Sellers v. Head

• Decision Date: 11 March 1954
• Docket Number: 6 Div. 472
• Citation: 73 So.2d 747,261 Ala. 212
• Parties: SELLERS v. HEAD.
• Court: Alabama Supreme Court

Page 747

73 So.2d 747

261 Ala. 212

SELLERS v. HEAD.

6 Div. 472.

Supreme Court of Alabama.

March 11, 1954.

Rehearing Denied June 30, 1954.

Lange, Simpson, Robinson & Somerville, Birmingham, for appellant.

Wm. S. Pritchard, Victor H. Smith and Pritchard, McCall & Jones, Birmingham, for appellee.

SIMPSON, Justice.

Sellers, the appellant, filed a bill in equity to enjoin the sale of certain shares of stock of Baggett Transportation Company which had been pledged as collateral security for two notes then past due and unpaid executed by appellant to appellee Head. The bill, in addition to praying for an injunction against the proposed sale, offered to do equity and sought to redeem the shares of stock by paying any amount found by the court to be due on said notes. The final decree denied injunctive relief and fixed the amount due by the notes, including interest and attorney's fee. The appeal has proceeded from that decree.

On December 31, 1941, the appellee and the appellant entered into a contract whereby Head sold to Sellers thirteen shares of stock in the Baggett Transportation Company. That section of the contract as applicable to the case reads as follows:

'It is understood that the purchaser has paid and agreed to pay the above sums [the amount represented by the stock purchase notes] for said stock, relying upon the books of the company as to the present condition of the company. It is expressly agreed that in the event liability for taxes of any kind (including income taxes) not now known by the Purchaser to exist, and not now shown by the books of the Company as a liability, shall later be assessed and paid and in the event liability for violation of any law * * * shall be imposed * * * and said liability shall be paid by the Company * * * then and in that event Beverly P. Head, Jr., shall credit on the next maturing note held by him thirteen-fortieths (13/40ths) of such additional liability so imposed on the company and paid by it. In the event, however, said notes have been paid in full prior to the discovery of such additional liability, the Vendor shall be under no obligation to make good the same. * * *'

Five notes were executed contemporaneously by Sellers to Head, payable over a period of five years to secure the balance of the purchase price by Sellers under his contract; the last two of these were due on or before January 2, 1946, and January 2, 1947. The certificate for the thirteen shares of stock being deposited with Head as collateral security for the notes and the notes being past due and unpaid, Head advertised the sale of the collateral under the power contained in the notes. Sellers, the appellant, then filed he bill seeking an injunction against the proposed sale. The pertinent facts on which he seeks relief are: In April, 1945, notice of probable liability for taxes for the years of 1932-1939 was given the corporation by agents of the Department of Internal Revenue; in June, 1950, the Collector of Internal Revenue made an assessment against the corporation in the sum of $37,668.18, of which the tax was $17,340.45, interest $11,460.18, penalty $8,867.55, and which liability was discharged by the corporation. The facts which justified such assessment were not shown by the books of the company and were not known to Sellers or Head at the time of the execution of the contract.

On a former appeal of a case between the same parties, involving the same matters (Head v. Sellers, 251 Ala. 453, 37 So.2d 664), the contract was interpreted to mean that notwithstanding the fact that at the time of the maturity of the notes, the final determination of the amount owing by the corporation was pending and only a compromise offer had been made, i. e., the corporation had not paid the amount ultimately assessed, the vendor's obligation to make the credit was conditioned upon a discovery of the tax liability and the credit the purchaser would be entitled to receive could not be decreed until a final determination of the tax liability. Therefore, the tax now having been paid by the corporation, and no other transaction appearing, Sellers contends that he is entitled to a credit on the unpaid notes of a sum equal to 13/40ths of the amount ($37,668.18) paid by the corporation--the additional tax liability.

Head, the appellee, contends however, that he is not due to credit said notes with that amount or any part of it because of certain dealings between Sellers and J. D. Baggett, who was president and general manager of the corporation during those years for which the tax was assessed and who caused the delinquent tax liability against the corporation. This conduct of Baggett consisted of Baggett's collection and retention personally of certain sums which were owing the company by customers and which he did not report for the company so as to make the same appear on the books of the company, but appropriated the same to his own use. Had he made proper and prompt returns for the company, as the law required, the tax would have been due and payable long before Head and Sellers became stockholders, and there would have been no delinquent tax liability. At that time the stockholders of the company were Baggett and his wife and what he did was apparently with her knowledge and consent. The government inspector made a discovery of those matters and made the assessment referred to above.

Head contends that since Baggett brought about the delinquent assessment for the income tax by his own misconduct, he personally was liable for its payment; where as in a later transaction, at a time when Sellers and Baggett were the sole stockholders in the corporation each owning 50% of the stock, Sellers, with full knowledge of the tax liability of the company and the basis of that liability, caused the company to purchase Baggett's stock for the sum of $90,000--a sum which was more than enough to satisfy all tax liabilities; as a part of this transaction the company released Baggett from all tax liability or other claims it might have against him except to the extent of one-half of the amount of the assessment exceeding $28,742.57 (that amount having been paid to the government by the company by way of offer of compromise). This sum was subsequently fixed at $10,021.72, which Baggett paid to the company and the...