Bowers v. Lawyers Mortg Co
| Decision Date | 14 March 1932 |
| Docket Number | No. 355,355 |
| Parties | BOWERS v. LAWYERS' MORTG. CO |
| Court | U.S. Supreme Court |
[Syllabus from pages 182-183 intentionally omitted] The Attorney General and Mr. Claude R. Branch, of Providence, R. I., for petitioner.
Mr. Harry W. Forbes, of New York City, for respondent.
Respondent voluntarily paid the capital stock tax imposed on domestic corporations by section 1000, Revenue Act of 1921, 42 Stat. 294, for the fiscal years ending June 30 in 1922 and 1923. Thereafter it applied for refund on the ground that it was an insurance company taxable only under section 246, 42 Stat. 262. The claim was denied. It brought this action in the federal court for the Southern district of New York to recover the amount so paid. The parties by written stipulation waived a jury and submitted the case on an agreed statement of facts. The District Court gave judgment for respondent. 34 F.(2d) 504. The Circuit Court of Appeals affirmed. 50 F.(2d) 104.
The question is whether on the admitted facts respondent was an insurance company subject to the tax imposed by section 246 and therefore not taxable under sections 230 and 1000.
Respondent was incorporated in 1893 under § 170(1) of Article 5 of the Insurance Law of New York1 as the 'Lawyers Mortgage Insurance Company' to examine titles, procure and furnish information in relation thereto, and guarantee or insure bonds and mortgages and the owners of real estate against loss by reason of defective titles. In 1903, 'insurance' was dropped from its name. In 1905, its certificate of incorporation was amended to include the making, and guaranty of the correctness, of searches for instruments, liens, and charges affecting real estate and the guaranty of payment of bonds and mortgages.2 In 1913,3 the certificate of incorporation was further amended to include authority to insure payment of notes of individuals and partnerships and bonds and other evidences of indebtedness of corporations, when se- cured by real estate mortgages, and to 'invest in, purchase and sell, with such guarantee (of payment) or with guarantee only against loss by reason of defective title or incumbrances, bonds and mortgages, and notes of individuals or partnerships secured by mortgages * * * and bonds, notes, debentures and other evidences of indebtedness of solvent corporations secured by deed of trust or mortgages * * *.' It was subject to supervision by the state superintendent of insurance and to the laws applicable to title and credit guaranty corporations and was required to file with such superintendent statements of its condition at the end of each year.
Respondent never has insured titles. In the tax years, it carried on business as follows: Upon receiving an application for a loan it caused an appraisal of the proposed real estate security to be made and procured a title insurance company to survey the property, make a report as to title and insure the same. The borrower, having executed and delivered a bond and mortgage to respondent, received from it the amount specified therein less charges for title insurance, survey, disbursements, and recording tax, and less a lending fee which included the charge for appraisal. Respondent sold the mortgage loans. On the sale of a bond and mortgage as a whole, it delivered an assignable contract called 'policy of mortgage guarantee' to the purchaser. On the sale of part of a loan, it issued a participation certificate assignable by indorsement and registration on respondent's books and containing substantially the same provisions as the policy. By every such policy or certificate the purchaser appointed respondent his agent to collect the principal and interest, and the latter agreed to keep the title guaranteed and the premises insured against fire and to require the owner to pay taxes, assessments, water rates, and fire insurance premiums. Respondent guaranteed payment of principal, as and when collected but in any event within 18 months following written demand made after maturity and payment of interest regularly at an agreed rate usually one-half of one per cent. less than that specified in the bond. Respondent kept the difference and called it 'premium.' Respondent also retained the interest accruing between the making of the loans and the sale of the securities. For renewals of loans it charged extension fees.
It issued some policies of guaranty as to mortgage loans which were not made or sold by it. While substantial in amount, that part of its business constituted but a small percentage of the total. It made no assignment or apportionment of assets to the different parts of its business but used them indiscriminately in its different activities. It kept on hand sufficient bonds and mortgages to maintain the guaranty fund required by the Insurance Law. Corporations organized under the New York banking laws and subject to its banking department are authorized to make loans and sell bonds, mortgages and participations therein with their guaranties under the same general method of doing business as that of respondent. And at least two companies so organized and supervised are carrying on that business.
Pertinent provisions of the act are printed in the margin.4 The general rule declared by section 1000(a) is broad enough to include respondent. But, if it was an insurance company taxable under section 246, it was excepted from the general rule by subsection (b). As such corporations constitute a special class, respondent must be held liable for the capital stock tax unless clearly shown to have been an insurance company within the meaning of the act. Bank of Commerce v. Tennessee, 161 U. S. 134, 146, 16 S. Ct. 456, 40 L. Ed. 645; Heiner v. Colonial Trust Co., 275 U. S. 232, 235, 48 S. Ct. 65, 72 L. Ed. 256; Choteau v. Burnet, 283 U. S. 691, 696, 51 S. Ct. 598, 75 L. Ed. 1353. The act does not define 'insurance company' or definitely indicate criteria by which corporations meant to be so specially dealt with may with certainty by identified. General definition is not necessary in order to determine whether, having regard to the purpose of the classification and the considerations on which it probably was made, respondent's business brought it within the special class.
Under section 230, Revenue Act of 1918, 40 Stat. 1075, insurance companies were taxed as were other business corporations. The applicable Definition of gross income was comprehensive and included gains, profits and income derived from any source whatever. Section 213, p. 1065. It was substantially the same in the 1921 Act. Section 213, 42 Stat. 237. But section 246 of the latter act dealt with certain classes of insurance companies separately and defined gross income to be 'investment income,' i. e., interest, dividends and rents, and 'underwriting income,' i. e., premiums earned less losses and expenses. Capital gains and income from other sources were omitted.
A statement showing respondent's lending fees, extension fees, interest and premiums follows:
Lending Extension
Year Fees Fees Interest Premiums5
1922.... $655,283.70 $214,303.56 $372,795.12 $619,986.38
1923..... 990,855.37 73,745.71 426,842.31 750,803.21
While name, charter powers, and subjection to state insurance laws have significance as to the business which a corporation is authorized and intends to carry on, the character of the business actually done in the tax years determines whether it was taxable as an insurance company. United States v. Phellis, 257 U. S. 156, 168, 42 S. C.t. 63, 66 L. Ed. 180; Weiss v. Stearn, 265 U. S. 242, 254, 44 S. Ct. 490, 68 L. Ed. 1001, 33 A.L.R. 520. Evidently that was the basis of the classification. Congress did not intend to exempt from the capital stock tax under section 1000(a) and the income tax under section 230 corporations not doing insurance business even though organized under and subject to state insurance laws.
The dropping of 'insurance' from respondent's name and the extension of charter powers to the purchase and sale of mortgage loans suggest purpose to carry on an investment rather than an insurance business. Respondent did not consider itself an insurance company taxable under section 246 until after it had twice made and paid capital stock taxes under section 100(a) and income taxes under section 230. The lending of money on real estate...
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