Riesenberg v. Primary Realty Company
| Decision Date | 06 November 1923 |
| Citation | 258 S.W. 23,214 Mo.App. 43 |
| Parties | ADELE G. RIESENBERG, Appellant, v. PRIMARY REALTY COMPANY, Respondent |
| Court | Missouri Court of Appeals |
Appeal from the Circuit Court of the City of St. Louis.--Hon. John W. Calhoun, Judge.
AFFIRMED.
Judgment affirmed.
Leonard Sibley & McRoberts for appellant.
Shepard Barclay of Counsel.
(1) Where the intent of a lease is to secure the rent reserved to the landlord, "free from all charges," for income or other taxes, the court should give effect to that intent. Following authorities specially apply that principle Suter v. Jordan Marsh Co., 225 Mass. 34; Phila City Ry. Co. v. Transit Co., 263 Pa. 561; Kimball v. Cotting, 229 Mass. 541; Van Beil v. Brogan, 65 Pa. S.Ct. 384, 262 Pa. 363; R. R. Co. v. Phila. Co., 249 Pa. 326. (2) In the interpretation of all private contracts, the intent of the parties as expressed therein, is the best guide to its meaning This rule is elemental. (3) The language of the covenants in this lease, as to income and other taxes, is at variance with the decision of the trial court thereon; and its judgment should be reversed. (4) The covenant as to payment of income taxes by the lessee is one which runs with the land. This rule too is elemental in Missouri. (5) Apart entirely from the nature of the covenant as to paying income taxes, that covenant is binding on the present lessee, by the terms of the lease itself.
Bryan, Williams & Cave for respondent.
(1) (a) Product or income is a thing separate and distinct from the property from which the product or income is derived. Wire Co. v. Wollbrinck, 275 Mo. 339; State ex rel. Moon v. Wisconsin Tax Commission, 166 Wisc. 287; Waring v. Mayor, 60 Ga. 93; Opinion of Justices, 77 N.H. 611. (b) A covenant of a lessee to pay taxes on land leased to him is not a covenant to pay the lessors income taxes. Park Building Co. v. Yost Fur. Co., 208 Mich. 349; Des Moines Union Ry. Co. v. Chicago & Great Western, 188 Iowa 1019; Catawissa Ry. Co. v. Phila. & Reading R. R. Co., 255 Pa. 269; Van Rensselaer v. Dennison, 8 Barb. 23; Woodruff v. Oswego Starch Factory, 74 N.Y.S. 961 (affirmed 177 N.Y. 23); Codman v. American Piano Co., 229 Mass. 285; Wire Co. v. Wollbrinck, 275 Mo. 339; Waring v. Mayor, 60 Ga. 93. (2) The covenant in the lease expressly excludes any agreement that lessee shall pay any income taxes payable by the lessor except such income tax as would be payable on account of the rent reserved therein. (3) The taxes paid by the appellant were all taxes levied against the person of the appellant, and were purely personal taxes--taxes in personam. They were not levied upon any property or res. It was appellant as a person who was taxed. The burden was laid upon her as the recipient of an income, not upon the rent, nor was it laid upon the act of the lessor in leasing the property, nor upon the act of receiving the rent. The amount of these taxes was measured by the net income of appellant from all sources, and that net income was determined by the balance of a mutual account between appellant and the Government, and that account was made up of a number of items on each side. The nature and amounts of those items were entirely dependent on matters purely personal to the appellant. Peck v. Lowe, 247 U.S. 165; U. S. Glue Co. v. Oak Creek, 247 U.S. 321; State ex rel. Moon v. Wisconsin Tax Commission, 166 Wisc. 287; Urquhart v. Marion Hotel Co., 128 Ark. 283. (4) A tax on a person or corporation measured by his (or its) net income is different and distinct from a tax upon the gross income of such person or corporation, and is different and distinct from a tax on any item of such gross income. U. S. Glue Co. v. Oak Creek, 247 U.S. 321; Crew Levick Co. v. Pennsylvania, 245 U.S. 292; State ex rel. Moon v. Wisconsin Tax Commission, 166 Wisc. 287; Des Moines Union Ry. Co. v. Chicago Great Western Ry. Co., 188 Iowa 1019; Catawissa Ry. Co. v. Philadelphia & Reading Ry. Co., 255 Pa. 269; Van Rensselaer v. Dennison, 8 Barb. 223; Woodruff v. Oswego Starch Factory, 74 N.Y.S. 961 (s. c. 177 N.Y. 23); Urquhart v. Marion Hotel Co., 128 Ark. 283, 194 S.W. 1. (5) If the meaning of the provisions of this lease is not clear, or is capable of two constructions, then the construction most favorable to the lessee must prevail. Park Building Co. v. Yost Fur. Co., 208 Mich. 349; See, also, Leake on Contracts, pp. 151 and 488. (6) Even if this were held to be a covenant to pay the personal taxes of H. R. Small, the original lessor, it is not a covenant to pay personal taxes of Small's vendee, or of any subsequent owner of the fee. Such a covenant is personal and does not run with the land and does not inure to the benefit of any vendee of the fee. Tiffany on Landlord and Tenant, p. 890, sec. 149; 15 C. J. 1240; Taylor, Landlord and Tenant (9 Ed.), sec. 263; 18 Halsbury on the Laws of England, p. 585; Keppell v. Bailey, 2 Mylne & Keen 517; Thruston v. Minke, 32 Md. 487; Hamilton on the Law of Covenants, p. 96; Gardner v. Samuels, 116 Cal. 84; Dickey v. Railway Co., 122 Mo. 223.
