Stony Brook R. Corp. v. Boston & M.R.R.

• Decision Date: 02 July 1927
• Citation: 157 N.E. 607,260 Mass. 379
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court
• Parties: STONY BROOK R. CORPORATION v. BOSTON & M. R. R.

260 Mass. 379

157 N.E. 607

STONY BROOK R. CORPORATION

v.BOSTON & M. R. R.

Supreme Judicial Court of Massachusetts, Middlesex.

July 2, 1927.

Exceptions and Appeal from Superior Court, Middlesex County; F. Lawton, Judge.

Action of contract by the Stony Brook Railroad Corporation against the Boston & Maine Railroad to recover amount of an installment of federal income tax paid by plaintiff. From an order overruling demurrer to the declaration, defendant excepts and appeals. Exceptions sustained; order overruling demurrer reversed.Hutchins & Wheeler, of Boston, for plaintiff.

A. R. Tisdale, of Boston, for defendant.

RUGG, C. J.

[1] This is an action of contract whereby the plaintiff seeks to recover from the defendant the amount of an installment of the income tax assessed by the United States against the plaintiff and paid by it. The income on which this tax was levied consists of payments in the nature of rental made to the plaintiff by the defendant. The plaintiff was incorporated under the laws of this commonwealth and owns a railroad located wholly within this commonwealth. The plaintiff leased its railroad and all its railroad property to the Boston and Lowell Railroad Corporation for a term of 99 years from January 1, 1890. The defendant is now the successor to all the obligations imposed upon the original lessee. The lease contained this clause respecting the payment of taxes:

‘Said second party [the lessee] further agrees that it will pay all public taxes, assessments and charges whatsoever on the property, franchise or capital stock of said first party [the lessor] that shall be placed or assessed upon said first party or upon its stockholders residing in Massachusetts.’

The tax here sought to be recovered was imposed under chapter 136, § 230, of the Revenue Act of November 23, 1921 (42 U. S. Stats. at Large, part 1, p. 252). The material words of that section are that:

In lieu of taxes imposed by an earlier law ‘there shall be levied, collected, and paid for each taxable year upon the net income of every corporation a tax at the following rates: (a) For the calendar year 1921, 10 per centum of the amount of the net income in excess of the credits provided in section 236; and (b) for each calendar year thereafter, 12 1/2 per centum of such excess amount.’

Stated narrowly, the question is, whether the federal income tax thus levied is comprehended within the clause in the lease above quoted.

The question, whether a federal income tax is included within the terms of an agreement to pay taxes, has arisen in several of our cases. The determination of any such question depends upon the words of the contract, the context in which they occur, and the subject-matter to which they are applied. It will be helpful to examine our own cases and some from other courts. In Codman v. American Piano Co., 229 Mass. 285, 118 N. E. 344, the covenant in a lease of real estate was to pay:

‘All taxes and assessments whatsoever which may be payable for or in respect of the leased premises during the term thereof, except assessments for betterments.’

It was held that these words did not include income tax assessed to the lessor. In Greenburg v. Bopp, 251 Mass. 433, 146 N. E. 687, it was held that an agreement by the lessee to ‘assume and pay upon these premises all tax assessments and betterment assessments however laid or levied during the entire term of this lease’ did not include federal income taxes on the rent received by the lessor.

