Board of Equal. v. Fall

I concur in the result announced in the majority opinion but not in all that is said therein.

The Facts. David Perry died testate in the state of California leaving property of the total appraised value of $134,494.19. Testator's will was filed and admitted to probate in the state of California whereof he claimed to be a resident and ancillary probate proceedings were instituted in the district court of Lewis and Clark county, Montana, wherein respondent was appointed administrator with will annexed. The inventory and appraisement filed in said district court lists testator's property in Montana as an undivided 18.75% of certain specifically enumerated real and personal property appraised at $189,445.15, situate in Lewis and Clark county, Montana, and represented to be partnership property in which testator's undivided interest therein was appraised at $35,309.72.

In his final report and petition to the state board of equalization for determination of inheritance tax, respondent administrator represents that, except for real estate appraised at $2,329.69, testator's property in Montana consists wholly of intangible personal property the transfer of which is claimed to be exempt from the payment of inheritance tax to the state of Montana under the provisions of Chapter 3 of the Montana Session Laws, 1945, which provides:

"Section 1. The tax imposed by Section 10400.1, Section 10400.2, Section 10400.3, Section 10400.11 and Section 10400.15 of the Revised Codes of Montana, 1935 in respect of personal property, except tangible personal property having an actual situs in this State, shall not be payable:

"(1) If the decedent is a resident of a state or territory of the United States which at the time of the transfer did not impose a transfer tax or death tax of any character in respect of personal property of residents of this State, except tangible personal property having an actual situs in that state or territory; or

"(2) If the laws of the state or territory of residence of the non-resident decedent at the time of the transfer contained a reciprocal provision under which non-residents of that state were exempted from transfer tax or death taxes of every character in respect of personal property, except tangible personal property having an actual situs in that state, providing the state or territory of residence of such non-resident decedent allowed a similar exemption to residents of this State."

Clearly the foregoing Act has no application to the transfer of any real property or of any tangible personal property having an actual situs in this state. To come within the exemption provided for in the Act the transfer must be of intangible personal property having no actual situs in the state of Montana.

Death effected a transfer of testator's property to the beneficiary under his will. Whether such transfer of testator's property in Montana is exempt from the payment of inheritance tax under the provisions of Chapter 3, Laws of 1945, supra, depends upon the character of the property so transferred.

Property is either real or personal. Sec. 6666, Rev. Codes 1935.

Real property consists of (1) land, (2) that which is affixed to land, (3) that which is incidental or appurtenant to land, and (4) that which is immovable by law. Sec. 6667, Rev. Codes.

Every kind of property that is not real is personal. Sec. 6672, Rev. Codes.

By law, flumes, hose, pipes, blacksmith shops, mills and all other machinery or tools used in working or developing a mine, including dredges placed on mining ground and used for working and developing the mine, are deemed affixed to the mine so that they become a part of the real property. Sec. 6670, Rev. Codes 1935; Caird Engineering Works v. Seven-up Gold mining Co.,111 Mont. 471, 111 P.2d 267; Story Gold Dredging Co. v. Wilson,106 Mont. 166, 76 P.2d 73; Britannia Mining Co. v. United States Fidelity Guaranty Co., 43 Mont. 93, 115 P. 46; Dietrich v. Martin, 24 Mont. 145, 60 P. 1087, 81 Am. St. Rep. 419; Montana Electric Co. v. Northern Valley Mining Co., 51 Mont. 266,153 P. 1017.

"A thing is deemed to be incidental or appurtenant to land when it is by right used with the land for its benefit, as in the case of a way, or watercourse, or of a passage for light, air, or heat from or across the land of another." Sec. 6671, Rev. Codes.

"An estate in real property, other than an estate at will or for a term not exceeding one year, can be transferred only by operation of law, or by an instrument in writing subscribed by the party disposing of the same, or by his agent thereunto authorized by writing." Sec. 6859, Rev. Codes 1935. See also sec. 10611, Rev. Codes.

The character of the ownership of property is to be determined from the mode of its acquisition.

