Coleman, Aud. Pub. Accts., v. Reamer's Exe.

• Decision Date: 24 February 1931
• Parties: Coleman, Auditor of Public Accounts, v. Reamer's Executor et al.
• Court: United States State Supreme Court — District of Kentucky

237 Ky. 603

Coleman, Auditor of Public Accounts, v. Reamer's Executor et al.

Court of Appeals of Kentucky.

Decided February 24, 1931.

1. Taxation. — Interest was not recoverable on amount of inheritance tax improperly collected (Ky. Stats., sec. 162).

2. Interest. — Right to collect interest is by virtue of statute (Constitution, sec. 233).

3. Taxation. — Interest, unless authorized by statute, is not collectible on taxes due state, being held in nature of penalty.

4. County is not liable for interest except in case of contract agreeing to pay interest or by virtue of statute allowing interest on particular claim.

5. Courts. — State court is not bound by law as announced by Supreme Court of United States on purely state questions.

6. Courts. — Supreme Court of United States adopts construction of state enactments by state courts.

Appeal from Franklin Circuit Court.

J.W. CAMMACK, Attorney General; GEO. H. MITCHELL and S.H. BROWN, Assistant Attorneys General, for appellant.

ROWAN HARDIN for appellees.

OPINION OF THE COURT BY JUDGE RICHARDSON.

Reversing.

Anna C. Reamer, a resident of Jefferson county, died testate on the 15th day of September, 1925. Her will, with codicil, was duly probated in Jefferson county, Ky. The appellee was nominated executor thereof, and duly qualified as such. By this codicil the testatrix recited that Ophelia Hay had rendered services to, and for, her from 1897, and for which she had not been paid. She directed that she be paid for her services the sum of $150 a month from 1897, until the death of testatrix. The amount so directed to be paid to Ophelia Hay aggregated $52,500. The executor of the will duly reported to the state tax commissioner as required by law for the purpose of ascertaining and fixing the inheritance tax which the estate of the testatrix should pay to the state. In its report it took the position that the $52,500 was a debt due from the estate to Ophelia Hay, and that therefore no inheritance tax was due the state on account thereof. The state tax commission insisted that this amount was a devise by the codicil to the will of testatrix to Ophelia Hay, and that it was subject to the payment of an inheritance tax. The amount of inheritance tax due from the estate, if it were subject to an inheritance tax, was $5,338.29, which amount was paid by appellee under protest to the auditor of public accounts. Thereupon this suit was instituted by the appellee against the appellant as auditor of public accounts of the state of Kentucky, and a writ of mandamus was asked to compel him to refund this amount to it, as executor of the will of Anna C. Reamer, deceased, and interest was prayed for from the 2nd day of December, 1927.

The circuit court sustained a demurrer to the petition. An appeal was taken to this court (226 Ky. 301, 10 S.W. (2d) 1095, resulting in a reversal of the judgment of the circuit court. On a return of the case, a trial was had on the merits. The circuit court by its judgment, directed the appellant as auditor of public accounts of the state of Kentucky, forthwith to draw his warrant on the state treasurer in favor of the appellee for the sum of $5,338.29, with interest thereon from the 2d day of December, 1927, until paid. From this judgment this appeal is prosecuted.

The question involved is the interpretation of section 162 of the Kentucky Statutes, and the right of appellee, by virtue thereof, to collect interest on the $5,338,29 from December 2, 1927. This action was instituted by virtue of this section, which provides that, "when it shall appear to the auditor that money has been paid into the treasury for taxes when no such taxes were in fact due, he shall issue his warrant on the treasury for such money so improperly paid, in behalf of the person who paid the same."

Originally, at common law, interest and usury were synonymous. The taking of interest originally was usury at common law, and a punishable offense. This was the condition of the law of interest until England adopted a statute giving creditors the right to collect a limited percentage of interest. A taking of a greater percentage than that permitted by the statute still left the taking of a rate in excess of that fixed by statute a punishable offense. Under the ancient common law of England, one accepting interest was disciplined by the church and at death forfeited all of his goods and lands to the king. It regarded all contracts for interest however small, as void. Houghton v. Page, 2 N.H. 42, 9 Am. Dec. 30; Schliesinger v. State, 195 Wisc. 366, 218 N.W. 440, 57 A.L.R. 352.

The right to collect interest, by statutory enactment, ceased to be a crime, but became a statutory privilege. Therefore the right to collect interest is a creature of statutory enactment.

By an ordinance of the Virginia Legislature passed in 1776, it is declared that the common law of England and all statutory enactments of parliament made in aid of the common law prior to the fourth year of King James 1st, and which were of a general nature and not local to that kingdom, were made a rule of decision and were in full force and effect in Virginia until the same were altered by the Legislature. Hunt v. Warnicke's Heirs, 3 Ky. (Hardin) 66; Ray v. Sweeney, 77 Ky. (14 Bush.) 1, 29 Am. Rep. 388.

By the first, second, and present Constitutions of Kentucky (now section 233), all laws which, on the 1st day of June, 1792, were in force in the state of Virginia, and which were of a general nature and not local to that state and not repugnant to the Constitution, nor to the laws which have been enacted by the General Assembly of this Commonwealth, are in force in this state, except where altered or repealed by legislative enactment. Morris v. Morris, 225 Ky. 823, 10 S.W. (2d) 277.

The right to collect interest in this state therefore is by virtue of the statute, and is a creature of the statute, not of the original common law of England.

It may be collected by the general law which fixes the rate at 6 per cent. on obligations ex contractu, quasi ex contractu, and obligations ex delicto, or that is on express contracts, implied contracts, and in actions for torts, or where it is otherwise provided by statute.

Unless authorized by statute, interest is not collectible on taxes due the state; it being in the nature of a penalty. Danber v. City of Louisville, 5 Ky. Law Rep. 865; Shanks v. Stephens, 6 Ky. Law Rep. 516; Kentucky Cent. R. Co. v. Pendleton County, 2 S.W. 176, 8 Ky. Law Rep. 517; L. & N.R.R. Co. v. Hopkins County, 87 Ky. 605, 9 S.W. 497, 10 Ky. Law Rep. 806; L. & N.R. Co. v. Commonwealth, 89 Ky. 533, 12 S.W. 1064, 11 Ky. Law Rep. 734; Ormsby v. City of Louisville, 79 Ky. 197; Livesay v. DeArmond, 131 Or. 563, 284 P. 166, 68 A.L.R. 422. Nor is a county, which is a division of the state, liable for interest, except in case of a contract by which it agrees to pay interest, or by virtue of a statute allowing interest on a particular claim. Kline v. Jefferson County, 101...