Ruysser v. Smith, 1
| Decision Date | 08 October 1956 |
| Docket Number | No. 1,1 |
| Citation | 293 S.W.2d 930 |
| Parties | Henry A. RUYSSER, Jr., Plaintiff, Respondent, v. A. J. SMITH, J. J. Stratton and Charles H. Myers, Defendants, A. J. Smith, Appellant. Mo. 45453 |
| Court | Missouri Supreme Court |
Robert E. Coleberd, Francis G. Hale, Liberty, for appellant. Arthur R. Kincaid, William B. Waters, Liberty, of counsel.
I. Frank Rope, Rope, Shanberg & Rope, George L. Gordon, Donald W. Johnson, Gordon & Gilmore, Chester B. Kaplan, Bernard J. Ruysser, Kansas City, for respondent.
Action on an indemnity provision of a contract to recover the amount of a federal income tax deficiency assessment and interest, arising out of plaintiff's 1946 income from a partnership with defendants and others. Plaintiff had judgment for $21,099.21 against defendants Smith, Stratton and Myers, and only Smith has appealed.
The contract was for the sale of the interest of plaintiff and three other partners to defendants and four other partners. The decisive question is whether the contract provision was an indemnity against liability or an indemnity against loss; or as applied to the facts of this case: Was the actual payment of the additional tax essential to recovery? or did the final determination of plaintiff's liability to pay the tax authorize recovery? Defendant Smith says the tax might be compromised and gives this as one reason why payment should be a condition precedent to this action.
The material part of the contract was as follows:
'3. So long as the Selling Partners are not in default hereunder and have kept and performed their several covenants and agreements herein contained, the Purchasing Partners agree '(a) To assume and be liable for all debts and obligations of the Partnership to any firms or persons other than the partners, heretofore incurred or arising out of Partnership transactions heretofore occurring, except any debts, obligations or liabilities of the Partnership which may have been contracted by, or incurred as the result of acts of, the Selling Partners or any of them and which have not heretofore been authorized by the Purchasing Partners or any of them or entered on the books or records of the Partnership.
'(b) To indemnify the Selling Partners and each of them for any sums of money which they or any of them may be required by law to pay upon any obligations of the Partnership herein assumed and agreed to be paid by the Purchasing Partners, and further to indemnify the Selling Partners and each of them for any additional federal or state income taxes which they or any of them respectively upon final determination of such taxes may be hereafter required to and do pay as a result of deficiency assessments based on income arising out of and resulting from the business and operations of the Partnership or any of its subsidiary or affiliate companies, upon the following terms and conditions:
'(1) This indemnity agreement shall not be construed to require any reimbursement of taxes heretofore paid nor shall it apply to any taxes or tax liability based on the distributive share of each of the Selling Partners in the profits of the Partnership in the amounts heretofore reported for each fiscal year of the Partnership in the federal tax information returns of the Partnership heretofore filed, it being the intent of the parties that this indemnity shall apply only to such additional taxes as may be required to be paid as a result of adjustments or deficiency assessments based on or resulting from a final determination of taxable income attributable to the Partnership business and operations in amounts over and above the amounts of such taxable income heretofore reported as above stated. * * *
(Sub-paragraph (2) excluded taxes on the last year's income and sub-paragraph (3) gave all refunds or recoveries to the Purchasing Partners.)
This contract was made April 13, 1950. At that time, it was known by the parties that deficiency assessments had been made against all of them on their 1946 income tax by reason of disallowance of a loss in a joint venture with Continental Industries, Inc., a wholly owned subsidiary of the partnership, based on advances to it. The partners had received notice of these assessments in June 1949 and on March 8, 1950 they had been notified that their pretest against these assessments had not been allowed. It was stated that these deficiency assessments were taken into consideration in fixing the purchase price in the 1950 contract. An appeal to the Tax Court was later decided against them (in 1953) and the defendant's additional taxes had been paid. The Treasury Department withheld action on plaintiff's additional taxes pending the trial of this case. Less than a year after the contract involved herein, defendants Stratton and Myers sold their interest (February 7, 1951) in the partnership to defendant Smith and others. This contract provided that the purchasers would 'protect and hold harmless' the sellers 'for any additional federal or state income taxes which they, or either of them respectively, upon final determination of such taxes, may have assessed against them or be otherwise found liable to pay as a result of deficiency...
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