3 Jones and Spencer's Super. Ct. Rep. 505

DANIEL S. DUVALL, as Executor of and Trustee under the Last Will and Testament of BENJAMIN OGDEN, Deceased, Plaintiff, v. THE ENGLISH EVANGELICAL LUTHERAN CHURCH OF ST. JAMES, IN THE CITY OF NEW YORK.

I. Succession Tax.—Chargeable on and Payable by Trustee named in Will, when.

1. Where a testator devises his real estate to a trustee upon trust, to take possession and management of the same, and out of the rents arising therefrom to pay the taxes, insurance, and necessary repairs thereon until the same is sold ; to sell the same as soon as could conveniently be done, and execute unto the purchaser or purchasers thereof a good and sufficient conveyance or conveyances therefor, and pay the net proceeds over to A.; the trustee is chargeable with the succession tax, and it is payable by him, though perhaps he might sell and convey subject to the tax, and thus, as between himself and his grantee, shift the liability.

Held, that A. having conveyed all his interest under the will to B., and the trustee having thereafter, under the power in the will, sold the real estate to 0., and having paid the succession tax to make good title, the trustee could not recover the amount so paid from A.

Held Further, the trustee might have deducted'the amount paid by him out of the proceeds of sale before paying over to B. a. This, although the law imposing the tax was not in existence during the life of the testator.

Before Barbour, C. J., Curtis and Sedgwick, JJ.

Decided April 5, 1873.

Verdict for plaintiff, subject to the opinion of the court at General Term.

*506The plaintiff in this ease sues, as sole executor and trustee, under the will of Benjamin Ogden, who died in June, 1867, to recover from the defendants, as "beneficiaries named in the trust created by the will, the amount of a succession tax upon the fund devised to the defendants, which tax the plaintiff paid to the United States. The case shows that the testator devised to the plaintiff all his real estate in the city of Kew York, upon trust, to hold, receive rents, pay taxes, etc., manage, and sell and convey the same, and invest certain portions of the proceeds in the manner directed; and the testator then gave and bequeathed to the defendants all the residue and remainder of the net proceeds of the said real estate, and directed his trustee to pay over the same to their treasurer. In March, 1869, the defendants, in consideration of the sum of $25,000, executed their deed to nine certain persons, who were in fact heirs at law of the decedent, whereby the former sold, released, and conveyed tg the latter ‘ ‘ all their right, title, interest, claim and demand, legal and equitable, as devisee or legatee under the last will and testament of Benjamin Ogden, deceased, of, in, and to” the real estate in question (describing it by metes and bounds). After the execution of that deed the plaintiff, as trustee under the will, sold the lands for such a price that the net proceeds, after deducting sundry expenses, mortgages, etc., amounted to $93,239.-18, and paid to the U. S. Collector the succession tax thereupon, amounting to the sum of $2,916.06, being the sum to "recover which, with interest, this suit is brought.

A verdict was directed for the plaintiff, subject to the opinion of the court at General Term.

Weeks & Forster, attorneys, and of counsel for plaintiff, urged :

I. The plaintiff, as trustee, having advanced funds to pay the succession tax, which by the law is chargeable on the defendant, was entitled to proceed directly *507against the party ultimately liable for the tax (3 Bk. Bl. Comm, bottom page 163; Chitiy on Contracts, ed. 1839, pp. 467-470; Hales v. Freeman, 1 B. & B. 391; S. C., 4 Moore, 21; Wright v. Butler, 6 Wend. 284, 289; Norton v. Coons, 3 Denio, 130, bottom p. 134, and cases there cited; St. Nicholas Ins. Co. v. Howe, 7 Bosw. 450, 460; Blunt v. Mott, 10 Abb. Pr. 222; Duffy v. Duncan, 32 Barb. 587, 600; Curtis v. Fiedler, 2 Black (U. S.) 461, 478; The Collector v. Hubbard, 12 Wallace, 1, 12; United States v. Russell, 13 Wallace, 623, 630).

