*2 RIVES, Before BROWN and Judges. WISDOM, Circuit Judge. WISDOM, Circuit result, The tax in this snarls case are of a contract to make a will and the promisee’s against successful suit the- promisor’s estate breach of tract.
In 1940 T. Shannon Hunter of Mobile*
promised
give
Alabama
Mrs. Ethel.
Cotnam one-fifth of his
if she
would serve him as an attendant or
friend1 for the
of his life.
rest
Mrs.
job
quit
Saenger
Cotnam
Theatre,
Springhill*
left her home in
Mobile,
moved to
and served T. Shannon.
faithfully
Hunter
as attendant and friend:
years
he died
until
four and a half
latеr.
He died without a
will.
after
hard-fought
long,
suit
Ad-
ministrator of
Estate
of T. Shannon
amended claim in the
1. Mrs. Cotnam’s
Ala-
as an
tention
attendant
proceedings
Circuit Court
bama
stated
friend”.
was “to render
that she
at-
(3),
provides
Hunter,
value
that the
acquired “by
bequest, devise,
validity
gift,
con
or in-
upheld
Mrs.
Cotnam’s
her a heritance” shall
*3
awarded
be excluded
with Hunter and
tract
Attorneys’
argues
taxpayer
judgment
fees
under
$120,000.2
income. The
that
of
operated
of
a
$50,365.83.
as
Alabama law
will,
The Commissioner
were
deficiency
legatee,
a
of
assumed the status
Internal Revenue determined
bequest
of
Cotnam
she received was
in
$36,985.02.
Mrs.
amount
income tax
exempt
from federal income tax.
$120,000
treated the
The Commissioner
prop
State law determines what
and,
as taxable income
accordance
rights
erty
has,
and interests a
Code
Revenue
the Internal
of
Section 107
but
federal
law determines
conse
1939, apportioned
sum over
of
quences
rights
for
оf such
and interests
year period
Mrs.
when
four
a half
“gift,
purposes.
meaning
be
The
attendant.
Hunter’s
Cotnam served as
quest, devise,
federal
or inheritance” in
deduction
The Commissioner allowed
revenue
is a
federal
laws
matter
attorneys’
1948.
fees for
Lyeth
Hoey, 1938, 305
law.
v.
U.S.
155, 158,
S.Ct.
119. In
83 L.Ed.
upheld
Commission-
Tax
Court
Lyeth case
held:
the court
us
is before
er. 28
947. The
T.C.
question
“The
to the construc-
taxpayer’s petition
review
as
exemption
federal
tion
in the
the Tax
decision.
22(b)
(3)]
statute
not
[seсtion
(1)
to decide
asked
This Court is
by
determined
local law.
paid
$120,000
Mrs.
sum of
whether the
Congress establishes its own criteria
bequest was
exempt
Cotnam was
and the state
control
law
(2)
rendered.
taxable income
taxing
by
when
press language
ex-
the federal
act
Cotnam,
Mrs.
If
sum was income to
necessary implica-
secondary
the attor-
questions arise as to
dependent
operation
tion makes its
paid
neys’
(a)
the amount
fees:
Should
upon
state
There
law.
attorneys
in favor
from the
necessary
expression
such
im-
excluded from
of Mrs. Cotnam be
plication in this instance.”
theory
income,
taxpayer’s
specifically
(b)
concerned
If The court was
her?
that was
meaning
“inheri-
income,
with
tance”,
term
should
included in the
ratably
implied
apportioned
also
that a
but
fees be
enforcing
could
make a will
years
Cot-
a contract to
Mrs.
and half
over
four
operate
bequest.
in some
entire
cases
as a
should the
Hunter or
nam served
expense in
as an
be deducted
amount
exempting
“In
from the income
year
paid?
1948, the
it was
property acquired
tax the value of
opin-
unanimously
inheritance’,
by ‘bequest, devise,
This Court is
Congress
comprehensive
re-
Mrs. Cotnam
terms
ion
the amount
used
A
embracing
acquisitions
her.
income to
in the
was taxable
ceived
sum
majority
hold
of the Court
devolution of
*
decedent’s estate.
