Appeal from the Circuit Court for St. Mary's County (DORSEY, J.).
The cause was submitted to Brune, C. J., and Henderson, Prescott, Horney and Marbury, JJ.
BRUNE, C.J., delivered the opinion of the Court.
Richard H. Whitney, executor and sole legatee under the will of Richard H. Sears, deceased, brought this suit against Halibut,
Inc. and its transferee, H.I.S. Corporation, primarily for specific performance of a provision in a contract of sale of real estate between Sears as vendor and Halibut as vendee by which the vendee agreed to pay the vendor's federal income tax resulting from his capital gain on the sale. The controversy on this appeal grows out of that provision, the full text of which is set forth later. (Halibut and its transferee either are closely affiliated or have been merged, and will be treated as one in this opinion.) The Circuit Court for St. Mary's County entered a monetary decree in favor of the plaintiff, Whitney, for $2,095.12 and denied all other and further relief. Whitney appeals, claiming that much more is due him.
The contract was executed on November 20, 1958. Under it Sears agreed to sell and Halibut to purchase two tracts of land in St. Mary's County, known as "Society Hill," for a stated price of $250,000. Of this amount $50,000 (including a deposit of $5,000) was to be paid upon execution and delivery of a deed, and the balance of $200,000, to be secured by a purchase money mortgage from Halibut to Sears, was to be paid in ten annual instalments of $20,000 each, with interest at 4%, with provisions for prepayment through the application of 50% of the proceeds of sale of lots, and against such payments partial releases of the mortgage were to be given. The contract further provided that the vendee "grants to the Vendor life occupancy of the house now being occupied by Richard H. Sears together with five (5) acres * * * in addition to the above considerations."
A deed and mortgage embodying the above provisions were duly executed and delivered and the $50,000 payment was made on February 5, 1959. Under the terms of the mortgage the first annual instalment of $20,000 was to be paid on February 5, 1960. For a consideration this payment was subsequently postponed by agreement between the parties.
In addition to the above provisions the contract of sale contained others which were not embodied in the deed or mortgage. Among them were an agreement by the vendee to develop the tract by sections and not to reduce prices of lots once established by more than 25% without the consent of the "mortgagor" (evidently meaning the vendor-mortgagee), the capital
gains tax provision in controversy, and in paragraph 10 a successor clause and an integration clause.
The capital gains tax provision was one of several typed into paragraph 2 following a printed introductory clause stating that "the premises * * * are to be conveyed subject to the following encumbrances and restrictions:" (a somewhat curious introduction to what followed). Five typed paragraphs were added. The first required that the soil pass a percolation test, the second contained the sale and partial release of mortgage clause above mentioned, the third contained the development by sections provision and the restriction on price reductions, also mentioned above, and the fourth provided for Sears' life occupancy of the house and five surrounding acres. The fifth of these paragraphs, which is at the heart of the controversy, reads as follows:
"The Vendees hereby agree to pay to the Vendor[']s account the Federal Income Tax that the Vendor shall be required to pay resulting from the capital gains on the above sale; this tax to be paid by the Vendee when the Vendor's tax is due and payable to the U.S. Government. It is understood and agreed that the Vendee shall not be responsible for any penalty or interest on any payment due unless the penalty or interest is a result of an act of negligence on the part of the Vendee."
Paragraph 10 of the contract of sale is printed and reads as follows:
"That the stipulations aforesaid are to apply to and bind the heirs, executors, administrators, successors and assigns of the respective parties hereto; and that said stipulations contain the final and entire agreement between said parties, neither of which shall be bound by any terms, conditions, warranties or representatives [sic], oral or written, not herein set forth."
Sears received payment of $50,000 on account of the sale price of the property in February, 1959. He filed no federal income tax return in or ...