II. The defendant was the party ultimately liable for the succession tax (U. S. Statutes, ch. 173, §§ 126-151, passed June 30th, 1864,13 U. S. Statutes at Large, pp. 287-292; U. S. Statutes, ch. 78, § 1, passed March 3d, 1865; U. S. Statutes at Large, pp.469,481; U. S. Statutes, ch. 184, § 9, passed July 13th, 1866, U. S. Statutes at Large, pp. 146, 147).

III. The defendant accepted the devise under the will, as is shown by its subsequent conveyance thereof for $25,000, and thereby became bound for the tax.

IV: The conveyance by the church to some of the heirs of the testator did not charge those heirs with the tax, but they took the property by implication divested of the lien (Rogers v. Kneeland, 10 Wend. 252; In the matter of Washburn, 4 Johns. Ch. 106, 114; Morey v. Farmers’ Loan and Trust Co., 14 N. Y. 302, 306; Sill v. Village of Corning, 15 N. Y. 297, 305, 306; cf. Opinion of Acting Commissioner Douglass, fols. 132, 133).

V. The law implies a promise by defendants to refund the payment made by plaintiff (see cases cited under II. supra).

VI. The admissions of the answer conclude the defendant as to all the questions in the case except the assessment and amount of the tax. That is established by the stipulation, so that no question really remains.

VII. Judgment should be ordered on the verdict for the plaintiff, with costs.

*508Smith & Woodward, attorneys, and of counsel for defendant, urged:

I. The trustee has no claim upon the church corporation for the repayment to him of this succession tax.

If there is any such liability on the part of the church corporation, it must arise out of the provisions of the statutes of the United States creating this tax, and the duties imposed upon trustees and legatees by those provisions.

1. 'No personal liability is imposed upon legatees for the payment of the legacy tax by those statutes.

By chap. 173 of the acts of the 38th Congress, § 125 (act of July 30, 1864), every legacy tax or duty is made a 11 lien and charge upon the property of every person “ who may die,” and every trustee is required to pay to the collector of the district the amount of such tax ‘ ‘ before payment and distribution to the legatees or any parties entitled to beneficial interests therein.”

By § 138 of the same act it is. provided “ that the interest of any successor in moneys to arise from the ‘1 sale of real estate, under any trust for the sale thereof, “ shall be deemed to be a succession chargeable with “duty under this act, and the said duty shall be paid “ by the trustee, executor, or other person having con- • “trol of the funds.”

By the amendatory act of July 13, 1866, chap. 184, of the acts of the 39th Congress, § 9, page 140, it is provided that.“ any tax paid under the provisions of §§ 124 “ and 125, shall be deducted from the particular legacy “or distributive share on account of which the same is “ charged.”

2. By these statutes the duty of paying the legacy tax and succession tax payable out of proceeds of real estate, is thrown upon the trustee, to be paid out of the proceeds of the sale of the real estate in his hands.

3. The deed of the church corporation to the heirs at law of the testator, Benjamin Ogden, merely substituted *509the heirs at law for the corporation, and entitled them to receive from the trustee the proceeds of the sale of the real estate after deducting the amount of all liens and proper charges.

The church corporation no more assumed the liability to discharge the lien of the legacy tax, or succession tax, upon this property than to pay the amount of existing mortgages, or to make good the charges created by the will.

4. The property was sold by the trustee for a much larger amount than was paid or agreed to be paid for it by the heirs at law, and the amount of all pre-existing liens, by mortgage or otherwise, and the amount of the charges under the will.

5. Under this state of the law and the facts it was clearly the duty of the trustee to deduct from the amount paid to the hems at law as persons succeeding to the rights of the church corporation by deed, the amount of said succession tax, and thus, after having made payment of that amount to the collector, to have satisfied all the requirements of the acts of Congress.

Sections 130, 131, 132, 135 and 137 of the act of 1864, have reference to conveyances made by legatees before the legacy duty or succession tax becomes payable, and recognizes the substitution of other parties in place of the legatees or successors by deed or otherwise.

II. It being clear that the trustee has no claim upon the church corporation for the amount of this succession tax, when he had ample funds in his hands out of which to pay the same, after discharging all other liens and charges upon the trust estate, the verdict entered for the plaintiff, subject to the opinion of the court at General Term, should be set aside, and judgment entered for the defendant, with .costs.

