196 Misc. 367 | N.Y. Sup. Ct. | 1949
In this tax certiorari proceeding, in which all the facts have been stipulated in lieu of a trial of the issues, the Provident Loan Society of New York (hereinafter referred to as the “ relator ” or the “ Society ”) seeks a final order adjudging that it is a corporation organized exclusively for charitable purposes and devoted solely to the carrying out of those purposes, and that the real property occupied as its principal office is therefore exempt from taxation for the year 1948-1949. By agreement of the parties, the determination made in thirteen similar proceedings affecting the other parcels of property owned by the relator in the city of New York is to be governed by the result of this proceeding.
The application for exemption is made under subdivision 6 of section 4 of the Tax Law, which exempts from taxation “ the real property of a corporation or association organized exclusively for * * * charitable, benevolent * * * purposes * * * and used exclusively for carrying out thereupon one or more of such purposes ” provided that “ no such corporation or association shall be entitled to any such exemption if any officer, member, or employee thereof shall receive or may be lawfully entitled to receive any pecuniary profit from the opera
The respondents, constituting the tax commission of the city of New York, contend that relator was not organized exclusively for charitable purposes, that its real property has not been devoted exclusively to such purposes, and that there is a possibility of pecuniary profit which, in any event,, requires the denial of relator’s claim to exemption.
Relator was incorporated on April 13, 1894, by special act of the Legislature (L. 1894, eh. 295). For some years prior thereto persons engaged in charity work had recognized the existence of a public need for an organization which would lend money to those who needed it at low rates upon good security and thus save them from the high rates of interest exacted by pawnbrokers and loan sharks and from their sharp practices. In The Charities Review of March, 1892 (published by Charity Organization Society), there appeared an article by Alfred Bishop Mason from which the following is an excerpt: “ there is still one gap in our line of defences against misery which needs to be filled. We should unite as pawnbrokers; lend money at low rates on good security to approved borrowers among the poor; and so divorce the three golden balls from The Three Furies. There is no merchant in this community who would not be driven into bankruptcy if his unsecured bills payable bore the rate of interest which the very poor have to pay on most undoubted security. * * * The necessaries of life should be cheap. Borrowing is often the greatest of necessities for the worthy poor. They pay for it the price of the greatest of luxuries. Let the Anglo-Saxons learn from the Latins and build up in New York a great Mont-de-Piete, where it shall not be shame and ruin to borrow and where self-respect need not make part of every pledge.”
On May 9, 1892, a special committee of the Charity Organization Society, in a report to that society’s executive committee, recommended the formation of a corporation “ to lend money at reasonable rates upon pledges of personal property with a view to correcting the evils then attached to the pawnbrokerage business, and thereby improving the condition of the poor.” The report contemplated “ that the operations of the Company will be conducted on the principle of charging as low a rate of interest as may be found compatible with entire safety and the necessary development of the business, in order that the main end in view may always be the greatest practicable benefit ;to the
To combat these conditions, a bill in accordance with the recommendations of the special committee of the Charity Organization Society, previously referred to, was prepared by that society and introduced in the Legislature. It provided for the incorporation of the Provident Loan Society of New York. To acquaint the public with the origin and purpose of the proposed Society, .an1 article on the subject was published by the Charity ■ Organization Society of New York in the March, 1894, issue of The Charities Review. It stressed the existence of large numbers • of people who were temporarily ill or unemployed and in need of assistance 1 ‘ without being willing to accept charity ’ ’ in the sense of alms. Such persons, the article pointed out, would be ' substantially helped and made happy if they could secure funds, by temporary pledges’ of household ornaments or other articles, which they could repay-later on and thus be saved from hurried sales óf their possessions at sacrifice prices. The article referred to the high rates of interest and the onerous terms extorted by pawnbrokers and pointed out that to counteract the influence of
‘ ‘ First: The Society would advance as near to the real value of the object pledged as safely possible. Second: While pawnbrokers charge at least the regular rate of interest, viz.: 30 per cent, per annum, and sometimes more, this Society probably need not charge more than 12 per cent, per annum; and as these transactions would grow in the course of years, a lesser charge might cover the running expenses, and the rate of interest could therefore be reduced. Third: While pawnbrokers, as is well known, are very rigid about getting what is due them at the proper time, without, as a rule, giving any grace, the Society could give six to twelve months’ time, after the loan matured, to redeem the pledge. Fourth: The Society would facilitate repayment of the amounts lent, by allowing the borrower to repay in instalments. Fifth: The borrower, if the article pledged by him had to be sold, after the time of grace had expired, would have the guaranty of a fair public sale at auction, and would receive back any amount that the sale of the article pledged would realize over the amount due and expenses of sale.”
