Orr v. Gilman

David Dows, Sr., a citizen and resident of the city and state of New York, died March 30, 1890, leaving a last will and testament, which was duly admitted to probate by the surrogate's court of New York county on April 14, 1890. The will provided that the legal title to the property mentioned and described in the 6th clause thereof should vest in the executors' names as trustees during the lifetime of testator's son, David Dows, Jr., with power to manage and control the same, and with the duty to pay the net income therefrom the said David Dows, Jr. The will further provided that upon the death of David Dows, Jr., the property should vest absolutely and at once in such of his children him surviving and the issue of his deceased children as he should by his last will and testament designate and appoint, and in such manner and upon such terms as he might legally impose. In and by the 8th clause or paragraph of his said will, David Dows, Sr., devised and bequeathed the legal title to his residuary estate to his executors as trustees, to hold and manage the same, one-eighth part in trust during the lifetime of testator's widow and one eighth in trust for each of testator's seven children-one of whom was the said David Dows, Jr. It was made the duty of the trustees to pay over the net income to the respective persons named during their respective lives, and it was provided that, upon the death of each of said persons, the said one-eighth part of the residuary estate, with any accumulations and profits, should vest absolutely and at once in such of his or her children, or the issue of such children, as he or she might by his or her last will and testament designate and appoint, and in such manner and upon such terms as he or she may legally impose. It was provided in both the 6th and 8th clauses that if the legatee for life shall die intestate. then the property should vest absolutely and at once in his or her children surviving, share and share alike.

David Dows, Jr., died January 13, 1899, leaving a last will and testament, which was duly admitted to probate by the surrogate's court of Westchester county, New York, by the 3d paragraph or clause whereof, in the exercise of the power of appointment given him in his father's will, he provided that the property mentioned and described in the said 6th and 8th clauses of the will of David Dows, Sr., should vest upon his death in his three children, David, Robert, and Kemeth, in a manner therein described.

On October 31, 1900, Bird S.C.oler, comptroller of the city of New York, and Theodore P. Gilman, comptroller of the state of New York, filed a petition in the surrogate's court of New York county, in which, after reciting the foregoing facts, they alleged that the transfer of funds and property of which David Dows, Jr., had the life use, and over which he had exercised the power of appointment given him in his father's will, was taxable, and they therefore prayed for the appointment of a transfer-tax appraiser, in order that the transfer tax might be duly assessed and imposed. Thereupon Charles K. Lexow was so appointed, and on January 31, 1901, after having given notice to the said comptrollers and to the executors and trustees of the last will of David Dows, Sr., and to the executors of the last will of David Dows, Jr., and to the guardians of the minor children of David Dows, Jr., the appraiser filed in the surrogate's office a report of his valuation of the interests of the three sons of David Dows, Jr., under the respective wills of their father and grandfather. Certain exceptions to this report were filed on behalf of the executors and guardians, the nature of which will hereafter appear. Thereafter, on February 15, 1901, the surrogate, on the basis of the report of the said appraiser, assessed a transfer tax of upwards of $7,000 against each of the respective interests of the three sons of David Dows, Jr. The exceptions to the appraiser's report and to the assessment were, on March 6, 1901, after argument by counsel, overruled; and the surrogate entered the following order and judgment:

'It is ordered, adjudged, and decreed that said report and order so appealed from be and they are hereby affirmed, and that the date when the transfers now taxed were effected was January 13, 1899, that date being fixed because it was the date of the death of David Dows, Jr., the donee of the power contained in the will of David Dows, Sr.'

An appeal was taken from the order and decree of the surrogate to the appellate division of the supreme court of New York, and by that court, on March 22, 1901, the order of the surrogate was affirmed. On appeal duly taken, the court of appeals of the and the record of the proceedings were remitted the order and judgment of the appellate division of the supreme court, and the judgment of the said court of appeals and the reocrd of the proceedings were remitted into the surrogate's court of New York, to be enforced according to law, and the judgment of the court of appeals was on May 28, 1901, made the judgment and order of the surrogate's court. And on June 13, 1901, a writ of error to that judgment was allowed, and the cause was brought to this court.

Messrs. Horace E. Deming and Julius Henry Cohen for plaintiffs in error.

Messrs. Jabish Holmes, Jr., and Edgar J. Levey for defendants in error.

Statement by Mr. Justice Shiras:

This is the case of a so-called transfer tax imposed under the laws of the state of New York. The various contentions of the plaintiffs in error, attacking the validity of the tax, were overruled by the courts of the state, and the cause is now before us on the general proposition that by the proceedings the plaintiffs in error, or those whom they represent as trustees and guardians, have been deprived of the equal protection of the laws of the state of New York, their privileges and immunities as citizens of the United States have been abridged, and their property taken without due process of law, in violation of the 14th Amendment to the Constitution of the United States, and likewise, as to a portion of the property affected, in violation of § 10 of article 1 of the Constitution of the United States.

