Baker v. Comm'r of Corps. & Taxation

• Decision Date: 29 June 1925
• Citation: 148 N.E. 593,253 Mass. 130
• Parties: BAKER et al. v. COMMISSIONER OF CORPORATIONS AND TAXATION.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

253 Mass. 130

148 N.E. 593

BAKER et al.

v.COMMISSIONER OF CORPORATIONS AND TAXATION.

Supreme Judicial Court of Massachusetts, Suffolk.

June 29, 1925.

Appeal from Probate Court, Suffolk County; A. W. Dolan, Judge.

Petition by Ezra H. Baker and others against the Commissioner of Corporations and Taxation to recover back legacy and succession tax assessed and collected on shares in the Baker Building Associates. Decree for petitioners, and respondent appeals. Reversed.M. F. Weston, Asst. Atty. Gen., for appellant.

T. Parker, of Boston, for appellees.

RUGG, C. J.

This is a petition under G. L. c. 65, §§ 27, 30, to recover a legacy and succession tax assessed and collected with respect to shares in the Baker Building Associates owned by the testatrix of the plaintiffs. She died a resident of Rhode Island in May, 1923. The Baker Building Associates is a voluntary unincorporated association duly organized under the laws of this commonwealth and established by deed and agreement of trust dated September 9, 1919, and having its usual place of business at Boston. The property conveyed by the deed was real estate in Boston, which remained under the trust and constituted its corpus on the date of the death of the testatrix. It was contended by the petitioners and conceded by the respondent that the deed, correctly construed as to its substance, created a pure trust as distinguished from a partnership. Williams v. Milton, 215 Mass. 1, 102 N. E. 355, and cases there reviewed; Flint v. Codman, 247 Mass. 463, 469, 142 N. E. 256;Crocker v. Malley, 249 U. S. 223, 39 S. Ct. 270, 63 L. Ed. 573, 2 A. L. R. 1601. There was also an express provision in the trust instrument to that effect. The trustees were required to hold and manage the property with ‘all the powers of absolute owners' for the benefit of the shareholders, as cestuis que trust, with specific mention of powers amongst others to erect buildings and to lease, exchange, mortgage or sell for cash or otherwise, and to acquire adjoining land. Other salient provisions of the trust are that neither the trustees nor the cestuis que trust shall be personally liable with respect to the trust, but that for all debts the trustees shall be liable as such to the extent of the trust fund only. Any vacancy in the trustees shall be filled by appointment by the remaining trustees or trustee with the assent in writing of a majority of the certificate holders or, if no such appointment be made within ninety days, application may be made to a court by any party in interest. The trustees may apply rents and profits and proceeds of sales in whole or in part to improvements and ‘not over five per cent. thereof per annum to the creation of a sinking fund for repairs and the like,’ the balance to be divided semiannually or oftener among the certificate holders. The beneficial interest in the property is represented by one hundred shares, which ‘shall be personal property,’ of the nominal par value of one thousand dollars each, ‘evidenced by certificates' in a prescribed form signed by the trustees, transferable only upon the books of the trustees upon surrender of the old certificate. The certificates entitle the owner to ‘a proportional share of all dividends but shall not give any right in the land represented’ nor right ‘to call for partition’ or for distribution. It is provided in article fifth of the trust that upon the expiration of 20 years after the death or several named persons the trustees shall ‘terminate this trust by dividing the trust fund or the proceeds thereof’ among the cestuis que trust, and that the trustees may, with the consent of three-fourths in interest of the cestuis que trust, ‘alter or add to this declaration, or terminate this trust, and if it seems to them judicious so to do, they may, with like consent, convey’ the trust fund to new or other trustees or to a corporation, provided that they shall be under no obligation to terminate the trust or convey the trust fund ‘except as hereinbefore provided.’

The question to be decided is whether the interest of the testatrix as a certificate holder under this trust was subject to an excise tax under G. L. c. 65, § 1, as amended by St. 1922, c. 403, § 1. The crucial statutory words are:

‘* * * All real estate within the commonwealth or any interest therein * * * belonging to persons who are not inhabitants of the commonwealth, which shall pass by will * * * to any person, absolutely or in trust * * * shall be subject to a tax * * *’ with exceptions not here material.

These shares constitute property within the commonwealth. Under earlier legacy and succession tax laws they would have been taxable even though owned by nonresident decedents. Kinney v. Treasurer and Receiver General, 207 Mass. 368, 371, 93 N. E. 586, 35 L. R. A. (N. S.) 784, Ann. Cas. 1912A, 902; Kennedy v. Hodges, 215 Mass. 112, 114, 102 N. E. 432. The present governing statute is different in its wording from that under consideration in those cases. The question here presented is whether the property right of the testatrix as a certificate holder under the trust was ‘real estate’ or ‘any interest therein’ within this commonwealth. Since the property right of a certificate holder in a pure trust like the one at bar can hardly be treated strictly as real estate, the question to be decided is narrowed to the point whether such property right is ‘any interest’ in real estate.

The petitioners contend that the real estate is to be treated as personal property under the doctrine of equitable conversion, because the trustees are required to convert all the trust into personal property for the purpose of final distribution at the termination of the trust. They invoke the general rule that a conversion from real estate to personalty takes place, although in fact unchanged in form, when there is plain language or a necessary implication in the instrument creating the trust whereby a duty is imposed upon the trustees to sell the land for money for distribution or other trust purpose, and that such conversion commonly takes place at the time the instrument becomes operative. The doctrine of equitable conversion is well established. It is founded upon the maxim that equity regards that as done which ought to be done. Resort is had to it in order to work out the intent of the parties and accomplish a result which ought to be accomplished on principles of fair dealing.

Real estate is regarded as converted into personalty, or the reverse, from the time when it ought to have been so converted. As a practical working rule with respect to wills, it has come to be recognized that when conversion of real into personal estate imperatively is required by the maker of the will, the law will regard it as converted ‘at the death of the testator, and he who takes under the will takes it with the character which the will has impressed upon it.’ Hammond v. Putnam, 110 Mass. 232;Thissell v. Schillinger, 186 Mass. 180, 185, 71 N. E. 300;Gray v. Whittemore, 192 Mass. 367, 384, 78 N. E. 422,10 L. R. A. (N. S.) 1143, 116 Am. St. Rep. 246;Rockland-Rockport Lime Co. v. Leary, 203 N. Y. 469, 480,97 N. E. 43, L. R. A. 1916F, 352, Ann. Cas. 1913B, 62. The doctrine of conversion is not a hard and fast rule. It was said by Chief Justice Knowlton in May v. Brewster, 187 Mass. 524, 530, 73 N. E. 546:

‘Under the decisions in Hammond v. Putnam, 110 Mass. 232, and Perkins v. Coughlan, 148 Mass. 30, it may be that, for some purposes, this real estate was constructively converted into personal property, as of the time of the death of the testator. In fact it remained in the form of real estate, and for the purposes of this case it must be dealt with as real estate.’

The time when the equitable conversion takes place depends upon the terms of the particular instrument under consideration. The intent there expressed must be effectuated. When a definite time is specified in an agreement between parties for the sale of real estate and its conversion into personalty, the conversion commonly does not take place until that specified time has arrived. The reason is that, until that time has come, there ought not to be any conversion under the agreement. Until that time has come the equitable maxim, to which allusion has already been made, has no room for operation because nothing ‘ought to be done’ which equity can regard as done. The parties have fixed their own time for the conversion to take place. There is no sound reason for the law to accelerate the arrival of that time. Underwood v....