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eighth, eighteen hundred and ninety-four, or ness of the corporation; and provided furthat may hereafter be organized under the ther, that the personal or individual liability laws of this state, shall not be assessable for of the holder of full-paid (apital stork for any purpose whatever, except to such extent assessments or for the indebtedness or obliand in such manner as may be expressly pro- gations of the corporation shall not be changvided in the articles of incorporation; pro- ed without the consent of all the stockholdvided, that if such stock is made assessable

Section 1, art. 12, of the Constitution and the manner of levying the assessment is of Utah, is: "Corporations may be formed unnot provided for, it shall be levied in the man- der general laws, but shall not be created by ner and form hereinafter prescribed.”

special acts. All laws relating to corporaThe defendant company was organized De- tions may be altered, amended or repealed by cember 2. 1902. So far as material, the ar- the Legislature, anil all corporations doing ticles of incorporation provided : That the business in this state, may, as to such busicapital stock should be $250,000, divided into ness, be regulated, limited or restrained by 2.300 shares, of the par value of $100 per law." share, and stated the names of the incorpo)- On the 15th day of February, 1904, in purrators and the amount of stock subscribed by suance of previous notice of a special meeting each, aggregating 2.000 shares, of which the for that purpose, the stokholders of the deplaintiff and his assignors subscribed 2221!, fendant company representing 1.6.) shares of shares. They further provided that: “The the capital stock amended article 16 of the remainder o: said shares of said capital articles of incorporation to read: “That, stock, to wit: 500 shares thereof, shall be and whenever the said corporation is indebted to remain in the treasury of said corporation, an amount exceeding 10 per cent, of the 17! issuel, and shall be disposed of at such amount of the outstanding capital stork of time and for such price as the board of di- said corporation, the board of directors shall rectors of said corporation may determine, have the power and authority, for the purpose for the purpose of carrying on the business of paying said indebtedness, to levy and colof said corporation, or in the payment of lect an assessment upon the outstanding debts, obligations or the purchase of property | capital stock of said corporation in an amount necessary or proper for the uses and purposes sufficient to pay said indebtedness, but not to of said corporation, provided, however, the exceed 50 per cent. of the outstanding capital stockholders of record of said corporation stock, and shall have the power and authority shall have the first right to purchase said to levy and collect such other assessments stock pro rata.” Article 16 provides: “That | upon the capital stock of said corporation as the board of directors of said corporation are authorized by statute; but only one asshall have the power and authority, for the sessment exceeding the amount authorized by purposes of paying expenses, conducting the statute shall be levied by the directors of said business, or paying the debts of said corpor:- corporation. To the extent herein mentioned tion, to levy and collect assessments upon the the capital stock of this corporation is hereby outstanding capital stock of said corporation declared to be assessable." The amendment in the manner and form and to the extent as was adopted by 1,005 shares of the capital is provided by law. For that purpose and to stock voting for it. Fifty shares voted that end the capital stock of this corporation against it. On March 8, 1904, the directors is hereby declareil assessable.” Article 19 adopted the following resolution: "Resolved, provides: "That these articles of incorporar- that an assessment of 50 per cent., to wit, tion may be amended in any respect at any $50 per share, be, and the same is hereby, stockholders' meeting called for that purpose, levied upon all of the outstanding capital specifying in the notice of such stockholders' stock of the said Keith-O'Brien company, meeting the nature of the amendments; a which shall be payable to E. G. Kidder, sermajority of the outstanding capital stock of retary of said company, at Room 100, David said corporation represented at such meet. Keith Building. Salt Lake City, Utah, on or ing either personally or by proxy voting for before the 20 day of May, 1904; and any such amendn ents."

