Summary
In Gilberton Fuels, Inc. v. Philadelphia and Reading Coal and Iron Company, 342 Pa. 192, 20 A.2d 217 (1941), a lease of coal for fifteen years was held to be a conveyance of the coal for all purposes including taxation.
Summary of this case from Commonwealth v. HayduOpinion
April 22, 1941.
May 12, 1941.
Quasi contracts — Unjust enrichment — Money paid under mistake — Recovery from person other than actual recipient — Payment of taxes — Coal mining lease.
1. Where it appeared that plaintiffs, the owners of a coal mining property, let or conveyed the property to defendant, including the right to mine and take away the coal in place, for a term of fifteen years; that defendant was required by the lease to pay rentals, royalties and taxes, the lease providing that the defendant was to pay the taxes to agents of the plaintiffs, who were required to devote the money thus paid to payment of taxes; that during the term of the lease the assessment of the properties for taxation was increased to a sum which was later found, on appeal by plaintiffs to the court, to be excessive, to such an extent as to require an excess tax payment amounting to a specified sum; that the statutory law was such that the taxpayer was obliged to pay the tax as imposed, without regard to the appeal; and that, meanwhile, defendant paid the taxes for the years in question to plaintiffs' agents, who immediately paid them to the municipality, which still retained them; it was held that defendant could not, in an action of assumpsit, enforce its claim against plaintiffs for the amount of the excess tax paid on the theory of a quasi contract to recover for money paid under mistake resulting in the plaintiffs' unjust enrichment. [194-201]
2. The rule that where one makes a payment under a mistake of fact he may recover back the amount of such payment is not applicable where recovery is demanded from a person other than the actual recipient. [196-7]
Landlord and tenant — Coal mining lease — Payment of taxes — Taxes not considered rent — Lease or grant — Right to mine coal to exhaustion — Term of years.
3. Where the contract between plaintiffs and defendant provided that defendant, designated the lessee, was to pay during the term of the lease all taxes imposed by the authorities, that the amounts of the taxes were to be paid to plaintiffs' agent, who was to pay the same to the proper authorities, and that if the taxes were not promptly paid, the lessors might pay the same and distrain therefor as rent or royalty in arrear, such unpaid taxes being considered as part of the rent reserved by the lease; the effect of such provisions was simply that defendant should pay "the taxes", and if it did not, the lessors might distrain for rent if they choose, or they might sue on the lease. [197-9]
4. Where the contract between plaintiffs and defendant provided for a term of fifteen years, with the right of defendant to mine and take away coal in place to the exhaustion of all coal, such instrument, even though in terms a lease, was to be construed as a conveyance of the coal in place. [199-200]
Interest — Liability — Payment of claim admitted to be due — Deposit of money in escrow.
5. The fact that defendant made payment to plaintiffs of another claim which it admitted it owed did not affect the liability of defendant to pay interest on the unpaid claim in question. [202-6]
6. The fact that defendant, pursuant to an agreement of the parties, pending the outcome of litigation, made a deposit in excess of the principal amount due, did not release it from liability for interest until the date of the final judgment. [202-6]
Argued April 22, 1941.
Before SCHAFFER, C. J., MAXEY, DREW, LINN, STERN, PATTERSON and PARKER, JJ.
Appeal, No. 153, Jan. T., 1941, from decree of C. P. No. 4, Phila. Co., March T., 1939, No. 1695, in case of Gilberton Fuels, Inc., to use, v. The Philadelphia and Reading Coal and Iron Company. Decree affirmed.
Actions in assumpsit.
The facts are stated in the opinion of the court below, FINLETTER, P. J., as follows:
These are two suits in assumpsit brought to recover sums due plaintiffs as rental, taxes and other charges arising out of a coal mining lease. By agreement they were tried together, and without a jury.
DISCUSSION.Plaintiffs' claims are not denied, and unless defendant's setoff is established a verdict must be entered for plaintiffs in the sum of $116,707.08, with interest, in the case of Gilberton Fuels, Inc. (No. 1695), and $82,518.21, in the case of Newbourg, et al. (No. 1694), interest and tax penalties to be added in each case.