The first question presented arises out of subdivision 5 of § 220 of the tax law of the state of New York, which reads as follows:

'5. Whenever any person or corporation shall exercise a power of appointment derived from any disposition of property, made either before or after the passage of this act, such appointment, when made, shall be deemed a transfer taxable, under the provisions of this act, in the same manner as though the property to which such appointment relates belonged absolutely to the donee of such power, and had been bequcathed or devised by such donee by will; and whenever any person or corporation possessing such a power of appointment so derived shall omit or fail to exercise the same within the time provided therefor, in whole or in part, a transfer taxable under the provisions of this act shall be deemed to take place to the extent of such omissions or failure, in the same manner as though the persons or corporations thereby becoming entitled to the possession or enjoyment of the property to which such power related had succeeded thereto by a will of the donee of the power failing to exercise such power, taking effect at the time of such omission or failure.' [Laws of 1897, chap. 284.]

This enactment became a law on April 16, 1897. David Dows, Sr., died March 30, 1890, leaving a will containing a power of appointment to his son, David Dows, Jr., which will was duly admitted to probate by the surrogate's court on April 14, 1890. David Dows, Jr., died on January 13, 1899, leaving a will in which he exercised the power of appointment given him in the will of his father, and apportioned the property which was the subject of the power among his three sons, who are represented in this litigation by the plaintiff in error.

It is claimed that under the law of the state of New York as it stood at the time of his death, in 1890, David Dows, Sr., had a legal right to transfer, by will, his property, or any interest therein, to his grandchildren, without any diminution or impairment then imposed by the law of the state upon the exercise of that right; that his said grandchildren acquired vested rights in the property so transferred; and that the subsequent law, whose terms have been above transcribed, operates to diminish and impair those vested rights. In other words, it is claimed that it is not competent for the state, by a subsequent enactment, to exact a price or charge for a privilege lawfully exercised in 1890, and to thus take from the grandchildren a portion of the very property the full right to which had vested in them many years before.

We here meet, in the first place, the question of the construction of the will of David Dows, Sr. Under and by virtue of that will did the property whose transfer is taxed pass to and become vested in the grandchildren, or did the property not become vested in them until and by virtue of the will of David Dows, Jr., exercising the power of appointment? The answer to be given to this question must, of course, be that furnished us by the court of appeals in this case (Re Dows, 167 N. Y. 227, 52 L. R. A. 433, 60 N. E. 439):

'Whatever be the technical source of title of a grantee under a power of appointment, it cannot be denied that, in reality and substance, it is the execution of the power that gives to the grantee the property passing under it. The will of Dows, Sr., gave his son a power of appointment to be exercised only in a particular manner, to wit, by last will and testament. If, as said by the Supreme Court of the United States, the right to take property by devise is not an inherent or natural right, but a privilege accorded by the state, which it may tax or charge for, it follows that the rights of a testator to make a will or testamentary instrument is equally a privilege, and equally subject to the taxing power of the state. When David Dows, Sr., devised this property to the appointees under the will of his son, he necessarily subjected it to the charge that the state might impose on the privilege accorded to the son of making a will. That charge is the same in character as if it had been laid on the inheritance of the estate of the son himself; that is, for the privilege of succeeding to property under a will.'

It will be perceived that in putting this construction upon the will of David Dows, Sr., the court of appeals not merely construed the words of the will, but, by implication, applied to the case the provisions of the subdivision 5 of § 220 under which the transfer tax in question was imposed, and thus construed that tax law, and affirmed its validity.

While it is settled law that this court will follow the construction put by the state courts upon wills devising property situated within the state, and while it is also true that we adopt the construction of its own statutes by the state courts, a question may remain whether the statute, as so construed, imports a violation of any of the rights secured by applicable provisions of the Constitution of the United States. And such is the contention here.

This court has no authority to revise the statutes of New York upon any grounds of justice, policy, or consistency to its own Constitution. Such questions are concluded by the decision of the legislative and judicial authorities of the state.

In Carpenter v. Pennsylvania, 17 How. 456, 15 L. ed. 127, the question arose as to the validity, in its Federal aspect, of a law of the state of Pennsylvania imposing an inheritance tax on personal property which had passed into the possession of an executor before the passage of the act, and which was held by him for the purpose of distribution among the legatees, who were collateral relatives to the decedent. The act was held valid by the supreme court of the state, and was brought up to this court by a writ of error, where it was contended that such an act was in its nature an ex post facto law, which took the property of an individual to the use of the state, because of a fact which had occurred prior to the passage of the law; and also that the law, in its retroactive effect, impaired the obligation of a contract, in that it was alleged to absolve the executor from his contract, implied in law, to pay over the legacies to those entitled to them, just to the extent that the law required him to pay to the state. The opinion of the court, delivered by Mr. Justice Campbell, was in part as follows: