Case Name: The People ex rel. The Edison General Electric Company, App'lt, v. Edward P. Barker et al., Commissioners of Taxes, etc., Resp'ts
Court: New York Court of Appeals
Jurisdiction: New York
Decision Date: 1894-02-09
Citations: 56 N.Y. St. Rep. 823
Docket Number: 
Parties: The People ex rel. The Edison General Electric Company, App’lt, v. Edward P. Barker et al., Commissioners of Taxes, etc., Resp’ts.
Judges: 
Reporter: New York State Reporter
Volume: 56
Pages: 823–825

Head Matter:
The People ex rel. The Edison General Electric Company, App’lt, v. Edward P. Barker et al., Commissioners of Taxes, etc., Resp’ts.
(Court of Appeals,
Filed February 9, 1894.)
1. Corporations—Penalty.
The provisions of § 1 of 1 R. S., 589, does not apply to a corporation organized under chapter 40 of 1848.
2. Same.
In declaring and paying dividends where there are no surplus profits, the trustees subject themselves to the penalty imposed by the act.
3. Taxes—Corporations.
In making their assessments the commissioners of taxes are not justified in assuming that the treasurer of a corporation, for the purpose of evading taxation, has falsely underestimated the assets, because of a recent dividend, the declaration of which does not necessarily involve the fact of an unimpaired capital.
Appeal from order of the general term of the supreme court, in the first judicial department, made November 10, 1893, which affirmed an order of special term dismissing a writ of certiorari brought to review the action of the commissioners of taxes and assessments of the city of New York in assessing and taxing the relator.
The relator is a corporation organized under the general manufacturing act, with a capital stock actually paid in, or secured to be paid in, of §14,964,900, and was assessed by defendants for the year 1892 at $15,000,000, The relator applied, under § 820 of the consolidation act, to have the assessment corrected, and submitted to defendants statements in writing in answer to questions of the commissioners, which were sworn to by its treasurer, and were substantially as follows:
■“Total gross assets, exclusive of patent rights,
value unknown .............. $9,459,500
“ Capital stock actually paid in, or secured to be
paid in .............. 14,964,900
“Bate of dividend for last year................. 8a/c
“Indebtedness, investments in real estate and stocks
of other corporations....................... 13,676,634 ”
Defendants thereupon reduced the assessment to $2,670,000.
Charles E. Miller, for app’lt; David J. Dean, for resp’t
Reversing 56 St. Rep., 798.

Opinion:
Finch, J.
We are unable to distinguish this case from that of People v. Barker, 139 N. Y., 55; 54 St. Rep.. 444. In both cases the returns of the tax commissioners were identical except as to the respective amounts and values, and showed that the assessments rested upon the statements of the relators made in answer to the questions put by the assessors; in both those state ro ents established that there was- no basis for a tax if they were accepted as true-; in both the value of patents was described as unknown, but the cost in stock issued was disclosed, and in both there was developed no circumstances justifying a belief of the answers made, except that in each case a dividend has been declared at some possibly recent period. In this case the dividend was eight per cent, and in' the earlier case four per cent, and we there declared the fact of a dividend paid to be immaterial under the existing circumstances. The legitimate effect of'such a fact upon the action of the assessing officers was not then much considered, but is now put in the front of the controversy, and claimed to furnish a decisive reason for the disbelief of the assessors in the statement furnished by the relator.
We might safely rest upon the authority cited, but since the point now urged was not then seriously argued or discussed, and is pressed specially upon our attention, we deem it proper to give it some degree of consideration. It proceeds upon an inference or presumption. The argument is that under the Eevised Statutes any declaration of a dividend except out of surplus is forbidden, since otherwise the capital is necessarily impaired by the distribution of stockholders; that no such violation of the law is to be presumed, but rather a due compliance with the terms; that a presumption of such a compliance arises from the fact of a dividend declared and paid, and so the lawful and necessary inference is that the capital has not been impaired, but that over it the necessary surplus had been accumulated; that such inference is inconsistent with and contradicts the statement made, showing the actual capital to have fallen from fifteen millions te about one-third of the amount; and so the commissioners had a right to disbelieve that statement and fix the v^lue of the capital upon their own judgment. There are two answers to this contention, one of which questions the presumption, and the other at least balances and nullifies it.
In the first place, the relator was incorporated under the general act of 1848, and the prohibition of the Eevised Statutes does not apply. The general act has its own prohibition and attaches it own sole and peculiar penalty, and one which leaves the companies in the matter of making dividends with an equal if root greater liberty. Excelsior P. Co. v. Lacey, 63 N. Y., 422. That penalty, and the only one imposed, is that the trustees shall become liable for all debts existing and contracted during their term of office, (Laws of 1848, chap. 40, § 13), and the practical effect follows that for the security of creditors the liability of the trustees is put in the place of the impairment of capital effected by the dividends. If the trustees choose to bear that responsibility they have power to declare and pay the dividend though no surplus exists beyond the capital, at least until some judicial restraint intervenes to prevent. It is probable that many such dividends are declared and paid, and their declaration in a given case scarcely justifies an inference that the capital necessarily remains intact and undimished in actual value. The presumption, 'if it exists, is extremely slender and weak.
But what there is of it is rebutted by another presumption springing from the facts which is that against the commission of fraud or crime. Here the treasurer of the company has sworn to a shrinking of the capital from fifteen millions to about nine millions, further chargeable with nearly five millions of debts, and obviously could not have honestly made that statement if in truth there had been no shrinkage of values at all, and so the two possible presumptions may be said to balance and neutralize each other.
The suggestions serve to show that the duty of the tax commissioners is not to subordinate facts, fairly disclosed and uncontradicted, to the influence of presumptions amounting to little more than a guess or possibility, but to deal with them fairly and intelligently. These officers are armed with power to ascertain the truth of answers given to the formal inquiries, and should always do so when the means of investigation are put before them. Here the facts for which they asked, and all that they asked, were furnished under the oath of the relator's treasurer. If they were dissatisfied with his valuation of assets in gross they could have required them to be given in detail and so been enabled to judge of the fairness or unfairness of the valuation; but they were not justified in assuming that the treasurer, for the purpose of evading taxation, had falsely underestimated the assets, because of a recent dividend, the declaration of which did not necessarily involve the fact of an unimpaired capital. I think, therefore, that we were right in saying in the case cited that the declaration of a dividend even if sufficiently recent is an immaterial circumstance where the actual facts are furnished to the full extent required which show the real amount and value of the capital. Those facts may be investigated, but must not be disregarded to make room for doubtful presumptions.
The orders of the general and special terms should be reversed, without costs.
All concur.
Order reversed.