Elliott v. Winn

• Citation: 264 S.W. 391,305 Mo. 105
• Decision Date: 31 July 1924
• Docket Number: 13882
• Parties: AMBROSE E. ELLIOTT et al. Appellants, v. GEORGE H. WINN
• Court: United States State Supreme Court of Missouri

264 S.W. 391

305 Mo. 105

AMBROSE E. ELLIOTT et al. Appellants, v. GEORGE H. WINN

No. 13882

Supreme Court of Missouri

July 31, 1924

Motion for Rehearing Denied July 31, 1924.

Appeal from Jackson Circuit Court; Hon. Thomas J. Seehorn Judge.

Reversed and remanded (with directions).

A N. Gossett, Gossett, Ellis, Dietrich & Tyler, I. J Ringolsky, M. L. Friedman, Ringolsky & Friedman and Wm. G. Boatright for appellants.

(1) The word "or," as used in the phrase "income or government taxes" is a disjunctive conjunction, which marks an alternative, and the phrase does not mean lessor's personal Federal income tax. 29 Cyc. 1503, "Or." (2) The phrase "assessments and charges" does not mean lessor's personal Federal income tax. 37 Cyc. 711-712, "Taxation;" 5 C. J. 819, "Assessment;" Des Moines Union Ry. v. Chicago Great Western Ry. Co., 177 N.W. 90. (3) The lease being drafted by respondent and the tax covenant thereof being ambiguous, it must be construed most strongly against lessor. 13 C. J. 545, "Contracts;" McManus v. Gregory, 16 Mo.App. 375, 94 Mo. 370; Belch v. Schott, 171 Mo.App. 357. (4) It is a recognized rule of construction that, where more than one construction is permissible, that most favorable to the lessee must prevail. 24 Cyc. 915, "Landlord and Tenant;" Linville v. Greer, 165 Mo. 380; Wright v. Takito, 210 Ill.App. 58; Peirce v. N. Y. Dock Co., 265 F. 148; Niles Land Co. v. Iron Co., 234 F. 294; Getty v. Cornell Co., 177 N.Y.S. 691. (5) If the tax covenant is unambiguous, the duty of the court is to ascertain not what the parties may have secretly intended as contradistinguished from what the words express, but what is the meaning of the words they have used. Missouri Edison Electric Co. v. Bry, 88 Mo.App. 135; Burress v. Blair, 61 Mo. 133; Koehring v. Mueminghoff, 61 Mo. 403. (6) The Federal income tax is levied against the recipient of a net income, or against the net income as such and is not a tax levied against any separate item of profit constituting the aggregate net income, and is not levied against the demised premises or the rents. War Revenue Act of 1918 (Part 2), 40 U.S. Statutes at Large, Part. 1, p. 1062; Holmes on Federal Income & Profit Taxes (1919 Ed.) p. 656; Wire Co. v. Wollbrinck, 275 Mo. 339; Dennehy v. Barnheisel, 218 Ill.App. 91; State ex rel. Manitowac Gas Co. v. Wisconsin Tax Commission, 161 Wis. 111; State ex rel. Moon Co. v. Wisconsin Tax Commission, 166 Wis. 287; In Re Hazard's Estate, 228 N.Y. 26; Urquart v. Marion Hotel Co., 128 Ark. 283; Brady v. Anderson, 249 F. 665; Black on Income Tax (3 Ed.) pp. 1, 2; 16th Amendment of Federal Constitution; Shaffer v. Howard, 250 F. 873; Pennsylvania Cement Co. v. Bradley Contracting Co., 274 F. 1003; United States v. Philadelphia Railroad Co., 262 F. 188; Brushaber v. Union Pacific Ry. Co., 240 U.S. 1; Stanton v. Baltic Mining Co., 240 U.S. 103; U.S. Glue Co. v. Town of Oak Creek, 247 U.S. 321; Brewster v. Walsh, 268 F. 207; State ex rel. McClintock v. Guinotte, 275 Mo. 298; Northern Trust Co. v. Buck & Raynes, 263 Ill. 222.

Watson, Gage & Ess for respondent.

(1) The language of the lease clearly obligates the appellant to pay the income tax when such covenant is construed with reference to the common, ordinary and usual meaning of the words therein employed. Northern Philadelphia Railroad Co. v. Philadelphia Railroad Co., 249 Penn. 326; Van Beil v. Brogan, 656 S.Ct. 384; 2 Underhill on Landlord & Tenant, p. 601; Missouri Edison Co. v. Bry, 88 Mo.App. 135; Roy v. Boteler, 40 Mo.App. 213; Johnson v. Dalrymple, 140 Mo.App. 232; Maginn v. Lancaster, 100 Mo.App. 130; Campbell v. Cotting, 229 Mass. 541; Erlick v. Brogan, 262 Pa. 362. (2) The question to be determined does not rest upon any theoretical distinction as to the nature of the income tax, nor upon the legal theory under which said taxes are imposed, but depends upon the agreement of the parties made with reference to the payment of this tax. (3) There is no admission that the covenant to pay "all income and government tax" contained in the lease, had been broken by appellant through mistake, ignorance, negligence or inadvertence, or any plea for equitable relief therefrom. Hence, there is no issue raised under the pleadings for an equitable relief from forfeiture. Metropolitan Land Co. v. Manning, 98 Mo.App. 264; Koehler v. Rowland, 275 Mo. 573.

