Nicholas v. Davis, 4567.

• Decision Date: 27 April 1953
• Docket Number: No. 4567.,4567.
• Citation: 204 F.2d 200
• Parties: NICHOLAS v. DAVIS.
• Court: U.S. Court of Appeals — Tenth Circuit

204 F.2d 200 (1953)

NICHOLAS v. DAVIS.

No. 4567.

United States Court of Appeals Tenth Circuit.

April 27, 1953.

Carlton Fox, Atty., Dept. of Justice, Washington, D. C. (Charles S. Vigil, U. S. Atty., Denver, Colo., Clifford C. Chittim, Asst. U. S. Atty., Boulder, Colo., Charles S. Lyon, Acting Asst. Atty. Gen., and Ellis N. Slack, A. F. Prescott, and William L. Norton, Jr., Sp. Assts. to Atty. Gen., on the brief), for appellant.

George T. Evans, Denver, Colo. (Emory L. O'Connell, Denver, Colo., on the brief), for appellee.

Before PHILLIPS, Chief Judge, and BRATTON and PICKETT, Circuit Judges.

PHILLIPS, Chief Judge.

John R. Davis brought this action against Nicholas, Collector, on a claim for refund of income taxes for the year 1946. By direction of the trial court a verdict was returned in favor of John R. Davis. Judgment was entered thereon and Nicholas has appealed.

In 1921, John R. Davis and his two brothers, Rees T. Davis, Jr., and Leslie E. Davis, entered into the wholesale florist business at Wheatridge, Colorado. Shortly after the business was organized they formed a corporation under the name, "Davis Brothers, Florists." They continued the business as a corporate enterprise until 1938. The business was successful and made substantial profits. In 1938 they dissolved the corporation and created a partnership, hereinafter referred to as the first partnership, in which each of the three brothers owned a 1/3 interest. In 1942 the three brothers gave consideration to the future of the business. They realized they were approaching the time in life when they could no longer actively manage and carry on the business. Each of them had sons and daughters, and they desired to perpetuate the business as a family enterprise. The sons had shown an aptitude for the florist business and desired to engage in such business. While the brothers concluded it would be better for the ultimate management of the business to be placed in their sons, they also desired to effect an arrangement which would eventually give their daughters an interest in the business, without powers of control or management. They conceived the plan of creating a new partnership in which the three brothers would be general partners, their wives limited partners, and in which each son would become a general partner when he reached his majority. It was contemplated that the shares of the wives would eventually go to the daughters.

On January 4, 1943, the three brothers, their respective wives, and Melrose W. Davis, a son of one of the partners, executed a written partnership agreement, to become effective as of January 1, 1943. It was promptly recorded. The partnership so created will be referred to hereinafter as the second partnership. Under that agreement the three brothers were general partners and each owned a 3/18 interest. The three wives were limited partners and their respective interests were: Lucy R. Davis, 1/18; Elizabeth S. Davis, 3/18; and Estella A. Davis, wife of John R. Davis, 3/18. Melrose W. Davis, a son, was also a limited partner and owned a 2/18 interest.

Out of earnings received from the first partnership, John R. Davis made a gift to Estella A. Davis of $12,500. She in turn paid that amount to the second partnership as her contribution to its capital.

On January 4, 1946, a written partnership agreement, effective January 1, 1946, was entered into by the three brothers, their respective wives, and two of the sons. It was recorded December 20, 1946. The partnership thus created is hereinafter referred to as the third partnership. On the basis of their contribution to capital the shares of the general partners were as follows: Rees T. Davis, Jr., 3/18; John R. Davis, 2/18; Leslie E. Davis, 3/18; Melrose W. Davis, 2/18, and John R. Davis, Jr., 2/18.

On the basis of their contribution to capital the shares of the limited partners were as follows: Lucy R. Davis, 1/18; Elizabeth S. Davis, 3/18, and Estella A. Davis, 2/18.

A third son was killed in 1948 shortly after he reached his majority.

John R. Davis and Estella A. Davis each made a gift to John R. Davis, Jr., of $4,166.66, which he contributed to the capital of the third partnership. From and after January 1, 1943, Estella A. Davis received her share of the distributions of earnings of the second and third partnerships. Her share over the period averaged in excess of $14,000 annually. The money she received as distributions of earnings of the partnership was deposited by her in a bank account, to the joint credit of herself and her daughter, Ruth Park. Estella A. Davis and Ruth Park were the only persons authorized to write checks on such bank account. Estella A. Davis had absolute domination and control of the partnership profits distributed to her, except to the extent that she authorized withdrawals therefrom by her daughter, Ruth Park. None of the distributed profits received by Estella A. Davis were used to pay household living expenses or family expenses. John R. Davis had no domination or control over the distributions of profits made to Estella A. Davis, and none of them were disbursed for his benefit. The handling of such distributions by Estella A. Davis carried out the original plan to make equitable provision for the daughters.

The foregoing facts were established by uncontradicted evidence. Nicholas offered no evidence and neither cross-examination nor other circumstances, reflected in the record, in anywise impeached or contradicted the evidence adduced in behalf of John R. Davis, nor cast any doubt on its verity. No part of such evidence was inherently improbable. Any doubt of bona fides that might have arisen from the fact that the contribution of Estella A. Davis to the capital of the second partnership was funds received by her through a gift from John R. Davis is completely overcome by the proof that Estella A. Davis received her full share of the distributions of partnership profits; that she exercised complete domination and control over them; that none of them were expended for household or family expenses; and that John R. Davis received no benefit from them and in nowise dominated or controlled them.

The second and third partnerships were formed for a legitimate, and, indeed, a commendable business purpose. It was to continue the business as a family enterprise, under the management of the sons, after the three brothers reached an age where they could not carry on, and, at the same time, effect an arrangement that would make equitable provision for the daughters. The evidence fully established the bona fides of such partnerships.

When controlling, positive, and uncontradicted evidence is introduced, and when it is unimpeached by cross-examination or otherwise, is not inherently improper, and no circumstance reflected on the record casts doubt on its verity, then under the principles laid down in Chesapeake & Ohio Ry. Co. v. Martin, 283 U.S. 209, 215-220, 51 S.Ct. 453, 75 L.Ed. 983,¹ it may not be disregarded, even though adduced from interested witnesses, and no question of credibility or issue of fact is presented for determination by the jury.

Therefore, the judgment is affirmed.

BRATTON, Circuit Judge (dissenting).

Viewed in the light of the land-mark case of Commissioner of Internal Revenue v. Culbertson, 337 U.S. 733, 69 S.Ct. 1210, 93 L.Ed. 1659, it seems clear to me that the evidence and the inferences fairly to be drawn from it presented an issue of fact for submission to the jury and that it was error to direct a verdict for plaintiff. In the Culbertson case, Coon and Culbertson were partners engaged in the ranching business. Culbertson had four sons. Coon desired to end the partnership. The bulk of the partnership herd of cattle was sold. Culbertson offered to purchase the interest of Coon in the remaining cattle. Coon accepted the offer upon condition that Culbertson sell an undivided one-half interest in the herd to his sons. Culbertson bought the interest of Coon in the remaining cattle and two days later sold an undivided one-half interest in them to his sons. The sons gave their father a promissory note for the purchase price. Later a new note was executed to replace the earlier one. The second note was paid. The form of payment was credit for overcharge, gifts from the father, and one-half of a loan procured by the partnership. The loan procured by the partnership was repaid with proceeds from the operation of the ranch. The partnership agreement between Culbertson and the sons was oral. A bank account was opened in the partnership name of Culbertson and Sons, upon which the father, the sons, and a bookkeeper could...