Case Name: Barium Steel Corporation v. Wiley, Appellant
Court: Supreme Court of Pennsylvania
Jurisdiction: Pennsylvania
Decision Date: 1954-06-28
Citations: 379 Pa. 38
Docket Number: Appeals, Nos. 254, 255 and 268
Parties: Barium Steel Corporation v. Wiley, Appellant.
Judges: Before Stern, C. J., Stearne, Jones, Bell, Chidsey and Arnold, JJ.
Reporter: Pennsylvania State Reports
Volume: 379
Pages: 38–63

Head Matter:
Barium Steel Corporation v. Wiley, Appellant.
June 28, 1954:
Argued November 11, 1953.
Before Stern, C. J., Stearne, Jones, Bell, Chidsey and Arnold, JJ.
Paul A. Mueller, with him Ralph M. Barley, for plaintiff.
Arthur Littleton, with him John W. Beyer, J. Wesley Oler, Arnold, Bricker & Beyer and Morgan, Lewis & Bockius, for defendants.

Opinion:
Opinion by
Mr. Justice Bell,
Barium Steel Corporation, plaintiff in this case, is a Delaware Corporation which will be hereinafter referred to as "Barium". • The defendants, Glen M. Wiley and (his wife) Effie K. Wiley,' together owned 50% of the'stock of Wiley Equipment Company, a Pennsylvania corporation, hereinafter referred to. as the "Equipment Company".. Of this. 50% Mrs. Wiley owned only 2 shares. The other 50%. of the stock was owned by a man named B. E. Diamond. .
After several months' negotiations Barium and the defendants executed a written agreement dated July 3, 1946, in which the defendants agreed to sell to Barium, inter alia, all of their stock in the Equipment Company, as well as certain additional assets which are not here in issue. The purchase price was $225,000., payable $50,000. in cash at the date of closing and $175,000. in shares of common stock of Barium at the closing price of the stock on the day preceding the date of the closing. The agreement contained, inter alia, the following material warranties by the defendants, each of which was untrue:
"2. Sellers represent and warrant that
"(d) The Balance Sheets, dated December 31,1915, of Wiley Equipment Company . . . are in all respects true and correct and together with the notes thereto reflect all of the debts, obligations and, liabilities of such companies,* fixed, contingent or otherwise as of that date .
"(h) There are no actions, suits or proceedings of any kind pending or to their knowledge threatened against or affecting Wiley Equipment Company . . . or any of their properties, before any federal, state or other group or governmental commission, board, bureau or agency, other than as disclosed as in the attached Balance Sheets as of December 31, 1945.
"(j) There aré no unpaid taxes due and payable by Wiley Equipment Company . in excess of reserves or accruals therefor [namely, $17,021.51] except in come and excess profits tax deficiencies not yet proposed or assessed for 1945; . . ."
We construe this agreement of purchase and the purchase price stipulated therein to have been made and based upon the balance sheets of the Equipment Company as of December 31, 1945, and upon the amount of reserves therein set forth, namely, $17,021.51.
The agreement of July 3, 1946 further provided that if, prior to the closing date, the defendants had not or could not comply with all of their obligations, Barium at its option could terminate the agreement and be relieved from all obligations thereunder. Barium therefore had the right, up to closing, (a) to terminate the contract for breach by the defendants, or (b) to purchase and settle for the stock and thereafter hold the defendants for breach of any of their warranties: The Sales Act of May 19, 1915, P. L. 543, §69, 69 PS, §314. Barium chose the latter course.
When the parties met to conclude settlement on July 31, 1946, it appeared likely that Barium would terminate the agreement of July 3rd. In order to avoid this, the defendants signed the following letter dated July 31, 1946, addressed to Barium and prepared by Barium's attorney :
"July 31,1946
Barium Steel Corporation,
60 Wall Street,
New York, N. Y,.