OPINION

Graves, C. J.

This case was certified to us by the Kansas City Court of Appeals, such court having concluded that it was without jurisdiction. In that we think the court was right. Before reaching the conclusion that it was without jurisdiction, that court had prepared and handed down an opinion in the case. The learned presiding judge of that court in that opinion, thus outlies the pleadings and judgment nisi:

"The controversy herein is over the meaning and effect of a certain covenant in a lease with reference to the payment by lessee of income taxes arising by reason of the lessor's receipt of rent under said lease.

"On April 26, 1916, George H. Winn, owner of the premises known as 105-107 East 12th Street, Kansas City, Missouri, leased the same to Ambrose E. Elliott for a term of ninety-nine years, beginning on the 5th of May, 1918, the lessee agreeing to pay a rental of $ 15,000 per year in monthly installments of $ 1250 payable in advance. The lessee agreed to remodel the building on the premises, at a cost of not less than $ 6000, within one year from May 5, 1918, and to erect, within five years from said date, a new building to cost not less than $ 50,000, he giving to lessor an indemnity bond of $ 20,000 conditioned that the new building would be free of liens. Lessee remodeled the building within the year expending thereon the sum of $ 30,000 instead of $ 6000, and, in view of this fact, the lessee was given ten, in place of five, years from the date of the lease in which to erect the $ 50,000 building.

"The lease provided that lessee should not assign said lease or sell his interest in the demised premises or building except as therein provided, and if lessee made an assignment or sale otherwise, it should be void; and it was also provided that lessee could not assign without the written consent of lessor.

"A further clause provided that if default was made in any of the covenants of the lease and such default should continue thirty days after notice in writing to the lessee, it would be lawful for the lessor, his heirs or assigns, at his or their election, to declare a forfeiture of the lease and re-enter and take possession of said premises.

"There were a number of other covenants in the lease, none of which need be mentioned here, except the one over which the controversy herein arises, said covenant being, as stated, in relation to the payment of taxes and reads as follows:

"'The lessor covenants that he will pay all taxes, general and special, and assessments, if any, against the property and its improvements, which shall be due and payable when the demised property shall be delivered to the lessee under this lease, and the lessee agrees to promptly pay all taxes, general and special, and assessments due and payable upon the execution and delivery of this lease, and all of the taxes thereof, general and special, including all income or government taxes, and all of the assessments and charges which shall be assessed, either in the name of the lessor or the lessee against the demised premises or its improvements, or the said rents during the term of this lease, or which shall become due and payable during said term, as soon as same shall become due and payable, except, however, that the lessee shall not at any time during the term of this lease, be required to pay any inheritance tax, which may be levied upon the property aforesaid, or the improvements thereon, or appertaining to the interest of the lessor herein, but shall pay any inheritance tax which may be levied upon the property aforesaid, or upon the improvements thereon appertaining to the interests of the lessee herein.'

"On October 29, 1918, the lessee, Elliott, in the manner provided in the lease for the sale or assignment thereof but without lessor's written consent, sub-leased the premises to the Josephson Amusement Company for a term of seventy-five years beginning November 5, 1918. The terms of this sub-lease, with regard to the rental to be paid, the tax covenant, and all obligations to be performed by the sub-lessee with reference to the property, are the same as those to be performed by lessee, Elliott, in the dominant lease. While Winn knew of this subleasing he did not consent to same or accept the Joesphson Amusement Company as his tenant, but consistently looked to and dealt with Elliott as his lessee and retained all his rights as lessor against him.

"Elliott having gone into possession of the premises in May, 1918, the rent paid for the remainder of that year amounted to $ 10,000; and Winn had to include this sum, as a part of his income for that year, in his income-tax return to the Federal Government. On March 14, 1919, Winn wrote Elliott a letter telling him that under the above-quoted covenant in the lease he must pay the income tax thereon. No heed was paid to this letter, so on June 23, 1919, Winn wrote Elliott another letter telling him, he, Winn, had paid the said income tax and demanded re-payment of same to him under the abovequoted covenant. Receiving no reply to this, Winn, on July 2, 1919, notified Elliott in writing that unless the amount of said income tax was paid on or before July 29, 1919, he would declare the lease forfeited as provided for therein.

"Thereupon plaintiffs, on July 11, 1919, brought this suit in equity to enjoin Winn from declaring a forfeiture of the ninety-nine-year lease, alleging the...