Van Landingham Western Sales v. Commissioner , 35 B.T.A. 130 ( 1936 )

VAN LANDINGHAM WESTERN SALES, INC., FORMERLY CANADA DRY WESTERN SALES, INC., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Van Landingham Western Sales v. Commissioner

Docket No. 75391.

United States Board of Tax Appeals

35 B.T.A. 130; 1936 BTA LEXIS 561;

December 3, 1936, Promulgated

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">*561 A corporation which in 1925 issued shares for the assignment of a distributing agency contract running for one year, and thereafter made a new contract each year with the manufacturer, may not take a deduction for loss in respect of such contract in 1931, when the last contract expired and no new contract was made.

Harry William Elliott, Esq., and W. H. Teasley, C.P.A., for the petitioner.

Frank M. Thompson, Esq., for the respondent.

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STERNHAGEN

">*130 The Commissioner determined a deficiency of $1,200.01 in petitioner's income tax for 1931. He disallowed a deduction for loss in respect of a contract.

FINDINGS OF FACT.

The petitioner is a California corporation organized in 1925 primarily to take over the business theretofore conducted by C. E. Van Landingham as the territorial distributing agent for Canada Dry ginger ale.

At the time of its organization, Van Landingham had a contract with Canada Dry Ginger Ale, Inc., for the period January 1 to December 31, 1925, giving him the exclusive distributing agency in certain prescribed territory. He had had prior similar annual contracts, under which his volume of sales had increased">*562 from $100,000 in 1922 to $400,000 in 1924. In June 1925 he offered by letter to the newly organized petitioner to transfer this sales contract to the corporation in exchange for $10,000 par value of its shares. In this letter he stated that the contract expired at the end of the year, and undertook to "do everything possible to have it renewed in the name of the corporation." The contract by its terms permitted its assignment by Van Landingham to a corporation approved by ">*131 Canada Dry Ginger Ale, Inc., and this approval was given. Van Landingham and petitioner had frequent oral assurances that the distribution contract would be renewed each year upon its expiration, so long as sales continued to be satisfactory, but this assurance was always accompanied by the caveat that it did not modify the written contract of a one-year period. It was usual in this type of business for contracts of this sort to be limited to one year, and it was also usual for such contracts to be renewed from year to year as long as the business was well established and continued to improve. Each year a new and similar contract was made by Canada Dry Ginger Ale, Inc., and the petitioner, until the">*563 last contract, which expired at the end of 1931. In 1930 Canada Dry Ginger Ale, Inc., notified petitioner in writing that it would terminate the existing arrangement December 31, 1931. This it did, and since that date petitioner has not handled Canada Dry ginger ale.

Prior to the organization of petitioner, Van Landingham had the principal interest in the preceding organization. One Eastman also owned an interest. Several of the employees had misappropriated the proceeds from the sales of goods to the extent of $7,000 or $8,000. Van Landingham made good this amount to Canada Dry Ginger Ale, Inc. He also paid Eastman $4,000 for his interest. Because of this, Canada Dry Ginger Ale, Inc., made the contract of 1925, which gave Van Landingham the agency and gave him the right to assign it to a corporation then to be organized, with permission to use the words Canada Dry in its corporate name as long as it should continue to have the agency.

OPINION.

STERNHAGEN: The petitioner claims a deduction in 1931 for loss of $10,000, adopted by it as the cost in 1925 of the agency contract. It says it lost the contract in that year.

Really it lost nothing but its nonjuristic hope">*564 of renewal. The contract lived its full life of a year, and expired in accordance with its own terms. No oral assurance by Canada Dry officers is important in the face of the express terms of the written contract. One of the purposes served by putting a contract in writing is to avoid any dispute which might have been engendered by the more informal conversations of the parties; it leaves them free to talk with each other without fear of inadvertent commitments. The habit in the trade of renewing satisfactory distribution contracts has no greater significance. Even if there had been in the writing an option to renew, it would not operate to establish a single contractual term from 1925 to 1931. ; certiorari denied, ; this is especially so since each year had its separate and complete contract.

">*132 Petitioner argues that 1931 is the only year it could claim the loss, since nothing terminated in 1925 to give it a deduction then. This assumes that surely a deductible loss occurred some time, an assumption by no means irresistible. The petitioner issued shares for Van">*565 Landingham's assignment and measures its cost of the contract by his payments to Eastman for his interest in the earlier organization and to the Canada Dry corporation of the amounts embezzled by the former employees. Irrespective of whether this reasoning would have been valid to support a deduction in 1925, it does not establish the deduction in 1931.

Upon no theory has the petitioner established the deduction claimed. The respondent's disallowance was correct.

Judgment will be entered for the respondent.