Summary
In Strange v. State Tax Commission, 192 Miss. 765, 773, 7 So.2d 542, 543, we observe a case somewhat similar to the one here under consideration.
Summary of this case from Bjornstad v. FishOpinion
No. 34961.
April 13, 1942.
1. WILLS.
A will vests no present interest and is revocable during the life of the maker.
2. WILLS.
An agreement between brothers providing that, in event of death of either, survivor was authorized to take certain stock on basis of valuation of $10,000 to be paid to deceased brother's estate and giving no right of revocation, was a "contract" vesting right to buy stock in survivor in praesenti and was not a "will," and fact that stock had increased greatly in value when one brother died did not alter survivor's right to buy stock.
3. WILLS.
In determining whether contract between brothers providing that, in event of death of either, survivor was authorized to take certain stock on basis of valuation of $10,000 to be paid to deceased brother's estate and giving no right of revocation, was in fact a will, contract was required to be viewed in light of circumstances surrounding brothers at time of execution.
4. WILLS.
A contract to make a will founded on sufficient consideration is valid.
5. TAXATION.
In construing contract between brothers giving survivor option to take certain stock on death of either, fairness and adequacy of consideration was required to be measured as of time contract was executed rather than time option was exercised, as affecting applicability of statute imposing tax on transfer of property made in contemplation of death without valuable and adequate consideration (Laws 1918, ch. 109, sec. 5; Code 1930, sec. 5065 et seq.; Laws 1934, ch. 129).
6. TAXATION.
Where surviving brother exercised option to take certain stock by paying $10,000 to deceased brother's estate as authorized by contract which brothers had executed, value of stock to deceased brother's estate for inheritance tax purposes was sales price specified in contract, and not greater book value of stock at time option was exercised.
Appeal from chancery court of Hinds county, HON. V.J. STRICKER, Chancellor.
Ernest Kellner, of Greenville, for appellants.
I respectfully submit that the contract of April 11, 1917, supplemented by the agreement of September 30, 1930, is not testamentary and that upon its execution J.E. Strange acquired the right, enforceable in equity, to become absolute owner of the stock for $10,000 cash, to take effect in possession upon the death of J.Q. Strange, and that therefore the value of the stock to the estate of J.Q. Strange was $10,000.
Wall v. Wall, 30 Miss. 91; Graham v. Triplett, 148 Miss. 299, 114 So. 621; Taylor v. Raby et al., 175 Miss. 836, 168 So. 59; Price v. Craig, 164 Miss. 42, 143 So. 694.
The demurrer seems to invoke Section 5069, Inheritance Tax, page 1157, 1938 supplement, Mississippi Code of 1930, or to negative its application in this case.
It is elementary that a person may dispose of his property as he sees fit not contrary to law. On April 11, 1917, J.Q. Strange had the right to option his interest in the stock involved in this case to J.E. Strange for $10,000, payable within sixty days after the death of J.Q. Strange, postponing the possession and use of his interest in the stock until his death and until and unless the $10,000 was paid in accordance with the agreement. Wall v. Wall, supra; Graham v. Triplett, supra; Price v. Craig, supra; Taylor v. Raby, supra. He did so. Therefore, unless there was a provision in the inheritance law of Mississippi whereby his interest in the stock could be taxed at a greater valuation than $10,000, the contention of appellee must fail.
The statute has no application to the transfer here involved because it was enacted after the transfer was made. The transfer was made April 11, 1917. The statute, in a different form, was first enacted as paragraph 2, section 5, chapter 109, Laws of 1918, effective March 28, 1918. Can the statute have a retroactive effect? The answer is no.
Nichols v. Coolidge, 274 U.S. 531; Hassett v. Welch, 303 U.S. 303.
If mistaken in the foregoing and the statute is applicable to the transfer involved in this case, then I contend that the transfer comes clearly within the exception of the statute.
Ferguson, Collector, v. Dickson, 300 F. 961, certiorari denied, 266 U.S. 628; Wilson v. Bowers, 51 F.2d 261; Lomb v. Sugden, 82 F.2d 166; Bensel v. Commissioner of Internal Revenue, 36 U.S. Board of Tax Appeals Reports 246, affirmed, 100 F.2d 639; Mitchell v. Commissioner of Internal Revenue, 37 U.S. Board of Tax Appeals Reports 1.
J.H. Sumrall, of Jackson, for appellee.
I submit that the instrument relied upon to support contention that this valuable property should be valued for tax purposes at only ten thousand dollars, because said instrument was recognized as a valid transfer of said property by the construction of the chancellor after the death of the decedent, was no more than a will, and would have no more effect upon the value of the property transferred than a will which would have given the property outright, without anything being required in return.
Counsel for the appellant has cited several Mississippi cases and a few cases from Federal courts and the Board of Tax Appeals, but, in my opinion, none of the cases cited are parallel in principle or support his contention with reference to the points actually covered in said cases. As for instance, the Mississippi cases which he cites establish the uniform rule laid down by this court as to what constitutes the distinction between a deed and a testamentary document.
These Mississippi cases, if they have any bearing on the question at all, certainly constitute authority contrary to the contention of the appellant. The facts in all of such cases are sufficient to definitely determine whether an instrument partakes of the nature of a deed or a will. The determining fact in each case being that, unless a present interest is conveyed by the document and if the transfer of title accomplished by the instrument is dependent upon the contingency of death before any interest accrues, then, necessarily, the instrument is testamentary in character and could not be regarded as a deed.
It is only necessary to read the original instrument relied upon by the appellant to find the distinguishing difference in the facts in the case before this court and the several cases cited by the appellant in his brief.
The outstanding fact on the face of said document positively negatives the idea that there was an absolute transfer of interest in praesenti. The agreement was mutual. To attempt to construe said instrument as a deed or gift in praesenti is positively answered by the fact that the donor and donee were necessarily uncertain, because the survivor was certainly unknown at the time.
In determining whether an instrument be a deed or will, the main question is, did the maker intend to convey any estate or interest whatever, to vest before the death, and upon the execution of the paper? Or, on the other hand, did he intend that all the interest and estate should take effect only after his death; if the former, it is a deed, if the latter, a will; and it is immaterial whether he calls it a will or deed, the instrument will have operation according to its legal effect.
Wall et al. v. Wall, Executor, 30 Miss. 91; Sartor et al. v. Sartor, 39 Miss. 760; McDaniel v. Johns et ux., 45 Miss. 632.
The fact that this instrument was not conclusive in its terms, and could have been revoked by either party thereto during the lifetime of either, is evidenced by the fact that the parties thereto considered it necessary to reinvoke the original agreement, by reference thereto on each occasion when the business in which they were both interested expanded. This was done in order to preserve their original intention of allowing the survivor between the two brothers to acquire whatever interest the decedent owned at the time of his death, at a nominal sum, without reference to its actual value, which certainly was testamentary in character.
Counsel for the appellants states that the statute in force in this state at the time of the death of the said J.Q. Strange had no application to the transfer here involved because it was enacted after the transfer was made. He states that the transfer was made April 11, 1917, whereas the first enactment of the Inheritance Tax Law in Mississippi did not occur until Chapter 109 of the Laws of 1918 was enacted and that said act became effective March 28, 1918.
The law specifically makes the provisions thereof applicable to any transfer, whether made before or after the passage of the act. This provision of the law would make the provision thereof applicable, even though it were conceded that all of the property which passed to the survivor at the date of death of the decedent in 1939 could have been, and was, transferred by said original agreement. But no such transfer occurred, nor could it occur, since the majority of the property which actually passed upon the death of the decedent in 1939 was not in existence upon the date that the original instrument was executed. And therefore the contention that it would be necessary to give a retroactive effect to said statute, in order to make the transfer of the property taxable, must fail, because the facts deny any assertion that the property was actually transferred in April, 1917, before the enactment of the original Inheritance Tax Law of Mississippi.
In this state of facts, the cases of Nicholas v. Coolidge, 274 U.S. 531; Hassett v. Welch, 303 U.S. 303; and Ferguson v. Dickson, 300 U.S. 961, are not applicable.
Counsel for the appellants next takes up what he terms as "Federal Decisions," and states that said decisions, being five in number, are almost identical with the contract here involved. I take issue with the counsel for the appellants on the very threshold of his opening remarks. Said instrument could not, in any sense, be regarded as a contract, since it is so completely testamentary in character; and contains nothing to prevent revocation of the agreement at any time, if it should be so desired; and does not positively obligate either party to the transaction to do anything certain in favor of the other; and, indeed, leaves the ultimate beneficiary wholly uncertain and undetermined, which could not be regarded as a contract in any sense of the word, but a will of either of the parties thereto, depending upon the contingency of survivor, in order to determine whose will it would ultimately be.
This instrument cannot be regarded as fixing the value of property transferred thereby for taxation purposes, any more than a will conveying the property outright, without any amount to be paid, would determine the property as valueless, so far as Inheritance Tax is concerned.
Argued orally by Ernest Kellner, for appellants, and by J.H. Sumrall, for appellee.
This is an appeal from a decree of the chancery court affirming an additional inheritance tax assessment by the State Tax Commission against the estate of J.Q. Strange, deceased. The additional assessment arose out of this state of facts:
J.E. and J.Q. Strange were brothers, both near forty years of age and unmarried. J.E. was an officer of the Greenville Coca-Cola Company and J.Q. was an employee thereof on a salary of fifteen dollars per week.
On April 11, 1917, these brothers executed a written contract, reciting that J.E. Strange was the secretary and treasurer, and the owner of forty of the one hundred shares of stock of said corporation of the par value of fifty dollars per share, and that they desired to transfer this stock to J.Q. Strange and that he become secretary and treasurer of the corporation, and agreed (1) that J.Q. would pay to J.E. $15,000, part cash and part deferred, and the stock would be assigned and transferred to J.Q.; (2) that whatever salary J.Q. should thereafter receive from the Company above $150 per month, as well as all dividends paid upon the stock, would be divided equally between them, and then this provision follows:
"It is understood and agreed that in the event of the death of either of the parties hereto, the survivor is authorized to take the forty shares of stock upon the basis of a valuation of $10,000.00 to be paid to the estate of the decedent. The option of the survivor to so purchase said stock to be exercised within sixty days from the death of the other party. For illustration, if the said J.Q. Strange is the survivor, he shall become the absolute owner of said stock by the payment of said purchase notes herein specified and $10,000.00 and his liability for the payment of the dividends and the pro rata of his salary shall terminate upon the death of said J.E. Strange. On the other hand, if J.E. Strange is the survivor, he shall have the right to purchase said stock for $10,000, and if the purchase notes herein specified are at that time unpaid, such notes shall be credited on said purchase price of $10,000."
J.Q. became secretary and treasurer at $150 per month, which was thereafter increased, so that at his death it was $600 per month.
The territory embraced within the Greenville Coca-Cola franchise included the municipality of Cleveland, Mississippi. Pidgeon, the president, and J.Q. Strange, the secretary-treasurer, and the sole stockholders, of the Greenville corporation, established, as partners in 1919, a Coca-Cola plant at Cleveland. In 1935 the Cleveland plant was incorporated, the stock being 100 shares, Pidgeon becoming president and owner of 60 shares, and J.Q. Strange, secretary-treasurer, owning 40 shares, thereof. The Cleveland business, under both the partnership and corporate arrangement, has always been operated as an adjunct of the Greenville plant, for the more convenient and economical operation of both businesses, the Cleveland corporation never having acquired a separate franchise right for the territory served by it.
On September 30, 1930, J.E. Strange and J.Q. Strange executed a supplemental written agreement expressly making the contract of April 11, 1917, applicable to the Cleveland corporation.
J.Q. Strange died, testate, April 14, 1939, twenty-two years after the execution of the agreement. From the time of its execution to the date of his death the provisions of the agreement had been faithfully performed and carried out by both parties.
J.E. Strange, within sixty days of the death of J.Q. Strange, offered to pay to the executors the ten thousand dollars and demanded the transfer and delivery to him of said shares of stock. The executors, by petition, presented the matter to the Chancery Court of Washington County, where the estate was being administered. That court authorized them to accept that sum and transfer and deliver the stock to J.E. Strange.
The Tax Commission contends that the inheritance tax should be based upon $148,829.09, the book value of the stock, and appellant contends that the basis should be ten thousand dollars, the price named in said agreement. That is the question for decision.
Appellee says that the instrument of April 11, 1917, and the supplement thereto, are testamentary in nature and effect as to said shares of stock. It is common learning that a will vests no present interest and is revocable during the life of the maker. This instrument vested in praesenti in the survivor of these brothers the right to purchase this stock from the estate of the other. It is true the right was not to be exercised until the death of one of them, an event certain to happen but uncertain as to time; but when it did occur such exercise was based upon a right created and vested at the time of the execution of the agreement. Neither had the right to revoke the option-to-purchase provision. This was part of the consideration of the contract. It was interwoven into the remainder of the agreement. All other provisions had been fully performed to the death of J.Q. Strange. The fact that the stock was worth at the time of his death several times its value when the contract was made does not alter the right. The parties did not know this would be true, and it is not perceived how the validity of the agreement would have been affected had they contemplated that. The possible enhancement in value accrued as much to the one as to the other. The contract must be viewed in the light of the circumstances surrounding these brothers at the time of its execution. So viewed it is clear they intended (1) this stock should be held and used for their mutual benefit during their joint lives and (2) upon the death of either the survivor should have the right to purchase it for ten thousand dollars. This is a contract — not a will.
A contract to make a will, founded upon sufficient consideration, is valid and binding. Price v. Craig, 164 Miss. 42, 143 So. 694.
Appellee further contends that the additional assessment is authorized under section 5, chapter 109, Laws of 1918 (chapter 125, Code of 1930; chapter 129, Laws of 1934), imposing a tax on the transfer of property, as a tax on the right to receive it, when the transfer is by deed, sale, gift, etc., made in contemplation of death, "without valuable and adequate consideration." Aside from whether this statute could have any retroactive effect upon this prior contract (Nichols v. Coolidge, 274 U.S. 531, 47 S.Ct. 710, 71 L.Ed. 1184, 52 A.L.R. 1081; Hassett v. Welch, 303 U.S. 303, 58 S.Ct. 559, 82 L.Ed. 858; Ferguson, Collector, v. Dickson, 3 Cir., 300 F. 961), it is clear the contract was founded upon "valuable and adequate consideration." The fairness and adequacy of the consideration must be measured as of the time the contract was executed rather than at the time the option was exercised.
The Federal Inheritance Tax Law, as regards the aspects under consideration, is in substance the same as the Mississippi statutes. The following cases, construing contracts similar to the one involved herein, under that law, are decisive of the question against the contention of appellee; Ferguson, Collector, v. Dickson, 3 Cir., 300 F. 961, certiorari denied 266 U.S. 628, 45 S.Ct. 126, 69 L.Ed. 476; Wilson v. Bowers, D.C.S.D.N.Y., 51 F.2d 261; Lomb v. Sugden, 2 Cir., 82 F.2d 166; Bensel v. Commissioner of Internal Revenue, 36 B.T.A. 246, affirmed 3 Cir., 100 F.2d 639; Mitchell v. Commissioner of Internal Revenue, 37 B.T.A. 1.
This being an enforcible contract, the value of the stock to the estate of J.Q. Strange was the sale price specified therein.
Reversed and remanded.