In re Rosenberg's Will

• Decision Date: 26 November 1935
• Citation: 269 N.Y. 247,199 N.E. 206
• Parties: In re ROSENBERG'S WILL.
• Court: New York Court of Appeals Court of Appeals

269 N.Y. 247

199 N.E. 206

In re ROSENBERG'S WILL.

Court of Appeals of New York.

Nov. 26, 1935.

Proceeding in the matter of the application of Jerome Rosenberg for an order directing the Guaranty Trust Company of New York and another, as trustees under the will of Henry Rosenberg, deceased, to pay the petitioner certain trust funds and adjudicate his rights in a trust fund, wherein the United States of America intervened. From an order of the Appellate Division (243 App.Div. 687, 277 N.Y.S. 938), affirming an order of the Surrogate's Court (153 Misc. 46, 274 N.Y.S. 482) adverse to the United States, the United States appeals pursuant to leave granted by order of the Court of Appeals, dated April 23, 1935.

Order of the Appellate Division and that of the Surrogate's Court reversed, and matter remitted.

HUBBS, J., and CRANE C. J., dissenting.

Appeal from Superior Court, Appellate Division, First Department.

F. W. H. Adams, U. S. Atty., of New York City (David W. Wainhouse and George B. Schoonmaker, both of New York City, of counsel), for appellant.

Nathan Lieberman and Isidore B. Seidler, both of New York City, for respondent Rosenberg.

Chester Bordeau, of New York City, for respondent Lester.

CROUCH, Judge.

Jerome Rosenberg, a life beneficiary of a trust created by the will of Henry Rosenberg, instituted a proceeding in the Surrogate's Court to secure an adjustment of the rights of his creditors to the trust income, which was under the provisions of section 15 of the Personal Property Law (Consol. Laws, c. 41) and section 103 of the Real Property Law (Consol. Laws, c. 50), not assignable by the petitioner, and exempt from garnishee execution except (Civil Practice Act, § 684) as to 10 per cent. thereof. A number of judgments against petitioner were represented in the proceeding by a receiver of the petitioner appointed by the City Court in supplementary proceedings. The United States had previously informally arranged that the receivership extend to cover its claim for unpaid income taxes, for which it had filed notices of liens pursuant to United States Code (Tit. 26, c. 3, § 115 [26 U.S.C.A. § 115]) on November 20, 1929, and May 25, 1931. Two of the judgments represented by the receiver were recorded prior to the filing of the notices of lien.

The United States intervened in the Surrogate's Court proceeding and asserted that inasmuch as it was not a judgment creditor, confined by United States Code (Tit, 28, § 727 [28 U.S.C.A. § 727], Rev.St. § 916) to the same remedies which it might have had in the state courts, nor limited by any federal exemption to a percentage of the trust income, its right to enforce its lien under section 115 was not limited by any law of the state of New York.

The Surrogate rejected that contention and directed the trustees to pay 90 per cent. of the income to the beneficiary and the remaining 10 per cent. to the receiver for the judgment creditors. The order was affirmed by the Appellate Division. The courts below seem to have found the absence of any reported holding to the contrary sufficient ground for determining that the federal government either has no authority to satisfy its claim from the income of a spendthrift trust or that its policy in relation to that device is in accordance with the policy of our own state.

The fundamental policy to be borne in mind is that the right of property is a right cum onere. A person may not ordinarily have ownership of or right to enjoy property and at the same time be able to keep it from the claims of creditors and others. Cf. Hallett v. Thompson, 5 Paige, 583, 586. An individualistic cross-current came to permit fathers of improvident sons, by way of exception, to insure a sum necessary for education and support (Real Property Law, § 98) in order to protect them from their own extravagance and to prevent them from becoming public charges. Nevertheless, under the pressure of special circumstances, that apparently unreachable sum has been permitted by the courts to be reached. Wetmore v. Wetmore, 149 N. Y. 520, 44 N.E. 169, 33 L.R.A. 708, 52 Am.St.Rep. 752, and see 43 Harvard Law Rev. 63. It is by no means certain that our state policy excludes the payment of state taxes and other possible claims by the state from the category of necessary support. A tax in some form nowadays is at least as certain as, say medical or legal expenses.

