author: PHILLIPS, Chief Justice.

text:
    Thelma IVEY, a Feme Sole, Appellant, v. CITY OF TEMPLE, Appellee.
    No. 11504.
    Court of Civil Appeals of Texas. Austin.
    May 17, 1967.
    Rehearing Denied May 31, 1967.
    C. Gordon Metcalf, Temple, for appellant.
    Jack W. Prescott, Temple, for appellee.
   PHILLIPS, Chief Justice.

This is a suit for damage done to appellant’s property due to the “backing up” of a sanitary sewage line owned by the ap-pellee, City of Temple, onto the property belonging to appellant.

The trial court granted appellee’s Motion for Summary Judgment apparently on the theory of appellee’s immunity for a governmental function.

Appellant has perfected her appeal to this Court.

Appellant pleaded in the trial court that the City “constructed and maintained said sanitary sewer in such a manner as to allow said leakage and resulting flooding on plaintiff’s property with sewage” (emphasis supplied).

Appellant’s case was not brought in tort, but under Tex. Const, art. 1, Sec. 17, Vernon’s Ann.St., as follows:

“No person’s property shall be taken, damaged or destroyed for or applied to public use without adequate compensation being made unless by the consent of such person; * * *”

Recovery has been allowed under the abovementioned provision where the damage results from a permanent public structure wherein the State intentionally performed certain acts in the exercise of its lawful authority to construct such structure for public use which resulted in tne taking or damaging of plaintiff’s property, and which acts were the proximate cause of the taking or damaging of such property. This is the test set out by the Supreme Court in State v. Hale, 136 Tex. 29, 146 S.W.2d 731 (Tex.Sup.1941) wherein the construction of a highway diverted surface waters over plaintiff’s land. Similar cases are Jefferson County Drainage District No. 6 v. Langham, 124 Tex. 167, 76 S.W.2d 484 (Tex.Sup.1934) which involved flooding from a drainage ditch; and City of Wichita Falls v. Whitney, 11 S.W.2d 404, (Tex.Civ.App. Fort Worth 1929, writ dism’d) involving odors from a sewage plant.

On the other hand, no recovery has been allowed under this section of the Constitution where the damage in connection with a public structure was based on some act of negligence such as the negligent acts of an employee. Bexar Metropolitan Water District v. Kuntscher, 274 S.W.2d 121, (Tex.Civ.App. San Antonio 1954, no writ).

Baylor University: Normand, Liability of Governmental Units for Damaging Private Property, 15 Baylor L.Rev. 403 (1963).

We hold that a question of fact is present here as to whether the flooding was caused by the sewer under the test announced by Hale, above, or through negligence.

The judgment of the trial court is reversed and remanded.

Reversed and remanded.


source: Caselaw Access Project

author: WALTER, Justice.

license: Public Domain

text:
    Albert VENUTO, Appellant, v. Richard A. STRAUSS, Appellee.
    No. 4118.
    Court of Civil Appeals of Texas. Eastland.
    March 3, 1967.
    Bryant, Glenn & Thomas, Jack Bryant, Abilene, for appellant.
    Whitten, Harrell & Jameson, Josephine M. Jameson, Abilene, for appellee.
   WALTER, Justice.

This is a summary judgment case. Richard A. Strauss recovered a judgment against Albert Venuto. Venuto has appealed.

Strauss’ cause of action was based on a promissory note executed by Venuto. Ven-uto admitted executing the note but contended there was no consideration for its execution. He further contended in his verified answer that at the time the note was executed it was agreed that the note would be paid out of Strauss’ profits from his interest in the oil and gas business operated by Venuto. He further contended the oil business failed.

The question presented is whether such evidence relating to the prior or contemporaneous agreement that the note would be payable only from profits violates the parol evidence rule. We hold that it does.

In Kuper v. Schmidt, 161 Tex. 189, 338 S.W.2d 948 (1960), the court said:

“On the other hand a parol condition or agreement relating to payment of a delivered instrument is not enforceable if it operates to add to, take from or vary the terms of the written agreement.”

To permit appellant to prove by parol evidence that the note was to be paid only out of appellee’s profits from an oil and gas business would contradict the unconditional promise to pay a definite sum of money set forth in the note.

The judgment is affirmed.


text:
    Albert VENUTO, Appellant, v. Sol GELLER, Appellee.
    No. 4117.
    Court of Civil Appeals of Texas. Eastland.
    March 3, 1967.
    Bryant, Glenn, & Thomas, Jack Bryant, Abilene, for appellant.
    Whitten, Harrell & Jameson, Josephine M. Jameson, Abilene, for appellee.
   WALTER, Justice.

This is a summary judgment case. Sol Geller recovered a judgment against Albert Venuto. Venuto has appealed.

Geller’s cause of action was based on a promissory note executed by Venuto. Appellant contended there was no consideration for the execution of the note. He further contended that it was agreed between the parties “that such funds were repayable to Plaintiff only out of his share of the profits of the oil and gas exploration business which the parties contemplated would be carried on in the future by Defendant for the benefit of Plaintiff, * * *. Defendant would show that such oil and gas business continued for a considerable period of time after such date and that such business ventures were unsuccessful and resulted in complete loss of the interest of all parties in such business operations.”

The question presented is whether such evidence relating to the prior or contemporaneous agreement that the note would be payable only from profits violates the parol evidence rule. We hold that it does.

In Kuper v. Schmidt, 161 Tex. 189, 338 S.W.2d 948 (1960), the court said:

“On the other hand a parol condition or agreement relating to payment of a delivered instrument is not enforceable if it operates to add to, take from or vary the terms of the written agreement.”

To permit appellant to prove by parol evidence that the note was to be paid only out of appellee’s profits from an oil and gas business would contradict the unconditional promise to pay a definite sum of money set forth in the note.

The judgment is affirmed.


author: HOGAN, Judge.

text:
    MIDWESTERN MACHINERY COMPANY, of Minneapolis, Minnesota, Plaintiff-Respondent, v. G. H. PARSONS, Defendant-Appellant.
    No. 8601.
    Springfield Court of Appeals. Missouri.
    May 12, 1967.
    James A. Dunn, Carthage, for defendant-appellant.
    W. H. Pinnell, Pinnell & Monroe, Mo-nett, for plaintiff-respondent.
   HOGAN, Judge.

This is a second appeal in a court-tried replevin case. See Midwestern Machinery Co. v. Parsons, Mo.App., 385 S.W.2d 224. Broadly stated, the case involves an attempt by the plaintiff, as vendor, to substitute or exchange a chattel which its vendee had mortgaged to the defendant, and the parties’ rights arising out of the transaction. The essence of the plaintiff’s claim is that it is entitled to possession of the chattel, as against defendant’s assertion that the plaintiff is equitably estopped to assert its title. Briefly, the controversy came about in this manner: In February 1962, the defendant undertook to finance one Harrel Owens in the establishment of a machine shop. Mr. Owens purchased a vertical turret lathe from the plaintiff, and executed a chattel mortgage to the defendant covering the lathe.

Subsequently, the plaintiff discovered that it had sold the lathe without complying with applicable government regulations— apparently the plaintiff had had no right to sell the machine in the first place — and it became necessary for the plaintiff to get the lathe back. Consequently, the plaintiff arranged to repurchase the lathe from Mr. Owens and to loan him another for use in his business, while it attempted to locate yet another lathe larger and more suitable for his use. Mr. Parsons denied that he was told of the agreement to repurchase the machine and loan another; he testified he agreed only to return the first lathe upon condition the “machine [would be] replaced with another machine that is satisfactory * * * that we can put on the mortgage in place of the ones on there * * The record does not, however, indicate that this condition was communicated to the plaintiff before the exchange of machines was undertaken.

Midwestern did repurchase the lathe, giving in payment therefor a check in the sum of $2,000.00 made payable solely to Mr. Owens. Mr. Owens deposited the money to his business account, giving no notice to his mortgagee. Plaintiff then loaned Mr. Owens a second lathe, not as large as Mr. Owens wanted, with the understanding Mr. Owens could use the machine while plaintiff located another. The plaintiff’s evidence was that Mr. Owens refused to purchase the second lathe, though its officers told him it was “a consigned machine,” and sent a conditional sales contract covering the second machine for Mr. Owens’ signature. Mr. Owens recalled plaintiff’s having sent a “sales contract” on the second machine, but said he had “never thought about” buying it.

In August 1962, Mr. Owens’ financial difficulties made it necessary for him to renegotiate his obligation to Mr. Parsons so he “might survive and * * * could go ahead and operate [the] business.” On August 30, 1962, Mr. Owens and Mr. Parsons went to the Central National Bank at Carthage, Missouri, to which the original obligation had been “pledged,” in Mr. Parsons’ words, and there executed a new note and mortgage. This second mortgage included the second, loaned lathe, to which Mr. Owens had never acquired title. In October 1962, the mortgagee took possession of the second lathe and this action followed. The trial court entered a judgment finding the issues generally in Mr. Parsons’ favor, and finding that he was the owner and entitled to possession of the lathe. The plaintiff appealed.

