Woodruff v. Oswego Starch Factory

This action involves the construction of a covenant with reference to the payment of taxes contained in certain leases executed in perpetuity of premises situated in Oswego. The plaintiffs have become owners and landlords, and the defendant the tenant, under said leases. Between June 2, 1847, and the year 1867, Charles Carrington and Myron Pardee, being the owners of certain lands and water power on the Oswego river, executed to various persons seven leases in fee, reserving in each case to the lessors a perpetual rent. Prior to 1898 the plaintiffs’ testator, one Nelson Beardsley, had acquired an undivided half interest in said seven leases and the rents reserved thereunder, and the defendant had acquired under said leases the fee of the land therein described. May 13, 1846, and therefore a little more than a year before the first lease was drawn, there had been passed the act imposing a tax upon rents reserved in leases such as those under consideration. By chapter 908, Laws 1896, known as the “Tax Law,” the provisions of this original act for this species of taxation were in the main re-enacted. Section 8 provided that:

“Rents reserved in any lease in fee * * * and chargeable upon real property within the state shall be taxable to the person entitled to receive the same as personal property in the tax district where said real property is situated.”

Subdivision 5 of section 21 provided for setting down in the fifth column of the assessment roll the value of such taxable rents esti

“All taxes, charges, and assessments, ordinary and extraordinary, which shall be taxed, charged, imposed, or assessed on the hereby demised premises, or any part thereof, or on the said parties of the first part [the lessors] their heirs and assigns, in respect thereof.”

The learned counsel for the plaintiffs has approached the immediate interpretation of the clause with a most extended and careful review and analysis of early English statutes and decisions bearing upon the subject of taxation as related to and involved in leases after which the ones in question are largely patterned and formulated. The review thus made, however, while extremely interesting for the historical light which it throws upon the general subject of leases and taxes, fails to disclose any authority which to our minds is decisive of the precise question here presented. In the solution of that, and the construction of the covenant in dispute, we must mainly be governed by the reasonable and natural meaning of the words used in the clause itself, considered in the light of the entire contract of which the latter is a part. Some aid can be derived from general considerations which may be supposed to have affected the minds and intentions of the parties when the leases were made, and at least one authority has been cited from the reports of this state adjudicating the meaning of a somewhat analogous provision.

Passing, then, to a consideration of the language employed in the covenant, we think it very apparent that plaintiffs’ contention of defendant’s liability finds a broader support in the last than in the first clause. We easily conclude that taxes, etc., “taxed, charged, imposed, or assessed on the hereby demised premises” and privileges do not include a tax assessed upon the rents springing therefrom. The word “premises” is used throughout the leases as meaning and referring to the lands and rights which are the subject of the leases. When we join with it the other words used, with the resultant term, “hereby demised premises,” we think it becomes clear beyond doubt that there is meant and indicated exclusively the land and property

Plaintiffs’ counsel, in support of his theory that rents are so an incident or a part of the premises that a tax upon them may be regarded as one upon the latter within the terms used, has especially urged upon our attention the opinions delivered in the recent income tax cases in the supreme court of the United States, and in which it was held or said by various of the judges, in substance, that the term “lands” included the rents issuing therefrom. The issues in those cases naturally and equitably seem to have permitted of such ,a conclusion. The question arose as to the legality of a law which taxed the income, including the rents, of real estate. Concededly a constitutional prohibition existed which forbade direct exaction upon, real estate after the manner pursued in the statute, and the question was presented whether congress might evade such prohibition against said tax upon lands by levying the same upon the income thereof. The opinion was expressed by various members of the court that it might not be -allowed to avoid the prohibition which covered the subject, simply by proceeding against what was clearly an incident and a part thereof. The principles there evoked and declared, however, do not seem to us to apply to this case. Here is no attempt to escape a broad constitutional provision, which protects a certain class of property, by attacking some incident thereof.' The question simply is of the apportionment of what may be assumed to be proper and legal burdens between two parties to a contract, as governed by the terms of that contract. The construction to be sought is one which will simply, legally, and properly determine the rights of the two-parties to a contract.

