The petition set forth a cause of action. The court erred in sustaining the general demurrer.
DECIDED APRIL 22, 1940. STATEMENT OF FACTS BY SUTTON, J. Cheatham Chemical Company brought suit against W. W. Cheatham, alleging as follows: On December 27, 1935, the defendant sold to T. E. Williams Jr. and Arthur C. Bromberg the entire capital stock of Cheatham Chemical Company, consisting of 100 shares, and at the same time sold to them 10 shares of the capital stock of Cheatham Manufacturing Company, a corporation having 100 shares of capital stock outstanding, of which 10 shares were owned by the defendant and 90 shares owned by Cheatham Chemical Company. At the time of such sale, and for the purpose of inducing them to purchase the stock, the defendant executed and delivered to Cheatham Chemical Company, and Cheatham Manufacturing Company an affidavit which was in part as follows: "Deponent further states that the stock issued in deponent's name is free and clear of all claims of every nature and character, and that the stock of Cheatham Manufacturing Company owned by Cheatham Chemical Company is free and clear of any and all encumbrances or claims of every nature and character with the exception of the *Page 544 obligations of Cheatham Chemical Company. Deponent further states that all of the liabilities of each of the above referred to corporations are set up and carried on the books of the above referred to corporations, with the exception of a possible claim by the Federal government for excise tax referred to in the option contract between deponent and T. E. Williams Jr." Contemporaneously with the making of this affidavit and the sale of the stock the defendant executed an instrument wherein he obligated and bound himself to save T. E. Williams Jr., Arthur C. Bromberg, and the Cheatham Chemical Company harmless against any contingent liability "that may now exist against either Cheatham Manufacturing Company or the Cheatham Chemical Company, which liability is not reflected by any entry on the books of the said company, except that contingent liability on behalf of the Federal Government arising from the claim of the Federal Government for additional excise taxes under the manufacturers-sales tax," a copy of said bond or obligation being attached to the petition as exhibit A and made a part thereof. That instrument read as follows: "Know all men by these presents, that I, W. W. Cheatham, for and in consideration of the sum of one dollar ($1) cash in hand paid to me by T. E. Williams Jr. and A. C. Bromberg, and for other good and valuable consideration, do hereby appoint myself, my heirs, executors, and assigns, to discharge and satisfy and to save the said parties and Cheatham Chemical Company and Cheatham Manufacturing Company harmless against any contingent liability that may now exist against either Cheatham Manufacturing Company or the Cheatham Chemical Company, which liability is not reflected by any entry on the books of the said companies, except that contingent liability on behalf of the Federal Government arising from the claim by the Federal Government for additional excise taxes under the manufacturers-sales tax; and I do hereby pledge as an obligation of the performance of this obligation to deposit and maintain on deposit in the First National Bank of Atlanta, Savings Department, the sum of one thousand dollars ($1000) in cash, to be kept on deposit for the faithful performance of this obligation until March 16, 1938. If no such liability arises to the damage or detriment of the said T. E. Williams Jr., or A. C. Bromberg, or either of said corporations, then this obligation shall be null and void: otherwise it shall be in full force and effect. [Signed] W. W. Cheatham." *Page 545
It was further alleged, that subsequently to said sale of stocks the City of Atlanta, on September 2, 1938, levied an additional tax assessment against the property of Cheatham Chemical Company, wherein the valuation of said property for the years 1934 and 1935 was increased by the sum of $13,618; that on September 21, 1938, it issued its execution against the Cheatham Chemical Company, based on said tax assessment, for $204.26 principal, $29.73 interest to October 15, 1935, and costs; that the plaintiff, having notified the defendant of said tax assessment and having demanded that he protect the title and property of plaintiff, which had been purchased by T. E. Williams Jr. and Arthur C. Bromberg, by discharging said tax liens against said stock and property, and the defendant having failed and refused to pay off and discharge the same, as he was obligated to do under the obligation and contract above mentioned, the plaintiff, on September 21, 1938, settled and discharged the tax lien of said execution by paying to the City of Atlanta $204.27 principal, $52.82 interest, and $1.50 costs, aggregating $258.59; that after the sale of said stock Fulton County levied additional tax assessments against Cheatham Chemical Company for taxes for the years 1931, 1932, and 1933; that Cheatham Chemical Company, having received knowledge of such additional assessments, demanded that the defendant pay off and discharge the lien of the same against its property, as he had obligated to do under his obligation bond and contract hereinbefore referred to, but he failed and refused to pay Fulton County the additional taxes so levied, and the plaintiff, in order to protect the title of its property against the lien of said tax assessments, did, on June 14, 1938, discharge and relieve its property of the lien of said assessments by paying to the tax-collector of Fulton County $208.87; that no part of the sums which plaintiff was forced to pay to the City of Atlanta and Fulton County, in order to protect its property against the tax liens, was "reflected by any entry on the books" of either Cheatham Chemical Company or Cheatham Manufacturing Company at the time the defendant sold the capital stock owned by him in said companies to T. E. Williams Jr. and Arthur C. Bromberg; that under the facts herein set forth the defendant is liable to Cheatham Chemical Company in the amounts so paid by it in order to protect the property of Cheatham Chemical Company against the tax liens, $258.59 to the City of Atlanta and $208.87 to Fulton County, *Page 546 with interest at seven per cent. per annum from the dates of the payments, stated above; for which judgment is prayed.
