Real Estate Title Insurance & Trust Co. v. Lederer

• Decision Date: 09 February 1920
• Docket Number: 2113.
• Citation: 263 F. 667
• Parties: REAL ESTATE TITLE INSURANCE & TRUST CO. v. LEDERER, Internal Revenue Collector.
• Court: U.S. Court of Appeals — Third Circuit

263 F. 667

REAL ESTATE TITLE INSURANCE & TRUST CO. v. LEDERER, Internal Revenue Collector.

No. 2113.

United States Court of Appeals, Third Circuit.

February 9, 1920

Maurice Bower Saul, of Philadelphia, Pa., and John G. Johnson, of Oneonta, N.Y., for plaintiff in error.

Francis Fisher Kane, U.S. Atty., and Robert J. Sterrett, Asst. U.S Atty., both of Philadelphia, Pa. (Gordon Auchincloss, Sp Asst. U.S. Atty., of New York City, of counsel), for defendant in error.

Before BUFFINGTON and WOOLLEY, Circuit Judges, and MORRIS, District judge.

BUFFINGTON Circuit Judge.

In the court below the plaintiff brought suit against the defendant collector of internal revenue, to recover taxes alleged to have been unlawfully collected. On trial that court, after hearing the plaintiff's proofs, granted a peremptory nonsuit. On its refusal to take off such nonsuit, plaintiff appealed.

The question here involved is the construction of the Act of October 22, 1914, c. 331, Sec. 3, 38 Statutes at Large, 750 which provides:

'Bankers shall pay $1.00 for each $1,000 of capital used or employed, and in estimating capital, surplus and undivided profits shall be included. The amount of such annual tax shall in all cases be computed on the basis of the capital, surplus, and undivided profits for the preceding fiscal year. Every person, firm, or company, and every incorporated or other bank, having a place of business where credits are opened by the deposit or collection of money or currency, subject to be paid or remitted upon draft, check, or order, or where money is advanced or loaned on stocks, bonds, bullion, bills of exchange, * * * or where stocks, bonds, bullion, bills of exchange, or promissory notes are received for discount or sale, shall be a banker under this act: Provided, that any postal savings bank, or savings bank having no capital stock, and whose business is confined to receiving deposits and loaning or investing the same for the benefit of its depositors, and which does no other business of banking, shall not be subject to this tax.'

The proofs in this case which the court below declined to submit to the jury, tended to show that the plaintiff in this case was a corporation of the state of Pennsylvania, which had been formed in 1876. It was originally incorporated solely for the purpose of insuring titles to real estate. At that time its capital of $250,000 was paid in in cash, and that capital was used in preparing a title plant. This branch of its business has grown to large proportions, and between $400,000,000 and $500,000,000 of title insurance has been issued. From that time to the present its title business has been kept separate and distinct from its other operations, not only as a bookkeeping and accounting proposition, but in its documents, data, and details. The larger part of the company's business has always been and still continues to be the insurance of titles. Its present capital is $1,000,000, surplus $1,500,000, undivided profits $128,000, of which sum $1,000,000 was paid in, in cash, and the other has been the accretion of profits. The proofs show that of these sums about $143,000 was invested in its title plant, $400,000 in its building, and that the rest, with a few slight exceptions, is invested in permanent securities.

In 1881 the Title Company embarked in the trust business, changing its name from the Real Estate Title Insurance Company to that of the Real Estate Title Insurance & Trust Company, and its original capital of $250,000 was then increased to $250,000 more of fully paid-in capital. The trust business continued to be and was, after its title business, the next largest part of its business, its trust assets now amounting to about $13,000,000. Such trust business has always been kept separate and distinct from the company's title business, and, as other departments were added, it has always been kept separate and distinct from them, also. Moreover, its trust assets have been segregated and individualized, as belonging to its cestuis que trustent. The company subsequently added two other departments-- a safe deposit, in which they rented safes and received valuables on deposit, and also a real estate department, which buys, sells, rents, and collects the rents of, real estate. The business of all these four departments is kept separate and distinct, and when any money is received for services rendered in either of said departments it is deposited in the Corn Exchange National Bank. From these businesses they have from time to time made earnings, which have been carried to surplus and undivided profits, and purchases have been made of bonds, stocks, and permanent investments, and the testimony is that, from its books and accounts, the company is able to say from what account every investment they have has been made. Later on the company added a banking department, which does a business of approximately $4,000,000, which business is done with the funds deposited with them in banking accounts. Such deposits are received in the banking department of the trust company's establishment, and at the close of the business day they are redeposited by the trust company in one of four banks in Philadelphia and one in New York City, and no part of the depositor's money is carried to the account in the Corn Exchange Bank, in which bank the trust company keeps the funds used in and accruing from its other departments. From the standpoint of present earnings, the proofs tended to show that the banking department bore a relation of about one-fifth to the other departments of the trust company's business.

With these proofs before it, given by the accounting officers of the bank, and about which we do not understand there is any dispute, the question was asked of a witness by the trust company's counsel, 'State how the capital, surplus and undivided profits of the company were invested during the taxable period, ' to which question, as well as to several other substantially like questions, the court sustained an objection. We are unable to agree with this ruling of the court. The answer to that question, and the kindred questions, was the very crux of the case, and this experienced witness was best constituted to answer such questions and give his reasons therefor. Whether his testimony was correct was, of course, a matter for the jury to pass upon, and whether he drew correct inferences from his facts was for the jury to say as to whether this permanently invested capital, surplus, and undivided profits, which was segregated and kept separate from the money employed by the company in its banking business, was in any way used or employed in the banking business, if the evidence when given tended to show such banking use. Of course, these...