People ex rel. Hull v. Graves

• Decision Date: 29 October 1942
• Citation: 45 N.E.2d 161,289 N.Y. 173
• Parties: PEOPLE ex rel. HULL et al. v. GRAVES et al.
• Court: New York Court of Appeals Court of Appeals

289 N.Y. 173

45 N.E.2d 161

PEOPLE ex rel. HULL et al.

v.GRAVES et al.

Court of Appeals of New York.

Oct. 29, 1942.

Appeal from Supreme Court, Appellate Division, Third Department.

Proceeding under article 78, section 1283 et seq., of the Civil Practice Act, and sections 199 and 375 of the Tax Law, Consol.Laws, c. 60, by the People, on the relation of Jonathan W. Hull and another, as surviving executors of the last will and testament of William, S. Hull, deceased, against Mark Graves and others, constituting the State Tax Commission of the State of New York to review a final determination of the commission affirming the assessment of additional income taxes against William S. Hull, deceased, for the year 1936, under article 16 of the Tax Law. From an order of the Appellate Division of the Supreme Court in the Third Judicial Department entered January 22, 1942, 263, App.Div. 223, 32 N.Y.S.2d 460, which annulled on the law and the facts, the determination of the State Tax Commission and directed that such additional taxes should be vacated and canceled and the amount thereof refunded to the petitioners, the commissioners appeal.

Order of Appellate Division reversed and determination of State Tax Commission affirmed.

LOUGHRAN, RIPPEY and CONWAY, JJ., dissenting. John J. Bennett, Jr., Atty. Gen. (John H. Spain and Wendell P. Brown, Asst. Attys. Gen., of counsel), for appellants.

John A. Dutton and Charles J. Eignor, both of New York City, for respondents.

DESMOND, Judge.

Petitioners, as executors of the will of a deceased resident of this state, brought this proceeding in the nature of certiorari under article 78 of the Civil Practice Act, and sections 199 and 375 of the Tax Law, Consol.Laws, c. 60, to review a determination by the State Tax Commission. The Commission's determination was that petitioners' testator had not been entitled to a deduction in the amount of $18,200, which he had claimed on his state income tax return for 1936. The disputed deduction was for a loss on stock of Primal Realty Corporation owned by decedent and which stock, he claimed in his return, had become worthless in that year.

The testimony shows in 1920 and 1926 decedent and four others purchased six adjoining houses for a total price of $159,500, of which $121,500 was in mortgages assumed (one mortgage on each house), the balance of $38,000 in cash. Payments on these mortgages had reduced their principal amount to $103,000, when, in 1928, the properties were conveyed to the newlyformed Primal Realty Corporation, which issued $54,600 in stock, representing the equities in the houses, to the ‘syndicate’ members, $18,200 thereof going to decedent. By 1936, the unpaid principal of the mortgages had been reduced to $95,000. Four of these mortgages, on which there was $64,000 in unpaid principal, were held by decedent, individually. These six houses were the Primal Corporation's only asset. There were in 1936 tax arrears on the six houses, for the years 1931-1936, amounting to about.$19,000, indicating that the corporation had been in financial straits for some time back. The corporation's stockholders would not put up any new money, so it was thought advisable to assign the rents on each house to the respective mortgagee. No deeds were given, however, and title to the properties remained in the corporation, which was not dissolved. The assignment of rents to decedent was given in 1936, the assignments to the other mortgagees in 1935. Decedent in 1936 paid up about $15,000 in back taxes on the four dwellings covered by his four mortgages. Certain ‘violations' of the Multiple Dwelling Law, Consol.Laws, c. 61-A, had been filed against all the properties in the summer of 1936; to correct the conditions described in these ‘violations' an outlay of about $12,000 would have been required. At the end of 1936 the total indebtedness against the properties, including taxes advaced by mortgagees, was $112,455. There was offered in evidence an appraisal, made in 1940, but as of 1936, valuing the six houses at $92,000. It is to be noted, however, that this appraisal did not say that values were greater than $92,000 in the years before 1936. Thus the appraisal, while it remains undisputed in the record as to 1936 value, is not of much help on the question here whether this stock became worthless in 1936. The properties were carried on the corporation's books in 1936 at the price paid for them, $157,500. The rents fell, during the period 1929-36, from $28,500 to $16,300, but this drop was at a steady rate from 1929 to 1934; actually there were increases in 1935 and 1936. There were operating losses during several of these years. The appraisal states no basis for its figures, except rents; if based solely on rents, the value of the houses would have been no lower in 1936 than in 1933, 1934 and 1935.

The hearing resulted in a determination by the State Tax Commission that the assessment was correct, and that the claimed deduction was not allowable. On review the Appellate Division unanimously annulled the Tax Commission's determination ‘on the law and facts.’ That court's opinion says that ‘a realistic view of the situation sustains the claim made in behalf of decedent’ and that there were ‘certain identifiable events sufficient to fix the loss as of 1936.’ 263 App.Div. 223, 225, 32 N.Y.S.2d 460, 463. Those events were, according to the opinion, the refusal of stockholders in that year to put up more money, the ‘virtual abandonment’ of the properties by rent assignments, the notices...