Shareholders in a company executed an agreement under which one received the option to purchase shares of the other in the following tax year. The purchaser let the option lapse but the seller argued that the agreement is a binding sale agreement and was written as an option only for tax purposes so as to postpone the transaction to the next tax year.
The Court held that the need to change the agreement from a purchase agreement to an option agreement was due to tax considerations of the seller. Under such circumstances, the Court will not allow a party to an agreement to withdraw from an agreement designed for a particular purpose, and determined that it is in fact another agreement, especially after it has already profited from the tax consequences of the definition of the transaction under the agreement.