Gentlemen:
Referring to my representation and-warranty made in paragraph 2(j) of the Purchase Agreement, dated July 31, 1946, between us^ I hereby reiterate that there are no unpaid taxes or taxes due and payable by Wiley Equipment Company ', i '. in excess of reserves ór ac cruals therefor for the year 19J{1¡ and in the event that any shall be assessed on either of such companies, I agree, in consideration of your waiving certain obstacles to the Closing, as provided in such Agreement, to guarantee, in the case of . . . full payment, and in the case of Wiley Equipment Company not less than fifty per cent (50%) of all amounts assessed or declared deficient.
Yours very truly,
Glen M. Wiley EffieK Wiley"
This letter is the origin and cause of almost all of the confusion, differences and difficulties in this case. The parties agree that the date of the purchase agreement referred to in this letter, viz., July 31, was erroneous; but they differ radically on what was meant by the defendants' guarantee "to pay not less than 50% of all amounts assessed or declared deficient". It is admitted or conceded that plaintiff performed all the terms and obligations imposed upon it by the agreements of July 3 and July 31, 1946.
Barium sued the defendants in assumpsit for breach of their warranties under the July 3rd agreement, claiming to be paid for all the tax deficiencies (above the reserves) for 1943 and 1944. The trial Court submitted the entire matter to the jury for determination, including the interpretation of the two agreements. The jury found for the plaintiff in the sum of $23,876.01— exactly one-half of the amount of its total claim (with interest), namely, one-half of $58,607.51 or $29,303.75, less the counterclaim of Glen M. Wiley for salary, namely, $5427.75, which it allowed as a credit against plaintiff's claim. Thereafter the Court below, in disposing of the motions for judgment n.o.v. and for a new trial, which were filed by each of the parties, construed the agreement of July 3, 1946 and of July 31, 1946 as a matter of law and entered judgment in favor of the plaintiff on its claim in the sum of $35,898.90, representing all of the 1943 deficiencies and one-half of the 1944 deficiencies above the aforesaid reserves of $17,021.51. The Court likewise entered judgment in favor of Cien M. Wiley and against the plaintiff on his counterclaim in the sum of $4,500. The Court disallowed interest to the plaintiff as well as to Glen M. Wiley.
The agreement of July 3, 1946 was clear, and being clear its interpretation was for the Court: Fischer & Porter Co. v. Porter, 364 Pa. 495, 500, 72 A. 2d 98. The agreement of July 31st, especially because of the words "not less than 50%", was obscure, doubtful or ambiguous and therefore parol evidence was admissible to explain the ambiguity or clarify the obscurity: Albert v. Schenley Auto Sales, Inc., 375 Pa. 512, 100 A. 2d 605; Waldman v. Shoemaker, 367 Pa. 587, 591, 80 A. 2d 776; Security Trust Company of Pottstown v. Stapp, 332 Pa. 9, 13, 1 A. 2d 236; Kittaning Coal Co. v. Moore, 362 Pa. 128, 66 A. 2d 273. The agreements of July 3rd and of July 31st must, if reasonably possible, be interpreted together; and if two reasonable constructions are possible, they should in case of doubt be interpreted against the party who drew them: Betterman v. American Stores Co., 367 Pa. 193, 203, 80 A. 2d 66; Commonwealth, to use, v. Horst, 364 Pa. 403, 406, 72 A. 2d 131; Hempfield Township School District v. Cavalier, 309 Pa. 460, 164 A. 602.
In the light of the foregoing facts, we shall analyze several of the various constructions and contentions which each party urges.
Barium now contends, if we understand its contention, that the July 31st agreement was surplusage and did not change or affect the agreement of July 3rd; and therefore Barium was entitled to recover in full all (100%) of the tax deficiencies (less the reserves shown in the 1945 balance sheets) assessed against the Equipment Company for 1943 and 1944 under the warranties of the defendants contained in the agreement of July 3rd. This contention is not supported by the language of the agreement or letter of July Slst and we cannot treat its language as meaningless; therefore plaintiff's contention on this point is rejected.
