Case Name: Jerry Galatis, Petitioner, v. Commissioner of Internal Revenue, Respondent
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1927-09-22
Citations: 8 B.T.A. 213
Docket Number: Docket No. 10747
Parties: Jerry Galatis, Petitioner, v. Commissioner of Internal Revenue, Respondent.
Judges: 
Reporter: Reports of the United States Board of Tax Appeals
Volume: 8
Pages: 213–221

Head Matter:
Jerry Galatis, Petitioner, v. Commissioner of Internal Revenue, Respondent.
Docket No. 10747.
Promulgated September 22, 1927.
Douglas D. Felix, Esq., for the petitioner.
A. R. Marrs, Esq., for the respondent.

Opinion:
OPINION.
Littleton:
The record presents considerable difficulty in arriving at the net income resulting from the operation of the cafe for the year 1919. From all the evidence we conclude that the income for 1919 was $19,674.18, as set out in the findings of fact. The only criterion to be found in the record, other than that adopted by us, by which this income may be estimated, is the return of Julia Galatis to the effect that she received $7,882.28 as her share of the net income, and her testimony that she owned a one-fifth interest in the cafe. If this be true, the net income of all persons derived from the cafe was $39,164.40, an amount far beyond the estimate of either party to this proceeding. Standing alone and without other support, that hypothesis has been rejected.
The transactions in 1919 between the petitioner on the one side and Gotsis, Bassis, Hantges, and Poppas on the other, resulted in the petitioner reacquiring all the interests in the cafe which he had transferred to them in 1918. So far as the record discloses, the cafe was in as good condition when the petitioner reacquired possession of those interests as when he parted with them. In addition to reacquiring all that he had sold, the petitioner had in his possession $7,500 (the profits remaining over from 1918) and all the profits belonging to Gotsis, Bassis, Hantges, and Poppas for the year 1919. The books have been lost and it is impossible now to determine the amount of profits which belonged to any one of the four vendees at the time he retransferred his interest to the petitioner. It is sufficient to say that all of the profits resulting during the year 1919 from the four-fifths interest reacquired by the petitioner in 1919 were retained by him. The result of this is that by reason of the reacquisition of the interests which he had transferred to Gotsis, Bassis, Hantges and Poppas, at the close of 1919, the petitioner had received back all that he had sold, and had also received $7,500, representing the distributive share upon these interests of the net profits earned for the year 1918, plus $23,-239.35, the distributive share upon the same interests of the net profits for 1919, less $11,600 which he had returned to his various vendees, leaving in his hands a net gain of $11,639.35. This amount of $11,639.35 was not an asset which had to be transmuted into money in order to ascertain gain, but was cash itself. This amount was not a gift by these vendees to the petitioner. It was gain to him by reason of transactions which took place in the year 1919.
The next question is, what interest did Julia Galatis have in this cafe? It is shown that in 1913 she pledged jewelry which she stated was her own property and borrowed $500 which she invested in the cafe. How she acquired this jewelry does not fully appear, but upon the record it is our opinion that it was her separate estate under the laws of Florida.
The laws of Florida relative to a married woman's separate estate are to be found in section 1 of Article XI of the Constitution of Florida, and in section 3947 of the Eevised General Statutes of Flor ida. Section 3947 need not be quoted as it practically paraphrases section 1, Article XI of the Constitution, which is as follows:
All property, real and personal, of a wife owned by ber before marriage, or lawfully acquired afterwards by gift, devise, bequest, descent, or purchase, shall be her separate property, and the same shall not be liable for the debts of her husband without her consent given by some instrument in writing, executed according to the law respecting conveyances by married women.
The right of a married woman to her separate property is treated at length in Florida Citrus Exchange v. Grisham, 65 Fla. 46; 61 So. 123, where it is said:
Under the act of March 6, 1845, brought forward in the General Statutes as section 2589, " the property of the wife shall remain in care and management of the husband, but he shall not charge for his care and management, nor shall the wife be entitled to sue her husband for the rent, hire, issues, proceeds or profits of her said property." The contention of the plaintiff in error might be sound, were it not for the provision of the Constitution of 1885, art. 11, 1, declaring that " all property, real and personal, of a wife owned by her before marriage, or lawfully acquired afterwards by gift, devise, bequest, descent, or purchase, shall be her separate property, and the same shall not be liable for the debts of her husband without her consent given by some instrument in writing, executed according to the law respecting conveyances by married women."
