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Home > Underwriting > Title News > Twenty-One Volume Seven

SERIES: Twenty-One VOLUME: Seven DATED: July, 2006

~ CORPORATION DISSOLVED FOR FAILURE TO PAY FRANCHISE TAXES RETAINS LEGAL CAPACITY TO EXECUTE DEED ~

In a recently issued decision, In The Matter of Sullivan (Appellate Division, Second Department, decided July 18, 2006) the Appellate Court affirmed a lower court decision which upheld the capacity of a corporation, dissolved by proclamation by the state due to its failure to pay franchise taxes, to convey its real property. The decision of the court is as follows:

"DECISION & ORDER

ORDERED that the order is affirmed, with costs.

Until 1969 the real property at the heart of this dispute was owned by the deceased, Mary Edna Sullivan, who operated it as a restaurant along with her son, the respondent Patrick T. Sullivan (hereinafter the respondent). On February 4, 1969, the deceased transferred the subject property to a newly-formed corporation, Tappan Inn, Inc. (hereinafter Tappan). Tappan was formed by the deceased and the respondent primarily for the purpose of facilitating the refinancing of existing debts relating to the restaurant. The deceased owned a 90% interest in Tappan and the respondent held the remaining 10% interest.

Tappan was dissolved by proclamation of the Secretary of State in 1973 for non-payment of franchise taxes. That dissolution has never been annulled.

By agreement dated November 24, 1981, the deceased transferred to the respondent 'all of the right, title and interest in [Tappan] together with its obligations . . . and also all of the right, title and interest in the licensed premises-restaurant business known as Sullivan's Tappan Inn, together with its obligations.' By deed dated December 10, 1986, Tappan transferred the subject property to the respondent. The deceased died in 1988. By deed dated December 26,, 1989, the respondent transferred the subject property to himself and his wife, the respondent Kathleen M. Sullivan.

The petitioner, Eileen Kavanagh, contends that the 1986 and 1989 deeds are void because, upon Tappan's dissolution for nonpayment of taxes in 1973, the subject property automatically reverted from the corporation to its then shareholders (i.e., the deceased and the respondent). We disagree.

The dissolution of a business corporation for failure to pay franchise taxes does not affect the corporation's right to collect or distribute its assets (see Tax Law ' 203-a[10]; Business Corporation Law '' 1006 and 1009) . . . The tax liability survives the dissolution and attaches to the real and personal property of the dissolved corporation 'or of a transferee liable to pay the same' (see Tax Law ' 1092[j]) . . .

Applying these principles, Tappan retained title to the subject property until 1986, when it transferred such title to its then sole shareholder, the respondent. Contrary to the petitioner's contention, Tappan's dissolution in 1973 did not impact its legal authority to effect that transaction."

~ DEED GIFTING MOTHER'S PROPERTY TO SON UPHELD ~

A recent Appellate Division decision upheld a Surrogate Court order which determined that a decedent had made a valid inter vivos gift of certain real property to her son and dismissed a proceeding brought by the woman's daughter challenging the validity of the deed in question. The decision of the Appellate Division is as follows:

"DECISION & ORDER

ORDERED that the order is affirmed, with costs payable by the appellant personally.

Annette Bassin (hereinafter the decedent) died intestate on September 6, 1998, survived by her son, Joseph Bassin, and her daughter, Madeline Bassin. At the time of her death, the decedent resided at 2 Moreland Court in Great Neck (hereinafter the subject real property). On January 28, 1998, several months before her death, the decedent executed, at the law offices of Alan Silver, a deed conveying the subject real property (for which she was the surviving tenant by the entirety) to Joseph, who had lived with the decedent and acted as her primary caretaker for approximately 14 years. After the decedent's death, Madeline commenced this discovery proceeding pursuant to SCPA article 21, and the Surrogate's Court determined that the inter vivos gift of the subject real property was valid.

The Surrogate's Court correctly allowed Joseph, as administrator of the decedent's estate, to waive the attorney-client privilege and properly admitted the testimony of Silver, the attorney who advised the decedent with respect to the deed transferring ownership of the subject real property to Joseph. Silver's testimony provided the best evidence of the decedent's intent in executing the deed . . . Moreover, the decedent would likely have waived the privilege herself because the dispute here involved her only heirs . . .

Further, clear and convincing evidence established that the decedent made a valid inter vivos gift . . . or, more specifically, that the decedent was alert and aware, and understood the nature of the transaction at the time she executed the deed . . . Testimony by the decedent's friends and relatives established that, at all relevant times, she was alert, aware, and highly independent. Further, the decedent's cardiologist and internist testified that the decedent's mental ability never deteriorated. In addition, Silver asserted that the decedent's correct responses to routine inquiries he made concerning the date, year, and name of the president, just prior to execution of the deed, revealed her to be oriented and aware."


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