The bulk of the property listed in the inventory and appraisement incorporated in the majority opinion herein was acquired in December 1938 by the testator, his two brothers and John W. Schroeder, as grantees, by and through a deed from Perry-Schroeder Mining Company, Inc., as grantor, which deed reads:

"This indenture, Made and delivered this 5th day of December, 1938, by and between Perry-Schroeder Mining Company, Inc., a Montana corporation with principal place of business at 26 West Sixth Avenue, Helena, Montana, as first party, and David Perry of Seattle, Washington, as second party, Owen H. Perry of Helena, Montana, as Third Party, Wm. M. Perry of Helena, Montana, as fourth party, and John W. Schroeder of Helena, Montana, as fifth party, witnesseth:

"That for and in consideration of the sum of One Dollar ($1.00), together with other good and valuable considerations, the receipt of which by the first party from each of the other parties hereto is hereby acknowledged, the first party does hereby grant, bargain, sell, warrant and convey unto said second party an undivided 3750/10,000 interest, unto said third party an undivided 2500/10,000 interest, unto said fourth party an undivided 1250/10,000 interest, and unto said fifth party an undivided 2500/10,000 interest, of, in and to all of the property and assets of the first part, real, personal and mixed, and wheresoever situated, including, among other property, the following:

"United States Mineral Entry No. 1646 in Sections three (3), Four (4), Five (5), Nine (9), Ten (10) and Eleven (11), in Township Eleven (11) North, of Range Two (2) West, M.P.M. in Lewis and Clark County, Montana, save that part of said Mineral Entry quitclaimed by William M. Perry to The Montana Power Company by deed of date May 19, 1937, and recorded in Book 117 of deeds at page 75, of the records in the office of the County Clerk and Recorder for said County;

"Also the Northeast quarter of the northeast quarter (NE 1/4 NE 1/4) of section ten (10), in Township Eleven (11) North, of Range Two (2), west, of the Principal Meridian, Montana, containing forty (40) acres, subject to that said certain reservation in Patent No. Helena 013354 and reading as follows:

"`Subject to any vested and accrued water rights for mining, agriculture, manufacturing, or other purposes, and rights to ditches and reservoirs used in connection with such water rights, as may be recognized and acknowledged by the local customs, laws, and decisions of courts; and there is reserved from the lands hereby granted a right of way thereon for ditches or canals constructed by the authority of the United States. Reserving unto the United States, its permittee or licensee, the right to enter upon, occupy and use any part or all of that portion of said land lying within 90 feet of the center line of the transmission line right of way of the Great Falls Power Company for the purposes provided in the Act of June 10, 1920, (41 Stat. 1063 [16 U.S.C.A. sec. 791a et seq.]) and subject to the conditions and limitations of section 24 of said act, as amended by the act of August 26, 1935 (49 Stat. 846 [16 U.S.C.A. sec. 818]).'

"Also the N 1/2 of the NW 1/4, and the NW 1/4 of the NE 1/4, and the W 1/2 of the SW 1/4 of the NE 1/4 and the W 1/2 of the E 1/2 of the SW 1/4 of the NE 1/4 of section 11, in Township 11 north, of Range 2 West.

"Also that certain unpatented placer mining claim situated in the County of Lewis and Clark, State of Montana, and particularly described as, the south half of the northeast quarter (S 1/2 NE 1/4) and the west half of the southeast quarter (W 1/2 S.E. 1/4) of section five (5) in township eleven (11) north, range two (2) west, M.P.M., notice of location of which was recorded July 10, 1937, in the book `O' of placers at page 289, of the records in the office of the County Clerk and Recorder for said Lewis and Clark County,

"All situated in the County of Lewis and Clark, State of Montana;

"Also right of way and power line now constructed thereon between Hauser Dam on the Missouri River and said mineral entry;

"Also, 2. That certain lease agreement of date March 1st, 1937, recorded in Book 36 of miscl., page 291, of the records in the office of said Clerk and Recorder, between The Montana Power Company and Perry-Schroeder Mining Company, (a copartnership), leasing for placer mining purposes a part of said Mineral Entry No. 1646, as said lease is modified by correction agreement recorded at page 298 of said Book 36 of Miscellaneous Records;

"Also all dredges, mining machinery, tools, equipment and supplies now owned or used by said corporation;

"Also any and all right, title, claim and interest which the party of the first part has in and to the waters of Soup Creek and Trout Creek in said Lewis and Clark County;

"Also all other lands and personal property of every kind and character, and wheresoever situated, owned by said corporation or in which it may have an interest.