Upon the first appeal in this case, we held, among other things, that since Mr. Owens never acquired title to the second lathe he could not mortgage it; that when Mr. Parsons consented to the return of the first lathe he waived his lien under the first chattel mortgage and was required to look to the mortgagor personally for payment of the mortgage debt; and that since the record indicated no knowledge on the plaintiff’s part that the lathe was released upon condition, the mortgagee could not claim the first lathe or its value from the plaintiff. In considering and ruling upon the defendant’s claim that plaintiff’s conduct estopped it from claiming title to the lathe, we concluded, in the first place, that plaintiff’s conduct in loaning the mortgagor the second lathe was not sufficient to estop it from asserting title, and further that since the mortgagee had changed his position before the plaintiff repurchased the first lathe and substituted the second, he had not changed his position for the worse in reliance upon any representation or conduct of the plaintiff. Midwestern Machinery Co. v. Parsons, supra, 385 S.W.2d at 226-228. We therefore reversed the judgment for the defendant and, with some hesitation, remanded the cause for proceedings not inconsistent with the opinion, and for retrial upon the merits. We gave the parties leave to amend their pleadings if they desired. Nevertheless, the parties simply resubmitted the case to the trial court upon the same record which had been before us on the first appeal, and upon a stipulation which does not appear in the record. The trial court thereupon entered judgment for the plaintiff and the defendant has now appealed. Inasmuch as this is a second appeal, the first matter for consideration is the extent to which the first opinion states the law of the case.

The doctrine of the law of the case, at least in practical application, is rather complex, and perhaps has yet to be fully articulated. Anno., 87 A.L.R.2d 271, 277-284, Sections 2, 3 [a] (1963). It would not be accurate to say that the first opinion was res judicata, for the case was remanded generally, and all issues were open to consideration on a new trial. Had a substantially different state of fact been presented, then the opinion would have stated the law of the case only so far as the principles declared were applicable to the new state of fact. Creason v. Harding, 344 Mo. 452, 463-464, 126 S.W.2d 1179, 1183-1184 [1] [2]. Nevertheless, the pleadings were not amended and no new evidence was introduced, save a stipulation not made of record, and inasmuch as the issues and evidence are the same on both appeals, the matters adjudicated on the first appeal must be considered as settled on this second appeal unless the first opinion was based on a mistake of fact or resulted in manifest injustice to the parties. Logsdon v. Duncan, Mo., 316 S.W.2d 488, 491 [2]; Maxie v. Gulf, M. & O. R. Co., 358 Mo. 1100, 1105, 219 S.W.2d 322, 323-324 [1], 10 A.L.R.2d 1273, 1276-1277, cert. den. 338 U. S. 823, 70 S.Ct. 69, 94 L.Ed. 499; Swain v. Anders, 349 Mo. 963, 967, 163 S.W.2d 1045, 1048 [1].

We do not understand the appellant to say on this second appeal that we misunderstood the controlling facts in our first opinion; his argument is that we did not give proper effect to the facts which the record demonstrates, because if we had we would have held the plaintiff was estopped to assert its title to the lathe. We have again reviewed the evidence and find ourselves unable to agree. In essence, the appellant’s claim is simply that the evidence was sufficient to establish his defense and counterclaim, even though we have previously held to the contrary. Rulings as to the sufficiency of the evidence to establish a claim or defense come within the doctrine of the law of the case when the evidence is the same on both appeals, Lonnecker v. Borris, Mo., 245 S.W.2d 53, 55; Bradley v. Becker, 321 Mo. 405, 412-413, 11 S.W.2d 8, 10 [1]; Mahany v. Kansas City Rys. Co., Mo., 254 S.W. 16, 20 [1], 29 A.L.R. 817, 824; Vaughn v. Conran, Mo.App., 20 S.W.2d 968, 969 [3], and there appears to us to be no reason to depart from our first opinion. The judgment is therefore affirmed.

STONE, P. J., and TITUS, J., concur.


author: CULLEN, Commissioner.

text:
    GOVERNMENT EMPLOYEES INSURANCE COMPANY, Appellant, v. GLOBE INDEMNITY COMPANY, Appellee.
    Court of Appeals of Kentucky.
    May 26, 1967.
    Carl J. Bensinger and Louis N. Garlove, Louisville, for appellant.
    William A. Miller, Louisville, for ap-pellee.
   CULLEN, Commissioner.

This appeal is from a judgment on a litigated question between two automobile liability insurers as to their respective liabilities for damages paid to a person who was injured by an automobile driven by a nonowner (with the consent of the owner). The appellant Government Employes Insurance Company was the driver’s insurer, and its policy, as is customary, covered him while driving automobiles not owned by him. The appellee Globe Indemnity Company was the owner’s insurer and, again in accordance with custom, its policy covered other persons driving the insured car with the owner’s consent. Thus, except as precluded or limited by special clauses in the policies, hereinafter discussed, both insurance coverages were available to the driver.

The circuit court held that the owner’s insurer was not liable and that the full liability fell on the driver’s insurer (the liability did not exceed the limits of either policy). Whether that ruling is correct is the question before us.

The driver’s policy contained what is known as an “excess insurance” clause. In substance, it provided that in the case of a loss arising out of use by the insured of a nonowned automobile the policy would be “excess insurance over any other valid and collectible insurance.”

The owner’s policy also contained an “excess insurance” clause. However, by an endorsement, it contained in addition an “escape” clause which provided in effect that the policy would not cover a person other than the named insured and his employees, if other valid and collectible insurance, “either primary or excess” (our emphasis), was available to such person.

The circuit court held that the escape clause relieved the owner’s insurer of liability under the facts of this case.

The question presented is by no means a novel one. It and closely related questions have been the subject of recent annotations in 46 A.L.R.2d 1163, 69 A.L.R.2d 1122, and 76 A.L.R.2d 502. As pointed out in these annotations three basic kinds of situations normally have been involved. First, one policy contains an “excess insurance” clause and the other a standard “escape” clause. Second, both policies contain an “excess insurance” clause. Third, one policy contains an “excess insurance” clause and the other contains a “pro rata” clause. In the first situation the general holding has been that the insurer whose policy contains the “escape” clause is liable and the other insurer is not (of course except as to an excess). See 46 A.L.R.2d 1163. Our case of State Farm Mutual Automobile Insurance Company v. Hall, 292 Ky. 22, 165 S.W.2d 838, adopts the majority view. In the second situation the majority of decisions have required proration. See 69 A.L.R.2d 1122. In the third situation, at least where the owner’s policy contains the “pro rata” clause and the driver’s policy contains the “excess insurance” clause, the weight of authority has been that the ozvner’s insurer is solely liable (again except for an excess). See 76 A.L.R.2d 502.

To the extent that an “escape” clause has been involved in the cases covered by the annotations above mentioned, in most instances the clause has been a standard one, simply negativing any liability if “other valid and collectible insurance” is available to the driver. The distinguishing feature of the owner’s policy in the instant case is that its “escape” clause is not standard; it denies liability if other insurance, either primary or excess, is available to the driver. This means that the owner’s insurer anticipated the possibility of the existence of an “excess insurance” clause in the driver’s insurance policy, and expressly contracted against liability in that situation. In Continental Casualty Company v. Weekes, Fla., 74 So.2d 367, 46 A.L.R.2d 1159, where the owner’s policy contained a substantially identical “escape” clause, the Florida court held that the clause was a valid, express condition against liability and that the owner’s insurer therefore was not liable where the driver’s policy contained an “excess insurance” clause.

We think that the reasoning of the Florida court is sound and its holding correct. In accord is Continental Casualty Company v. Suttenfield, 5 Cir., 236 F.2d 433. See also 7 Am.Jur.2d, Automobile Insurance, sec. 202, p. 546.

The judgment is affirmed.

All concur.


author: J. L. HAYS, Special Commissioner.

text:
    Bertha WHEELER, Appellant, v. P. SORENSEN MANUFACTURING COMPANY, Inc., et al., Appellees.
    Court of Appeals of Kentucky.
    May 26, 1967.

      Robert T. Schneider, Horse Cave, for appellant.
    Louie B. Nunn, Joe L. Travis, Nunn & Travis, Glasgow, for appellees.
   J. L. HAYS, Special Commissioner.

Appellant filed a complaint which, in essence, alleged that on or about December 11, 1963, agents, employees, or servants of appellees, and in particular, one Harold Matthews, while acting within the course and scope of their employment and under the direction and supervision of appellees, distributed and handed out to all or a great majority of the other employees a large, printed sheet. It was a photograph of a part of her pay check for two different weeks, and disclosed the number of hours she worked, her gross wages, the deductions and her “take home” pay. This printed sheet also contained the following:

“In 1 year, 4 months and 1 week this employee received an increase of 20‡ per hour or $8.00 per week.

IS THIS SO BAD?

Would you get this amount of increase in this short period of time with a union?

ASK FRANK CRAIN!

E Town Time Corp. signed a 3 year contract with the I. U. E. in March 1963 for 5‡ per hour each year. Minus $4.00 per month for union dues.

THESE ARE TRUE FACTS”

Also printed on it were the words: “NO DUES NO STRIKES NO VIOLENCE NO LOSS OF WAGES NO PICKET LINES NO UNION”.