The interpretation most strongly contended for by defendants is equally devoid of merit, namely that the letter of July 31st limited here and reduced defendants' warranty of tax deficiencies for the years 1943 and 1944 to a guarantee of 50% for the year 1944 alone.
Parol evidence being admissible to clarify this ambiguous agreement, we shall consider the parol evidence which was produced.
The defendant, Glen M. Wiley, testified: ". . . Mr. Sisto says, 'There is nothing to prevent this deal from being completed except one thing, our audit has shown there might be some more taxes due in 1944, and we have prepared a form that we want you to sign, Mr. Wiley.' 'Well,' I said, 'Avhere is it?' They showed it to me, that we guaranteed to tal&e care of any additional tames. Well, Diamond, he commenced to talk and said if there is going to be any argument like that, he didn't knoAV anything about that, he Avas going to send in his oavu auditors. Sisto hit the table and said, 'You are either going to sell noAV or the deal is all off. We have been talking about this for months.' This sort of stopped Diamond and I thought maybe Diamond is going to kill this Avhole deal in a minute. I knew Ave had approximately $17,000.00 reserved for taxes for 1944, and knoAving Avhat had occurred since that [time] I couldn't conceive much additional taxes. They might find a small amount here but in no event could it be bad. Rather than see the deal disrupted, I said 'I will sign.' When I signed, Mrs. Wiley signed." There is nothing in the evidence to show what was meant by "additional taxes".
Wiley's testimony threw little if any additional light on the agreement of July 31st, although it seems to us to refute defendants' present contention that the letter or agreement of July 31st was intended to modify the agreement of July 3rd by limiting and reducing defendants' warranties for all years prior to 1945 to a 50% guarantee for the year 1944 alone. Why should Barium or any purchaser, who has a guarantee for two years' taxes, accept a new guarantee reduced and limited to 50% for one year and also waive some of its objections in order to close a deal which, according to defendants' own testimony, Barium was reluctant to consummate?
The jury resolved this perplexing dilemma (as we have seen) by giving Barium, which bought Wiley's one-half of the stock of the corporation, one-half of the tax deficiencies (above the reserves) for 1943 and 1944 (plus interest, less Wiley's claim for salary plus interest).
We come then to the real crux of the defense, namely, that Barium cannot recover at all, because it did not pay the deficiencies in taxes assessed against the Equipment Company for 1943 and 1944, and therefore it suffered no loss or damages.
Defendants admit that they made the warranties contained in the aforesaid agreements and concede that Barium fully performed its obligations. It is likewise admitted or indisputable that the agreements and warranties were breached. Unquestionably Barium could sue the defendants in its own name for a breach of any of defendants' warranties and conld recover all damages, if any, which it suffered from a breach. Cf. Kusmaul v. Stull, 856 Pa. 276, 51 A. 2d 602; Smiler v. Toll, 373 Pa. 127, 94 A. 2d 764; Spires v. Hanover Fire Insurance Co., 364 Pa. 52, 70 A. 2d 828.
The crucial question is, did Barium suffer any loss and if so, what is the measure of its damages? Barium bought all of the stock of, and wholly owned Equipment Company; Barium wholly owned Clyde Iron Works, Inc.; Clyde wholly owned Wiley Manufacturing Company, to whom it transferred all of the assets of Equipment Company, having acquired them through various transfers. The deficiencies assessed by the Government against Equipment Company had to be paid by Equipment Company or under revenue regulations by the transferee of the assets of Equipment Company, namely, Wiley Manufacturing Company. The latter actually paid all the tax deficiencies.