shares of stock upon which said assessment In 1903 (Sess. Laws, p. 78, c. 94) the Legis- shall not be paid on or before the 20 day of lature, among other sections, amended sec- May, 1904, shall be delinquent, and shall be tion :38, Rev. St. 189s, to read: "The articles sold according to law on the oth day of June, of incorporation of any corporation now ex- 1904, to pay the amount of said assessment isting or that may hereafter be organized and the costs of advertising and expenses of under the laws of this state may be amended sale." Votices of the amending of the articles in any respot conformable to the laws of and of the levying of the assessment were this state bý a vote representing at least i properly given. The plaintiff and his astwo-thirds o' the outstanding capital stook signor's failed to pay the assessment, wherethereof at a stockholders' meeting called for upon their stock was sold. that purpose as hereinafter prescribed. Pro- The appellant contends: (1) That the origvided, that the original purpose of the corpo- inal articles of incorporation did not authorration shall not be ultereil, nor shall the ize the board to lery ill assessment upon capital stork be diminished to an amount less the outstanding capital stork fully paid, nor than fifty pe: ceut. in excess of the indebted. I were any number of stockholders less than the whole authorized to amend the articles sessment is not provided for (by the articles). with respect to levying and collecting as- "it shall be levied in the manner and form sessments on such stock; (2) that the Legis- hereinafter provided." It will therefore be lature, under the reserved power of the Con- observed that the capital stock of the corstitution, could not lawfully confer authority | poration was, for certain purposes and to upon two-thirds of the stockholders, or any some extent, made assessable. Such was the other number of stockholders less than the contract of agreement of the incorporators, whole, to make amendments to the articles, and to which each subscriber agreed. Now, so as to levy assessments on such capital they further contracted and agreed among stock, without the consent of the minority : themselves that the articles might be amendand (3) that in all events such assessments ed in any respect, at any stockholders' meetcould not lawfully be made until the treasury ing called for that purpose, by a majority stock was first exhausted.

of the outstanding capital stock voting for It undoubtedly is the law that the power such amendments. By this stipulation the of a corporation to levy an assessment on incorporators expressly authorized a mafull-paid capital stock must be derived from jority of the stockholders to amend the artithe statute, or the articles of incorporation, cles. They had the undoubted right to make or some other express promise to pay it. It such an agreement. While this did not give may be assumed that, were it not for the the majority the right to alter or change provisions contained in articles 16 and 19 the fundamental purpose or character of the of the articles of incorporation, the original corporation, or to substitute entirely differarticles could not have been amended, under ent articles for the original, it nevertheless section 338, Rev. St. 1898, so as to authorize gave them the authority to make any reasonthe levy of an assessment on full-paid cap- able and proper amendments germane to the ital stock without the consent of all the things and subjects expressed in the articles, stockholders. But section 331, Rev. St., pro- or in furtherance of carrying out the genvides that assessments are not to be levied eral plan and purpose of the corporation, on full-paid stock for any purpose whatever, and to promote the due administration of its except to such extent and in such manner as affairs. As before observed, it may be conmay be expressly provided in the articles of ceded that, had the incorporators in their incorporation. And it is the general rule original articles declared that the full-paid that "a majority of the stockholders of a capital stock should not be assessable for any corporation clearly have the power to make purpose, the articles, by reason of section any alterations or changes in the constitution 338, Rev. St., could not thereafter have been of the corporation which are authorized by amended, so as to make such stock assessable, its charter, for this power is within the con- without the consent of all the stockholders. tract between the corporation and its stock- Nevertheless, when the incorporators, by their holders." 3 Clark & Marshall's Private Cor- articles of agreement, declared such stock porations, $ 630. “It is a principle of law," assessable to some extent and for certain says Mr. Cook, in his work on Corporations purposes, and then expressly conferred upon (volume 1 [5th Ed.] $ 241), "coeval with the a majority of the stockholders the authority existence of corporations having capital stock, to amend the articles in any respect, they that, unless the corporation charter or con- by their agreement consented to any reasonstitutional statute provides otherwise, a stock- able and proper amendment which a majority holder, the full par value of whose stock has may thereafter make with respect to levying been paid in, is not liable for and cannot an assessment on such stock. The amendbe made to pay any amounts in addition ment, made by more than two-thirds of the thereto.” The plaintiff and his assignors sub- outstanding capital stock, was germane to scribed the articles of incorporation. The the subject specified and expressed in article articles are their contract. What powers 16 of the original articles; and by virtue of have they conferred upon the board of di- the power conferred by the articles we are rectors, or a majority of the stockholders, of the opinion, and so hold, that the majority by the terms of their contract? Fairly con- of the outstanding capital stock had the strued, article 16 of their contract means right to make such amendment to the artithat, for the purpose of paying expenses, cles as was here made. conducting the business, and for paying the Having reached this conclusion, it is undebts of the corporation, the board of di- necessary to pass upon the questions whethrectors are authorized to levy and collect as- er the Legislature, by the amendment of sessments on the outstanding capital stock, 1903, conferred the power upon two-thirds of and for that purpose and to that end such the stockholders to amend the articles so as stock was made assessable. The extent of to authorize the board of directors to levy the assessment, and the manner and form the assessment in question against a disof levying and collecting it, was stipulated senting minority, and whether the Legislato be as by law provided. Such stipulation ture, under the reserved power of the Conundoubtedly was made with reference to the stitution, was authorized to make such an proviso of section 3:71, Rev. St. 1898, that if amendment, so far as affecting corporations such stock (full-paid capital stock) is made as- existing at the time of the passage of the sessable, and the manner of levying the as- amendinent.

