Estate of Lock

• Decision Date: 24 August 1981
• Citation: 176 Cal.Rptr. 358,122 Cal.App.3d 892
• Court: California Court of Appeals Court of Appeals
• Parties: ESTATE of TYE ON LOCK, Deceased. Frank Sam LOCK, Executor of the Estate of Deceased, Petitioner and Appellant, v. SUPERIOR COURT CITY AND COUNTY OF SAN FRANCISCO, Objector and Respondent, Lock Wing LENG et al., Claimants and Respondents. Civ. 50335.

Page 358

176 Cal.Rptr. 358

122 Cal.App.3d 892

ESTATE of TYE ON LOCK, Deceased.

Frank Sam LOCK, Executor of the Estate of Deceased, Petitioner and Appellant, v. SUPERIOR COURT CITY AND COUNTY OF SAN FRANCISCO, Objector and Respondent, Lock Wing LENG et al., Claimants and Respondents.

Civ. 50335.

Court of Appeal, First District, Division 1, California.

Aug. 24, 1981.

James C. Fong, San Francisco, Wayne M. Collins, Berkeley, for appellant.

George Agnost, City Atty., San Francisco, for respondent Superior Court.

NEWSOM, Associate Justice.

This is an appeal by the executor of the Estate of Tye On Lock, decedent, from a trial court order denying his petition for settlement of the estate account and distribution. The pertinent facts are not in dispute and are summarized as follows.

In 1961, Tye On Lock made inter vivos gifts by deed of two parcels of improved real property to his two sons, each receiving one of the parcels. During decedent's lifetime, neither he nor the donees of the gifts either paid the gift taxes or reported the gifts for tax purposes. Appellant was one of the donees of the gifts.

Tye On Lock died on July 1, 1971, in the British Crown Colony of Hong Kong, being on that date a resident of Hong Kong, but leaving property in the City and County of San Francisco subject to distribution therein. Decedent's last will and testament named Frank Sam Lock, his second son and appellant herein, as executor.

Appellant filed a "Petition for Probate of Will and for Letters Testamentary" on September 10, 1971. Decedent's will was admitted to probate on October 7, 1971, and on that date appellant was duly appointed executor.

On November 13, 1979, appellant submitted a "First and Final Account and Petition for Executor for Final Distribution." The petition requested, pursuant to decedent's will, that a one-third share of the estate be distributed to both appellant and Lock Wing Leng a minor son of decedent who had not been named a donee of the inter vivos gifts transferred by decedent in 1961 ¹ with lesser shares to be distributed to three grandchildren of decedent. The petition also included, as attachments, the following: (1) a report of disbursements during the account period showing a total of $39,009.69 paid by the executor for state and federal gift taxes and accounting fees pertinent thereto, and (2) a declaration by counsel for appellant which stated that "the gift taxes were paid because decedent had made inter vivos gifts in 1961 by deeds, ..." and further that the "donor is primarily liable for the taxes."

After a hearing on the petition, the court rendered a "Decision" on January 4, 1980, denying appellant's petition for distribution and settlement of the account. Specifically, the court disallowed payment of the gift taxes by the estate, citing the following reasons: (1) the executor failed to disclose the gifts or pay the California and federal gift taxes and accompanying fees (including interest and penalties) until seven years after his appointment, thereby causing accrual of substantial interest and penalties; and (2) since the donees (including appellant) were responsible for payment of the taxes, to charge them against the decedent's estate would be prejudicial to the interest of the estate beneficiaries who were not the objects of the gifts. On its own motion, the court filed a "Correction to Intended Decision" on November 6, 1980, correcting a typist's error in the amount of the tax disbursements disallowed in the "Decision," and directing counsel for appellant to prepare "findings and form of Judgment in accordance with intended decision of January 4, 1980 as herein corrected." Appeal was taken from the decision of January 4.

Before considering the substantive issues raised here, we must deal with respondent's claim that the instant appeal should be dismissed because the trial court's "Decision" of January 4, 1980, is not a final, appealable judgment. Respondent submits that the "Decision" is not an order, but merely a statement expressing the court's disapproval of the executor's petition for settlement of account and final distribution. Thus, respondent argues, appellant's notice of appeal, filed February 7, 1980, was premature. In support of this contention, respondent cites rule 232 of the California Rules of Court, which states, in pertinent part: "The announcement of intended decision shall not constitute a judgment and shall not be binding on the court."