At that time appellant was an employee of appellee and in the weeks prior thereto a union, namely, IUE-Sorensen Organizing Committee, had been attempting to organize the employees. During the period of time the appellees and union waged a campaign to solicit the vote of the employees and to show the advantages and disadvantages pro and con on the subject.

Appellant further alleged that she held a reasonably good job and was able to transact her business affairs and live her life without undue molestation or interference, and then the sheet referred to was passed out to other employees and it fell into the hands of members of the general public as well.

She claimed that the published sheet which disclosed the amount of her wages, and which, in instances, were more than other employees of the appellees caused many employees to act adversely toward her; and publication and distribution of the paper, as an advertisement for the ap-pellees in the campaign, inclined many of her fellow employees to believe she was actively working upon behalf of appellees in the campaign, when, in fact, she was trying not to become embroiled in the controversy and to merely work and earn a living. She said that the action of the appellees made her work uncomfortable and unpleasant and she was made an object of controversy in the dispute.

She contended that soon afterwards she was summarily dismissed as an employee, and as a result of the sheets having fallen into the hands of the general public she was blacklisted with other employers having like or similar positions of employment, that she has been unable to obtain such employment in the general area of her residence, Glasgow, Kentucky.

Appellant further alleged that the use of her name and wage statement, coupled with the advertisement, was unlawful and entirely without her knowledge or consent, and its unwarranted and authorized use by appellees violated her right to privacy, and seriously jeopardized her ability to work and earn money; and her right to live peaceably and quietly has been violated and by reason of such use she has sustained and will continue to sustain intense mental suffering and distress to her damage in the sum of Fifty Thousand Dollars.

Appellees then moved the court to dismiss the complaint on the ground that the court was without jurisdiction to entertain an action based on the foregoing allegations and that it failed to state a cause of action or sufficient grounds upon which relief could be granted.

Subsequently, the court entered an order dismissing the complaint on the ground that the National Labor Relations Board has preempted the jurisdiction of the court to entertain an action to recover damages for invasion of right of privacy arising out of tactics employed in an union organization campaign as alleged in the complaint, and on the further ground that the complaint did not state facts upon which relief could be granted.

Two questions are presented for determination on this appeal: First, is there a violation of an employee’s right of privacy for an employer, without permission, to publish and distribute to its employees a printed sheet showing the wages and deductions of an employee as an election tactic during an organizational campaign by a labor union? Second, has the National Labor Relations Act preempted the jurisdiction of the state courts to entertain an action of the state courts to entertain an action for damages for invasion of right of privacy as alleged in this case?

As to the first question, it may be observed that while the doctrine of the right of privacy seems well established in this jurisdiction, the cases are not numerous. We do not find, nor have we been cited, any cases directly in point, either foreign or domestic. The doctrine is based on the right of the individual to be left alone, to be free from unwarranted interference by the public or individuals in matters with which they are not necessarily concerned. The action sounds in tort and when authorized is primarily to recover for a hurt to the feelings of the individual. When there is an actionable invasion of one’s right of privacy, the truthfulness of the matter disclosed is no defense to the action, nor is malice a necessary ingredient. In this respect, the action differs from the right based on libel or slander.

In our leading case on the subject, Brents v. Morgan, 221 Ky. 765, 299 S.W. 967, 55 A.L.R. 964 (1927), Judge Logan defined the right of privacy:

“ * * * it is generally recognized as the right to be let alone, that is, the right of a person to be free from unwarranted publicity, or the right to live without unwarranted interference by the public about matters with which the public is not necessarily concerned.” The text bears out this statement of the rule. In Restatement of the Law, Torts, § 867, p. 398, the actionable invasion is referred to as: “A person who unreasonably and seriously interferes with another’s interest in not having his affairs known to others or his likeness exhibited to the public is liable to the other.” It is defined in 41 Am.Ju'r., Privacy, § 2, p. 925 as: “ * * * the right of a person to be free from unwarranted publicity, and as the right to live without unwarranted interference by the public in matters with which the public is not necessarily concerned.” In 41 Am.Jur. Privacy, § 12, p. 934 the text says: “The right of privacy is relative to the customs of the time and place, and it is determined by the norm of the ordinary man.”

Brents v. Morgan was the first Kentucky decision to give a detailed consideration of the right of privacy. It also sets out a workable doctrine on the right of privacy, and although the principle is not precisely defined, there is a clearer understanding of the right of privacy expressed in the case and limitations set forth. Later cases in general have approved the limitations, one of which involved matters of public or general interest.

It must be observed, however, that the right is not absolute. The rule defining the extent of the right is based on the premise that the standards by which the act is judged are that of a reasonable man. As stated in Brents v. Morgan, the right of privacy is relative to the customs of the time and place, and it is determined by the norm of the ordinary man. Voneye v. Turner, Ky., 240 S.W.2d 588. (41 Am. Jur. Privacy Section 12, p. 934.)

Many of the invasions of the right of privacy for which recovery has been sought are the result of unwarranted and humiliating methods put in motion by creditors to collect debts, or the unwarranted publications or use of the names or pictures to promote various enterprises.

Applying the legal rules and principles as above set out to the facts of the case at bar we are of the opinion that the lower court was correct in holding that the complaint failed to state a cause of action or sufficient grounds upon which relief could be granted. In other words, the invasion of the right of privacy, if any, in this case was reasonable and warranted under the circumstances.

Appellee published the fact that appellant had received a wage increase of 20⅜£ per hour, or $8.00 per week, in about 16 months employment with appellees, and this was distributed among its employees. The publication and distribution of the sheet was used by appellees as a tactic to prevent its employees from unionizing, or, at least, as a reason why it was not necessary to unionize. It was circulated only among the other employees, but allegedly it fell into the hands of the public also. Apparently the purpose was to show that it was not necessary to unionize in order to receive increased and adequate wages and benefits, which, in our opinion, was not an unwarranted or unreasonable act. The published information was certainly a matter of interest to both the employer and its employees. It did not contain a threat or a coercive word, nor one word of contempt, ridicule, aversion or disgrace. To the contrary, it was evidence of the fact that the appellant was a competent, commendable and praiseworthy employee, entitled to a wage increase without union connection or association.

We do not believe that the publication and distribution of the sheet complained of was so unreasonable or unwarranted as to be actionable. Perry v. Moskins Stores, Inc., Ky., 249 S.W.2d 812; Gregory v. Bryan-Hunt Company, 295 Ky. 345, 174 S.W.2d 510; 17 Ky. Law Journal, pages 85-122; 14 A.L.R.2d 750.

Since this case has been disposed of on other grounds it is unnecessary for us to pass on the remaining issues raised by ap-pellees as a basis for dismissal.

The judgment is affirmed.

All concur.


text:
    Thomas O. SPAULDING, Appellant, v. L. M. TUCKER, Appellee.
    Court of Appeals of Kentucky.
    May 26, 1967.
    Lawrence C. Jenkins, Lexington, for appellant.

      Denney, Landrum, White & Patterson, Lexington, for appellee.
   CULLEN, Commissioner.

In Appellant Thomas Spaulding’s suit against Appellee L. M. Tucker, seeking damages for personal injuries, the jury found for the defendant and judgment was entered dismissing the claim. Spaulding has appealed.

The injuries for which Spaulding claimed damages consisted of or grew out of an amputation of his right leg. His theory was that the circumstances attendant upon a collision between Tucker’s truck and an ambulance in which Spaulding was riding created the necessity for the amputation.

Spaulding suffered from a vascular disease which had required that arteries in both legs be replaced by plastic tubes. Some five months after this operation had been performed on his right leg he experienced a clotting of the vessels of the leg. His family doctor, in Frankfort, deemed his condition to be acute, and summoned an ambulance to take him to Lexington for prompt attention by the surgeon who had performed the previous operations. On the way to Lexington the ambulance, while attempting to pass Tucker’s truck, was bumped or scraped in the right side when Tucker veered to his left into it. This caused the driver of the ambulance to swerve across the grass median strip (about six inches high and six feet wide) into the inside lane for opposite traffic. The ambulance continued in this lane for several hundred feet and then returned to its proper side, at a cross-over gap, and was brought to a stop. Tucker also stopped, and there was an exchange of names, addresses, etc. The ambulance driver, the attendant, and Tucker all testified that the ambulance remained at the scene only five or six minutes, and then continued to the Lexington hospital. The records of the two hospitals, as to treatment times, indicate that the total elapsed time between departure of the ambulance from Frankfort and its arrival in Lexington was only 25 minutes. However, Spaulding testified that the ambulance remained at the scene of the collision for 30 or 40 minutes, and his whole case is predicated on the theory that the delay prevented prompt emergency treatment which would had enabled his leg to be saved.

Tucker conceded his negligence so the only question submitted to the jury were whether Spaulding had sustained injuries as a direct and proximate result of the collision. As hereinbefore stated, the jury found for the defendant.

Spaulding’s first contention on this appeal is that the evidence was conclusive that he at least had incurred pain and suffering during the course of the collision and that the court should have directed that the jury award recovery for this. His claim is that he was bound to have suffered pain as the ambulance went over the median strip, and mental anguish from the frightening experience of the accident.

