(186 Ky. 381)

(216 S.W.)

PURCELL et al. v. CITY OF LEXINGTON.

5. TAXATION 338-ON LEASEHOLD ESTATE ON RETENTION OF ONLY TECHNICAL FEE. Where an instrument, though technically a

(Court of Appeals of Kentucky. Nov. 14, 1919. lease, demised to lessees every beneficial interRehearing Denied Jan. 9, 1920.)

2. STATUTES 178-STATUTORY CONSTRUCTION OF THE WORDS "REAL ESTATE" AND "LAND."

Ky. St. § 458, providing that "the words real estate or land shall be construed to mean lands, tenements and hereditaments, and all rights thereto and interests therein other than a chattel interest," is a part of chapter 26 of the statutes dealing with and announcing rules for construction of statutes and is of general application where rules of construction are necessary to a correct interpretation of the language of the statute, but not applicable where the statute by its terms provides otherwise.

[Ed. Note.-For other definitions, see Words and Phrases, First and Second Series, Land; Real Property.]

3. TAXATION

193, 347-LEASEHOLD ESTATES

NOT EXEMPT FROM TAXATION.

est in the land in perpetuity, retaining only a technical fee with a small annual rental exacted, lessee's interest is not such a lesser interest in the land as was contemplated by Ky. St. § 4049, should be listed by the owner of the first freehold estate, and included in the taxes paid by the owner, but is a larger and more valuable interest, taxable in the name of the lessee not under some special statute as section 4039 in case of oil leases, but on the broad ground of having taxable values of their own not included being property different from ordinary leases, in the real estate value assessable against the

adequate consideration, even at the date of the grant, and particularly now when the taxes on the value of the leasehold exceed the entire annual rentals under the lease.

A 99-year lease by a city of certain lands with perpetual privileges of renewal held not Neither Ky. St. §§ 458 and 4022, which to show that the exemption from taxation theremerely classify property, nor section 4049, de-in was granted to the lessees for a reasonably termining which of the owners of successive interests shall be liable ordinarily for taxes upon the whole, can be construed to exempt the owner of a valuable chattel interest in the real property from taxes thereon, regardless of whether the owner of the freehold pays taxes on the whole as contemplated, since such construction would bring it within the inhibition of Const. § 170, against any exemption in favor of such property, as well as in violation of Ky. St. § 4030, taxing all personal and real estate at its fair cash value, and section 4050, requir: ing personal property to be separately stated and valued.

4. TAXATION 219-EXEMPTION OF LEASE

HOLD.

Ky. St. § 4049, does not exempt from taxation the leasehold interest in land and only excuses the owner thereof from listing it separate ly for taxation when its value is an inseparable part of and included in the ordinarily larger interest remaining in the owner of the freehold, and tenants are liable for taxes on leasehold which has a separate and independent cash value that can be estimated at its fair voluntary sale price, even if as between themselves the taxes ought to be paid, under section 4049, by the lessor, and are recoverable by the lessee from lessor under section 4033.

Appeal from
County.

Circuit Court,

Fayette

Action by the City of Lexington, on the relation of Thomas E. Coyne, Back Tax Assessor, against J. D. Purcell and others. Judgment for plaintiff, and defendants appeal. Judgment affirmed, with directions to modify order of sale.

George C. Webb and Hunt & Bush, all of Lexington, for appellants.

H. E. Ross and Miller & Miller, all of Lexington, for appellee.

CLARKE, J. The appellants are the present owners of the interest which the city of Lexington, as the fee-simple owner of four lots on Main and Water streets in the city of Lexington, demised in 1839 to Thomas K. Layton and Michael Gaugh by four separate leases which are identical in terms, and one of which, omitting the description of the

For other cases see same topic and KEY-NUMBER in all Key-Numbered Digests and Indexes

property leased and certificates of acknowl-
edgment and recordation, is as follows:
"This indenture made and entered into this
13th day of February, 1839, between the city
of Lexington, of the one part, and Thomas K.
Layton, of the said city, of the other part, wit-
nesseth:

the same shall be exempt from city taxation for the term aforesaid.

"In testimony whereof the said city of Lexington hath caused the name and signature of the mayor of said city with the public seal of said city to be hereunto affixed, and the said Layton has hereunto set his hand seal the day and year first above written.

"Charles H. Wickliffe, Mayor. "T. K. Layton."

