(219 N. Y.S.)

the Appellate Division, held that the language was libelous per se, even if it merely charged plaintiff with having taken undue advantage of his former partner, without imputing to him an unlawful seizure of the profits, saying at page 688 (122 N. Y. S. 439):

"Of course, it was not a libel on the plaintiff or on any one to publish that one of his former partners, who furnished the money for the original ventures of the firm, is now running an orange grove in Florida. The libel, if any, is in the final sentence of the article. It is there charged in substance that the plaintiff and Erlanger 'forced' Jefferson 'into retirement and seized the whole profits' of his brains and capital for themselves. Was this intended, and would it be understood, as complimentary or as an innocent announcement of the dissolution of the copartnership, or was it intended, and would it be understood, as reflecting on the plaintiff's business methods in a manner calculated to affect and affecting his standing in his profession and calling in the business world? It seems to me that this question may be decided as matter of law, and that the article is libelous per se without any innuendo. It may be said, I think, as matter of law, that the article would be understood as charging, at least, that the plaintiff and Erlanger took undue advantage of Jefferson, their partner, if it would not be understood as charging that they appropriated to themselves profits of the business belonging to him." (Italics mine.)

[10] In the light of all this, it seems very clear to me that the charge that plaintiffs had forced Klein Bros. to pay $1,000 to be released accused them at least of mean and hard dealing, and was indeed calculated to injure and prejudice them in their business, and the article is therefore libelous per se. This being the situation, no innuendo is necessary. Morrison v. Smith, 177 N. Y. 366, 69 N. E. 725; Martin v. Press Pub. Co., 93 App. Div. 531, 87 N. Y. S. 859.

The motion for judgment on the pleadings must therefore be denied.

(219 App. Div. 5)

In re FLETCHER'S ESTATE.

(Supreme Court, Appellate Division, First Department. December 31,

1926.)

1. Taxation 878 (1)-Under contract fixing president's salary at percentage of corporation's profits, salary undrawn at president's death held not "taxable transfer" to corporation (Tax Law, § 220, subd. 4, as amended by Laws 1926, c. 357).

Where contract provided that president of corporation should receive as salary such part of 22 per cent. of profits as he might draw during his lifetime and waived right to salary undrawn at his death, salary undrawn at president's death never became his property, and was not "taxable transfer" to corporation, under Tax Law, § 220, subd. 4, as For other cases see same topic & KEY-NUMBER in all Key-Numbered, Digests & Indexes

amended by Laws 1926, c. 357; waiver being supported by consideration of his employment as president at large salary.

[Ed. Note. For other definitions, see Words and Phrases, First and Second Series, Transfer.]

2. Taxation 900 (1)—Pro forma transfer tax order, from which executor alone appealed, held res judicata as respects tax commission.

Surrogate's pro forma order assessing transfer tax against beneficiary of decedent's estate, from which executors alone appealed, was binding adjudication on state tax commission, and surrogate was without jurisdiction on such appeal to assess tax against decedent's employer, on theory that salary undrawn at decedent's death constituted taxable transfer to corporation, notwithstanding original pro forma order did. not expressly exempt employer from liability.

3. Taxation

900(5)—On appeal from pro forma transfer tax order, surrogate is confined to questions raised by notice of appeal.

On appeal from pro forma order of surrogate assessing transfer tax, surrogate is confined to questions raised by notice of appeal.

Appeal from Surrogate's Court, New York County.

In the matter of the transfer tax on the estate of Charles H. Fletcher, deceased. From an order denying the appeal of the Centaur Company from a pro forma order of a surrogate, dated December 24, 1925, assessing a transfer tax of $17,110.81 against it, said Centaur Company appeals, and brings up for review the pro forma order. Order denying appeal reversed, and pro forma order modified, as directed in opinion, and, as so modified, affirmed, and proceeding remitted to surrogate for further action in accordance with opinion.

Argued before CLARKE, P. J., and DOWLING, MERRELL, McAVOY, and BURR, JJ.

