Boston & P.R. Corp. v. Old Colony R. Co.

• Citation: 269 Mass. 190,169 N.E. 157
• Parties: BOSTON & P. R. CORPORATION v. OLD COLONY R. CO. et al.
• Decision Date: 05 December 1929
• Court: United States State Supreme Judicial Court of Massachusetts

269 Mass. 190

169 N.E. 157

BOSTON & P. R. CORPORATION

v.OLD COLONY R. CO. et al.

Supreme Judicial Court of Massachusetts, Suffolk.

Dec. 5, 1929.

Report from Superior Court, Suffolk County; Bishop, Judge.

Submission of controversy between the Boston & Providence Railroad Corporation and the Old Colony Railroad Company and another to arbitration. Award of arbitrators was accepted and confirmed by superior court, and case reported. Order confirming report reversed, and case rendered.

S. H. Pillsbury and A. P. Lowell, both of Boston, for Boston & P. R. Corporation.

C. O. Pengra and J. L. Hall, both of Boston, for Old Colony R. Co. and another.

RUGG, C. J.

These parties, pursuant to G. L. c. 251, submitted controversies specified in a statement of demands to the determination of arbitrators, whose award was to be final subject to this provision: ‘In making their award the arbitrators shall apply the principles of statutory and common law which in their opinion are legally applicable to the lease and any question of law may in their discretion, or, upon request of all parties, shall be reported by the arbitrators for determination by the court to which their award is to be reported subject to appeal.’ The award of the arbitrators states that the question at issue arises out of a clause in a lease by the Boston & Providence Railroad Corporation of its railroad and property to the Old Colony Railroad Company for a term of ninety-nine years from April 1, 1888. That clause is of the tenor following: ‘And the lessee shall also pay all taxes and assessments, whether in the nature of taxes, now in being or not, of every description, national, state and municipal, or otherwise, upon the property, business, franchises and capital stock of the lessor as the same shall be imposed or assessed, and shall at all times keep the lessor indemnified against the same during the terms of this lease.’ The lessee demised the property covered by this lease to the New York, New Haven & Hartford Railroad Company for the term of ninety-nine years from March 1, 1893. Hence the latter corporation, hereafter called the New Haven Company, is a party to the arbitration and to these proceedings.

The point for determination by the arbitrators was whether the obligation to pay the federal income tax assessed upon the lessor rests upon the lessee. Facts stated in the award are that the lease covered all the property of the lessor and after it took effect the operations of the lessor were to be confined substantially to the maintenance of its organization, the collection of the rental and the payment of dividends to its stockholders. The annual rental was exactly equivalent to ten per cent. on the capital stock of the lessor, and dividends at that rate have been paid to its stockholders until the present controversy arose. The arbitrators stated their problem to be to determine whether the lessor's federal income tax is included in the words already quoted from the lease, to wit: ‘All taxes and assessments, whether in the nature of taxes, now in being or not, of every description, national, state and municipal, or otherwise, upon the * * * business * * * of the lessor.’ Believing that this phraseology was ambiguous, the arbitrators admitted evidence as to (1) the preliminary negotiations of the parties and (2) the construction placed upon the lease by the lessor and the New Haven Company. Thus it appeared that from the enactment of the federal income tax law in 1913 to the latter part of 1927 the New Haven Company paid to the lessor the amount of the federal tax upon the income of the lessor without raising any question as to its liability therefor under the lease. There was no evidence that the lessee participated in any way in these payments. The arbitrators state: ‘We have come to the conclusion that the federal income tax is covered by the language of the covenant in the lease. All the material facts are stated in this award. Our conclusion would be the same even though the evidence objected to as aforesaid should have been excluded.’ The arbitrators concluded their report in these words: ‘Under the provision contained in the last paragraph of the arbitration agreement we report for determination by the court the question whether the lease, construed in the light of the facts herein reported, does or does not impose on the lessee the obligation to pay the lessor's federal income tax.’

In these circumstances the question of law as to the admissibility of the evidence is not reported for the determination of the court. In any event it need not be considered or passed upon.

