Ream v. Bowers, 47.

• Decision Date: 21 November 1927
• Docket Number: No. 47.,47.
• Citation: 22 F.2d 465
• Parties: REAM v. BOWERS.
• Court: U.S. Court of Appeals — Second Circuit

22 F.2d 465 (1927)

REAM v. BOWERS.

No. 47.

Circuit Court of Appeals, Second Circuit.

November 21, 1927.

Choate, Larocque & Mitchell, of New York City (William R. Bayes and Clarence V. S. Mitchell, both of New York City, of counsel), for plaintiff in error.

Charles H. Tuttle, U. S. Atty., of New York City (Samuel C. Coleman, Asst. U. S. Atty., of New York City, of counsel), for defendant in error.

Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge (after stating the facts as above).

Under the Revenue Acts of 1913, 1916, and 1917 (40 Stat. 300) it was provided that there should be levied upon the net income received by each person a specified tax. Income was defined as including:

"Gains, profits, and income derived from salaries, wages, or compensation for personal service of whatever kind and in whatever form paid, or from professions, vocations, businesses, trade commerce, or sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in real or personal property, also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever. * * *" Section 2 B, chapter 16, of the Act of October 3, 1913 (38 Stat. 167), and chapter 463, title 1, part 1, section 2 (a), of the Act of September 8, 1916 (Comp. St. § 6336b).

There was excepted from such taxable income "the value of property acquired by gift, bequest, devise or descent," but not the income from such property. Revenue Act 1916, § 4 (Comp. St. § 6336d). The question before us, therefor, is whether the direction by the testator in the sixteenth article of his will, "that my executors shall each be paid and shall each receive in full payment for all commissions, percentages, and allowances by statute or otherwise, for acting as executors of this my will, the sum of fifty thousand dollars ($50,000) each," created bequests that were exempt from taxation by the income tax acts, or whether it was nothing more than a provision for payment of compensation to the plaintiff and others for complete service as executors.

Plaintiff's counsel contends that the testamentary provisions directing payment of $50,000 to each of the executors of Norman P. Ream must, under the recent decision of the Supreme Court in United States v. Merriam, 263 U. S. 179, 44 S. Ct. 69, 68 L. Ed. 240, 29 A. L. R. 1547, be regarded as a bequest. But the language in that case was in the form of an ordinary bequest. The testator said in article eleventh of his will:

"I give and bequeath to my brother, Reginald C. Vanderbilt, five hundred thousand dollars ($500,000); to my uncle, Frederick W. Vanderbilt, two hundred thousand dollars ($200,000); to Frederick M. Davies, five hundred thousand dollars ($500,000); to Henry B. Anderson, two hundred thousand dollars ($200,000); to Frederick L. Merriam, two hundred and fifty thousand dollars ($250,000); to Charles E. Crocker, ten thousand dollars ($10,000); and to Howard Lockwood, one thousand dollars ($1,000)."

No mention of executorial appointment or duties was made in this article of the Alfred C. Vanderbilt will, the bequests greatly varied in amount, and the last two legatees were not among those afterwards named as executors. It goes without saying that the subsequent appointment of the first five legatees as executors and trustees under the will could by no possibility have given rise to the claim that these bequests should be regarded as compensation for services, except for the provision in the sixteenth article, which added to the appointment the words:

"The bequests herein made to my said executors are in lieu of all compensation or commissions to which they would otherwise be entitled as executors or trustees."

But, in view of the strict construction of taxing statutes (Gould v. Gould, 245 U. S. 151, 38 S. Ct. 53, 62 L. Ed. 211), and because of various decisions which had held that bequests to executors eo nomine, even when "for care and pains," were not to be regarded as compensation for acting as executor, but as legacies conditioned only upon proving the will, or unequivocally manifesting an intention to act, the Supreme Court construed the clauses of the Vanderbilt will as creating conditional bequests, and not as "compensation for personal service." The cases cited were Lewis v. Mathews, L. R. 8 Eq. Cas. 277, 281, Kirkland v. Narramore, 105 Mass. 31, 32, 7 Am. Rep. 497, Scofield v. St. John, 65 How. Pr. (N. Y.) 292, 294-296, Morris v. Kent, 2 Edw. Ch. 175, 179, and Harrison v. Rowley, 4 Vesey, 212, 215.

The precise meaning of the word "bequest" was not defined, but the words of the New York Court of Appeals in Orton v. Orton, *42 N. Y. (3 Keyes) 486, were quoted, where the court said that the term was not limited to a mere gratuity, but included "a thing given, either as a gratuity or as a recompense." Hence the word "bequest" may include a legacy in lieu of dower, a satisfaction of an indebtedness, or a gift to an executor upon the condition "that the person named shall, in good faith, clothe himself with the character."

In the Vanderbilt will the bequests in the eleventh article were in greatly varying amounts, though the duties of those afterwards named as executors in the sixteenth article were not differentiated, and would have been under the law identical; they were in the form of ordinary bequests; they were placed in an article of the will in which there was no appointment of executors or trustees, and alongside of other bequests to persons nowhere named as executors; there was no provision requiring the persons appointed executors to perform services, and so both this court and the Supreme Court construed the provisions as conditional bequests non-taxable as income.

The present will is altogether different. After making ample provision, both by way of simple legacies and trusts, for the two sons who were appointed executors, the testator deals with the compensation of his executors and trustees in article sixteenth. This article is directed solely to the subject of compensation for administrative duties. It provides that his executors "shall each be paid and shall each receive in full payment for all commissions, percentages, and allowances by statute or otherwise, for acting as executors of this my will, the sum of fifty thousand dollars ($50,000) each. * * *"

We find here no words of "bequest," but simply provisions for identical compensation for each executor, placed in a clause regulating compensation and nothing else, and directing that the executors each be paid a fixed sum for acting as executors. By the law of Connecticut, which governs the...