1916, collected any taxes or asserted the right so to do against the original lessees or any of the several successive assignees. In this action, styled and prosecuted in the name of "The City of Lexington, on Relation of Thomas E. Coyne, Back Tax Assessor, Plaintiff, v. J. D. Purcell, J. D. Purcell Company, a Corporation, and Security Trust Company of Lexington, Kentucky, a Corporation, Defendants," it was sought to have the value of the leasehold assessed against the lessees for taxation by the city for the five years preceding the filing of the suit, and to recover judgment for the taxes due thereon, with interest, penalty, and costs, and, from a judgment granting plaintiff the relief prayed for, the defendants have prosecuted this appeal.

"That, in consideration of the rents, covenants and conditions on the part of said Layton to be paid, kept and performed, as hereinafter mentioned, the said city of Lexington The lessees, since the execution of the hath demised and to farm let unto the said leases, have been in possession of the premLayton, his executors, administrators and as-ises and paid the rentals, etc., as stipulated, signs, all that lot or parcel of land situated on and the city of Lexington never at any time Water street in the city of Lexington, and prior to the filing of this suit, on July 20, bounded as follows: [Description.] * * "To have and to hold said parcel of ground to the said Layton, his executors, administrators and assigns, for and during the full end and term of 99 years from the 18th day of March, 1838, and the said city of Lexington doth hereby covenant that at the expiration of said term of 99 years it will cause to be executed another demise of said premises for the same term and containing the same covenants, clauses, conditions and rents as this indenture, and it is understood by the parties aforesaid, that this is a clause of perpetual renewal, and it is their intention so to make it, and the said city of Lexington doth further covenant and agree that she will keep him, the said Layton, his executors, administrators and assigns, in the full and complete use, occupation and enjoyment of said demised premises during the term aforesaid, free of all let or hindrance interruption or disturbance whatsoever, in consideration of which demise and the foregoing covenants by the said city, the said Layton doth covenant and agree that he and his executors, administrators and assigns, shall well and truly pay to said city of Lexington, her assigns, the annual sum of $35.83, to become due in equal semiannual installments, computing the time from the 18th day of March, 1838, being the rent reserved and payable and issuing out of the ground demised as aforesaid, and upon the said rent or any part thereof becoming due and being in arrear, the said city of Lexington, by her collector or assigns shall have the right to distrain, sue for and recover the

[1] 1. It is first insisted that the court erred in overruling a special demurrer to the petition upon the ground that under the charter of cities of the second class, to which Lexington belongs, all actions for and on behalf of the city must be prosecuted by the city solicitor; that there is no such officer as "back tax assessor" recognized by the charter; and that, even if the council had authority to appoint such an officer, he is yet without authority to institute or prosecute an action in the name of the city. It is true that the charter does not in terms prosame without delay, and said rent or any part vide for such an officer as back tax assessor, thereof remaining in arrear and unpaid for the and that in section 3166 of the Kentucky space of 12 months, from the time it shall be- Statutes, a part of the charter of cities of come due, then it shall be in the election of the second class, it is provided that the city the said city of Lexington, or its assigns to solicitor, in addition to other specified durecover the same either by distress and suit, ties, "shall appear for the city, and attend or to re-enter upon said demised premises, and to all cases in the circuit court and court of upon such re-entry this lease shall become and appeals, wherein the city may be a party be utterly null and void, and the premises with complainant or defendant, or a party in inthe buildings and improvements and appurtenances shall vest in said city of Lexington for- terest." But this section only defines the ever, and its assigns, and the said Layton is duties of the city solicitor, and does not to perform and keep his article of agreement limit the powers of the city with reference entered into on the 13th day of Feb. 1838, in either to the institution of actions or the the name and firm of T. K. Layton & Co. and employment of counsel, certainly not with in conjunction with B. Ford, M. Gaugh, and reference to the assessment of omitted propR. King, with said city of Lexington, and to erty and the collection of delinquent taxes, perform its conditions and covenants. Said since in another section of the charter, bearticle of agreement is of record in the recording section 3187, Kentucky Statutes, is the books of the city council of Lexington. It is

further covenanted and agreed that said Lay- provision, among others, that— "Where any property, subject to taxation,

ton is to keep an insurance upon the premises

(216 S.W.)

a voluntary sale, and section 4050, provid- the value not only of the leasehold but in ing thatthe fee as well.

"Personal property of every kind shall be separately stated and valued in the appropriate column of the tax book herein provided, and if there be no appropriate column, it shall be valued and stated in the column headed 'miscellany.'

[4] We are therefore quite clear that section 4049 does not exempt from taxation a leasehold interest in land, but merely excuses and could excuse the owner thereof from listing it separately for taxation only when in fact, as is usually the case, its value is an inseparable part of and included in the ordinarily larger interest remaining in the owner of the freehold estate. That this is so is also apparent from section 4033 of the Statutes, providing that, "whenever the occupant or tenant of any land * shall pay the tax thereon which the owner ought to pay, the person paying the tax shall be entitled to recover of the owner the amount of the tax so paid, and interest," which clearly implies that the occupant or tenant may in order to protect his possession be required to pay the taxes on the land which the owner ought to have paid; and that neither the state nor any subdivision thereof can be forced to lose any taxes due on the land or any taxable interest therein because of any inability, however arising, to collect same from the owner of the first freehold estate therein.