Spaulding was lying on a cot in the back of the ambulance. The attendant testified that he was seated next to the cot with his arm stretched across Spaulding’s body; that there was only a minor jolt as the ambulance went over the median strip and that Spaulding was not thrown against the side of the ambulance. There was testimony for the defendant that Spaulding made no complaint of pain or fright at the scene of the accident. Spaulding himself testified that he did not “discover” his pain and suffering until he “came to” in the Lexington hospital.

It is our opinion that the evidence was not conclusive that Spaulding incurred any pain and suffering during the course of the collision other than a mere trifle; not substantial enough to warrant a reviewing court’s attention. Cf. Hayes v. Hayes, Ky., 357 S.W.2d 863.

Spaulding’s second contention is that he was entitled to an instruction to the effect that if the delay incident to the collision “played any part” in the amputation, Tucker was liable for all the damages attributable to the amputation. The instructions given by the court directed the jury to apportion the damages if they believed that a preexisting condition was aggravated or extended by the collision. Under the evidence in this case we think the instructions given were proper. Construed in its most favorable light, the medical testimony for Spaulding went no farther than to say that a period of delay such as was testified to by Spaulding would be one of a “combination of factors” that caused the loss of the leg. The testimony was equivocal, consisting of statements such as that the delay “didn’t do him any good,” and “would make a bad situation worse”; and that any factor which would deprive the leg of blood “over a longer and longer period of time” would be one of the combination of factors causing loss of the leg. The import of the medical testimony is that the primary concern in sending Spaulding by emergency vehicle to the Lexington hospital was to save his life, with some thought that his leg might also be saved; and that loss of the leg was recognized as a danger from the outset.

This is not a case in which a dormant diseased condition was aroused to disabling reality by an accident. Spaulding’s condition was acute to begin with and at the most the delay incident to the accident was a final straw.

That apportionment is the proper rule under circumstances such as here presented is established by such decisions as Louisville & Nashville Railroad Co. v. Mattingly, Ky., 318 S.W.2d 844, 845; and Louisville Taxicab & Transfer Co. v. Hill, 304 Ky. 565, 201 S.W.2d 731. The rule is well stated in 22 Am.Jur., 2d, Damages, sec. 122, p. 174, as follows:

“ * * * Of course, where the disease is more than a mere latent tendency, the defendant can be held liable only to the extent that his negligence proximately and naturally aggravated the disease; the recovery includes no damages for injuries-which result from the original condition, but is confined to those which are due to-its enhancement or aggravation.”

A third contention of Spaulding’s is that the instructions were erroneous in stating that Tucker was not chargeable with any injuries that were caused by delay of the ambulance at the scene of the collision for a longer period of time than was reasonably necessitated by the collision. Spaulding’s counsel admits the applicable rule to be that the original negligent actor is responsible for subsequent negligent acts of another person only if the subsequent acts might reasonably have been foreseen. See Roberts v. Taylor, Ky., 339 S.W.2d 653. However he argues that the issue of foreseeability should have been submitted to the jury. We think that a person should not reasonably be expected to foresee unreasonable acts of another as distinguished from careless or negligent acts. The instruction here involved relieved Tucker only of the consequences of unreasonable acts by the ambulance personnel. We think that the instruction was not prejudicially erroneous.

A final contention relates to the claimed error of the trial court in striking an amended complaint, and quashing the process thereon, by which Spaulding had endeavored to assert a claim against the owner and the driver of the ambulance. The claim of error cannot be considered because the owner and the driver of the ambulance have not been made parties to this appeal.

The judgment is affirmed.

All concur.


author: R. C. TARTAR, Special Commissioner.

text:
    Bert COLLINGS et ux., Appellants, v. Samuel Randolph SCHEEN et ux., Appellees.
    Court of Appeals of Kentucky.
    Feb. 3, 1967.
    Rehearing Denied June 30, 1967.
    S.J. Stallings, Robert P. Hastings, Louisville, for appellants.
    James T. Carey, Louisville, for appel-lees.
   R. C. TARTAR, Special Commissioner.

The plaintiffs, Bert Codings and his wife, Mary Codings, brought this action against defendants, Samuel Randolph Scheen and his wife, Elizabeth Wilson Scheen, alleging breach of contract by the latter for the sale and purchase of certain real estate to the damage of the former in the sum of $10,500.

The answer of defendants admitted the making of a contract with the plaintiffs on March 22, 1960, but denied that it was a contract for the sale and purchase of real estate and denied ad other allegations of the complaint.

The defendants moved the trial court for summary judgment. The motion was heard on the affidavits of both sides and on the depositions of defendants taken by the plaintiffs on discovery. The trial court granted the motion and dismissed the complaint with prejudice. The plaintiffs appeal.

Hereafter, for convenience, the plaintiffs will he referred to as Codings and the defendants as Scheen.

The record presents no contrariety of evidence in any material respect. But to give intelligent answers to the divergent contentions of law made by the parties, it will he necessary to quote extensively from the record.

On March 22, 1960, the parties entered into a contract relating to a house and lot located on Saratoga Drive in Louisville. The portions of the contract germane to the instant factual and legal imbroglio are as follows:

“First parties (Codings) have agreed to sell to second parties (Scheen) and second parties have agreed to buy from first parties said property together with ad the improvements for the sum of $31,-500.00 as follows:
“Second parties shad pay to first parties the sum of $175.00 per month for the first year of the term of this agreement, the first payment being due and payable April 1, 1960, and a like and similar payment being due and payable on the first day of each and every month thereafter through March 1; 1961, and beginning April 1, 1961, shad pay to first parties the sum of $200.00 per month and a like and similar payment on the first day of each and every month thereafter until April 1, 1963. It being provided that said monthly payments shad first apply to interest on the agreed purchase price at the rate of 5% per annum and the balance of said payments to be credited on the principal amount of the purchase price after first deducting therefrom the premium on fire and tornado insurance on said property to be provided by first parties and charged to second parties and likewise the amount of all City, State and County taxes on said property due and payable from the date of this contract.
“Prior to April 1, 1963, second parties shad apply for and have approved at their own expense a commitment from some lending institution who will enter into a mortgage contract with second parties and thereafter make a mortgage on said property and will on or before April 1, 1963, accept a General Warranty Deed from first parties and at said time pay to first parties the purchase price herein agreed for said property less ad credit against principal amount as may have accrued in accordance with this agreement. First parties will at said time execute and deliver to second parties, a Deed to said property and title to same such as Louisville Title Insurance Co. will insure.
“In this regard, time is of the essence of this contract and it shad be second parties responsibility to have ad details completed for obtaining the mortgage on said property prior to April 1, 1963.”
“In the event second parties should fail to make any payments due under this contract or to keep any of the terms and conditions of same and said default shad continue for ten (10) days after receipt of written notice from first parties to second parties of such default, first parties may cancel this contract and treat the payments made hereunder as rent received for the use of said property and shad have the right to take immediate possession of same. In this regard, the parties hereto further agree that this contract shad be treated as a lease between the parties and shad be interpreted and treated as such by any Court in the Commonwealth of Kentucky where an action for its breach may lie, and it is further agreed first parties may proceed against second parties to have them evicted in an action for forceable detainer and said parties shad be considered as landlord and tenant for said purpose.”

Scheen made the monthly payments specified through September 1962 but failed to make the payments due in October, November, and December 1962. On December 1, 1962, Collings gave written notice to Scheen of the latter’s default, and in January 1963 filed an action against Scheen in a Jefferson County Magistrate Court seeking judgment for the defaulted October and November 1962 payments in the sum of $400. This action was pursued to judgment granted in favor of Collings in October 1964, which judgment Scheen paid.

At the time of the instant action, Scheen had paid Collings the total sum of $6,100 from the contract date. Scheen had vacated the property in January 1963.

In March 1963, Collings notified Scheen in writing that he insisted on fulfillment of the contract and that unless it was completed by April 1963 the property would be sold and Scheen held responsible for any deficiency. The property was subsequently sold for $29,500.

Scheen contends that upon his nonpayment of the October and November 1962 payments and the notice thereafter given by Collings, the latter had the following choice of remedies, (a) to stand on the contract of purchase and sale and seek its performance, or (b) to cancel the contract and retain the sums received as rent. Scheen contends that the action brought by Collings in the magistrate’s court, after giving written notice of Scheen’s default, constituted an irrevocable election to retain the moneys received as rent and a cancellation of the contract by Collings.

In granting Scheen’s motion for summary judgment, the trial court accepted this view of the matter, adopting Scheen’s contention. The doctrine of election of remedies is, of course, thoroughly entrenched in the jurisprudence of this State, and it is also received and almost universally approved. In a context of this kind, the doctrine simply means that when a person has at his disposal two modes of redress, which are contradictory and inconsistent with each other, his deliberate and settled choice and pursuit of one will preclude his later choice and pursuit of the other. See Riley v. Cumberland & M. R. Co., 234 Ky. 707, 29 S.W.2d 3.