Hawkins, Delafield & Longfellow, of New York City (Lewis L. Delafield, of New York City, of counsel), for appellant Centaur Co.

A. Welles Stump, of New York City (Charles A. Curtin, of New York City, of counsel), for State Tax Commission.

MERRELL, J. Charles H. Fletcher, the decedent, died on April 9, 1922, leaving a last will and testament wherein executors were named. Said will was duly admitted to probate in the Surrogate's Court of the County of New York, and subsequently transfer tax proceedings were instituted upon the estate of said decedent, and a transfer tax appraiser appointed therein. Under the will of the decedent the bulk of his estate passed absolutely or in trust to the widow of the testator or to his descendants. In the petition for the appointment of an appraiser in transfer tax proceedings no claim was made that the appellant herein. was in any wise interested in the said estate or entitled to notice of

For other cases see same topic & KEY-NUMBER in all key-Numbered Digests & Indexes

(219 N. Y.S.)

transfer tax proceedings. By order of the surrogate the transfer tax appraiser was appointed to fix

"the fair market value of the property which was of the above-named decedent, to declare the value of such interest or interests therein as may be subject to the payment of the transfer tax, to declare exempt from such tax such interest or interests as he may find to be exempt, and to do such other thing or things in the premises as he may be authorized to do, by virtue of his office, under the provision of law.""'

From the proofs submitted to the transfer tax appraiser it appeared that on November 24, 1917, the Centaur Company entered into a contract in writing with the decedent, whereby the latter was employed as the president of said company for the years 1918 to 1922, inclusive. The written contract provided that Mr. Fletcher, as president, should receive an annual salary "in each year equal to twenty-two (22) per cent. of the net income or profits of said company for each of said years respectively." It was further therein provided that said Fletcher was entitled to draw his said share of said profits in monthly payments in each year. Fletcher was the inventor of the formula for the well-known proprietary medicine known as "Fletcher's Castoria." The business of the Centaur Company was the compounding and sale of said proprietary medicine under the formula invented by Fletcher. Enormous profits were realized from the manufacture and sale of said compound. The record on appeal discloses that Fletcher had, for many years prior to the making of the contract above mentioned, been under contract with the Centaur Company, holding the position of president of the company under like compensation of 22 per cent. of the net profits, and that out of 8 of the 11 years from 1912 to 1922, inclusive, his compensation had exceeded $300,000 per annum; that of the remaining 3 years of said period, in one year he received $263,000, and in the year 1921 he received as compensation the sum of $135,622.58; that for the five years immediately preceding the making of the contract involved upon this appeal Fletcher's salary had never fallen below $310,000 per annum.

In consideration of the employment of the decedent by the Centaur Company under so lucrative a salary, Fletcher, on his part, covenanted with the Centaur Company as follows:

"Second. Charles H. Fletcher expressly covenants and agrees that in the event of his death, or upon his ceasing to be president of said company, this contract shall thereupon be null and void, and said Fletcher hereby covenants that he, his heirs, executors, personal representatives, and assigns, shall at the time of his death, or upon his ceasing to be said president, be entitled to nothing whatsoever from said the Centaur Company by virtue thereof. He further hereby relinquishes, releases, and holds harmless said company for any share of said profits which he may not have drawn at the time of his death or to the time of his ceasing to be said president, and which he would have been entitled to draw had he lived or continued to act as president. Said Fletcher hereby expressly waives the right to any account219 N.Y.S.-16

ing by his heirs, executors, personal representatives, and assigns, and hereby covenants that they shall demand nothing from said company, as nothing will be due him hereunder or otherwise, in either of said events, and that they shall demand no right to examine the books or accounts of the said company in either of said events, either at law or in equity. Any sum which may be paid to the estate of said Charles H. Fletcher or his personal representatives by said company will be paid as matter of grace and not of right by virtue of these presents.

"Third. Said Fletcher hereby covenants to give his time and ability to the duties of his office as president of the Centaur Company as may be required to diligently prosecute its business pursuant to the by-laws of said company and the direction of its board and executive committee.'