While the bill for the incorporation of the relator was pending in the Legislature, various objections were interposed. An answer to those objections was issued by the executive committee of the Charity Organization Society, one of whose members was Bev. David H. Creer, later Bishop Creer. The answer stated that “ The incorporators of the Society, who are almost without exception actively connected with the Charities of New York, either as members of the Mayor’s Belief Committee, called into existence by the unusual distress of the past winter, or with old-established benevolent societies of New York of every creed and nationality, supposed that the bill would explain itself as a
The 44 purpose ” of the society, as stated in section 1 of the special act incorporating it, was 4 4 aiding such persons as said Society shall deem in need of pecuniary assistance, by loans of money at interest, upon the pledge or mortgage of personal property.” To guard against the possibility of private profit, section 2 of the act provided that44 no member or trustee of the society shall receive any compensation for his services, or any profit other than lawful interest on money loaned to it.” The act authorized the adoption of a constitution providing, inter alia, for the management of the property and regulation of the affairs of the society. Such a constitution was adopted. Article XII provided and still provides that 44 The Society shall not charge or receive any interest on loans at a greater rate than one per cent, per month or fraction thereof ”, thus carrying out the promise of the executive committee of the Charity Organization Society that44 the Society * * * will limit the rate of interest by its by-laws.” In addition, article XI of the constitution
The incorporators of the society consisted of a group of leading public-spirited citizens of New York, among them Otto T. Bannard, Henry B. Beekman, Frederic B. Coudert, Bobert W. de Forest, Abraham S. Hewitt, Seth Low, Jacob H. Schiff and Bishop Breer.
With this background we may now consider whether relator was ‘1 organized exclusively for * * * charitable * * * purposes ”, as required by subdivision 6 of section 4 of the Tax Law. Bespondents argue that the purpose" for which relator was formed must"be determinéd solely from the statute under which it was incorporated because it is " only ‘ ‘ when the act of incorporation is silent ” that resort may also be had to the corporate “ constitution and by-laws ” (People ex rel. Untermyer v. McGregor, 295 N. Y. 237, 244). According to respondents, relator was incorporated for the sole purpose of lending .money at interest upon pledges of personal'property and its act of incorporation, far from being silent as to its purpose, very clearly states its sole purpose to be the lending of money at interest. “ Organization for the purpose of conducting the business of a ‘ pawnbroker ’ ”, say respondents, “ is not a ‘ charitable ’ purpose within the meaning of the Tax Law. ” '
Even if the purpose for which relator was organized must be determined solely from the provisions of the act of its incorporation, without resort to its constitution, it seems to be clear that relator’s purpose was charitable in nature. The purpose is expressly declared in- the act itself as the “ aiding- [o f] such persons as said society shall deem in need of pecuniary assistance, by loans of money at interest, upon the pledge or mortgage
Bespondents urge that the fact that relator’s purpose as expressed in the act of its incorporation is to aid persons deemed to need pecuniary assistance does not support its claim that it was organized for a charitable purpose, because a later act of the Legislature (L. 1895, ch. 326) used the same language in providing for the incorporation of ordinary pawnbrokers. Although the argument is not entirely without force, the charitable character of relator’s purpose to give “ aid ” without profit to persons “ in need of pecuniary assistance ” cannot be overcome or negatived by the fact that a subsequent Legislature used similar language in a situation where no charitable purpose was involved. Certainly it may not be successfully maintained that
Respondents contend that the lending of money at interest cannot be classified as an act of charity because the term “ charity ” is “ commonly and generally applied to some form of almsgiving to the poor.” Relator concedes that no decision precisely in point has been found, claiming, however, that this is due to the fact that no organization similar to relator has been discovered in the United States. It is well settled that activities may be charitable in nature and entitle a corporation or association engaging in them to exemption under subdivision 6 of section 4 of the Tax Laiv, notwithstanding the fact that the services are not rendered gratuitously or limited exclusively to the poor. In People ex rel. Doctors Hospital v. Sexton (267 App. Div. 736, affd. 295 N. Y. 553), Mr. Justice Cohn, writing for the Appellate Division, said (p. 741): “ Moreover, the legal meaning of charitable purposes is not necessarily limited to free service to the poor. (Matter of MacDowell, 217 N. Y. 454, 463; Y. M. C. A. of City of New York v. City of New York, 159 Misc. 539, affd. 251 App. Div. 821, affd. 276 N. Y. 619; Matter of New York University v. Taylor, 251 App. Div. 444, affd. 276 N. Y. 620.)