In our view, however; considering the contract and the acts of Collings relied on by Scheen, the doctrine cannot be applied here. There is nothing in the contract precluding an action for the recovery of unpaid installments as such. And the action brought by Collings in the magistrate’s court “specifically reiterate (d) and reaffirm(ed) and adopt(ed) each and every provision” of the contract and sought judgment “without waiving any of their (Col-lings’) rights or prerogatives.” The lease and rental provisions of the contract, which we have quoted above and which are relied upon by Scheen, depended upon cancellation by Collings of the contract and its sale and purchase provisions. The notice given by Collings of Scheen’s default contains no hint or suggestion of an election by Collings to cancel. Nor do we find anything in the action brought by Collings in the magistrate’s court which would be construed as a declaration, expressed or implied, of any intent or purpose on Collings’ part to cancel. We find no cancellation of the contract by Col-lings. We have to conclude, therefore, that the contrary contention and argument is untenable as a basis upon which the judgment of the trial court may be sustained.

Still, we think the judgment of the trial court must be sustained on another ground. The contract in controversy contains the following provision:

“Prior to April 1, 1963, second parties shall apply for and have approved, at their own expense, a commitment from some lending institution who will enter into a mortgage contract with second parties and thereafter make a mortgage on said property and will on or before April 1, 1963, accept a General Warranty Deed from first parties and at said time pay to first parties the purchase price herein agreed for said property less all credit against principal amount as may have accrued in accordance with this agreement.”

This provision imports an agreement by the parties that the sale and purchase provisions required the stated financing and an understanding that these provisions were not to he finally operative and obligatory unless Scheen was able before April 1, 1963, to obtain the stated commitment from some lending institution and thus provide payment to Codings of the balance due on the purchase price. This was a condition precedent to the effectuation of these provisions — the act or event, as such a condition is defined, upon the performance or happening of which the sale of the property by Codings and its purchase by Scheen was made to depend. See 17 Am.Jur.2d, Section 19, page 751. It is plain that the provisions quoted imposed on Scheen only an obligation to apply for and have approved, if he could, the stated commitment and financing from some lending institution and did not impose an unconditional obligation to buy.

Moreover, the undisputed facts show that the lengthy contract in suit, drawn with care and design and severe in its terms, was prepared at the instigation of Codings and was never seen by Scheen until presented for signature. Scheen, a neophyte in business, accepted it without advice from counsel or friend. He was a physician just entering practice. He was poor and in debt, and he and his wife had four children. He could not afford a separate office but shared the office of a friend. For a beginner in medical practice, in debt, and with these family responsibilities, the purchase price specified in the contract, $31,500, was beyond his capacity. He could not meet its installments, and he was unable to contract for the stated financing. The circumstances surrounding the execution of this contract are related best by Dr. Scheen’s testimony :

“Q. 25 And do you recall any of the terms of the agreement?
A. Yes, the agreement as I understand it, was that this was a lease with an option to buy the property at the end of three years, if my practice progressed to the point where we were able to come with sufficient first mortgage for the property, if we didn’t he would lend us, I think, I see the paper you showed me.”
“Q. 56 Now when you moved in the house didn’t — did you anticipate buying the house?
A. We liked the house, and we hoped we would be able to afford it, at at one time I asked Mr. Codings, at the time, or before we moved in, and I told him that I was just starting in practice which I was, and understood about the agreement and about lending $5000.00 and so forth, and I said, Mr. Codings now suppose I am in a position where I cannot get a first mortgage even with the money you are lending me to take over the house at the time specified, what would happen then? I don’t want to get involved in something I can’t take care of. He said, if that is the case, I won’t hold you to it.”
“Q. 72 Doctor, of course, we are talking about the monthly payments which we have estimated were $200.00 a month for the premises 2535 Saratoga Drive. We fully understand each other when we are talking about these payments?
A. It was the money I was giving Mr. Codings each month; which we were not able to pay in September, and October, November and December, and I guess that would include January.”

Again, there is no question or issue of fact that Scheen was unable to meet the monthly installments. Nor is it questioned that he was unable to negotiate the loan by which the sale was to be financed and Col-lings paid for the property.

An unusually striking analogue to the case at bar, both factually and legally, will be found in Hawkins & Chamberlain v. Mathews, 242 Ky. 732, 47 S.W.2d 547. The contract at issue in that case provided:

“I, Anna Hengehold of Covington, Kentucky, have this 31st day of July, 1929, bargained and sold to Claude and Margaret Mathews through Hawkins & Chamberlain, Real Estate Brokers, a certain parcel of property, (here follows description) at the agreed price of Nine Thousand ($9,000.) Dollars, to be paid as follows: At least $1500.00 plus an amount of not less than $6,000. obtained on loan in a building association secured by a first mortgage, to be paid in cash; balance evidenced by notes bearing interest at 6% per annum, payable within two years, $600.00 or more of which is to be payable within one year. Said payment of notes to be secured by a mortgage second only to the first mortgage above mentioned.”

This contract had been signed by Anna Hengehold and accepted in writing by Mathews, who also paid $500 to Hawkins & Chamberlain Real Estate Brokers to bind the bargain. Being unable to obtain the loan of $6,000, Mathews sued to recover the $500 paid. The opinion recites that the Mathews were people of modest means and that the idea of the loan originated with the real estate brokers. But they could not secure the loan and could not carry out the contract. Holding for Mathews, this court said:

“The contract could not be carried out because the $6,000 mortgage would not be accepted. The evidence showing these facts does not impugn the written contract, for it expressly provides that the price to be paid among other things thus: ‘An amount of not less than $6,000. obtained on loan in a building association secured by first mortgage.’ The contract is executory. By its words the above is one of the conditions of the contract, and, when this condition could not be carried out, the contract is not enforceable. As the contract could not be carried out, ap-pellees were entitled to the return of the $500 paid under the contract.”

The court rejected the contention that this result involved an improper variation of the written terms of the contract by parol evidence. “Contracts,” it was pointed out, “must be construed from the standpoint of the parties, and the terms employed must be given effect from that standpoint.” The court went on to say:

“A rule of likewise universal application is that, to aid the court in determining the intention of the parties, it may consider their situation and circumstances, the conditions surrounding them at the time of making the contract, and the object intended to be accomplished thereby. The essential thing is for the court to look at the contract from the standpoint of the parties at the time they executed it, and the purpose they had in view in doing so.”

These principles apply here. It was a condition to the consummation of the instant contract that prior to April 1, 1963, Scheen should make application for and obtain approval at his own expense of a commitment from some lending institution, which would on or before said date make a mortgage on the property and pay Col-lings the balance of the purchase price. Scheen was not able to do this. The condition could not be carried out, and therefore the contract is not enforceable.

No equities appear in this record to lend any support to the claim of Collings. His house had been without a tenant for years. He has received $6,100 from Scheen and has sold his house for $29,500. He has not been injured by the failure of a contract under which he had agreed in effect that it would be forgotten if Scheen was unable to secure the described loan within the time specified. This occurring, he may no longer pursue Scheen on the contract. The condition failing, as stated, the contract became unenforceable.

This is a proper case for summary judgment. The record presents no factual issues of substance. There are issues of law only which for reasons given we conclude should be resolved in favor of Scheen.

The judgment is affirmed.


author: CLAY, Commissioner.

text:
    SQUARE D COMPANY, Appellant, v. KENTUCKY BOARD OF TAX APPEALS et al., Appellees. GENERAL REFRACTORIES COMPANY, Appellant, v. KENTUCKY BOARD OF TAX APPEALS, formerly Kentucky Tax Commission, Appellee.
    Court of Appeals of Kentucky.
    Feb. 24, 1967.
    Rehearings Denied June 30, 1967.

      Michael L. Ades, John L. Davis, Stoll, Keenon & Park, Lexington, for appellant Square D Co.
    E. Gaines Davis, Jr., Smith, Reed, Yessin & Davis, Frankfort, for appellant General Refractories Co.
    William A. MacKenzie, Jones, Ewen, MacKenzie & Peden, Louisville, Thomas C. Carroll, Louisville, Paul E. Hayes, Prestonsburg, Special Counsel, Robert Matthews, Atty. Gen., William S. Riley, Asst. Atty. Gen., Frankfort, for appellees.
    Walter H. Beaman, Jr., Associate Tax Counsel, General Electric Co., New York City, Sandidge, Holbrook, Craig & Hager, John S. Hagerj Owensboro, of counsel, for amicus curiae, General Electric Co.
   CLAY, Commissioner.

The appeals in these two cases have been consolidated and involve similar questions. Both appellants contend the circuit court erroneously upheld orders of the Kentucky Tax Commission assessing additional income taxes. The years involved are from 1957 to 1961.

Both appellants are foreign corporations doing business in Kentucky. Neither has its principal office or “commercial domicile” in this state. Each owns all of the capital stock of one or more foreign corporations. The basic question is whether the dividend income from these wholly owned corporations must be included in appellants’ taxable net income, for the purpose of apportioning income taxes payable to the State of Kentucky, under the provisions of KRS Chapter 141 in effect during the tax years involved. Before reaching that question, we will dispose of two contentions which attack the general statutory scheme.