(cid:127)**
pro-
appropriate
not taxable
was
f
[I]
ceeding,
by
heir,
Cotnam.
him
come to Mrs.
instituted
he had recovered
part
I.
would
(3)
22(b)
acquired
Rev-
the Internal
inheritance
22(b)
meaning
1939, 26 U.S.C.A.
act.”
within the
§
Code
enue
questions
question
fact were submitted
first
2.
and “No” to the sec-
Two
“(1)
question.
jury:
such a con-
Whether
ond
The Alabama
made;
fact
verdict
as claimed
Court held
supported
was “well
tract
(2)
of the considera-
the evidence”.
Whether
Merchants
Cotnam,
illicit
contract was
sexual
Bank
of such
National
Mobile
jury
answered “Yes” to
34 So.2d
relations”.
always
il is the
must
es-
transaction
The nature of the
judg
underlying
judgment,
tablished. Once the
contractual
promisee-
itself,
tax effects.
established the interests of the
ment
controls the
Co.,
Heating
protected
are
Safety
whether or not will has
United States
Car
Sparks,
been executed.”
Contracts
(N.Y.U.1956),
500;
Refining
p.
Make Wills
Commis
Co. v.
Arcadia
sioner,
Mrs.
When Hunter died
a will
without
nontaxable
amount
is taxable or
received
only remedy
Cotnam’s
an action
according
reрresents.
If
what
*4
on the
de-
contract. The relief available
judgment
under
due
amount
was
an
law,
pends upon principles of contract
services,
personal
refer
a
a
contract
and the
consideration
fact
sup
opinion
ence in
or
moving
promisor
from the
“in
porting
as
the sum recovered
toit
making
distinguish of a will does not
change
bequest” will
of a
not
nature
prom-
other
where a
to
compensation
from taxable
something
give some-
isee has
do
to
Thus,
to
exempt bequest.
order
an
thing.
Hunter-Cot-
The substance of the
party
inheritance,
acquire
by
property
agreement
nam transaction was Hunter’s
bring
an
against
estate
suit
must
give
property Mrs.
to
to
one-fifth of his
pro
participate in the
heir. He must
Cotnam
services.
on his death for her
acquire
seeking to
ceeds as
One
an heir.
Supreme
The
enforced
Alabama
Court
by
bequest
same
on the
stands
contract, not a
will.
non-existent
as a
must
side of the fence. He
sue
pleadings
pro-
The
the Alabama
legatee.
ceedings
clearly
show
Mrs.
Cotnam’s
will
make
A
to
theory
claim was
based on the
giving
promisor’s estate
original
one-fifth of the
tract for services. The
claim
per
promisee’s
County
consideration
probate
in the
of Mobile
contract,
will.
Hunter,
sonal
is a
not
services
stated:
“Estate
T. Shannon
by
supported
It
It is
consideration.
deceased, In
Ethel W. Cot-
account with
by
irrevocable, excеpt
consent.
owing
mutual
Ethel
nam. Amount
due
and
to
Liability
A will
agreement
from its breach.
arises
between
W. Cotnam under an
ambulatory,
revocable,
Cotnam,
antithesis
T.
and Ethel
Shannon Hunter
W.
respects. by
of a contract in fundamental
which she was
and be
to receive
thought
con
“If
of as a
equal
(Vs)
the contract is
a sum
to one-fifth
value
death,
pass property
and the
agreement
tract
at
been
his
which
has
thought
passing
fully
will
of as a vehicle
performed
part, and for
on her
property, much
$175,000.00.”
of the confusion and
services rendered —
disappear.
contract,
Court,
conflicts would
amended claim before the Circuit
gives
will,
promisee
novo,
where the
tried de
case was
litigation
property,
arises,
and when
same effect.3 The Alabama
3. “Comes Ethel W. Cotnam and amends
ices and attention
to tbe said T. Shan-
during
remaining
heretofore
filed in this
the claim
Court
non Hunter
his
lifetime
against
Hunter,
friend,
Estate
Shannon
of T.
as an attendant
in сonsidera-
deceased,
so that
the same shall
read
tion of which the
Hunt-
said T. Shannon
owing
by
agreed
by
‘Amount
and due
follows:
er
to make a will
the terms
death,
Estate
Shannon Hunter
T.
of which she would at his
be be-
Cotnam,
agree-
queathed by
under a
Ethel
verbal
W.
him or receive from
Es-
equal
between her and T. Shannon Hunt-
ment
tate thereunder
a sum
to one-fifth
during
June, 1940,
(%)
the month of
er made
of the value of the Estate
give up
agreed
posi-
Hunter,
her
deceased,
which she
T.
