Source: https://supreme.justia.com/cases/federal/us/285/182/case.html
Timestamp: 2017-05-25 12:39:02
Document Index: 23737923

Matched Legal Cases: ['§ 1000', '§ 246', '§ 170', '§ 1000', '§ 246', '§ 230', '§ 213', '§ 213', '§ 246', '§ 246', '§ 100', '§ 230']

Bowers v. Lawyers Mortgage Co. (full text) :: 285 U.S. 182 (1932) :: Justia U.S. Supreme Court Center Log In
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Bowers v. Lawyers Mortgage Co. 285 U.S. 182 (1932)
U.S. Supreme CourtBowers v. Lawyers Mortgage Co., 285 U.S. 182 (1932)Bowers v. Lawyers Mortgage Co.No. 355Argued January 18, 19, 1932Decided March 14, 1932285 U.S. 182Syllabus
1. A corporation which paid the capital stock tax laid generally on domestic corporations by § 1000, Revenue Act of 1921, and which claims a refund upon the ground that it should have been taxed under the special provisions of § 246 relating to certain classes of Page 285 U. S. 183 insurance companies, must show clearly that it is an insurance company within the meaning of the Act. P. 285 U. S. 186.
Certiorari, 284 U.S. 606, to review the affirmance of a recovery on a claim for a refund of money paid as taxes. The action was against the executor of a former collector of internal revenue. Dist. Ct., 34 F.2d 504. Page 285 U. S. 184
Respondent was incorporated in 1893 under § 170(1) of Article V of the Insurance Law of New York [Footnote 1] as the "Lawyers Mortgage Insurance Company" to examine titles, procure and furnish information in relation thereto, and guarantee or insure bonds and mortgages and the owners of real estate against loss by reason of defective titles. In 1903, "insurance" was dropped from its name. In 1905, its certificate of incorporation was amended to include the making, and guaranty of the correctness, of searches for instruments, liens, and charges affecting real estate and the guaranty of payment of bonds and mortgages. [Footnote 2] In 1913, [Footnote 3] the certificate of incorporation was further amended to include authority to insure payment of notes of individuals and partnerships and bonds and other evidences of indebtedness of corporations, when secured Page 285 U. S. 185 by real estate mortgages, and to
Respondent never has insured titles. In the tax years, it carried on business as follows: upon receiving an application for a loan, it caused an appraisal of the proposed real estate security to be made and procured a title insurance company to survey the property, make a report as to title and insure the same. The borrower, having executed and delivered a bond and mortgage to respondent, received from it the amount specified therein less charges for title insurance, survey, disbursements, and recording tax, and less a lending fee which included the charge for appraisal. Respondent sold the mortgage loans. On the sale of a bond and mortgage as a whole, it delivered an assignable contract called "policy of mortgage guarantee" to the purchaser. On the sale of part of a loan, it issued a participation certificate assignable by indorsement and registration on respondent's books and containing substantially the same provisions as the policy. By every such policy or certificate, the purchaser appointed respondent his agent to collect the principal and interest, and the latter agreed to keep the title guaranteed and the premises insured against fire, and to require the owner to pay taxes, assessments, water rates, and fire insurance premiums. Respondent guaranteed payment of principal, as and when collected but, in any event, within 18 months following written demand made after maturity, Page 285 U. S. 186 and payment of interest regularly at an agreed rate usually one-half of one percent less than that specified in the bond. Respondent kept the difference and called it "premium." Respondent also retained the interest accruing between the making of the loans and the sale of the securities. For renewals of loans, it charged extension fees.
Pertinent provisions of the Act are printed in the margin. [Footnote 4] The general rule declared by § 1000(a) is broad Page 285 U. S. 187 enough to include respondent. But, if it was an insurance company taxable under § 246, it was excepted from the general rule by subsection (b). As such corporations constitute a special class, respondent must be held liable for the capital stock tax unless clearly shown to have been an insurance company within the meaning of the act. Bank of Commerce v. Tennessee, 161 U. S. 134, 161 U. S. 146; Heiner v. Colonial Trust Co., 275 U. S. 232, 275 U. S. 235; Choteau v. Burnet, 283 U. S. 691, 283 U. S. 696. The Act does not define "insurance company" or definitely indicate criteria by which corporations meant to be so specially dealt with may with certainty by identified. General definition is not necessary in order to determine whether, having regard to the purpose of the classification and the considerations on which it probably was made, respondent's business brought it within the special class.
Under § 230, Revenue Act of 1918, 40 Stat. 1075, insurance companies were taxed as were other business corporations. The applicable definition of gross income was comprehensive, and included gains, profits, and income derived from any source whatever. § 213, p. 1065. It was substantially the same in the 1921 Act. § 213, 42 Stat. 237. But § 246 of the latter Act dealt with certain classes of insurance companies separately, and defined Page 285 U. S. 188 gross income to be "investment income" -- i.e., interest, dividends and rents, and "underwriting income" -- i.e., premiums earned less losses and expenses. Capital gains and income from other sources were omitted.
The dropping of "insurance" from respondent's name and the extension of charter powers to the purchase and sale of mortgage loans suggest purpose to carry on an investment, rather than an insurance, business. Respondent did not consider itself an insurance company taxable under § 246 until after it had twice made and paid capital stock taxes under § 100(a) and income taxes under § 230. The lending of money on real estate security, the sale of bonds and mortgages given by borrowers and use of the money received from purchasers to make additional Page 285 U. S. 189 loans similarly secured constituted its principal business. Undoubtedly the guaranties contained in the policies and participation certificates were in legal effect contracts of insurance. Tebbets v. Mercantile Credit Guarantee Co., 73 F. 95, 97; Guarantee Co. v. Mechanics' Sav. Bank & Trust Co., 80 F. 766, 772; State ex rel. Peach Co. v. Bonding & Surety Co., 279 Mo. 535, 553, 556, 215 S.W. 20; People v. Potts, 264 Ill. 522, 527, 106 N.E. 524; People v. Rose, 174 Ill. 310, 51 N.E. 246; Commonwealth v. Wetherbee, 105 Mass. 149, 160; Shakman v. United States Credit System Co., 92 Wis. 366, 374, 66 N.W. 528; Young v. American Bonding Co., 228 Pa. 373, 380, 77 A. 623. These guaranties furnished purchasers additional security and were calculated to make the loans desirable as investments and readily saleable at a profit.
"Premiums" are characteristic of the business of insurance, and the creation of "investment income" is generally, if not necessarily, essential to it. Section 246 does not cover any other class of income. It is not shown that Page 285 U. S. 190 respondent had any investment income within that section. Evidently its guaranties produced less than one-third of its income.