"This conveyance is made subject to the lien and rights of reconstruction finance corporation, its successors and assigns, under that certain trust indenture and mortgage executed by first party hereto to reconstruction finance corporation under date of May 18, 1938, recorded in book 47 of mortgages at page 316, and filed as a chattel mortgage in the records of the office of said County Clerk and Recorder, and to the debt thereby secured or intended to be secured, which said mortgage indebtedness the grantees hereunder jointly and severally assume and promise to pay.

"In witness whereof, the first party hereto has caused its corporate name and seal to be hereunto affixed, pursuant to resolution of its Board of Directors and resolution of its stockholders in meeting, by its proper officers, hereto duly authorized, the day and year in this instrument first above written.

"Perry-Schroeder Mining Company, Inc. "By David Perry _______________________________ "Its President

"ATTEST: "John W. Schroeder ___________________

"Secretary. (Duly Acknowledged.) "(Corporate Seal) Filed December 12, 1938."

The above deed created for the testator, David Perry, as grantee, "an undivided 3750/10,000 interest * * * of, in and to all the property" of the grantor corporation. The word "undivided" in the deed indicates an intention that the grantees shall hold in cotenancy with the grantor or its successors in interest. See 16 Am. Jur., Deeds, page 577, note 16; Gratz v. Land River Imp. Co., 7 Cir., 82 F. 381, 40 L.R.A. 393; 3 Bouvier's Law Dictionary, Rawle's 3rd Revision, page 3352; Black's Dictionary of Law, 3rd Ed., page 1777.

In the deed creating the undivided interests in favor of testator and the three other persons named therein as grantees, there is no declaration that in any wise or manner indicates that the unequal and separately designated interests were acquired by the four grantees in partnership for partnership purposes nor does the deed expressly or otherwise declare the transfer to the grantees to be a joint tenancy. Secs. 6680 and 6681, Rev. Codes 1935. It therefore follows as a matter of law that each interest created by the deed in favor of the several persons in their own right is an interest in common. Secs. 6682 and 6683. Rev. Codes. See Hochsprung v. Stevenson, 82 Mont. 222, 266 P. 406; Isom v. Larson, 78 Mont. 395, 255 P. 1049; Rodda v. Best, 68 Mont. 205,217 P. 669; Mullins v. Butte Hardware Co., 25 Mont. 525,65 P. 1004, 87 Am. St. Rep. 430; United States v. Northern P. R.R. Co., 6 Mont. 351, 12 P. 769.

A tenant in common owns an undivided interest in the property, and the property so owned must be undivided property. United States v. Northern P. R.R. Co., supra.

While the ownership of the grantor corporation was sole, sec. 6678, Rev. Codes, and absolute, sec. 6676, Rev. Codes, yet by its deed of conveyance it made the ownership of the four grantees qualified, sec. 6677, Rev. Codes, by granting to them interests in common, sec. 6679, subdiv. 3, Rev. Codes. Thereafter and until a partition takes place or there is a conveyance by the tenants in common vesting the entire title in one person, natural or artificial, the property remains undivided in the eyes of the law.

In a tenancy in common each cotenant buys in, sells out, or encumbers his interest at pleasure, regardless of the knowledge or consent or wishes of his co-owners, and without affecting the legal relation between them beyond the going out of one and the going in of another.

In the case before us there was no transfer or conveyance by the tenants in common vesting the entire interest in a single person, sec. 6676, Rev. Codes. The ownership of the property therefore continued to be qualified, sec. 6677, and vested in four co-owners as tenants in common, secs. 6682 and 6683.

There was no transfer or conveyance by David Perry in his lifetime, of his undivided 3750/10,000 interest or any part thereof in the described property. Accordingly, upon testator's death, the legal title to said real property passed under his will to his devisee. Had there been no will the legal title to the real property so left by decedent would have passed to and become vested in his heirs at law.

After the delivery to them of the deed of December 5, 1938, the four co-owners operated a certain Yuba dredge and other machinery, tools and equipment located upon the mining claims and lands so owned or leased by them which dredge, machinery, tools and equipment they actually used in working, developing, mining and in extracting gold and other minerals from said mining claims and property up to the date of the death of testator.

