National Lead Co. v. Nulsen

• Decision Date: 01 February 1943
• Docket Number: No. 12303.,12303.
• Citation: 131 F.2d 51
• Parties: NATIONAL LEAD CO. v. NULSEN.
• Court: U.S. Court of Appeals — Eighth Circuit

131 F.2d 51 (1942)

NATIONAL LEAD CO. v. NULSEN.

No. 12303.

Circuit Court of Appeals, Eighth Circuit.

October 29, 1942.

Rehearing Denied November 23, 1942.

Writ of Certiorari Denied February 1, 1943.

G. T. Priest, of St. Louis, Mo. (Boyle & Priest and Robert E. Moloney, all of St. Louis, Mo., on the brief), for appellant.

Richard S. Bull, of St. Louis, Mo. (Orla M. Hill, of Clayton, Mo., and Carter, Bull & Garstang, of St. Louis, Mo., on the brief), for appellee.

Before SANBORN, THOMAS, and JOHNSEN, Circuit Judges.

Writ of Certiorari Denied February 1, 1943. See 63 S.Ct. 533, 87 L.Ed. ___.

THOMAS, Circuit Judge.

This is an appeal by the plaintiff in the district court from a judgment dismissing its petition and awarding recovery to the defendant upon his counterclaim for the sum of $21,182.48 with interest and costs. The defendant, A. G. Nulsen, having died pending the appeal, the executor of his estate has been substituted as appellee in this court.

Plaintiff's suit is to recover damages for an alleged breach of a written contract, the execution of which is admitted.

The contract upon which the suit is based was entered into on May 14, 1923, between the defendant, A. G. Nulsen, and J. K. Nulsen as parties of the first part, and the plaintiff, National Lead Company, as party of the second part. By the terms of the contract the first parties, in consideration of $800,000 to be paid as provided, agreed to sell and deliver to the plaintiff all the common capital stock (7,500 shares) of National Pigments and Chemical Company, a Missouri corporation, hereinafter referred to as the Chemical Company. The purchase price of the stock was based upon an audit of the assets and liabilities of the Chemical Company as of December 31, 1922, made by Price, Waterhouse & Company, and attached to and made a part of the contract. Among other things, the contract provided that in the event the net assets of the corporation had increased from the ordinary conduct of business after December 31, 1922, and before the date of settlement, the sum of such net increase should be added to the purchase price, but, if the net assets decreased during that period, such decrease should be deducted from the purchase price. Such increase or decrease was to be determined by said audit and an audit to be made as of the date when the contract should be finally closed. A supplementary agreement fixed the time for final settlement on September 1, 1923. Delivery of the stock was acknowledged on October 10, 1923, and final payment of the purchase price was made on December 20, 1923.

Plaintiff's case is predicated upon the alleged breach of paragraph 7 of the contract, which reads as follows: "Parties of the First Part hereby guarantee that on December 31st, 1922, there were no liabilities of the National Pigments and Chemical Company not shown on the attached audit of Price, Waterhouse & Company, and that if any liabilities of said National Pigments and Chemical Company, other than those shown on said audit of Price, Waterhouse & Company, shall appear, then parties of the First Part hereby assume and agree to pay same; and this agreement is made for the benefit of the National Pigments and Chemical Company as well as the party of the Second Part hereto, and may be enforced by both the National Pigments and Chemical Company and the National Lead Company."

The alleged violation of the contract is in substance that on May 14, 1923, the date of the contract, there did exist a liability of the National Pigments and Chemical Company not shown on the audit attached to the contract, and that the defendant, A. G. Nulsen, had refused to pay the same.

The facts giving rise to the existence of the liability in question are undisputed. In 1920 Casper DeLore owned and controlled the J. C. Finck Mineral Milling Company and the DeLore Baryta Company, and Nulsen and his son owned all of the capital stock of the Nulsen Corporation. In that year the three corporations were consolidated and became the Chemical Company. On August 3, 1921, Nulsen entered into a contract with DeLore as of July 30, 1921, by the terms of which he purchased for $400,000 all of DeLore's interest in the three corporations, the consolidation of which had not been completed. The last installment of the purchase price was payable January 10, 1925. When that contract was made a possible tax liability of the two DeLore corporations existed on account of back income and excess profits taxes in the amount of $35,000. In reference to these possible tax liabilities the contract provided: "(7) * * * It is mutually agreed between the parties hereto that in the event said liability shall hereafter be established at a greater sum than $35,000.00 and the same shall be paid by Nulsen or his associates or the National Pigments & Chemical Company, then the said DeLore shall, upon demand, pay to said Nulsen one-half of such excess over and above said sum of $35,000.00; and in the event such tax liabilities shall be determined to be less than said sum of $35,000.00 then the said A. G. Nulsen will, upon the establishment of such fact, pay to the said DeLore one-half of the difference between the amount so determined for tax liability and the said sum of $35,000.00. This matter is to be determined not later than the date of maturity of the last installment payment hereinbefore provided."

