Louisville Title Co. v. Lucas

• Decision Date: 30 June 1928
• Citation: 27 F.2d 413
• Parties: LOUISVILLE TITLE CO. v. LUCAS, Collector of Internal Revenue.
• Court: U.S. District Court — Western District of Kentucky

27 F.2d 413 (1928)

LOUISVILLE TITLE CO. v. LUCAS, Collector of Internal Revenue.

District Court, W. D. Kentucky, at Louisville.

June 30, 1928.

Trabue, Doolan, Helm & Helm, of Louisville, Ky., for plaintiff.

Thos. J. Sparks, U. S. Atty., and Frank A. Ropke, Asst. U. S. Atty., both of Louisville, Ky., C. M. Charest, Gen. Counsel Bureau of Internal Revenue, and E. H. Horton, Atty. Bureau Internal Revenue, both of Washington, D. C., for defendant.

DAWSON, District Judge.

In this suit plaintiff seeks to recover of the defendant $704, paid by it to the defendant as collector on July 22, 1922, under section 1000 of the Revenue Act of 1921 (Comp. St. § 5980n), for the year ending June 30, 1923. The suit is bottomed upon the claim that the plaintiff, at the time of the imposition and collection of the tax sought to be recovered herein, was an insurance company other than a life or mutual insurance company, and subject to income taxation under the provisions of sections 246 and 247 of the Revenue Act of 1921 (Comp. St. §§ 6336 1/8t5, 6336 1/8t6), and that by virtue of the express provisions of sections 246 and 1000 of that act it was not subject to the capital stock tax imposed by section 1000. The necessary jurisdictional facts appear, and the sole question to be determined is whether or not, under the facts of this case, plaintiff is an insurance company other than a life or mutual insurance company, within the meaning of sections 246 and 1000 of the Revenue Act of 1921. A proper understanding of the case necessitates a somewhat extended statement of the facts.

Plaintiff is a Kentucky corporation organized under the provisions of sections 725 to 742, both inclusive, of Kentucky Statutes, dealing with the organization, conduct, and regulation of the business of real estate title insurance companies. Under the provisions of section 736, Kentucky Statutes, the insurance commissioner of the commonwealth is given the same supervisory and visitorial powers over the business of corporations organized and conducting their business under the sections referred to as he is given over the business of other domestic insurance companies. Section 733 of Kentucky Statutes provides as follows:

"The capital stock, not exceeding thirty-three and one-third per centum of the minimum amount thereof, of any such corporation organized under this law, or now doing business in this state, may be invested in the acquisition of such books, maps, abstracts or copies of deeds and other instruments as shall be necessary or convenient for the transaction of its business; and such portion of its accumulations as shall be necessary or convenient may be used in the maintenance, enlargement, and improvement of such plant. The remainder of such stock and accumulations shall be invested, except as hereinafter provided, in bonds and mortgages, lien notes or deeds of trust, on unincumbered real estate within the state of Kentucky, worth at least fifty per centum more than the sum loaned thereon; but, in estimating the value of such real estate, the value of the buildings thereon shall be excluded, unless such buildings be insured against fire, and the policy transferred to the corporation, and such insurance shall be continued in force as long as the loan continues; also in bonds of this state or of any other state of the United States, or of the United States, or of any county or incorporated city or town of this state, authorized by law to be issued; also in the stocks of incorporated banks and trust companies of this state, and of national banks of this state, or of adjacent states; also in the first mortgage bonds of railroads of this and other states, bonds or stocks of any bridge, water, street railroad, gas or electric corporations of this state, which have, for two years previous to the time of making the investment, paid interest or dividends of not less than four per centum per annum, and shall have a market value not less than twenty per centum below par. Said capital and surplus may be loaned on the security of any such bonds, stocks or lien notes, bonds and mortgages, and the investments and loans herein authorized may be changed, and the proceeds reinvested as occasion may, from time to time, require, and the evidences of such loans sold and the payment thereof indorsed or guaranteed. No such corporation shall own more than one-sixth of the capital of any bank or corporation, nor invest in nor loan on the stocks and bonds, both included, of any one railroad, more than one-tenth of its capital and accumulated funds, nor in the aggregate shall the investment in and loan on all railroad property exceed one-fifth of its capital and accumulated funds; and no such corporation chartered by this state, and lawfully doing the business herein authorized, shall be compelled to change any investment heretofore legally made."