The circumstances pertinent to the claim of setoff are these:
Plaintiffs were in 1921 the owners of a coal mining property. They let or conveyed this by a document called a lease to the defendant, who entered upon and operated it. The property conveyed included, besides the machinery and buildings necessary for operation, the unmined coal in place, and this the defendant acquired the right to mine and take away. The term of the original lease was fifteen years, that is, from May 1, 1921, to May 1, 1936. This was extended to a further term of fifteen years, ending May 1, 1946.
The defendant was required by the lease to pay rentals, royalties and taxes. The provision for payment of taxes which was set up in the lease provided that the defendant pay the taxes to agents of the plaintiffs, the Messrs. Sheafer, who were required by the lease to devote the money thus paid to payment of taxes.
In 1921 the assessment, or valuation of the properties for taxation, was increased to a sum which was later found, on appeal to the Common Pleas, to be excessive, to such an extent as to require an excess tax payment, amounting to $90,981.69.
Assessments in Schuylkill County are made triennially, so that the excessive assessment applied to the years 1922, 1923, 1924.
Included in the property assessed was the value of the coal in place. The plaintiffs appealed to the Common Pleas, and succeeded in securing a reduction of the valuations to the extent above indicated.
Meanwhile the statutory law was such that the taxpayer was obliged to pay the tax as imposed, without regard to the appeal. In other words, the appeal did not amount to a supersedeas. The defendant paid the taxes for the three years, on the excessive basis, to the Sheafers for transmission by them to the municipality. The latter immediately paid them to the municipality, which still retains them.
The defendant now sues the plaintiffs, by way of setoff, alleging, in paragraphs 24, 25 and 26 of both affidavits of defense, that immediately upon the reduction by the Court of the triennial assessments, that is on November 7, 1925, the amount of the overpayment became due and payable by the plaintiffs to the defendant. Defendant permitted sixteen years to elapse before it took this position, and did not then assert it until after reorganization proceedings of defendant were under way.
It has selected an action of assumpsit as a method of enforcing its claim, on the theory of a quasi contract to recover for money paid in mistake resulting in the plaintiffs' unjust enrichment.
It is difficult to see how the latter claim can be made because the plaintiffs have not been enriched. The excessive payment is still in the hands of the municipality. It is true the excessive payments of taxes were made through the plaintiffs. But they were made by the defendant in such a way as to compel their payment by plaintiffs to the taxation authorities. The Sheafers were obliged by the lease, on receipt of the taxes from defendant, to hand them over to the municipality. And in doing so the Sheafers did exactly what the defendant wished them to do, and which under the lease the Sheafers were required to do. Both parties suffered from the inequitable statute which prevented the appeal from being a supersedeas. Payment is said to have been made under a mistake of facts, the mistake being as to the value of the property. Defendant has gone to some length to cite cases which show that the general rule in this state is, when one makes a payment under a mistake of fact, he may recover back the amount of such payment. With this proposition we agree, provided the recovery is demanded from the actual recipient. In every case cited by defendant, action was brought against the holder of a sum which rightfully belonged to the person suing. We need not cite authorities to show that a prerequisite for recovery on the ground of unjust enrichment is that the person sued actually be unjustly enriched. It is not contended in this case that the plaintiffs are in possession of any sum of money which, in equity and good conscience, rightfully belongs to the defendant. The amount in suit is held by the taxing authorities; the only thing which plaintiffs have that possibly belongs to defendant is a judgment against those authorities.
Defendant's case, therefore, so far as its quasi-contractual basis goes, amounts simply to a right to obtain that judgment or its value from the plaintiffs. It is clear that the judgment, at present, is not worth its face value. Its true value is a question which defendant's evidence has not sufficiently answered to permit a definite finding, and it was for the defendant to prove, as a part of its case. Concededly, plaintiffs offered to assign the judgment to defendant, and apparently are still willing to do so. It may be some evidence of the value of the judgment when the plaintiffs try to give it away, and the defendant will not receive it. Be that as it may, to charge the plaintiffs with unjustly enriching themselves by means of the judgment which they offered to assign to the defendant is an extreme which this court is not prepared to reach.