The defendant demurred generally on the grounds that the petition set forth no cause of action, that the construction placed on the instrument (exhibit A) by the plaintiff shows the same to be wholly invalid and void; and that upon any other reasonable construction of said instrument the petition fails to set forth a cause of action against the defendant. The court sustained the demurrer, and the exception is to that judgment. The petition set forth a cause of action based on the bond given by the defendant to indemnify the plaintiff and others against any "contingent liability that may now exist against either Cheatham Manufacturing Company or Cheatham Chemical Company, which liability is not reflected by any entry on the books of the said companies, except that contingent liability on behalf of the Federal Government arising from the claim of the Federal Government for additional excise taxes under the manufacturers-sales tax," etc. Clearly the taxes which the plaintiff was compelled to pay in 1938 were contingent liabilities in 1935, at the time of the sale of the stock in question. A contingent liability is a potential liability, not anabsolute liability existing in the present, but one which may become an absolute liability upon the happening of a future event. As defined by Webster, "contingent" in accounting means "dependent on the occurrence of some event as yet undetermined; as contingent assets or liabilities." This construction of "contingent liability" is reinforced, by analogy, by considering the situation of one who indorses, without more, his name on a promissory note. In such a case his liability to pay is notabsolute. Until the maturity of the note and the compliance by the owner with certain statutory requirements his liability is only contingent. But it is a contingent liability whichexists in praesenti, even though certain events in the future may have the effect of relieving him altogether of liability. SeeMassell v. Prudential Insurance Co., 57 Ga. App. 460 (196 S.E. 115). It is shown by the petition that in 1938 the City of Atlanta and Fulton County made additional tax assessments against the property of Cheatham Chemical Company, and subsequently issued executions against the company *Page 547 based on such assessments. These additional taxes were obviously encumbrances against the property, and were paid by the plaintiff after the defendant had knowledge of the proceedings and was called on to discharge the encumbrances. Before paying these additional taxes it was not necessary, as would be true in the case of loss of seisin, to vouch the defendant into court (Cheatham v. Palmer, 176 Ga. 227, 167 S.E. 522), but upon discharging the encumbrances the plaintiff became entitled to maintain the present suit because of the indemnity provided by the bond which was given by the defendant.
The contention in the brief of counsel that the defendant is not liable, in that the period of indemnity is shown by the bond to expire on March 16, 1938, and the assessments were made thereafter, is without merit. The date in the clause upon which defendant relies, "and I do hereby pledge as an obligation of the performance of this obligation to deposit and maintain on deposit in the First National Bank of Atlanta, Savings Department, the sum of one thousand dollars ($1000) in cash, to be kept on deposit for the faithful performance of this obligation until March 16, 1938," relates only to the expiration of the period in which, as security additional to the obligations of the bond, the defendant was to maintain $1000 in the savings department of the bank, and is not a date marking the expiration of the period in which the defendant was obligating himself to hold harmless the plaintiff and others against any contingent liability then existing against the Cheatham Chemical Company and not shown on the books of the company except in respect of a possible claim by the Federal Government for additional excise taxes. Nor is the petition defective, as contended by the defendant, in that it fails to allege why the additional assessments were made. It alleges that these assessments were additional assessments for named years, and that executions in specified amounts were issued against the Cheatham Chemical Company. Presumably the officials of Fulton County and the City of Atlanta did their duty, and the assessments were proper because of undervaluations in previous returns for such years, and the proceedings were authorized under the Code, § 92-6701. The defendant was notified of these assessments and executions, and refused to discharge them. If he deemed them incorrect or excessive, he had the right to contest their enforcement in a court *Page 548 of equity in the name of the plaintiff, because the statute which provides for additional assessments, where in previous years there have been no returns or returns at inadequate values (Ga. L. 1918, p. 232, Code, § 92-6701 et seq.), also provides that if the delinquent or his personal representative disputes the taxability of his property he may raise that question in equity in the superior court of the county where said property is assessed ( § 92-6704). It follows that, as the petition set forth a cause of action, the court erred in sustaining the defendant's general demurrer.
Judgment reversed. Stephens, P. J., and Felton, J., concur.