The first contention made is that KRS Chapter 141 is unconstitutional as denying appellants the equal protection of the law because it taxes income from intangibles owned by a foreign corporation upon a basis different from that of a nonresident individual. It was long ago held that corporations and individuals may be placed in different categories for tax purposes without violating constitutional limitations. Flint v. Stone Tracy Co. et al., 220 U.S. 107, 31 S.Ct. 342, 55 L.Ed. 389. See also Madden v. Commonwealth of Kentucky, 309 U.S. 83, 60 S.Ct. 406, 84 L.Ed. 590. In addition, administrative problems of computing and collecting this tax furnish a reasonable basis for separately classifying foreign corporations and nonresident individuals.

The next contention is that it is unconstitutional for the state to tax income from property or activities which have no relationship to the doing of business in Kentucky. As we will hereinafter interpret the applicable statutes, they do not produce such a result.

KRS 141.040 levies a tax upon the “taxable net income” of foreign corporations doing business in this state (with certain exceptions). KRS 141.010(11) defines “taxable net income” (of corporations) as “ ‘net income’ derived from business done, property located, activities or sources in this state * * When a corporation is engaged in integrated business activities both within and without Kentucky and it is impossible or not feasible accurately to account for and segregate the specific Kentucky income, the legislature under KRS 141.120 has provided a method and a formula for allocating to Kentucky a proportionate share of the taxable net income. Appellant corporations fall within this class, and they do not question the right of the Commonwealth, in this apportionment procedure, to include income realized from interrelated business activities carried on outside this state. The only income they contend cannot be included in computing the overall taxable net income for apportionment purposes is the separately identifiable dividend income from wholly owned corporate subsidiaries operating in foreign jurisdictions.

With respect to appellant Square D Company, the Kentucky Tax Commission (now the Kentucky Board of Tax Appeals) made the following findings:

“Appellant is a Michigan corporation doing business both in and outside the State of Kentucky. Its principal business is the manufacture and sale of electrical equipment.
“Appellant owns all the capital stock of Square D Company of Canada, Limited, and of Square D de Mexico, S.A. Both of these subsidiaries are engaged in the same type of business in Canada and Mexico, respectively, as appellant is in the United States. The two subsidiaries have interlocking directors and officers with appellant. Appellant sells them parts and know-how. The two subsidiaries enable appellant to open up and maintain foreign markets and to promote sales of appellant’s products. They act as the alter ego of appellant in Canada and Mexico.”

Appellant, General Refractories Company (hereinafter referred to as “General”), is a Pennsylvania corporation having its principal office in Philadelphia. Its operating business is the manufacture and sale of fire brick, with plants in Kentucky and other states. In 1950, after extensive negotiations, General purchased all the stock of an Austrian corporation engaged in the mining, processing and sale of magnesite, an essential ingredient in the manufacture of “basic brick”. This company also manufactured and sold finished brick. Under a working agreement between General and its Austrian subsidiary, General licensed the Austrian company to use certain of its patents, and also sent personnel to furnish technical advice and assistance. In return the Austrian company shipped to General, from time to time, substantial amounts of magnesite. There is some controversy as to whether these shipments should be classified as “royalties” or “dividends”, but we think this immaterial. Since the value of this magnesite was readily ascertainable, it was treated by General as, and constituted separately identifiable income from the Austrian source.

The taxing authorities invoke KRS 141.-120 in the following manner. Section (2) requires each of the taxpayers (the appellant foreign corporations) to make a Kentucky return showing all of its “net income” for any particular taxable year. The first sentence of section (3) provides:

“There shall be deducted from the net income for the taxable year the net amounts of income received from the ownership, holding, use, or sale of property not held, owned or used in the ordinary and regular course of the corporation’s business. (Emphasis added.)

Section (4) provides for apportioning the remainder of the income (after the above deductions). It is argued that since the dividend income in question is deductible only if it falls within the “nonbusiness” category, and since it is not “nonbusiness” income (allocable to another state), it must be included in the apportionment formula.

A vigorous battle has raged over the issue of whether appellants’ dividend income falls within the “business” or “non-business” category under KRS 141.120(3) (above quoted) and this problem has beclouded the deeper issue of the state’s right and intent to reach for a portion of this income. In a realistic sense, any income realized by a corporation arising out of an authorized business transaction is “business” income. Assuming, however, that a valid distinction can be drawn between what might better be termed “operating” and “nonoperating” income, we do not believe the dividend income of either appellant falls within the latter class.

As we read General’s brief, such a claim is not seriously pressed. Surely General would not have engaged in such extentive and complex negotiations to acquire all of the capital stock of its Austrian subsidiary simply to invest its surplus capital for a “nonbusiness” purpose. By the same token, Square D would not have acquired control of its Canadian and Mexican subsidiaries simply to realize a dividend return on its investment.

The acquisition of the stock in the subsidiaries by the appellant corporations constituted an investment in intangible property which served to further their regular business operations. Whatever might constitute a “nonbusiness” investment under KRS 141.120(3), we are convinced that appellants owned and used this stock “in the ordinary and regular course of the corporation’s business”. Consequently appellants cannot escape through the “non-business” hatch. But this does not, as the taxing authorities would have it do, automatically convert this income into “taxable net income” in which Kentucky rightfully may claim a proportionate share.

The confusion which has permeated this controversy arises from the concept that KRS 141.120(3), in exempting certain “nonbusiness” income from the apportionment formula, thereby requires the inclusion of all “business” income, regardless of its source or relationship to the Kentucky operations of the foreign corporate taxpayers. This conclusion is not a sound one in the light of constitutional limitations and a fair interpretation of “taxable net income” as defined in KRS 141.010(11).

Our point of departure is the fundamental proposition that it is beyond the power of a state to tax property located in other states because such taxation would violate either, or both, the commerce clause (Art. 1, sec. 8) or the due process requirements (Amend. XIV, sec. 1) of the Constitution of the United States. See Western Union Tel. Co. v. State of Kansas, 216 U.S. 1, 30 S.Ct. 190, 54 L.Ed. 355; Ludwig v. Western Union Telegraph Co., 216 U.S. 146, 30 S.Ct. 280, 54 L.Ed. 423; Looney v. Crane Co., 245 U.S. 178, 38 S.Ct. 85, 62 L.Ed. 230; International Paper Co. v. Commonwealth of Massachusetts, 246 U.S. 135, 38 S.Ct. 292, 62 L.Ed. 624, Ann. Cas.1918C, 617; Wallace v. Hines, 253 U.S. 66, 40 S.Ct. 435, 64 L.Ed. 782; Alpha Portland Cement Co. v. Commonwealth of Massachusetts, 268 U.S. 203, 45 S.Ct. 477, 69 L.Ed. 916, 44 A.L.R. 1219; Connecticut General Life Ins. Co. v. Johnson, 303 U.S. 77, 58 S.Ct. 436, 82 L.Ed. 673; Newport Co. v. Wisconsin Tax Commission, 219 Wis. 293, 261 N.W. 884, 100 A.L.R. 1204. The taxing authorities do not question this principle, and acknowledge that the foreign income indirectly sought to be taxed under the apportionment formula must fairly be proportionately attributable to sources in or business carried on in Kentucky.

The fact that the state is not directly attempting to tax the dividend income here in controversy, but is only using it in measuring the total income of appellants for the purpose of fixing an apportionable share attributable to Kentucky operations, does not avoid the prohibition against taxing earnings, originating in a foreign jurisdiction, which have no substantial relationship to sources or business carried on in Kentucky. In commenting upon the North Carolina apportionment statute (which has the same objective as ours), the Supreme Court of North Carolina in Gulf Oil Corporation v. Qayton, 267 N.C. 15, 147 S.E.2d 522, 526, stated:

“Such apportionment is designed to meet the due process requirement that a state show a sufficient nexus between such a tax and the transaction within a state for which the tax is an exaction, and the proscriptions of the Commerce Clause of the Federal Constitution which permit a state to tax only that part of a corporation’s net income from multistate operations which is attributable to earnings within the taxing state.”

Cited in that case as recognizing the constitutional provisions which limit the scope of apportionable income taxation were the following cases decided by the United States Supreme Court: Hans Rees’ Sons v. State of North Carolina, 283 U.S. 123, 51 S.Ct. 385, 75 L.Ed. 879; Norfolk & W. R. Co. v. State of North Carolina, 297 U.S. 682, 56 S.Ct. 625, 80 L.Ed. 977; Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 58 S.Ct. 546, 82 L.Ed. 823, 115 A.L.R. 944; Butler Bros. v. McColgan, 315 U.S. 501, 62 S.Ct. 701, 86 L.Ed. 991; Memphis Natural Gas Co. v. Beeler, 315 U.S. 649, 62 S.Ct. 857, 86 L.Ed. 1090; Northwestern States Portland Cement Co. v. State of Minnesota, 358 U.S. 450, 79 S.Ct. 357, 3 L.Ed.2d 421.

