Page images
PDF
EPUB

eighth, eighteen hundred and ninety-four, or that may hereafter be organized under the laws of this state. shall not be assessable for any purpose whatever, except to such extent and in such manner as may be expressly provided in the articles of incorporation; provided, that if such stock is made assessable and the manner of levying the assessment is not provided for, it shall be levied in the manner and form hereinafter prescribed."

The defendant company was organized December 2. 1902. So far as material, the articles of incorporation provided: That the capital stock should be $250.000, divided into 2.500 shares, of the par value of $100 per share, and stated the names of the incorporators and the amount of stock subscribed by each, aggregating 2,000 shares, of which the plaintiff and his assignors subscribed 22216 shares. They further provided that: "The remainder of said shares of said capital stock. to wit: 500 shares thereof, shall be and remain in the treasury of said corporation, unissued, and shall be disposed of at such time and for such price as the board of directors of said corporation may determine, for the purpose of carrying on the business of said corporation, or in the payment of debts, obligations or the purchase of property necessary or proper for the uses and purposes of said corporation, provided, however, the stockholders of record of said corporation shall have the first right to purchase said stock pro rata." Article 16 provides: "That the board of directors of said corporation shall have the power and authority, for the purposes of paying expenses, conducting the business, or paying the debts of said corporation, to levy and collect assessments upon the outstanding capital stock of said corporation in the manner and form and to the extent as is provided by law. For that purpose and to that end the capital stock of this corporation is hereby declared assessable." Article 19 provides: "That these articles of incorporation may be amended in any respect at any stockholders' meeting called for that purpose, specifying in the notice of such stockholders' meeting the nature of the amendments; a majority of the outstanding capital stock of said corporation represented at such meeting either personally or by proxy voting for such amendments."

In 1903 (Sess. Laws, p. 78. c. 94) the Legislature, among other sections, amended section 338, Rev. St. 1898, to read: "The articles of incorporation of any corporation now existing or that may hereafter be organized under the laws of this state may be amended in any respect conformable to the laws of this state by a vote representing at least two-thirds o' the outstanding capital stock thereof at a stockholders' meeting called for that purpose as hereinafter prescribed. Provided, that the original purpose of the corporation shall not be altered, nor shall the capital stock be diminished to an amount less than fifty per cent. in excess of the indebted

ness of the corporation; and provided further, that the personal or individual liability of the holder of full-paid capital stock for assessments or for the indebtedness or obligations of the corporation shall not be changed without the consent of all the stockholdSection 1, art. 12, of the Constitution of Utah, is: "Corporations may be formed under general laws, but shall not be created by special acts. All laws relating to corporations may be altered, amended or repealed by the Legislature, and all corporations doing business in this state, may, as to such business, be regulated, limited or restrained by law."

On the 15th day of February, 1904, in pursuance of previous notice of a special meeting for that purpose, the stockholders of the defendant company representing 1,655 shares of the capital stock amended article 16 of the articles of incorporation to read: "That, whenever the said corporation is indebted to an amount exceeding 10 per cent. of the amount of the outstanding capital stock of said corporation, the board of directors shall have the power and authority, for the purpose of paying said indebtedness, to levy and collect an assessment upon the outstanding capital stock of said corporation in an amount sufficient to pay said indebtedness, but not to exceed 50 per cent. of the outstanding capital stock, and shall have the power and authority to levy and collect such other assessments upon the capital stock of said corporation as are authorized by statute; but only one assessment exceeding the amount authorized by statute shall be levied by the directors of said corporation. To the extent herein mentioned the capital stock of this corporation is hereby declared to be assessable." The amendment was adopted by 1,605 shares of the capital stock voting for it. Fifty shares voted against it. On March 8, 1904, the directors adopted the following resolution: "Resolved, that an assessment of 50 per cent., to wit, $50 per share, be, and the same is hereby, levied upon all of the outstanding capital stock of the said Keith-O'Brien company, which shall be payable to E. G. Kidder, secretary of said company, at Room 100, David Keith Building, Salt Lake City, Utah, on or before the 2d day of May, 1904; and any shares of stock upon which said assessment shall not be paid on or before the 20 day of May, 1904, shall be delinquent, and shall be sold according to law on the 6th day of June, 1904, to pay the amount of said assessment and the costs of advertising and expenses of sale." Notices of the amending of the articles and of the levying of the assessment were properly given. The plaintiff and his assignors failed to pay the assessment, whereupon their stock was sold.