Shannon
working
Saenger
agreement
death,
and cease
tion
the time of his
which
City Mobile,
duly performed
in the
where she
Theatre
and services were
gainfully employed,
part,
agreement
there
was then
her
and which
was not
Springhill, Alabama,
performed
move from
and to
of the said T.
”
apartment
city
$175,000.00.’
an
residence
Shannon Hunter —
Mobile, and thereafter
to render serv-
Commissioner,
“agreements
this kind
In Blease
held
* *
***
binding
facts,
Such
B.T.A.
on similar
the court
are
contractual,
money
being
held
against
affected
recovered in a
is not
income,
Nation-
probate”. Merchants
an
was taxable
estate
or its
a will
Cotnam,
bequest. “Complainant
250 not a
tax-
[the
of Mobile
Bank
al
sought
payer] proceeded
at law
316, 34 So.2d
only money judgment
recovered
against
legal
Hunter’s
proceedings
gave
superior
believe,
to her a claim as we
61, sec-
under Title
instituted
estate were
legatee
to that of
devisee
1940.4
Code
216 of the
clearly
opinion
We are
com-
proceeding
“[is]
this section
under
A
plainant participated in
estate of tes-
judgment,
lead to
intended
legatee
tator as a creditor and not as a
a de-
is in the nature
but
and that
the amount recovered
va-
claratory
determine
rendered.”
filed
lidity
which has
claim
Commissioner, 1954,
National
Merchants
Davies v.
the estate”.
*5
524,
court
nurse,
Alabama
The
T.C.
the
secre-
v. Cotnam.
Bank
pointed
parties
tary,
bookkeeper
and
the
and
fоr
a doctor
however
who
out
promised
provide
circuit
in
to
for
his
the case
the
her in
tried
court
the
a common will.
appeal,
if it were
He died intestate. She filed
“as
a claim
on
court
probate
jury
begun
that extent
in
such. To
the
court. When the
as
law action
verdict,
216”
could
of Title
not reach
claim was
to section
the
not conform
it did
compromised
$8,500.
The
held:
Code.
court
the Alabama
of
“Actually,
in addition
said
Gertrude did not receive the
of
$8,500
any part
bequest,
Code,
claim
or
of
de-
“[a]
under the
it
relief
to
is vise,
damages
or
of a
inheritance from Tivnen.
for the breach
remedy
anything by
to did not receive
available
inheritance
an alternative
* *
also
her,
for services
an
from him
related to
and
account
because
was not
* *
any
quantum
way
meruit
in
him
no relation-
on
and claimed
rendered
why
parties
anything
ship,
the
can-
and she did not
no reason
receive
e see
[W]
by bequest
court convert
of the
or devise because he left
the consent
not with
personal
reasoning
equal
applies
and have
will.” The
an
it into
action
such
vigor
accordingly
judgment
rendered”.
here.
may
days
(1940):
party
thirty
of Alabama
either
within
after
61 Code
disputed
appeal
either
rendition
of
216. When claim
such
to
Ҥ
county
hearing.
party may
of
demand
circuit court
in which
—The
pend-
representative
of the estate
the administration
is
said estate
sonal
give
writing
ing,
validity
to
and
notice in
the trial of the
said
decedent
claimant,
anyone having a
in
bene-
claim
said circuit court
shall be de
upon
against
demand,
party,
es-
in a
novo and
of either
claim
ficial
interest
disputed
thirty
tate,
in whole
claim is
filed in the circuit court within
such
part
specifying
days
taking
appeal
part
part,
in
in
if
shall
or
disputed;
judge
thereupon
jury.
