Statement of the Case.

ORR v. GILMAN.

ERROR TO THE SURROGATE'S COURT OF THE COUNTY OF NEW YORK.

No. 351. Argued November 25, 26, 1901.-Decided January 6, 1902.

The provisions of subdivision 5 of the tax law of the State of New York, which became a law April 16, 1897, are not in violation of the Fourteenth Amendment to the Constitution, nor of section 10 of article 1 of the Constitution.

The opinion in Carpenter v. Pennsylvania, 17 How. 456, although decided before the adoption of the Fourteenth Amendment to the Constitution, correctly defines the limits of jurisdiction between the State and the Federal governments, in respect to the control of the estates of decedents, both as they were regarded before the adoption of the Fourteenth Amendment, and have since been regarded.

The holding of the Court of Appeals of New York, that it was the execution of the power of appointment which subjected grantees under it to the transfer tax, is binding upon this court.

The Court of Appeals did not err when it held that a transfer or succession tax, not being a direct tax upon property, but a charge upon a privilege, exercised or enjoyed under the laws of the State, does not, when imposed in cases where the property passing consists of securities exempt by statute, impair the obligation of a contract within the meaning of the Constitution of the United States.

The view of the Court of Appeals in this case must be accepted by this court as an accurate statement of the law of the State.

DAVID DOWS, Senior, a citizen and resident of the city and State of New York, died March 30, 1890, leaving a last will and testament, which was duly admitted to probate by the Surrogate's Court of New York County on April 14, 1890. The will provided that the legal title to the property mentioned and described in the sixth clause thereof should vest in the executors' names as trustees during the lifetime of testator's son, David Dows, Jr., with power to manage and control the sane, and with the duty to pay the net income therefrom to said David Dows, Jr. The will further provided that upon the death of David Dows, Jr., the property should vest absolutely and at once in such of his children him surviving, and the issue of his deceased children as he should by his last will

Statement of the Case.

and testament designate and appoint, and in such manner and upon such terms as he might legally impose. In and by the eighth clause or paragraph of his said will, David Dows, Senior, devised and bequeathed the legal title to his residuary estate to his executors as trustees, to hold and manage the same, one eighth part in trust during the lifetime of testator's widow, and one-eighth part in trust for each of testator's seven children-one of whom was the said David Dows, Jr. It was made the duty of the trustees to pay over the net income to the respective persons named during their respective lives, and it was provided that, upon the death of each of said persons, the said one eighth part of the residuary estate, with any accumulations and profits, should vest absolutely and at once. in such of his or her children, or the issue of such children, as he or she might by his or her last will and testament designate and appoint, and in such manner and upon such terms as he or she may legally impose. It was provided, in both the sixth and eighth clauses, that if the legatee for life shall die intestate, then the property should vest absolutely and at once in his or her children surviving, share and share alike.

David Dows, Junior, died January 13, 1899, leaving a last will and testament, which was duly admitted to probate by the Surrogate's Court of Westchester County, New York, by the third paragraph or clause whereof, in the exercise of the power of appointment given him in his father's will, he provided that the property mentioned and described in the said sixth and eighth clauses of the will of David Dows, Senior, should vest upon his death in his three children, David, Robert and Kemeth, in a manner therein described.

On October 31, 1900, Bird S. Coler, Comptroller of the city of New York, and Theodore P. Gilman, Comptroller of the State of New York, filed a petition in the Surrogate's Court of New York County, in which, after reciting the foregoing facts, they alleged that the transfer of funds and property of which David Dows, Junior, had the life use and over which he had exercised the power of appointment given him in his father's will, was taxable, and they therefore prayed for the appointment of a transfer tax appraiser, in order that the transfer tax

Statement of the Case.

might be duly assessed and imposed. Thereupon Charles K. Lexow was so appointed, and on January 31, 1901, after having given notice to the said Comptrollers and to the executors and trustees of the last will of David Dows, Senior, and to the executors of the last will of David Dows, Junior, and to the guardians of the minor children of David Dows, Junior, the appraiser filed in the Surrogate's office a report of his valuation of the interests of the three sons of David Dows, Junior, under the respective wills of their father and grandfather. Certain exceptions to this report were filed on behalf of the executors and guardians, the nature of which will hereafter appear. Thereafter, on February 15, 1901, the Surrogate, on the basis of the report of the said appraiser, assessed a transfer tax of upwards of $7000 against each of the respective interests of the three sons of David Dows, Junior. The exceptions to the appraiser's report and to the assessment were, on March 6, 1901, after argument by counsel, overruled, and the Surrogate entered the following order and judgment:

"It is ordered, adjudged and decreed that said report and order so appealed from be and they are hereby affirmed, and that the date when the transfers now taxed were affected was January 13, 1899, that date being fixed because it was the date of the death of David Dows, Junior, the donee of the power contained in the will of David Dows, Senior."

