Hicks, Arch. R., Jr.

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NOTES AND COMMENTS 321usually provide that after a judgment has been rendered against amotorist for damages arising out of an automobile accident, if suchjudgment remains unsatisfied, he must provide proof of his financialresponsibility by securing insurance protection, depositing security withthe state, or providing a satisfactory bond; otherwise his motor vehiclelicense is subject to revocation.Under a "compulsory insurance law" such as that in effect inMassachusetts, the jury could reasonably assume that an insurance com-pany was interested in the action and therefore no prbjudice would ariseby reason of the questioning of prospective jurors upon their voir direas to their connection with or interest in a liability insurance company.A group of eminent lawyers, the "Committee to Study Compensa-tion for Automobile Accident," has suggested a plan of compensation forinjuries resulting from motor car accidents comparable to that of theworkmen's compensation laws. An outline by Arthur B. Ballentine,chairman of the committee, appears in 18 Am. Bar Assoc. Jour. 221(932). A symposium in 32 COL. L. REV. 785 (1932) presents thearguments for and against this plan.If such a step is not feasible it might be possible to combine in Ohiothe essential features of the Wisconsin statute permitting the joinder ofinsurance companies as parties defendant, with those of the Massa-chusetts "compulsory insurance law." This would obviate possible ob-jections to the decision of the Supreme Court in the case of Dowd-Federv. Truesdell, supra. More important, it would assure the financialresponsi'bility of those who own and operate motor vehicles.JAMES R. TRITSCHLER.TRUSTSNATURE OF THE RIGHT OF A CESTUI QUE TRUST WITH PAR-TICULAR REFERENCE TO TAXATIONPlaintiff, an Ohio resident, held seven transferable trust certificates,representing undivided equitable interests in land, some parcels of whichwere situated within and some without Ohio. The beneficiary wasentitled to a share of the rentals, while exclusive powers of managementwere vested in the several trustees. The Ohio Intangible Tax Law,Sections 5323, 5328-I, 5370, 5389, 5638, General Code, providedfor a tax, measured by five per cent of the income yield, on the invest-ments of Ohio residents. The definition of investments included "equit-322 LAW JOURNAL- MAY, 1936able interests" in land "divided into shares evidenced by transferable cer-tificates." Plaintiff sought to enjoin the collection of the tax, as violativeof his rights under the "due process" clause of the Fourteenth Amend-ment of the United States Constitution, as the land had already beentaxed to the trustees. The Ohio Supreme Court ruled the tax valid asto all the certificates. Senior v. Braden, 128 Ohio St. 597, 193 N.E.614 (1934). On appeal, the United States Supreme Court, with threejustices dissenting, held the tax invalid as to all the certificates, on theground that the tax on those representing equitable interests in landbeyond the state violated the "due process" clause of the FourteenthAmendment of the Federal Constitution, and that the tax on those cer-tificates, representing equitable interests in Ohio land violated Article 12,Section 2 of the Ohio Constitution, not being by "uniform rule accord-ing to value." Senior v. Braden, 295 U.S. 422, 55 S. Ct. 8o0, 79L. Ed. 1520 (1935).Tangible property, real or personal, is taxable only in the statewhere it is situated. Louisville & Jeffersonville Ferry Co. v. Kentucky,188 U.S. 385, 23 S. Ct. 463, 47 L. Ed. 513 (1902); Union Refrig-erator Transit Co. v. Kentucky, 199 U.S. 194, 26 S. Ct. 36, 5o L. Ed.150, 4 Ann. Cas. 493 (1905). And recently it has been the tendencyof the Supreme Court to eliminate taxation of the same intangibleproperty interest by more than one state. It has generally held thestate of the owner's domicile to be the proper power for the taxationof intangibles. Farmer's Loan & Trust Co. v. Minnesota, 280 U.S.204, 50 S. Ct. 98, 74 L. Ed. 371, 65 A.L.R. 1000 (1929); Baldwinv. Missouri, 281 U.S. 586, 50 S. Ct. 436, 74 L. Ed. 1O56, 72 A.L.R.1000 (1930). Therefore, if the plaintiff's rights constituted an interestin realty, it would seem to follow from these decisions that Ohio hadno power to tax the certificates representing equitable interests in landin other states. On the other hand, if the plaintiff had an intangibleproperty interest, the certificates would seem to be properly taxableby Ohio.Two views have been set forth by legal authorities as to the natureof the right of the cestui que trust in the trust res. Bogert, Trusts andTrustees, V. 2, Sections 262-263 (1935). One view is that the cestuihas an in rem interest in the subject matter of the trust. Scott, Natureof the Rights of the Cestui Que Trust, 17 Col. L. Rev. 269 (1917) ;Brown v. Fletcher, 235 U.S. 589, 35 S. Ct. 154, 59 L. Ed. 374(1915); Narragansett Mutual Fire Ins. Co. v. Barker, 51 R.I. 37,15o Ad. 756 (1930). Another line of authority views the cestui'sinterest as a chose in action against the trustee. Stone, Nature of theNOTES AND COMMENTS 323Rights of the Cestui Que Trust, 17 Col. L. Rev. 467 (1917); Abbott& Goldman, Land Trust Certificates with Relation to Ohio Law, 2Cinn. L. Rev. 255 (1928).It was held by the United States Supreme Court