However that may be, it is certain that no policy of this state may interfere with the power of Congress to levy and collect taxes on income. Burnet v. Harmel, 287 U. S. 103, 110, 53 S.Ct. 74, 77 L. Ed. 199;United States v. Snyder, 149 U. S. 210, 214, 13 S.Ct. 846, 37 L.Ed. 705. Cases where state exemptions have been applied to the collection of judgments in favor of the United States have been in every instance predicated on the statutory adoption of state exemptions. Fink v. O'Neil, 106 U. S. 272, 1 S.Ct. 325, 27 L.Ed. 196;Custer v. McCutcheon, 283 U. S. 514, 51 S. Ct. 530, 75 L.Ed. 1239.

Section 115 of title 26 of the United States Code (26 U.S.C.A. § 115) provides as follows:

‘§ 115. Lien for taxes. (a) If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, penalty, additional amount, or addition to such tax, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person. Unless another date is specifically fixed by law, the lien shall arise at the time the assessment list was received by the collector and shall continueuntil the liability for such amount is satisfied or becomes unenforceable by reason of lapse of time.’

If the right or interest which the beneficiary here has in the income of the trust may be said to fall within the sweeping limits of the phrase ‘all property and rights to property, whether real or personal, belonging to such person,’ then we see no reason to doubt the validity of the appellant's contention. It is true that the legal estate is in the trustee. Nevertheless, ‘the whole beneficial proprietorship, or interest, is in the cestui que trust, for whom he holds the estate and who has the right to enforce the performance of the trust.’ Metcalfe v. Union Trust Co. of New York, 181 N. Y. 39, 44,73 N.E. 498, 500. To say that right is not a right to property within the meaning of the United States Code, section 115 (26 U.S.C.A. § 115), because equity acts in personam and not in rem, would be mere legalism and would disregard the plain language and what we think is the plain intendment of the statute. Certain other arguments may be briefly noticed. It is said (granting that the beneficiary's right is a right to property) that since United States Code, section 116 of title 26 (26 U.S.C.A. § 116), grants to the government the power to distrain for taxes certain specified items of personal property, among which income from a spendthrift trust is not included, the lien and right to enforce given by section 115 should be confined to the items mentioned in section 116. The two statutes are not in pari materia. Blacklock v. United States, 208 U. S. 75, 28 S.Ct. 228, 52 L. Ed. 396. As to the lack of specific statutory authority to maintain a suit or proceeding in equity to enforce a lien on trust income (which authority is specifically given with respect to interests in real property), it is enough to say that if, as we think, such a lien exists here, it must have the attributes of liens generally and is something that courts of general equitable jurisdiction may enforce. Cf. 1 Pomeroy on Equity Jurisprudence (4th Ed.) § 167; Gilchrist v. Helena, Hot Springs & Smelter R. Co. (C.C.) 58 F. 708;Westmoreland & Trousdale v. Foster, 60 Ala. 448. The powers of a Surrogate's Court with respect to testamentary trusts are sufficiently broad for the purpose.Finally, since the property right here in question may not be reached at all by distraint under section 116, and may be reached under the state statute by garnishment only to the extent of 10 per cent. (Civil Practice Act, § 684; United States Code, tit, 26, c. 3, § 142 [26 U.S.C.A. § 142]), it is difficult to say that there is an adequate remedy at law.

The order should be reversed and an order granted to the effect that the judgments filed prior to the filing of the notice of lien are entitled to 10 per cent. of the trust income ahead of the United States and that the United States is entitled to 90 per cent. of the trust income until the prior judgments are satisfied; and then, if the claim of the United States is still unpaid, to the entire income until paid; all, however, without costs.

The order of the Appellate Division and that of the Surrogate's Court should be reversed, without costs, and the matter remitted to the Surrogate's Court to proceed in accordance with this opinion.

LEHMAN, O'BRIEN, LOUGHRAN, and FINCH, JJ., concur.

HUBBS, Judge (dissenting).

It is the contention of the appellant that the interest of the petitioner in the trust is ‘property’ or ‘a right to property’ within the meaning of section 115 of title 26 of the United States Code (26 U.S.C.A. § 115); that by reason of that fact it possesses a lien upon the trust income; that it is not limited in the enforcement thereof by the laws of the state of New York, permitting the establishment of a spendthrift trust; and that the order directing payment to the petitioner should be reversed.

Section 115 of title 26 of the United States Code (26 U.S.C.A. § 115), in so far as material herein, reads as follows:

Ԥ 115. Lien for taxes. (a) If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, penalty, additional amount, or addition to such tax, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or...