Humphrey v. Bullock

• Decision Date: 25 January 1984
• Docket Number: No. 13793,13793
• Citation: 666 S.W.2d 586
• Parties: Layton A. HUMPHREY, Jr., et al., Appellants, v. Bob BULLOCK, Comptroller of Public Accounts of the State of Texas, et al., Appellees.
• Court: Texas Court of Appeals

Page 586

666 S.W.2d 586

Layton A. HUMPHREY, Jr., et al., Appellants, v. Bob BULLOCK, Comptroller of Public Accounts of the State of Texas, et al., Appellees.

No. 13793.

Court of Appeals of Texas Austin.

Jan. 25, 1984.

Rehearing Denied Feb. 29, 1984.

Claude R. Wilson, Jr., William S. Lee, Golden, Potts, Boeckman & Wilson, Dallas, for appellants.

Mark White, Atty. Gen., Maureen Bucek, Asst. Atty. Gen., Austin, for appellees.

Before PHILLIPS, C.J., and EARL W. SMITH and GAMMAGE, JJ.

PHILLIPS, Chief Judge.

Layton A. Humphrey, Jr. and John Roach, co-independent executors of the estate of Layton A. Humphrey, Sr., deceased, appeal the judgment of the trial court which denied a refund of estate taxes paid on behalf of the estate. Appellants contend that the Comptroller, in computing the Texas estate tax, improperly included within the Texas taxable estate the value of deceased's interest in a partnership, to the extent that such value represented out-of-state partnership real property.

We affirm the trial court's judgment.

Layton A. Humphrey, Sr. died on October 16, 1976; he owned at death an interest in the Joe A. Humphrey Company, a Texas general partnership formed in Texas by Texas residents. The roots of The Humphrey Company apparently extend to 1931 when Joe A. Humphrey, his brother Layton A. Humphrey, Sr. and their parents formed a partnership of identical name.

In 1947 Joe A. Humphrey, Layton A. Humphrey, Sr. and their three sisters executed an agreement which provided: that their parents had died; that the parties "desire to enter into a partnership agreement so that they may continue the original partnership arrangement of 1931"; that the parties agree to become partners; that the partnership would commence on January 1, 1948 and end on December 31, 1967; that Joe A. Humphrey would be the managing partner; that the partnership assets would be owned by the partners in specified percentages (which percentages also reflected each partner's right to share in profits and to share in distribution of property upon termination of the partnership); that the purpose and business of the partnership would be that of a "general oil business, including but not limited to the buying and selling of leases, royalties, in to oil, gas, and other minerals, the drilling of wells and exploring for minerals of all kinds"; and that the parties' executors and administrators were bound to performance of the agreement.

In 1955 the parties executed an agreement whereby they revised their respective "partnership interests"; therein the brothers purported to "transfer, assign, and convey [to the sisters] as their separate property and estate, such undivided interests in the partnership and properties of whatever kind or character owned by the partnership necessary to effectuate the [revised percentage ownership]." Also, the 1947 agreement was ratified.

In 1967 the brothers, two of the sisters and the executor of the third sister (Pauline) executed an agreement which recited that Pauline had died that year, and which purported to amend the 1947 agreement in the following respects: that notwithstanding the death of Pauline, the "partnership thereby and hereby created shall continue ... in full force and effect from January 1, 1948 until December 31, 1969, or the death of J.A. Humphrey, whichever first occurs"; that the death of any party other than J.A. Humphrey would not effect dissolution or termination of the partnership; and that the partnership could be terminated by J.A. Humphrey, by the giving of thirty days notice. In 1969 the same parties extended the term of the partnership through "December 1, 1974, or the death of J.A. Humphrey, whichever first occurs."

At the time of Layton Humphrey's death (1976), the partnership owned real property (oil and gas leases) located in the states of Louisiana, Mississippi, Oklahoma and Wyoming. It is the value of this property which appellants contend was erroneously included in Layton Humphrey's taxable estate. Appellants introduced evidence which would indicate that the states where these real properties were located had imposed an inheritance tax upon such properties and that such taxes were paid by the estate.

I.

Both the State and appellant agree that for inheritance tax purposes the deceased's taxable estate consisted of the value of all of the following property, to the extent of decedent's interest therein at the date of death: (1) real property located in Texas, (2) tangible personal property with a situs in Texas, and (3) intangible personal property wherever located. See 34 Tex.Admin.Code § 3.214(a)(1) (1981). However, the parties disagree as to how the deceased's partnership interest should be characterized.