Plaintiff below, appellant here, is the owner of a lot of ground which is held by respondent company, defendant below, under a ninety-nine year lease. Plaintiff having paid taxes on her net income to the Federal government (for the years 1913 to 1918 inclusive) and to the State of Missouri for 1917, brought suit against the defendant company seeking to recover a portion of the taxes so paid by her, alleging that under certain covenants of the lease under which the defendant held said land, the defendant was obligated to pay such portion of the income taxes paid by plaintiff as had been paid by her on the income she derived from the rent reserved in said lease.
The defendant filed a general denial to each of the counts of plaintiff's petition. A trial of the cause resulted in a judgment for the defendant and plaintiff appeals.
One Harold R. Small by his indenture of lease demised and let to the defendant herein a lot of ground for a term of ninety-nine years from and after March 1, 1906, at a yearly rental of $ 2200. Said Small on January 1, 1907 sold the said lot to Adele G. Riesenberg, appellant, plaintiff below.
The lease executed by Small as lessor provided that the lessee was to pay all taxes levied, assessed or required to be paid on account of said demised premises or any portion thereof. The covenant as to taxes also contains this provision: ". . . it being expressly agreed that nothing herein contained shall be construed so as to impose upon the lessee the duty of paying any collateral or direct inheritance tax which may be charged upon any inheritance derived from the lessor, or any income tax payable by lessor except such income tax as would be payable on account of the rent herein reserved."
"That if any such tax, impositions, levies, or assessments shall remain unpaid after becoming due and payable, even before they begin to bear interest, the lessor may pay the same and the lessee shall and will repay the same or cause the same to be repaid with interest thereon at the rate of eight per cent per annum from the time of the payment of the same until repayment thereon is made."
In a later passage of the lease we find this:
"The intention of this being that during the existence of this lease, the lessor herein shall be entitled to the rents hereinabove reserved free from all charges, and that said lessor shall be entitled to no other profits or income from said property."
On this appeal we are asked to determine whether or not under said tax covenants the defendant is obligated to pay plaintiff any portion of the income tax which she has paid on her net income.
The answer to this question calls for the construction of the tax clause of the lease, and the meaning of the language therein used, endeavoring, of course, to ascertain and give effect to the real intent of the contracting parties.
At the time the lease was entered into there was no legal limitation on the freedom of contract with reference to the lessee assuming the payment of taxes, income or otherwise, that might be assessed against the property itself, or against the lessor by Federal or State authority. Though there had been taxes on income, rents, and profits previously imposed, and their general nature was fixed and well known, yet at the time the lease in question was entered into there was no Federal or State income tax law, so that that part of the tax covenant relating to the payment by the lessee of any income tax was at the time purely anticipatory. It was under these conditions and circumstances that the tax covenant was written into the lease in question.
At the outset it is manifest, in construing the language of the covenant in question, since the lessor is the sole beneficiary of the tax covenant, that under the recognized rule of construction, if there is more than one meaning permissible, that most favorable to the lessee must prevail. [
The present Federal income tax provides (as does also the Missouri State income tax) that there shall be levied, assessed, collected and paid annually upon the entire net income received in the previous calendar year from all sources by every individual, a tax of a certain per cent upon such income; and the law further provides that the net income of a taxable person shall include all income derived from the ownership of property.
It is urged by plaintiff that a tax on the net income of a landlord, which is in part derived from rents arising out of property demised, is a tax on the rent as such and therefore payable by the tenant under the covenant we have under consideration in the...
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