Estate of Bogley v. United States

• Decision Date: 16 April 1975
• Docket Number: No. 52-73.,52-73.
• Citation: 514 F.2d 1027
• Parties: ESTATE of Samuel E. BOGLEY, et al. v. The UNITED STATES.
• Court: U.S. Claims Court

514 F.2d 1027

ESTATE of Samuel E. BOGLEY, et al. v. The UNITED STATES.

No. 52-73.

United States Court of Claims.

April 16, 1975.

COPYRIGHT MATERIAL OMITTED

Stephen D. Kahn, Washington, D. C., for plaintiff. Jerry M. Hamovit, Cleveland, Ohio, attorney of record.

William Kalish, Washington, D. C., with whom was Asst. Atty. Gen. Scott P. Crampton, for defendant. Theodore D. Peyser and John E. Evans, Washington, D. C., of counsel.

Before COWEN, Chief Judge, and SKELTON and BENNETT, Judges.

ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT AND PLAINTIFF'S CROSS MOTION FOR SUMMARY JUDGMENT

SKELTON, Judge:

This is a suit by the Estate of Samuel E. Bogley, deceased, acting through Leonard S. Melrod and Warren Browning, Co-administrators, for the recovery of $32,380.10 federal estate taxes, plus interest thereon, assessed and collected from such estate by the Internal Revenue Service. The facts giving rise to the suit are as follows:

The decedent, Samuel E. Bogley, was, from 1955 until his death on January 8, 1967, an officer, employee and director in each of three corporations, namely, Bogley, Harting, Mahoney, and Lebling, Inc. (hereinafter BHM&L); Bogley, Harting, Mahoney, and Lebling of Virginia, Inc. (hereinafter Virginia); and Bogley, Harting and Hight of Prince Georges County, Inc. (hereinafter Prince Georges). At his death, Bogley also was a stockholder in each of the three corporations, owning 50 percent of the common stock of BHM&L, 28 percent of the common stock of Virginia, and 34 percent of the common stock of Prince Georges.

The directors of BHM&L passed a resolution and the directors of Virginia passed a motion during the 1950's providing that upon the death of each of their officers, the corporation was authorized to pay a certain sum to the officer's estate or beneficiary.

The resolution of BHM&L was passed on October 17, 1955, and it provided as follows:

RESOLVED that in consideration of past services and services to be rendered by Samuel E. Bogley, Frederick G. Harting, Jr., and Frank S. Hight, Jr., the Corporation is authorized upon the death of any of these officers to pay their estate or named beneficiary the total compensation received by the officer for the past two years prior to his death. This payment is to be made monthly over a two-year period following the death of the officer.

On the same day the following motion was made and adopted by the Board of Directors of Virginia:

In consideration of past services and services to be rendered by Samuel E. Bogley, Frederick G. Harting, Jr., Joseph J. Mahoney, Jr. and Frank S. Hight, Jr., the Corporation is authorized upon the death of any of these officers to pay their estate or named beneficiary the total compensation received by the officer for the past two years prior to his death. This payment is to be made monthly over a two-year period following the death of the officer.

On November 10, 1958, the Board of Directors of Prince Georges adopted the following resolution:

RESOLVED, that in the event of death of any of the present officers of the Corporation, namely: Samuel E. Bogley, Frank S. Hight, Frederick G. Harting, Jr., and William L. Lebling, Jr., the surviving widow or estate is to receive two years' salary based on amount being paid at time of death, as severence sic pay, this to be covered in part by an insurance policy of the double-indemnity type; owner of said policy to be Bogley, Harting & Hight of Prince Georges County, Inc. and expense of same to be borne by the Corporation.

The Prince Georges resolution was amplified by a further resolution of its Board of Directors on December 8, 1958:

Whereas, a question has arisen with respect to the intent of a resolution passed by the Board of Directors of this Corporation on November 10, 1958, pertaining to the payment of two years' salary to the widow or estate of certain of the officers of this corporation and whereas it is desireable sic to clarify the fact that such resolution was intended to impose a contractual obligation on the corporation now, therefore, be it,

RESOLVED, that the resolution providing that in the event of death of any of the present officers of the Corporation namely: Samuel E. Bogley, Frank S. Hight, Frederick G. Harting, Jr., and William L. Lebling, Jr., the surviving widow or estate is to receive two years' salary based on the amount being paid at the time of death, as severance pay, was in recognition of the past services theretofore rendered to this Corporation by the several said officers, and in consideration of the future services to be rendered by each of them, and be it further

RESOLVED, that the payment of such sum shall be made within thirty (30) days after the date of death of such officer, or officers.

The decedent was present at the meetings when these actions were taken by the Boards of Directors of said corporations. He never designated anyone to receive payments from BHM&L and Virginia if they were made after his death. There is no evidence that the decedent ever communicated with the corporations, or they with him, regarding said corporate proceedings up to the time of his death.

The motion of Virginia and the resolutions of BHM&L and Prince Georges remained unchanged on their respective corporate minute books from the time they were passed and adopted until decedent's death, without any further action being taken by the corporations with reference to them.

The decedent was an officer and employee of the above corporations prior to and at the time the above motion and resolutions were passed and adopted He continued as an officer and employee of such corporations until his death on January 8, 1967. He was 52 years of age when he died and at that time his wife was 38 years old.

On or about March 23, 1967, Prince Georges paid to decedent's widow the sum of $60,000. Commencing on or about March 20, 1967, and in monthly payments thereafter until fully paid, BHM&L and Virginia paid to the plaintiff, the estate of Samuel E. Bogley, the sums of $63,833 and $62,467.92, respectively. These amounts were reported as income on federal tax returns by the decedent's widow and the plaintiff.

On or about October 8, 1968, plaintiff filed a federal estate tax return on behalf of Samuel E. Bogley. In computing the decedent's gross estate for federal estate tax purposes, plaintiff did not include the above payments. The District Director assessed a deficiency against the estate based on the estate's failure to include in the gross estate the amount of $181,874.41, which he alleged was the commuted value of payments under the corporate motion and resolutions. After payment of the deficiencies and the filing and disallowance of a claim for refund, this suit was timely filed.

The defendant contends that the corporations made offers and promises to Bogley when they passed the motion and resolutions described above, and that Bogley accepted said offers by continuing to serve as an officer and employee of the corporations until his death, and by reason of all of which they entered into binding contracts that Bogley could have enforced during his lifetime. From this premise, the defendant argues that the payments made by the corporations after Bogley's death had a commuted value when he died, and that such commuted value should have been included in his gross estate for estate tax purposes. To support this theory, the defendant relies on Section 2033 of the Internal Revenue Code of 1954 (26 U.S.C. § 2033 (1970)) with respect to the payments made by BHM&L and Virginia Section 2033 provides in effect that the value of the gross estate of a decedent shall include the value of all property in which the decedent had an interest at the time of his death. The defendant contends that Bogley had an interest in the BHM&L and Virginia payments when he died. In the alternative, defendant says that even if decedent had no interest in the BHM&L and Virginia payments when he died, he had a general power of appointment under which he could name the beneficiary who would receive the payments, and, therefore, Section 2041 of the Code (26 U.S.C. § 2041 (1970)) required the payments to be included in his estate.

As to the Prince Georges payments, defendant says they are not includable in the decedent's estate under Section 2033 because they were payable to his wife after his death, but that since his wife survived him, he made a transfer of his reversionary interest to her and that by reason of such facts, Section 2037 of the Code (26 U.S.C. § 2037 (1970)) requires the payments to be included in his estate if his reversionary interest exceeds five percent of the value of such property, which defendant says is the case here.

The basic position of the plaintiff is that there were no contracts between Bogley and the three corporations, and that the corporations were not contractually bound to make the described payments. This being true, plaintiff asserts that the arguments and contentions of the defendant are invalid and that Sections 2033, 2041 and 2037 of the Internal Revenue Code of 1954 have no application to this case. The plaintiff says further that all that decedent had was a mere expectancy of payment by the corporations and that under these circumstances, the payments were not required to be included in decedent's gross estate.

The defendant agreed in its brief and at oral argument that if the corporations were not contractually obligated to make such payments and that if the deceased possessed a mere expectancy of payment, the inclusion of the items in the gross estate of decedent would not be required. Therefore, the threshold question that must be resolved is whether or not enforceable contracts existed between Bogley and the three corporations that contractually bound them to make the described payments after Bogley's death. This requires an examination of the basic principles of contract law and the application of those principles to the facts of this case. A...