Appeal from decree of Court of Common Pleas of Lehigh County, June T., 1969, No. 5, in case of John P. Anthony v. Theresa Perose et al.
James G. Kellar, for appellant.
S. Maxwell Flitter and Robert J. Johnson, for appellees.
Jones, C. J., Eagen, O'Brien, Roberts, Pomeroy, Nix and Manderino, JJ. Mr. Justice Nix concurs in the result. Dissenting Opinion by Mr. Justice Manderino. Mr. Justice Roberts joins in this dissenting opinion.
Lehigh Tile & Marble Co., a partnership, appellee herein, in 1952 purchased from New York Life Insurance Company a "key man" policy of insurance in the face amount of $25,000 on the life of its Office Manager, John Anthony. Upon appellant's resignation from Lehigh to take a position with another firm, he demanded delivery of the policy to him. This denied, the present suit in equity was brought to compel transfer of ownership of the policy, including all dividends thereon, to plaintiff. The complaint also prayed that the employer be declared a trustee of the policy for plaintiff's benefit, and that it be ordered to pay to plaintiff an amount equal to all of the premiums paid on the policy from the date of issuance, together with dividends and interest thereon. After a trial the complaint was dismissed. The court en banc overruled exceptions to the chancellor's adjudication, and entered a final decree, from which this appeal was taken.
The court below found that the policy had been obtained pursuant to an application signed jointly by the Company and by Anthony. As requested in the application, the policy, a 20-year endowment contract, named the appellant as the insured and the Company as owner and beneficiary. The annual premium was $1077.00 and, as the chancellor found, the premium payments were made by the Company with its own funds; its cancelled checks representing the payments were in evidence. The Company received dividends on the policy and paid income tax thereon.
Had this been the whole story, no doubt the present suit would not have been brought; the complaint has its foundation in the manner in which the Company
handled the premium payments. Presumably knowing that premiums on key man insurance on the life of an employee of a taxpayer are not deductible where the taxpayer-partnership is a beneficiary under the policy,*fn1 the Company's accountant suggested that deductibility be achieved indirectly by purporting to increase the amount of Anthony's year-end bonus payments by an amount equivalent to the annual premium.*fn2 Mr. Anthony was informed of the nature of and acquiesced in this tax avoidance device.*fn3 The chancellor found that
whatever the tax consequences of this arrangement might be, "the source of the funds used to pay the premiums was clearly Lehigh Tile & Marble Co., and not the plaintiff." He further found that appellant had failed to prove that Lehigh had been unjustly enriched, or that there was any evidence of ...