III. In any event, if the plaintiff be entitled to recover at all, it can only be the amount of the tax assessed upon the amount of the legacy paid to the defendant which *510was separately assessed at $1,581.42, and the verdict should "be reduced.

By the Court.—Barbour, Ch. J.

As the entire estate, legal and equitable, of which the testator died seized in the land was vested by the will in the trustee, for the purposes of the trust, no estate or interest in the land itself passed by the deed from the defendants to the grantors named therein (1 H. 8. 729, § 60). It seems clear, however, that the grantors designed and intended by that deed to grant and convey all the property, rights and interest to which they were entitled under the will, to the grantees named in such deed ; and the language employed in the instrument was probably sufficient to carry that design into effect. It appears, too, from a letter written by the legal adviser of the plaintiff, and on his behalf, to the commissioner of internal revenue, respecting the tax in February, 1870, and which was read in evidence by the plaintiff’s counsel upon the trial, that the defendants had then sold their interest under the bequest, to the nine persons named as grantees in the deed.

The interest in the bequest thus sold by the defendants was neither more nor less than the sum which they would have been entitled to receive from the trustee out of, and as the net proceeds of the sale of the lands, and keep to their own use, except for such sale.

The direction given in the will to the trustee to execute to the purchaser of the land a good and sufficient conveyance, therefore, probably of itself authorized him to convey the same subject to outstanding encumbrances, including the tax or duty, which was a lien by the statute, or to pay off such encumbrances so as to pass a clear and perfect title. If he had done the former, the interest of the defendants, in qase they had remained the owners of the bequest, would have been their pro rata share of the purchase price, less the expenses which had been incurred in managing, protecting, and selling the property.

*511The land, however, was in fact sold clear of encumbrances, and therefore, by the 188th section of the act of 1864, the moneys arising from the sale of the real estate were chargeable with the tax, and it was the duty of the trustee having control of those funds to pay the same; and he was, no doubt, authorized by the law to deduct the proportionate amount thereof from the distributive share of the proceeds of the sale which belonged to the purchasers, from the defendants. For, as the bequest to the defendants was a gift of “net proceeds,” it was undoubtedly the intention of the testator to bequeath to them all of the proceeds of the real estate that should remain in the hands of the trustee after setting aside the sums which he was directed to apply to the other trusts, and paying all such charges upon the prpperty and expenses as it was his duty to pay. It is true, that as the law imposing a tax upon successions was not in existence during the life of the testator, he could not have contemplated the payment "of such tax by his trustee; but the law, when enacted, required the trustee to pay it. The “net proceeds,” therefore, was the sum derived from the sale, which would be left in the hands of the trustee after paying the tax, as well as all other charges, expenses, etc.; and that sum was just the extent of the “interest” which the defendants had in the bequest, and which was sold by them to the nine heirs at law.

The theory of the plaintiff is, that the tax was a charge upon the land; that the defendants were to the extent of their beneficial interest in the bequest the equitable owners of such land, as shown by their deed granting and conveying their interest in it; that it was the duty of the defendants to satisfy such charge; that because of their failure to do so, and the inability of the trustee to make a title without paying the tax, he was compelled to, and did pay and advance the same for the defendants’ benefit, and therefore that he is entitled to recover *512the amount so advanced. The defendants, however, as we have seen, had no estate or interest in the land whatever, and their deed conveyed only their interest in the ultimate net proceeds to be derived from its sale. There was no charge upon the land because of the tax which the defendants were bound to remove ; but, on the contrary, it was the duty of the plaintiff under the statute to pay such tax out of the proceeds of the sale of the property. The plaintiff’s theory, therefore, is wholly erroneous, and his claim to recover is without foundation. There never was any personal obligation on the part of the defendants to pay the tax, either by the terms of the statute or otherwise.

Duvall v. English Evangelical Lutheran Church of St. James
3 Jones and Spencer's Super. Ct. Rep. 505

Case Details

Name
Duvall v. English Evangelical Lutheran Church of St. James
Decision Date
Apr 5, 1873
Citations

3 Jones and Spencer's Super. Ct. Rep. 505

Jurisdiction
New York

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