Biggs v. C. I. R.
| Decision Date | 15 December 1980 |
| Docket Number | No. 78-3361,78-3361 |
| Citation | 632 F.2d 1171 |
| Parties | 81-1 USTC P 9114 Franklin B. BIGGS, Petitioner-Appellee, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant. |
| Court | U.S. Court of Appeals — Fifth Circuit |
M. Carr Ferguson, Asst. Atty. Gen., Gilbert E. Andrews, Acting Chief, Appellate Section, Crombie J. D. Garrett, Murray S. Horwitz, Tax Div., Dept. of Justice, Stuart E. Seigel, Chief Counsel, I.R.S., Washington, D. C., for respondent-appellant.
Miles & Friedman, Louis F. Friedman, Don M. Zimmerman, Baltimore, Md., for petitioner-appellee.
Appeal from the Decision of the Tax Court of the United States.
Before BROWN, HENDERSON and SAM D. JOHNSON, Circuit Judges.
The Commissioner of Internal Revenue appeals from the decision of the United States Tax Court holding that a transfer of real property effected by the taxpayer, Franklin B. Biggs, constituted an exchange within the meaning of § 1031 of the Internal Revenue Code of 1954. We affirm.
The numerous transactions which form the subject of this suit are somewhat confusing and each detail is of potential significance. Thus, it will be necessary to recount with particularity the facts as found by the Tax Court.
Biggs owned two parcels of land located in St. Martin's Neck, Worcester County, Maryland (hereinafter referred to as the "Maryland property"). Sometime before October 23, 1968, Biggs listed this property for sale with a realtor. The realtor advised Biggs that he had a client, Shepard G. Powell, who was interested in purchasing the property.
Biggs and Powell met on October 23, 1968 to discuss Powell's possible acquisition of the Maryland property. Biggs insisted from the outset that he receive real property of like kind as part of the consideration for the transfer. Both men understood that Biggs would locate the property he wished to receive in exchange, and Powell agreed to cooperate in the exchange arrangements to the extent that his own interests were not impaired.
On October 25, 1968, Biggs and Powell signed a memorandum of intent which provided, in pertinent part, the following:
I. PURCHASE PRICE: $900,000 NET to SELLERS.
c. $25,000.00 down payment at signing of contract, * * *
d. $75,000.00 additional payment at time of settlement, which shall be within ninety (90) days after contract signing, making total cash payments of $100,000.00.
II. MORTGAGE:
a. Balance of $800,000.00 secured by a first mortgage on Real Estate to SELLERS at a 4% interest rate; 10 year term.
The memorandum contained no mention of the contemplated exchange of properties. Upon learning of this omission, Biggs' attorney, W. Edgar Porter, told Powell that the memorandum of intent did not comport with his understanding of the proposed transaction. Powell agreed to have his attorney meet with Porter to work out the terms of a written exchange agreement.
Biggs began his search for suitable exchange property by advising John Thatcher, a Maryland real estate broker, of the desired specifications. Subsequently, Biggs was contacted by another realtor, John A. Davis, who had in his inventory four parcels of land located in Accomack County, Virginia, collectively known as Myrtle Grove Farm (hereinafter referred to as "the Virginia property"). Biggs inspected the property, found it suitable, and instructed Davis to draft contracts of sale.
As initially drawn, the contracts named Biggs as the buyer of the Virginia property. However, at Porter's suggestion, they were modified to describe the purchaser as "Franklin B. Biggs (acting as agent for syndicate)." The contracts were executed on October 29th and 30th, 1968, and contained the following terms:
Paid on execution of contract $ 13,900.00
Balance due at settlement 115,655.14
Indebtedness created or assumed 142,544.86
-----------
Total - Gross Sales Price $272,100.00
Upon signing the contracts, Biggs paid $13,900.00 to the sellers of the Virginia property.
Because Powell was either unable or unwilling to take title to the Virginia property, Biggs arranged for the title to be transferred to Shore Title Company, Inc. (hereinafter referred to as "Shore"), a Maryland corporation owned and controlled by Porter and certain members of his family. However, it was not until December 26, 1968 that the purchase was authorized by Shore's board of directors. On January 9, 1969, prior to the transfer to Shore, Biggs and Shore entered into the following agreement with respect to the Virginia property:
1. At any time hereafter that either party hereto requests the other party to do so, Shore Title Co., Inc. will and hereby agrees to convey unto the said Franklin B. Biggs, or his nominee, all of the above mentioned property, for exactly the same price said Shore Title Co., Inc. has paid for it, plus any and all costs, expenses, advances or payments which Shore Title Co., Inc. has paid or will be bound in the future to pay, over and above said purchase price to Shore Title Co., Inc., in order for Shore Title Co., Inc., to acquire or hold title to said property; and it (is) further agreed that at that time, i. e.,-when Shore Title Co., Inc. conveys said property under this paragraph and its provisions, the said Franklin B. Biggs, or his nominee will simultaneously release or cause Shore Title Co., Inc. to be released from any and all obligations which the latter has created, assumed or become bound upon in its acquisition and holding of title to said property.
