Button v. Drake

• Decision Date: 04 June 1946
• Parties: Button et al. v. Drake.
• Court: United States State Supreme Court — District of Kentucky

302 Ky. 517

Button et al. v. Drake.

Court of Appeals of Kentucky. Common Pleas Branch, Second Division.

June 4, 1946.

1. Taxation. — There is no constitutional immunity from taxation to be accorded property procured by proceeds of life insurance policies in contradistinction to rights arising from any other character of investment.

2. Property. — Interests created by life insurance policies, as well as trust estates devised by will, have been regarded as property, though never subjected to taxation in state.

3. Constitutional Law. — Courts may consider administrative officials' and Legislatures' contemporaneous practical construction of constitutional provision only where it is so ambiguous as to leave its meaning in substantial doubt.

4. Property. — The word "property" is generic term of extensive application, large import, and broad and exceedingly complex meaning, and signifies any valuable right or interest protected by law and subject matter or things in which rights or interests exist.

5. Property. — The term "property" means any valuable right or interest considered primarily as source or element of wealth, any civil right of pecuniary nature, or aggregate of rights guaranteed and protected by government and hence means a person's right in relation to something as distinguished from the thing itself.

6. Property. — The term "property" includes everything which is subject of ownership, whether corporeal or incorporeal, tangible or intangible, visible or invisible, real or personal, choses in action, and everything with exchangeable value or going to make up one's wealth or estate.

7. Property. — The words "personal property" mean money, goods, chattels, things in action, and evidences of debt.

8. Property. — A "chose in action" is personal right not reduced to possession, but recoverable by suit at law, more properly includes both right to thing itself and right of action annexed thereto, and is "personal property". Civil Code of Practice, secs. 732, subds. 10, 11.

9. Constitutional Law. — An unambiguous constitutional provision cannot be construed outside of words thereof.

10. Taxation. — A widow's right to monthly payments for life under her deceased husband's life insurance policy is a "chose in action" and is "property" taxable under constitutional provision that all property not exempt from taxation by Constitution shall be assessed for taxation at its fair cash value. Civil Code of Practice, sec. 732, subds. 10, 11; Const. sec. 172.

11. Courts. — A decision of Court of Appeals that widow's right to monthly payments for life under her deceased husband's life insurance policy is a chose in action and property, taxable under constitutional provision that all property not exempt from taxation by Constitution shall be assessed for taxation at its fair cash value, will be given prospective effect only, in view of previous uncertainty of law on such subject, as shown by court's prior opinions reviewed in such decision.

Appeal from Jefferson Circuit Court.

Lawrence S. Grauman for appellants.

Bullitt & Middleton and William Mellor for appellee.

Before Burrel H. Farnsley, Judge.

OPINION OF THE COURT BY VAN SANT, COMMISSIONER.

Affirming.

Again we are called upon to determine the comprehensiveness of the words, "all property", as used in Section 172 of the Constitution, which reads: "All property, not exempted from taxation by this Constitution, shall be assessed for taxation at its fair cash value, estimated at the price it would bring at a fair voluntary sale; * * *."

Appellee, Maidee L. Drake, is the beneficiary named in a policy of insurance issued by the New England Mutual Life Insurance Company, of Boston, Massachusetts, on the life of her deceased husband, under which she is entitled to receive the sum of $55.17 per month so long as she lives. Under one of the provisions of the contract, the company agreed that upon Mr. Drake's death it would retain the proceeds of the policy, pay three per centum interest thereon, and withdraw so much of the principal as might be necessary in supplementation of the interest to equal the amount of the monthly payments. Since the guaranteed interest is not sufficient, it is necessary to encroach upon the corpus to make the payments. The Tax Commissioner of Jefferson County instituted the action to collect taxes on Mrs. Drake's right created by the contract, contending that such right is property within the meaning of Section 172 of the Constitution, supra; and relies on Commonwealth v. Nute, 115 Ky. 239, 72 S.W. 1090; Commonwealth v. Sutcliffe, 283 Ky. 274, 140 S.W. 2d 1028; County Board of Tax Supervisors of Jefferson County et al. v. Helm, 297 Ky. 803, 181 S.W. 2d 452; and Evans v. Boyle County Board of Supervisors, 296 Ky. 353, 177 S.W. 2d 137. Appellee contends that it was not intended by the framers of the Constitution to include this species of property in the phrase, "all property"; and relies upon this Court's opinion in Button et al. v. Hikes, 296 Ky. 163, 176 S.W. 2d 112, 150 A.L.R. 779.

