Anthony v. Perose

• Decision Date: 04 December 1973
• Citation: 312 A.2d 360,455 Pa. 233
• Parties: John P. ANTHONY, Appellant, v. Theresa PEROSE et al.
• Court: Pennsylvania Supreme Court

Page 360

312 A.2d 360

455 Pa. 233

John P. ANTHONY, Appellant, v. Theresa PEROSE et al.

Supreme Court of Pennsylvania.

Dec. 4, 1973.

[455 Pa. 234] James G. Kellar, Allentown, for appellant.

S. Maxwell Flitter, Easton, for appellees, Theresa Perose, and others t/a Lehigh Tile & Marble Co.

Robert J. Johnson, Allentown, for appellee, New York Life Ins. Co.

Before JONES, C.J., and EAGEN, O'BRIEN, ROBERTS, POMEROY, NIX and MANDERINO, JJ.

OPINION OF THE COURT

PER CURIAM.

Lehigh Tile & Marble Co., a partnership, appellee herein, in 1952 purchased from New York Life Insurance Company a 'key man' policy of insurance in the face amount of $25,000 on the life of its Office Manager, John Anthony. Upon appellant's resignation from Lehigh to take a position with another firm, he demanded delivery of the policy to him. This denied, the present suit in equity was brought to compel transfer of ownership of the policy, including all dividends thereon, to plaintiff. The complaint also prayed that the employer be declared a trustee of the policy for plaintiff's benefit, and that it be ordered to pay to plaintiff an amount equal to all of the premiums paid on the policy from the date of issuance, together with dividends and interest thereon. After a trial the complaint was dismissed. The court En banc overruled exceptions to the chancellor's adjudication, and entered a final decree, from which this appeal was taken.

The court below found that the policy had been obtained pursuant to an application signed jointly by the Company and by Anthony. As requested in the application, the policy, a 20-year endowment contract, named the appellant as the insured and the Company as owner and beneficiary. The annual premium was $1077.00 and, as the chancellor found, the premium payments were made by the Company with its own funds; its cancelled checks representing the payments were in evidence. The Company received dividends on the policy and paid income tax thereon.

Had this been the whole story, no doubt the present suit would not have been brought; the complaint has its foundation in the manner in which the Company handled the premium payments. Presumably knowing that premiums on key man insurance on the life of an employee of a taxpayer are not deductible where the taxpayer-partnership is a beneficiary under the policy, ¹ the Company's accountant suggested that deductibility be achieved indirectly by Purporting to increase the amount of Anthony's year-end bonus payments by an amount equivalent to the annual premium. ² Mr. Anthony was informed of the nature of and acquiesced in this tax avoidance device. ³ The chancellor found that whatever the tax consequences of this arrangement might be, 'the source of the funds used to pay the premiums was clearly Lehigh Title & Marble Co., and not the plaintiff.' He further found that appellant had failed to prove that Lehigh had been unjustly enriched, or that there was any evidence of an agreement that appellant was to be the owner or beneficiary of the policy. ⁴

It is, of course, well established that the findings of a chancellor, sustained by a court En banc, have the force and effect of a jury verdict and will not be disturbed on appeal if supported by evidence. Lewkowicz v. Blumish, 442 Pa. 369, 275 A.2d 69 (1971); Horsham Township v. Weiner, 435 Pa. 35, 255 A.2d 126 (1969). There was ample evidence here to support the chancellor's finding that the crediting to appellant of the amount of the premium, $1077.00 per annum, was never intended by the employer as Real compensation for appellant's services and was never understood by the employee to be such. The further additional payment to Mr. Anthony to cover the payment of income tax incurred by reason of the enhanced bonus is clear indication that the $1077.00 was not compensation; this additional payment was obviously designed to make Mr. Anthony whole with respect to tax paid by him on income purportedly his but which was not in fact his and which he never actually received. Appellant's claim that the employer Company has been unjustly enriched at his expense seems clearly to be an attempt to make of the Company's tax manipulation a windfall to himself. But the fact that fictitious accounting, which we of course do not condone, may entail liability to the taxing authorities does not serve to vest a right of action in this appellant, who was in no way injured.

Decree affirmed. Each party to bear own costs.

MANDERINO, J., filed a dissenting opinion in which ROBERTS, J., joins.

NIX, J., concurs in the result.

MANDERINO, Justice (dissenting).

I must dissent. The appellee employer in this case has been unjustly enriched at the expense of the appellant employee and there is not one shred of evidence to support the majority's denial of restitution to the employee. For seventeen years, the employer made a Payroll deduction for life insurance from the employee's Gross pay. During the entire seventeen years the employee paid federal income tax on his Gross pay. Each year, for seventeen years, the employee's gross compensation was reviewed personally for the employee by one of the partners in the business. The employee was Never told that the payroll deductions were a sham. On the contrary, he was told exactly the opposite--that his True gross pay was exactly what was listed on his W--2 forms and on the company books. One of the employer's partners So testified and Admitted that the payroll deductions were the employee's money and were always considered part of the employee's gross pay. The majority completely Ignores this testimony by one of the partners who Personally reviewed the employee's gross compensation in two yearend meetings. That partner testified as follows:

'Q. Did you not in December of 1967 and in December of 1968 personally go over with Mr. Anthony a listing of The amounts and various types of compensation which had been paid and were being paid t him for those years as an employee of the company?

A. Yes I think that was the usual procedure, I guess, to name everything down the line.

Q. In 1967 and '68 you went over this listing with Mr. Anthony, is that correct?

A. If you want to say that, yes.

Q. I don't want to say it. Did you or didn't you?

A. It's The same procedures that was done previous in the other years and I didn't change the practice. What was done was just as you said.

Q. The practice was that in December of each year there would be a listing made of the salary that had been paid to Mr. Anthony on a weekly basis, a listing of expenses And a listing of other benefits that were paid to him or for him and on his behalf, correct?

A. It was his wages which at that time was $200.00 a week. It was the expenses that occurred plus the gift that we gave to him at the end of the year which was part of the $1,077.

Q. When you say gift, Are you talking about a bonus that he was paid?

A. I would say it was a gift. I don't know if you call it a bonus. This is what my father did for him at the end of the year.

Q. A bonus?

A. A gift. You call it bonus. It call it a gift.

Q. But It was given and paid to Mr. Anthony from the company funds as an employee of the company, is that correct?

A. That's right.'

(Emphasis added.)

Why does the majority opinion ignore the above testimony? It completely verifies the facts as reflected on the employer's books for seventeen years, on the employee's W--2 forms for seventeen years, and on the employer's tax return for seventeen years. Instead of accepting the seventeen-year record of written documentation and the Admission of the employer's partner which is unequivocal, the majority Selects portions of the testimony of the employer's accountant and concludes that the employee 'know of and acquiesced' in a tax avoidance device, and 'understood' that his W--2 forms did not reflect his true compensation. Whoever told the employee what the majority claims the employee knew? Certainly not the partner who verified the facts as reflected for seventeen years on the company books and on all tax records.

The majority says that the employer's accountant told the employee that the payroll deduction each year was a sham. I must categorically dispute that interpretation of the accountant's testimony. The accountant testified to no such thing. He did testify that he discussed with him Employer a tax avoidance device but The employee was never present in these discussions with the employer. Employers all over America may be discussing tax avoidance devices with their accountants--but those discussions surely cannot legally affect an employee's rights. Moreover, when we examine Exactly what the accountant told the employee, we find only very Equivocal testimony, and No testimony that a tax avoidance device was ever discussed with the employee. The accountant was most cautious in his testimony about his dicussions with the employee. We must examine Exactly what the accountant said, not what we think he said. All of the accountant's testimony about a tax avoidance device concerns his conversations With the employer--not the employee. When asked what he told the employee, the accountant said he mentioned 'the accounting procedures . . . for the best tax advantages of all parties . . . everyone would benefit. . . .' This is a far cry from the majority conclusion that the employee was told his payroll deductions were a sham. When the accountant was specifically asked if anything was said to the employee about the insurance premium deduction, the accountant answered 'just that I asked him if he was receiving ample dollars to pay the tax thereon.'

During cross-examination, the accountant was specifically asked:

'Q. Now, Mr. Verrichio, (the accountant) when Mr. Anthony (the employee) asked you why this $1,077.00 was being put on his W--2 as additional compensation, Did you say anything more to him than it has to be done this way for tax reasons. Was that The gist of your explanation and About the extent...