“ Hospitals which are devoted to the care of the sick and injured, which aid in maintaining public health and which make valuable contributions to the advancement of medical science are rightly regarded as benevolent and charitable. A hospital association not conducted for profit which devotes all of its funds exclusively to the maintenance of the institution is a public charity and this is so irrespective of whether patients are required to pay for the services rendered. (Butterworth v. Keeler, 219 N. Y. 446, 449; Matter of Mendelsohn, 262 App. Div. 605, 610; Jewish Mental Health Soc. v. Vil. of Hastings-on-Hudson, 255 App. Div. 77, affd. 279 N. Y. 764.) ” Although this language may have been dictum in view of the fact that the relator in the cited case was a “ hospital ” and, as such, expressly exempt under subdivision 6 of section 4 of this Tax Law, even if it did not qualify as a corporation organized “ exclusively for * * * charitable * * * purposes ”, the statements made are amply supported by the authorities cited and others. In Butterworth v. Keeler (219 N. Y. 446), it was held that a gift for the promotion of education or learning is a gift for charitable uses unless the recipient is maintained for the private profit of its owners. The court, by Cabdozo, J., said (p. 449): “ The rule, of course, is different where the school
The lending of money to those applying for pecuniary assist
Eespondents contend that the underlying concept of all tax-exemption statutes is that the exemption is granted in exchange for the assumption of burdens of a public nature which the government itself should discharge. Acceptance of this criterion does not aid respondents. For centuries the functions performed by relator have been assumed by governments in many countries of Western Europe (see article above referred to in March, 1894, issue of The Charities Review), and in the absence of an institution such as the present relator the city or State might conceivably be forced to set up a lending agency to meet the need presently filled by relator. Certainly the lending of money to those in need of it on proper security and at moderate rates cannot at this late date be deemed beyond the proper scope of governmental activity (e.g., Home Owners Loan Corporation, Eeconstruction Finance Corporation, etc.).
The views so far expressed have been reached notwithstanding the assumption that the relator’s purpose must be determined solely from the act of its incorporation, without resort to its constitution. In the court’s opinion, however, the authorities do not lay down so strict and inflexible a test. In Matter of De Peyster (210 N. Y. 216) the question to be decided was whether
We turn now to respondent’s contention that even if relator be deemed to have been organized exclusively for a charitable purpose, its real property has not been and is not “ used exclusively for carrying out thereupon * * * such purpose ”. Respondents point out that relator has operated so profitably, charging interest at the rate of 12% per annum to its borrowers during most of the years of its existence, that it has accumulated an undistributed surplus of approximately $10,500,000 after paying off those who contributed funds, other than gifts, with interest which amounted to approximately $28,000,000 (these contributions will be referred to in a subsequent portion of this opinion). During the period of its existence relator has distributed to charitable organizations only about $429,000. Although the society recognizes that “ the figure of $10,-500,000, viewed by itself, seems a tremendous surplus, it points out that the surplus is the result of 20,682,038 loans aggregating, for the 53.6 years of its existence up to December 