Court Opinion

ID: 5388018
Source: CourtListenerOpinion
Date Created: 2022-01-08 09:35:27.299846+00
Date Added: 2024-06-11T08:30:15.369943
License: Public Domain

Brewster, J.
(dissenting). The assessments in question resulted from the disallowance of certain deductions which petitioner had claimed on account of interest payments he had made on an indebtedness allegedly owed by him to his daughter and which was evidenced by his promissory note payable to her dated August 16, 1935, and renewals thereof.
The fact of the payments claimed as interest, the aforesaid indicia of the indebtedness, and the evidence of what gave rise to them are not in dispute. Whether the indebtedness was real is the question.
On August 16, 1935, petitioner deposited the sum of $200,000 in the Chase National Bank to his daughter’s credit and it was so arranged that contemporaneously therewith the deposit was transferred back to him and he executed his aforesaid promissory note in the principal sum of the amount thereof. Thereafter, just when or by what particular means it does not appear, the note was delivered to her, and it and its renewals, as purported subsisting obligations, continued in her possession, and it was on account of them that petitioner made the payments which are in question.
The petitioner did not attend the hearings which have been held and has not testified. His contention is that through the process of the aforesaid transaction he consummated a gift of $200,000 to his daughter and incurred a genuine indebtedness *45to her in the amount thereof. The only direct testimonial evidence as to this was given by the daughter, Mrs. Payne. Her first testimony was to the effect that there was no agreement between her and her father that she was to pay any part of the aforesaid principal sum, or the interest she received thereon, to him or expend any of it for his account, and that she used the interest payments for her personal account. This presumably referred to the situation after the note had been given. She further testified that the first talk she had with her father about his transfer of the $200,000 to her took place “ probably a month or two ” before it occurred. She was then asked and answered as follows: “ Q. When you had this talk with your father about a month before the transaction, did he explain to you what he was going to .do? A. He was going to invest it himself. Q. Invest what himself? A. The $200,000. ” In answer to further questions she indicated some haziness of recollection as to just what her father had said further regarding the matter, but when pressed for the substance of it she replied that he was going to borroic the money to invest —£< that he could use it better than I could for investment purposes.” Then, at the conclusion of her testimony she was asked, and made answer as follows: ££ Mr. Morrow: * * * in this talk you had with your father before the transfer of these funds, did he explain to you the purpose for which he was making this gift? Mrs. Payne: So that I would have my own income. Mr. Morrow: He told you at that time that he would borrow the money back and pay you interest which would give you an income? Is that correct? Mrs. Payne: Tes.” Respondents’ determination is based upon a finding of fact that: * * * all acts in the inception of the matter were performed at the same time and as prearranged by taxpayer and his daughter * * * as a part of one transaction and that the petitioner, £< * * * did not lose control of his alleged £ gift ’ nor did Mrs. Payne have possession of it free from an agreed obligation to immediately return it to him.” This finding is amply supported by evidence. Under it respondents could have reasonably inferred and found the fact, as in substance they did, that in making the aforesaid deposit to the credit of his daughter, petitioner did not lose dominion and control over it, but rather that it was made conditional upon its being immediately turned back to him for investment purposes of his own, not the donee’s, the transaction to be then evidenced by his promissory note, so that, without the condition aforesaid the deposit to the daughter’s credit would not have been made. *46Such being the nature of the transaction no gift was consummated and no real indebtedness was incurred. It is well settled that to constitute a valid gift there must be an unconditional delivery of what is given and a complete divestiture of the donor’s title under such circumstances that the donor parts with all dominion and control over the subject matter of the gift. (Gannon v. McGuire, 160 N. Y. 476, 481; Beaver v. Beaver, 117 N. Y. 421; Martin v. Funk, 75 N. Y. 134, 137; Johnson v. Commissioner of Internal Revenue, 86 F. 2d 710). Since there was no executed gift petitioner’s promissory note lacked consideration, created no lawful indebtedness and could not of itself be the subject matter of a gift. (Holmes v. Roper, 141 N. Y. 64; Fink v. Cox, 18 Johns. 145.)
I have not been unmindful of the probative force of the evidence as to the conduct of the parties after the note was given, viz.: petitioner’s payment of a Federal gift tax, the daughter’s payment of personal income taxes on the payments which she received as interest, and petitioner’s payment of the major part of the note’s principal sum by his transfer to her of his Long Island residence estate. But here we are dealing with the factual question. Insofar as this evidence bears upon a ratification of the gift transaction the trier of the facts might have found that it overcame that which disclosed its imperfection in its initial occurrence. But I do not think we may say they were obliged to do so. The respondents could have considered that the payment of the taxes reflected a mistaken obeisance to a form of affairs which lacked legal substance and reality, and that the transfer of the Long Island property was, or eventuated, as the principal subject matter of the original imperfect gift transaction on August 16, 1935. It all gets back as to the true nature of that day’s occurrence. Our review is a limited one. We may not disturb the determination “ unless clearly shown to have been erroneous ” (People ex rel. Hull v. Graves, 289 N. Y. 173, 177), and in Matter of Calder v. Graves (261 App. Div. 90, 94-95, affd. 286 N. Y. 643), it was pointed out: “ If there are any facts to sustain the decision so as to indicate that it was not arbitrary or capricious, we are required to confirm.” Fairly interpreted the evidence is that petitioner wished to arrange an income for his daughter. To do so he deposited $200,000 to her credit to be returned to him as a loan for his own use and to be evidenced by his note, wherefrom the yield in the form of interest would constitute her income. I have not overlooked the rule that the donor’s repossession from the donee of the thing given in and of itself.does not *47render the gift imperfect. But, of course, such repossession must follow a complete and utter divestiture of title and an appropriate and unconditional delivery. Such a delivery is crucial. When made with intent to part with title it is what works the divestiture and perfects the gift. Thus the repossession may not be the result of the performance of a condition of the delivery. Here the evidence, I believe, sustains respondents’ finding that petitioner’s delivery was not unconditional; that his immediate repossession of the fund deposited to his daughter’s credit was in fulfillment of his requirement that it be done as a condition upon which the deposit was made. The daughter so testified in substance. Certainly her “ loan ” back of what had been thus “ given ” represented no arm length dealing on her part. Evidence sustains the finding that it never became hers to do with as she might choose and free from the condition her father imposed.
The determination should be confirmed.
Foster, P. J., and Coon, J., concur with Heeeernan, J.; Brewster, J., dissents, in an opinion in which Bergan, J., concurs.
Determination of the State Tax Commission annulled on the law and facts, with $50 costs and disbursements and the payments of interest in the years 1941 and 1942 allowed as proper deductions on petitioner’s income tax return for those years.