Jetton v. University of the South

This is a suit in equity brought in the United States circuit court for the middle district of Tennessee, by the University of the South, a corporation, and by the several individual complainants named in the bill, who are residents of the county of Franklin, in that state, and lessees of certain lands from the university, to obtain an injunction against the individual defendants, who are a state revenue agent and a trustee of Franklin county, and also against the county of Franklin, in the above-named state, to restrain them from taking any proceedings to collect taxes from the lessees of the university within the limits of the 1,000 acres mentioned in the complainants' bill.

The bill having been filed, a preliminary injunction was issued, restraining the collection of the taxes, as prayed for.

Thereafter a demurrer to the bill was filed by the defendants on several grounds; among others, on the ground that, as to the individual complainants, the bill could not be maintained, and the court had no jurisdiction to hear and determine the cause on their behalf.

The defendants also answered.

The demurrer was sustained as to the individual complainants and the bill dismissed, but was overruled as to the university itself.

After a trial between the university and the defendants a final decree was entered in favor of the university, restraining the defendants from assessing, or attempting to assess, taxes on the property and leasehold interests described in the bill, and situated within the 1,000 acres already referred to.

From this final decree the defendants have taken an appeal directly to this court, under the 5th section of the act of 1891 (26 Stat. at L. 826, chap. 517, U.S.C.omp. Stat. 1901, p. 488), as involving the application of the Constitution of the United States.

The material facts are as follows:

The University of the South is a Tennessee corporation, under a charter granted by the legislature of that state, January 6, 1858, and amended January 19, 1858. The corporation was created for the purpose of establishing a seminary of learning, to be located at Sewanee, on the Cumberland mountain, in Tennessee.

The 10th section of the act, under which the question arises, is set forth in the margin. That question is whether the assessments made against the lessees upon their interests in that portion of the 1,000 acres of the lands leased to them respectively are valid, or whether they are not a violation of the exemption from taxation granted by that section.

The Civil War coming on soon after the charter was granted, very little work was done under it; but after peace was restored the university authorities, aided by subscriptions from those interested in the work, went on with it, and in process of time the 1,000 acres were duly surveyed and marked out and many buildings were erected for the university. Leases were also granted by it of lots within the 1,000-acre limit to persons who, under such leases, built upon the lots severally leased to them. By this method a population of about 1,000 or 1,200 people had been gathered within the village called Sewanee, situated within the limit stated, and which was a barren wilderness when the charter was granted. In fact, the very existence of the village is the result of the efforts of the university.

In the summer of 1906 proceedings were taken to assess taxes upon the interests of the lessees occupying various lots under the leases mentioned, and a hearing was had before the trustee of Franklin county, within which the lots were situated, and he held that under the act of the legislature of Tennessee, passed January 10, 1903, chap. 258, being the general assessment act, the lessee of a leasehold interest of a lot in Sewanee was taxable on the value of such interest, and he thereafter assessed the tax in the case of an individual named, and announced his intention of doing the same with reference to all lessees similarly situated. This bill was then filed before any further assessments were made.

The several leases under which the various lessees of the university held their lots, among other things, provided that the lessees would pay the rent specified in the lease 'and all taxes and assessments upon said premises.' It was also provided in the leases that the premises should not be sublet or transferred without the consent of the commissioner of land and buildings of the university, and that, for any violation of the restrictions and provisions made in the lease, the lessor might end and determine the lease and re-enter upon the premises. Each lease also contained the following, the blanks being filled up in accordance with the terms which might be agreed upon between the parties:

'And at the expiration of the present term, the University of the South shall have the option of taking the premises by paying for all such improvements made thereon, or may renew the lease for another term of ________ years, on such terms as may be agreed upon by the parties respectively, and may also give a second renewal for ________ years; and in case the parties cannot agree upon the value of the improvements or the rental to be paid for the new term, the same shall be determined by arbitration, one of the arbitrators to be selected by the commissioner of buildings and lands and the other by the lessee; and, in case they cannot agree, they shall call in an umpire. . . provided, however, that in fixing the rental for the new term, the value of the improvements shall not be taken into account as against the said party of the second part. . . heirs or assigns. And it is further agreed that the improvements to the value of ________ hundred dollars be made and kept on said premises by the party of the second part.'

At the time of the passage of the act of 1858 (the charter of the university) there was no statute providing for the separate taxation of the interest of a lessee in real estate, but the whole value of the entire real estate was assessed against the owner of the fee. The act of 1903, already mentioned, provided in subdivision 5 of § 5 that the interest of a lessee should be assessed to the owner of such interest separately from other interests in the real estate.

Section 32 of the same act provided that all taxes should be a lien upon the fee in the property, and not merely upon the interest of the person to whom the property was, or ought to be, assessed, and it was provided that the whole proceeding for the collection of taxes, from the delinquency to the sale, should be a proceeding in rem.

It is also asserted by complainant as a further ground of invalidity that § 2, subdivision 2, of the act of 1903, providing a general exemption from taxation of religious, educational, and other named classes of institutions, as therein stated, does not provide as broad an exemption as the special exemption granted the university by its charter, and if it be held that the above general exemption does not reach the complainant, while at the same time it is claimed to repeal the special exemption provided by the charter, it impairs the contract between the state and the university, and is therefore void.

Messrs. Charles T. Cates, Jr., Felix D. Lynch, Frank L.

[Argument of Counsel from pages 493-494 intentionally omitted] Lynch, I. G. Phillips, and Thomas B. Lytle for appellants.

[Argument of Counsel from pages 494-496 intentionally omitted]

Messrs. James J. Lynch, Arthur Crownover, William D. Spears, Isaac W. Crabtree, John J. Vertrees, Albert T. McNeal, and William L. Myers for appellee.

[Argument of Counsel from pages 496-498 intentionally omitted]

Mr. Justice Peckham, after making the foregoing statement, delivered the opinion of the court: