People ex rel. Nat'l Sur. Co. v. Feitner

• Decision Date: 01 March 1901
• Parties: PEOPLE ex rel. NATIONAL SURETY CO. v. FEITNER et al., Tax Com'rs.
• Court: New York Court of Appeals Court of Appeals

166 N.Y. 129

59 N.E. 731

PEOPLE ex rel. NATIONAL SURETY CO.

v.FEITNER et al., Tax Com'rs.

Court of Appeals of New York.

March 1, 1901.

Appeal from supreme court, appellate division, First department.

Certiorari by the people, on relation of the National Surety Company, against Thomas L. Feitner and others, commissioners of taxes and assessments of the city of New York. From a judgment of the appellate division (66 N. Y. Supp. 1140) affirming a judgment dismissing the writ, relator appeals. Affirmed.

O'Brien and Landon, JJ ., dissenting.

Wm. B. Hornblower and Julien T. Davies, for appellant.

John Whalen, Corp. Counsel (James M. Ward, of counsel), for respondents.

PARKER, C. J.

The question of law presented is whether assessors may make further deductions from the capital stock of corporations than those expressly authorized by statute. It is asserted on the one hand that, ‘irrespective of any express statute on the subject, the process of ascertaining the value of the capital stock of any corporation must necessarily include a deduction on account of its debts or of any outstanding contingent liability, such as insurance policies, though not due or payable at the time that the assessment is made.’ On the other hand it is asserted that the only authority that assessors have to make deductions from the value of the capital stock of corporations is derived from the statute. This latter position has a very recent authority in this court for its support. In the Cornell Steamboat Case, 161 N. Y. 195, 55 N. E. 927, the question was mooted whether a recent amendment of the tax law operated to take away the right of corporations to have their debts deducted from the value of the capital stock for the purpose of assessment, and a reargument of the case was ordered for the purpose of bringing about a discussion of that question. The outcome was a determination by this court that the legislature did not intend to change the policy of the law, by the change in phraseology adopted, so as to take away the authority which the statute had for a long time conferred upon assessors to deduct the debts of corporationsas well as of individuals in assessing their personal property; and the court, after a very careful consideration of the statutory provisions, said ‘Reading the statutory construction law in connection with sections 12, 21, and 37 of the tax law, we find that the statute affords a simple method for the taxation of corporations as well as individuals, providing for a deduction of the debts that are owing by either.’ It may possibly be that occasionally a more just result would be obtained had the assessors power to deduct from the value of the personal property not merely debts, but also outstanding contingent liabilities, and that might be so if the assessors were authorized to deduct from the value of real estate the incumbrances thereon. But the assessors have no right to do either, for the reason that the statute does not permit it; and the court has no power to say that either shall be done, because that is a legislative, not a judicial, power. Our inquiry, therefore, should be whether the item which is the subject of this controversy was a debt on the part of the relator. If it were, the assessors erred in not deducting it. If not, then there was no authority for so doing.

The relator is a domestic corporation, incorporated under the provisions of the insurance law, and engaged in the business of guarantying the fidelity of persons holding places of public or private trust, as well as the performance of contracts other than insurance policies, and of executing bonds and undertakings required in legal proceedings. The relator was assessed as of the second Monday of January, 1899, and, in the course of ascertaining the amount for which it should be assessed, its gross assets were first valued at the sum of $1,359,817.24. There was not, and is not now, any controversy about this item, for the tax commissioners accepted the relator's own valuation of its assets; but when it came to a consideration of the deductions claimed by the relator there was a disagreement, the relator claiming that the deductions aggregated $1,363,655.04, or $3,837.80 more than the assets, and, had its claim been allowed therefor, the result would have been that it would not have been taxed at all. All of the items that the relator claimed as deductible were allowed by the tax commissioners, except one, which was described in the relator's statement as being ‘unearned premiums held as reinsurance reserve, as required by law, being amount necessary to reinsure outstanding risks,’ amounting to $213,777.83. Now, this so-called unearned premium fund was not a fund set apart with which to purchase reinsurance. It had passed into the treasury of the relator from time to time, and was intermingled with its other assets, and thus had been used in the payment of the company's contract obligations, and in such investments as the company, from time to time, deemed it wise to make. In fire insurance companies the policy holders have a right to cancel the policies and demand from the company a return of a proportionate part of the premium paid to it; but even that is not so in this case, for the holders of its contracts of suretyship cannot regain any part of the premiums paid by offering to surrender up their contracts. The company, therefore, becomes the absolute owner of the premiums paid, without any liability on its part to return any portion of them. There was still the possibility that upon some of the contracts, by reason of the misconduct of persons whose fidelity it had guarantied, it would be compelled to pay even a much larger sum than the premium received on the contract,-indeed, a sum that would equal the amount received on a great many contracts; but upon which ones of the many contracts that it had outstanding there would accrue a liability on its part could not be foretold at the time of the assessment. Hence there was not an existing debt growing out of these contracts, nor were there any creditors having claims which they could enforce against the company in the amount of the so-called reinsurance reserve, or any sum whatever. There was, of course, the probability that before the next year should roll around the relator would be required to pay a considerable sum on account of the contracts which were then outstanding, and for which it had received the premiums; but as these contingent liabilities, which in the aggregate might equal the unearned premiums, were not debts, the relator was not entitled to have them deducted from the value of its assets. Indeed, this court said in People ex rel. Westchester Fire Ins. Co. v. Davenport, 91 N. Y. 574, 583, while discussing the liability to taxation of unearned premiums, that ‘neither in law nor equity does this liability constitute a debt owing by an insurance company, which should be deducted from the value of its taxable property when it is called upon to bear its proportion of the burdens of government.’ If it were possible to concede that the assessors have the authority, irrespective of any express statute, to deduct from the value of the capital stock of any corporation ‘any outstanding contingent liability, such as insurance policies, though not due or payable at the time the assessment is made,’ I should contend that the action of the assessors in this case, in refusing to make the deduction, should not be interfered with by the court, because the claim for deduction seems to be without merit. The assets of the corporation, at its own valuation, still exceeded its debts and other items deductible by statute, by $208,600. That much of property, therefore, the relator owned and had on hand. It is not pretended that it will not have that much property on hand a year later. Indeed, it will probably have more; otherwise there would be little encouragement for it to continue in business. What it asks is that, while it continues to be a going and growing concern, it shall be treated, for the purpose of taxation, as having stopped doing new business, being devoted solely to the winding up of its affairs and the payment of obligations as they accrue. As a going concern, of course, it will quite likely receive premiums at least as rapidly, if not more rapidly, than liabilities on its contracts will accrue, so that in a given time it will in fact have as much, if not more, gross assets than it had on the day when the assessment was made. It is said on the part of the relator that it would require this sum to effect reinsurance of outstanding risks as of the second Monday of January, 1899, and it will be assumed that it would; but the relator does not claim that it had taken any steps to employ this fund in procuring a reinsurance of its risks, or that it ever intended to reinsure any one of them, and, naturally, it would do nothing of the kind, for it is not an insolvent corporation, but a prosperous one, and, being engaged in the insurance business, would hardly part with profits which would accrue to such other companies as should reinsure its risks.

While it is apparent that the relator has not in fact ‘just debts owing by’ it equal to 50 per cent. of the unearned premiums, our attention is nevertheless invited to that portion of the general insurance law under which relator is organized which provides the method by which the solvency or insolvency of a company is determined, and the point is made that for that purpose at least ‘a sum equal to the total unearned premiums on the policies in force’ must be charged as a liability. True, and it also requires that for such purpose the capital stock shall also be charged as a liability. But it will not be claimed that the capital stock may be treated as a debt to be deducted from the company's assessable assets on that account, and, of course, no stronger argument can be made in support of a claim that the statute intended to...