The appellant contends: (1) That the orig inal articles of incorporation did not authorize the board to levy an assessment upon the outstanding capital stock fully paid, nor were any number of stockholders less than

the whole authorized to amend the articles with respect to levying and collecting assessments on such stock; (2) that the Legislature, under the reserved power of the Constitution, could not lawfully confer authority upon two-thirds of the stockholders, or any other number of stockholders less than the whole, to make amendments to the articles, so as to levy assessments on such capital stock, without the consent of the minority: and (3) that in all events such assessments could not lawfully be made until the treasury stock was first exhausted.

sessment is not provided for (by the articles).
"it shall be levied in the manner and form
hereinafter provided." It will therefore be
observed that the capital stock of the cor-
poration was, for certain purposes and to
some extent, made assessable. Such was the
contract of agreement of the incorporators,
and to which each subscriber agreed. Now,
they further contracted and agreed among
themselves that the articles might be amend-
ed in any respect, at any stockholders' meet-
ing called for that purpose, by a majority
of the outstanding capital stock voting for
such amendments. By this stipulation the
incorporators expressly authorized a
jority of the stockholders to amend the arti-
cles. They had the undoubted right to make
such an agreement. While this did not give
the majority the right to alter or change
the fundamental purpose or character of the
corporation, or to substitute entirely differ-
ent articles for the original, it nevertheless
gave them the authority to make any reason-
able and proper amendments germane to the
things and subjects expressed in the articles,
or in furtherance of carrying out the gen-
eral plan and purpose of the corporation,
and to promote the due administration of its
affairs. As before observed, it may be con-
ceded that, had the incorporators in their
original articles declared that the full-paid
capital stock should not be assessable for any
purpose, the articles, by reason of section
338, Rev. St., could not thereafter have been
amended, so as to make such stock assessable,
without the consent of all the stockholders.
Nevertheless, when the incorporators, by their
articles of agreement, declared such stock
assessable to some extent and for certain
purposes, and then expressly conferred upon
a majority of the stockholders the authority
to amend the articles in any respect, they
by their agreement consented to any reason-

It undoubtedly is the law that the power of a corporation to levy an assessment on full-paid capital stock must be derived from the statute, or the articles of incorporation, or some other express promise to pay it. It may be assumed that, were it not for the provisions contained in articles 16 and 19 of the articles of incorporation, the original articles could not have been amended, under section 338, Rev. St. 1898, so as to authorize the levy of an assessment on full-paid capital stock without the consent of all the stockholders. But section 331, Rev. St., provides that assessments are not to be levied on full-paid stock for any purpose whatever, except to such extent and in such manner as may be expressly provided in the articles of incorporation. And it is the general rule that "a majority of the stockholders of a corporation clearly have the power to make any alterations or changes in the constitution of the corporation which are authorized by its charter, for this power is within the contract between the corporation and its stockholders." 3 Clark & Marshall's Private Corporations, § 630. "It is a principle of law," says Mr. Cook, in his work on Corporations (volume 1 [5th Ed.] § 241), "coeval with the existence of corporations having capital stock, that, unless the corporation charter or constitutional statute provides otherwise, a stock-able and proper amendment which a majority holder, the full par value of whose stock has been paid in, is not liable for and cannot be made to pay any amounts in addition thereto." The plaintiff and his assignors subscribed the articles of incorporation. The articles are their contract. What powers have they conferred upon the board of directors, or a majority of the stockholders, by the terms of their contract? Fairly construed, article 16 of their contract means that, for the purpose of paying expenses, conducting the business, and for paying the debts of the corporation, the board of directors are authorized to levy and collect assessments on the outstanding capital stock, and for that purpose and to that end such stock was made assessable. The extent of the assessment, and the manner and form of levying and collecting it, was stipulated to be as by law provided. Such stipulation undoubtedly was made with reference to the proviso of section 354, Rev. St. 1898, that if such stock (full-paid capital stock) is made assessable, and the manner of levying the as

