Opinion
Argued January 9, 1894
Decided February 9, 1894
Charles E. Miller for appellant. David J. Dean for respondent.
We are unable to distinguish this case from that of People ex rel. v. Barker ( 139 N.Y. 55). 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 questions put by the assessors: in both those statements 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 fact or circumstance justifying a disbelief of the answers made, except that in each case a dividend had 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 Revised Statutes any declaration of a dividend except out of surplus is forbidden, since otherwise the capital is necessarily impaired by the distribution to stockholders: that no such violation of the law is to be presumed, but rather a due compliance with its terms: that a presumption of such 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 and above 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 to about one-third of that amount: and so the commissioners had a right to disbelieve that statement and fix the value 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 Revised Statutes does not apply. That general act has its own prohibition and attaches its own sole and peculiar penalty, and one which leaves the companies in the matter of making dividends with an equal if not greater liberty. ( Excelsior 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 undiminished 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.
These 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 their 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.
Orders reversed.