2. All costs for acquiring or holding title to said property by both the said Shore Title Co., Inc. and Franklin B. Biggs, or his nominee shall be paid by the said Franklin B. Biggs, or his nominee at the time of transfer of title under paragraph numbered 1 hereof.
On or about the same date, the contracts for the sale of the Virginia property were closed. Warranty deeds evidencing legal title were delivered to Shore by the sellers. Biggs advanced to Shore the $115,655.14 due at settlement and, by a bond secured by a deed of trust on the property, Shore agreed to repay Biggs. Shore also assumed liabilities totalling $142,544.86 which were secured by deeds of trust in favor of the sellers and another mortgagee. Biggs paid Thatcher's finder's fee and all of the closing costs.
On February 26, 1969, Shore and Powell signed an agreement for the sale by Shore of the Virginia property to Powell or his assigns. Payment of the purchase price was arranged as follows:
Upon execution of the agreement $ 100.00
Vendee assumed and covenanted to pay the
following promissory notes, all secured by
deeds of trust on Virginia property
To Shore Savings & Loan
Association 58,469.86
To those from whom Shore acquired
the Virginia property 84,075.00
To Franklin B. Biggs 115,655.14
Balance due at settlement 13,900.00
Total purchase price 272,200.00
The next day, February 27, 1969, Biggs and Powell executed a contract which provided that Biggs would sell the Maryland property to Powell or his assigns upon the following terms:
Cash, upon execution $ 25,000.00
Cash, at settlement 75,000.00
First mortgage note receivable
from Mr. Powell 800,000.00
-----------
Total $900,000.00
The contract further stated
Sellers and Purchaser acknowledge the existence of a Contract of Sale dated February 26th, 1969, between Shore Title Co., Inc., Vendor-Seller, and Shepard G. Powell or Assigns, Vendee-Purchaser, copy of which is attached hereto and made a part hereof, whereby that Vendor has contracted to sell and that Vendee has agreed to buy from that Vendor at and for the purchase price of Two Hundred Seventy Two Thousand Two Hundred Dollars ($272,200.00) * * * (the Virginia property). As a further consideration for the making of this Contract of Sale * * * for the sale and purchase * * * of * * * (the Maryland property) the said Shepard G. Powell or Assigns, for the sum of One Hundred Dollars ($100.00) in cash, in hand paid, receipt whereof is hereby acknowledged, does hereby bargain, sell, set over and transfer unto said Franklin B. Biggs all of the right, title and interest of the said Shepard G. Powell or Assigns in and to said Virginia property and said Contract of Sale relating thereto, upon condition that the said Franklin B. Biggs assumes and covenants to pay (which he hereby does) all of the obligations assumed by the said Shepard G. Powell under the aforesaid Contract of Sale between him and Shore Title Co., Inc.; and said Franklin B. Biggs hereby agrees to hold Shepard G. Powell or Assigns harmless from any liability under any and all of said obligations on said Virginia property, and the said Shepard G. Powell and said Franklin B. Biggs do hereby jointly and separately agree to execute and deliver any and all necessary papers to effect delivery of title to said Virginia property to said Franklin B. Biggs and to relieve said Shepard G. Powell from any and all obligations assumed by him thereon.
On the same date, Powell and his wife assigned their contractual right to acquire the Maryland property to Samuel Lessans and Maurice Lessans. The Lessanses, in turn, sold and assigned their rights to acquire the Maryland property to Ocean View Corporation (hereinafter referred to as "Ocean View") a Maryland corporation, for $1,300,000.00 by an agreement dated May 22, 1969. The purchase price was comprised of $150,000.00 to be paid into escrow at the time the contract was signed, an $800,000.00 note executed by Ocean View in favor of Biggs at the time of settlement, a $250,000.00 note from Ocean View to the Lessanses, and a $100,000.00 note from Ocean View to the real estate agents at closing.
Ocean View was incorporated on May 21, 1969. At the first meeting of its board of directors, the corportation was authorized to...
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