Head v. Sellers

• Decision Date: 12 November 1948
• Docket Number: 6 Div. 597.
• Citation: 251 Ala. 453,37 So.2d 664
• Parties: HEAD v. SELLERS.
• Court: Alabama Supreme Court

37 So.2d 664

251 Ala. 453

HEAD v. SELLERS.

6 Div. 597.

Supreme Court of Alabama

November 12, 1948

Rehearing Denied Dec. 16, 1948.

Wm. S Pritchard, Winston B. McCall, Victor H. Smith and Pritchard & McCall, all of Birmingham, for appellant.

Lange, Simpson, Robinson & Somerville, of Birmingham, for appellee.

The contract between the parties is in pertinent part as follows:

Witnesseth That in consideration of the mutual promises and undertakings herein evidenced, the parties hereto have contracted and agreed with each other as follows:

(1) The said W. D. Sellers, Jr., has bought from Beverly P. Head, Jr., thirteen (13) shares of the common stock of Baggett Transportation Company, Inc., an Alabama corporation, and Vendor represents that said stock so sold to him is valid, outstanding common capital stock of said corporation, and that the total outstanding stock of the said corporation now is, and as of the 31st day of December, 1941, will be forty (40) shares.

(2) Payment for said stock will, as of the 30th day of December, 1941, be made by the purchaser as follows:

To Beverly P. Head, Jr., Twelve Thousand ($12,000.00) dollars, cash, and a balance of Thirty six Thousand, seven hundred fifty ($36,750.00) dollars, payable Ten Thousand eight hundred eighty five ($10,885.00) dollars to J. D. Baggett January 5th, 1942, the balance of twenty five thousand eight hundred sixty five ($25,865.00) dollars in five (5) equal annual payments each of Five Thousand one hundred seventy three ($5,173.00) dollars, the first falling due on or before the first day of each of the four next succeeding Januaries, said five deferred annual payments to be evidenced by a series of five separate negotiable promissory notes dated January 1, 1942, each note bearing its own interest at the rate of 4% per annum. Said notes to provide that upon default upon any one of said notes, the holder may declare the entire debt immediately due and payable, and all remaining unpaid notes shall become due and payable as of the date of said default.

(3) Purchaser agrees to secure said notes as follows:

(a) He pledges to apply thereon as and when received 60% of the net income received by him from the partnership between himself and J. D. Baggett, known as J. D. Baggett Textbook Depository, which partnership has the school book contract for the State of Alabama. In each case it shall be applied to the then next maturing note.

(b) He will attach and pledge as security to the notes given Beverly P. Head, Jr., the certificate of stock evidencing the stock of BaggettTransportation Company, Inc., bought from Beverly P. Head, Jr. He agrees that 75% of all dividends paid on said stock at any time prior to the date said notes are paid in full shall be applied on said notes as and when such dividends are paid by Baggett Transportation Company. In each case it shall be applied to the then next maturing note.

(c) Any and all monies received by the said W. D. Sellers, Jr., from the said Baggett Transportation Company, Inc., in excess

of $60.00 per week, shall be considered and treated as dividends, and 75% of all excess monies so received shall be applied by the said Sellers in payment of the indebtedness herein referred to, said payments always to apply on the next maturing note.

(The 4th, and concluding, section of the contract appears in the opinion).

Plea A is substantially as follows:

Prior to the filing of complainant's bill, and prior to January 2, 1946 (the due date of the first of the notes in suit), the Treasury Department of the United States asserted against Baggett Transportation Company a claim for liability for income and excess profit taxes for the taxable years 1932-1939, inclusive, penalties and interest, in an amount in excess of $60,000.00.