Almost eleven months after the co-owners acquired the legal title to the mining claims, leases and other real property described in the deed of conveyance, they entered into and executed the amended articles of partnership incorporated in the majority opinion, associating themselves as copartners and expressly stipulating that such copartnership shall be limited to and that it shall "be confined to taking over the property * * * of Perry-Schroeder Mining Company, Inc., * * * placer mining on the so-called Eldorado Bar in Lewis and Clark County, Montana, including * * * such business as may be incident to the conduct of such placer mining industry."

The articles merely indicate that the four subscribing persons owning mining claims and property associated themselves in the business of placer mining in Lewis and Clark county, Montana, and that their respective interests in the business shall be the same and in the same proportion as the respective undivided interest conveyed to each by said deed of December 5, 1938. The articles are silent with respect to sharing in the losses of the placer mining venture. Thus there is nothing in the above amended articles of partnership to indicate that the association of the four co-owners in the enterprise was not purely a mining partnership as defined in sections 8050 and 8051, Rev. Codes.

"A mining partnership exists when two or more persons who own or acquire a mining claim for the purpose of working it and extracting the mineral therefrom actually engaged in working the same." Sec. 8050, Rev. Codes.

"Generally, a mining partnership exists whenever several owners agree or unite to operate or work a mine, whether they are tenants in common or owners in any other relation." 36 Am. Jur., Mines and Minerals, p. 393, sec. 159, notes 6 and 7.

"An express agreement to become partners or to share the profits and losses of mining is not necessary to the formation and existence of a mining partnership. The relation arises from the ownership of shares or interests in the mine and working the same for the purpose of extracting the minerals therefrom." Sec. 8051, Rev. Codes.

In Kahn v. Central Smelting Co., 102 U.S. 641, 26 L. Ed. 266, the court said: "Mining partnerships as distinct associations, with different rights and liabilities attaching to their members from those attaching to members of ordinary trading partnerships, exist in all mining communities; indeed, without them, successful mining would be attended with difficulties and embarrassments, much greater than at present. In Skillman v. Lachman, 23 Cal. 198, 83 Am. Dec. 96, the question of the relation existing between parties owning several interests in a mine came before the Supreme Court of California, and that court said that `Whatever may be the rights and liabilities of tenants in common of a mine not being worked, it is clear that where the several owners unite and cooperate in working the mine, then a new relation exists between them; and, to a certain extent, they are governed by the rules relating to partnerships. They form what is termed a mining partnership, which is governed by many of the rules relating to ordinary partnerships, but also by some rules peculiar to itself, one of which is that one person may convey his interest in the mine and business without dissolving the partnership.' 23 Cal. at page 203. * * * Associations for working mines are generally composed of a greater number of persons than ordinary trading partnerships; and it was early seen that the continuous working of a mine, which is essential to its successful development, would be impossible, or at least attended with great difficulties, if an association was to be dissolved by the death or bankruptcy of one of its members or the assignment of his interest. A different rule from that which governs the relations of members of a trading partnership to each other was, therefore, recognized as applicable to the relations to each other of members of a mining association. The delectus personae, which is essential to constitute an ordinary partnership, has no place in these mining associations. (Citing cases.)"

In 36 Am. Jur., Mines and Minerals, page 393, section 159, it is said: "A mining partnership, like any other partnership, may be created by express contract of the parties, but it is not necessary, in order to effect its formation or to continue its existence, that there be an express agreement to become partners or to share the profits and losses of the mining. The existence of such a partnership may be inferred from the acts of the parties and the circumstances appearing in the case."

"Where tenants in common of mines or leases become partners with reference to the operation thereof, the presumption is that there is a mining partnership, rather than an ordinary general partnership, in the absence of an express agreement forming the latter, but such an agreement need not be proved by the express words of the parties and may be established by their acts and conduct." 40 C.J. 1145, notes 92 and 93.

Where the actual working of the mine has ceased, the relation of the co-owners is that of tenants in common and no more. Harris v. Lloyd, 11 Mont. 390, 28 P. 736, 28 Am. St. Rep. 475.

