
    Security Trust Company of Rochester, Plaintiff, v. Liberty Building Company, Defendant.
    
      Lease — construction of a covenant by the lessor to pay the taxes on demised premises “so long as it continues to be assessed * * * and the amount of such assessment continues to be deducted from its capital” liable to taxation — chapter 132 of the Laws of 1901, creating a corporate franchise tax and exemption from all other tax except upon real estate, does not relieve the corporation from such covenant.
    
    A trust company leased to a building company certain premises for a term of twenty years, and gave the building company an option to purchase the property at any time during the term at a specified price. The agreement provided-that the trust company should “pay the city, county and State taxes upon the premises so leased during the continuance of said term so long as it continues to be assessed to it, upon the tax rolls of both the city of Rochester and the county of Monroe, and the amount of such assessment continues to be deducted from its capital in fixing the amount of such capital liable to taxation.”
    It also provided that ‘ ‘ The party of the second part (tile building company) shall pay all assessments for improvements upon said property; all water taxes and rates, and all taxes and assessments of every nature thereon, if the deduction hereinbefore referred to shall cease to be made for any reason other than the transfer of the legal title' to said premises by the party of the first part (the trust company) to parties other than the party of'the second part.”
    At the time the lease was made the trust company was taxable upon its real estate, and also upon the full value of its capital stock less the assessed value of its real estate.
    During the term of the lease chapter 132 of the Laws of 1901 was passed, requiring each trust company to pay directly to the State annually, for the privilege of exercising its corporate franchises, a tax of one per cent computed upon the actual value of its capital stock, surplus and undivided profits, and exempting it from all other taxation, except upon its real estate, which remained taxable as theretofore.
    
      Held, that the fact that by the act of 1901 the capital, surplus and personal property of the trust company were exempted from taxation, and that there was consequently nothing from which to deduct the assessed value of the demised premises, did not operate to relieve the trust company from' the obligation of paying the taxes on the demised premises, and impose such obligation on the building company.
    Submission of a controversy upon an agreed statement of facts pursuant to section 1279 of the Code of Civil Procedure.
    
      Edward Harris, for the plaintiff.
    
      Porter M. French, for the defendant.
   McLennan, P. J.:

•Ever since and including the year 1895 the parties to this'stibmission have been domestic corporations located in the city of Roches^ ter, IsT. Y. On the 27th day of June, 1895, by an agreement evidenced by two instruments in writing dated that day, the plaintiff leased to the defendant certain premises' situate in the city of Rochester, IST. Y., for the term of twenty years at the yearly rental of $4,000. The defendant was given the option to purchase, the property at any time during the said term for $100,000, and agreed to deposit $40,000 with the plaintiff, which was to be credited upon the purchase price if the option was taken ; if not, $20,000 of. the deposit was to be retained by the plaintiff as the consideration of the option and the balance returned to the defendant. The defendant also agreed to expend at least $40,000 in erecting buildings upon and in improving said property before the.1st day of July, 1896, all of which were to belong to the plaintiff in case the option was-, not taken by the defendant.

By such agreement the plaintiff undertook “to pay the city, county and State taxes upon the premises so leased during the continuance of said term so long as it continues to be assessed to it, upon the tax rolls of both the city of Rochester and the county of Monroe, and- the amount of such assessment continues, to be deducted from its capital in fixing the amount of such capital liable to taxation.”

It also provided that The party of the second part (the defendant) shall pay all assessments for improvements upon said property; all water taxes and rates, and .all taxes, and assessments of every nature thereon, if the deduction hereinbefore referred to shall cease to be made for any reason other than the transfer of the legal title to said premises by the party of the first part (the plaintiff) to parties other than the party of the second part.”

On or about the date of said agreement the defendant entered into and has since been in possession of the demised premises as lessee, not- yet having exercised its option to purchase. It made the deposit and erected the buildings all as required by the contract and concededly kept and performed all the obligations claimed to have been imposed thereby, except that it neglected and refused to pay the city, county and State taxes assessed against said property for the years 1901, 1902 and 1903, which the plaintiff was thereupon compelled to pay and now seeks to recover. The rights of the parties in that regard present the only question involved in this submission.

At the time of making the lease and accompanying agreement the statute provided: The real estate of all incorporated companies liable to taxation, shall be assessed in the town or ward in which the same shall lie, in the same manner as the real estate of individuals.” (R. S. pt. 1, chap. 13, tit. 2, § 6; 1 R. S. 389, § 6; 2 id. [9th ed.] 1681, § 6.)