Defendant argues that the intent was to pay taxes as rent, and therefore plaintiffs were liable for the refund, whether or not they actually received it from the taxing authorities. We do not agree. The question whether the taxes were paid as rent or not is not pertinent or important to the issue. We shall refer to it, however, in view of its discussion by counsel.
We cannot agree that the taxes were to be considered as rent. Article VII of the instrument provides:
"The Lessee agrees to pay during the term of this lease all taxes imposed by the Government of the United States, State of Pennsylvania, the County, Borough or School District. The lessee shall pay the amount or amounts of the aforesaid taxes . . . to the lessors, their agent or engineer at the office of Arthur W. Sheafer until otherwise directed, who shall pay the same to the proper authorities, and retain the tax receipts."
It is clear at this point that "taxes" and not "rent" are to be paid.
But the clause goes on to provide:
"If the taxes shall not be promptly paid . . . lessors may pay the same and distrain therefore as rent or royalty in arrear, such unpaid taxes being considered as part of the rent reserved by this lease."
Defendant argues that the obligation of the defendant was to pay "as rent an amount measured by the taxes." This is not the obligation stated, which was to pay "taxes." It is only on default in the payment of taxes that the remedy of distress is given, and there can be no doubt whatsoever that the sole meaning to be ascribed to these provisions is that the parties intended to give to the lessor an additional remedy for the collection of any taxes which it might be called upon to pay on the default of the lessee.
In Axe v. Stern, 120 Pa. Super. 235, cited by both parties, the covenant was that if taxes were increased, such additional amount "shall be treated in all respects as rent." There was no express covenant to pay taxes. The obvious difference in the words employed and the absence of any express covenant to pay taxes deprives that decision of any value as a precedent in the instant case.
In Broad Sansom Realty Co. v. Fidelity Bldg. Corp., 292 Pa. 287, also cited, the provision was "The Lessee agrees to pay as rental . . . the amount of taxes assessed." This being the only provision, it of course governed, and the taxes took on the character of rental.
In view of the wording of the clause quoted above, particularly the statement that unpaid taxes are considered as part of the rent, the conclusion is inescapable that the taxes paid were never to be regarded as rent. To summarize, the effect of the two clauses is simply that defendant shall pay "the taxes," and if it does not, lessors may distrain for rent if they choose, or they may sue on the lease.
Defendant also argues that since the obligation is to "pay the landlord," it is rent. The phrase "pay the taxes" must mean, if there is no other direction, to pay to the person to whom taxes are due. And when it appears that the payment is to be made by the person primarily liable for the taxes to the taxing authorities, the conclusion is that tax payments and not rentals are meant. Defendant, as is indicated further on in this opinion, as grantee of the unmined coal was the owner primarily liable for taxes. The payment was to be made to the agents of the lessor. This taken alone might be some indication of a rent payment, but the method of payment provided in the lease was peculiar. In effect the provision was that the lessee should pay the bill to the Sheafers who received it on condition of paying the taxes to the municipality. The Sheafers were merely the conduit through which the tax payment went from the property owner, the defendant, to the authorities.
Moreover the defendant's own conduct bars it from making the belated claim. If there had been an overpayment on November 7, 1925, it could have been charged by defendant against each of sixteen annual payments made of successive sums falling due under the lease by defendant to the plaintiffs. No such credits were claimed by defendant.