If
be tried
the administra-
jurisdiction
having
admin-
in
of the
tion of an estate
which a claim is dis-
court
puted
pending
shall,
court,
in
on written
is
estate
circuit
istration
personal
repre-
jurisdiction,
application
similar
court of
the trial of
either
pass
validity
claimant,
by jury
and
of said claim shall
hear
be
sentative
claim,
upon
party
validity
demand of either
filed
of such
within
on the
thereof,
thirty days
days’
giving
after written
notice of
ten
notice that
first
disputed.
parties.
hearing
claim is
to
interested
event
either
such
proceeding
party may appeal
supreme
shall
claimant
such
court
If the
appeals,
upоn
disputed
may be,
as the
or court
to recover
fall
claim,
from the
shall be taxed with
circuit
he
court
of such
ap-
jurisdiction,
ap-
not
Or court of similar
This section shall
such
costs thereof.
peal
thirty
days,
ply
taken within
declared
estates
to claims
appeals
other
are taken.”
such
as
If
solvent.
probate
court,
rendered
claim
Cir.,
Helvering,
Bank
confidence Cox
of New York v.
Hutto, 1927, 216 Ala.
113 So.
say:
42, misplaced. The
did
There is
no difference between
presents
prop-
“[4,
compensate
personal
The bill
5]
for one’s
bequest,
nature
service
er case for relief
in the form of a
one
specific performance.
agrees
pay
heirs
contractor
legal
during
parte
to and hold the
succeed
title
Ex
life.
complain-
Simons, 1918,
the lands in trust for the
38 S.Ct.
tract
passing
have this title divested
contract.
ants.
if a
devisees
themselves and
will had been
having operation
Complainants
legatees adjudicated
made
their
are
[6]
according
and vested
as a
entitled
status
The con-
will,
represents.
Here
able or nontaxable
the form aof
substance.
L.Ed. 1094. The law does
the amount of the
Thus,
Hort v.
transaction,
according
Commissioner, 1941,
judgment repre
received is
goes
to what
stop
tax
its
property
payment
owned
sented
personal
under
a contract
death,
time
decedent’s
services.
general
description of the
law,
weAs
read
inventory
estate is sufficient. No
acquired
meaning
by bequest, within the
required.”
Code, only
when actual
service
decision,
its
how-
The court reached
ever, by applying
required
payment
as a condition
*6
ordinary
principles of
legacy.
Merriam,
United States v.
example:
contract;
69, 70,
44
68
enforced
written.
litigant
testate
structive
ances of the
suits for
In Cox v.
sonal
sense
structive
isor
came effective.”
tract
upon
strued to
specificproperty.
a valuable
contracts
“[2,
fails to
no еvent
testators,
representative
can
legatee of a will that was never
promisor
to
3]
the contract. When
trust. But
specific performance,
trust
it be said
Hutto,
existing
execute
perform, equity
impair the
could
consideration.
suit
contract;
rather
instrument
as in similar cases
accomplish
owned at the death
It is
subject
only
takes from
that the
enforce a contract
will,
statute be con-
the title
obligation
supported
in
time it be-
to the
a rhetorical
operative
uses a
is
successful
deed
perform-
a con-
prom-
con-
in-
plicable here:
L.Ed. 240. The Merriam case involved
judicially
have
as we shall
by will for services to be rendered
used in
service
former case he must
service as a condition of
drawn is between
shall
quest
the character of executor.
upon
taxability
“The
“ *
“[The term] does include the be-
the executor and a
required.
stated,
principle
(cid:127)»
here under consideration
[merely]
**
to earn
word
implied
settled
we must
sense
presently show,
bequests
‘bequest’ having
set
clothe himself with
meaning
condition
by Congress.”
distinction to
out
presume
compensation.
legacy
perform
to executors.
is
payment
which we
equally
In the
to one
it was
actual
since,
fixed
he
ap-
22(a)
rule
the The
salt to
Merriam
adds
well
gross
provides
established. Bank of
vering, Cir.,
York
wound. It
New
Hel
“compensation
773;
include
F.2d
shall
Rose
* Grant, Cir., 1930,
service,
whatever
personal
F.2d 338. “If
Labelling somеthing
performed by
be
been-
paid”.
services have
re
form
may
cipients,
exemption.
it
well be
presump-
said
not result
quest will
equitable
payment
is for the
is that
lien” in the cause of action.
gift.”
attorney “holding
v. Com- An
services and not
Wallace
such an interest
missioner,
equity
F.2d
has an
in the cause of action and
recovery
prior
under it
the defendant in the
to exer-
carry out
Ethel Cotnam had to
cise a
accruing
of set-off
get
to him
paid.
her
attorney’s
after
interest had at-
Hunter.
had
render
service
tached.”
Payment
conditioned
this. She
acquire
$120,000
“be
could not
quest”
The facts in
case,
this unusual
taken
term is used
the Code.
as the
with the
statute, put
the tax-
acquire
it because
She could
did
payer
position
in a
where she did not
gave
to her for
realize
income as to her
judg
Accordingly,
rendered.
terests of 40 in her cause of action and
%
correct
favor was
ment Mrs. Cotnam’s
judgment.
ly
personal service
taxed as income fоr
Judges RIVES and BROWN add to
paid”.
whatever form
“in
foregoing,
following:
II.
When Mr. Hunter died without will
Judges
Court,
majority
A
and his
recog
Administrator declined to
$50,365.83
Brown,
Rives and
hold that
nize Mrs. Cotnam’s claim that he had
attorneys
should not
Mrs. Cotnam’s
made a verbal contract to leave her one
This
in her
income.
be included
long
fifth of
way
she was a
attorneys but
sum was income to the
having
equivalent
of cash. Her
value,
Mrs. Cotnam.
not to
claim had no fair market
and it
provides:
“The
The Alabama Code
was doubtful and unсertain as to whether
law
same
shall
value. The
economic
suits, judg-
power over
benefit
could then derive from her
liens,
decrees,
enforce their
ments
claim was
helping
to use a
init
*7
clients
have for
had or
their
her to
According
collect
remainder.
In con-
to them”.5
amount due thereon
ly she,
assigned
effect,
to her attor
struing this statute the Alabama courts neys forty per cent of the claim in order
given full
statute. At-
effect to the
have
torneys
might
remaining
that she
sixty
collect
rights
the same
as their
have
per
assignment
cent. That was not the
Foshee,
Railway Co. v.
Western
clients.
of income of Mrs. Cotnam within the doc
500;
182,
1913, 183 Ala.
Denson
So.
Earl, 1930,
111,
trine
Lucas v.
281 U.S.
1916,
Co.,
Iron
Fuel &
v. Alabama
241,
50 S.Ct.
vance perceived ade- that there is distinguishing quate be- basis for gift coupons of interest tween COMPANY, corpora- CORNELI SEED gift salary tion, Appellant, here and a import is that statute [T]he to a be attributed the fruit not to UNION PACIFIC RAILROAD COMPA- from that on which different tree corporation, NY, Appellee. grew.” No. 16108. stronger Horst This case Appeals United States Court of assigned Eubank, Mrs. Cotnam since Ninth Circuit. already earned. Dec. disposition of the entire controlled payment part of the amount and diverted attorneys. By virtue from herself to assignment enjoyed Mrs. Cotnam fight being able to the economic benefit through dis- the courts her case obligation charged her income, equivalent receipt (in itself Colony Trust v. Commis- Co. under Old sioner, 716, 49 *9 918.) the de- contends fees should duction prorated four and a half over the gross 107(a): If at income of included “Personal services. 1. Sec. cоmpen greater per dividual shall not be the total centum of least 80 covering aggregate the taxes attributable sation thirty-six period months or such had it been calendar included in the beginning ratably (from income of such com individual more period pre- services) pletion is received or over of such year receipt the date of an in cedes such or accru- one taxable accrued U.S.C.A., 1952, ed., partnership, tax at al.” or a dividual any part thereof which tributable