Camp v. Commissioner , 21 B.T.A. 962 ( 1930 )

FRANCIS M. CAMP, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Camp v. Commissioner

Docket No. 16618.

United States Board of Tax Appeals

21 B.T.A. 962; 1930 BTA LEXIS 1767;

December 29, 1930, Promulgated

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INCOME - SALE OF LAND. - In 1918 petitioner made a bona fide sale of land to his son pursuant to a verbal agreement. The son took possession and both parties abided by their agreement, though petitioner did not execute a deed to his son, who agreed to sell at a profit in 1920. Petitioner executed the deed to the subsequent purchaser and received the consideration, but accounted therefor to his son, thus completing the verbal transaction. The respondent objected to the validity of the sale as being within the operation of the statute of frauds. Held that the respondent, who was not in privity with either of the parties, could interpose no objection to petitioner and his son being bound by their verbal agreement executed to their satisfaction. Held, further, that the profit from the sale in 1920 was income to the son.

Stanley S. Waite, Esq., Albert G. Webber, Esq., and Abraham Lowenhaupt, Esq., for the petitioner.

O. J. Tall, Esq., for the respondent.

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TRUSSELL

This proceeding has been initiated for a redetermination of the deficiency of $942.22 in this petitioner's income tax for the calendar year 1920, as asserted by the respondent.

The petitioner has withdrawn his first assignment of error relative to respondent's inclusion in income of an amount of $195 as profit derived from the sale of a dwelling house in 1920. The only remaining issue is whether respondent erred in including in this petitioner's income the amount of $3,648.80 as a profit upon the sale of 79.84 acres of land in 1920, it being alleged by petitioner that he did not own the said land at the time of such sale.

FINDINGS OF FACT.

The petitioner, who resides at Decatur, Macon County, Ill., has been in the real estate business for the past 18 years and prior to that time he was engaged in farming.

In 1917 petitioner purchased 713 acres of land in Macon County for about $154.39 per acre and he took possession thereof on March 1, 1918, immediately after which he offered to sell to each of his two sons, Harry and Samuel, approximately 80 acres of said land at the cost thereof to him. Harry refused the offer, but Samuel, who was 31 years old, married, and had a family, accepted it. Thereupon the petitioner and Samuel entered into a verbal agreement pursuant to which the former made a bona fide sale to the latter of the E. 1//4 sec. 12, T. 18 N., R. 1 E., 3 P.M., containing 79.84 acres of land with no improvements thereon. Inasmuch as Samuel had no cash, petitioner required no cash payment and the terms of the sale were that Samuel should pay the taxes on the said tract of land and 5 per cent interest on the purchase price of about $12,326.50 and that he should reduce the principal when and by such amounts as he was able. No written memorandum evidencing the transaction was made, except a notation made by petitioner in his pocket notebook as to the amount due from his son on account of said sale. In that notebook petitioner also kept account of loans made to Samuel at various times for farming equipment. Samuel had been operating a 400-acre farm.

Both the father and the son considered each other's word as good and petitioner did not deed the land to Samuel because there was a blanket loan of $35,000 on all of the acreage and petitioner had no available cash to effect a release of the mortgage as to the said 79.84 acres. Samuel took immediate possession of the land and leased it to a farmer on the crop-share basis and collected $1,500 from his share of the 1918 corn crop. Upon Samuel's request his tenant refrained from plowing a well-sodded plot which Samuel expected to use for a home site. In 1919 Samuel farmed the land himself and received about $3,000 for his crop. In each of those years the son retained the profits from the land and paid to his father the taxes due and the interest at 5 per cent on the purchase price of the land, but he did not reduce the principal.

From time to time petitioner sold parcels of the 713-acre tract and prior to 1920 he listed for sale a 79.97-acre tract, adjoining on the west the tract in controversy, that is, the land Samuel had taken possession of. The real estate dealer who had a client interested in purchasing 200 acres of farm land asked petitioner if he could sell that much land at $200 per acre, and petitioner said that it could be arranged if Samuel would agree to sell his 79.84-acre tract for he, petitioner, owned 79.97 acres on the west and 38.74 acres on the east of Samuel's tract. The real estate agent and petitioner approached Samuel as to the proposed sale and after some discussion Samuel reluctantly agreed to sell to accommodate his father in disposing of two noncontiguous tracts of land at $200 per acre. After agreeing to sell, Samuel took no further part in the transaction. The petitioner closed the deal with the purchaser, H. H. Nottleman, who took possession of the said land, containing a total of 198.55 acres on March 1, 1920. Title of record as to the 79.84-acre tract in controversy, the 79.97 acres to the west of it, and the 38.74 acres to the east of it stood in petitioner's name, and he executed the deed thereto to Nottleman and received the entire consideration, amounting to about $39,710.

With respect to the amount received from Nottleman for the 79.84 acres in controversy, the petitioner deducted the amount of approximately $12,326 which Samuel had agreed to pay him for said land and he then tendered to Samuel the net profit of $3,648.80 derived from the sale of such tract. At that time Samuel was indebted to his father in an amount of about $8,900, representing various loans made over a period of time to enable Samuel to continue his farming operations. Samuel told his father to keep the said amount of $3,648.80 and give him credit therefor, and petitioner made a notation of such credit in his pocket notebook. After such credit Samuel still owed petitioner $5,260, which he paid by check in June, 1920.

In his income-tax return for 1920, the petitioner reported the profit realized from several sales of real estate during that year, including $5,407.07 as the profit realized by him on 118.71 acres of the land sold to Nottleman. He did not report the profit of $3,648.80 from the sale of the 79.84 acres in controversy, and the respondent has added that amount to this petitioner's income.

OPINION.

TRUSSELL: There is no controversy as to the amount of $3,648.80 as representing the profit derived from the sale of 79.84 acres of land in 1920. The only issue is whether this petitioner still owned the said land in 1920, or whether he made a valid sale thereof to his son Samuel in 1918.

The respondent contends that the sale of said land by petitioner to his son Samuel comes within the operation of the statute of frauds; that there being no written agreement nor payment made on the purchase price to take the transaction out of the statute, the sale was void; and that there being no valid sale to the son in 1918 and the petitioner having executed the deed to the subsequent purchaser, Nottleman, and received the consideration in 1920, the profit derived was income to petitioner.

It is well settled in Illinois that a verbal contract respecting land or a verbal sale of land is not void, but merely voidable only at the instance of the parties to such transaction or their privies, ; ; ; ; ; ; that the defense of the statute of frauds is a personal defense of the parties to the transaction and third persons may not object to the parties themselves being bound by the transaction, ;; ; ; ; and, further, that upon the execution of the contract or completion of the transaction it is taken out of the operation of the statute of frauds, ; ; ; ; ; ,

In the instant case the uncontradicted testimony establishes that in 1918 the petitioner made a bona fide verbal sale of the land in question; that such sale was at all times recognized by both parties, the son having immediately taken possession and retained the profits from the land; that in 1920 the petitioner continued to abide by his verbal transaction and recognized his son as the owner of the land in question; that the son Samuel agreed to sell his land in 1920 at $200 per acre; and that after the sale to Nottleman in 1920, there was an accounting between petitioner and his son whereby petitioner received the cost of the land to him and after tendering the profit to his son, he received such money from his son for the express purpose of crediting Samuel's indebtedness for loans made by petitioner.

The respondent had no interest in the premises and was not in privity with either or the parties at the time the sale was made, and therefore he is in no position to interpose any objection to the petitioner and his son being bound by their oral transaction which they completed to their own satisfaction during the taxable year 1920.

We are of the opinion that at the time of the sale to Nottleman in 1920 the land in question was the property of Samuel; that he sold his interest in the land in 1920; and that the profit derived was income to him and therefore, that the respondent erred in including the amount of $3,648.80 in this petitioner's income for the year 1920. Cf. .

Reviewed by the Board.

Judgment will be entered pursuant to Rule 50.