Plaintiff here seeks assignment of her widow's dower from the rents and profits of a large high-rise apartment building of which her husband died seized on September 25, 1968, and title to which is now held by defendant trustees under his last will and Testament.*fn1
In the main, the question is: in arriving at the money value of the widow's dower in the rents and profits of the building, may the executor-trustees, in calculating the net rents available for plaintiff's dower, deduct from the rents received: (a) a reserve for depreciation of the property; (b) amortization of the mortgage on the property at the time of decedent's death; (c) interest on such mortgage; (d) a management fee of 4% of income. The trustees contend that such deductions are to be made before arriving at the net rents, 50% of which are to go to plaintiff as her dower interest. Plaintiff widow contends that such deductions may not be made. She also claims that she is entitled to exoneration from a mortgage on the property given to the Bowery Savings Bank (hereafter Bowery) on October 14, 1963, for the reason, so she says, that the indebtedness incurred at that time was one for which decedent was personally liable and that his personal estate was enhanced by the proceeds from that mortgage. She also seeks an award of counsel fees.
In contending that the aforementioned deductions should be made; the trustees submit their calculations of the widow's dower interest based upon the following schedule:
Calculation of Widow's Dower Interest
Estate of Charles Shilowitz -- River House Property
Income $103,000 $254,700 $296,600
4% of income 4,100 10,200 11,900
Depreciation*fn2 26,600 59,100 60,900
Interest on mortgage 24,000 55,800 53,600
expenses of operations 58,600 113,500 135,800
Total costs and expenses 113,300 238,600 262,200
mortgage amortization (10,300) 16,100 34,400
Mortgage amortization 15,000 31,200 32,900
Amount available for Dower None None 1,500
The schedule submitted, while admittedly inexact as to the figures used, is nevertheless sufficiently representative to demonstrate the drastic consequences to the widow's dower interest if the contentions of the trustees are to be sustained. Thus, by reference to the last column of the schedule, covering the period from March 1, 1970, to February 28, 1971, the trustees contend that the net rents (as they conceive them and based on the figures used in the schedule) amount to $1500. Therefore, the trustees would allow the widow, since she is entitled to one-half of the net rents as her dower interest, $750 for the year specified. As will be seen, in
arriving at that result the trustees claim deductions for a "reserve for depreciation" in the amount of $60,900, plus amortization payments of $32,900, totalling $93,800 for the year. If these deductions were not to be allowed, then the net rents would amount to $95,300 and the widow's dower interest of 50% would yield to her the sum of $47,650 for the year involved. Further, if the trustees were not permitted to deduct the interest on the mortgage in the amount of $53,600 for the same period, the net rents and her share thereof for dower would be proportionately increased.
We shall first recount the history of the property, for it has relevance -- at least as to the issue of plaintiff's claim for exoneration from the mortgage to Bowery.
In 1953 decedent Charles Shilowitz acquired the tract in question in his own name for the purpose of erecting a multi-story apartment thereon. He formed River House Corporation, a New Jersey corporation, to which he conveyed the property on January 13, 1955. Plaintiff joined in the conveyance, thus releasing her then inchoate right of dower. Simultaneously with this conveyance the corporation executed a mortgage in the amount of $800,000 to the Brooklyn Savings Bank (hereafter Brooklyn) which was recast to $1,000,000 in 1957. Only the corporation was a party to these bonds and mortgages; decedent was not.
In 1963 the corporation was dissolved and, pursuant to a plan of liquidation, the property was conveyed once again to decedent, subject to the existing Brooklyn mortgage. Decedent did not assume the mortgage.
On October 14, 1963, decedent conveyed the River House property to his secretary, Rose Perolano, plaintiff again releasing her then inchoate right of dower by joining in the deed. On the same day Rose Perolano executed a new mortgage to the Bowery in the amount of $1,150,000, out of
which proceeds the Brooklyn mortgage, then amounting to $789,516.48 (hereafter rounded to $790,000), was satisfied. Decedent was not obligated on that mortgage or its accompanying bond. Rose Perolano thereupon immediately reconveyed the premises to decedent.
It is conceded that Rose Perolano, decedent's secretary, was a "straw man," used merely as a conduit through whom the title was intended to be, and ultimately was, returned to decedent in his own name. Defendant trustees contend that the main purpose of thus using the secretary was to immunize decedent from personal liability for the liens and debts then to be incurred. As will be seen below, such lack of personal liability is the crucial fact upon which defendants rest their argument that the widow is not entitled to exoneration from the Bowery mortgage.
Plaintiff further contends that of the $1,150,000 mortgage proceeds from Bowery, only $790,000 thereof was used to pay off the prior mortgage to Brooklyn. She further contends that the remaining sum of approximately $360,000 obtained from Bowery became the personal funds of decedent, that he was personally liable for the $360,000, and at least to that extent the widow was entitled to exoneration from the mortgage. Defendants assert that decedent obtained no personal benefit from the proceeds of the Bowery mortgage, that he was not personally liable thereon, and that therefore plaintiff is not entitled to exoneration.
We shall discuss the issues seriatim.
Bluntly put, the principal question here really is whether or not the widow, as doweress, should be responsible, to any extent, for depreciation of the building. In other words, should there be a deduction made from the net rents and profits, one-half of which would be owing to the widow for her dower ...