in Maguire v.Trefry, 253 U.S. 12, 40 S. Ct. 417, 64 L. Ed. 739 (1920), that theincome of a beneficiary from a trust consisting of intangibles locatedin another state is taxable in the state of the domicile of the beneficiary.But the Supreme Court has recently held that the state of the bene-ficiary's domicile could not properly impose a tax upon the trust res, assuch, located in another state. Safe Deposit & Trust Co. of Baltimorev. Virginia, 280 U.S. 83, 50 S. Ct. 59, 74 L. Ed. i8o, 67 A.L.R. 386(1929). (See City of St. Albans v. Avery, 95 Vt. 249, 114 Atl. 31(931). There also the corpus of the trust consisted of intangibles.That decision expressly left undecided the intermediate question as towhether or not it is within the power of a state to tax the residentbeneficiary of a foreign trust, measured by his equitable interest. SeeBrookev. Norfolk, 277 U.S. 27, 48 S. Ct. 422, 72 L. Ed. 767 (1928).The Maryland Supreme Court has recently taken the view that atax on the capitalized value of the income of a beneficiary from a foreigntrust of intangibles is equivalent to a tax on the corpus itself and istherefore prohibited by the Fourteenth Amendment. Mayor & CityCouncil of Baltimore v. Gibbs, 166 Md. 364, 171 Atl. 37 (934)"However, the opposite view was taken in Rowe v. Braden, 126 OhioSt. 533, 186 N.E. 392 (1933), where the court sustained a tax,measured by income yield, on the resident cestui's interest in a trustof intangibles situated in another state. The court there relied chieflyon Maguire v. Trefry, sutra. Which of these two views will be adoptedby the United States Supreme Court is doubtful, but in view of itsdecision in the instant case and its opposition to multiple taxation, it isprobable that the view of the Maryland court will be accepted.The above cases dealt with trusts of intangible property, while thetrust res in the instant case consisted of real estate. In holding that acestui's interest in a land trust was an ownership of land, the courtplaced chief reliance on Brown v. Fletcher, supra, where it was decidedthat a transfer by a beneficiary of his interest in a real estate trust wasnot an assignment of a chose in action so as to preclude the assigneefrom suing in the federal courts. However, that case is perhaps to bedistinguished from the present one, as there the cestui, by the terms ofthe will, had a right to the corpus of the trust on arrival at a certainage, while in the principal case, the plaintiff was to be at no timeentitled to receive anything other than a portion of the income fromthe rental of the property.324 LAW JOURNAL -MAY, 1936It was the opinion of the minority in the instant case that thebeneficiary's right was a chose in action against the trustee and not anin rem interest in the trust res. This was also the view taken by theOhio Supreme Court. Senior v. Braden, supra. An analogy was drawnto those cases sustaining a tax on the debt of a mortgagee secured by amortgage on land outside of the state. Kirland v. Hotckiss, ioo U.S.491, 25 L. Ed. 558 (1879). Likewise an analogy was drawn to thecases permitting a state to tax its residents' shares of stock in a foreigncorporation. Kidd v. .labama, 188 U.S. 730, 23 S. Ct. 401, 47 L. Ed.669 (1903); Hawley v. Malden, 232 U.S. I, 34 S. Ct. 201, 58 L. Ed.477, Ann. Cas. 1916 C 842 (1914).It would seem that the plaintiff had nothing more than choses inaction in the' instant case, since he was only entitled to a share of therentals from the real estate, and could never get possession of the subjectmatter of the trusts. Further, it is submitted that there is no essentialdifference in principle between land trust certificates and shares of stockor mortgage debts, taxes on both of which have been sustained, eventhough the realty on which they were based was situated beyond theborders of the state. The cestui's rights, evidenced by the transferabletrust certificates, receive the protection of the laws of the state of hisdomicile, and as was stated by the minority opinion, a tax on such rightswould not be unduly oppressive.Although not strictly an income tax, the tax in the instant case wasto be measured by a percentage of the income yield. This fact the courtdid not discuss. Furthermore, it expressly disapproved of Maguire v.Trefry, supra, where a beneficiary's income from a foreign trust ofintangibles was held taxable by the state of his domicile. Thus is madedoubtful the question as to whether or not a tax on the income of abeneficiary from a foreign trust may be properly imposed by the stateof his domicile.However, the majority opinion is in line with the Supreme Court'stendency to eliminate so-called double taxation of the same propertyinterest. And in holding that the cestui's right extends to the realty, thecourt is supported by the apparent weight of authority.If the cestui's rights extend to the corpus of the trust, it logicallyfollows that the tax on those certificates which evidenced equitableinterests in lands within Ohio violated the uniformity clause of theOhio Constitution. ARcH R. Hicits, JR.

Nature of the Right of a Cestui Que Trust with Particular Reference to Taxation

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Nature of the Right of a Cestui Que Trust with Particular Reference to Taxation

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