may thereafter make with respect to levying an assessment on such stock. The amendment, made by more than two-thirds of the outstanding capital stock, was germane to the subject specified and expressed in article 16 of the original articles; and by virtue of the power conferred by the articles we are of the opinion, and so hold, that the majority of the outstanding capital stock had the right to make such amendment to the articles as was here made.

Having reached this conclusion, it is unnecessary to pass upon the questions whether the Legislature, by the amendment of 1903, conferred the power upon two-thirds of the stockholders to amend the articles so as to authorize the board of directors to levy the assessment in question against a dissenting minority, and whether the Legislature, under the reserved power of the Constitution, was authorized to make such an amendment, so far as affecting corporations existing at the time of the passage of the amendment.

2. SAME-INTEREST.

Laws 1902, p. 49, c. 3, imposing an inheritance tax, provides that the taxes shall be due at the death of decedent and payable with interest at the rate of 6 per cent. on the taxes until such time as they are paid; provided that, if the tax is paid within six months from the accruing thereof interest shall not be charged, and a discount allowed. Held, that, though a contest over a will was not determined until more than six months after testator's death, and though suits were brought against corporations in which testator was a stockholder, which suits, had they been successful, would have rendered the estate insolvent, so that during such litigation the taxes could not be determined. they were nevertheless payable on the estate passing under the will with 6 per cent. interest from testator's death.

[Ed. Note. For cases in point, see Cent. Dig. vol. 45, Taxation, § 1724.]

En Banc. Error to El Paso County Court; Robert Kerr, Judge.

Proceedings by the people, on the relation of William H. Dickson, as Attorney General, for the collection of a transfer tax on the estate of Winfield S. Stratton, deceased. From the judgment fixing the tax, relator brings error. Reversed in part, and judgment directed.

The only other question remaining is: Was the assessment properly levied while the 500 shares of treasury stock remained in the treasury and unsold? Again looking at the contract of the incorporators, we find that these 500 shares should remain in the treasury, and should be disposed of at such time and for such price as the board of directors should determine. The articles nowhere provide that the treasury stock should first be exhausted before the levying of an assessment. On the contrary, the articles of incorporation expressly left the disposition of the treasury stock to the discretion of the board of directors. Furthermore, it is made to appear that nothing substantial could have been realized on a sale of the treasury stock at the time of the levying of the assessment. The corporation then owed an indebtedness of over $153,000. The excess of assets, as stated by some of the witnesses, was about $141,000, but estimated on invoices at cost price of goods and fixtures. Some of the witnesses valued the capital stock at $20 to $70 per share. However, there is ample testimony in the record snowing that at the time of the levying of the assessment, owing to the weak and unfavorable financial condition of the corporation, its capital stock had no real market value, and that the treasury stock could not have been sold for any substantial price, and that if it had been sold nothing substantial would have been realized for it. Some of the witnesses even say that it "was impossible" to sell it; that the only possible way to continue the business of the corporation was to borrow money by the issuance of bonds or preferred stock, or to levy an assessment. By reason of the power conferred upon the board of directors to dispose of the treasury stock at their discretion, and by reason of the showing to warrant a finding that nothing substantial could have been realized on a sale of the treasury stock, it was not improper to levy an assessment be- | $6,307,166.36. Deductions amounting to the fore first exhausting the treasury stock. Gary v. Mining Co., 9 Utah, 464, 35 Pac, 494. We are of the opinion that the judgment

William H. Dickson, Atty. Gen., and Horace Phelps, for plaintiff in error. David P. Strickler, J. G. McMurray, and Dines, Whitted & Dines, for defendant in error.

