Court Opinion

ID: 5298318
Source: CourtListenerOpinion
Date Created: 2022-01-08 02:56:32.888708+00
Date Added: 2024-06-11T08:29:02.308240
License: Public Domain

McAvoy, J.
(dissenting). The agreement which the defendant made was: “ 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.”
If plaintiff’s own income is added to the profit made on the sale, his income tax is lifted to a sum much more than he would have had to pay on that same income alone if there were no sale.
The respondent’s contention is that the appellants are liable for all income taxes assessed against him over and above $6,166.20, *140this latter sum being the income tax computed on his income exclusive of income from the sale of the stock at the lowest tax rates.
The appellants’ contention is that they are liable for respondent’s income tax computed on the profit on this sale as if this were respondent’s only income.
The obvious conclusion from the instrument of December thirty-first, it appears to us, is that the appellants’ contention is the one which ought to be adopted. None of the respondent’s other income was assessed at all by reason of the sale. It would have been assessed if there had been no sale and its amount, exemptions, deductions and other affecting causes could not have been known to the party purchaser, unless disclosed by the seller. That a definite sum of liability for the tax was contemplated is evidenced by the December fourth instrument which prescribes a payment of “ any income tax that the vendor may be assessed for the year * * * on the proceeds of the sale and purchase herein contemplated * * While it is not accurate to describe the tax as “ on the proceeds of the sale,” since the tax is levied only on the profit thereon, yet the sense intended is apparent from the context. itself.
It is argued that if there were a loss in plaintiff’s income from other sources it would result in a deduction of the tax assessed on the profit from the proceeds of the sale and that, therefore, the converse of the addition of plaintiff’s other income must be considered in determining the amount of liability under the agreements. Thi,s has a plausible guise, but its merits are less than its appearance indicates.
The ground for limiting liability to the lesser sum, in the event of doss, is not that the tax on the profits from the sale and by reason thereof would be thus computed with a view to plaintiff’s other income, but rests on a basis wholly irrelevant to that hypothesis — that is, that then the lesser sum would be the levy assessed against plaintiff, and according to the covenants the defendants are liable only for the tax assessed against plaintiff “ on the proceeds of the sale ” and the assessment would be at the reduced amount. The tax on the profit from the proceeds of the sale was not intended to be affected by extraneous sources of income not ascertainable by the covenantor at the time of his agreement which might largely enhance his obligation — a loss would diminish it and, therefore, be unobjectionable — but the tax was to be that assessed by reason of the subject-matter, i. e., the profit sum of the sale, not that assessed on another sum affected by other factors. The covenant is as we construe it that the *141promisor will pay the amount of income tax that would be assessed against the promisee in respect of the profits of the sale, as though he had no other income.
The judgment should be modified by reducing the amount thereof to $12,850.44, the amount admittedly owed by defendants to plaintiff, and as so modified affirmed, with costs of this appeal to the appellants.
O’Malley, J., concurs.
Judgment affirmed, with costs.