After the execution of the last mentioned contract, Nulsen controlled the stock interests of the Chemical Company. He claimed that he negotiated the contract as its agent and on its behalf.

In December, 1926, DeLore, claiming that no liability for back income and excess profits taxes against either the J. C. Finck Mineral Milling Company or the DeLore Baryta Company had been established or paid, sued defendant Nulsen in the state court for $17,500, predicating his claim upon the above quoted paragraph of the contract of July 30, 1921. After DeLore first threatened suit, and during the pendency thereof, Nulsen took two different positions on the question of the liability arising out of the tax provisions of the DeLore contract. During the period from 1925 to 1927, he and his attorneys served three notices on the plaintiff demanding that it defend DeLore's suit. The demand was based on the ground that the liability was a liability of the Chemical Company shown on the audit attached to the contract of May 14, 1923. In 1928 Nulsen changed his position and served notice upon the Chemical Company demanding that it defend DeLore's suit at its own expense. This notice was based on the ground that the contract was entered into by Nulsen as agent of the Chemical Company. Both plaintiff and the Chemical Company refused to defend and denied liability. The case was tried. DeLore obtained judgment therein against Nulsen for $14,907.56, and Nulsen paid the same on April 11, 1931.

Thereafter Nulsen elected to sue the Chemical Company, not the Lead Company, to recover the amount paid by him to satisfy the DeLore judgment. The suit was predicated on the ground that in negotiating the contract of July 30, 1921, with DeLore, on the basis of which DeLore had obtained judgment against him, Nulsen was acting for and in behalf and for the benefit of the Chemical Company and that the Chemical Company had adopted the contract. The case was begun August 19, 1931, and tried to the court without a jury April 25, 1937, resulting in a judgment on January 5, 1938, in favor of Nulsen and against the Chemical Company for $21,182.48, including interest to that date. The judgment was finally affirmed by the Supreme Court of Missouri on December 11, 1940. Nulsen v. National Pigments & Chemical Company, 346 Mo. 1246, 145 S.W.2d 410.

The judgment in favor of Nulsen has not been paid. At the commencement of the present suit Nulsen was a nonresident of the state of Missouri, and the plaintiff obtained jurisdiction by attaching the Chemical Company. After Nulsen appeared he filed an answer and counterclaimed for the amount of his judgment against the Chemical Company.

The defendant Nulsen contends: 1. That the contingent liability of the Chemical Company resulting from the contract of July 30, 1921, and established by Nulsen's judgment of January 5, 1938, (a) though not expressly, was sufficiently shown on the audit attached to the contract of May 14, 1923, by references; or, (b) if such references were doubtful or ambiguous, such liability was shown on the supplemental audit of October 18, 1923, a copy of which was furnished plaintiff prior to the final payment to Nulsen on December 20, 1923, of the purchase price of the Chemical Company stock. And 2. That plaintiff is bound and estopped upon the principle of res judicata by the judgment obtained by Nulsen against the Chemical Company in the suit in the state court, supra.

The defense that the liability of the Chemical Company for the obligation arising out of the contract of July 30, 1921, between Nulsen and DeLore, was sufficiently shown by references on the audit of Price, Waterhouse & Company attached to the contract of May 14, 1923, is without merit. That audit contained a balance sheet on which were listed the "Assets" and "Liabilities" of the Chemical Company as of December 31, 1922. Among the liabilities listed was "Reserves: For federal income taxes of prior years of constituent companies. ..... $27,057.92." It was further stated: "The returns of the J. C. Finck Mineral Milling Company for the years 1917 forward are subject to final determination by the Department; however the reserve for possible future assessment in this respect would appear to be amply provided for."

Referring to the Nulsen-DeLore contract of July 30, 1921, the audit states: "The Balance Sheet of December 31, 1922, shows a sum of $180,000 still outstanding. * * * It should be observed here that Albert G. Nulsen in these negotiations acted as agent of the National Pigments and Chemical Company."

The foregoing are the...