There appears to be no clear test or well settled rule either in Pennsylvania or in the Country at large as to exactly when the corporate veil can be pierced and when it may not be pierced (see Fletcher Cyclopedia Corporations, Vol. I, Chapter 2, §41, page 134, et seq.). It is well established that a corporation is a distinct and separate entity, irrespective of the persons who own all its stock. The fact that one person owns all of the stock does not make him and the corporation one and the same person, nor does he thereby become the owner of all the property of the corporation. The shares of stock of a corporation are essentially distinct and different from the corporate property: Monongahela Bridge Co. v. Pittsburgh & Birmingham Traction Co., 196 Pa. 25, 28, 46 A. 99; Homestead Boro. v. Defense Plant Corp., 356 Pa. 500, 508, 52 A. 2d 581. Nevertheless, we have repeatedly held that Courts can go behind the corporate entity, "whenever justice or public policy demand it and when the rights of innocent parties are not prejudiced thereby nor the theory of corporate entity made useless.": Tucker v. Binenstock, 310 Pa. 254, 165 A. 247. The same principle was enunciated in Waring v. WDAS Broadcasting Station, Inc., 327 Pa. 433, 194 A. 631; Commonwealth v. VanBuskirk, 155 Pa. Superior Ct. 613, 631, 38 A. 2d 311; Great Oak B. & L. v. Rosenheim, 341 Pa. 132, 136, 19 A. 2d 95; Edirose Silk Mfg. Co. v. First National Bank & Trust Co., 338 Pa. 139, 143, 12 A. 2d 40; Stony Brook Lumber Co. v. Blackman et al., 286 Pa. 305, 133 A. 556. In the Edirose case, supra, this Court said (page 143): . . In an appropriate case and where, as here, justice to all parties requires it, this Court will not hesitate to treat as identical the corporation and the individual or individuals owning all its stock and assets. . . ."
Under all the facts and circumstances present in this case, v/r hold, under the foregoing authorities, that plaintiff was damaged by defendants' breach of warranties and could bring an action in assumpsit directly against these defendants for the damages it suffered, by reason of the payment by Wiley Manufacturing Company of the additional taxes assessed against Equipment Company for 1943 and 1944. More specifically, this means that Barium could recover against these defendants 50% of the tax deficiencies for the years 1943 and 1944, less $17,021.00 of reserves for the year 1944. Plaintiff's' loss or damages under the aforesaid agreements were 'exactly that amount; they were n'eithér theoretical nor nominal, nor were they the difference, as defendants contend, between the valué of the- stock held by -Barium immediately before the-assessment Of the taxes and its value immediately afterwards. Cf. Yadusky v. Shugars, 306 Pa. 92, 159 A. 2; Calvey v. Coyer, 121 Pa. Superior Ct. 504, 184 A. 279.
In Yadusky v. Shugars, 306 Pa., supra, a buyer brought an action in assumpsit against the sellers to recover the amount of federal income taxes which were assessed against the Liberty Brewing Company, which plaintiff and the corporation were required to pay. The agreement in that case was, as here, between the buyer and the sellers of corporate stock. Defendants sold to plaintiff 395 shares of the Liberty Brewing Company stock, agreeing, inter alia, that with certain immaterial exceptions ". . . there are no debts owing by the Liberty Brewing Co., and if any other debts [except a first mortgage] be found that have been incurred by the Liberty Brewing Co. prior to October 10, 1920, that they . . . [will] be personally liable for the same. . . ." The Court held that plaintiff could recover from defendants the deficiency in income taxes for the year 1919 and that the measure of its damages was the amount of tax actually paid. The Court said (pages 96, 98): ". . . It would be too narrow a construction of this undertaking, having in view the intention of the parties which it discloses, to hold, as appellants would have us, that the word debts does not comprehend taxes within the terms of this agreement. . . . As the manifest purpose of the agreement was to secure to the purchasers the value of the stock which they were buying and as the necessary effect of the levying of the additional tax was to reduce its value, these taxes were among the possible obligations against which the sellers were safeguarding the buyers. The vendors were responsible for the income tax return as it was made and they cannot escape responsibility to plaintiffs for what it failed to disclose under a narrow construction of the agreement which would not include taxes justly due and properly payable under the designation of debts.
"We cannot adopt the idea of appellants [sellers] that the measure of plaintiffs' recovery is the difference between the value of the stock held by them immediately before the assessment of the taxes and its value immediately afterwards, because that is not what the agreement provides. It stipulates that the sellers will pay the debts and be personally liable for the same."