At all times since its organization plaintiff's business has been conducted and its capital and surplus invested under the provisions of the statutes dealing with real estate title insurance companies, above referred to. During the calendar year 1922 plaintiff's paid-up capital stock was $500,000, of the par value of $100 per share. During the year 1922, $45,600, or substantially 9 per cent. of its capital, and $46,500, or substantially 15 per cent. of its accumulations, or a total of $92,100, were invested in its home office building, and in books, maps, abstracts, etc., necessary for the transaction of its business. Forty per cent. of its paid-up capital stock, amounting to $200,000 was set apart as a guaranty fund, as required by section 734 of Kentucky Statutes, to secure the faithful performance of its insurance contracts, and this amount was invested as is required by that section. The remainder of its capital stock, amounting to $254,400, and the remainder of its accumulations, amounting to $261,836, or a total of $516,236, were invested in or loaned on the security of bonds, mortgage lien notes, or deeds of trust on unincumbered real estate located within the state of Kentucky, as authorized by section 733 of Kentucky Statutes.

From the beginning of its existence plaintiff's business has fallen under two general heads, real estate title insurance and trustee and bond sale service, and has been carried on in substantially the following way:

Real Estate Title Insurance. — The plaintiff issues policies of real estate title insurance, for which it receives a fixed and final premium, based upon the amount of the policy and paid at the time of its issual. Solely as a preliminary step to the issual of such policy, the plaintiff examines and prepares an abstract of title to the property the title to which it is proposed to insure. If the title to the property is found to be insurable, the cost of examination of the title is merged in the policy premium; if found to be uninsurable, the person seeking the insurance reimburses the plaintiff for this service.

Trustee and Bond Sale Service. — If a person applies to the plaintiff for its trustee and bond sale service, covering a proposed issual of first mortgage real estate 6 per cent. gold coupon bonds, to be secured by mortgage deed of trust to the plaintiff as trustee, on applicant's real property, and this application is approved, plaintiff examines the title to applicant's real property, appraises the property, prepares and causes to be executed the bonds, coupons, and deed of trust to the plaintiff as trustee, securing the payment of the bonds and coupons, causes same to be put to record, and certifies the bonds issued thereunder. As a part of its undertaking plaintiff guarantees the payment of principal and interest of the bonds at maturity, and also insures to the holders of the bonds the deed of trust title. These undertakings are indorsed on the back of each of the bonds. The guaranty of the payment of principal and interest reads as follows:

"The Louisville Title Company guarantees payment to the holder of this bond and the coupons attached the amount thereof at their respective maturities in lawful money of the United States of America: Provided that the same shall be presented at its office for payment at or within 12 days after maturity, and not otherwise. Upon making such payment said company shall become the owner as by purchase of the bond and coupons so paid."

The guaranty, or, more accurately, the insurance as to the mortgage title, is in this language:

"The Louisville Title Company guarantees to the holder of the within bond that the mortgage therein referred to is valid, and insures him against loss by reason of defects of title to or incumbrance on the premises therein described at the time of recording said mortgage, excepting, however, the defects or incumbrances created by or with the privity of said holder, and said company at its own cost will defend the validity and priority of lien of said mortgage: Provided that said holder shall, within a reasonable time not exceeding ten days after service of any process upon him, notify said company thereof, in writing, and shall call upon said company and give to it the exclusive right to prosecute or defend, as the case may be, any action or proceeding wherein the validity or priority of said mortgage deed of trust, or the existence of such defects or incumbrances, may be drawn in question to the prejudice of said bondholder: Provided further, that the refusal or failure of said bondholder so to notify or to call upon said company and to give it the right so to prosecute or defend such action shall avoid the obligation imposed by this clause."

Plaintiff secures from the proper authorities, where necessary, a permit authorizing these bonds to...