Smith v. Browning

• Decision Date: 21 January 1919
• Parties: SMITH v. BROWNING.
• Court: New York Court of Appeals Court of Appeals

225 N.Y. 358

122 N.E. 217

SMITH

v.BROWNING.

Court of Appeals of New York.

Jan. 21, 1919.

Appeal from Supreme Court, Appellate Division, First Department.

Suit by Laura N. Smith against Edward W. Browning. From a judgment of the Appellate Division (171 App. Div. 278,157 N. Y. Supp. 71), reversing on facts and law a judgment of Special Term for plaintiff, and directing judgment for defendant, plaintiff appeals. Affirmed.John Thomas Smith, of New York City, for appellant.

Thomas G. Prioleau, of New York City, for respondent.

HOGAN, J.

On January 4, 1914, the last will and testament of one George J. Smith was admitted to probate by the surrogate of Ulster county. The plaintiff is the widow of George J. Smith, and under the terms of the will was named as beneficiary in three several paragraphs thereof: (1) A legacy of $200,000; (2) certain real estate known as No. 43 West Seventy-Second street, New York City, also real estate including contents of house thereon situated in Ulster county; (3) a life interest in the residuary estate.

April 15, 1914, plaintiff and defendant entered into a contract for a sale and purchase of the real estate located on West Seventy-Second street in the city of New York, the plaintiff to convey and defendant to acquire said premises on May 2, 1914, thereafter extended to May 13, 1914, free and clear of all liens or charges except an outstanding mortgage thereon.

On May 13, 1914, the due day, defendant refused to accept the deed of said premises tendered by the plaintiff upon the sole ground that plaintiff's title was unmarketable by reason of the fact that the transfer tax upon plaintiff's interest in her deceased husband's estate had not then been computed and paid, and that said tax was an existing lien thereon. Plaintiff thereafter and on or about July 23, 1914, brought this action to compel a specific performance of the contract. The justice at Special Term found as matter of fact that after the commencement of this action, but before the trial thereof, the estate of George J. Smith was duly appraised and the collateral inheritance tax upon plaintiff's interest therein paid in full; that proceedings for an appraisal were commenced on June 4, 1914, and the tax paid February 12, 1915; that subsequent to May 13, 1914, when title was rejected by defendant, in the appraisal proceeding, the premises No. 43 West Seventy-Second street, New York, were held to be of nominal value and formed no basis for the computation of said tax. And as conclusion of law that plaintiff on May 13, 1914, was seized of a good and marketable title to said premises, able and willing to perform and carry out the contract and tendered due performance thereof; that the premises were at no time subject to the lien of any collateral inheritance tax upon the estate of George J. Smith or upon interest of plaintiff in said estate; that the inheritance tax upon the property other than the premises on West Seventy-Second street received by plaintiff under the will representing actual value of upwards of $220,000, did not constitute a lien upon the premises on West Seventy-Second street; and awarded judgment in favor of the plaintiff.

The Appellate Division (171 App. Div. 278,157 N. Y. Supp. 71) reversed certain enumerated findings of fact and all conclusions of law made by the trial justice, made new conclusions of law in substance as follows: That on May 13, 1914, the due day, plaintiff was not seized of a good and marketable title to the premises on West Seventy-Second street, in that the transfer tax upon the estate devised to her of which said property was a part had not been fixed or paid. That at said time the premises were subject to a lien of the inheritance tax upon that portion of the estate to which she was entitled under the will of her husband. That the collateral inheritance tax upon the property other than the premises on West Seventy-Second street received by plaintiff under the will of her husband representing actual value of upwards of $220,000 constituted a lien upon the said premises on West Seventy-Second street. That the fact that said tax had not been computed or paid on May 13, 1914, rendered the title unmarketable and was a sufficient excuse by defendant to refuse to take title, and thereupon reversed the judgment of the Special Term, dismissed the complaint, and directed judgment in favor of defendant for $250 deposit on contract, $124 expended on examination of title, total $374, and costs.

Section 224 of the Tax Law (Cons. Laws, c. 60), so far as material to the question presented upon this appeal, is as follows:

‘Every such tax shall be and remain a lien upon the property transferred until paid and the person to whom the property is so transferred, and the executors * * * of every estate so transferred shall be personally liable for such tax until its payment. * * * Any such executor * * * having in charge * * * any legacy * * * subject to such tax shall deduct the tax therefrom and shall pay over the same to the state comptroller or county treasurer, as herein provided. If such legacy or property be not in money, he shall collect the tax thereon upon the appraised value thereof from the person entitled thereto. He shall not deliver or be compelled to deliver any specific legacy or property subject to tax under this article to any person until he shall have collected the tax thereon. * * *’

[1][2] In seeking an interpretation of the section above quoted, the phraseology of which is somewhat obscure, we may consider the nature and object of the statute imposing a tax, the statute as it existed prior to the enactment of section 224, as it reads at the present time, and to what we believe to have been the purpose of the Legislature in an enactment of the same. As has been frequently adjudicated, the transfer tax is not a tax upon property but upon the right of succession to property. The tax imposed is one in the nature of a special tax affecting a special class; therefore, all doubt as to construction of any provision of the statute must be resolved in favor of the person chargeable with payment of the tax.

The purpose of the statute, which at the time of the enactment of the same was an innovation in the laws relating to taxation in this state, was to provide revenue for the state. The first statute providing for a transfer tax was enacted in 1885 (chapter 483). The substance of several provisions of the present section 224, material to be considered in this case, was embodied in the original law, viz., the personal liability of the executor for the tax; (section 1) the tax on an income from a trust estate was made a lien thereon until paid; (section 2) the provisions requiring the executor to deduct the tax from any legacies, or if the legacy be not in money to collect the tax thereon from the legatee entitled thereto, and as to the delivery of any specific legacy or property to a legatee until he shall have paid the tax thereon, were included in the statute.

That the enactment of the original Transfer Tax Law resulted in numerous and prolonged litigations is a matter of common knowledge. The constitutionality of the law was questioned upon several grounds. Various provisions of the law were subjects of interpretation by the courts. Of necessity the collection of taxes under the statute was long postponed and the state deprived of revenue under the statute in expectation of which appropriations of moneys for state purposes had been made by the Legislature. Obviously the Legislature by reason of the enumerated, as well as other, causes which might readily be suggested, deemed it essential that adequate provision to insure collection of the transfer tax and safeguard the interests of the state against loss by reason of delay without the imposition of unjust or unreasonable hardships upon the individual responsible for the payments of the tax should be enacted. The...