Since Commonwealth v. Sutcliffe, supra, is the leading case in support of appellants' contention, and Button et al. v. Hikes, supra, is the leading case in support of appellee's contention; and since we are of the opinion that these decisions conflict, we will review them briefly for the convenience of the reader. By the will of Elbert H. Gary, a resident of New York, his grandson, Elbert Gary Sutcliffe, a resident of Kentucky, was devised the income to be derived from a $300,000 trust estate to be administered by the New York Trust Company, as trustee. The trustee was directed, upon Sutcliffe's death, to divide the principal of the trust estate among Sutcliffe's lawful issue, per stirpes. In the event no issue survived him, the trust fund was to revert to the testator's estate. The Court held Sutcliffe's right to receive the income to be subject to ad valorem taxation.

Hikes entered into a contract of insurance with three insurance companies, the provisions of all which were substantially the same. The companies agreed that upon Hikes' death, they would pay to his widow, for life, interest on the proceeds of the policies at such rates as might be fixed by the respective companies, but not less than three per centum per annum. Upon her death, the proceeds of the policies are to be paid to the children and grandchildren of the deceased and the widow. In the event the children and grandchildren precede Mrs. Hikes in death, but only in that event, the latter is to receive the proceeds of the trust estate in a lump sum. It was held that Mrs. Hikes' interest in that estate is not subject to ad valorem taxation. In arriving at this conclusion, the Court resorted to the doctrine of contemporaneous construction, to which we later will refer. In the opinion, an attempt was made to distinguish the Hikes case from the Sutcliffe case; but the distinction drawn, if a distinction at all, is one without a difference. The Court said (296 Ky. 163, 176 S.W. 2d 117): "Appellants argue that the rights sought to be taxed cannot be distinguished from the interests held to be taxable in the first of the Sutcliffe and other cases. It must be conceded that they are similar in the uncertainty of their value, duration, and other particulars; but this does not alter the fact that the interests held taxable arose out of the transmission by will or inheritance of recognized forms of property, and that estates so created almost universally have been regarded as property, while interests created by life insurance policies have not. We are not concerned with the question whether the latter should be taxed, but whether the framers of the Constitution intended to tax them."

We know of no constitutional immunity from taxation to be accorded property procured by proceeds of life insurance policies, in contradistinction to rights arising from any other character of investment. If it should make any difference, the insurance feature of the contract passed out of existence upon the death of Mr. Hikes, and in this case upon the death of Mr. Drake. Thereafter, the contracts were resolved into trust agreements no different in essence from those outlined in the Sutcliffe case and the other cases relied upon by appellant. (See dissenting opinion in Button v. Hikes, supra.) The statement that trust estates devised by will always have been regarded as property, while interests created by life insurance policies have not, seems to be without foundation. The basis of the statement that interests created by life insurance policies have not been regarded as property is that they never have been subjected to taxation in this State. If that basis is sound, it is applicable to the interest held taxable in the Sutcliffe case, because such interests, previous to that decision, likewise never had been subjected to taxation in this State. And so we think that no distinction can be made between the two cases: if the one stands, the other must fall.

As we have stated, the Court resorted to the doctrine of contemporaneous construction in exonerating Mrs. Hikes from the payment of ad valorem taxes on her interest in the estate arising out of the proceeds of the insurance policies. That doctrine has been stated in the following language: "The court in determining the meaning of an ambiguous constitutional provision may consider the contemporaneous and practical construction given it by administrative officials and legislatures." (Emphasis ours.) 16 C.J.S., Constitutional Law, sec. 32, p. 70.

It is fundamental that contemporaneous construction may be resorted to by the courts only where the constitutional provision to be construed is so ambiguous that its meaning is left in substantial doubt. In 16 C.J.S., Constitutional Law, sec. 32, p. 71, it is said: "The application of the doctrine of contemporaneous construction is more restricted as applied to the interpretation of constitutional provisions than when...