Defendant's claim as pleaded is in assumpsit. We first meet a claim of damages for negligence at the trial and in the briefs of defendant's counsel, which claim negligent conduct of the plaintiffs not pleaded in the counterclaim or setoff. The briefs charge failure to perform a duty which, they aver, was owing by plaintiffs to defendant. This is based on the theory that plaintiffs should have taken action to lessen defendant's losses arising out of the excessive payments. We know of no such duty arising out of the relationship of landlord and tenant — and a fortiori out of that of grantor and grantee, which we are convinced is the true effect of the lease. This brings us to a consideration of the effect of its provisions.
Both leases were for a term of fifteen years, with the right to mine and take away coal in place up to the exhaustion of all coal. The rule is established in Sanderson v. Scranton, 105 Pa. 469; R. R. v. Sanderson, 109 Pa. 583; Millard v. R. R., 240 Pa. 234; Lehigh Valley Coal. Co. v. Coxe Bros., 327 Pa. 23, that such an instrument, even though in terms a lease, will be construed as a conveyance of the coal in place. These were cases where no time limit was fixed, or where practically indefinite terms (99 years, 100 years, c.) were provided for. In the instant case the terms of the contract were fifteen years.
In Timlin v. Brown, 158 Pa. 606, the instrument purported to lease the land for ten years, for the purpose of mining coal. Held a sale of the coal in place, with right to a term of ten years in which to mine and remove it. The Court held it to be a grant absolute of all the coal in the tract.
In Sturdevant v. Thomson, 280 Pa. 233, the term was ten years. Held to be a sale, citing Robinson v. Pierce, 278 Pa. 372.
In Finnegan v. Stineman, 5 Pa. Super. 124, the term was twenty years. RICE, P. J., said: "It was intimated in R. R. Co. v. Sanderson that there might possibly be a distinction between a perpetual lease . . . and a term lease, but this distinction has not been recognized in later cases," citing Kingsley v. C. I. Co., 144 Pa. 613: "Where a fair interpretation of the written agreement shows that a sale was intended by the parties and a right to mine and remove all the coal is conferred by it in express terms, or by plain and necessary implication, it will constitute a sale, notwithstanding a term is created within which the coal is to be taken out." And the learned president judge held the contract in the Finnegan case to be a sale and not a lease.
The instrument in the instant case contemplated the exhaustion of the coal in the land. That is, it conveyed all the coal and gave the right to mine and take away without limit. It is hard to differentiate this from a sale. In our opinion the defendant held title to the coal in place for all purposes including taxation.
Returning now to the charge that plaintiffs failed to proceed against the taxing authorities with sufficient diligence, its lack of foundation becomes apparent. As owner, it was for the defendant to take the necessary steps against the municipality, and plaintiffs were not bound to act on defendant's behalf. Of course that they did not go so far as to procure a judgment would not enlarge defendant's rights in this respect.
It is suggested that plaintiffs could have done two things by which defendant (itself said to be helpless to do them) could have benefited. First, it says, plaintiffs could have claimed a setoff against taxes imposed by the municipality in each of the sixteen years that have elapsed. So could the defendant. It could have claimed the setoff against subsequent tax bills, against the municipality, and it could have claimed a setoff against the plaintiffs against sums due under the lease. It made no such claims against either.
Next, defendant asserts, plaintiffs should have negotiated, or in some way secured, an issue of bonds by the municipality. There was nothing to prevent the defendant from doing the same thing. Plaintiffs in fact tried this, but the municipality refused to issue bonds.
As a matter of fact the plaintiffs seem to have done more to help the defendant than the latter did itself. They appealed the excessive assessment. Defendant made no appeal. The defendant seems to think it was not in a position to help itself by appealing, not being an owner of the property sought to be taxed, and plaintiffs being, according to defendant, the only proper appellant against the excessive assessment. Defendant's status, as we have said above, was that of owner of the unmined coal in place, which represented a large part, probably the major part, of the value of the property, and we think could have prosecuted an appeal, either in its own name or in the name of the plaintiffs. Plaintiffs not only appealed but secured a judgment against the municipality, which they offered to assign to the defendant, who refused to accept it. However, the judgment was the only asset received by the plaintiffs, and it was valueless. We think that defendant's charge of negligence, of a failure by plaintiffs to perform a duty they owed the allegedly helpless defendant, is not supported by the evidence. Neither party could compel an issue of bonds. Plaintiffs tried to do so but the municipality refused to act. Defendant was not helpless in this connection. It had the same capacity to negotiate as the plaintiffs had. As a matter of fact the plaintiffs, far from neglecting their own or defendant's rights, were much more active than defendant.