We therefore are remitted to the final query whether this tax can be said to be one imposed on the “parties of the first part [lessors of the premises and privileges], their heirs and assigns, in respect thereof.” Technically and grammatical!)'' the words “in respect thereof” relate and have reference to the preceding words, “demised premises and privileges,” so that the words describe a tax imposed upon the lessors “in respect of” or in relation to the leased premises. If this wording covers this tax, it must be because such tax upon rents may be said to be one in respect of or in relation to the demised premises. While perhaps it might be said that a tax upon the rents-reserved under a lease had some very general relation to the demised premises which produced them, we do not think that it would be a natural or reasonable construction to hold that the relation was such, as to satisfy the requirements of this covenant. The tax here indicated is one which is directed specifically against the property which, is demised, or against the lessors in respect of or on account of such-property. We call to mind at once the class and character of such-taxes which would be so charged against said premises. In form-, when the owners were nonresidents of the county where the premises

Sufficient reason is found in the general scope of the contract between the parties for imposing upon the tenant the obligation to pay all taxes which naturally and legitimately could be said to be assessed upon the leased lands and privileges, in whosoever’s name the assessment might be. Under the leases it became practically the owner of the premises. They were its to occupy, improve, and enjoy, with all of the profits to be derived therefrom. The burden would naturally follow of discharging all taxes which might be assessed against them, and which theoretically, in large part, would represent benefits and improvements making the lands more valuable. -There would, however, be no such appropriateness in making the tenant pay taxes upon the rents. Those were the property of the landlord, which it was his right to utilize and enjoy as best tie could; and a similar process of logic would naturally call upon him, rather than the tenant, to discharge any burden of taxation which the government might see fit to impose upon them. If it should be urged that this argument of what would, be the reasonable division of burdens between the parties is subject to the defect that the imposition of some unexpected tax upon the rents might so diminish the landlord’s net revenue from the premises as to make the contract inequitable toward him, it may readily be answered that the same unforeseen contingency might deprive the tenant of all his profits, and that in this case no such consideration is presented, because this species of taxation was framed before the leases were made.

Coming to some of the general arguments outside of the words themselves of the covenant in question, it is forcibly and ably argued by plaintiffs’ counsel that this taxation of rents under leases such as ttiese was the result of a strenuous and widespread public agitation which had culminated in the passage of the original act for this manner of assessments only a year or two before the first of these leases was made; that therefore it must be assumed that the landlords, in making them, had this taxation in mind, and intended to guard against it; and ttiat this intention of the parties should be taken into account in construing the covenant. We are unable, however, in this argument to find much support for plaintiffs’ contention. It is fair to assume that these contracts were the product and evolution of much experience and care upon the part of the landlord class, and

Upon the assumption that this court might hold as above indicated, it was next urged by plaintiffs’ counsel that the law under which the assessments in question were made was unconstitutional, and the latter void; that therefore the tenant had no right to pay the taxes upon such assessments, and charge the same up against the rents reserved under the leases. We do not find it necessary to consider the first proposition, because, even if we should adopt plaintiffs’ views in relation thereto, we should still hold that under the facts of this case defendant would be entitled to the offset claimed. In substantially the-same form as now, the provisions for this manner of taxation have been embodied in the statutes of this state for over half a century. During that time we must assume that they have been enforced in a multitude of instances, and that they have imposed a burden which was exceedingly irksome to and unpopular with those who were its objects. Notwithstanding this, no one, so far as we are aware or are advised by plaintiffs’ counsel as the result of his great research, has secured from any court a decision that the law was unconstitutional. We refer to this history, not, of course, as deciding the question of law presented, but as bearing upon the conduct and good faith of the defendant in paying the taxes imposed under it. It did not hurry forward to pay them. Its payment was not voluntary, but enforced by levy and sale of its property. Plaintiffs are not only presumed to have had knowledge of the law providing for these assessments, but as a matter of fact did have such knowledge, and were aware that after a long period of nonenforcement of the law the same was to be invoked against these rents. The prepared statement of facts recites that plaintiffs, “prior to the completion of the assessment roll in 1898, notified defendant of the proposed assessment, and of plaintiffs’ claim that defendant was bound to pay the taxes levied thereon.” Such

In accordance with these conclusions, plaintiffs are entitled to the •sum of $552 heretofore tendered to them by defendant, and defendant is entitled to recover of plaintiffs the balance in amount of taxes upon rents collected from it during the year 1899 over and above rents accrued and unpaid or accruing during said year, and judgment should be had accordingly.

Judgment ordered for defendant for $101.19, with interest from November 1, 1900, with costs. All concur.