An appeal was taken from the order and decree of the Surrogate to the appellate division of the Supreme Court of New York, and by that court, on March 22, 1901, the order of the Surrogate was affirmed. On appeal duly taken, the Court of Appeals of the State of New York, on May 17, 1901, affirmed the order and judgment of the appellate division of the Supreme Court, and the judgment of the said Court of Appeals and the record of the proceedings were remitted into the Surrogate's Court of New York, to be enforced according to law, and the judgment of the Court of Appeals was on May 28, 1901, ade the judgment and order of the Surrogate's Court. And on June 13, 1901, a writ of error to that judgment was allowed, and the cause was brought to this court.

Opinion of the Court.

Mr. Horace E. Deming for plaintiffs in error. Henry Cohen was on his brief.

Mr. Jabish Holmes, Jr., for defendants in error. J. Levey was on his brief.

Mr. Julius

Mr. Edgar

MR. JUSTICE SHIRAS delivered the opinion of the court.

This is the case of a so-called transfer tax imposed under the laws of the State of New York. The various contentions of the plaintiffs in error, attacking the validity of the tax, were overruled by the courts of the State, and the cause is now before us on the general proposition that by the proceedings the plaintiffs in error, or those whom they represent as trustees and guardians, have been deprived of the equal protection of the laws of the State of New York, their privileges and immunities as citizens of the United States have been abridged, and their property taken without due process of law, in violation of the Fourteenth Amendment to the Constitution of the United States, and likewise, as to a portion of the property affected, in violation of section 10 of article 1 of the Constitution of the United States.

The first question presented arises out of subdivision 5 of section 220 of the tax law of the State of New York, which reads as follows:

"5. Whenever any person, or corporation, shall exercise a power of appointment, derived from any disposition of property, made either before or after the passage of this act, such appointment, when made, shall be deemed a transfer, taxable, under the provisions of this act, in the same manner as though the property, to which such appointment relates, belonged absolutely to the donee of such power, and had been bequeathed, or devised, by such donee by will; and whenever any person, or corporation, possessing such a power of appointment, so derived, shall omit, or fail, to exercise the same within the time provided therefor, in whole or in part, a transier, taxable under the provisions of this act, shall be deemed to take place to the extent of such omissions, or failure, in the same manner as

Opinion of the Court.

though the persons, or corporations, thereby becoming entitled to the possessions, or enjoyment of the property to which such power related, had succeeded thereto, by a will of the donee, of the power failing to exercise such power, taking effect at the time of such omission, or failure."

This enactment became a law on April 16, 1897. David Dows, Senior, died March 30, 1890,. leaving a will containing a power of appointment to his son, David Dows, Junior, which will was duly admitted to probate by the Surrogate's Court on April 14, 1890. David Dows, Junior, died on January 13, 1899, leaving a will, in which he exercised the power of appointment given him in the will of his father, and apportioned the property, which was the subject of the power, among his three sons, who are represented in this litigation by the plaintiff in error.

It is claimed that, under the law of the State of New York as it stood at the time of his death, in 1890, David Dows, Senior, had a legal right to transfer, by will, his property or any interest therein, to his grandchildren, without any diminution, or impairment, then imposed by the law of the State upon the exercise of that right; that his said grandchildren acquired vested rights in the property so transferred, and that the subsequent law, whose terms have been above transcribed, operates to diminish and impair those vested rights. In other words, it is claimed that it is not competent for the State, by a subsequent enactment, to exact a price or charge for a privilege lawfully exercised in 1890, and to thus take from the grandchildren a portion of the very property the full right to which had vested in them many years before.

We here meet, in the first place, the question of the construction of the will of David Dows, Senior. Under and by virtue of that will, did the property, whose transfer is taxed, pass to and become vested in the grandchildren, or did the property not become vested in them until and by virtue of the will of David Dows, Junior, exercising the power of appointment? The answer to be given to this question must, of course, be that furnished us by the Court of Appeals in this case. Matter of Dows, 167 N. Y. 227:

"Whatever be the technical source of title of a grantee under