31, 1947, a total of $1,096,721,803.50. The surplus therefore, amounts to an average net return of less than 1% on the loans made. The declared aim of the Society is to function as nearly as possible at cost. It claims that to protect the principal fund it could “ scarcely have figured any more closely ”. Approximately o $3,000,000 of the $10,500,000 consists of the Society’s real estate and equipment. Furthermore, in 1946, relator incurred an operating deficit of $183,738.84 and in 1947 a similar deficit of $169,098.59. These were the latest figures available at the time the factual stipulation was entered into, and they reveal that the relator has of late been losing money rather than making profits. In any event, it is indisputable that to the extent that the charges made by relator exceed the cost of its lending services, the difference does not redound to the private gain of its members or trustees but goes to augment the fund available for employment in the performance of the
Eespondents also urge that relator has failed to use its property exclusively for charitable purposes because it has made a considerable number of large individual loans, one as high as $135,000, and because many, if not most, of its borrowers may not be considered objects of charity because all loans are amply secured and 95% of them in dollar amount (75% numerically) are made on pledges of diamonds or other precious stones. Eespondents emphasize that the relator “ deems any applicant to be a person in need of pecuniary assistance ” and accepts applications not limited to persons in sheer need without giving preference to borrowers approved by charitable organizations. As to the large individual loans, the record shows that from 1917 through 1947, except for the year 1929, relator’s loans of $1,000 or more amounted to only one half of 1% of the loans made, and in 1929 to 61/100 of 1%. From 1942 to 1947, only 474 loans of over $2,000 each, totaling $1,767,514, were made out of 1,681,429 loans aggregating $93,390,132. As of May 31, 1948, the outstanding loans of $3,000 or over were 54 out of a total of 124,649. It is thus abundantly clear that only an insignificant portion of relator’s loans have been for large sums. The word “exclusively ” is not .to be given “ 1 an interpretation so literal as to prevent an occasional use of the relator’s property for some purpose other than one or more of those specified ’ ” (People ex rel. Mizpah Lodge v. Burke, 228 N. Y. 245, 247). At any rate, as has already been pointed out, the legal meaning of charitable purposes is not necessarily limited to free services to the poor (People ex rel. Doctors Hospital v. Sexton, 267 App. Div. 736, 741, affd. 295 N. Y. 553, supra), and the exclusively charitable character of relator’s activities is not affected by the fact that some loans made are large in amount or by the fact that many of the borrowers may not be poor people in a strict sense.
Nor is there merit in the contention that because relator has installed cold storage vaults for the storage of fur coats which it accepts as pledges, it is in the business of fur storage. No claim is made that relator accepts furs or other articles for storage except where the furs or articles are pledged with it as security for loans made by it, the storage being merely incidental to the loan, for the purpose of preventing deterioration of the pledge.
Similarly the fact that relator advertises its loan facilities and
For the reasons indicated, the court finds itself unable to agree with respondents’ claim that even if relator was organized exclusively for a charitable purpose it is not entitled to tax exemption because its property is' not being exclusively devoted to that purpose.
