United States v. Industrial Crane & Manufacturing Corp., 73-2413.

• Decision Date: 04 April 1974
• Docket Number: No. 73-2413.,73-2413.
• Citation: 492 F.2d 772
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. INDUSTRIAL CRANE AND MANUFACTURING CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

492 F.2d 772 (1974)

UNITED STATES of America, Plaintiff-Appellee, v. INDUSTRIAL CRANE AND MANUFACTURING CORPORATION, Defendant-Appellant.

No. 73-2413.

United States Court of Appeals, Fifth Circuit.

April 4, 1974.

D. H. Markstein, III, Birmingham, Ala., for defendant-appellant.

Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, Tax Div., Dept. of Justice, Lee H. Henkel, Jr., Acting Chief Counsel, Internal Revenue Service, Washington, D. C., Wayman G. Sherrer, U. S. Atty., Charles D. Stewart, Asst. U. S. Atty., Birmingham, Ala., William Clay McGehee, Gen. Lit. Section, Tax Div., Dept. of Justice, Washington, D. C., Bennet N. Hollander, Alfred S. Lombardi, Attys., Tax Div., Dept. of Justice, Washington, D. C., for plaintiff-appellee.

Before GODBOLD, SIMPSON and INGRAHAM, Circuit Judges.

GODBOLD, Circuit Judge:

By a contract executed by Billmeier and Quarles and dated April 30, 1969, appellant's sole stockholder, Billmeier, sold his stock in appellant corporation to Quarles. The contract provided that appellant "has assumed a maximum of $7,500" of Billmeier's potential personal liability as responsible officer of a predecessor corporation for the predecessor's non-payment of withholding taxes.¹ Appellant was not a party signatory to the contract and did not execute a formal assumption of Billmeier's liability.

Under date of May 1, 1969, Billmeier entered into an employment contract with appellant in which he made a covenant not to compete. The contract was signed for appellant by its new executive officer.

After an assessment against Billmeier in 1971, the government sued appellant, claiming to be a third party beneficiary of the sale contract.² Appellant attempted to set off an amount claimed by it to be due from Billmeier as liquidated damages for breach of the covenant not to compete. The District Judge ruled without opinion that appellant was liable to the government as third party beneficiary and that appellant could not offset damages for Billmeier's alleged breach of the covenant not to compete. The only issues remaining to be tried by a jury concerned other setoffs not here in question. The jury found those issues for appellant, and judgment was entered for the government for $3,123, or $7,500 less the setoffs found by the jury.

The District Court did not err in holding as a matter of law that appellant was bound although it did not join in the contract. Under Alabama law a corporation is bound by a contract executed by a sole or controlling owner who is its alter ego even if the consideration flows to the owner and none to the corporation. Copeland v. Swiss Cleaners, 255 Ala. 519, 52 So.2d 223 (1951); Ex parte City Sales Co., 264 Ala. 637, 88 So.2d 668 (1956). Here where the contract was between an old sole owner and a new sole owner, the principle finds its clearest application. The clinching point is that as an exhibit to this mutual agreement of old and new sole owners was attached a balance sheet of appellant which showed a corporate liability of $7,500 to I.R.S. regarding Billmeier.

The appellant may not raise on appeal the defense that the Alabama Statute of Frauds precludes recovery inasmuch as it requires that a contract to pay the debt of another be in writing. Fed.R.Civ.P. Rule 8(c) requires that this defense be affirmatively alleged, which was not done.

An undertaking to pay Billmeier's § 6672 liability is not void as against public policy on the ground that the liability is a penalty which may not be assumed by another. The penalty is civil in nature and imposed to prevent loss of government revenue, and not to inflict punishment....