Schlafly v. D'Arcy
| Decision Date | 08 September 1924 |
| Docket Number | No. 6618.,6618. |
| Citation | 1 F.2d 297 |
| Parties | SCHLAFLY v. D'ARCY. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Ralph T. Finley and Frank H. Sullivan, both of St. Louis, Mo. (Jones, Hocker, Sullivan & Angert, of St. Louis, Mo., on the brief), for appellant.
James Campbell and Albert D. Nortoni, both of St. Louis, Mo. (Carter, Nortoni & Jones, of St. Louis, Mo., on the brief), for appellee.
Before STONE and KENYON, Circuit Judges, and KENNEDY, District Judge.
This is a proceeding in bankruptcy in which the appellant is appealing from an order and decree of the United States District Court for the Eastern District of Missouri, approving and sustaining an order of the referee in bankruptcy, which disallowed a portion of a claim of the appellant as trustee of one bankrupt estate against another bankrupt estate of which the appellee is the trustee. The controversy is determinable out of the interpretation of a contract and lease between the two bankrupt companies, made and entered into before either was in bankruptcy. The substantive facts, so far as they may be necessary for a determination of the questions here raised, appear to be as follows:
Prior to June 30, 1920, the two companies were operating independently, but with the same executive officers. On that date they entered into an agreement by which the Best-Clymer Company agreed to sell to the Temtor Company its personal property for a consideration of approximately $1,500,000, the larger portion of which was to be paid by the assumption of the obligations of the Best-Clymer Company and the balance in accordance with a resolution of the board of directors of the latter company, which resolution provided that this balance should be credited to the Best-Clymer Company upon the books of the Temtor Company, and should be payable at the expiration of 20 years, with interest, except such advancements as should be required, particularly for the completion of additions then being made to the real estate of the Best-Clymer Company in St. Louis. On the same date the two companies entered into a lease agreement, by which the Best-Clymer Company leased to the Temtor Company all its real estate for a period of 20 years for a consideration which was to be equivalent to 7 per cent. upon the investment values, plus a net reserve to be set aside for depreciation, obsolescence, or replacements, as well as all other charges which might accrue against the Best-Clymer Company in the interim, all of which agreed minimum rental was to be sufficient to enable the Best-Clymer Company to pay a quarterly dividend upon its outstanding preferred stock. In addition to this there was to be paid under said lease the sum of $25,000 per year, which was to be used as a sinking fund for the purpose of permitting the Best-Clymer Company to retire its outstanding preferred capital stock. Two of the items set forth in the resolution of the board of the Best-Clymer Company as the basis of the agreement, and listed among the liabilities of the Best-Clymer Company, were reservation for the payment of federal taxes, one of a general item of about $41,000, and the other a special item of $50,000 for the year 1920.
The arrangement between the two companies under the agreement and lease continued until March, 1921, when a subsequent agreement was made by which the companies virtually re-exchanged the properties. Subsequent to the execution of the agreement and lease of June, 1920, the parties proceeded to carry out their terms. Some time in July, 1920, after the Temtor Company had taken possession of the property, the government made a demand for federal taxes then ascertained to be due from the Best-Clymer Company for the year 1917. That company took the matter up with the Temtor Company, and the taxes in the amount of $37,641.93 were paid to the government by the Temtor Company, and, when the remittance was sent in, it was accompanied by a protest on the part of the Best-Clymer Company. This item was not charged to the Best-Clymer Company, but carried by the Temtor Company among its bills receivable, and was so found upon the books when the bankruptcy of the two companies ensued.
Subsequently the trustee of the Temtor Company presented its claim to the trustee of the Best-Clymer Company in the matter of adjusting the accounts between the two companies, which claim included the item of taxes for the year 1917 paid by the Temtor Company, and upon the hearing before the referee upon the claim this item was disallowed, the order of the referee so disallowing the item approved by the court, and from that order and decree the trustee of the Temtor Company appeals.
The only legal question for determination here is as to whether or not the decision of the trial court was correct in disallowing the item for taxes hereinbefore referred to, which requires a consideration of certain portions of the agreement, resolution, and lease, to which reference has heretofore been made. Clause 3 of the lease reads as follows:
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