The record also discloses that for the years 1918 to 1922, 22 per cent. of the net profits of the Centaur Company, which the decedent might have drawn, amounted to $1,233,397.64. This entire amount to which the decedent was entitled was not drawn by him, and at the time of his death there remained undrawn and still in the hands of the Centaur Company, of the compensation which Mr. Fletcher might have drawn, a balance of $254,510.17. The surrogate, in his opinion, has held that this sum, not having been drawn by the decedent prior to his death, passed to the Centaur Company and was taxable under subdivision 4 of section 220 of the law with relation to taxable transfers (as amended by Laws 1926, c. 357), and that, by the omission to claim what was due the decedent, said sum upon his death became the property of the Centaur Company and was a transfer intended to take effect in possession and enjoyment on the death of the decedent, and that said transfer did take effect upon such happening.

[1] We are unable to agree with the learned surrogate in holding. that the omission of the decedent to draw the moneys which he might have drawn as compensation for his services as president of the Centaur Company effected any transfer thereof to said company. The said sum was never drawn by decedent. Not having been drawn by the decedent before his death, it never became his property, and he could not transfer it. In our opinion there was no gift from the decedent to the Centaur Company as the result of the decedent's failure to draw the compensation which he might have drawn under his contract with the company. It is inconceivable that at the time the employment contract was entered into between the decedent and the Centaur Company the decedent had in mind the conditions which existed at the time of his death. At most, the agreement was for compensation which he was to receive, not exceeding 22 per cent. of the net profits of the Centaur Company during the years covered by the contract. If the decedent drew less than the 22 per cent. in any year, then the amount which he did draw measured his compensation. He might have resigned as president of the Centaur Company at any time prior to his death, and at such time any undrawn compensa

(219 N.Y.S.)

tion under the contract would have been retained by the Centaur Company. We do not think it could be said under such circumstances that there was any taxable transfer to the Centaur Company of the amount undrawn by Fletcher.

We can see no evidence of any intent on the part of the testator to make a gift to the Centaur Company, arising from his failure to draw all of the moneys which he might have drawn. Certainly at the time the contract was executed between the decedent and the company there was no thought of any future "bounty or benefaction" in the mind of Mr. Fletcher. At that time the company was not indebted to him. By the agreement which he made he was waiving no present right. The contract provided that he might withdraw at the end of every month such profits as the company had earned, not exceeding 22 per cent. thereof, as his compensation. It was not until his death several years later that the Centaur Company benefited by reason of the decedent's waiver of his right to draw the full amount to which he was entitled. We can see no intent on the part of Fletcher, in entering into the agreement to waive undrawn part of his percentage, to donate the same to the company. There certainly was no testamentary intent in the mind of the decedent at the time of entering into such contract. Under the terms of the contract such waiver might become operative prior to the death of Mr. Fletcher, upon his retirement from the presidency of the company. We are of the opinion that the waiver provision of the contract was entirely executory.

any

It is very evident that in making the contract the parties understood that for his services the decedent would receive an enormous sum of money annually upon his concession that he would be entitled to receive only such part of the 22 per cent. of the profits as he should actually draw in his lifetime or while he was serving as president of the Centaur Company within the years covered by the contract. It might well be that, in the absence of this rather peculiar provision of the contract, the company would not have employed Fletcher as its president. If and so long as Fletcher drew his full 22 per cent. of the net profits as salary, the so-called waiver amounted to nothing. The agreement on Fletcher's part to waive any claim for undrawn salary was ample consideration for the agreement on the company's part to pay him so enormous a salary. Furthermore, we are unable to see when the alleged taxable transfer from the decedent to the Centaur Company became effective. It must be borne in mind that under the terms of the agreement the decedent was not to receive 22 per cent. of the profits as his salary, but only such part thereof as he might draw during his lifetime or while he remained the president of the company. No part of the undrawn salary ever belonged to the decedent. In view of such fact, we are unable to see how there could be any transfer of the undrawn salary from Fletcher to the company.