Another analogous case is Calvey v. Coyer, 121 Pa. Superior Ct., supra. In that case plaintiff and defendant each owned 50% of the stock of a motor company. Defendant sold plaintiff his stock executing a written agreement under the terms of which plaintiff and defendant each agreed to pay one-half of whatever income taxes might be determined by the Federal Government to be due from the motor company prior to December 31, 1926. An additional tax was assessed against the motor company for the year 1923, which it or plaintiff paid. Plaintiff then brought an action in assumpsit against defendant on the aforesaid written contract and was allowed to recover 50% of the additional income tax so paid. The evidence was conflicting as to whether the company or the plaintiff actually paid the tax. The Court held it was immaterial whether the plaintiff or the motor company paid the tax and said: ". . . When the plaintiff purchased from the appellant and his wife their stock in the motor company, the consideration to be paid- therefor was determined by the assets and liabilities of the motor company as they existed at- that time.. The corporate assets, on the one hand, and the corporate indebtedness, on the other,. determined, the value of the stock held by the. appellant and his wife. Possible assessments for income, taxes for. the years 1923, 1924, 1925, and 1926 might have a- material, effect upon the valuation of the stock which the plaintiff was purchasing from the appellant and his wife. Snch possible assessments could not be calculated with certainty at the time, and the agreement between plaintiff and appellant was drawn to provide for this contingency and for a subsequent adjustment between the parties. It is apparent, when taking into consideration the entire transaction, the surrounding circumstances, and the object to be accomplished, that the contract in question was entered into between the plaintiff and the appellant, as individuals, for the sole purpose of making appellant liable to the plaintiff for one-half of any income tax assessed against the motor company for the years prior to 1927. . . . The contract being for the protection of the plaintiff, a clear implication is that, if either the plaintiff or the motor company paid the tax, appellant would pay to the plaintiff one-half thereof. It could make no difference to appellant which one paid the tax."
Section 69 of The Sales Act of May 19, 1915, P. L. 543, provides: "First. Where there is a breach of warranty by the seller, the buyer may, at his election,— (a) Accept or keep the goods, and set up against the seller the breach of warranty by way of recoupment in diminution or extinction of the price. . . . Sixth. The measure of damages for breach of warranty is the loss directly and naturally resulting, in the ordinary course of events, from the breach of warranty. . . ."
If no recovery can be had in the instant case against defendants, defendants never will be liable for their breach of warranties, because if the Manufacturing Company sues the defendants to recover under their warranties or guarantee the deficiencies in taxes which it was compelled to pay (by defendants' failure to pay the correct taxes), the defendants can avoid liability by pleading that there is no privity of contract between the Manufacturing Company and them selves, and that the agreements of July 3 and July 31 do not constitute a "third party beneficiary" contract. Cf. Spires v. Hanover Fire Insurance Co., 364 Pa., supra. Moreover, if Barium can recover in this suit, it will be a complete defense to any action which Manufacturing Company might bring against these defendants for these tax .deficiencies,, under the agreement of July a and July 31, 1946. .
Barium is likewise entitled to interest. When money is due a person under a contract but is improperly withheld or unpaid by the defendant, the party to whom such money is due is entitled to interest from the time it was due, at 6% per annum: cf. Canuso v. City of Philadelphia, 326 Pa. 302, 310, 192 A. 133; Mack Paving & Construction Co. v. American Pipe & Construction Co., 283 Pa. 449, 451, 129 A. 329. In the Mack Paving Co. case, supra, the Court said (page 451) : "Interest is compensation allowed by law, or usage of trade or fixed by contract of the parties, for the use or detention of money: Phila. v. Com., 276 Pa. 12, 14; Koch v. Schuylkill County, 12 Pa. Superior Ct. 567, 572. It is a legal and uniform rate of damages allowed, in absence of any express contract, where payment is withheld after it has become the duty of the debtor to discharge the debt': Kelsey v. Murphy, 30 Pa. 340, 341; Minard v. Beans, 64 Pa. 411, 413; Koch v. Schuylkill County, supra. . . ."