The question for decision is that reported by the arbitrators. It is not concluded by direct authority. The closest approach is Stony Brook Railroad v. Boston & Maine Railroad, 260 Mass. 379, 157 N. E. 607, 53 A. L. R. 700. As pointed out by the arbitrators in their report, this lease differs in two particulars from the lease there under consideration: It contains a more elaborate expression in the early part of the vital clause of intention by the parties to cover every kind of tax, whether then in being or thereafter exacted, upon the subjects described, and (2) it includes ‘business' in addition to ‘property, franchises and capital stock’ as the subjects upon which the taxes levied are to be paid by the lessee. The rule has been formulated that, unless the lease ‘expressly provides for the payment of taxes on the income from rentals received under the lease, the imposition of such a burden * * * is not justified.’ Illinois Central Railroad v. Indianapolis Union Railway (C. C. A.) 6 F.(2d) 830, 837;Brainard v. New York Central Railroad, 242 N. Y. 125, 132, 151 N. E. 152, 45 A. L. R. 751;Young v. Illinois Athletic Club, 310 Ill. 75, 82, 141 N. E. 369, 30 A. L. R. 985. The rule prevalent in this commonwealth is not so inelastic. If it fairly appears from the lease as a whole that the parties intended to impose upon the lessee ultimate obligation to pay an income tax assessed upon the lessor in respect to the rental, that intention will be given effect, although there is in express words no provision to that effect in the lease. Pittsfield & North Adams Railroad v. Boston & Albany Railroad, 260 Mass. 390, 157 N. E. 611; In Whitlock v. Boston & Maine Railroad (C. C. A.) 29 F.(2d) 351, 352, the question arose whether the obligation to pay the federal income tax assessed upon the income of a lessor railroad corporation in much the same situation as the present lessor rested upon the lessee under its agreement that ‘it will pay all taxes, assessments and charges whatsoever that may be imposed upon or payable by paid party of the first part on account of its property, franchise, capital stock or otherwise, during said term.’ It was held that the words ‘or otherwise,’ in addition to the specification of property, franchise and capital stock, cast upon the lessee the burden of the federal income tax and protected the lessor from that liability, thus differentiating the case from Stony Brook Railroad v. Boston & Maine Railroad, 260 Mass. 379, 157 N. E. 607, 53 A. L. R. 700.

At the time of the execution of this lease, no direct or indirect tax upon the earnings of a railroad was imposed by the United States or by this commonwealth. Income taxes were not then unknown. At that time there was such a tax in this commonwealth upon the income of an individual derived from his profession, trade or employment. Pub. St. 1882, c. 11, § 4; Wilcox v. County Commissioners, 103 Mass. 544. A similar income tax had prevailed at least since St. 1821, c. 107, § 2. For earlier and other taxes of that nature, see Pollock v. Farmers' Loan & Trust Co., 157 U. S. 429, 559, 15 S. Ct. 673, 39 L. Ed. 759, and The Income Tax by Seligman, pp. 367-371. During the Civil War and the years immediately following, taxes were imposed by Congress upon incomes of individuals and of corporations. 12 U. S. St. at Large, 309, c. 45, § 49; 12 U. S. Stat. 468, c. 119, § 80; 13 U. S. St. at Large, 281, c. 173, § 116; 14 U. S. St. at Large, 138, c. 184, § 9; 14 U. S. Stat. 477, c. 169, § 13; 16 U. S. St. at Large, 257, c. 255, § 6. These acts of Congress had been the subject of litigation. Pacific Ins. Co. v. Soule, 7 Wall. 433, 19 L. Ed. 95;Barnes v. Philadelphia & R. R. Co., 17 Wall. 294, 21 L. Ed. 544;Railroad Co. v. Collector, 100 U. S. 595, 25 L. Ed. 647;Bailey v. Railroad Co., 106 U. S. 109, 1 S. Ct. 62, 27 L. Ed. 81. It must be presumed that the lease in question was drafted in view of the general fund of knowledge of the time. The parties were not attempting to guard against a recondite type of taxation to be evolved in the future. Income taxes have existed for many years in some form. The name was at hand if the parties had wanted to use it. Some experience also was available. Sweeping language also might have been used without attempt...