Sanchez v. Bowers

• Decision Date: 07 May 1934
• Docket Number: No. 125.,125.
• Citation: 70 F.2d 715
• Parties: SANCHEZ et al. v. BOWERS.
• Court: U.S. Court of Appeals — Second Circuit

70 F.2d 715 (1934)

SANCHEZ et al. v. BOWERS.

No. 125.

Circuit Court of Appeals, Second Circuit.

May 7, 1934.

Frank J. Wideman, Asst. Atty. Gen., and Sewall Key and J. Louis Monarch, Sp. Assts. to Atty. Gen. (Martin Conboy, U. S. Atty., of New York City, of counsel), for appellant.

Taylor, Blanc, Capron & Marsh, of New York City (Charles Angulo and Benjamin Nassau, both of New York City, of counsel), for appellees.

Before L. HAND, SWAN, and CHASE, Circuit Judges.

L. HAND, Circuit Judge.

The plaintiff is the widow and executrix of one, Frederico Sanchez, who died in 1921, a citizen of Cuba there domiciled. At his death he held in the city of New York a large amount of personal property, consisting of deposits in banks, corporate bonds and shares, and a life insurance policy; he also had real and personal property in Cuba. All of the New York assets stood in his name; he had pledged some of them with a New York bank for a loan of his own, and he held others on "margin" with his brokers. The Cuban law, derived from the Spanish, did not vest the assets in Sanchez, a married man, but in a "sociedad de gananciales" — literally an association for profits — composed of himself and his wife. The underlying purpose of such associations is that the spouses may each contribute to a common stock, the wife her dowry, the husband his "capital," and that the gains from these, as well as from their joint labors, shall be shared equally. The husband has the entire management of the property; he may incur such debts as he pleases and they will charge the assets; in some undefined cases, not here important, apparently the wife may do the same. Debts incurred before marriage are not chargeable directly against the assets, though the interest on certain of them is payable out of them; so are some kinds of repairs and the support and education of the children. The husband may convey the property, give it "moderately" to charity, and use it to set up the children in business or a profession. On dissolution of the association, ordinarily by death, the distribution is as follows: First, the wife gets back her dowry and "parapherna"; next, the debts of the "sociedad" are paid; then the husband's contribution, "capital." What remains is the profits, "gananciales," and is divided equally between the spouses after restoring any losses to their contributed property.

On the testimony in this record we must hold that a "sociedad de gananciales" is a new juristic person in the Cuban law, not only during the marriage, but for purposes of liquidation. The rights of the spouses are claims against this "entity," which holds "title" to all the property. Acting on this hypothesis, the position of the plaintiff is that the only property of Sanchez on his death was a claim — "chose in action" — against the "sociedad" the devolution of which could not be taxed because the association was not domiciled here, and because its mere possession of property in the United States did not subject a claim against it to our jurisdiction. The tax was as little leviable as one upon the devolution of a share of stock in a Cuban corporation which owned American property. The Commissioner declined to accept this view, or indeed to recognize the "sociedad" for any purpose. He appraised the local assets, divided them in half, deducted 10% of this amount as allowance for any local debts, and used the remainder as his base for assessing the tax. The judge accepted the view of the plaintiff except as to one item, the life insurance policy, which he thought to be separate property of Sanchez. The defendant alone appealed.

Burnet v. Brooks, 288 U. S. 378, 53 S. Ct. 457, 77 L. Ed. 844, 86 A. L. R. 747, decided that Congress had power to tax the devolution of a bond of or share in an American company when the holder was an alien; it went further and held that the mere presence here of bonds or share certificates in foreign corporations, brought the choses in action themselves within the jurisdiction of the United States. Nothing in the decision suggests that the devolution of a share in a foreign corporation is taxable, merely because the corporation has property in the United States, and the defendant does not so maintain. Nevertheless, even though we assume that a "sociedad de gananciales" is a completely new and separate juristic person, the sole owner of all property acquired after marriage, as all this property was, it does not necessarily follow that the estate of a deceased spouse may not be taxed for any part of its assets. True, in ascertaining whether an association claiming to be an "entity" shall be recognized as such, a court of the forum will look to the state which created it; and so far as it was important here whether the "sociedad" is an "entity," we should have to see what the law of Cuba said about it. But the conditions upon the creation of an excise are only the power to lay one and an expressed intent. As for power, the property was here, and though the title were in the "sociedad," any event which had a substantial legal result upon Sanchez's interests in it would serve. The only question is whether his death was such an event, and it must be owned that it would probably not have been, if the "sociedad" persisted thereafter without substantial change, if it had been like an ordinary business corporation to whose activities the death of its shareholders is indifferent. But that was not the case; death necessarily terminated the "sociedad," however much of an "entity" it had been. It might still keep a shadowy existence during liquidation, but that was merely of practical necessity; in fact its assets thereupon became ripe for distribution and must be distributed as soon as was conveniently possible. The legal change between the interest of the husband before and after dissolution therefore seems to us to be basis enough to levy an excise; the question is whether the conditions are fulfilled which Congress imposed (section 402 (a) of the Revenue Act of 1918, 40 Stat. 1097). Those were three: The property must be (1) subject to charges against the decedent's estate, (2) to the expenses of its administration, (3) to distribution as part of his estate.

There can be no question about the first. All debts contracted by Sanchez after his marriage were by the law of Cuba payable out of the assets, themselves all post-marital. To be sure debts contracted before his marriage were not chargeable except...