The Constitution has thus vested her with the property in her separate estate, instead of the mere title thereto, which only she enjoyed prior to the Constitution of 1868, of which our present Constitution is an amendment. May the Legislature, against the will of the wife, say to her that the husband shall have absolute dominion over her " property " ? To so hold, it seems to us, would cut down the larger word " property " to the narrow word " title," and say to the makers of the Constitution: "You were ignorant of the meanings of the two words; the change you made was a thoughtless one, and we shall again enthrall the wife, however skillful and competent she may be in matters financial, under the yoke of the husband, however incompetent in such matters, or controlled by his appetite for strong drink or gambling, or other dissipations."
The limit the Legislature can go in this direction is to make the husband the agent of the wife as to her separate property, confirmed in her by the organic law, only so long as it may be mutually agreeable, the husband serving without compensation; but the Legislature may not interfere with her dominion over that property, created and fixed in her by the higher law, to the extent of placing it irrevocably in the control of her husband.
A married woman can not enter into a partnership agreement so as to render herself liable as a partner. De Graum v. Jones, 23 Fla. 83; 6 So. 925; Virginia-Carolina Chemical Co. v. Fisher, 58 Fla. 377; 50 So. 504. On the other hand, a married woman may invest her separate estate in a commercial enterprise and the resulting property is her separate estate. She may compel an accounting. Porter v. Taylor, 64 Fla. 100; 59 So. 400. She may bargain for an interest in a commercial concern in consideration of her services and after the services have been rendered, compel specific performance. Le Noir v. McDaniel, 80 Fla. 500; 86 So. 435.
From the above authorities it appears that while Julia Galatis was not a partner and could not become a partner in the cafe, nevertheless she could acquire an interest in the cafe which would be her separate property, to the extent that she would be entitled to her share of the net earnings of the cafe.
The manner in which the interest of Julia Galatis was reduced on March 1, 1918, from a 30 per cent interest to a 20 per cent interest does not appear. It does not appear whether she acquired this one-fifth interest in consideration of her interest in the busin.-.ss as it existed before the new members were taken in, or whether her husband acquired her interest and gave it to her. Under the laws of Florida the husband can make a gift of personal property to his wife. See Garner v. Bemis, 81 Fla. 60; 87 So. 426; Keyser v. Milton (C. C. A.) 228 Fed. 594. Irrespective of how she acquired her one-fifth interest, the evidence clearly shows that Julia Galatis did own such an interest in the cafe after March 1, 1918. It was set apart to her on the books of the company and her interest was scrupulously kept separate from that of her husband. All this was done with the knowledge and consent of her husband and of the other members.
Lot 8 G 117 conveyed by Julia Galatis and her husband to Thomas J. Peters on September 30, 1918, had theretofore been conveyed to her by the Tatum Bros. Real Estate & Investment Co. It was, therefore, property acquired by Julia Galatis either by " gift " or " purchase " as those words are used in section 1 of Article XI of the Constitution of Florida, and was, therefore, her separate property. For the purpose of this opinion, it is immaterial whether Julia Galatis paid all the purchase price or whether part of it was paid by the petitioner. If she paid the whole, then, undoubtedly, it was her separate estate since she acquired it by purchase. If the petitioner paid part, then she acquired so much as he paid for as a gift. A case very similar to this is Alston v. Rowles, 13 Fla. 117. That case involved the right of creditors, a question not involved in this proceeding. There it was contended by the wife that a lot which was conveyed to her was purchased entirely out of her own funds. The court held that this was not the fact, but said:
The result is, that this is a case where the husband purchases property taking the conveyance in the name of his wife. As between the husband and the wife, under the circumstances, it must be regarded as a post-nuptial settlement, based upon the consideration of love and affection. It would never be held that a trust resulted to the husband; such was not the intention of the parties. It is a gift to the wife. 10 Ves., 367.
We are constrained to hold, therefore, that lot 8, block 117, conveyed by Julia Galatis in conjunction with her husband to Thomas J. Peters, was her separate estate and that the proceeds of such sale ($70,000) belonged to her. The fact that the mortgage for the purchase price was taken in the name of petitioner is immaterial since it was agreed between the petitioner and his wife that he would account to her for her share of the proceeds. In Booth v. Lenox, 45 Fla. 191; 34 So. 566, the Supreme Court of Florida held that where a husband had conveyed his wife's separate estate without her knowledge and converted the proceeds to his own use, the facts created a resulting trust in her favor which could be established by parol testimony. If a trust can be established by parol testimony under the circumstances of that case, it follows that a trust created by express agreement can be established by such evidence. On this point the respondent erred in attributing to the petitioner the profits which arose from the sale of his wife's lot to Peters.
Reviewed by the Board.
Judgment will he entered on 16 days' notice, wilder Rule 60.