In

STEELE, J. Winfield S. Stratton departed this life at Colorado Springs on the 14th day of September, 1902. By his will he devised and bequeathed his entire estate to his executors in trust. The will was contested by I. Harry Stratton, son of the deceased. consideration of his withdrawing the contest and consenting to the probate of the will, the executors paid to him, in addition to a legacy of $50,000 the sum of $300,000. On July 27, 1906, the county court of El Paso county found that the gross value of the estate of the deceased at the time of his death was

sum of $931,890.69, on account of costs and expenses and claims paid by the executors, including the sum of $350,000 paid I. Harry

of the court below should be affirmed; and | Stratton, were allowed. Tentative deducit therefore is affirmed, with costs.

MCCARTY, C. J., and FRICK, J., concur.

(40 Colo. 508)

PEOPLE ex rel. DICKSON, Atty. Gen., v. RICE et al. (Supreme Court of Colorado. July 1, 1907.) 1. TAXATION - INHERITANCE TAX-TRANSFER SUBJECT TO TAX.

Under the revenue act (Laws 1902, p. 49, c. 3), imposing a tax on property passing by will or by the intestate laws of the state, where the sole heir of a testator contested the will because testator made him a less liberal allowance than the statute, and the executor paid him a sum in addition to his legacy in consideration of his withdrawing the contest, the sum paid the son was subject to the tax.

91 P.-3

tions amounting to the sum of $375,275.67 were also allowed, and the court adjudged that the sum of $4,980,000 was subject to the payment of inheritance tax. This item was ascertained by deducting from the amount of the gross value the sums mentioned and the further sum of $20,000, made up of two items of $10,000 each, allowed by law as exemption to each of two legatees. The court fixed the amount of the inheritance tax at the sum of $284,062.33, together with interest thereon at the rate of 6 per cent. per annum from September 14, 1902, the date of the testator's death. Many errors and cross-errors were assigned, but all have been waived by stipulation of the parties except the error assigned by the state which relates to the deduction allowed by the court from the amount

fixed as the gross value of the estate of the sum of $300,000, as part of the costs and expenses of administration. paid by the execu tors to I. Harry Stratton, and the cross-errors of the executors which relate to the allowance of interest on the amount of the inheritance tax from the date of the death of the testator. Neither the Attorney General nor counsel for the executors has discussed the assignment of error relating to the deduction on account of costs and expenses of the amount in excess of his legacy paid to I. Harry Stratton. Nevertheless, as the interests of the state are involved, we shall decide the question.

By section 21 of the revenue act (laws 1902, p. 49, c. 3) it is provided that: "All property which shall pass by will or by the intestate laws of this state from any person who may die seized or possessed of the same shall be and is subject to a tax at the rate hereinafter specified. *** When the beneficial interests to any property or income therefrom shall pass to or for the use of any *** child, * * * the rate of tax shall be two dollars on every hundred dollars of the clear market value of such property received by each person, and at and after the same rate for every less amount. Provided, that the sum of ten thousand dollars of any such estate shall not be subject to any such duty or taxes, and that only the amount in excess of ten thousand dollars shall be subject to the above duty or tax." The proviso has been construed by this court in the case People v. Koenig (Colo.) 85 Pac. 1129, and it is there held that the exemption of the statute refers to the separate estate received by each person, and not to the body of the estate of the decedent. I. Harry Stratton, as an heir, in fact the sole heir of W. S. Stratton, contested his father's will. If he succeeded in defeating the will, the entire estate of his father would descend to him. To settle the contest he was paid the sum of $350,000, and the court allowed of this amount $300,000 as costs and expenses of administration. The rule stated generally, is that only those substantially interested will be heard to contest the probate of a will. And it is usually because the will does not make as liberal provision for the heir as the statute does that contests are begun. So here the heir at law of Stratton contested the will because his father made a less liberal provision for him than the statute, and he, in effect, accepted the sum of $350,000 in settlement of his claim as son and heir. The money was paid to him because he was the son of Stratton, and it makes no difference that he accepted less than the statute would give him. He took all he did take in excess of his legacy by virtue of his heirship, and whatever he took, whether under the will or otherwise, is subject to an inheritance tax.