Section 3 of chapter 456 of the Laws of 1857, which was in force at the time in question, required that the capital stock of corporations, of the character of the plaintiff, should be' assessed at its full value, but provided that the assessed value of the real estate owned by such corporations should be deducted therefrom. Thus provision was made for the taxation of all tangible property belonging to such corporations, but prevented double taxation which would have resulted except for the provision which required the deduction aforesaid to be made. .At that time no franchise tax was imposed, and under the agreement interpreted with reference to the law as it then existed, the rights of the parties were perfectly plain.. The defendant could not be required to pay any taxes upon the demised premises so long as its assessed value was deducted from the actual value of plaintiff’s capital, and it is conceded that during the years 1901, 1902 and 1903 its capital, surplus and personal property exceeded the value of its real estate by at least $120,000.

. ■ In 1901 the Legislature assumed to change the law relating to the taxation of corporations like the plaintiff and thus the controversy between the parties to this submission arises.

Chapter 132 of the Laws of 1901 in substance required a trust company to pay directly to the State annually, for the privilege of exercising its corporate franchises, a tax of one per cent computed upon the actual value of its capital stock, surplus and undivided profits and exempted it from all other taxation, except upon its real estate, which remained taxable as theretofore. By such enactment the capital stock, surplus and personal property of such corporations were not taxable at all. But instead their franchises were taxed and the value of the capital stock, surplus and undivided profits was ascertained only for the purpose of determining the amount of such tax. The plaintiff contends that, as there was no assessment of its capital stock for the years 1901, 1902 and 1903, there was nothing from which to deduct the assessed value of the demised premises, and that, therefore, by the terms of' the agreement the defendant became obligated to pay the taxes assessed against such premises.

We think the plaintiff’s contention is untenable. The purpose and intent of the provisions of the agreement under consideration were to relieve the plaintiff from being twice taxed upon the property in question, and not to relieve it, in any event, from all taxation thereon. By the change in the law the capital stock, surplus and undivided profits of the plaintiff were exempted from taxation. Did the parties intend that upon the happening of such event the plaintiff should also be relieved from paying taxes upon the demised premises ? The franchise tax imposed upon the plaintiff, and which it paid during the years in question, was not a tax upon its property, either real or personal, but was a tax upon its right to exercise its corporate functions. (People ex rel. United States A. P. P. Co. v. Knight, 174 N. Y. 475.) The value of its property was only referred to or ascertained for the purpose of determining the amount of such tax. The amount of such tax would have been precisely the same if its entire property had consisted, of real estate, or if it had been invested in United States government bonds, which are expressly exempt from taxation by the State. (People ex rel. United States A. P. P. Co. v. Knight, supra)

It was the good fortune of. the plaintiff to have its capital stock, surplus, undivided profits and personal property relieved from taxation. We think, however, that such good fortune coming to it ought not' to he held to impose an additional burden upon- the defendant under the terms of the agreement under consideration-Under the authority referred to (People ex rel. United States A. P. P. Co. v. Knight, supra) the Legislature had the right to tax the real .estate of the plaintiff, to tax its capital stock, surplus and undivided profits, and in addition to impose a franchise tax. By the law, as it now stands, the real estate is taxed, the personal property is exempt from taxation, and a tax is imposed upon the right to exercise its corporate franchise. There is no double taxation, and therefore, no condition exists which makes operative the obligation assumed’ by the defendant under the -provisions of the contract in question.

The defendant urges that at least during the years 1901 and 1902, notwithstanding-the alleged change in the law, the plaintiff should have been assessed upon its capital stock, surplus and undivided profits, and that the failure to so assess it was due to the fault or neglect of the assessors. We deem it unnecessary to determine that question, as it seems to us. clear that it was the intent and purpose of the parties when entering into the agreement in question that the defendant should only be required to pay the taxes upon the demised premises in case the plaintiff was assessed upon it as real estate, and again by having the value thereof added to its capital upon which it was also assessed. It is unimportant whether the failure to assess plaintiff’s personal property resulted from the fault or failure of the assessors, from the change in the law or from any other cause, so long as the value of the real estate in question did not add to or increase the burdens of the plaintiff in that regard.

These considerations lead to the conclusion that the plaintiff, is not entitled to recover from the defendant the amount of taxes paid by it during’ the years .1901, 1902 and 1903, and that judgment should be rendered in favor of the defendant to that effect, with costs.

All concurred.

Judgment ordered in favor of the defendant, with costs of this submission.  