Whited v. United States, Civ. A. No. 7023.

• Decision Date: 23 July 1963
• Docket Number: Civ. A. No. 7023.
• Citation: 219 F. Supp. 947
• Parties: Mrs. Elizabeth Frost WHITED et al., v. UNITED STATES of America.
• Court: U.S. District Court — Western District of Louisiana

219 F. Supp. 947

Mrs. Elizabeth Frost WHITED et al., v. UNITED STATES of America.

Civ. A. No. 7023.

United States District Court W. D. Louisiana, Shreveport Division.

July 23, 1963.

W. Scott Wilkinson, Wilkinson, Lewis, Woods & Carmody, Shreveport, La., for plaintiffs.

Louis F. Oberdorfer, Asst. Atty. Gen., Edward S. Smith, Myron C. Baum, Stanley F. Krysa, Jerome J. Reso, Jr., Attys., Dept. of Justice, Washington, D. C., Edward L. Shaheen, U. S. Atty., and Edward V. Boagni, Asst. U. S. Atty., Shreveport, La., for the government.

BEN C. DAWKINS, Jr., Chief Judge.

Edwin A. Frost died in Shreveport, Louisiana, on January 16, 1950, leaving his two daughters, Mrs. Elizabeth Frost Whited and Mrs. Mary Frost Willis, as his sole heirs. He also was survived by his widow in community, Mrs. Virginia C. Frost, to whom he had been married since 1892.

A federal estate tax return accompanied by payment of the amount computed to be due was filed by them on April 12, 1951. After an audit of the return, an additional assessment of estate tax upon the Frost estate, in the sum of $386,871.24, including $55,026.78 in interest, was levied by the Commissioner.

After deducting the credit for additional Louisiana estate taxes allowed by Section 813(b) of the Internal Revenue Code of 1939, the additional amount of the tax levied was paid. After plaintiffs' timely application for a refund was denied and all administrative remedies exhausted, this suit for refund was filed here.

The Government moved to dismiss for lack of jurisdiction alleging that the entire amount of the tax due the federal Government had not been paid as required by the decision of the Supreme Court in Flora v. United States, 357 U.S. 63, 78 S.Ct. 1079, 2 L.Ed.2d 1165 (1960). This motion was denied on November 25, 1960. The case now is submitted on its merits on an agreed stipulation of facts.

The assessment made by the Commissioner involves essentially the propriety vel non of his allocation of certain properties between the separate and paraphernal estate of Mrs. Virginia Frost and the community property regime of the Frosts. The assessment increased the estate by including property that Mrs. Frost claimed came into her separate estate by three different types of transactions. Included were (1) the fruits and revenues received by Mrs. Frost from donations made to her by her husband prior to August 1, 1942, (2) amounts claimed to have been due her from Mr. Frost on a note and on open account, and (3) certain cash, stocks, and bonds received by Mrs. Frost from the dissolution of a trust in February 1944, which had been established in 1933.

(1) Fruits and revenues from property donated prior to August 1, 1942.

The Commissioner included in the decedent's estate the fruits and revenues received by Mrs. Frost from donations made to her by her husband prior to August 1, 1942. Prior to this date, inter vivos spousal donations were revocable at the will of the donor under the provisions of Article 1749 of the Louisiana Civil Code of 1870.¹ The estate tax law provides that any property as to which the donor has the right of revoking a donation is includable in the gross estate of the decedent.² Plaintiffs concede that the property donated to Mrs. Frost is includable in the estate of the decedent,³ but vigorously contend that "fruits and revenues" derived from the donated properties would not have had to be returned in the event of a revocation. They argue that if the donor could not have forced the return of these fruits and revenues, then these amounts would not be includable in the estate of the decedent.⁴ The question of which properties are subject to the power of revocation is a matter of state law. Zirjacks v. Scofield, 197 F.2d 688 (5 Cir., 1952).