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 showing 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 before first exhausting the treasury stock. Gary v. Mining Co., 9 Utah, 464, 35 Pac, 494.

We are of the opinion that the judgment of the court below should be affirmed; and it therefore is affirmed, with costs.


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 judg. ment directed.

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.

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 execu. tors in trust. The will was contested by I, Harry Stratton, son of the deceased. In 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 $6,307,166.36. Deductions amounting to the 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 Stratton were allowed. Tentative deductions amounting to the sum of $375,275.67 were also allowed, and the court adjudged that the sum of $1,980,000 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 $281,062.33, 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

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.

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fixed as the gross value of the estate of the shall be due and payable at the death of the sum of $300,000, as part of the costs and ex- decedent, and interest at the rate of 6 per penses of administration, paid hy the exer-u- cent. per annum shall be charged and collerttors to I. Harry Stratton, and the cross-er- el thereon for such time as said taxes are rors of the executors which relate to the al- not paid: Provided, that if said tax is paidh lowance of interest on the amount of the in- within six months from the accruing thereheritance tax from the date of the death of of, interest shall not be charged or collecte: the testator. Neither the Attorney General thereon, but a discount of 5 per cent. sli:]] nor counsel for the executors has discussed be allowed and deducted from said tax, and the assignment of error relating to the de- in all cases where the executors, administrate duction on account of costs and expenses of tors or trustees do not pay such tax withi: the amount in excess of his legacy paid to one year from the death of the decedent. I. Harry Stratton. Nevertheless, as the inter- they shall be required to give a bond in t!le ests of the state are involved, we shall de- form and to the effect prescribed in section cide the question.

twenty-two of this act for the payment of By section 21 of the revenue act (laws 1902, said tax, together with interest." The (01 p. 19, c. 3) it is provided that: "All property test over the probate of the will was not de

which shall pass boy will or by the terminell until six months and more after intestate laws of this state from any person the testator's death. During this period the who may die seized or possessed of the same rate of taxation could not be determined, be

* shall be and is subject to a tax at cause a different rate is fixed in cases where the rate hereinafter specified. *

* When

property is devised to trustees than in cases the beneficial interests to any property or in- where the property is taken under the statcome therefrom shall pass to or for the use utes of descents and distributions. Very * * (bild,

* * the rate of many claims were filed against the estate tax shall be two dollars on every hundred proper, involving several hundreds of thoudollars of the clear market value of such sands of dollars, and suits were brought property received by each person, and at and against companies in which the deceased was after the same rate for every less amount. a large stockholder, involving the value of Provided, that the sum of ten thousand dol- the stock of those companies; and it is statlars of any such estate shall not be subjected in the brief, and not disputed, that, if the to any such duty or taxes, and that only the suits filed were successfully maintained, the amount in excess of ten thousand dollars estate would be hopelessly insolvent. Beshall be subject to the above duty or tax." cause of these conditions the executors insist The proviso has been construed by this court that the interest fixed by the statute is not in the case People v. Koenig (Colo.) 85 Pac. chargeable nor collectible, and they cite many 1129, and it is there held that the exemption authorities which sustain the position that of the statute refers to the separate estate where a penalty is imposed by law for failreceived by each person, and not to the hody ing to pay a tax, that if the tax is not ascerof the estate of the decedent. I. Harry tainable, or the person by whom the tax is Stratton, as an heir, in fact the sole heir to be paid is not certain, the penalty cannot of W. S. Stratton, contested his father's be collected. Counsel for the defendants in will. If he succeeded in defeating the will, error claim that the statute must be strictly the entire estate of his father would descend construed in favor of the person taxed. This to him. To settle the contest he was paid i proposition has been sustained by this court, the sum of $350,000, and the court allowed of and it is held in People v. Koenig, supra, this amount $300,000 as costs and expenses that the statute imposes a special tax and of administration. The rule stated generally, is to be construed strictly against the governis that only those substantially interested will ment and in favor of the taxpayer. be heard to contest the probate of a will. ('ounsel also contend that the interest imAnd it is usually because the will does not posed is a penalty, and the statute must make as liberal provision for the heir as the therefore be strictly construed in favor of the statute does that contests are begun. So here party sought to be penalized. Also that the the heir at law of Stratton contested the will penalty cannot be enforced, because there because his father made a less liberal provi- was never an opportunity to pay the tax and sion for him than the statute, and he, in ef- thus avoid the penalty. Whether we construe fert, accepted the sum of $3.50,000 in settle- the statute strictly or liberally, we reach the ment of his claim as son and beir. The mon- same result. The act, in plain and unambigey was paid to him because he was the son uous terms, says the tax "shall be due and of Stratton, and it makes no difference that payable at the death of the decedent, and inhe accepted less than the statute would give terest at the rate of 6 per cent. per annum him. He took all he did take in excess of his for such time as said taxes are not paid shall legacy hy virtue of his heirship, and what- be charged and collected." The Legislature ever he took, whether under the will or oth- knew that under our laws no estate where an erwise, is subject to an inheritance tax. inheritance tax is chargeable could be settled

By section 23 of the act referred to it is within one year from the death of the intesprovided that: “All taxes imposed by this tate or testator'; and, if the courts are to be act, unless otherwise berein provided for, in any wise controlled by the intention of the Legislature as expressed by the laws of the settlement of the estate of a decedent, a lower state considered together, they are bound to rate of interest shall be charged. In both say that the Legislature intended to not ex- provisions are made for a discount if payment empt beneficiaries from the operation of this is made before the time fixed for the settlelaw because of pending litigation. It is not


ment of the estate. In New York the rate (laimed that the language of this act is am- is 10 per cent. after 18 months, in Pennsylbiguous or uncertain, but it is claimed that vania, 12 per cent. after 1 year, in both the charge of interest therein is a penalty states the rate is reduced to 6 per cent. where imposed, and that under the circumstances there is unavoidable delay in the settlement disclosed by the record it is inequitable, un- of estates. Our statute provides that the just, and unlawful for the state to collect the tax shall be due and payable at the death interest.