We are of opinion that no right of action existed on November 7, 1925, against the plaintiffs and in favor of the defendant, either by way of quasi-contract or for negligence. We think, if such right had ever existed, it would have been barred by the laches of the defendant in neglecting the assertion of its claim for sixteen years, and its neglect to claim a setoff against the charges against it of the lease, not to speak of the Statute of Limitations. We are also of opinion that the claim of negligence is not pleaded in the defendant's claim of setoff, and is not sustained by the proofs.
Defendant argues plaintiff still can set off the judgment against future taxes. The right was given by the Act of July 15, 1935, P. L. 1007, 72 PS sections 5020-518. That Act provided that when on appeal a refund would be found to be due, the taxing authorities should allow credit on future taxes. The refund would have been due, if this Act applies, on November 5, 1925, when the Court reduced the assessment. That is, in 1935 when the Act was passed, any such claim would have been ten years old; the School Board could have pleaded, and still can plead, the Statute of Limitations.
A question has been raised regarding liability of the defendant for interest. That is, whether or not interest runs only until November 30, 1938 (when the defendant paid a sum it admitted to be due), or until the date of final judgment. This (the parties stipulate) is to be determined by the Court from the settlement agreement embodied in the Stipulation of Facts, paragraphs 6 and 7, Exhibits C and D.
Paragraph 6 recites that the United States District Court entered an order approving an agreement of settlement between plaintiff (and its predecessor in title to the Conrad Mertz Tract) and defendant, embodied in a letter from plaintiff's attorney to defendant's attorney, dated August 11, 1938, as modified by a letter dated August 17, 1938 (marked Exhibits C and D).
The first letter provided that, "the debtor (the defendant) shall deposit in escrow . . . $215,000.00 in cash in a bank or trust company to be held and disposed of as follows: (We condense) The parties shall institute 'proceedings for the judicial determination of debtor's (defendant's) rights to offset' against plaintiff's claims 'the amount of two judgments obtained in the Common Pleas of Schuylkill County by former owners of the Conrad Mertz tract against the Borough of Gilberton and the School District of the Borough of Gilberton for excess taxes paid in the years 1922, 1923 and 1924' . . . amounting to $160,946.61. The $215,000 to be returned to the defendant if its offset is sustained. If the claim of offset is not sustained 'payment shall forthwith be made as follows:
'(a) to the owners of the Conrad Mertz Tract from September 1, 1937, to December 31, 1937, inclusive (1) the sum of $39,448.70 with interest thereon from September 1, 1938 (representing the rents and royalties due September 30, 1937, to December 31, 1937, with interest thereon to August 31, 1938), (2) the sum of $43,069.51 (representing the Borough and School taxes payable in October 1937 with interest and penalties thereon to August 31, 1938), and (3) a sum equal to the interest and penalties on the said Borough and School taxes accruing after August 31, 1938, to date of payment;
'(b) to Gilberton Fuels, Inc., owners of the Conrad Mertz Tract on and after December 31, 1937, (1) the sum of $77,375.54 with interest thereon from September 1, 1938 (representing the rents and royalties due from January 1, 1938, to August 31, 1938, with interest thereon to August 31, 1938, less $8,655.34 paid in cash August 31, 1938), (2) the sum of $38,426.31 (representing the Borough and School taxes payable in October, 1938), and (3) a sum equal to the interest and penal-ties (if any) on the said Borough and School taxes accruing to date of payment.'
(The reference in the said letter to 'Borough and School Taxes' should have read 'County, Borough and School taxes.')