[5] Hence defendants are liable under present laws for all taxes on their leasehold, since it is unquestionably property having a separate and independent cash value that can be estimated "at the price it would bring at a fair voluntary sale," even if, as between themselves, the taxes ought to have been paid under section 4049 by the lessor. But if the taxes ought to have been paid by the lessor, defendants can, if required to pay same, under section 4033 of the Statutes, recover the amount thereof and interest from the lessor. So the real question upon which their liability to plaintiff, who is also their lessor, depends (aside from the attempted exemption in the lease), is whether it was primarily the city's duty, as owner of the first freehold estate in the land, to have assessed it and paid taxes to itself thereon. We think not, because this grant to appellants, though technically a lease, demises to them every beneficial interest in the land in perpetuity, and retains only a technical fee, with a small annual rental exacted, which we assume was adequate as rental, but only as such, when the contract was made. But this rental was then, as it is now, merely nominal, or no consideration whatever for the privilege bestowed upon the lessees by the perpetuity clause, of being the beneficiaries of the natural increase in

This is not such a lesser interest in land as was contemplated by section 4049 should be listed by the owner of the first freehold estate and included in the taxes paid by him, because it is a much larger and more valuable interest than any technical freehold interest left therein and, because of this perpetuity clause, which makes the lessee rather than the lessor the custodian and

principal beneficiary of the fee itself, it is not within the general rule of taxing leases as part of the real estate, but an exception thereto, much the same as is an oil or gas lease, and for the same or like reasons independently taxable against its owner rather than the owner of the fee. This court in Mt. Sterling Oil & Gas Co. v. Ratliff, Sheriff, 127 Ky. 1, 104 S. W. 993, 31 Ky. Law Rep. 1229, Wolfe County v. Beckett, 127 Ky. 252, 105 S. W. 447, 32 Ky. Law Rep. 167, 17 L. R. A. (N. S.) 688, and Raydure v. Board of Supervisors, 183 Ky. 84, 209 S. W. 19, has recognized the power of taxing authorities, notwithstanding the provisions of section 4049, to assess against and collect from the lessee taxes on the value of oil and gas leaseholds, not as assumed by counsel for defendants under section 4039 of the statute, which does not confer such power, as was pointed out in the Raydure Case, supra, but upon the broad ground that they are property different from ordinary leases, having taxable values of their own, independent of and not included within the value of the real estate assessable against

the owner.

We are therefore clearly of the opinion that under our present laws this leasehold is taxable against the lessees, upon the same broad principles as are oil and gas leases, because of the perpetuity clause in the lease, which gives to it a peculiar and unusual value independent of and not beneficially Included in the freehold interest remaining in the lessor; that it is quite immaterial, and we do not decide, whether the leasehold is to be considered as personalty or realty for taxation purposes, since both are taxable in exactly the same way and to the same extent, or were during the years involved in this action; and that municipal ownership of the retained technical fee, and consequent failure to pay city taxes thereon, does not affect the lessees' independent liability for taxes on their interest in the property.

The several courts in the following cases, though upon somewhat different facts in each case as pointed out by counsel for defendants, and not always in the same way have nevertheless arrived at practically the same conclusions, and held the owners off leases in perpetuity liable for taxes therec despite the general rule as stated in Cyore,

ย

(216 S.W.)

supra, and statutes similar in effect to ours: | from the act of the Legislature of 1831, incorOcean Grove Camp Meeting Association v. porating the city, expressly gave to the city Reeves, 79 N. J. Law, 334, 75 Atl. 782; Wells council and mayor the power to designate V. Mayor and Others of the City of Savan- the real estate and personal property that nah, 87 Ga. 397, 13 S. E. 442; Penick v. At- should bear the burden of taxation. kinson, 139 Ga. 649, 77 S. E. 1055, 46 L. R. A. (N. S.) 284, Ann. Cas. 1914B, 842; Perry Co. v. Norfolk, 220 U. S. 472, 31 Sup. Ct. 465, 55 L. Ed. 548; La Salle County Mfg. Co. v. Ottawa, 16 Ill. 418; Ex parte Gaines, 56 Ark. 227, 19 S. W. 602; Street v. City of Columbus, 75 Miss. 822, 23 South. 773; Moeller v. Gormley, 44 Wash. 465, 87 Pac. 507.