Eric v. Walsh

• Decision Date: 21 July 1948
• Citation: 61 A.2d 1,135 Conn. 85
• Court: Connecticut Supreme Court
• Parties: ERIC et al. v. WALSH, Tax Commissioner.

135 Conn. 85

61 A.2d 1

ERIC et al.

v.WALSH, Tax Commissioner.

Supreme Court of Errors of Connecticut.

July 21, 1948.

Appeal from Superior Court, Fairfield County; Cornell, Judge.

Proceeding by Marguerite Eric and others, executors of the estate of Howard Eric, deceased, to review the imposition by Walter W. Walsh, Tax Commissioner, of a penalty tax on the estate of the deceased. From a judgment for the plaintiffs in the superior court in Fairfield county, after trial to the court, the defendant appeals, and the plaintiffs cross-appeal.

No error.

Louis Weinstein, Inheritance Tax Atty., of New Haven (William L. Hadden, Atty.Gen., and Frederic W. Dauch, First Asst. Tax Commissioner, of Waterbury, on the brief) for appellant (defendant).

Curtiss K. Thompson and John H. Weir, both of New Haven, for appellees (plaintiffs.)

Before MALTBIE, C. J., and BROWN, JENNINGS, ELLS, and DICKENSON, JJ.

BROWN, Judge.

The plaintiff executors brought this proceeding in the Superior Court pursuant to § 1405 of the General Statutes, seeking a review of the defendant state tax commissioner's imposition of a penalty tax upon the estate of their decedent under the authority of § 1403. The court rendered judgment ordering the statement of such tax corrected to exclude the item in dispute and the defendant has appealed. The item was predicated upon a claimed obligation to the decedent in connection with which he had the right to sell certain securities and apply the proceeds to the debt and upon which no tax had been assessed in Stamford, where the decedent resided, or paid to the state. Whether the decedent's estate is subject to a penalty tax upon this item under § 1403 is the question for determination.

The facts are undisputed and may be thus summarized: Howard Eric, the decedent, died November 28, 1941, a resident of Stamford, where he had been domiciled for the preceding five years. The plaintiffs are the duly qualified executors under his will, and his estate is in process of settlement in the Stamford Probate Court. The plaintiffs duly filed an inventory of the assets of the estate, which included the item ‘Indebtedness owing from Louis J. Drevers resulting from liquidation of Eric & Drevers,’ appraised by the official appraisers appointed by the Probate Court at $72,494.02. The plaintiffs filed with the inventory their affidavit showing that on the taxing day of the last completed taxing period prior to the decedent's death no taxes were assessed on this item by Stamford and that during the year prior to his death no taxes were paid to the state tax commissioner, and claiming that it had not been subject to taxation by the state or town prior thereto. Since before 1938, October 1 has been the beginning of the taxing period in each year for Stamford.

On March 15, 1944, the defendant, acting under the statutes, assessed a penalty tax of $3995.01 against the decedent's estate. The only item thereof which is in dispute is ‘Indebtedness of Louis J. Drevers; Net taxable at 2% per annum $72,494.02; number of years taxable 2; amount of tax $2,899.76.’ This indebtedness refers to a claimed liability of Drevers to the decedent under a covering letter and two written agreements comprising a contract. From 1910 until the decedent's death, the two men had been associated in conducting, by a series of partnerships, a stock brokerage business in New York City under the name of Eric and Drevers. During this period Drevers was at all times domiciled in New York. As of June 30, 1938, the partnership which had then existed for several years was dissolved. At that time there was a deficit in Drevers' capital account of $481,897.28 which he was unable to pay. Concerning this the two signed the three writings mentioned and hereinafter referred to, the last executed November 10, 1938. Upon the dissolution of the partnership, a new partnership of the same name, in which the decedent became a limited and Drevers a general partner, continued the business in New York City until the death of the former. Before the death of Eric, Drevers' indebtedness to him was reduced $4,684.92 by means of proceeds of securities sold pursuant to the written agreement.

Certain of the securities were held by another brokerage firm. With the exception of those sold as above stated, the other securities referred to in the agreements, of which the decedent and Drevers were equal owners, were kept by the decedent in his safe deposit box in a New York bank until his death. When this occurred on November 28, 1941, Drevers' net worth, aside from his indebtedness to the decedent and the value of the securities was $6,599.10, and it had exceeded that amount at no time subsequent to the execution of the first written agreement. At the decedent's death, the securities referred to in the contract and which had not been sold had an aggregate fair market value of $65,894.92 in excess of the balances due the brokerage firm which held a portion of them. The $72,494.02 upon which the defendant determined the disputed tax represents the total of $65,894.92 and $6,599.10.

The court concluded that, since the indebtedness described in the written agreements would only become payable upon a contingency which had not arisen, was not certain to occur and might never happen, it was not enforceable by legal process and therefore was not an indebtedness constituting a credit or chose in action as those terms are employed in § 1147 of the General Statutes and § 322e of the 1939 Cumulative Supplement. The former section is hereinafter quoted. The latter provides for payment by the owner of a tax of 2 per cent for five years of the face value of any bond, note or other chose in action to the state tax commissioner, which upon his certification thereof to the town clerk of the town where the taxpayer resides is operative to exempt the obligation from all taxation in the state during the period for which the tax is so paid. By the contract, Drevers agreed to pay the decedent $481,897.28, without interest, in full settlement, ‘when and as soon as he is financially able to pay the same.’ The decedent agreed not to attempt to enforce payment by legal process ‘until such time or times as Drevers is able to pay the same’ and agreed to permit Drevers to postpone payment thereof accordingly. Had the contract stopped there, it is manifest that the court's conclusion would be correct. It went on to provide, however, that any amount realized from the securities should be paid to the decedent on account of the indebtedness, and further specified that ‘the said securities may be sold by order of either party to this agreement.’ No claim is made that the decedent could not order the securities in the possession of the broker to be sold at any time. Whether this provision is operative, under the circumstances, to eliminate the contingency as to the part of the indebtedness equal in amount to the value of Drevers' interest in the securities upon the pertinent assessment date, and so to constitute so much of it a credit or chose in action within § 1147, warranting the imposition of the penalty tax under § 1403, is the first question presented for decision. The court expressly concluded that it is not. The question calls for a determination of the legislative intent as expressed in § 1147.

Section 1147 is entitled ‘Personal property liable to taxation;’ and the pertinent provisions are: ‘All notes, bonds and * * * credits, choses in action * * * goods, chattels or effects, or any interest therein, belonging to any...