Within a few weeks after respondent's purchase of the stock, and before he had received and dividends or income from J. D. Baggett Textbook Depository or Baggett Transportation Company, which he was obligated under his contract to apply to payment of said notes, the Commissioner of Internal Revenue began an investigation of income tax liability of Baggett Transportation Company and examiners were placed in the company's office. The examination was begun in March, 1942, and the examiners reported to the company, and the information was made available to respondent, that various items of tax liability were being discovered. In December, 1942, respondent was advised by the examiners that up to that date they had discovered a possible unpaid liability for income taxes for years prior to 1942 in an amount of $6,000.00 or more, and in March, 1943, they advised him of a possible claim for such taxes in the amount of $5764.77. Such investigation continued and in April, 1945, the company and respondent were apprised by a letter from the Commissioner of Internal Revenue, with attached detailed statement (exhibited with the plea) of the Government's claim on account of tax liability in an amount in excess of $60,000.00. Correspondence between the Commissioner and Baggett Transportation Company, of which respondent was informed, resulted in a postponement of action on the claim and a grant of time to the company to present its position. The company attempted to minimize its liability for said taxes, but a final agreement with the Commissioner has not been reached. Prior to January 2, 1946, the company admitted a liability to the extent of $28,742.57, and paid said amount on account of said liability. Notwithstanding such admission and payment, the Treasury Department is still asserting its claim for the remainder of the liability, penalties and interest. The State of Alabama is likewise asserting additional income tax liability against which respondent is entitled to protection.

The plea further asserts that thirteen-fortieths of the claimed liability of Baggett Transportation Company for federal income and excess profits taxes, and for income tax claimed by the State, far exceeds the amount due on both of said notes due January 2, 1946 and January 2, 1947; that none of said claims were shown by the books of the company as a liability and were not known by respondent to exist at the time of the execution of the contract; that said notes had not been paid in full prior to discovery of said liability now asserted against the company; that said liability would exceed the obligation of respondent on both of said notes; that the amount finally necessary to be paid in satisfaction of said claims and assertions of liability has not been and cannot now be determined, and, hence, that this suit seeking foreclosure is prematurely brought.

SIMPSON, Justice.

The main question on this appeal is whether the plea in abatement--Plea A--set up sufficient facts to show that the bill of complaint was prematurely filed seeking the foreclosure of a pledge of certain personal property as security for the two unpaid notes set out in the bill. The trial court held that the plea was sufficient and was proven, and made a decree abating the suit, from which plaintiff has appealed to this court.

Those two notes were the last of a series executed by appellee to appellant representing the balance of the purchase price of thirteen shares of stock of the Baggett Transportation Company, a corporation. They were due respectively on or before January 2, 1946, and January 2, 1947.

The bill was filed February 8, 1946, alleging that the maturity of said notes was accelerated and that they actually matured before the dates named for maturity because of a contemporaneous contract executed between the parties, whereby appellant sold appellee said stock, which provided, as security for payment, (a) that appellee, the maker of the notes, pledged to promptly apply on their payment sixty per cent of the net income received by him from a partnership between himself and J. D. Baggett, which had a school book contract with the State Of Alabama; and (b) that, as and when received, seventy-five per cent of all dividends paid on said stock (thirteen shares bought by him from appellant, also pledged as security) at any time prior to the date said debt was paid in full should be applied to the payment of the notes evidencing the debt; and (c) that all salaries paid him by the corporation before the debt is paid in full in excess of $60 per week should be considered and treated as dividends, seventy-five per cent of which should be applied in payment of said indebtedness. Said money, in each case, was to be applied to the next maturing note (See Section 3 of contract).

The bill then alleges that prior to January 2, 1946, appellee had received large sums from all three of those sources which should have been applied to the payment of the debt, but which were not so applied; that if said money had been so applied, it would have fully paid the notes prior to January 2, 1946, and (by an amendment) prior to the time when a tax liability was asserted against the said corporation by the Commissioner of Internal Revenue April 19, 1945. The notes contain an acceleration clause that upon default in the payment of one of said notes all notes remaining unpaid shall become immediately due and payable as of the date of the first default to occur.

The defense to abate the suit is founded on rights claimed under Section 4 of the contract, which provided that if certain unknown and contingent liabilities against the company should later arise, Head, the vendor of the stock, should be required to make certain credits on the notes. Section 4 is:

'(4) It is understood that the purchaser has paid and agreed to pay the above sums [the amounts represented by the stock purchase notes] for said stock, relying upon the books of the Company as to the present condition of...