Kimball v. Maddison

Citation286 Mass. 277,190 N.E. 506
PartiesKIMBALL et al. v. MADDISON.
Decision Date24 May 1934
CourtUnited States State Supreme Judicial Court of Massachusetts

OPINION TEXT STARTS HERE

Report from Superior Court, Suffolk County; S. E. Qua, Judge.

Action of contract by L. Cushing Kimball and others, as trustees under the will of David P. Kimball, against Arthur N. Maddison, as trustee of the Kimball Building Trust, heard by a judge of the superior court upon the pleadings and an agreed statement of facts and reported without decision to the Supreme Judicial Court.

Judgment directed for plaintiff.

H. M. Davis and F. Rackemann, both of Boston, for plaintiffs.

H. S. Davis, of Boston, for defendant.

FIELD, Justice.

This is an action of contract brought by the trustees under the will of David P. Kimball, who died in [286 Mass. 279]1923, against the present trustee of the Kimball Building Trust, so called, on a covenant in an indenture of lease, under seal, dated November 4, 1915, and in force during the year 1929 between said David P. Kimball, as lessor, and the former trustees of said trust, as lessees, to pay, and discharge certain taxes and excises. The case was heard by a judge of the superior court upon an agreed statement of facts and was reported by him without decision for the determination of this court.

The covenant sued on is in the following terms: ‘The Lessees covenant and agree as far as at any time permitted by law to pay and discharge any taxes or excises which during the term may be lawfully levied, laid or assessed upon or against the rent payable hereunder, whether levied or assessed upon the same as rental or as income of any person or persons entitled thereto.’ The ‘rent payable’ by the defendant under the lease for the calendar year 1929 and actually paid by him was $24,475.

The plaintiffs seek to recover under this covenant a part of the amount of the federal income taxes for the calender year 1929 imposed by the Revenue Act of 1928 (45 U. S. Stat. 791, c. 852 [26 USCA § 2001 et seq.]), and paid by three children of said David P. Kimball, life beneficiaries of a trust of the residue of his estate created by his will of which the plaintiffs are trustees. These three children of the testator were entitled under his will to receive from such trustees the ‘net annual income’ of the trust for the calendar year 1929, ‘quarterly or oftener as * * * [the trustees] may deem best, in equal shares.’ The income of the trust for the calendar year 1929 consisted of the rent received from the defendant under the lease, other rents of real estate, interest and dividends, all taxable under the federal income tax law, and interest on bonds of the United States and certain dividends not so taxable. The trustees also received gains on sales of property of the trust which were taxable as income but were not distributable to the life beneficiaries. The trustees filed with the United States Treasury Department a ‘federal income tax information return’ in which they reported the distributable shares of the life beneficiaries, which shares were in fact distributed to these beneficiaries. This return showed as distributable to each of the life beneficiaries one third of the taxable dividends and one third of the ‘balance of net income,’ the latter amount, in the cases of two of these beneficiaries, reduced by the amount of the Massachusetts income tax upon their shares respectively. The information return showed also the distribution to the life beneficiaries of non-taxable income. The ‘balance of net income’ was computed by deducting the trustees' ‘commissions' and the expenses of the trust from the aggregate amount of rents, and taxable interest and dividends. The beneficiaries included in their ‘individual federal income tax returns,’ with income from other sources, the shares of the taxable dividends and of the ‘blance of net income,’ computed as above set forth, and paid federal income taxes based upon income so reported. The amount which the plaintiffs seek to recover from the defendant in this action is the aggregate of the parts of the federal income taxes so paid by the beneficiaries fairly apportionable to rent received by the plaintiffs from the defendant. April 16, 1931, the plaintiffs demanded payment from the defendant of $2,140.63 as such amount. (They now concede that, due to errors in the figures, this amount should be $2,044.31.) No contention is made that this amount as corrected is not computed rightfly if, as matter of law, any part of such taxes is apportionable to the rent.

Unlike the covenant considered in Codman v. American Piano Co., 229 Mass. 285, 118 N. E. 344, and the agreement considered in Greenburg v. Bopp, 251 Mass. 433, 146 N. E. 687 (see, also, Stony Brook Railroad Corp. v. Boston & Maine Railroad, 260 Mass. 379, 157 N. E. 607, 53 A. L. R. 700), the covenant in this lease in express terms applies to ‘taxes or excises' ‘levied, laid or assessed upon or against the rent payable’ under the lease. Also in express terms the covenant applies to such taxes or excises, ‘whether levied or assessed upon’ such rent, ‘as rental or as income of any person or persons entitled thereto.’ This language discloses ‘the purpose of the parties to impose the obligation [of paying or discharging taxes on rent] upon the lessee whether the tax was levied as a property or as an income tax’ (Kimball v. Cotting, 229 Mass. 541, 542, 118 N. E. 866, 867, L. R. A. 1918C, 1189), or on the rent as such or as income, and irrespective of the persons by whom the tax is to be paid which is ‘levied, laid or assessed upon or against the rent’ if they are ‘persons entitled’ to such rent.

The defendant contends, however, that no part of the federal income tax paid by a life beneficiary for the calendar year 1929 was ‘assessed upon or against the rent,’ but, on the contrary, that such tax was assessed upon an ‘undifferentiated mass' of income in the hands of the beneficiary by reason of (a) the mingling of the rent in the hands of the trustees with other income io the trust so as to make up the ‘gross income’ of the trust; (b) the making of deductions from such ‘gross income’ of the trustees' ‘commissions' and the expenses of the trust so as to determine the ‘net income’ of the trust; (c) the distribution of such ‘net income’ among the life beneficiaries; (d) the mingling of each beneficiary's share of such ‘net income’ with other income of the beneficiary to make up the ‘gross income’ of such beneficiary; and (e) the making of statutory deductions from such ‘gross income’ so as to determine the ‘net income’ of the beneficiary subject to federal income tax.