A mining partnership unlike an ordinary or general partnership is not dissolved when the interest of a mining partner passes to another person or persons as upon the death of the mining partner or the transfer of his interest. Southmayd v. Southmayd, 4 Mont. 100,5 P. 318; Harris v. Lloyd, supra; Congdon v. Olds,18 Mont. 487, 46 P. 261.

Upon the death of a partner in a mining partnership the surviving partners have no right to take control of the decedent's interest as surviving partners, this right being one which only exists where there is the delectus personae. Jones v. Clark, 42 Cal. 180.

It is quite clear that in conducting their placer mining operations on placer mining claims and land in which the three Perrys and Schroeder each owned an undivided interest, said co-owners were mining partners. Hence the death of David Perry did not operate to dissolve the mining partnership, and his devisee succeeded to his interest, and occupies the same relative position that David Perry would occupy if alive, namely that of a tenant in common. Boehme v. Fitzgerald, 43 Mont. 226,115 P. 43.

But it is urged that the co-owners formed an ordinary, general partnership to conduct the mining operations and developments on the placer mine in question. However, a partnership is not a legal entity and it does not exist independent of the partners. State v. Yegen, 74 Mont. 126, 138, 238 P. 603.

"All authorities agree that inasmuch as a partnership is not a person, either natural or artificial, it cannot, as such, take or hold the legal title to real estate." 40 Am. Jur., Partnership, p. 193, sec. 93.

"In all cases the presumption is against the inclusion of the real estate in a partnership, and in order that it may be treated as belonging to the partnership, the intention must be clearly manifested. There is also a presumption that the ownership of real estate is where the muniment of title places it." 40 Am.Jur., Partnership, p. 197, notes 8 and 9.

Here the muniment of title, namely the deed of December 5, 1938, from the corporation grantor to the testator and the other three named grantees, places the title to the property conveyed in the grantees as tenants in common.

"The American theory is that the legal title of the partnership realty is held by the copartners as tenants in common, subject in equity to be applied to the payment of the debts of the firm, and that when such debts are paid, all the incidents and qualities of real estate revive; that the trust in favor of the partnership exists only in behalf of partnership objects and liabilities, and these being fully discharged, the legal title is released from all trusts and will descend to the heir as in the case of any other tenancy in common." 14 Am. Jur., Cotenancy, p. 77, sec. 3. Also see the annotation to Goldthwaite v. Janney, 48 Am. St. Rep. at pages 71-74.

In Shearer v. Shearer, 98 Mass. 107, the court considered the circumstances under which an equitable conversion of real estate into personalty is worked for the purpose of adjusting the affairs of a partnership and then said: "But the shares in the body of the partnership property, those interests which are not measured by precise amounts, but consist in a common proprietorship after all special claims are satisfied, stand upon different footing. These interests are determined by the proportions fixed by the articles or organic law of the partnership. When the beneficial interests and the legal title correspond, it has already been decided that the rights of the partners in real estate so held will be left to adjust themselves by descent of the legal title, with its incidents, as real estate of the several partners, held in common. Wilcox v. Wilcox, supra, 13 Allen, Mass., 252. When the legal title is otherwise held, it is held in trust; and the equitable title descends in like manner and with like incidents, except as to dower. The office of equity in such cases is merely to declare the trusts, and compel the legal title to serve the equitable interests. This is accomplished by directing such conveyances as will make the legal title of the several parties conform to their respective beneficial interests. By the rule above indicated, all partnership rights and obligations are secured, and all equities growing out of that relation are met and answered. To require equitable interference to go further, and convert all real estate into personalty, for the mere purpose of a division, seems to us to be an unnecessary invasion of the rights of the copartners, and, when undertaken in the interest of one class of the representatives of a deceased partner against another class of representatives of the same partner, it seems to be a departure from the legitimate sphere of equitable jurisdiction. It is not the province of equity to seek to counteract or modify the operation of the laws of descent and distribution."

In the instant case there are no facts nor circumstances that would work a conversion of the real estate of the co-owners into personalty. On the date that David Perry died the mining business and venture in which he was then engaged and which was then being conducted under the name of Perry-Schroeder Mining Company, a partnership, was thoroughly solvent with no debts, with no creditors and with no partnership obligations outstanding. The business then had on hand in cash $5,999.36 and invested in United States bonds the sum of $25,068.75.

