Appeal from the District Court of the United States for the Southern District of Indiana, Evansville Division; Robert C. Baltzell, Judge.
Before EVANS and MAJOR, Circuit Judges and LINDLEY, District Judge.
This is an appeal from a judgment of the District Court sustaining defendant's demurrer to paragraphs 1 and 2 of plaintiff's commenced March 2, 1936, based upon commenced March 2, 1936, based upon seven written contracts to recover the sum of $26,910 representing a part of the contract price of flour purchased by plaintiff from defendant and claimed by the plaintiff to represent an amount paid by him to the defendant to cover processing tax imposed upon the latter under the provisions of the Agricultual Adjustment Act, as amended, U.S.C.A. title 7, § 601 et seq. The contracts declared upon are referred ferred to as Exhibits A to G, inclusive. The exhibits are attached to and made a part of the complaint; Exhibits A, B, and C, referred to as Group I, being attached to paragraph 1 of the complaint, and Exhibits D, E, F, and G, referred to as Group II, attached to paragraph 2 of the complaint. In the first paragraph, it is alleged that the plaintiff purchased flour on September 22, 1933, April 13, 1934, and July 26, 1934, from defendant in quantities and at contract prices as specified in the contracts attached thereto; and in the second paragraph it is alleged that the plaintiff, on August 14, 1934, October 27, 1934, April 29, 1935, and June 5, 1935, purchased flour in quantities and at prices specified in copies of the contracts attached thereto.
In each paragraph of the complaint, it is alleged that the plaintiff is engaged in the buying and selling of grain and flour and other mill products; that the defendant is engaged in the milling business; that when contracts were entered into the Agricultural Adjustment Act was in force and effect under the authority of which a processing tax was fixed by the Secretary of Agriculture; that after the contracts were executed, the plaintiff received and paid for the flour mentioned in said contracts, that the said act was declared unconstitutional by the Supreme Court of the United States, and that the defendant refused to repay the sum of $8,970, being the amount of the tax on the flour purchased under the contracts in Group I and refused to repay $17,940, being the tax imposed under the contracts referred to in Group II. The complaint also contains the inconsistent allegations, both that the processing taxes were paid by the defendant and that the defendant failed and refused to pay said taxes to the United States Government.
All the contracts in question, executed at various times from September 22, 1933, to June 5, 1935, set forth the number of barrels of flour purchased, the dates when the same were to be delivered and the contract price, ranging from $4.95 to $5.90 per barrel, no mention being made of the amount of the processing tax included in the purchase price.
Inasmuch as this controversy revolves largely around the provisions in the contracts with reference to the processing taxes, there must necessarily be a construction of the language employed by the parties with reference thereto. The contracts referred to in Group I contained identical phraseology in this respect and so do the contracts referred to in Group II, but there is found some difference in the language employed in this respect between the two groups of contracts. The contracts in both groups provide: "It is understood and agreed that there are no conditions, except as specified herein; that there shall be no assignment; and that no agent has authority to change the terms of this contract."
The contracts of Group I contain only the following provision with reference to processing taxes:
"Taxes: The price named in this contract includes all taxes as at present determined by the Secretary of Agriculture by virtue of authority vested in him by the Agricultural Adjustment Act of the United States. Under said Agricultural Adjustment Act it is provided that said taxes may be changed from time to time, and it is, therefore, understood and agreed that if, after the date of this contract, said present taxes are increased before delivery to the buyer of any shipment or shipments herein contracted to be made, then in such event the amount of such increase or increases shall be added to the price named in this contract, and shall be paid by the buyer to the seller, and correspondingly, if any reduction or reductions are hereafter made in said present taxes affecting the price named in this contract, then the seller agrees to adjust the price named herein and to allow to the buyer the amount of such reduction or reductions."
The contracts of Group II contained a similar provision concerning taxes, the essential difference being the provision where such taxes are decreased, which is as follows: "If any tax included in the price hereof shall be decreased or abated, then, in that event, said decrease or abatement shall be deducted from the price hereof."
In discussing the question with which we are presented, it might be well for us to first determine what is admitted by the demurrer under the circumstances here existing, but before so doing, we shall dispose of a question which defendant insists is determinative of plaintiff's right to recover. As heretofore pointed out, the complaint contains the inconsistent allegations both that the processing taxes were paid by the defendant and also that he failed and refused to pay said taxes to the United States Government. It is obvious that such allegations are contradictory and that both could not be true. No doubt, the pleader, in place of the allegation "which taxes were paid by the defendant" intended to allege "which taxes were to be paid by the defendant," and that the words "to be" were unintentionally omitted, due perhaps to a typographical error. It was the duty of the defendant to specifically point out, in support of its demurrer, wherein the complaint was deficient. U.S.C.A. title 28, § 777. This, it failed to do. If the practice in this respect had been complied with and plaintiff advised of the inconsistent allegation, he would have had an opportunity to amend his complaint. The defendant having failed so to do, we are of the opinion it is in no position here to maintain such contention. At any rate, we are not willing to base our decision upon such reasoning.
Concerning the effect of the demurrer, it seems to be the position of plaintiff that the defendant, by making such attack upon the complaint, admits the allegations thereof, or at any rate, such allegations as are well pleaded. Generally, of course, that is the case, but it seems where an action is based upon a written contract, a copy of which is attached to the complaint, a somewhat different effect is had, or perhaps it would be more accurate to say that the court must look to the contract in detemining what allegations of the complaint are properly pleaded.
In Inter-State Land Co. v. Maxwell Land Co., 139 U.S. 569, on page 577, 11 S. Ct. 656, 659, 35 L. Ed. 278, the court said: "The proposition of counsel for appellant that the effect of the demurrer is an admission pro hac vice that the Interstate Land Company has the title in fee to the lands in dispute needs only the single reply that a demurrer admits facts well pleaded, but does not admit that the construction of a written instrument set forth in the bill is the true one, or that its legal effect is contrary to that which its language imports. The very object of a demurrer in such case is to submit the question presented by the instrument as a mutter of law for the determination of the court. Story, Eq. Pl. (9th Ed.) § 452, note a; Dillon v. Barnard, 21 Wall. 430, 437 [22 L. Ed. 673]; United States v. Ames, 99 U.S. 35, 45 [25 L. Ed. 295]."
Also, in St. Louis, etc., Railroad Co. v. U.S., 267 U.S. 346, on page 349, 45 S. Ct. 245, 246, 69 L. Ed. 649, which was an action upon contract, the court in discussing the effect of a demurrer said: "The contention is that these allegations are admitted by the demurrer; and that for this and other reasons section 3 cannot properly be construed to apply to claims of the character of those sought to be recovered, because these 'did not arise out of the contract or because of anything contained in it.' The allegations in the petition as to the meaning, application and effect of section 3, being conclusions of law, are not admitted by the demurrer. [Cases cited.] The legal effect of the instrument remains that which its language imports."
It is at once apparent that the court must construe the contracts themselves, and that plaintiff's rights must be determined by the terms thereof rather than by the allegations of his complaint. To enumerate and comment upon various allegations of the complaint which merely represent the conclusion of the pleader, being the construction which the places upon the contracts, would unduly prolong this opinion. There is one allegation, however, which, because of its pertinency, we quote as follows: "That by so specifically including said processing tax in the respective prices paid by plaintiff to the defendant in the respective purchases of said flour under said contracts, the defendant promised to restore to ...