Court Opinion

ID: 9420508
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:54:56.050333+00
Date Added: 2024-06-11T17:22:25.522455
License: Public Domain

Mr. Justice Frankfurter,
joined by Mr. Justice Black, Mr. Justice Burton, and Mr. Justice Minton, dissenting.
Section 503 of the Revenue Act of 1932 imposes a gift tax on property “transferred for less than an adequate and full consideration in money or money’s worth.” 47 Stat. 247, now I. R. C., § 1002, 26 U. S. C. § 1002. In Merrill v. Fahs, 324 U. S. 308, the Court held that an antenuptial settlement is subject to this tax.1 Believing as I do that the disposition of the case before us largely depends on the weight given to the considerations which there prevailed, recapitulation of them is appropriate. The Court there based its result on the conclusion that a transfer of property pursuant to an antenuptial settlement was not made in exchange for “an adequate and full consideration in money or money’s worth.” This conclusion was reinforced by reading into the gift tax provision the gloss of the interrelated estate tax of the same year that the relinquishment of “marital rights . . . *114shall not be considered to any extent a consideration in money or money’s worth.’ ” Revenue Act of 1932, § 804, 47 Stat. 280, now I. R. C., § 812 (b), 26 U. S. C. § 812 (b).
The case before us concerns not an antenuptial agreement, but what the Tax Court called a “property settlement agreement,” contracted in anticipation of divorce. Each spouse transferred property of substantial value to the other and each agreed “to release completely the property of the other from all claims arising but of their marriage.” 10 T. C. 741, 743.
Unless we are now to say that a settlement of property in winding up, as it were, a marriage, smacks more of a business arrangement than an antenuptial agreement and therefore satisfies the requirement of “an adequate and full consideration in money or money’s worth” which we found wanting in Merrill v. Fahs, and unless we are further to overrule Merrill v. Fahs insofar as it joined the gift tax and the estate tax of the Revenue Act of 1932, so as to infuse into the gift tax the explicitness of the estate tax in precluding the surrender of marital rights from being deemed to any extent a consideration “in money or money’s worth,” we must hold that a settlement of property surrendering marital rights in anticipation of divorce is not made for “an adequate and full consideration in money or money’s worth.”
The same year that it enacted the gift tax Congress amended the estate tax by adding to the provision that “adequate and full consideration” was prerequisite to deduction of “claims against the estate” the phrase, “when founded upon a promise or agreement.” Revenue Act of 1932, § 805,47 Stat. 280, now I. R. C., § 812 (b), 26 U. S. C. § 812 (b). Legislative history demonstrates that this amendment was intended not to change the law but to make clear that the requirement of consideration did not prevent “deduction of liabilities imposed by law or arising out of torts.” H. R. Rep. No. 708, 72d Cong., 1st Sess. 48: *115S. Rep. No. 665, 72d Cong., 1st Sess. 51. A similar principle is implicit in the gift tax. By its statutory language and authoritative commentaries thereon Congress did not leave the incidence of the gift tax at large by entrusting its application to the play of subtleties necessary to finding a “donative intent.” Commissioner v. Wemyss, 324 U. S. 303, 306. But while by the gift tax Congress meant “to hit all the protean arrangements which the wit of man can devise that are not business transactions” to the common understanding, Commissioner v. Wemyss, ibid., a gift tax is an exaction which does presuppose the voluntary transfer of property and not a transfer in obedience to law. In Merrill v. Fahs, supra, at 313, we stated that “to interpret the same phrases in the two taxes concerning the same subject matter in different ways where obvious reasons do not compel divergent treatment is to introduce another and needless complexity into this already irksome situation.” Application of that principle would require the Court to hold that § 503 of the Revenue Act of 1932, I. R. C., § 1002, imposes a tax on “the amount by which the value of the property [transferred exceeds] the value of the consideration” received only when the transfer is “founded upon a promise or agreement.” The taxpayer does not contest applicability of the principle; and in the view we take of the case it may be assumed.2 Taxpayer contends (1) that the transfers in the situation now before us were or must be deemed to have been for an “adequate and full consideration in money or money’s worth,” and (2) that the Commissioner imposed a liability which *116was not “founded upon a promise or agreement.” Her position was sustained by the Tax Court, 10 T. C. 741, but rejected by the Court of Appeals for the Second Circuit. 178 F. 2d 861.
1. I would adhere to the views we expressed in the Wemyss and Merrill decisions as to the meaning to be given to the requirement of “adequate and full consideration” in the enforcement of the gift tax “in order to narrow the scope of tax exemptions.” 324 U. S. at 312. Nor would I depart from the conclusion there reached that the relinquishment of marital rights is not to be deemed “money or money’s worth” because that definition in the estate tax of 1932 is by implication to be read into the gift tax passed in the same year.
2. But was the transfer of the property here in controversy “founded upon a promise or agreement”? The answer requires recital of the governing facts of the case.
Taxpayer separated from her husband in August, 1942, and shortly thereafter brought suit in Nevada for divorce. One week prior to entry of the divorce decree, she and her husband entered into an agreement “for the purpose of settling the respective property rights of the parties hereto and of removing the subject matter thereof from the field of litigation.” After providing for the transfers of property and the release of claims, the agreement recited,
“This agreement shall be submitted to the court for its approval, but nevertheless the covenants in this agreement shall survive any decree of divorce which may be entered. It is of the essence of this agreement that the settlement herein provided for shall not become operative in any manner nor shall any of the Recitals or covenants herein become binding upon either party unless a decree of absolute divorce between the parties shall be entered in the pending Nevada action. The settlement herein pro*117vided shall become immediately effective and operative in the event of and upon the entry of a decree of divorce between said parties in said pending Nevada action. The parties hereto, however, shall proceed as expeditiously as possible to carry into effect the covenants herein, which it is provided are to be performed by either of the parties prior to the entry of the decree as aforesaid.”
After a hearing at which both parties were represented, the court granted the divorce. It found that certain transfers from the wife to the husband were “in discharge of a legal obligation which, because of the marital relationship has been imposed” on her; and concluded that “the agreement and trust agreements forming a part thereof, made and entered into between plaintiff and defendant under date of.February 27th, 1943 is entitled to be approved.” The divorce decree “approved” the agreement, directed performance of two of its paragraphs, and declared,
“Notwithstanding the approval of said agreement and the trust agreements forming a part thereof by the Court herein, It is ordered that said agreement and said trust agreements forming a part thereof shall survive this decree.
“It is further ordered, adjudged and decreed that the decree herein entered is absolute and final in all respects and the Court herein divests itself of all power to amend or modify the same in the future without the consent of both of the parties hereto.”
The parties executed the provisions of the decree and the agreement, and the Commissioner assessed the tax in question on the amount by which the value of the property transferred by the wife to her husband exceeded the value of the property transferred by him to her.
*1183. Such being the facts of the case, was the transfer by Cornelia Harris “founded upon a promise or agreement”? The statute does not say founded “solely upon a promise or agreement.” The statute does not say that the tax should not fall on “property transferred under the terms of a judgment or decree of the court.” Nor is the phrase “founded upon agreement” a technical term having a well-known meaning either in law or in literature. The question is whether the transfer made by the taxpayer to her husband was, within the fair meaning of the language, “founded” upon her agreement with her husband. Did the Nevada judge in decreeing the divorce describe what actually took place here when he said that on the “date of February 27, 1943, the plaintiff and defendant entered into an agreement and trust agreements forming a part thereof, under the terms of which the parties settled all obligations arising out of their marriage”?
The fact that the undertakings defined by this agreement would come into force only on the occurrence of a condition, to wit, the entering of a decree of divorce, is apparently regarded as decisive of taxability. But does this make any real difference? The terms of that decree might be different from the terms of the agreement; but “nevertheless the covenants in this agreement shall survive any decree of divorce which may be entered.” If the divorce court had disapproved the agreement and had not decreed the transfer of any property of the wife to her husband, it is difficult to see how transfer's which she made, solely because of the compulsion of the agreement, would be effected by court decree and for that reason not subject to tax. The condition on which an agreement comes into force does not supplant the agreement any more than a deed in escrow ceases to be a deed when it comes out of escrow. In the Wemyss and Merrill cases, would the gifts have been any the less founded upon an agreement if, as a condition to the antenuptial arrangements in those cases, *119the consent of the parents of the fiancée had been made a condition of the marriage? Nor can excluding the transfers here involved from the gift tax be made tenable by resting decision on the narrower ground that to the extent the divorce decree “approved” the agreement or embodied its provisions so as to make them enforceable by contempt the transfers were not “founded upon” the agreement within the meaning of the statute.3 If the taxpayer had been sued by her husband for the sums she was obligated to transfer to him could he not have brought the suit on the contract?4 Even though a promise for *120which inadequate consideration was given has been reduced to a judgment, a claim based upon it has been held not deductible from the gross estate and thus must have been deemed to be "founded upon a promise.” Markwell’s Estate v. Commissioner, 112 F. 2d 253. If a transfer does not cease to be “founded upon a promise” when the promise is merged into a judgment, is not a transfer pursuant to an agreement which survives a ratifying decree a fortiori “founded upon”'that agreement?
Judge Learned Hand’s treatment of this matter is so hard-headed and convincing that it would be idle to paraphrase his views.
“In some jurisdictions contracts, made in anticipation of a divorce, are held to persist ex proprio vigore after the divorce decree has incorporated their terms, and has added its sanctions to those available in contract. That, for example, is the law of New York, where the contract remains obligatory even after the court has modified the allowances which it originally adopted; and where the promises will be thereafter enforced by execution and the like. Perhaps, that is also the law of Nevada, which the parties provided should govern 'all matters affecting the interpreta*121tion of this agreement or the rights of the parties.’ Be that as it may, in the case at bar, the Nevada decree having declared that the agreement was ‘entitled to be approved,’ that included the provision that its ‘covenants’ should ‘survive’ as well as any of its other stipulations. Thus the payments made under it were ‘founded’ as much upon the ‘promise or agreement’ as upon the decree; indeed, they were ‘founded’ upon both; the parties chose to submit themselves to two sanctions — contempt under the divorce court and execution under the contract. The payments were therefore subject to the gift tax.” 178 F. 2d 861, 865.
I would affirm the judgment.

 The Merrill settlement did not involve release of support rights. Nor are they involved in the case before us, for the transfer here sought to be taxed passed to the husband from the wife, who was under no obligation to support him. We are, therefore, not concerned here with the Commissioner’s view that “to the extent that the transfers are made in satisfaction of support rights the transfers are held to be for an adequate and full consideration.” E. T. 19, 1946-2 Cum. Bull. 166. See 2 Paul, Federal Estate and Gift Taxation, § 16.15. But cf. Meyer’s Estate v. Commissioner, 110 F. 2d 367; Helvering v. United States Trust Co., 111 F. 2d 576.

 We therefore need not pass on the suggestion of the Government brief that the estate and gift tax provisions should not in this instance be read in pari materia because the interpretation of a phrase common to the two statutes is not involved. Nor do we pass on the contention that under both gift and estate taxes liability is imposed on transfers and claims resulting from loss of marital rights even when no promise or agreement is involved.

 The ground adopted for reversal of the court below is important to the disposition of the case. On the broader ground apparently employed, no gift tax is due. But if the narrower basis be used, it is probable that some liability should be imposed. One of the transfers required by the agreement — the wife’s assumption of a $47,650 indebtedness of her husband — was not incorporated into the divorce decree and therefore is presumably enforceable only under the contract. If enforceability under the decree is the criterion, a gift tax is due to the extent this indebtedness is reflected in the amount determined by the Commissioner to represent the value attributable to release of marital rights.

 In none of the twelve jurisdictions in which decisions in point have been found has it been held that a suit could not be brought on the contract in -a situation like that before us. In four States actions may apparently be brought subsequent to divorce on prior separation agreements which are construed to contemplate survival even though the divorce decree directs different payments than the agreement. See Seuss v. Schukat, 358 Ill. 27, 36, 192 N. E. 668, 672; Freeman v. Sieve, 323 Mass. 652, 84 N. E. 2d 16; Goldman v. Goldman, 282 N. Y. 296, 301, 26 N. E. 2d 265, 267; Holahan v. Holahan, 71 N. Y. S. 2d 339; Mobley v. Mobley, 221 S. W. 2d 565 (Tex. Civ. App.). In three States such suits may be brought at least where the decree is not inconsistent with the agreement and does not indicate an intention to terminate it. See Heinsohn v. Chandler, 23 Del. Ch. 114, 2 A. 2d 120; Coe v. Coe, 71 A. 2d 514 (Maine); Allen v. Allen, 196 Okla. 36, 162 P. 2d 193. In five others it appears that actions on the contract will lie except when the agreement is recited in the decree so as to be enforceable by contempt; but in none of the *120cases refusing to permit a suit on the contract did the decree or the agreement direct survival. See Hough v. Hough, 26 Cal. 2d 605, 160 P. 2d 15; McWilliams v. McWilliams, 110 Colo. 173, 132 P. 2d 966; Hertz v. Hertz, 136 Minn. 188, 161 N. W. 402; Corbin v. Mathews, 129 N. J. Eq. 549, 19 A. 2d 633; Mendelson v. Mendelson, 123 Ohio St. 11, 173 N. E. 615. See Lindey, Separation Agreements and Ante-Nuptial Contracts, 389-395; Note, Control of Post-Divorce Level of Support by Prior Agreement, 63 Harv. L. Rev. 337. Schacht v. Schacht, 295 N. Y. 439, 68 N. E. 2d 433, relied on by petitioner, held only that a determination by the divorce court of the fairness of a separation agreement was res judicata in a subsequent suit to set the agreement aside for fraud. The issue does not appear to have been determined in Nevada, where the agreement here involved was made and the divorce entered.