It is clear that the ‘net income’ of each beneficiary upon which he was taxed was increased by reason of the rent paid by the defendant to the plaintiffs. And we think that, in spite of the mingling of such rent with other income, the deductions from ‘gross income’ allowed by law and the distribution of the income of the trust among the life beneficiaries, such parts of the federal income taxes of these beneficiaries as are fairly apportionable to such rent are taxes ‘assessed upon or against the rent’ within the meaning of the covenant.

It was decided in Kimball v. Cotting, 234 Mass. 172, 173, 125 N. E. 551, an action brought upon this covenant by David P. Kimball, the original lessor, that he was entitled to be reimbursed by the lessees for such parts of his federal income taxes for the years 1915, 1916, and 1917, in the form of additional taxes or surtaxes, as were proportionate to the rent received by him under this lease on the ground that such an additional tax or surtax ‘is a direct tax which may be assessed on rentals when received as income, for reasons pointed out in Suter v. Jordan Marsh Co., 225 Mass. 34,13 N. E. 580, and Codman v. American Piano Co., 229 Mass. 285, 118 N. E. 344.’ The defendant contends, however, that the authority of this case is weakened because the lessees conceded therein that they were bound by the covenant to reimburse the lessor for a part of the normal taxes paid by him, and because, as the defendant contends, this concession was improvidently made, and the decision of the case in respect to additional taxes or surtaxes was based on this concession. The argument underlying this contention is that the Suter Case was decided on the ground that the provision in the Income Tax Law of 1913 (38 U. S. Stat. pp. 114, 169, c. 16, § 2, par. E), requiring withholding by a lessee of normal tax on rent and payment thereof to the United States, characterized such tax as a tax on rent and that this ground failed when there was no longer any such withholding of tax. In fact the Revenue Act of 1917 (40 U. S. Stat. 300, 332, c. 63, § 1205) amended the Revenue Act of 1916 (39 Stat. 763) so that for the year 1917 no withholding of normal tax on rent payable to a resident was required. And none of the statutes required withholding of additional tax or surtax. It is true, indeed, that in the Suter Case the court rested heavily upon the withholding provision as characterizing normal tax on income as a tax on rent entering into the computation of such income. But this was not the sole ground of the decision. See, also, Codman v. American Piano Co., 229 Mass. 285, 288-290, 118 N. E. 344. And Kimball v. Cotting, 234 Mass. 172, 125 N. E. 551, was decided in the light of the fact, which was brought to the attention of the court by counsel, that withholding of rent payable to residents had been done away with by the Revenue Act of 1917. The federal income tax imposed by the Revenue Act of 1928 is the same in nature as were the federal income taxes imposed by the Revenue Acts of 1913, 1916, and 1917. The case of Kimball v. Cotting, 234 Mass. 172, 125 N. E. 551, therefore, must be regarded as a controlling decision to the effect that, even in the absence of an applicable withholding provision, if the original lessor had been living in 1929 a federal income tax upon his income would in part have been ‘assessed...

To continue reading

Request your trial
12 cases
  • J.E. Blank, Inc., v. Lennox Land Co.
    • United States
    • Missouri Supreme Court
    • July 20, 1943
    ...Inv. Co. v. Pope Estate Co., 122 Cal. App. 281, 10 Pac. (2d) 139; In re Russell's Estate, 127 Misc. 59, 215 N.Y.S. 244; Kimball v. Madison, 286 Mass. 277, 190 N.E. 506. (6) The conduct of the parties shows an intent that plaintiff should pay the tax upon defendant's income derived from the ......
  • J. E. Blank, Inc. v. Lennox Land Co.
    • United States
    • Missouri Supreme Court
    • July 20, 1943
    ...Inv. Co. v. Pope Estate Co., 122 Cal.App. 281, 10 P.2d 139; In re Russell's Estate, 127 Misc. 59, 215 N.Y.S. 244; Kimball v. Madison, 286 Mass. 277, 190 N.E. 506. The conduct of the parties shows an intent that plaintiff should pay the tax upon defendant's income derived from the rental. St......
  • Eastern Massachusetts, St. Ry. Co. v. Boston Elevated Ry. Co.
    • United States
    • United States State Supreme Judicial Court of Massachusetts Supreme Court
    • January 28, 1942
    ...v. Cotting, 229 Mass. 541, 542, 118 N.E. 866, L.R.A.1918C, 1189;Kimball v. Cotting, 234 Mass. 172, 125 N.E. 551; and Kimball v. Maddison, 286 Mass. 277, 279, 190 N.E. 506. But the question of the liability of the lessee to the lessor under this article of the lease must be determined in acc......
  • United Shoe Machinery Corp. v. Gale Shoe Mfg. Co.
    • United States
    • United States State Supreme Judicial Court of Massachusetts Supreme Court
    • June 28, 1943
    ...659 , 670) as has sometimes been done. See Kimball v. Cotting, 229 Mass. 541 , 542; Kimball v. Cotting, 234 Mass. 172, 173; Kimball v. Maddison, 286 Mass. 277 , 279. Moreover, it is not without significance that the presumably designedly, did not use merely the word "taxes" which was suscep......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT