Case Name: Henry S. Quick, Respondent, v. Alfred E. Clegg and Another, Appellants
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1927-12-23
Citations: 222 A.D. 137
Docket Number: 
Parties: Henry S. Quick, Respondent, v. Alfred E. Clegg and Another, Appellants.
Judges: 
Reporter: Appellate Division Reports
Volume: 222
Pages: 137–141

Head Matter:
Henry S. Quick, Respondent, v. Alfred E. Clegg and Another, Appellants.
First Department,
December 23, 1927.
Herbert Noble of counsel [Noble, Morgan & Scammell, attorneys], for the appellants.
George F. Handel, for. the respondent.

Opinion:
Martin, J.
On December 4, 1918, plaintiff and the defendant Clegg executed a written agreement whereby Quick agreed to sell to the defendant Clegg 1,800 shares of stock of the Kerr Steamship Company for the sum of $430,000 and the further consideration that the purchaser was to pay certain income taxes of the seller. This agreement also contained a clause providing for a further writing or " agreement " relating to the taxes to be paid by the defendant Clegg. The agreement was executed by the parties at the time of the delivery of the stock, December 31, 1918, and its execution is admitted by the pleadings. The defendant Kerr is sued as a guarantor of the performance of the contract on the part of Clegg. The fact of Kerr's guaranty is not disputed. The construction of the clause relating to the payment of tax was the only question before the trial court.
The sole question, therefore, involved on this appeal is one of legal interpretation of a certain agreement or agreements entered into between the plaintiff as vendor of certain shares of stock, and Alfred E. Clegg, the vendee.
The provision in the agreement of December 31, 1918, which is the one before us on this appeal, is not technical in form, nor ambiguous in meaning. It provides as follows: " That he [Clegg] will assume and pay all Income and Excess Profits Taxes for the year 1918 which are assessed against the party of the first part by reason of the sale of the above-mentioned stock."
The writing of December 4, 1918, had provided that " the vendee will pay any income tax that the vendor may be assessed for the year on the proceeds of the sale Appellants contend that the first agreement was binding and that it alone and not the final agreement is to be construed. It seems to us that the agreement of December 4, 1918, • is not necessarily in conflict, on this point, with the agreement of December 31, 1918. The tax which the vendor would be required to pay " on the proceeds of the-sale " is, from any fair point of view, the increase of his tax as a result of receiving the proceeds of the sale. From no angle, moreover, was the tax referred to a tax on the proceeds of the sale. It was a tax on the seller's income; and the purpose of the agreement is apparent.
Respondent contends that this is clearly a provision that the defendants will pay all taxes over and above those taxes plaintiff would have been obliged to pay had the stock not been sold. The defendant Clegg contends that the agreement is to pay such taxes as plaintiff would have to pay if he had no income in 1918 other than his profit from the sale of the stock. If the defendant applied to these words a meaning they would not ordinarily bear, or had in his mind a hidden or secret intent, he should not now be permitted to benefit thereby.
At the Trial Term it was held that the parties intended the seller to have and retain, without deduction for payment of tax, the profit which the sale gave him. This is a natural construction. He was to be assured by this agreement of a certain profit irrespective of the amount of tax. His profit was to be fixed and certain. As the trial justice points out in his opinion, defendants would have received the benefit of any deduction for a net loss in 1918 outside of this transaction.
The appellants base their argument to a considerable extent on an English case referred to at length in the opinion in this case at Trial Term. (See Union Theatres, Ltd., v. Marrickville Bldgs., Ltd., 35 C. L. R. [Australia] 171.) That was an action between landlord and tenant in which it was held that the tenant's obligation to pay income tax in relation to the rent was confined to such tax as would result from the landlord's receiving the rent. The difference in circumstances and in the language of the agreements is so great that the case cited would seem unimportant, especially as no fundamental principle was involved, but the mere construction of a par^ ticular contract.
Appellants say the construction given the agreement at Trial Term leaves uncertain the amount to be paid. The purpose of the agreement was to meet such uncertainty. Otherwise a definite amount could have been fixed in advance and inserted in the agreement.
The very purpose of the agreement, as pointed out, was to make certain the net amount of profit the seller of the stock was to receive, irrespective of the amount of tax.
We are of the opinion that the judgment is correct and should be affirmed, with costs.
Dowling, P. J., and Finch, J., concur; McAvoy and O'Malley, JJ., dissent.