An examination of the Louisiana jurisprudence interpreting Louisiana Civil Code Article 1749 (1870) reveals only one case which mentions the question of restoration of fruits and revenues when an inter vivos donation between spouses is revoked. In Cousin v. St. Tammany Bank & Trust Company, 146 La. 393, 83 So. 685 (1919), the following language appears at 83 So. 687:

"* * * Even granting that the donation by the husband to the wife vested the title in her to that property, it was revocable at any time (C. C. art. 1749), and the effect of a revocation is to restore the rights of the donor as completely as if no donation had ever been made (Leverett v. Loeb, 117 La. 310, 41 So. 584); that is, all fruits and revenues, as well as property purchased therewith, again became the donor's property. * * *"

There the husband had donated property to his wife of a value of approximately $2,150. She later disposed of part of these properties and purchased a certain parcel of land for $382.50. Afterward, some improvements were made upon the property with funds furnished largely by the husband from the community of acquets and gains existing between them. The wife, in order that her husband might obtain a loan from the bank, joined him in executing an affidavit stating that she had never owned any separate or paraphernal property. Upon the bank's requirement, she executed a donation inter vivos to her husband of this property. She also appeared as a party to the act of mortgage given by her husband to the bank and expressly "* * * renounced all rights and claims of every character which she might have had in the property in question * * *." Several years later, when a new loan was obtained from the bank, she again joined her husband in executing a new mortgage upon the property "* * * for the purposes above indicated * * *."

A comparison of the amounts expended by the wife on the property in question with the amount of the husband's original donation clearly showed that the husband's donation far exceeded the amount of the wife's donation. Thus the funds used to acquire the property were or could have been derived from the husband's original donation without the addition of any fruits or revenues since the wife's acquisition of the property. The court in Cousin stated, at 83 So. 688,

"* * * However, since the property in contest was, as we have found, acquired by the wife with funds arising from the donation to her by her husband, when she later donated a part of it to him (he appearing and formally accepting), and he thereupon placed a mortgage upon it in favor of the bank, the effect was to revoke his original donation to her, at least to the extent of the funds which went to pay for that property, and it took the place, in his hands, of the money so invested."

Hence, the main thrust of the Cousin decision is that a revocation of an interspousal donation is not limited to the exact items of the original donation but extends to assets that have changed in form. The Court's statement that "* * all fruits and revenues, as well as property purchased therewith, again became the donor's property * * *" was entirely unnecessary to its decision in light of the other facts it found, was not supported by any language in LSA-Civil Code Article 1749, which is silent on the subject, and did not even mention LSA-Civil Code Article 1569, which appears infra, and which clearly shows the rule to be to the contrary. These Articles are in pari materia and must be construed together. LSA-Civil Code Article 17:

"Laws in pari materia, or upon the same subject matter, must be construed with a reference to each other; what is clear in one statute may be called in aid to explain what is doubtful in another."

Article 1749 of the Civil Code of 1870 twice has traveled to the Fifth Circuit on estate tax questions, in Howard v. United States, 125 F.2d 986 (C.A.5, 1942), and in Vaccaro v. United States, 149 F.2d 1014 (C.A.5, 1945). In neither of these cases was the matter of whether fruits and revenues would be subject to the power of revocation of Article 1749 involved. In Howard the Court said, at 125 F.2d 990:

"The executors contend in the alternative that * * * the power of revocation exercisable by the donor was effective only as to the particular thing given, and had previously ceased to exist as to all securities that were changed in form. This contention is unsound for the reason that the statutory power of revocation is enforceable so long as the substance of the donation is tangible or is susceptible of identification. That the entire amount assessed was susceptible of identification in 1937 is evidenced conclusively by the recitation in the stipulation of facts that the disputed assets either were acquired by the donee by purchase with cash given to her by her husband, or were acquired by the redemption, sale, or exchange of other securities given by him to her. * * *"

In Vaccaro, the contention again was raised that the power of revocation conferred by Article 1749 was enforceable only so long as the object of the donation was still in the donee's possession. The Court, citing Howard, supra, and Cousin, supra, held that the issues in Howard involved the same question of identity of assets and ruled against the taxpayers.

Since the issues involved in Vaccaro and Howard did not involve the inclusion of fruits and revenues, the language regarding that subject in Cousin, and its quotation in Vaccaro, cannot be given the effect of authoritative rulings on this point. American Surety Co. v. United States, 239 F. 680 (C.A.5, 1917); Don George, Inc. v. Paramount Pictures, 111 F.Supp. 458 (W.D.La.1951); Miller v. Board of Commissioners of Port of New Orleans, 199 La. 1071, 7 So.2d 355 (1942); Moulin v. Monteleone, 165 La. 169, 115 So. 447 (1928).

Plaintiffs contend that LSA-Civil Code Article 1569 governs the disposition of fruits and revenues where the donation is revoked and rescinded, and we agree with that contention. That Article provides:

"Art. 1569. In all cases, in which the donation is revoked or dissolved, the donee is not bound to restore the fruits by him gathered previous to the demand for the revocation or rescission." (

...