Colston v. Burnet, 5489.

• Decision Date: 31 May 1932
• Docket Number: No. 5489.,5489.
• Citation: 59 F.2d 867
• Parties: COLSTON v. BURNET, Commissioner of Internal Revenue.
• Court: U.S. Court of Appeals — District of Columbia Circuit

59 F.2d 867 (1932)

COLSTON v. BURNET, Commissioner of Internal Revenue.

No. 5489.

Court of Appeals of the District of Columbia.

Argued May 5, 1932.

Decided May 31, 1932.

Geo. E. H. Goodner, Jerry A. Mathews, and Josephus C. Trimble, all of Washington, D. C., for appellant.

G. A. Youngquist, Asst. Atty. Gen., and Carlton Fox, of Washington, D. C., for appellee.

Before MARTIN, Chief Justice, and ROBB, VAN ORSDEL, HITZ, and GRONER, Associate Justices.

GRONER, Associate Justice.

This is an appeal from a decision of the Board of Tax Appeals, and involves loss and expense items deducted by petitioner in 1924-25. The item involved in 1924 was a $20,000 loss claimed to have been sustained on account of a "short" sale of stock made by petitioner in that year. The two items in 1925 were: First, the payment by petitioner of taxes assessed against real property belonging to his wife and interest on mortgage indebtedness secured on the same property; and, second, the deduction of $108 as interest paid by petitioner to an insurance company on account of a "policy" loan. The commissioner and the Board of Tax Appeals disallowed all of the items. There were no findings of fact by the board. We have therefore had recourse to the evidence, and this consists almost entirely of petitioner's oral testimony.

In the opinion filed by the board, petitioner's evidence with relation to the stock-transaction loss is summarized as follows: "The whole arrangement is described as growing out of the petitioner's inadvertent failure in April, 1924, to carry out his wife's instructions to order a broker to buy the shares (of stock) at 83 after he had ineffectively ordered the purchase at 82½. His wife's disappointment a week or ten days later, when he told her he had omitted to order the purchase at 83, led him to tell her he would sell the shares to her at 83. What the market was then is not stated. He did not own the shares, made no effort to purchase them, his wife made no demand or payment for them, and it does not appear that it was seriously contemplated that a delivery by him or payment by her should be made. In `November or December,' 1924, when the stock was quoted at 123, he says he offered to deliver the stock or pay her the difference between the alleged price of 83 and the then market price of 123. He then made the debit and credit on their accounts."

We think this is a fair summary of petitioner's evidence and the inferences which flow from it. Stated in petitioner's own language, the transaction in relation to the stock was, "I gave her a call, and she gave me a put." As we understand it, "put" is a term used by speculators in the stock market to designate a contract by which one of the parties thereto purchases at a fixed sum a privilege to deliver certain stock or grain within a definite period of time, and "call" is the right to demand a certain amount of stock or grain at a fixed price at or within the certain time agreed on. In either case the element of time is of the essence, and ordinarily the transaction is closed as of the agreed time by payment of the difference in value, if any, to the holder of the call. An examination of petitioner's evidence convinces us, however, that the transaction between himself and his wife was wholly without reference to time, and equally we are convinced actual delivery of the shares of stock in question was never contemplated. Admittedly the contract was not in writing, and no consideration passed. Since the transaction occurred in Ohio, the laws of that state govern, and section 8384 of the Ohio General Code specifically makes invalid a contract to sell goods or choses in action of a greater value than $2,500 unless the buyer "give something in earnest to bind the contract, or in part payment, or unless some note or memorandum in writing of the contract or sale be signed by the party to be charged or his agent in that behalf." And, as we have already remarked, it is not only not contended that there was either memorandum in writing or consideration, but it is admitted there was neither. We think the shares of stock which petitioner contracted to sell and which his wife contracted to buy are choses in action, or in the nature of choses in action, within the terms of this statute (see Allen-West Commission Co. v. Grumbles C. C. A. 129 F. 287, 290; Hutchins v. State Bank, 12 Metc. Mass. 421, 426; Cooper v. Canal Co., 6 N. C. 195; Lipscomb v. Condon, 56 W. Va. 416, 49 S. E. 392, 67 L. R. A. 670, 107 Am. St. Rep. 938; Illinois-Indiana Fair Ass'n v. Phillips, 241 Ill. App. 454, 461), and from this it would follow that on the admitted facts the transaction between petitioner and his wife was unenforceable and illegal, and therefore the subsequent payment to her amounted to no more than a gift. Viewed in this light, we reach the same conclusion the board reached, namely, that the payment of the $20,000 by petitioner to his wife arose out of a generous disposition rather than a contractual obligation.

But if there is any doubt as to the applicability of the statute quoted to the transaction as testified to by petitioner, there is still another reason why the payment by him to her should not be regarded as a deductible loss under the revenue statutes. As we have already stated, it is impossible to read petitioner's evidence and reach the conclusion that an actual sale and delivery of the shares of stock was...