Logan Hospital Association, a corporation, was owned and operated by plaintiffs Farley and Steele and defendant Lawsоn. In June, 1919, it voluntarily conveyed to each of these parties an undivided one-third interest in all its property both real and personal. Shortly after this conveyance, the corporation was formally dissolved. Both the name and the business of the corporation were continued by the three grantees as a partnership until the summer of 1920, when Lawson conveyed his undivided one-third interest in all the partnership propеrty to Farley. Farley and Steele then conducted the hospital as a partnership.
In 1923 the U. S. Government notified the Association that it owed $18,000.00 (approximately) as income taxes for the years 1917, 1918, and a part of 1919. This notice was received by Farley and Steele. Lawson was informed of the claim but refused to have anything to do with it. After some negotiations, the demands of the Government were reduced to $2401.63. That sum was рaid by Farley and Steele.
This is an action in assumpsit brought in the circuit court of Logan county by Farley and Steele to recover of Lawsоn $800.54 as one-third of the amount so paid the Government, and $307.85 as one-third of the expenses of investigating and settling the claim. At the close of thе trial a peremptory instruction was given the jury to find for the defendant.
The plaintiffs base their case on two established legal principles, (1) when a corporation dissolves and conveys its property to its stockholders without setting apart money to pay its debts, each stockholder becomes liable for the debts of the corporation to the extent of the value of the property he recеives, and (2) when one of several joint debtors pays the whole debt, he may recover from each of the others his proportionate share.
Pierce
v. U.
S.,
*603 The defendant concedes in his brief the correctness of the legal principles assertеd by plaintiffs. Bnt owing to the fact that the parties treated the corporation as a partnership, he contends that the income tаx was ‘ ‘ an obligation of the three partners, Steele, Lawson and Parley, which fell upon them jointly and equally by virtue of accepting the corporate property from the corporation”, and that his proportionate part of the taxes was assumed by Parley by reason of a covenant in the deed to Parley which is as follows: “The said H. H. Parley hereby assumes and agrees to pay the one-third of аll debts, bills, liabilities and obligations owed by the said S. B. Lawson, L. E. Steele and H. H. Parley as partners, which are unpaid on the first day of September, 1920, incurrеd by reason of the partnership existing between them in connection with said Logan Hospital, and the said H. H. Parley covenants to and with the said S. B. Lawson that he will save him harmless by reason of such bills and obligations. ’ ’
The obligations against which Parley was to save Lawson harmless in the above covenant were limited to the obligations of Lawson, Steele and Parley “as partners * * * incurred by reason of the partnership.” If the obligation to pay the taxes was incurred by these parties in any capacity other than that of partners then the covenant has no application.
Cong’ress having in mind that instances would arise where the provisions for the collection of income taxes were inаdequate or lacking, provided for such contingencies as follows: “In all cases where the method of collecting the tax imposed by this Act is not specifically provided in this Act, the tax shall be collected in such manner as the Commissioner, with the approval of the Seсretary may prescribe.” Act Peb. 24th,
The liability of Lawson under the generаl law is the same as under the Regulation. No matter how the parties hereto regarded the corporation or their interests therein, the legal entity of the corporation was maintained during the period the taxes accrued, and it was against the corporation as such that the taxes were assessed. Farley, Steele and Lawson took the property of the corporation subject to the inchoate obligation of the corporation to pay all taxes properly assessable against it. “Those who gratuitously take all of a debtor’s property, to the extent thereof, may be held to respond for his present debts and obligations, inchoate or vested. ”
U. S.
v.
McHatton, supra.
“It must be conceded that where upon the dissolution of a corporation, its assets are distributed among the stockholders, the stockholders become liable to the creditors of the corporation, at least to the extent of the property received by thеm.”
U. S.
v.
Auto. Co.,
The déed from Lawson to Farley is made with general warranty and cоntains a special covenant that the interest thereby conveyed was free from all liens, debts and encumbrances. That interest included the same property which Lawson received from the corporation. That property came to him subject to the inchoate claim of the Government for taxes. That property was still burdened with that encumbrance when he conveyed it to Farley. Lawson’s interеst was accordingly not free from obligations, as he had warranted in his special cove *605 nant. Because of that breach of cоvenant, Lawson has no defense herein even under his theory of partnership liability for the Government taxes.
The plaintiffs were entitled to rеcover and the peremptory instruction in favor of defendant was error.
The judgment of the lower court is therefore reversed and a new trial awarded.
Reversed; new trial a/warded.