Wellman v. The Board of County Commissioners of The County of Jewell

• Decision Date: 08 January 1927
• Docket Number: 26,841
• Citation: 252 P. 193,122 Kan. 229
• Parties: G. R. WELLMAN, Appellant, v. THE BOARD OF COUNTY COMMISSIONERS OF THE COUNTY OF JEWELL et al., Appellees
• Court: Kansas Supreme Court

252 P. 193

122 Kan. 229

G. R. WELLMAN, Appellant, v. THE BOARD OF COUNTY COMMISSIONERS OF THE COUNTY OF JEWELL et al., Appellees

No. 26,841

Supreme Court of Kansas

January 8, 1927

Decided January, 1927.

Appeal from Jewell district court; WILLIAM R. MITCHELL, judge.

Judgment reversed.

SYLLABUS

SYLLABUS BY THE COURT.

TAXATION--Property Subject to Taxation--Contract for Payment of Life Annuity. A contract for the payment of a life annuity is not taxable against the annuitant under a statute making all property subject to taxation in the manner provided in the act, but containing no express reference to annuities by name or specific description and indicating no standard by which its value is to be measured, other than the general one of the usual selling price or such price as it is believed could be obtained therefor.

R. C Postlethwaite and D. H. Postlethwaite, both of Mankato, for the appellant.

D. M. McCarthy and L. E. Weltmer, both of Mankato, for the appellees.

T. M. Lillard, Frank G. Drenning, both of Topeka, S. C. Bloss, of Winfield, Julien T. Davies, Joseph S. Auerbach, Edward Cornell, Charles E. Hotchkiss, Alexander J. Field, all of New York, N. Y., Frederick A. Gaskins, of Boston, Mass., and W. H. G. Gould, of Philadelphia, Pa., as amici curiae.

OPINION

MASON, J.:

This case involves the question whether under the law as it existed in Kansas until 1925 the annuitant is required to pay taxes upon a life annuity. Before that time the statutes relating to taxation made no express reference to annuities. In that year they were included in the list of intangibles covered by the term "credits," which by another act of the same session were subjected to a tax of 25 cents on each $ 100 of value, and exempted from other taxation. (Laws 1925, ch. 278, § 1, ch. 277, § 2.)

In 1919 G. R. Wellman, then 70 years of age, paid $ 1,000 to the Board of Foreign Missions of the Methodist Episcopal Church and received in return a written contract thus worded:

"Whereas, G. R. Wellman, of Burr Oak, Kan., has donated to, and paid into the treasury of, the Board of Foreign Missions of the Methodist Episcopal Church the sum of one thousand and no one-hundredths dollars, which is an executed gift to said Board of Foreign Missions and belongs to said board from this date absolutely.

"Now, therefore, the said Board of Foreign Missions of the Methodist Episcopal Church, in consideration thereof, hereby binds itself and its successors to pay to G. R. Wellman during his natural life an annuity of seventy and no-100 dollars payable in half-yearly installments on the last days of March and of September in each year. Upon the death of said G. R. Wellman this obligation shall be no longer binding, and said annuity shall cease; but the legal representatives of said annuitant shall be entitled to the portion of the semiannual installment for the time between the last payment to the annuitant and the date of said annuitant's death."

Later Wellman paid further amounts, receiving similar contracts, bringing the total he had given the board to $ 13,328, and the total he was to receive annually to $ 959.40. The taxing officers required Wellman to list these contracts for taxation for the years 1922 and 1923, the amounts charged against him for the two years being $ 528.21. He brought this action to enjoin the collection of the tax. The district court held the tax valid except in respect to the amount, which was found to be excessive, and an injunction was granted against the collection of more than $ 214.07. The plaintiff appeals on the ground that the contracts were not taxable, and that even if so the proceedings for arriving at the amount were unauthorized and rendered the tax invalid. Because of the conclusion reached by this court upon the first proposition it will not be necessary to consider the second. Of course the right to tax installments as they fall due is not questioned.

We hold that a life-annuity contract such as that here involved is not rendered taxable by a mere general provision of the statute requiring all property to be taxed, there being no express reference to annuities by name or description and no indication of a specific method for determining their assessment value. Such a contract confers a valuable right and is in a sense property. But the right conferred is of an exceptional character. The contract is not one to pay money, except conditionally, and upon a condition which may never happen. A mere contingent liability is said not to be taxable. (26 R. C. L. 139; 37 Cyc. 784. See, also, 37 Cyc. 1016; Life Association v. Hill, 51 Kan. 636, 33 P. 300.) Nothing is due upon it and nothing is unconditionally owing upon it until the annuitant survives a definite period. It does not represent an investment in the usual sense. The ordinary investor, he of normal health and strength and self-confidence, is naturally reluctant to part finally with his money in exchange for a periodical return which he is likely to believe--perhaps mistakenly--to be no larger than he could by personal supervision cause it to earn while he retained the principal for the benefit of his heirs or legatees. The annuitant is usually one chiefly solicitous about means of support. The annuity contract is not one of insurance, but has something of that quality. Its main purpose is to insure against want and worry.

In the present case it is clear the arrangement out of which the contract grew was not an ordinary commercial transaction, and this is true with respect to the great mass of similar instruments issued by religious and educational institutions. Apparently the plaintiff wished the Methodist board to have the benefit of his accumulations, provision being made merely for his own maintenance during the relatively brief remainder of his life. The result sought has sometimes been attained, while the individual has been left clearly free from taxation by this means: He gives his property or money to the institution to be benefited, subject to the condition that it is to invest it and pay him the income, or a part of the income, derived from it during his life. The right to the future income of property has been regarded as not itself taxable, even under a statute taxing annuities, being like unaccrued rents in this respect. (Chisholm v. Shields, Treas., 67 Ohio St. 374, 66 N.E. 93. See, also, State v. Royal Mineral Ass'n, 132 Minn. 232, 156 N.W. 128.) In its practical effects the arrangement here involved is quite similar to an agreement to make periodical payments out of specified property. If the Methodist board pays taxes on the money received from the plaintiff, which it presumably does unless exempted by reason of its religious character, a payment by the plaintiff of taxes on what he is to receive as its proceeds in the future would amount to double taxation. This of course does not imply illegality, but the presumption is against such an interpretation of a statute as to permit it. The present contract, however, while similar in purpose and effect to one which charges an annual payment for life upon specific property, is not technically of that character. The board has become the full owner of the money paid by the plaintiff, and the plaintiff looks solely to its personal promise for the periodical payments.

Our statute contains these provisions:

"That all property in this state, real and personal, not expressly exempt therefrom, shall be subject to taxation in the manner prescribed by this act." (R. S. 79-101.)

". . . That the term 'property,' when used alone in this act, shall mean and include every kind of property subject to ownership. . . . The words 'personal property,' when used in this act in their general sense, shall include all taxable property other than real property, as hereinbefore defined. . . ." (R. S. 79-102.)

". . . Personal property shall be valued at the usual selling price in money at the place where the same may be held; but if there be no selling price known to the person required to fix the value thereon, it shall be valued at such price as is believed could be obtained therefor in money at such time and place. . . ." (R. S. 79-501.)

A life-annuity contract is hardly to be regarded as the subject of barter and sale. The obligor would...