It thus becomes apparent that Kentucky cannot tax, either directly or indirectly, separable income of a foreign corporation (whether characterized as “business” or “nonbusiness”) which was not produced in some recognizable sense by business activities in Kentucky. We do not believe the statutes before us seek to do that. As stated in Atlantic Coast Line R. Co. v. Commonwealth, 302 Ky. 36, 193 S.W.2d 749, page 754, construing KRS 141.120 as it existed prior to amendment in 1954:

“ * * * the whole aim and purpose of the statute as it relates to business income is clearly indicated to be a fair and just relationship to the source. The basic idea stands fairly clear to secure allocation to this state of income arising from something done or something owned or something having a taxable situs in Kentucky, whether it is from an investment purely or is the product of activity.” (Emphasis added.)

It is evident to us from the briefs filed by appellee and the findings of the Kentucky Tax Commission that the taxing authorities considered it necessary to do more than establish that the dividend income in controversy constituted “business” income. There is an attempt to show that the relationship between appellants and their subsidiaries was of such a nature as to create a “unitary” operation. It is conceded on both sides that if such existed, then the dividend income properly must be included in the apportionment formula. Thus our ultimate question is not whether the corporate relationships gave rise to “business” income but whether they so integrated appellants’ overall business operations that the Kentucky activity fairly could be said to have contributed to the production of that income. If not, then no part of that income was derived from the business activities in Kentucky.

An Oregon Tax Commission Regulation quoted in John I. Haas, Inc. v. Ellis, 227 Or. 170, 361 P.2d 820, 822, defines a “unitary business” thus:

“ * * * The term ‘unitary business’ means that the taxpayer to which it is applied is carrying on a business, the component parts of which are too closely connected and necessary to each other to justify division or separate consideration as independent units. * * * Basically, if the operation of a business within Oregon is dependent on or contributes to the operation of the business outside the state, the entire operation is unitary in character, and the income from Oregon activities will be determined by the apportionment method. * * * ” (Emphasis added.)

Or stated another way:

“A multi-state business is unitary when the operations conducted in one state benefit and are benefited by the operations conducted in another state or states. The essential test to be applied is whether or not the operation of the portion of the business within the state is dependent upon or contributory to the operation of the business outside the state. If there is such relationship, the business is unitary. Stated another way, the test is whether a business’ various parts are interdependent and of mutual benefit so as to form one business rather than several business entities and not whether the operating experience of the parts is the same in all places.” (Emphasis added.)

Crawford Mfg. Co. v. State Commission of Rev. and Tax., 180 Kan. 352, 304 P.2d 504, 510.

It has been said:

“The general approach to this problem has been analogous to that embodied in the ‘unit rule’ theory developed in connection with other tax problems. It is the fact that the total income is derived from a unitary business carried on in part within a state, that justifies the use of that total income as the basis for computing the amount thereof allocable to that state. No income accruing to the same taxpayer from any source not a part of such unitary business can be included in the basic income that is to be apportioned.” (Emphasis added.)

Rottschaefer, “State Jurisdiction of Income”, 44 Harvard Law Review 1075, 1081.

Although the specific question before us was not there directly presented, Kentucky Tax Commission v. Fourth Avenue Amusement Co., 293 Ky. 668, 170 S.W.2d 42, presents an example of what might be considered a “unitary” business. A Kentucky corporation, engaged in operating a chain of motion picture theatres, had a wholly owned subsidiary in Indiana. It was held that the theatres leased by the Indiana corporation were simply links in a chain, and that the ownership of its capital stock was for the purpose of controlling the policies and operations of the Indiana corporation and using it as an agency or instrumentality in the conduct of the Kentucky corporation’s unified business. (This finding was in favor of the taxpayer.)

Another example of a “unitary” operation appears in Edison California Stores, Inc. v. McColgan, 30 Cal.2d 472, 183 P.2d 16. A California corporation was one of fifteen subsidiary corporations whose capital stock was owned by a Delaware corporation. All the subsidiaries were engaged in the same business and all the officers and directors lived in St. Louis where there were maintained a central management division, a central purchasing department, and other central departments. The main accounting records for all subsidiaries were kept there. The court found that there was not only unity of ownership, but unity of operation and unity in the centralized executive force.

On the other hand, the overall operation of related businesses in different states, or the unity of ownership of stock in separate corporations engaged in a related or similar business, does not itself create the required integration of business operations as to justify a state in claiming a proportionate share of the income from foreign sources. In Standard Oil Co. of Indiana v. Thoresen, 8 Cir., 29 F.2d 708, an Indiana corporation engaged in the business in North Dakota of marketing refined oil products. In other states it produced and refined crude oil. North Dakota sought to levy an income tax upon a proportionate share of the company’s income from all of its operations. The court held that North Dakota could not constitutionally so tax the income from foreign sources because the foreign operations, though related, were not so integrated with the business carried on in North Dakota as to constitute a “unitary” operation.

In American Bakeries Company v. Johnson, 259 N.C. 419, 131 S.E.2d 1, North Carolina sought to tax a foreign corporation under a statutory apportionment scheme similar to ours. The corporation was engaged in the wholesale bakery business in North Carolina and owned stock in a subsidiary in New York which was engaged in the retail bakery business. Though it was recognized that the parent ■corporation controlled and supervised its subsidiary engaged in a similar and related business, it was held that no part of the earnings of the New York subsidiary could be attributed to the business conducted or transacted in North Carolina.

In Gulf Oil Corporation v. Clayton, 267 N.C. 15, 147 S.E.2d 522, North Carolina levied an income tax on a Pennsylvania ■corporation engaged in producing oil and gas and refining, transporting and marketing petroleum products. In North Carolina it marketed refined petroleum products. It owned subsidiaries in other states and foreign countries engaged in producing, refining and selling crude oil. The North Carolina statute, G.S. § 105-134, provided as a basis for apportionment the entire net •income of the corporation, including dividends from subsidiary corporations “having business transactions with or being engaged in the same or similar type of business”. The court held that the statute could not be construed to reach this dividend income from foreign sources because there was not the required unitary operation. The court •said (page 528 of 147 S.E.2d):

“The test then is not solely whether the business of a foreign subsidiary is similar to that in which the domesticated parent is engaging in North Carolina or elsewhere, or whether it has had business transactions with the parent elsewhere in the world. Conceding both similarity of businesses and intercorporate transactions outside the State, yet the dividend income which the subsidiary pays the parent cannot be constitutionally allocated to North Carolina and prorated for income taxation unless (1) it is attributable to business activities within this jurisdiction, or (2) the activities of the corporations are so interrelated as to make it impossible to identify the various sources of the taxpayer’s total earnings with reasonable certainty. Maxwell, Comr. v. Kent-Coffey Mfg. Co., 204 N.C. 365, 168 S.E. 397, 90 A.L.R. 476. Thus, it is only when the parent and subsidiary are engaged in a ‘unitary business’ that G.S. § 105-134(2) (a) may be constitutionally applied without reference to whether dividend income is attributable to transactions within the taxing state. In purporting to tax dividends from subsidiaries ‘having business transactions with or engaged in the same or similar type of business as the taxpayer,’ the Legislature was undoubtedly attempting to describe a unitary business in terms of its two most common indicia. In its application to such a business, the statute is clearly constitutional. We do not assume that the Legislature intended it to refer to any situation to which its application would be unconstitutional.” (Emphasis added.)

Even though subsidiaries are engaged in a similar or related business, the corporate separation must be recognized unless it is a mere sham or the subsidiaries’ operations lose their independent identity by reason of exceptional integrated business relationships. See Cargill, Inc. v. Spaeth, 215 Minn. 540, 10 N.W.2d 728. We can discover no basis for a determination that appellants’ relationships with their subsidiaries were of such a character as to justify ignoring the corporate identities and treating the independent operations as a “unitary” business.

Like the Supreme Court of North Carolina, we are not inclined to construe the apportionment section of our statutes as expanding beyond constitutional limits the basis of taxation set forth in KRS 141.010, which requires the taxable net income to be derived from business, property, activities or sources in Kentucky. No part of the Austrian, Canadian or Mexican incomes can be said to have been derived from Kentucky operations unless the apparently independent foreign activities were so integrated and interrelated with those in Kentucky that the separate sources cannot be reasonably and separately identified. We do not think this can be said of any of the dividend (or “royalty”) income here in controversy.

If there was any doubt about our conclusion in this rather elusive field of tax law, we would be required to construe these statutes most strongly against the government and in favor of the taxpayers. Reeves v. Brown-Forman Distillers Corporation, 288 Ky. 677, 157 S.W.2d 297; Kentucky Tax Commission v. Fourth Avenue Amusement Co., 293 Ky. 668, 170 S.W.2d 42; Atlantic Coast Line R. Co. v. Commonwealth, 302 Ky. 36, 193 S.W.2d 749. Where there is a serious question as to the constitutional right of the state to tax income having a foreign source, we think the state has the burden of showing by convincing evidence that the separately identifiable foreign income (in the form of dividends or otherwise) has a significant source in Kentucky by reason of integrated operations which are not fairly severable. This does not appear here.

