17 N.Y.2d 216 | NY | 1966
Lead Opinion
The State Tax Commission appeals from an order excluding from the gross estate certain real property located in Connecticut owned by the decedent and his son which has been taxed in Connecticut. Perhaps an error was made in imposing an inheritance or succession tax on this real estate in Connecticut which was not reviewed in the Connecticut courts. With that we are not, however, concerned on this appeal.
Section 249-r of the Tax Law, of course, exempts from the New York Estate Tax “ real property situated and tangible personal property having an actual situs outside tMs state ” to the extent ‘1 of the interest therein of the decedent at the time of his death ”.
Whatever may have been the law in New York prior to adoption of the Uniform Partnership Act, under the terms of the act specific partnership real estate is converted into personal property and, on the death of a partner, passes to the other partner under the partnership agreement (Matter of Finkelstein, 40 Misc 2d 910). Prior to adoption of this statute, what became of partnership real property on the death of a partner was sometimes debatable. If the business of the partnership had been trading in real estate, it was regarded as having been converted into personalty for the purposes of the partnership by mutual agreement of the partners, and on the death of one
The New York State common law was thus to the effect that in the absence of a contrary intent, implied from circumstances or expressed in the partnership agreement, lands descended to the heirs at law of a deceased partner subject to payment of the partnership debts and adjustments of existing equities as between the partners. That, as was held below, may be assumed to be the law of Connecticut where the Uniform Partnership Law has not, as yet, been adopted (Morgan v. Sigal, 114 Conn. 39). Although, as pointed out in Matter of Finkelstein, the legal concept of a partnership as an entity has gained force, we recognize that the Connecticut law should govern inasmuch as this real property is located in Connecticut. The common law of Connecticut is, quite evidently, similar to what was the common law of New York before the enactment of the Partnership Law. In Connecticut, it was said in Steinmetz v. Steinmetz (125 Conn. 663, 666-667): “ While the fact that a partnership exists between parties in whose names the title to real estate stands will not of itself prevent them from being regarded as tenants in common therein (Sigourney v. Munn, 7 Conn. 11, 18), much depends upon their understanding and intention; circumstances such as purchase with partnership funds, and the course of
This renders clear that intention is the touchstone of the Connecticut common law, as it was of the New York State common law before being superseded by statute. The brief for the respondents recognizes “ that a case might be taken out of the general rule of Darrow v. Calkins ” and an equitable conversion into personal property for all purposes of the partnership ‘ ‘ by proof that it was the intention of the partners that on dissolution the property should be converted ‘ out and out ’ into personalty. ” As to intention the Surrogate said, as respondents’ brief points out, that this partnership agreement “ is wholly silent as to any accountability of the surviving partner to the representative of the deceased partner for the value of the Connecticut real estate.”
That touches the heart of the issue. Unfortunately for respondents, this agreement was made in New York State subject to the New York State Partnership Law which, as we have seen, contains express provisions converting partnership real estate into personalty and providing that on death it shall pass to the surviving partner or partners as tenants in partnership. That is read into the contract as though it had been expressly stated therein. The traditional rule has been that matters bearing upon the execution, the interpretation and the validity of contracts are governed by the law of the State where the contract was made (Swift & Co. v. Bankers Trust Co., 280 N. Y. 135,141; Union Nat. Bank v. Chapman, 169 N. Y. 538, 543; Employers’ Liab. Assur. Corp. v. Aresty, 11 A D 2d 331). That rule, no longer to be slavishly followed, nevertheless still signifies that the place where a contract is made is a significant contact in applying the center of gravity rule of Auten v. Auten (308 N. Y. 155). Not only was this contract made in New York, but also it was between New York State residents, one of whom has died and his estate is being administered in Suffolk County.