By section 23 of the act referred to it is provided that: "All taxes imposed by this act, unless otherwise herein provided for,

shall be due and payable at the death of the decedent, and interest at the rate of 6 per cent. per annum shall be charged and collected thereon for such time as said taxes are not paid: Provided, that if said tax is paid within six months from the accruing thereof, interest shall not be charged or collected thereon, but a discount of 5 per cent. shall be allowed and deducted from said tax, and in all cases where the executors, administrators or trustees do not pay such tax within one year from the death of the decedent. they shall be required to give a bond in the form and to the effect prescribed in section twenty-two of this act for the payment of said tax, together with interest." The contest over the probate of the will was not determined until six months and more after the testator's death. During this period the rate of taxation could not be determined, because a different rate is fixed in cases where property is devised to trustees than in cases where the property is taken under the statutes of descents and distributions. Very many claims were filed against the estate proper, involving several hundreds of thousands of dollars, and suits were brought against companies in which the deceased was a large stockholder, involving the value of the stock of those companies; and it is stated in the brief, and not disputed, that, if the suits filed were successfully maintained, the estate would be hopelessly insolvent. Because of these conditions the executors insist that the interest fixed by the statute is not chargeable nor collectible, and they cite many authorities which sustain the position that where a penalty is imposed by law for failing to pay a tax, that if the tax is not ascertainable, or the person by whom the tax is to be paid is not certain, the penalty cannot be collected. Counsel for the defendants in error claim that the statute must be strictly construed in favor of the person taxed. This proposition has been sustained by this court, and it is held in People v. Koenig, supra, that the statute imposes a special tax and is to be construed strictly against the government and in favor of the taxpayer.

Counsel also contend that the interest imposed is a penalty, and the statute must therefore be strictly construed in favor of the party sought to be penalized. Also that the penalty cannot be enforced, because there was never an opportunity to pay the tax and thus avoid the penalty. Whether we construe the statute strictly or liberally, we reach the same result. The act, in plain and unambiguous terms, says the tax "shall be due and payable at the death of the decedent, and interest at the rate of 6 per cent. per annum for such time as said taxes are not paid shall be charged and collected." The Legislature knew that under our laws no estate where an inheritance tax is chargeable could be settled within one year from the death of the intestate or testator: and, if the courts are to be in any wise controlled by the intention of the

Legislature as expressed by the laws of the state considered together, they are bound to say that the Legislature intended to not exempt beneficiaries from the operation of this law because of pending litigation. It is not claimed that the language of this act is ambiguous or uncertain, but it is claimed that the charge of interest therein is a penalty imposed, and that under the circumstances disclosed by the record it is inequitable, unjust, and unlawful for the state to collect the interest.

