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District Court of Appeal, First District, Division 2, California.


Civ. 12601.

Decided: May 23, 1944

Robert W. Kenny, Atty. Gen., and Hartwell H. Linney and James E. Sabine, Deputy Attys. Gen., for appellant. McCutchen, Thomas, Matthew, Griffiths & Greene, of San Francisco, for respondent.

This is a suit to obtain a refund of personal income tax paid in 1937 with respect to income for the calendar year 1936.

Plaintiff during all of the year 1936 was a non–resident. He was a minor during all of the year 1936 and until July 16, 1940. During the year 1936 plaintiff's father, Arthur Rose Vincent, was the duly appointed, qualified and acting guardian of plaintiff's estate. On the last mentioned date, the Superior Court of the State of California in and for the County of San Mateo made an order accepting the resignation of plaintiff's father as guardian and appointing the American Trust Company, a corporation, in his stead. The American Trust Company continued in this capacity until plaintiff attained his majority in 1940.

On May 15, 1937, plaintiff, by the guardian of his estate, filed plaintiff's income tax return for the calendar year 1936, showing income tax in the amount of $2621.27, which amount subsequently was paid. A claim for refund was filed which was not allowed by the Commissioner, and this suit was brought to recover. The judgment of the trial court was rendered in favor of plaintiff.

Income for the calendar year 1936 was as follows:

(1) Interest on savings bank account with Wells Fargo Bank & Union Trust Co. $45.88;

(2) Interest on State of California bonds $935.00;

(3) Income from fiduciaries, payable to plaintiff as a beneficiary of certain trusts, as follows:

(a) From said Wells Fargo Bank & Union Trust Co., as trustee of a residuary trust created by the last will and testament of Agnes M. Bourn, deceased $4,402.55;

(b) From The Bank of California, National Association, as trustee of a residuary trust created by the last will and testament of said Agnes M. Bourn, deceased $4,402.55;

(c) From said Wells Fargo Bank & Union Trust Co., as trustee of a trust created by W. B. Bourn, now deceased $14,459.74

(d) From said The Bank of California, National Association, as trustee of a trust created by said W. B. Bourn, now deceased $14,459.74;

(e) From said Wells Fargo Bank & Union Trust Co., as trustee of a trust created by instrument dated July 19, 1910 between William B. Bourn and Agnes M. Bourn, as trustees, and James L. Laidlaw and William B. Bourn, as trustees, said trust being hereinafter referred to as the “Vincent Trust” $14,696.71.

All of said income, other than the interest on said State of California bonds which was exempt, was reported and included in plaintiff's said personal income tax return for 1936.

All of the income received from the various trusts was from securities and other intangible property except for a small percentage from real property situate in California.

All of the income received from the two residuary trusts created by the last will and testament of Agnes M. Bourn, deceased, was distributed to the trustees of said trusts out of the estate of said Agnes M. Bourn, deceased, on December 31, 1936. The executors of the estate of Agnes M. Bourn, deceased, were the same two banks that were also the trustees of the trusts created by her last will and testament.

The executors of the estate of Agnes M. Bourn, deceased, and the trustees of the various trusts were Wells Fargo Bank and Union Trust Co., a California corporation, and The Bank of California, National Association, a national bank having its principal office and place of business in the City and County of San Francisco, State of California.

It was stipulated that neither any trustee as trustee of a trust here involved, nor any guardian as a guardian, nor plaintiff himself, during the year 1936, carried on or did any business, or trade, or practice, or carried on any profession. However, it also was stipulated that under the terms of the trusts discretion was conferred upon the trustees as to the administration of the trust estates and the trustees had authority to invest and reinvest, sell, exchange and dispose of the trust property. During the year 1936 the trustees of certain of the trusts sold various assets of the trusts and purchased other assets.

It further was stipulated that the seat of each trust was at all times during the year 1936 in San Francisco, California. The grantors of the trusts, at the time of the creation of the various trusts as well as at the time of their death, were residents of California.

