Commissioner of Internal Revenue v. Hale

Decision Date10 November 1933
Docket NumberNo. 2790.,2790.
Citation67 F.2d 561
PartiesCOMMISSIONER OF INTERNAL REVENUE v. HALE.
CourtU.S. Court of Appeals — First Circuit

John MacC. Hudson, Sp. Asst. Atty. Gen. (Pat Malloy, Asst. Atty. Gen., and Sewall Key, Sp. Asst. Atty. Gen., on the brief), for the Commissioner of Internal Revenue.

Harvey Bundy, of Boston, Mass. (Haskell Cohn, of Boston, Mass., on the brief), for Richard W. Hale.

Before WILSON and MORTON, Circuit Judges, and HALE, District Judge.

WILSON, Circuit Judge.

This is a petition for a review of a decision of the Board of Tax Appeals. On October 23, 1926, the appellee wrote the following letter to his wife, Mary Newbold Hale:

"Dear Mary: I wish to sell you the following shares in the Moa Bay Iron Company, and to be quite frank about the purpose and make this record of the whole matter.

"I sell you these shares with no string. They cease to be mine and become yours. Thus I establish a loss for income tax purposes.

"I fix the price at $1.25 per share. There is no one known to me who would pay that or more. The market has been tested in the auctions by others. Also there have been other sales on this basis or nearly so. While the stockholders have great hopes, those hopes are not reflected in the price obtainable, but only — as here — in making the seller wish to have the purchaser some one whose good fortune would be agreeable."

In reply his wife wrote the following letter:

"Dear Richard: In reply to your letter of October 23rd, I enclose cheque for $1,250 in payment for the shares in the Moa Bay Iron Company.

"Yours very truly,

"Mary Newbold Hale."

The appellee cashed the check of his wife and sent the certificate of stock to the transfer agent of the Moa Bay Iron Company and paid for the necessary revenue stamps for the transfer amounting to $20, and received new shares issued in the name of his wife, which were delivered to the wife in pursuance of the agreement of sale.

It is alleged in the petition to the Board of Tax Appeals that the wife had sufficient property in her own right to pay for the stock, and paid for it out of her own funds, which is not denied.

The appellee, when he purchased the stock in 1916, paid therefor the sum of $25,000. The difference between the cost, plus the sum paid for revenue stamps, and the selling price, represented a loss of $23,770, which the appellee claimed as a deduction in filing his income tax for 1926. The Commissioner refused to allow the deduction and assessed a deficiency tax of $3,146.70.

The appellee petitioned the Board of Tax Appeals for a redetermination of his tax and the board found the facts as above stated, and that the sale was a bona fide transaction, and any benefits thereafter from an increase in the value of the stock would accrue to Mrs. Hale and not to her husband, and held that the appellee was entitled to deduct the loss.

The government relies on section 2 of chapter 209 of the General Laws of Massachusetts 1921, which provides that a married woman may make contracts, oral, written, sealed, and unsealed, in the same manner as if she were sole, except she shall not be authorized to make contracts with her husband.

It is urged by counsel for the appellee that a completed sale from the husband to the wife for a valuable consideration is valid, at least in equity; that it is only executory contracts which are void. No Massachusetts decision has been called to our attention as actually decisive of this question.

In general, at common law, the husband upon marriage took a freehold interest in the real estate of his wife, and personal property in her possession at the time of marriage or coming into her possession during marriage, became the property of her husband absolutely, unless conveyed to her separate use. The Massachusetts Legislature has from time to time enlarged the rights of married women, and under chapter 209 of the General Laws 1921 of Massachusetts, she may now in that commonwealth receive, hold, and manage property, both real and personal, apart from her husband; may contract with any one except her husband, and make gifts to or receive gifts of personal and conveyances of real property from her husband to the same extent as if she were sole.

At common law a conveyance of personal property by a husband to the wife could have had no effect. Such a conveyance would have been futile, since all her personal property in her possession became his. Section 1 of chapter 209, G. L. Mass., however, has changed this, and she may now acquire and hold personal property apart from her husband and in her own right.

The statement in Porter v. Wakefield, 146 Mass. 25, 27, 14 N. E. 792, that transfers of property and contracts made directly between husband and wife are void is not decisive of the issue now under consideration so far as the transfer of property is concerned. At the time of this decision, section 3 of chapter 147, Pub. Stat. (section 3, chap. 153, R. L. 1902) had not been repealed. The issue in this case involved a pledge of jewelry previously given to the wife, when such gifts under chapter 132, P. L. 1884 (section 3, chap. 153, R. L. 1902) were authorized to an excess of the value of the jewelry involved, and the fact that the Massachusetts courts had held that an executory contract between husband and wife was void, was alone decisive of the case.

While the Massachusetts Supreme Court has repeatedly held that simple contracts between husband and wife are void and cannot be enforced, either in law or in equity, Gahm v. Gahm, 243 Mass. 374, 137 N. E. 876; Giles v. Giles, 279 Mass. 284, 181 N. E. 176, in which cases many other Massachusetts cases are cited to the same effect, it has not been decided since 1920 that a wife cannot, under section 1, chap. 209, as against her husband, hold personal property purchased of her husband and delivered into her possession and paid for at its full value out of her separate estate, which is the issue now before this court.

Until 1912, under chapter 132, P. L. 1884 (R. L. Mass. chap. 153, § 3), transfers between husband and wife were not authorized; but gifts from the husband to the wife within certain limits were permitted. Chapter 304, P. L. 1912, permitted conveyances of real estate; and by chapter 478, P. L. 1920, section 3 of chapter 153, R. L. 1902, which provided that transfers between husband and wife were not authorized under sections 1 and 2, was repealed, and in the revision of 1921 chapter 304 of the Public Laws of 1912, and chapter 478 of the Public Laws of 1920 were combined in section 3, as it now appears in chapter 209, G. L. 1921. Since the provision in section 3, chapter 153, R. L. 1902, stating that the provisions of sections 1 and 2 of said chapter shall not authorize a conveyance between husband and wife, was entirely repealed in 1920, the inference is that sections 1 and 2 were thereafter to have full effect. It would seem to be a fair inference that while under the act of 1884 a married woman might not hold property if transferred direct from her husband,...

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