Henry Grady Hotel Co. v. City of Atlanta , 162 Ga. 818 ( 1926 )

Russell, C. J.

(After stating the foregoing facts.)

The Mansion Lease Commission, by the act of the General Assembly, was given carte blanche to fix the terms of the lease as they thought for the best interest of the State. In dealing with the lessee they agreed upon terms which clearly show that it was the understanding of both parties to the lease contract that the lessee was to pay all taxes lawfully assessed. Certainly it could not be argued that the lessee understood that it was exempt from all taxes. Upon the contrary, it is obvious that it was in the minds of both that the State expected the lessee to pay some taxes. Taxation is the rule, and exemption from taxation is the exception. It is true that in the leasing act the legislature made no mention of the subject of taxes. They could have expressly exempted the lessee from all taxes. They did not do so. They could have prescribed a limitation upon the commission on the subject. They did not do so. The commission therefore was acting as the agent of the State with plenary powers, and they made it plain that the lessee was to pay such taxes as were lawfully assessed. Of course they in no event could have been expected to pay taxes not lawfully assessed. The agreement indicated that taxes were to be paid upon the lot and the improvements. If the City of Atlanta had undertaken to levy a tax upon the land itself, a different question would have been presented. What they did undertake to do was to levy a tax upon the leasehold interest. We say this because such was the finding of the trial judge upon conflicting evidence. Upon such conflicting evidence he was authorized to so find. We think it is worth while to say that the fact that the language of the contract was broad enough to include the realty presents no reason why the leasehold is not taxable even if the whole interest is not. We do not mean to hold that the taxability of the property can be fixed by contract. We refer to the terms of the contract to indicate whether or not it was in the minds of the commissioners acting for the State to exempt the lessee, or whether it was in their minds and understood by both parties that the lessee would be bound for such taxes as might be lawfully assessed. In the original contract between the Mansion Lease Commission and the Massell Realty and Improvement Company, under which the latter leased the property from the State for a period of fifty years, there is a provision with reference to taxation in the following words: “And in addition to the amounts which lessor shall receive for said property, lessee agrees to pay during the entire term of this lease all taxes both on the lot and improvements as they now are or may be hereafter made, which may be lawfully assessed against said property, and all street and sidewalk improvements, curbing, white lights, sewers, or any other kind of assessments which may be lawfully assessed against the property. . . All taxes and charges herein named shall be paid by the lessee to the lawful tax-collector within the time required by law, in ordinary course, and without penalty thereof, except in such cases as the lessee may contest the legality or amount thereof, in which event payment shall be made before levy or execution, on final judgment. For all payments made by the lessee herein required to be paid to the lawful tax, or other like collecting officers, lessee shall at once furnish to the lessor duplicate receipts or satisfactory evidence of such payments.” In the lease from Massell Realty and Improvement Company to C. R. Cannon (under which the plaintiff in error holds as assignee of Cannon), “It is agreed that lessee shall, from January 1, 1924, and during the term of this lease, pay all charges, taxes, and assessments lawfully assessed against said property within the time required by the law, in ordinary course and without penalty thereof, except in such cases as lessee may contest the legality or. amount thereof, in which event payment shall be made before levy or execution on final judgment. For all payments made by lessee herein required to be paid to the lawful tax, or like collecting officer, lessee shall at once furnish to lessor duplicate receipts or satisfactory evidence of such payment. It is agreed that in the event the taxing authorities shall tax the land or leasehold interest of lessor to the property described in the lease from Mansion Lease Commission of Georgia, hereinbefore referred to, separate and apart from the buildings located thereon, then in that event lessee shall pay three tenths of the entire tax, and in addition thereto shall pay such tax as may be assessed against the buildings located on the property herein leased.”

C. R. Cannon leased the particular property involved in this case from the Massell Eealty Company under the terms of the written contract appearing in the record, and the rights of the Henry Grady Hotel Company depend upon an assignment to it of the Cannon lease. The hotel company therefore stands for all purposes in the shoes of Cannon. From paragraph 14 of the lease from which the Henry Grady Hotel Company derives its rights, it appears that at the time of the execution of the lease contract it was understood by both lessor and lessee that the latter was not to be a mere tenant, but that in view of the length of time for which the lease was to run, the expensive improvements required, the agreement to pay taxes and assessments, as well as that the lease was to be assignable, and was assigned, the lessee was to be the proprietor of an interest defined by themselves in the contract as a “leasehold” interest, apart from a mere tenancy, which would possess an element of value which would be subject to transfer and assignment, for this is expressly provided for in the contract, and this interest the parties denominated “a leasehold interest.” Paragraph 14 of the lease begins with the following words: “Lessor herein is possessed of leasehold interest in said above-described property under lease from Mansion Lease Commission of Georgia, dated February 1, 1922, in which lease a stipulated monthly rental 'is to be paid to the treasurer of the State of Georgia on or before twelve o’clock noon on the 10th day of each and every month during the period covered by said lease.” So we see that, within the intent of the parties to the contract now before us, the interest which Cannon assigned to the Henry Grady Hotel Company was a leasehold in the described property. Viewing the matter in the light of the fact that the parties to this contract treated the subject of the contract as a leasehold, and that it was the intention of the lessor to convey and of the lessee to accept the leasehold in the property, it seems to us that only two simple questions are involved in the adjudication as to whether the Henry Grady Hotel Company is liable to the assessment for city taxes which the trial judge refused to enjoin: First: Is the agreement that the use of the property shall constitute a leasehold contrary to law or any public policy of this State ? Second: Is a leasehold interest taxable in this State?

