Germantown Trust Co. v. Lederer

• Decision Date: 05 March 1920
• Docket Number: 2183.
• Parties: GERMANTOWN TRUST CO. v. LEDERER, Internal Revenue Collector.
• Court: U.S. Court of Appeals — Third Circuit

263 F. 672

GERMANTOWN TRUST CO. v. LEDERER, Internal Revenue Collector.

No. 2183.

United States Court of Appeals, Third Circuit.

March 5, 1920

R Stuart Smith, John G. Johnson, and Morgan, Lewis & Bockius all of Philadelphia, Pa., for plaintiff in error.

Gordon Auchincloss, of New York City, Robert J. Sterrett, Asst. U.S Atty., and Francis Fisher Kane, U.S. Atty., both of Philadelphia, Pa., for defendant in error.

Before BUFFINGTON, McPHERSON, and WOOLLEY (first argument), and BUFFINGTON, WOOLLEY, and HAIGHT (second argument), Circuit Judges.

WOOLLEY Circuit Judge.

The defendant tax collector assessed a tax of $1,034 against the plaintiff trust company on its entire capital, surplus and undivided profits, under the Act of Congress, approved October 22, 1914, entitled, 'An Act to Increase the Internal Revenue, and for other purposes' (38 Stat.at Large, 750), popularly known as the War Revenue Law. The trust company paid the tax under protest, and, after complying with the statutory formalities in such case brought this suit to recover the money it had paid.

The provision of the cited statute under which the tax was assessed and collected defines a 'banker,' and provides that--

'Bankers shall pay (a special tax of) $1.00 for each $1,000 of capital used or employed, and in estimating capital surplus and undivided profits shall be included. ' Section 3.

In its Statement of Claim the trust company declared its right of action as follows:

'The said special tax of $1,034 was erroneously assessed and illegally and wrongfully demanded of the plaintiff, for the reason that no part of the capital, surplus and undivided profits of the plaintiff during the period commencing November 1, 1914, and ending June 30, 1915, was used or employed by the plaintiff in the business of banking. * * * '

Manifestly, an averment of this kind was necessary to maintain the action, and evidence that would support the averment and sustain a verdict rendered on it was essential to recovery. For lack of such evidence, and because of the plaintiff's attempt to prove the averment in a manner which the learned trial judge regarded as opposed by rules of evidence, the trial court entered judgment of non-suit and the trust company sued out this writ of error.

All errors assigned are directed to the court's rejection of evidence offered by the plaintiff, due to a conflict of wholly opposite theories on which the plaintiff sought to try its case and on which the court insisted that the case should be tried. The material facts of the case, as developed by the evidence, admitted and rejected, are shortly these:

The Germantown Trust Company was a corporation of the State of Pennsylvania doing business with the general powers conferred upon trust companies by the laws of Pennsylvania, which include administering trusts, acting as surety, insuring titles, transacting a general real estate business, renting safe deposit boxes, receiving deposits of money, and loaning money on collateral. The last two activities admittedly constitute 'banking' within the definition of the War Revenue Law in question.

The assets of the trust company embraced capital, surplus and undivided profits (which for convenience we shall refer to collectively as 'capital '), trust funds (which for the purpose of this discussion we set aside), and money received on deposit. In the course of its business, the trust company held certain of these moneys in reserve and invested the balance in an office building and other real estate furniture and fixtures, mortgages and judgments, bonds and stocks, time loans and call loans upon collateral, and in other investments too general to be classified. Except trust funds, it did not segregate, separate, or distinguish its capital from its other assets used or employed in its several business departments, actually or as a matter of bookkeeping, nor did it segregate capital from deposits which came to it in the course of its banking business, except as the President and Finance Committee daily made a mental distinction between money which belonged to the company and that which came from and was regarded as belonging to its depositors, in order to be guided, by the rise and fall of the latter, in making and calling loans. Upon this distinction, however, the trust company at the trial endeavored to prove the essential averment of its Statement of Claim that 'no part of the capital * * * was (during the tax period) used or employed * * * in the business of banking' by proving that all its capital was during that period 'permanently invested in stocks, bonds, and other personal securities, and in mortgages, ground rents and real estate,' as averred in its statement. But the trouble in this case grew out of the character of evidence it offered in proof of this averment. Stated briefly, the trust company proposed to prove that no part of its capital was used in banking by proving that all its capital was permanently invested. It endeavored to prove that all its capital was permanently invested by evidence that none of its depositors' money was so invested, seeking thereby...