of the decedent. It does not fix a time when Such macters are considered by the stat- the tax shall be paid and after which a pen. utes of New York and Pennsylvania as enti- alty shall be paid as interest for failure to tling the beneficiaries of an estate to be re- pay, but it requires that interest at the rate lieved from paying interest. Section 4, c. 713, of 6 per cent. per annum shall be charged p. 922, of the laws of New York (session of and collected for such time as the taxes are 1887), provides : “All taxes imposed by this not paid. It imposes a penalty, probably, for act, unless otherwise herein provided for, failure to pay the tax within a year, but the shall be due and payable at the death of the penalty is not an additional charge in the way decedent, and if the same are paid within of interest, but a requirement that a bond eighteen months, no interest shall be charged shall be given to secure the payment of tax and collected thereon, but if not so paid, in- and interest. In New York and Pennsylvania terest at tbe rate of 10 per cent. per annum the statute requires a higher rate of interest shall be charged and collected from the time to be paid after default, and this interest at said tax accrued." Section 5 of the same the higher rate is properly termed a penalty; chapter of the New York laws provides that and, although interest must be paid in these the penalty of 10 per cent. shall not be charg- states whether there is or is not litigation, ed where, in cases of necessary litigation or no suggestion is made in the decisions that other unavoidable cause of delay, the estate we have cited that the interest that must in cannot be settled at the end of eighteen any event be paid is a penalty. The usual months froin the date of the decedent's death, method of imposing a penalty in the revenue and in such cases only 6 per cent. shall be statutes is to fix a time at which the taxes charged upon said tax, from the expiration of become delinquent, after which a higher rate eighteen months until the cause of such delay of interest is charged or a penalty by name is removed. In the case In re Moore, 30 Hun, imposed. Our statutes, in fact other sections 169, 35 N. Y. Supp. 783, these statutes are of the revenue act, recognize the difference construed, and the court there held that, as between a penalty as such and interest, and it appeared that there had been unavoidable in several clerisions of this court a distinction delay in the settlement of the estate, no pen- has been made between the interest and penalty should be imposed for the delay, but that alty mentioned in the revenue laws. Charlton interest at the rate of 6 per cent. from the V. Kelly, 24 Colo. 273, 50 Pac. 1012; Pueblo expiration of 18 months should be paid. The Realty ('o. v. Tate, 32 Colo. 67, 75 Pac. 402. estate mentioned in the case cited in 90 Ilun Even if we disregard the legislative use was involved in litigation for many years, of the terms "interest" and "penalty," the inyet the court required interest to be paid as terest fixed by the section under consideration part of the tax, as required by statute. A cannot be regarded as a penalty, because it is very similar case arose in Pennsylvania, no higher than the legal rate. Sparks v. where the statutes are substantially the same Lowndes County, 99 Ga. 281, 25 S. E. 426. as those of New York. The statute was con- Attention is directed to the proviso of the strued in the case Miller Estate, 182 Pa. section, which declares that if the tax is 157, 37 Atl. 1000. The court held that, as paid within six months no interest shall be there was unavoidable delay in the settlement chargeil and that a discount of .j per cent. of the estate, the penalty should not be im- shall be allowed. This, in our opinion, does posed, but required interest from the expira- not have the effect of rendering the interest tion of one year from the death of the dece- charged a penalty. It is but the usual inducedent at the rate fixed by statute, and this ment held out to those interested in estates notwithstanding the fact that a very large to make prompt payment of their taxes, and portion of the estate did not come into the cannot be construed as tixing a time when the executor's hands until several months after tax becomes delinquent, after which a penalty the expiration of one year from the testator's is imposed for nonpayment. The executors death.

say that this statute imposes a hardship upon In New York and Pennsylvania a time is them and the trustees of the estate, because fixed within which the taxes may be paid they could not pay the tax without becoming without the addition of interest. They pro- personally liable in the event of adverse des vide that after the time fixed a certain rate


cisions exhausting the funds in their hands, of interest shall be paid. They also provide and that they could not determine until after that, if unavoidable delay is occasioned in the the contest what rate should be paid. These

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