It is provided in paragraph 14 of the contract between Massell Realty Company as lessor and C. R. Cannon as lessee: “Said lease [from Mansion Lease Commission to Massell Realty Company] provides that in the event default is made in the payment of any rents, taxes, or other assessments against the property therein leased, said Mansion Lease Commission of Georgia may, at its option, upon thirty days written notice, cancel said lease and re-enter and take possession of the property therein described. In order that full protection against default of lessor herein is granted to lessee, it is agreed that should lessor make default in the payment of rent, taxes, or other assessment, then in such event lessee herein has the right to pay such rent, taxes, or other assessment, and charge the same against the rental in this lease due and payable to lessor, or at its option hold the same as a claim against lessor, or, pro rata, against other tenants occupying portions of the premises leased by Mansion Lease Commission of Georgia to lessor. Lessee shall be entitled to receive in addition to any sum so paid, for account of lessor, interest thereon .at the rate of eight per cent, per annum until the same is repaid to him.” These words plainly indicate that both parties at the time of making this contract understood that the entire property leased to Massell Realty Company by the Mansion Lease Commission was subject to taxation. Cannon not only undertook to pay tax on the portion of the property fronting on Peachtree Street, now in possession of the hotel company, but for his' own protection reserved the right to pay, in ease of default of the lessor (Massell Eealty Company), taxes .or assessments on the entire, property originally leased by Massell Eealty Company from the State, for which he was to receive interest “at the rate of eight per cent, per ’annum until the same is repaid to him.” It is plain that this provision does not conflict with the public policy of the State which in some instances prevents the levy of taxes on instrumentalities used by the State as a means of obtaining revenue. Eeference to the lease contract shows that it was in the minds of the State’s representatives as well as the lessee that the latter would pay taxes. The lease was for a long period of time and valuable improvements and subleases were contemplated. The plaintiff in error in this case holds by assignment a sublease. All of these show that the lessee acquired a property right designated in the lease as a leasehold interest. So we answer the first question in the negative. Then, are leasehold interests taxable by the City of Atlanta and under the provisions of its charter? In no instance can a municipal subdivision of the State tax property if the State can not do so. But we think, as said by Mr. Chief Justice Warner in W. & A. Railroad Co. v. State, 54 Ga. 428, 439, that in the exercise of her sovereign right of taxation the State has the right to “tax the actual value of the lease owned by the company as its property in the same manner as other property of the people of the State is taxed.” The State having the inherent right to tax all property not expressly exempted, We think that the provisions of section 121 of the charter of the City of Atlanta authorize the assessment for taxes and the levy therefor which is here sought to be enjoined. Section 121 is as follows: “For the purpose of raising revenue for the support and maintenance of said city government, the said mayor and general council shall have full'power and authority, and they shall provide by ordinance for the assessment, levy and collection of an ad valorem tax on all real and personal property within the incorporate limits of said city, not exceeding 1-1/2 % thereof, which shall include the school tax which, under the laws of this State, is subject to taxation. Provided, nevertheless, that all assessments of real property shall be at the cash market valuation.” The precise question has not heretofore been before this court; but with few exceptions the rule has been firmly established that the exemption from taxation enjoyed by the State does not extend to the interest of a leaseholder. A very full brief will be found in 23 A. L. E. 249, containing citations not only from the Supreme Court of the United States, but also decisions from Arkansas, California, Illinois, Kansas, Kentucky, Maryland, Massachusetts, Mississippi, Nebraska, New. Hampshire, New York, Ohio, Oklahoma, Tennessee, Texas, and Washington.

We have not undertaken to rule on many points suggested in the argument of learned counsel, because we think that the plaintiff agreed to pay taxes subject only to exception in case such taxes were unlawfully assessed; and we can not hold, under the evidence in the record, that it was made to appear in the lower court that the assessment upon the leasehold (for it appears in the record that only the leasehold interest was assessed) or valuation of the property was for any reason unlawful.

The rulings in the second and third headnotes do not require elaboration.

The court did not err in refusing to grant an injunction.

Judgment affirmed.

All the Justices concur. Beck, P. J., concurs specially. Hines, J., concurs dubitante.