Such matters are considered by the statutes of New York and Pennsylvania as entitling the beneficiaries of an estate to be relieved from paying interest. Section 4, c. 713, p. 922, of the laws of New York (session of 1887), provides: "All taxes imposed by this act, unless otherwise herein provided for, shall be due and payable at the death of the decedent, and if the same are paid within eighteen months, no interest shall be charged and collected thereon, but if not so paid, interest at the rate of 10 per cent. per annum shall be charged and collected from the time said tax accrued." Section 5 of the same chapter of the New York laws provides that the penalty of 10 per cent. shall not be charged where, in cases of necessary litigation or other unavoidable cause of delay, the estate cannot be settled at the end of eighteen months from the date of the decedent's death, and in such cases only 6 per cent. shall be charged upon said tax, from the expiration of eighteen months until the cause of such delay is removed. In the case In re Moore, 90 Hun, 169, 35 N. Y. Supp. 783, these statutes are construed, and the court there held that, as it appeared that there had been unavoidable delay in the settlement of the estate, no penalty should be imposed for the delay, but that interest at the rate of 6 per cent. from the expiration of 18 months should be paid. The estate mentioned in the case cited in 90 Hun was involved in litigation for many years, yet the court required interest to be paid as part of the tax, as required by statute. very similar case arose in Pennsylvania, where the statutes are substantially the same as those of New York. The statute was construed in the case Miller Estate. 182 Pa. 157, 37 Atl. 1000. The court held that, as there was unavoidable delay in the settlement of the estate, the penalty should not be imposed, but required interest from the expiration of one year from the death of the decedent at the rate fixed by statute, and this notwithstanding the fact that a very large portion of the estate did not come into the executor's hands until several months after the expiration of one year from the testator's death.

A

In New York and Pennsylvania a time is fixed within which the taxes may be paid without the addition of interest. They provide that after the time fixed a certain rate of interest shall be paid. They also provide that, if unavoidable delay is occasioned in the

settlement of the estate of a decedent, a lower rate of interest shall be charged. In both provisions are made for a discount if payment is made before the time fixed for the settlement of the estate. In New York the rate is 10 per cent. after 18 months, in Pennsylvania, 12 per cent. after 1 year, in both states the rate is reduced to 6 per cent. where there is unavoidable delay in the settlement of estates. Our statute provides that the tax shall be due and payable at the death of the decedent. It does not fix a time when the tax shall be paid and after which a pen alty shall be paid as interest for failure to pay, but it requires that interest at the rate of 6 per cent. per annum shall be charged and collected for such time as the taxes are not paid. It imposes a penalty, probably, for failure to pay the tax within a year, but the penalty is not an additional charge in the way of interest, but a requirement that a bond shall be given to secure the payment of tax and interest. In New York and Pennsylvania the statute requires a higher rate of interest to be paid after default, and this interest at the higher rate is properly termed a penalty; and, although interest must be paid in these states whether there is or is not litigation, no suggestion is made in the decisions that we have cited that the interest that must in any event be paid is a penalty. The usual method of imposing a penalty in the revenue statutes is to fix a time at which the taxes become delinquent, after which a higher rate of interest is charged or a penalty by name imposed. Our statutes, in fact other sections of the revenue act, recognize the difference between a penalty as such and interest, and in several decisions of this court a distinction has been made between the interest and penalty mentioned in the revenue laws. Charlton v. Kelly, 24 Colo. 273, 50 Pac. 1042; Pueblo Realty Co. v. Tate. 32 Colo. 67, 75 Pac. 402. Even if we disregard the legislative use of the terms "interest" and "penalty," the interest fixed by the section under consideration cannot be regarded as a penalty, because it is no higher than the legal rate. Sparks v. Lowndes County, 98 Ga. 284, 25 S. E. 426.

Attention is directed to the proviso of the section, which declares that if the tax is paid within six months no interest shall be charged and that a discount of 5 per cent. shall be allowed. This, in our opinion, does not have the effect of rendering the interest charged a penalty. It is but the usual inducement held out to those interested in estates to make prompt payment of their taxes, and cannot be construed as fixing a time when the tax becomes delinquent, after which a penalty is imposed for nonpayment. The executors say that this statute imposes a hardship upon them and the trustees of the estate, because they could not pay the tax without becoming personally liable in the event of adverse decisions exhausting the funds in their hands, and that they could not determine until after the contest what rate should be paid. These

« PreviousContinue »