A minor problem is presented with respect to the mechanical treatment of this dividend income which properly may not be taken into account when applying the apportionment formula. Under the Department of Revenue income tax form all income is listed, and under Schedule N “dividends” are listed to be deducted as “nonbusiness” income. This form has been a principal source of confusion in this case because it indicates that dividend income is deductible because, and only because, it is in the “nonbusiness” category. As we have attempted to show, the determining factor is not whether the dividend income may be characterized as “business” or “non-business”, but whether it arises from a source integrated with business carried on in Kentucky. If properly includable as “gross income”, it should be deductible (before the apportionment formula is applied) as nontaxable dividend income.

Other questions are raised with respect to the application of the apportionment formula, and other matters, which we deem it unnecessary to decide.

The judgments are reversed with directions to set aside the orders of the Kentucky Tax Commission in both cases.

All concur.


author: WADDILL, Commissioner.

text:
    Eva Louise BARNES, Appellant, v. Malcolm L. BARNES, Appellee.
    Court of Appeals of Kentucky.
    Oct. 14, 1966.
    Rehearing Denied June 30, 1967.

      Garland R. Hubbard, Sam Manly, III, Louisville, for appellee.
   WADDILL, Commissioner.

Appellee, Malcolm L. Barnes, was granted a divorce from appellant, Eva Louise Barnes. Eva was awarded $10,000 lump sum alimony, $500 monthly alimony as long as she remains unmarried, an automobile, $100 per month maintenance for each of their two children while they reside with her and conditional use of their residence. She was required to restore to Malcolm her interest in real estate obtained during their marriage. She appeals.

Malcolm filed this divorce action January 8, 1964, and judgment was entered January 15, 1965. During the pendency of the action various counsel represented Eva at different times but soon withdrew. The record reflects that the chancellor on many occasions urged Eva to obtain counsel. She primarily represented herself until present counsel appeared to file an amended answer and counterclaim one month after the chancellor had entered his findings of fact and conclusions of law and one day before entry of judgment.

Appellant now contends that the chancellor erred in refusing tq consider her counterclaim under CR 13.06 on grounds of oversight, inadvertence, excusable neglect and the demands of justice. The record is replete with acts and situations which must have sorely tried the patience of the chancellor. These are directly attributable to her reluctance to be represented by counsel. Moreover, the contents of the counterclaim disclose nothing that would have materially changed the posture of the case. Hence we are unwilling to hold that the chancellor abused his discretion in ruling upon her counterclaim. Johnson v. Carbon Glow Coal Co., Ky., 304 S.W.2d 783.

On November 24, 1964, the chancellor stated that he would take the case under submission on the issue of divorce with the question of property rights to be considered later. On December 15, 1964, the chancellor entered his findings of fact as to both the divorce and property rights. On Jan-

uary 15, 1965, no exception to these findings having been made, the chancellor entered a final judgment. Eva now contends that the chancellor erred in deciding the property rights question without extending the time for taking further proof. We do not consider the chancellor’s statement in this regard to automatically extend the time for the taking of further proof. This comment, as we interpret it, was merely an indication further proof would be heard if Eva should ask permission to present it. No such request was made prior to entry of the chancellor’s findings and neither were exceptions to these findings timely filed. The opportunity thus afforded precludes any prejudice. It is apparent to us that the proffered opportunity was extended a reasonable time and rejected by Eva’s inaction.

It is next argued that Eva’s mental and physical condition were such that she was unable to properly defend herself in this litigation or engage counsel to do so. This conclusion, supported only by her own affidavit, was first presented on motion for a new trial. So far as disclosed by her actions before the chancellor, Eva would have been quite capable of making her position in this case understood by a lawyer had she desired to do so. Since no acceptable reason appears why she was unable to employ counsel to timely present her side of the controversy, the chancellor was justified in overruling the motion for a new trial.

It is finally contended that the chancellor erred in determining Malcolm’s net worth and in computing the allowance of alimony. The chancellor found Malcolm’s net worth to be about $300,000 based on an accountant’s report. It is apparent that there are some misleading calculations in this report which would, if corrected, make his net worth approximately $800,000. While these misleading calculations are an intrinsic part of the chancellor’s computation of Malcolm’s net worth, this error does not require a reversal of the judgment because we can find no abuse of discretion in the award of alimony. We base this conclusion on two grounds: (1) It is clear from the record that Eva has not learned to use money wisely and therefore it would not have been in her best interest for the chancellor to give her alimony entirely in a lump sum; and (2) while the exact amount she can receive under this award is a matter of conjecture due to the allowance of periodic alimony, it unquestionably should result in her receiving a substantial share of Malcolm’s estate.

The judgment is affirmed.


text:
    Artis B. WITHERS and Janice B. Withers, his wife, Appellants, v. PULASKI COUNTY BOARD OF EDUCATION, etc., et al., Appellees.
    Court of Appeals of Kentucky.
    May 26, 1967.

      Charles C. Adams, Adams & Adams, Somerset, for appellants.
    John G. Prather, Lawrence Hail, Somerset, for appellees.
   CULLEN, Commissioner.

Appellants Artis B. Withers and wife, successors in title of a landowner who in 1864 deeded a parcel of land to “the citizens” of a local school district (which district later was absorbed into the county school system of Pulaski County) brought action against the county school board claiming that under the terms of the deed the school board had forfeited title by reason of discontinuance of use of the parcel for a school. The circuit court entered judgment dismissing the complaint and, on counterclaim of the school board, enjoining the appellants from interfering with the school board’s use and occupancy of the property. The Witherses have appealed.

The deed of 1864 contained this clause: “ * * * to have and to hold the same as long as they keep a house on said land for a school but if the above named citizens at any time remove said house or locate their school at some other point then this obligation becomes void and of no effect, otherwise to remain in full force and virtue in law so long as there is a school kept in said house.”

A school house was erected on the land and throughout the years a typical grade school was conducted there (known as the “Camp Ground School”). In the early part of 1964 the county school board constructed another school building some two miles away. The school year ended around June 1, 1964. At the start of the next school year, on August 17, 1964, the children who had been attending the Camp Ground School were transferred to the new school, and the Camp Ground School was unoccupied (although all equipment was left in it). On September 12, 1964, the Witherses brought the instant action claiming a forfeiture under the deed.

Clearly, the burden was on the appellants to prove that use of the property for a school had been discontinued within the meaning of the deed. At the time the lawsuit was commenced there had been a non-use of the building for a period of only 26 days at the beginning of a school year. We think that this alone was not enough to prove that a school was no longer “kept in said house.” The deed surely contemplated that the school authorities should have a reasonable period of time in which to effect a transition of school uses. See 78 C.J.S. Schools and School Districts § 254, p. 1228.

We think that in order to prevail it was incumbent upon the appellants to show circumstances other than the mere 26-days’ nonuse. They did show that another school had been constructed and the pupils of the Camp Ground School had been transferred to the new school. These circumstances had a tendency to indicate that a nonuse of a duration long enough to cause a forfeiture under the deed was in contemplation; however, the school authorities had made no formal declaration of discontinuance of school at Camp Ground and we think that an unformalized intent to discontinue could not furinish a substitute for actual time of discontinuance in the making of a determination of whether there was a discontinuance of sufficient duration to work a forfeiture.

The school authorities undertook to establish that the school had not been discontinued, through testimony of the superintendent as to informal plans of the school board for use of the building for farm hand classes, adult education courses, and accommodation of overflow that might occur from other schools. We think that an indefinite, informal intent to use the building for a school at some unfixed future time could not neutralize the forfeiting effect of an actual nonuse for a period of substantial duration. And we think also that use of the building for farm hand classes or adult education courses would not constitute the keeping of a school within the meaning of the deed. The most generally accepted definition of “school” is that it is a place where instruction is imparted to the young. Northrup v. City of Richmond, 105 Va. 335, 53 S.E. 962; Livingston v. Davis, 243 Iowa 21, 50 N.W.2d 592, 27 A.L.R.2d 1237; People v. Levisen, 404 Ill. 574, 90 N.E.2d 213, 14 A.L.R.2d 1364; Village of East Hampton v. Mulford, 188 Misc. 1037, 65 N.Y.S.2d 455; State ex rel. Church of the Nazarene v. Fogo, 150 Ohio St. 45, 79 N.E.2d 546; Board of Sup’rs of Merced County v. Cothran, 84 Cal.App.2d 679, 191 P.2d 506. We think this clearly was the meaning intended by the 1864 deed, considering as we must the character, situation and purposes of the parties and of the law then in force. See Board of Education for Jefferson County v. Littrell, 173 Ky. 78, 190 S.W. 465.

It is our opinion that the circuit judge erred in his view that the uses proposed by the school board would conform with the requirement of the deed that a school be kept on the land. However, this does not require that the judgment be reversed, because the erroneous reason may be disregarded and the judgment be upheld for the reasons stated in this opinion. The judgment will not be a bar to a later action if a discontinuance of school use is shown by subsequent events.

The circuit court held that the bringing of this action obviated the necessity of filing a declaration under KRS 381.221 of intent to preserve the reversionary right under the deed. We concur in that holding.

The judgment is affirmed.

WILLIAMS, C. J., and HILL, MILLI-KEN, MONTGOMERY, PALMORE and STEINFELD, JJ., concur.