Reliance Ins. Co. v. Olsen

• Citation: 678 S.W.2d 59
• Parties: RELIANCE INSURANCE COMPANY, Plaintiff-Appellant, v. Martha OLSEN, Commissioner of Revenue, and State of Tennessee, Department of Revenue, Defendants-Appellees. 678 S.W.2d 59
• Decision Date: 09 October 1984
• Court: Tennessee Supreme Court

Page 59

678 S.W.2d 59

RELIANCE INSURANCE COMPANY, Plaintiff-Appellant, v. Martha OLSEN, Commissioner of Revenue, and State of

Tennessee, Department of Revenue,

Defendants-Appellees.

678 S.W.2d 59

Supreme Court of Tennessee,

at Nashville.

Oct. 9, 1984.

Thomas E. Schoenheit, J. Michael Franks, Nashville, for plaintiff-appellant.

Gregory L. Nelson, Asst. Atty. Gen., Nashville, for defendants-appellees; William M. Leech, Jr., Atty. Gen., Nashville, of counsel.

OPINION

BROCK, Justice.

Plaintiff, Reliance Insurance Company, seeks to recover taxes paid under protest.

Kingston Properties, Inc., doing business as Charleston's Restaurant, sought a license for the sale of alcoholic beverages for consumption on the premises and, as required by the statute, T.C.A., Sec. 57-158 (now Sec. 57-4-302), filed with the Commissioner of Revenue a bond to secure the payment of all taxes which might accrue by virtue of such sales and procured the plaintiff-appellant, Reliance Insurance Company, to incur the obligation as surety on the bond. The effective date of the bond was November 3, 1978, and was to remain in effect through November 2, 1979.

The penal sum of this bond was $10,000.00, but on April 4, 1979, the licensee, Kingston Properties, received a letter from the Miscellaneous Tax Division informing it that the corporate surety bond for the remaining nine months of the license period, that is, from February 3, 1979, through November 2, 1979, would have to be in an amount no less than $11,200.00. In pertinent part this letter stated:

"Based on your liability for applicable taxes during the first full three months of operations, your corporate surety bond for the remaining nine months from February 3, 1979, through November 2, 1979, shall be in the amount of no less than $11,200.00. The bond may be issued in an amount in excess of this sum if you so desire.

"Enclosed is bond form MT-a-636A, Sale of Alcoholic Beverages for Consumption on the Premises, which should be executed for the amount and period stated and returned to this office immediately."

The enclosed bond form, which was executed on April 11, 1979, and filed with the Department of Revenue, was styled: "State of Tennessee Tax Bond for Licensee for Sale of Alcoholic Beverages for Consumption on the Premises, Revision of Maximum Penal Amount Rider." This form further states:

"Effective period of bond: From November 3, 1978, through November 2, 1979; Surety: Reliance Insurance Company; Effective period of revision: From February 3, 1979, through November 2, 1979; Obligee: State of Tennessee.

"Initial penal amount of bond: $10,000.00.

"In consideration of the additional or return premium shown above, it is hereby agreed by the principal and the surety that the maximum penal amount of the bond described above, to which this rider is attached and made a part thereof, is raised to Eleven Thousand Two Hundred and No/100 Dollars ($11,200). Such revision to be effective during the effective period of revision shown above upon acceptance by the obligee, all other terms, conditions and limitations of said bond to remain in full force and effect as originally executed."

In January, 1981, the Miscellaneous Tax Division advised the surety, Reliance Insurance Company, that Kingston Properties, Inc., had incurred a tax liability in excess of $40,000.00 which it was unable to pay and called upon the surety to fulfill its obligations "... as surety under this bond and pay to the Commissioner of Revenue of the state of Tennessee the amount of $10,000.00 which is the penal sum of the bond." Later, by letter dated June 17, 1981, the Department of Revenue increased its demand from $10,000.00 to $21,200.00, insisting that the surety was obligated to pay the original penal sum of $10,000.00 plus the revised penal sum of $11,200.00.

The surety paid the $21,200.00 under protest and filed suit in the Chancery Court to recover the amount paid in excess of $11,200.00, the penal sum of the rider. The case was submitted to the Chancellor on a stipulation of facts and on cross motions for summary judgment and was decided in favor of the defendant.

The subject bond was issued pursuant to T.C.A., Sec. 57-4-302(3), which, in...