The taxpayer sold shares of his family company ("Franco") to an arm's length company ("Charter") and remained as general manager of Franco. Charter and a subsidiary of Charter lent $625,000 to Franco, and when Franco subsequently fell into financial difficulty the taxpayer repurchased the shares, and was assigned Charter's loans, in consideration of for the sum of $1.00 and entering into an agreement to jointly and severally guarantee with Charter certain libilities of up to $200,000, once the liabilities of Franco had been reduced to that level.
The repayment by Franco of loan amounts now owing by it to the taxpayer did not give rise to income in his hands. Although the taxpayer received the repayments rather than being paid salary, the trial judge had found that "at the time of acquisition [of the loans], assignment of the loans to him was of little interest to him and not a primary consideration," and the taxpayer's gain should be considered to have arisen fortuitously rather than as a result of a carefully realized plan for the realization of speculative profits.