On the other hand, in Suter v. Jordan Marsh Co., 225 Mass. 34, 113 N. E. 580, a covenant to pay ‘all taxes and assessments whatsoever, except betterment taxes, which may be levied for or in respect of the said leased premises, or any part thereof, or upon or in respect of the rent payable hereunder by the lessee howsoever and to whomsoever assessed,’ was held to include the income tax assessed upon the lessor on account of the rent received under the lease. It was held in Kimball v. Cotting, 229 Mass. 541, 118 N. E. 866, L. R. A. 1918C, 1189, that a covenant ‘to pay and discharge any taxes or excises * * * levied or assessed to either the lessors or the lessees upon or against the rent payable hereunder * * * whether levied or assessed upon the same as rental or income,’ included the federal income tax assessed to the lessor in respect to the rent received under the lease. In Kimball v. Cotting, 234 Mass. 172, 125 N. E. 551, it was held that a covenant by the lessee 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,’ included the normal federal income tax and surtax. To the same general effect are North Pennsylvania Railroad v. Philadelphia & Reading Railway, 249 Pa. 326, 95 A. 100;Schlafly v. D'Arcy (C. C. A.) 1 F. (2d) 297, and Philadelphia City Passenger Railway v. Philadelphia Rapid Transit Co., 263 Pa. 561, 107 A. 329, in all of which words embracing unequivocallytax on income received from the rental are found in the agreements upon which the decisions turn.

Questions of a similar nature have arisen in other jurisdictions: Agreements to pay--

‘all expenses * * * including taxes, assessments,’ Illinois Central Railroad v. Indianapolis Union Railway (C. C. A.) 6 F.(2d) 830; ‘all taxes, assessments and municipal or governmental charges, general and special, ordinary and extraordinary, of every nature and kind whatsoever, which may be (a) levied, imposed or assessed upon the real estate hereby demised * * * or (b) * * * upon any interest of the lessor in or under this lease; or (c) which the lessor shall be required to pay by reason of or on account of his interest in the real estate hereby demised,’ Young v. Illinois Athletic Club, 310 Ill. 75, 77, 141 N. E. 369 (30 A. L. R. 985); ‘all taxes and assessments which may be levied or become chargeable on the said road or property, or upon’ the lessor ‘by reason of its ownership thereof,’ Brainard v. New York Central Railroad, 242 N. Y. 125, 151 N. E. 152, 45 A. L. R. 751; ‘all taxes or assessments, special or otherwise, and public charges of every kind and nature that shall or may be taxed or assessed against the * * * company or its property,’ Des Moines Union Railroad v. Chicago Great Western Railroad, 188 Iowa, 1019, 177 N. W. 90, 9 A. L. R. 1557; ‘all rates, taxes, charges for revenue and otherwise, assessments and levies, general and special, ordinary and extraordinary of every name, nature and kind whatsoever, * * * which may be taxed, charged, assessed, levied or imposed upon said premises, and upon any and all buildings and improvements thereon and any personal tax levied or assessed upon said party of the first part, which may be assessed, levied or imposed upon the leasehold estate hereby created and upon the reversionary estate in said premises * * * the intent hereof being to insure to said party of the first part a net rental hereunder, not chargeable with any burdens by way of taxes, or otherwise resulting in the diminution of the same,’ Park Building Co. v. Yost Fur Co., 208 Mich. 349, 175 N. W. 431; ‘all taxes, duties and assessments, of every name and nature, that may accrue or be assessed, charged or levied upon said demised premises or any part thereof, and upon the receipts for transportation of persons and property on said demised railroads, and upon the businessof said demised railroads, * * * by the state or national government.’ Sharon Railway v. Erie Railroad, 268 Pa. 396, 112 A. 242; ‘all taxes, charges, and assessments which, * * * shall be assessed or imposed under any existing or future law on the demised premises or any part thereof, or no the business there carried on, or on the receipts, gross or net, derived therefrom, * * * for the payment or collection of any of which said taxes the Catawissa Company may otherwise be or become liable or accountable under any lawful authority whatever,’ Catawissa Railroad v. Philadelphia & Reading Railway, 255 Pa. 269, 99 A. 807-all have been held not to include the obligation to pay federal income taxes.

The ground of these decisions is that the words used to express the agreement of the parties, fairly construed, were not broad enough to comprise such taxes.

As matter of authority, the plaintiff fails to show support for its contention in decided cases.

If the question be examined apart from authority and upon grounds of reason, the same result is reached. It is to be observed that the agreement as to taxes occurs in a lease of a railroad. The description of the leased property is confined to the railroad with all lands, stations and other buildings and all easements, fixtures and appurtenances connected therewith. That is the property leased....