In Re Estate of Wallace ( 1929 )

The facts of this case are free from dispute; they are succinctly set forth in a stipulation of the parties. Omitting the formal parts, and the recitals which state how this dispute arose, the stipulation sets forth:

"That the H.W. Wallace company was organized as an Oregon corporation on the 15th day of October, 1909, with its principal office in the city of Portland, Multnomah county, Oregon. The amount of capital stock was $4,800, divided into 48 shares of the par value of $100 each.

"The object of the corporation as stated in its articles was as follows: * * *

"On October 15, 1909, H.W. Wallace subscribed for 46 shares of the capital stock of said corporation, W.H. Wallace for one share * * *

"On October 6, 1909, it was agreed by the directors of said corporation that the following described real estate owned by H.W. Wallace be accepted in payment of the said subscriptions of the capital stock of said corporation: (here follows the description of four parcels of real property).

"And it was understood and agreed at the time that the grantor, H.W. Wallace, should retain and enjoy a life estate in the property and on or about October 27, 1909, said H.W. Wallace conveyed by good and sufficient deeds all of said real estate to said H.W. Wallace company, but said deeds did not contain a reservation of a life estate in said H.W. Wallace, but in conformity with his understanding with the directors said Hugh W. Wallace improved said real estate situated in Portland, Oregon, with buildings which increased the value thereof and likewise increased the income therefrom.

"That on or about the 9th day of April, 1909, said Hugh W. Wallace transferred to five of his children hereinafter named 35 shares of the capital stock in said H.W. Wallace company, as a gift to each of said children, to wit: To William H. Wallace seven shares, to George B. Wallace seven shares, to Catherine W. Rice seven shares, to Grace W. Griggs seven shares, and seven shares to Sarah W. Russell who died prior to the death of said Hugh W. Wallace and said seven shares were included in the inventory in the estate of Sarah W. Russell, deceased, and became subject to inheritance tax in said estate of Sarah W. Russell, deceased.

"That said Hugh W. Wallace retained the income from the real estate owned by the said H.W. Wallace company up to the time of his death, February 10, 1926, and paid the taxes and assessments against the property owned by said corporation, managed said real estate and the affairs of said corporation."

It will be observed from the foregoing that Wallace parted with the 35 shares of stock as a gift to his children and that when one of his children died her seven shares were included in the inventory of her estate; this last-mentioned detail was evidently included in the stipulation to emphasize the fact that Wallace had fully and finally parted with all dominion over and ownership in the 35 shares of stock. We pause, also, to observe that while Wallace retained a life estate in the real property and the income from it, the stipulation contains no recital that the corporation was dependent exclusively upon this real estate for its income. The statement that Wallace "managed said real estate and the affairs of said corporation" is the nearest approach to such a statement, yet it falls far short from saying that the stock derived no benefit during Wallace's lifetime. The corporation was granted power by its articles of incorporation to deal in personal property, mortgages and leases and negotiate loans, as well as deal in real property. It is altogether possible under the foregoing stipulation that after the children received their 35 shares of stock the same may have greatly increased in value. It will be observed from the foregoing stipulation that the parties do not say that the children failed to vote their stock in the selection of the directors of the company, or failed to exercise any other privilege that stock ownership confers. It is true that the stipulation recites that Wallace "managed * * * the affairs of the corporation" but that result may have come by virtue of the stockholder's wishes and votes.

Clarifying the situation still further is the following statement contained in the brief of the respondent: "Contemplation of death is not an issue in this case. Respondent does not contend that Hugh W. Wallace was in contemplation of death when he made the gifts of stock in question."

The sole question then before us is whether a share of stock in a corporation, which was paid for at the time of its subscription by a conveyance of real property in which the subscriber reserved a life estate, is "property * * * intended to take effect in possession or enjoyment after the death of * * * donor," as defined in § 1191, O.L. That this question must be answered in the negative seems clear. The passing of title to the stock was not postponed until the death of Wallace. Each of his children, immediately upon receipt of his seven shares, could sell it, hypothecate it, or do with it any other act that possession and ownership of corporate stock confers. The mere fact that the stock would not earn any dividends until Wallace died, if that was a fact, does not establish that the gift was not "to take effect in possession or enjoyment" until after his death. Had he attempted to make a gift of these four pieces of real property to his children, subject to a life estate, respondent's argument might possess some merit; but such is not our case. To the contrary the real property was not given to the children, nor to any other person; it was conveyed to a corporation to discharge a debt which Wallace incurred when he subscribed for 46 shares of its capital stock. Five years later, when Wallace gave his children 35 shares of this stock, he did not thereby give them the real property; the law of corporations has repeatedly reiterated the fact that the owner of stock in a corporation is not the owner of real property held by it.

It may be well to state, although the stipulation of the parties makes the facts clear, that the gift of the stock operated in praesenti; it was an executed transaction, as distinguished from one that is executory; no further act was required of Wallace to vest in his donees the full and complete title to the stock; the transaction was not revocable, but absolute; and finally, when Wallace delivered to his children these 35 shares of stock, title passed out of him and into the donees.

To recapitulate, it will be observed that we are not concerned here with the real property, but with the shares of stock; it is the latter which the respondent proposes to tax. The mere fact that a portion of the assets of the corporation were encumbered with a life estate no more identifies the gift of this stock as one "intended to take effect in possession or enjoyment after the death of the grantor" than if they had been encumbered with a mortgage payable at the time of Wallace's death in an amount so large that it would have consumed all the earnings of the properties in the meantime. It is not charged that Wallace was actuated by fraud, bad faith, or a desire to avoid the demands of any law. We are justified in believing that proper motives prompted Wallace in this disposition of his property, and since no statute of this state exacts a tax from a parent who gives to his children some shares of capital stock none is required here. I, therefore, dissent from the opinion of the majority.