The statement of the amount due by the defendant if its setoff is not allowed, attached to the said letter of August 11, 1938, and forming part of the settlement agreement, is as follows:
'(2) If Setoff is Not Allowed (No Recoupment permissible)
Former Gilberton
Owners Fuels, Inc. Total
Rents royalties to 8/31/38 $37,740.33 $84,436.55 $122,176.88
Interest to 8/3/38 inc. .... 1,708.37 1,594.33 3,302.70 ---------- ---------- ----------- 39,448.70 86,030.88 125,479.58
Taxes, int. pen. 1937 .... 43,069.51
" " " " 1938 38,426.21 81,495.72 --------- ----------- ---------- 82,518.21 124,457.09fn_ 206,975.30 ========= =========== ========== Cash to be paid 8/31/38 ............................... 8,655.34 -----------
(NOTE: The sum stated as taxes for 1938 was an estimate. It was found in fact to be $905.33 short of actual taxes. The correct sum due is $199,225.29 instead of $198,319.96.)
Balance to be secured by deposit in escrow together with interest, tax penalties etc. from 8/31/38 .. 198,319.96fn_
===========' "
Of the total sum stated above ($199,225.29) $125,362.42 was payable to plaintiffs. On November 30, 1938, defendant paid $8,655.34, reducing the amount payable to plaintiffs to $116,707.08.
The defendant claims that interest should cease as of the date when it paid the $8,655.34, which it admitted to be due.
To summarize the situation: We have found that the claim of setoff should not be allowed. This results in a finding that there is due the plaintiff a certain sum, which has not been paid. This cannot be affected by defendant's payment of another claim which it admitted it owed. We have found that it was indebted in a certain other account, which carries its own interest.
It has been suggested that the deposit of $215,000,00 in escrow indicates that interest should cease after this deposit. We do not agree. There is nothing in the agreement, which regulates the escrow deposit, to exempt the defendant from interest on a debt that is due. The defendant does not date its alleged exemption from the date of the escrow agreement, but from the payment of a sum admitted to be due. The only indication of the limit of defendant's liability for interest is that $215,000 was deposited to meet claims for $199,225.29. If any inference can be drawn from this (and we do not think it can) it would be that payment of something more than $199,225.29 was contemplated. This operates against defendant's contention because the only way in which the claim could grow would be by way of interest.
We have examined the settlement letters closely, and we cannot see that the contract contains any provision that would take the case out of the normal rule that unpaid claims bear interest until payment. Nor can we agree that the deposit in escrow must be considered as a tender. Defendant has cited several cases to prove that the deposit was a payment into court or its equivalent, so as to stop the running of interest. None of these cases are in point, with the possible exception of Warren v. Banning, 140 N.Y. 227; and there the deposit was made pursuant to a court order. In the case of In re Cloud's Estate, 4 Legal Gazette 369, the statement is made that no interest is due on funds in the actual or constructive custody of the court; but we have found no case holding that funds on deposit pursuant to an agreement of the parties, pending the outcome of litigation, are in custodia legis, actual or constructive, so as to stop the running of interest.
We have referred to the proceedings in the United States Court at times in this opinion. They have no bearing however upon the claims and defenses of the parties which we have discussed. The latter stand on their own merits apart from the Reorganization proceedings in the District Court.
In our opinion judgment should be entered for the plaintiffs and against the defendant in the sum of $116,207.08 in case No. 1695, and $82,518.21 in case No. 1694. Interest and tax penalties, in accordance with the above findings, to be added in each case.
Exceptions by defendant dismissed and judgment entered for plaintiff. Defendant appealed.
Errors assigned, among others, related to the action of the court below dismissing defendant's exceptions.
Arthur Littleton, with him Penrose Hertzler, Murdoch K. Goodwin and Morgan, Lewis Bockius, for appellant.
Harold Evans, of MacCoy, Brittain, Evans Lewis and Richard W. Ledwith, for appellee.
The decree is affirmed on the opinion of President Judge FINLETTER of the court below. Costs to be paid by appellant.