Commissioner of Internal Revenue v. Cadwallader
This text of 127 F.2d 547 (Commissioner of Internal Revenue v. Cadwallader) is published on Counsel Stack Legal Research, covering Court of Appeals for the Ninth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.
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While domiciled in the Philippine Islands, Brooke W. Cadwallader and his wife acquired certain personal property. The husband and wife- were .citizens of the United States. Cadwallader died in the Philippines in 1936; and the question pre[548]*548sented is whether, for federal estate tax purposes, his gross estate includes the whole or only one-half of the property so acquired. The Commissioner assessed the entire value, hut on petition for redetermination the Board of Tax Appeals held that only one-half the value was taxable.
So far as pertinent, Section 302(a) of the Revenue Act of 1926, as amended, provides that the gross estaté of a decedent shall include the value at the time of his death of all property “to the extent of the interest therein of the decedent at the time of his death,” 26 U.S.C.A. Int.Rev. Acts, page 227. The law of the Philippines is concededly determinative of the extent of this decedent’s interest. Lang v. Commissioner, 304 U.S. 264, 58 S.Ct. 880, 82 L.Ed. 1331, 118 A.L.R. 319. Cf. Poe v. Seaborn, 282 U.S. 101, 111, 51 S.Ct. 58, 75 L.Ed. 239; Black v. Commissioner, 9 Cir., 114 F.2d 355.
In the Philippines the marital community is called the “conjugal partnership.” The code provisions defining the status of the spouses and their rights in property acquired during coverture are similar to those of the community property states. Some of these provisions are quoted on the 'margin.1 The Supreme Court of the Islands has characterized the wife’s interest in the conjugal property as “vested” and “equal to” that' of the husband, Gibbs v. Government (1933), 59 Phil. 293. It was there held that the wife’s interest, passing upon her death to her husband, was subject to an inheritance tax. The court said (59 Phil, at pages 301, 302) that [549]*549“under the provisions of the Civil Code and the jurisprudence prevailing here, the wife, upon the acquisition of any conjugal property, becomes immediately vested with an interest and title therein equal to that of her husband, subject to the power of management and disposition which the law vests in the husband. Immediately upon her death, if there are no obligations of the decedent, as is true in the present case, her share in the conjugal property is transmitted to her heirs by succession.” In the course of the opinion the court quoted Articles 1407, 1414, and 1426, shown in the above note, and referred to Article 657, which we have also set out there.
It is urged by the Commissioner that this decision is not presently the law of the Philippine Islands. He claims that the holding is inconsistent with previous expressions of the court in several cases, and with a subsequent expression in the case of Oñas v. Javillo, 59 Phil. 733. We are not able to agree with the Commissioner, as we think the Gibbs case must be taken as controlling.
One of. the previous cases is Nable Jose v. Nable Jose, 41 Phil. 713. There the court held that upon the death of the wife the husband, by virtue of his power to liquidate (settle the affairs of) the conjugal estate, could sell or mortgage the property without authority of court. In the course of the opinion it was observed that “prior to the liquidation, the interest of the wife, and in case of her death, of her heirs, is an interest inchoate, a mere expectancy, which constitutes neither a legal nor an equitable estate, and does not ripen into title until it appears that there are assets in the community as a result of the liquidation and settlement.” In the similar situation involved in Manuel and Laxamana v. Losano, 41 Phil. 855, similar language is used; but in both of those cases the court was dealing with the rights of the wife or her heirs in respect of specific conjugal property, it being thought that they had' an interest only in the net remainder of the property after liquidation and payment of the debts of the marital community. It is plain from these decisions that, regardless of the language used in characterizing the wife’s interest, the husband was not thought to have any interest whatever in her share of the property acquired by the community. He has only the power of management and disposition; and this power extends beyond the wife’s death for the purpose of winding up the affairs of the conjugal partnership. In this respect the powers of the husband seem comparable with those of a surviving partner at the common law.
The language of the Nable Jose case was again quoted in Madrigal and Paterno v. Rafferty and Concepcion, 38 Phil. 414, where it was held that the husband must pay the federal income tax on all the income of the conjugal partnership. That case, however, was decided in advance of the holding of the United States Supreme Court in Poe v. Seaborn, supra, and upon the ground that since the wife “has no estate and income, actually and legally vested in her and entirely distinct from her husband’s property, the income cannot properly be considered the separate' income of the wife for the purposes of the additional tax”, 38 Phil, at page 420. The court remarked that the wife “has an interest in the ultimate property rights and in the ultimate ownership of property acquired as income after such income has become capital.”
The subsequent case relied upon by the Commissioner, Oñas v. Javillo, supra, was decided about three months after Gibbs v. Government, supra. The latter decision was not mentioned. In the opinion the court quoted the above excerpt from the Nable Jose case to the effect that the wife has a “mere expectancy” prior to liquidation, but the court decided that the heirs of the wife could maintain an action for partition of community real estate after the death of the wife, notwithstanding there had been no liquidation. This decision, instead of supporting the view of the Commissioner, is direct authority for the proposition that the wife has an interest in the conjugal property which upon her death passes to her heirs subject to administration.
We are in accord with the view of the Board of Tax Appeals, namely, that the clear-cut holding of the Gibbs case should be followed. In the light of that decision and the quoted statutory provisions, we think the interest of thé wife in community property in the Philippine Islands does not differ substantially from the present interest a wife has under the laws of the community property states generally; and that for the purpose of the federal [550]*550estate tax the husband must be held to have no interest in the wife’s share of the conjugal estate.
Affirmed.
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127 F.2d 547, 29 A.F.T.R. (P-H) 331, 1942 U.S. App. LEXIS 3922, Counsel Stack Legal Research, https://law.counselstack.com/opinion/commissioner-of-internal-revenue-v-cadwallader-ca9-1942.