Intention is, of course, the dominant factor, as was explained in detail in the opinion by Chief Justice Taft for the United States Supreme Court in Blodgett v. Silberman (277 U. S. 1, 11-12), quoting from Darrow v. Calkins (154 N. Y. 503, 515-516, supra), as follows: “ ‘ It is, however, generally conceded that the question whether partnership real estate shall be deemed absolutely converted into personalty for all purposes, or only converted pro tanto for the purpose of partnership equities, may be controlled by the express or implied agreement of the partners themselves, and that where by such agreement it appears that it was the intention of the partners that the lands should be treated and administered as personalty for all purposes, effect will be given thereto. In respect to real estate purchased for partnership purposes with partnership funds and used in the prosecution of the partnership business, the English rule of “ out and out ” conversion may be regarded as properly applied on the ground of intention, even in jurisdictions which have not adopted that rule as applied to partnership real estate acquired under different circumstances and where no specific intention appeared. The investment of partnership funds in lands and chattels for the purpose of a partnership business, the fact that the two species of property are in most cases of this kind, so commingled that they can not be separated without impairing the value of each, has been deemed to justify the inference that under such circumstances the lands as well as the chattels were intended by the partners to constitute a part of the partnership stock and that both together should take the character of personalty for all purposes, and Judge Denio in Colhmib v. Read [24 N. Y. 505] expressed the opinion that to this extent the English rule of conversion prevailed here. That paramount consideration should be given to the intention of the partners when ascertained, is conceded by most of the cases/ ”
The court regarded it as immaterial whether succession to the property there involved was also taxable in another jurisdiction saying (p. 10): “As to that we need not inquire. It is not the issue in this case. For present purposes it suffices that intangible personalty has such a situs at the domicil of its owner that its transfer on his death may be taxed there.”
In Matter of Finkelstein (supra) it was said at page 915: “Petitioner makes the point that the Ohio real estate has already been taxed there. This is hard to understand, since Ohio has adopted the Uniform Partnership Law and New York would not do the same in the reverse situation. (Allen v. Pfaltz & Bauer Realty Co., 227 App. Div. 666.) However, it is not the issue here. (Blodgett v. Silberman, supra, p. 10.) And double taxation is not necessarily to be avoided by the courts. (State Tax Comm. v. Aldrich, 316 U. S. 174, 181.) ”
If the partnership property is held to be taxable in New York State, the question becomes academic whether partnership liabilities for the maintenance of the Connecticut real estate are deductible. If the value of the real property is included in the valuation of the partnership assets, manifestly these items are deductible.
If this real estate had been owned by decedent individually, it would of course have been exempt from the New York estate tax (Tax Law, § 249-r; Matter of Swift, 137 N. Y. 77). Instead, it was expressly deeded to the partnership, and the partners were careful to see that it was purchased with partnership capital.
The case of Matter of McKinlay (166 N. Y. S. 1081 [1917]) was in any event superseded by the Partnership Law enacted as chapter 39 of the Consolidated Laws by chapter 408 of the Laws of 1919.
The order appealed from should be reversed and the value of the Connecticut real estate included in the evaluation of the partnership.
Concurrence Opinion
We like to think of courts as established to do justice. In this case we are forced by our
I concur in the decision of the court only because the mandate of sections 12, 51 and 52 of the Partnership Law is clear and binding (cf. Tax Law, § 249-r).
Although taxation by both New York and Connecticut is not unconstitutional in the present circumstances (Blodgett v. Silberman, 277 U. S. 1) the fact remains that land representing a single economic value is being taxed as realty in Connecticut and as personalty in New York. In all probability, the Connecticut tax would not have been imposed if the facts as they clearly exist had been brought to that jurisdiction’s attention (Steinmetz v. Steinmetz, 125 Conn. 663). That question, however, cannot be resolved in New York. It is to be hoped that the estate is not precluded from reopening the proceedings in Connecticut and that the Connecticut court will recognize the injustice which it alone would have the power to rectify.
Chief Judge Desmond and Judges Fuld, Burke, Scileppi and Bergan concur with Judge Van Voorttis; Judge Keating concurs in a separate opinion.
Order reversed, without costs, and matter remitted to the Surrogate’s Court, Suffolk County, for further proceedings in accordance with the opinion herein.