Appellants insist that under the Texas common law, the partnership interest of a partner was recognized as an interest in the partnership property, and was properly characterized in accordance with the nature of such property (here realty). They aver that the common law of Texas is here applicable to characterization of the partnership interest, since the partnership was formed and the property was acquired prior to the adoption of Tex.Rev.Civ.Stat.Ann. art. 6132b (Texas Uniform Partnership Act). The UPA was passed in 1961 and became effective January 1, 1962. Appellants point to Section 4(5) of the Act which provides that "[the] Act shall not be construed so as to impair the obligations of any contract existing when the Act goes into effect, nor to affect any action or proceedings begun or right accrued before this Act takes effect."

It should be stressed that the disputed real property was partnership property, as opposed to property owned separately by the partners and loaned to the partnership. The trial court found that the property in question was owned by the partnership; this finding is supported by the testimony of Joe A. Humphrey.

There is authority for the proposition that the issue as to whether an interest in a tangible thing is classified as real or personal property should be determined by the law of the state where the property is located. Restatement of Conflict of Laws § 208 (1934). However, where, as here, there was neither pleading nor proof concerning the law of the applicable state, nor was there any motion that the trial court take judicial notice of such state's law, it must be presumed that the law of such state is the same as that of Texas. Gevinson v. Manhattan Construction Co. of Okl., 449 S.W.2d 458, 465 n. 2 (Tex.1969); Ogletree v. Crates, 363 S.W.2d 431, 435 (Tex.1963); Tex.R.Civ.P. 184a (1976). Appellants and appellee both advance the law of Texas in their appellate briefs.

A.

Appellants contend that the deceased owned an interest in a mining partnership. There is some authority to indicate that in such a partnership, which is a creature of the common law, the partners must be treated as owning the partnership assets as tenants in common, and thus that the assets of the partnership must be treated as their individual property. See Munsey v. Mills & Garitty, 115 Tex. 469, 283 S.W. 754 (1926, jdgmt adopted); but see Miller v. Howell, 234 S.W.2d 925 (Tex.Civ.App.1950, no writ). We express no opinion as regards the nature of an ownership interest in a mining partnership since the trial court found upon sufficient evidence that the Humphrey Company was a general partnership at the time of decedent's death.

Appellants contend that it was proved as a matter of law that the instant partnership constituted a mining partnership. It is true that a mining partnership arises by operation of law where co-owners work a mine; the elements to be proved are joint ownership, joint operations, a sharing of profits, a community of interest and mutual agency representing the mining partnership in management and operation. State v. Harrington, 407 S.W.2d 467 (Tex.1966). Comment, Mining Partnerships, 12 Baylor L.Rev. 103 (1960); Jones, Mining Partnerships in Texas, 12 Texas L.Rev. 410 (1934).

However, a general partnership may engage in a mining enterprise. Thompson v. Crystal Springs Bank, 21 F.2d 602 (8th Cir.1927); Rowley, Rowley on Partnership § 56.5 (2d ed. 1960); Summers, The Law of Oil and Gas (1962). The method by which a mining and general partnership are distinguished is not clear. We think that such turns on the intent of the partners.

It has been held that where all of the elements of the general partnership are present, all of the incidents of the general partnership follow as matter of course. Thompson v. Crystal Springs Bank, supra. Also, where partners, by agreement, dispose of an essential characteristic of a mining partnership, their association will be deemed a general partnership. Rowley, supra.

Therefore, although a mining partnership can be proved as a matter of law by evidence of the aforementioned relationship between co-owners, without evidence of an intent on the part of those co-owners to become partners, State v. Harrington, supra, this is not to say that evidence of that relationship between co-owners, when accompanied by evidence of an intent on their part to act as general partners, will not support a finding that the co-owners were acting as general partners.

Here, the evidence shows that the parties expressly agreed to act as partners. No element of a general partnership is missing. Additionally, there was an agreement that the death of one of the parties, Joe A. Humphrey, would terminate the partnership. We note that a classic characteristic of a mining partnership is that it is not dissolved upon the death of a partner. Munsey v. Mills & Garitty, supra; Summers, supra §§ 725 & 734. We hold that there was sufficient evidence to support the finding that the Humphrey Company was a general partnership.

B.

Characterization of the partnership interest was complicated under Texas common law by the tension inherent in treating the partnership as an aggregate of partners acting as individuals pursuant to a contract,...