Defendants contend that it is both inequitable and unjust to allow interest because, inter alia, the taxes were not paid as soon as assessed by the Government but were paid in instalments, and therefore defendants should not be required to reimburse plaintiff for interest which Manufacturing Company was compelled to pay as a result of its own delay. There is no merit in this contention. If the taxes had been paid as soon as the Government demanded them, the amount to be paid would include interest to date of payment, and the plaintiff would be entitled not only to the interest actually paid to the Government, but also to interest which accrued thereafter on the amount actually paid to the Government. The interest payment is therefore as broad as it is long, and the defendants have not been harmed by the failure to promptly pay the deficiency in taxes plus interest as soon as it was demanded.
The next important question that arises is, can one of the defendants set off or counterclaim in this suit monies admittedly owing to him by the Equipment Company under his employment contract with the Equipment Company? The Court below correctly answered this question in the affirmative. The Equipment Company, as we have seen, was a wholly owned subsidiary of Barium. Barium in its contract of July 3, 1946 agreed as follows:
"5. Purchaser agrees that if and when it acquires all of the outstanding and issued shares of Wiley Equipment Company, it will cause said Company to enter into an agreement with Glen [M.] Wiley, as a consultant, for three years at a salary of f>6,0QQ.00 per year." A contract between Equipment Company and Wiley was entered into pursuant to this agreement and was breached by Equipment Company. If that were all, it would not warrant a set off or counterclaim. However, J. A. Sisto, chairman of Barium, wrote the following letter to defendant, Glen M. Wiley, dated June 24, 194S:
"This has reference to my letter to you, dated May 14, 1948, and your reply thereto, dated May 17, 1948, re the above captioned subject matter. I had hoped to receive, before this, the result of your accountant's checking into the matter, whom, according to your said letter, you had instructed on May 17th to pro ceed with such checking. We do not want, again, to suspend monthly payments to you hut unless we receive a more prompt definite reply from you, we will have no alternative than to suspend such payments again.
"Your early reply will be appreciated.
J. A. Sisto"
Glen M. Wiley was, as we have seen, the owner of 48% or 49% of the stock of the Equipment Company and Mrs. Wiley was the owner of two shares. If the defense of "a separate corporation" or "a different separate corporate entity" is unavailing to the defendants in a suit by Barium, it should be equally unavailing to Barium in a counterclaim by this defendant against Barium, who not only promised to cause its wholly owned subsidiary to enter into a contract of employment with Glen M. Wiley, but stated two years later, that it would suspend his monthly payments. Under these facts and circumstances we hold that Glen M. Wiley is entitled to a counterclaim in this case and is likewise entitled to interest thereon.
Defendants contend that they should have been permitted to prove that Barium had brought a similar suit against Diamond in Maryland for a loss arising out of these tax deficiencies, and that the Manufacturing Company likewise had brought a suit against these defendants for the same deficiencies. No offer was made to prove that Barium made any different averment there than here, or changed its position as far as these defendants are concerned. These suits were therefore either irrelevant or, at best for defendants, were collateral matters which would only have further beclouded the main issues and added to the existing confusion; for this and other reasons herein-above set forth, defendants' offers were wisely excluded by the trial Judge.
We have considered all of the other arguments and contentions of each of the parties in this case but, finding no merit therein, deem further discussion unnecessary.
The judgment of the Court below is reversed; the verdict of the jury is reinstated and judgment entered thereon.
This was not a purchase of stock or assets at book or market value at a certain date, this was á purchase at a fixed price.
Italics throughout, ours.
Not present eounsel.
Barium was anxious to purchase Diamond's stock and it was stated at oral argument that it did so.
The jury's verdict was technically wrong because the suit was against Mr. and Mrs. Wiley and the counterclaim whi-*h was allowed was by Wiley alone, but the parties make no objeciion on this ground.