the Board pointed out that no binding contract of sale had been entered into by the corporation, or by anyone else acting as its agent, and the proposed purchaser prior to the transfer of the assets to the stockholders. In , in distinguishing a group of cases similar to those which we have cited above, we said:
* * * In each we held that the trustee or assignee merely acted for the*1091 corporation in consummating a transaction initiated by it. In Nace Realty Co., supra, we pointed to this fact as controlling and distinguished , on this ground, observing: "So far as appears, the *1261 corporation [Fruit Belt Telephone Co.] had made no contract for the sale of its assets prior to their transfer to the individual. That fact alone is sufficient to distinguish the case from the case now at bar."
We should also point out, we think, that the facts in the instant case are distinguishable from those present in . In that case, prior to any contract of sale, the corporation distributed in partial liquidation the eight leases which were subsequently sold. The stockholders turned in their stock and 60 percent thereof was canceled as a part of the plan of partial liquidation. Thereafter the capital stock of the corporation was only 40 percent of what it was before. After the stockholders received the leases in liquidation, they entered into a contract on their own account to sell the leases to the East Texas Oil Refining Co. and in pursuance thereof the leases*1092 were subsequently sold to the named purchaser for the consideration specified in the contract. Under those circumstances we held that the sale of the leases was made by the stockholders to whom the leases were transferred in partial liquidation and was not made by the corporation, and that the corporation was not taxable on the profits resulting from the sale.
As we have already endeavored to point out, we do not have a similar situation in the instant case. On the strength of the authorities hereinbefore cited we hold for the respondent.
Reviewed by the Board.
Decision will be entered for the respondent.