Thomas v. Thomas

Marbury, C. J.,s delivered the opinion of the Court. This is a suit by one brother against another to compel repayment of part of the former’s income taxes, under an indemnity or assumption agreement entered into at the dissolution of a partnership between them. It was tried before Judge Clark, sitting in the Circuit Court for Howard County, without a jury, and, at the conclusion of the case, a judgment was entered for the defendant for costs, whereupon the plaintiff appealed. It appears from the record that the plaintiff, the defendant, and a third brother, Lee Thomas, were partners in a business conducted in the firm name of Three Springs Fisheries.

Leicester Thomas, Jr., son of the defendant, was the manager, and the business of the partnership was the raising and selling of goldfish, water lilies, etc. The place of business was Lily Pons, Frederick County, Maryland. On January 10, 1936, another business was started, to deal in feeds, grains, seeds, and fertilizers. It was called Thomas Supply Company, and had its office in the office 'of the Three Springs Fisheries. Leicester, Jr., was the manager.

He contends that he was the sole proprietor, but the plaintiff, Clarence, claims that this was always a partnership, consisting of himself, Leicester, Lee, and Leicester, Jr. Three Springs Fisheries made regular partnership income tax returns, but no partnership returns were made for Thomas Supply Company until 1945. It was claimed by Leicester, Jr., that he included the income of that business for the preceding years in his personal returns. ²³³ Lee Thomas died about 1940. His widow and administratrix claimed a share in the business of Thomas Supply Company, and in this she was supported by Clarence, but her contention was denied by Leicester and Leicester, Jr. The relations within the family became strained. Clarence disapproved of Leicester, Jr.’s management, and of certain things he was claimed to have been doing.

Mrs. Lee Thomas finally dropped out of the picture on Clarence’s advice, according to his testimony. There was testimony that she relinquished any claim' on the assets of the Thomas Supply Company, and Leicester and- Leicester, Jr., assumed all the liabilities and agreed to save her harmless from any claim that might be brought against her, growing out of the business of Three Springs Fisheries. On October 19, 1944, as a sort of settlement between the three remaining parties, Clarence, Leicester, and Leicester, Jr., it was agreed that the profits of the Supply Company to that date had amounted to $39,000. One third thereof, $13,000, was immediately set up on the company’s books as a credit to each, and three Supply Company checks for $5,000 each were drawn, charged against said credits, and delivered to the parties.

Clarence deposited his in his own account. Leicester and Leicester, Jr., say the credit of $13,000 to Clarence was a gift made to keep peace, but Clarence insists that he had always been a partner, and that these credits were a belated distribution of the partnership profits. He did not, however, include the $13,000, or any part thereof, in his income tax returns for 1944, and neither did Leicester. Finally, in November, 1947, the difficulties between the parties culminated in an agreement whereby Leicester was to buy out Clarence’s interest in Three Springs Fisheries for $55,000, and Leicester and Liecester, Jr., were to buy out his interest in the Supply Company for $11,820.

The agreement for the Three Springs Fisheries transaction was copied by a typist from an agreement which had been prepared by counsel when Mrs. Lee Thomas sold out her interest, and it ²³⁴ was executed by Clarence and Leicester. Although it was the smaller concern, when the question of the agreement respecting the Supply Company came up, Clarence had his counsel draw up a contract. This contract recited the fact that he, Leicester and Leicester, Jr., had been partners, that differences had arisen, and then, after providing that the partnership was dissolved by mutual consent,.the agreement recited that Clarence sold his interest to Leicester and Leicester, Jr., for $11,280 (a transposition of figures corrected at the settlement), and the third paragraph provided: “That the said G. Leicester Thomas, Sr., and George Leicester Thomas, Jr., jointly and severally, for themselves, their heirs and personal representatives, do hereby covenant and agree with the said Clarence C. C. Thomas to assume and pay all liabilities of the said partnership heretofore incurred and unpaid as of the date of these presents, and the said G. Leicester Thomas, Sr., and George Leicester Thoms, Jr., for themselves, their heirs or personal representatives, do hereby further covenant and agree with the said Clarence C. C. Thomas to save the said Clarence C. C. Thomas harmless from and any all claim or claims which may or might be brought against him arising or growing out of the business of the said partnership.” When this contract was submitted by Clarence, Leicester filled in the blank space left for the date, and signed it. Leicester, Jr., failed to sign, but in the end, Leicester gave Clarence his personal check for $11,820, and Clarence stepped out of the partnership.

We have, therefore, a contract drawn for execution by two purchasers which is signed by only one, and one of the contentions made in this case is that it was really not a valid contract for that and other reasons. The Internal Revenue Department made an audit in 1947 of Clarence’s 1944 income tax returns and assessed an additional tax of $862.22 against him. He paid this. At that time, the distribution of the $39,000 made by the Supply Company in October, 1944, had not been brought to the Government’s attention.

Subsequently, ²³⁵ however, it was discovered, and the income tax authorities re-opened Clarence’s income taxes for that year, as well as those of Leicester. It may be presumed that the contention that the $13,000 to Clarence was a gift was either not presented to the Government, or was rejected by it, because it was ruled by the Treasury Department that the $13,000 was income, on which Clarence was liable for the tax. The same ruling was made as to Leicester. Clarence and Leicester each discussed the matter with their tax consultants at a joint meeting, according to Leicester, in the office of Haskins and Sells, accountants, in Baltimore.

On the advice of these accountants, both of them paid their assessments, and were apparently advised not to file claims for refunds. The amount of the 1944 deficiency in Clarence’s income tax was calculated at $6,526.84, to which was added $1,476.04 interest and $326.34 penalties, making a total of $8,329.22. A credit was allowed for overpayments in 1947 of $2,009.10, but this does not affect the amount due by Clarence for 1944 taxes. Clarence now claims that under the agreement signed by Leicester, this is a claim “arising or growing out of the business of Thomas Supply Company”, and, therefore, Leicester should reimburse him.

We may assume without deciding, as did the trial judge, that the agreement is a valid and binding contract made by Leicester. The trial judge held, upon this assumption, that it did not cover the reimbursement of the taxes, and his decision was based upon that question alone. If we agree that his decision on this point was correct, that ends the case, and there is no occasion to discuss the other question. It is earnestly contended by the appellant that Clarence was fearful of difficulties which would arise as a result of the management of the business by Leicester, Jr., and he was particularly anxious to be protected against any claim that might be made on that account.

He refers to the well known rule that in the determination whether any uncertainty or ambiguity exists, or de ²³⁶ termining what- the real agreement is, the court, in 'ascertaining the intention of the parties, considers their situation, the subject matter of the contract, surrounding circumstances, and the object to be accomplished. National Union Mortgage Corporation v. Potomac Consolidated Debenture Corporation, 178 Md. 658, 673 , 16 A. 2d 866 . Baltimore Butchers Abattoir Live Stock Co. v. Union Rendering Co., 179 Md. 117, 122 , 17 A. 2d 130 . He also refers to an annotation in 4 A. L. R. 2d 1314, headed “Tax liabilities as within agreement for assumption or payment of another’s obligations”, and states correctly that the cases there mentioned hold that taxes are obligations.

All of this may be admitted, but it seems beside the point. The obligations from which Leicester agreed to save Clarence harmless were obligations arising or growing out of the partnership. Had these taxes been due by the partnership, they would undoubtedly have been within the wording of the agreement. They were not, however, obligations of the partnership, they were obligations of an individual.

In other