There remains for consideration respondents’ contention that there is a possibility of pecuniary profit which, in any event, requires the denial of relator’s claim to exemption. Subdivision 6 of section 4 expressly provides that no corporation or association shall be entitled to exemption “ if any officer, member or employee thereof shall receive or may be lawfully entitled to receive any pecuniary profit from the operations thereof, except reasonable compensation for services in effecting one or more of such purposes.” The factual stipulation between the parties concedes that “no officer or employee of said The Provident Loan Society of New York receives * * * any pecuniary profit from its operations, except reasonable compensation for services effecting its purposes ”. The stipulation also admits that no officer or employee “ may lawfully be entitled to receive ” any pecuniary profit except reasonable compensation for services, but at the outset of the trial respondents moved to eliminate this concession as a conclusion of law admitted through inadvertence. Such motion, upon which decision was reserved, is granted, with an exception to relator. The rights of the parties are, however, not affected by the granting of the motion, as there is no evidence whatsoever before the court from which it may be inferred that any officer or employee of the relator “ may lawfully be entitled to receive ” any pecuniary profit except reasonable compensation for services. “ The question of whether or not the relator is entitled to an exemption must be determined upon the facts, circumstances and conditions as they existed at the time of making the assessments * * * (Matter of Mary Immaculate School, 188 App. Div. 5; Amherst College v. Assessors of Amherst, 193 Mass. 168).” (People ex rel. Manlius School v. Adams, 143 Misc. 459, 466, affd. 232 App. Div. 869, affd. 257 N. Y. 549.) In the Manlius case (supra) it appeared that at the time of the making of the assessment, no officer, member or employee of the relator was receiving any pecuniary profit
As to members and trustees of the present relator, it has already been pointed out that the special act incorporating the relator, as well as its constitution, both expressly provide that “ no member or trustee of the society shall receive any compensation for his services, or any profit other than lawful interest on money loaned to it.” The constitution provided and still provides that the funds of the Society were to be obtained from (1) gifts or bequests (2) contributions made on condition that the contributor would receive a certificate for the amount contributed entitling the holder thereof to such amount, not exceeding lawful interest, as the trustees might determine to pay certificate holders out of earnings, and (3) from loans at a rate of interest not exceeding the lawful rate. As previously pointed out, article XI of the constitution of the Society provides for repayment of contributed funds on dissolution or termination of the Society’s existence. Some of the funds acquired by relator for the purpose of making loans upon the security of pledged personal property were obtained by the issuance of such certificates of contribution. These certificates of contribution were issued to those contributing funds in return for the certificates, whether members or nonmembers of relator. Since the certificates were issued to nonmembers as well as members of relator, and since the amounts payable on the certificates could not exceed the return of principal with interest at the legal rate, the relationship established by the certificates was essentially one of debtor and creditor. From 1896 to 1942, interest was paid on the certificates at the rate of 6% per annum. In 1943, 4y2% was paid, and for the first half of 1944 2%%. As of January 28,1944, the total amount of the certificates held by members was $662,100. On September 30,
The case of People ex rel. Rye C. D. School v. Schmidt (266 N. Y. 196), cited by respondents, is clearly distinguishable. There, on dissolution of the relator, all its assets were to be divided among its stockholders. Such assets would include the profits, if any, earned during the period of the relator’s operations prior to dissolution. In Lawrence-Smith School v. City of New York (166 Misc. 856), the new corporation undertook to pay obligations of its predecessor out of the former’s profits, notwithstanding the fact that the debts of the predecessor exceeded its assets at the time the new corporation took over. Although the court used language construing the holding in People ex rel. Rye C. D. School v. Schmidt (supra) as barring exemption if the investment made in the school might be returned on dissolution, the language was only dictum. The fact is that in the Rye School case (supra) there was not merely a possibility of obtaining a return of the investment but also the possibility of securing on dissolution a share in the profits made prior to that time. It was for this reason that the Court of Appeals declared (p. 198) “ The corporate operation of the respondent may lawfully entitle some of its members to receive pecuniary profit other than reasonable compensation for services (Italics supplied.)
Respondents stress the well-settled principle that statutes exempting property from general taxation must be strictly construed against the property holder. In the court’s opinion,
Relator has been held exempt from taxation under the Federal Income Tax Law, the New York State Franchise Tax Law, and the New York City Business Tax Law. These exemptions, however, were granted by administrative agencies and were allowed under different tax statutes. Respondents therefore correctly take the position that said exemptions are irrelevant to the proper determination of the instant proceeding.
Respondents urge also that the fact that on dissolution relator’s assets are to be distributed to charitable institutions is insufficient by itself to entitle it to exemption, since the law requires that the enterprise itself be charitable, regardless of the disposition of the income to charitable purposes (People ex rel. Mizpah Lodge v. Burke, 228 N. Y. 245, 249, supra). The court is in complete accord with this contention of respondents. The instant case, however, is not one where the disposition of the income to charitable purposes is sought to be availed of in order to obtain exemption for a corporation whose purpose is not charitable within the meaning of the Tax Law. The present relator, as previously pointed out, is organized for a charitable purpose and is devoting its property to the effectuation of said charitable purpose.
For the reasons indicated the court holds that relator is entitled to prevail, and that its property is exempt from taxation.
The foregoing constitutes the decision of the court. Submit final order on two days ’ notice.