The guardianship of plaintiff's estate was subject to the jurisdiction of the Superior Court of the State of California in and for the County of San Mateo and the guardian could sell no property of the estate of plaintiff or purchase any property or make any investments or reinvestments without the approval of that court.

Agnes M. Bourn, who created certain of the trusts by her last will and testament was a resident of California at the time of her death.

All of the trusts were administered in California.

Pertinent portions of the statute involved are the following:

Section 5 of the Act provides in part as follows:

“There shall be levied, collected and paid for each taxable year upon the entire net income of every resident of this State and upon the net income of every nonresident which is derived from sources within this State, taxes in the following amounts. * * *” St.1935, p. 1093.

Section 7(f) of the Act provides that:

“In the case of taxpayers other than residents the gross income includes only the gross income from sources within this State. * * *” St. 1935, p. 1095.

And, finally, Section 12(c) of the Act provides:

“The net income of the estate or trust shall be computed in the same manner and on the same basis as in the case of an individual, except that * * *

“(3) Income Properly Paid or Credited. In the case of income received by estates of deceased persons during the period of administration or settlement of the estate, and in the case of income which, in the discretion of the fiduciary, may be either distributed to the beneficiary or accumulated, there shall be allowed as an additional deduction in computing the net income of the estate or trust the amount of the income of the estate or trust for its taxable year, which is properly paid or credited during such year to any legatee, heir, or beneficiary, but the amount so allowed as a deduction shall be included in computing the net income of the legatee, heir, or beneficiary. In such cases the income of the legatee, heir, or beneficiary not a resident shall be taxable only to the extent provided in subsection (f) of section 7 of this act.” St.1935, p. 1105. (Italics ours.)

The question involved is: Was the income from sources within this state?

In addition to the facts hereinabove recited, counsel have not called to our attention any part of the record showing that the respondent now has or ever had any possession whatever of any part or portion of the securities involved. The appellant claims that said securities were at all times herein mentioned held by California trustees in active trust. He might go further and contend that a naked trust is not presented in any manner by the record before us. 65 C.J. 227, Trusts, sec. 16; Gray v. Union Trust Co., 171 Cal. 637, 639, 154 P. 306. That said trusts were vested in trustees that had their situs at all times in the State of California cannot be disputed. The respondent contends that it has been held that the doctrine of mobilia sequuntur personam––movables follow the law of the person––obtains in the State of California. That it so obtains in proper cases will be conceded. However it remains to ascertain whether said doctrine applies to the facts of this case. The doctrine is a fiction of the common law. 40 C.J. 1232. As said by the court in Liverpool, etc., Ins. Co. v. Board of Assessors for the Parish of Orleans, 221 U.S. 346, 354, 31 S.Ct. 550, 553, 55 L.Ed. 762, L.R.A.1915C, 903, “The legal fiction expressed in the maxim mobilia sequuntur personam yields to the fact of actual control elsewhere.” The court cites Blackstone v. Miller, 188 U.S. 189, 23 S.Ct. 277, 47 L.Ed. 439. In that case, 188 U.S. at page 204, 23 S.Ct. at page 278, 47 L.Ed. 439, the court said: “The domicil, naturally, must control a succession of that kind. Universal succession is the artificial continuance of the person of a deceased by an executor, heir, or the like, so far as succession to rights and obligations is concerned. It is a fiction, the historical origin of which is familiar to scholars, and it is this fiction that gives whatever meaning it has to the saying mobilia sequuntur personam. But being a fiction it is not allowed to obscure the facts, when the facts become important.” Furthermore, it should be noted that there are well defined exceptions applicable to the maxim mobilia sequuntur personam. In Miller v. McColgan, 17 Cal.2d 432, commencing on page 438, 110 P.2d 419, on page 423, 134 A.L.R. 1424, the court said: “Having fixed upon the source of the particular income as the corporate stock, the next task is to assign to this source a taxable situs. Under the doctrine of mobilia sequuntur personam, shares of stock in a corporation have their situs or location in the state or country wherein their owner resides, unless they have acquired a business situs elsewhere.” And then, on page 444 of 17 Cal.2d, 110 P.2d on page 425, the court continues as follows: “At this point it should be noted that the general principle in relation to situs for the purposes of taxation of intangible personal property embodied in the maxim mobilia sequuntur personam has a well–established exception to the effect that there may be a business situs of intangibles distinct from the domicile of the creditor. But respondent has not divided his activities so as to bring himself within this exception. He did not set his property aside in a Philippine trust or engage in business in the Philippines. In consequence, nothing appears here to indicate that the mobilia rule is not applicable to this case.” The principal difference between the case just cited and this case is that although respondent did not personally put said securities in a trust, nevertheless Agnes M. Bourn, the trustor, did put them in a trust and they have remained in that trust ever since. The distinction is of much importance. Under the uncontradicted facts the trust property was owned and actively located in San Francisco at all times herein mentioned. The case of De Ganay v. Lederer, 250 U.S. 376, 39 S.Ct. 524, 63 L.Ed. 1042, presented facts quite similar to the record before us. Commencing on page 381, of 250 U.S., 39 S.Ct. on page 526, 63 L.Ed. 1042, the court said:

“We have no doubt that the securities, herein involved, are property. Are they property within the United States? It is insisted that the maxim ‘mobilia sequuntur personam’ applies in this instance, and that the situs of the property was at the domicile of the owner in France. But this court has frequently declared that maxim, a fiction at most, must yield to the facts and circumstances of cases which require it, and that notes, bonds and mortgages may acquire a situs at a place other than the domicile of the owner, and be there reached by the taxing authority. It is only necessary to refer to some of the decisions of this court. (Citing cases.) Shares of stock in national banks, this court has held, for the purpose of taxation may be separated from the domicile of the owner, and taxed at the place where held. Tappan v. Merchants' Nat. Bank, 19 Wall. 490, 22 L.Ed. 189.

“In the case under consideration the stocks and bonds were those of corporations organized under the laws of the United States, and the bonds and mortgages were secured upon property in Pennsylvania. The certificates of stock, the bonds and mortgages were in the Pennsylvania Company's offices in Philadelphia. Not only is this so, but the stocks, bonds and mortgages were held under a power of attorney which gave authority to the agent to sell, assign, or transfer any of them, and to invest and reinvest the proceeds of such sales as it might deem best in the management of the business and affairs of the principal. It is difficult to conceive how property could be more completely localized in the United States. There can be no question of the power of Congress to tax the income from such securities. Thus situated and held, and with the authority given to the local agent over them, we think the income derived is clearly from property within the United States within the meaning of Congress as expressed in the statute under consideration. It follows that the question certified by the Circuit Court of Appeals must be answered in the affirmative.” That case has been cited and followed many times. It is sufficient to refer to Safe–Deposit & T. Co. v. Commonwealth of Virginia, 280 U.S. 83, 92, 50 S.Ct. 59, 74 L.Ed. 180, 67 A.L.R. 386; Hill v. Carter, 9 Cir., 47 F.2d 869, 871; Curry v. McCanless, 307 U.S. 357, 59 S.Ct. 900, 83 L.Ed. 1339, 123 A.L.R. 162.

Applying the doctrine to the facts of this case, it clearly appears that the respondent's contention may not be sustained. All of the securities were in the lawful possession of trustees who had their situs in California. The legal title rested in those trustees. They were vested with broad discretionary powers of managing, collecting, investing, selling, and of reinvesting the proceeds. All of such facts refute the fiction that said securities or any of them followed the respondent out of the state.

The judgment appealed from is reversed.


NOURSE P. J., concurs. SPENCE, J., not participating.