As respondent suggests, pursuant to rule 232, an oral or written intended decision of the court is not generally considered a final judgment. (Kinney v. Vaccari (1980) 27 Cal.3d 348, 357, 165 Cal.Rptr. 787, 612 P.2d 877; Ripani v. Liberty Loan Corp. (1979) 95 Cal.App.3d 603, 614, 157 Cal.Rptr. 272; Dairyman's Cooperative Creamery Assn. v. Leipold (1973) 34 Cal.App.3d 184, 188, 109 Cal.Rptr. 753.) However, it is well settled that the substance or effect of the judgment and not its designation is determinative of its finality. A memorandum of decision may be treated as an appealable order or judgment when it is signed and filed, and when it constitutes the trial judge's determination on the merits. (Safeway Stores, Inc. v. Brotherhood of Teamsters (1978) 83 Cal.App.3d 430, 434, fn. 1, 147 Cal.Rptr. 835; People v. Kozden (1974) 36 Cal.App.3d 918, 920, 111 Cal.Rptr. 826; Martino v. Concord Community Hosp. Dist. (1965) 233 Cal.App.2d 51, 55-56, 43 Cal.Rptr. 255; Maxwell v. Perkins (1953) 116 Cal.App.2d 752, 757, 255 P.2d 10.)

In Estate of Conroy (1977) 67 Cal.App.3d 734, 136 Cal.Rptr. 807, the probate court signed and filed a document entitled "Decision," which, after specifying the judge's reasons therefor, stated, "The amended Report of the Inheritance Tax Referee is hereby approved." (Id., p. 737, fn. 1, 136 Cal.Rptr. 807.) In ruling that the "Decision" was appealable, the court reasoned: " '... since no particular language is requisite for an order, a trial judge's written statement of his views on the law and the proper decision may be treated as an order when signed and filed and when it constitutes his final determination of the merits.' (Citation.) The use of the phrase 'is hereby approved' would clearly indicate that the document entitled 'Decision' was intended to be a final determination on the merits and therefore an order and should be treated as such although not properly labeled." Id. at p. 737, 136 Cal.Rptr. 807.)

Similarly, though denominated a "Decision," the trial court's ruling here is in effect a final judgment. It declares that, "Settlement of the account and petition for distribution are denied ..." and further that the gift tax disbursements in the account "are disallowed." The "Decision" was filed on January 7, 1980, and entered by the clerk on January 8, 1980. By its terms, the decision constitutes a final determination on the petition and contemplates no further judicial action to give it vitality as an order. It is couched in terms of an order, as signed, filed and entered: In our view, it should be treated as final and appealable, notwithstanding its label. (Estate of Conroy, supra, 67 Cal.App.3d 734, 737, fn. 1, 136 Cal.Rptr. 807; People v. Kozden, supra, 36 Cal.App.3d 918, 920, 111 Cal.Rptr. 826; Hoffman v. Municipal Court (1970) 3 Cal.App.3d 621, 623, fn. 1, 83 Cal.Rptr. 747; ² Martino v. Concord Community Hosp. Dist., supra, 233 Cal.App.2d 51, 56, 43 Cal.Rptr. 255; ³ Estate of Spence (1943) 57 Cal.App.2d 922, 925, 135 Cal.Rptr. 419 (ruling as final and appealable an "Order and Opinion on Petition to Construe Will"); Gulf Mail Co. v. W. A. Hammond Co. (1924) 67 Cal.App. 420, 423, 227 P. 938.) ⁴

Respondent insists that the "Correction to Intended Decision" filed on November 6 1980, reveals that the trial court did not intend its "Decision" to be a final judgment, noting that, in addition to correcting a typographical error, the document requested the executor to prepare "findings and form of Judgment...."

However, the amendment merely corrected a clerical error, an action which the court was at liberty to take even if the earlier decision were deemed a final judgment. (People v. Hartsell (1973) 34 Cal.App.3d 8, 13, 109 Cal.Rptr. 627.) Moreover, the correction was issued after appellant filed notice of appeal, and long after the court made and entered its "Decision" phrased in terms of a final judgment. Appellant was entitled to rely upon this ruling and appeal from it as a final judgment. We thus conclude that the instant appeal should not be dismissed as premature, and proceed to the merits. ⁵

Appellant argues that the trial court improperly construed section 15901 of the Revenue and Taxation Code, 18 California Administrative Code section 15901.1, and other pertinent statutes and regulations, in ruling that the donees of the gifts were chargeable with payment of the gift taxes not paid by the decedent-donor during his lifetime. It is appellant's position that the statutory scheme places the primary tax liability upon the donor of the gifts, or the estate in the event of the donor's death.

California statutory law does not specifically direct which party the donee of the gift or the donor's estate is to be held responsible for payment of gift taxes not paid during the life of the donor. However, section 15901 places primary gift tax liability on the donor; it provides: "Both the donor and the donee of a gift are personally liable for the tax imposed by this part. The donor, however, is primarily liable for the tax." 18 California Administrative Code, section 15901, expounds upon the code section slightly, by stating: "Both the donor and the donee of a gift are personally liable for any gift tax due. The donor is primarily liable; however, the Controller may proceed directly against the donee for payment if, for any reason, the tax is not paid by the donor." 18 California Administrative Code section 15901.1 further provides: "If a donor or donee dies before he pays the gift tax,...