People Ex Rel. National Surety Co. v. Feitner

Parker, Ch. 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 People ex rel. Cornell Steamboat Co. v. Dederick (161 N. Y. 195) 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 tile 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 corpora *132 tions as well as of individuals in assessing their personal property ; and the court, after a very careful consideration of the statutory provisions, said: “ Eeading the Statutory Construction Law in connection with sections twelve, twenty-one and thirty-seven 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 guaranteeing 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 *133 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 policyholders 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 guaranteed, 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 *134 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 $208,600.00. 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 he 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 he assumed that it would; but the relator does not claim that it had taken any *135 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, hut 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 fifty 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 i’or 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 have unearned premiums that are really an asset of the company treated as •a debt for the purposes of assessment. But that question also was before the court and passed upon in the Westchester Fire Insurance Company Case (supra). Section 178 of the Insurance Law is a re-enactment of certain of the provisions of chapter 110 of the Laws of 1880, and those provisions were before the court for consideration in that case, the question being whether such provisions affected the taxable character of unearned premiums, an.d the court said : We can find no authority, either in the statute or the reported decisions of the court, to sustain such a conclusion. It was held by this court in the case of People ex rel. The Manh. F. Insurance Company v. Commissioners of Taxes (76 N. Y. 64) that none of the provisions of the various statutes included in chapter 466 of the Laws of 1853, chapter 563 of the Laws of 1854 and chapter 199 of the Laws of 1865, affected the status as *136 taxable property of premiums upon unexpired policies held by a tire insurance company. Chapter 110 of the Laws of 1880 falls within the reason of the same case and does not, therefore, affect the taxable status of such property.” It remains for us to consider whether the decision in People ex rel. Glens Falls Ins. Co. v. Ferguson (38 N. Y. 89) must be treated by us as a controlling authority, notwithstanding the fact that it is repugnant to the rule laid down by the later decisions, viz., that the only authority for making deductions from the gross value of the personal assets of either a corporation or an individual must be found in some statute. In the Ferguson case it was held that it is the duty of assessors, to estimate the contingent liability of - an insurance company upon outstanding policies of insurance in force by the usual rules for determining such liability, and to deduct the amount so found, in malting the assessment of the company, for the purpose of taxation. That the views of the court in the= Ferguson case were not shared by this court when it came to decide the Westchester Fire Insurance Company Case (supra) is apparent from an examination 'of the opinion in which the court demonstrates that the contingent liability of .an insurance company to refund some part of the premiums received by it does not constitute debt. In the course of the opinion the court said: “ To say that such receipts constitute a trust fund held by an insurance company for the use of the policyholders, or that it is a liability of the company in any such sense as to constitute a debt entitled to-be deducted from the sum of its property in determining the value thereof for assessable purposes, is contrary to reason, and is not sustained by any authority known to us.” And, further, the court said: “The conclusion to which we have' arrived on this branch of the case is the more gratifying for the reason that otherwise a vast amount of property held by insurance companies in the shape of so-called unearned premiums would altogether escape taxation. Such a result would produce manifest injustice.” That the view of the court in the Westchester Fire Insur *137 a/nce Company case is diametrically opposed to that of the court in the Ferguson case is evident from an examination of the opinions in those cases, and it is also evident that the former is in harmony with the trend of recent decisions touching the right and duty of assessors in making assessments to make only such deductions as the statutes authorize. Hence the Westchester Fire Ins. Co. case rather than the Ferguson case should control. This should be so for the further reason that when the Ferguson case was decided the assessors were accustomed to proceed upon the assumption that in determining the actual value of the capital and surplus of corporations they were permitted to take as evidence of value the market value of the share stock, and that view was followed for a number of years. As a necessary result the value of personal property of corporations for the purpose of taxation was oftentimes affected by matters of a speculative nature, so that occasionally speculative values, to a large extent, were embraced in an assessment of the property of a corporation. This matter having been brought to the attention of the court, it was given careful consideration in People ex rel. Union Trust Company v. Coleman (126 N. Y. 433), which resulted in a decision that the subject of valuation in assessments is never the share stock of corporations; that it is always the company’s actual capital and surplus which should be assessed at its actual value. From the time of that decision on, the principle governing the assessment of the personal property of corporations, has been like that which obtains as to individuals, and the provision of the statute authorizing the deduction of “ just debts owing,” has been held to apply to both corporations and individuals, as will appear in a number of cases cited in the Cornell Steamboat Co. Case (supra). Notwithstanding the amendment of the statute in a respect pointed out in that decision, it was there held that the legislature had not intended to change the statute, and that it still affords a simple method for the taxation of corporations as well as individuals, by providing for a deduction of the debts that are owing by either. The order should be affirmed.