Even though the real estate used in the placer mining business conducted by the co-owners under the firm name and style of Perry-Schroeder Mining Company, a partnership, had been acquired with partnership assets, of which there is no evidence in the record, nevertheless since there were no partnership obligations under the American theory, the realty is regarded as vested in the heirs or devisees of the deceased partner in the same manner as if its owners had been cotenants merely. Summey v. Patton,60 N.C. 601, 86 Am. Dec. 451; Foster's Appeal, 74 Pa. 391, 15 Am.Rep. 553; Yeatman Heirs v. Woods, 14 Tenn. 20, 27 Am. Dec. 452.

Thus it becomes wholly immaterial to determine whether the testator and his co-owners operated their dredge and mined their placer ground and mining claims as a mining partnership or as an ordinary general partnership. In either event the undivided 3750/10,000 interest or share in the real property conveyed to David Perry by the deed of December 5, 1938, including the dredge, continued and continues to be real property having an actual situs in the county of Lewis and Clark, state of Montana, title of which property stood in testator and since his demise stands in his devisee as a tenant in common.

The majority opinion recognizes that testator and his three associates owned most of the property involved before the formation of the partnership and that presumptively the interest of each co-owner was an interest in common but it then holds that section 2 of the amended articles of partnership shows that the property was intended to be partnership property. Such holding overlooks the facts that the title to the real property was conveyed by the corporation to testator and his three associates by the deed of December 5, 1938; that the amended articles of partnership were not executed until more than ten months after the grantees acquired their title and that such articles contain no words of conveyance nor do the articles constitute a muniment of title acquired by the testator for the property in quesfor a deed of conveyance. See Hochsprung v. Stevenson, 82 Mont. 222, at page 235, 266 P. 406. The one and only muniment of title acquired by the testator for the property in question is the deed from the corporation to himself and the three other grantees and the legal title still remains where it is there placed as to all the grantees except the testator whose undivided interest in the real property has now passed to his devisee.

To determine the character and intent expressed in a written instrument it must be taken "by its four corners" and the character and intent must be there disclosed by the language employed in the writing itself (Hochsprung v. Stevenson, supra) and not by parol testimony given after the death of one of the signers by two of the survivors and the scrivener who drafted the instrument. The admission of such testimony over the proper and timely objections of the state was clearly error.

Parol evidence cannot be received to add to, limit, vary or contradict the terms of a written contract of partnership nor to show the understanding of the parties as to the effect of the contract, the terms of which are not ambiguous, or to show that the contract was intended to have an operation different from that imported by its terms. The law is as stated in 32 C.J.S., Evidence, sec. 909, namely: "A written contract of partnership cannot be extended, limited, or otherwise varied by parol evidence to show that the true relation of the parties or their rights and liabilities are different from those appearing in the written instrument, for all of their prior negotiations and agreements with respect to the proposed partnership are merged in the articles of partnership."

Again, in 32 C.J.S. Evidence sec. 794, it is said: "It is elementary law that where the title to real property is in issue, the deeds, patents, wills, mortgages, or other muniments of title constitute the best evidence, and parol evidence is not admissible to prove title unless their absence is satisfactorily explained."

The bulk of the estate owned and left in Montana by the testator consists of the undivided interest in real property having its actual situs in Lewis and Clark county, Montana, transferred to the testator by the deed from the corporation of December 5, 1938. At no time during his lifetime did the testator subscribe or execute any deed of conveyance to any part of said real property so acquired by him and it remained real property still having its actual situs in the county of Lewis and Clark, state of Montana, the transfer whereof on the death of testator was taxable as tangible property having an actual situs in this state.

In addition to the aforesaid real property the testator, at his death, owned an undivided interest in cash in the amount of $5,999.36, in United States bonds in the amount of $25,068.75 and in accounts receivable amounting to $847.70, all of which undoubtedly represent surplus on hand or earnings from the placer mining business so systematically and continuously carried on and conducted for years in Lewis and Clark county, Montana, on placer mining ground therein situate, all of which property had and has an actual situs in this state wherein such business and operations were so conducted. See State ex rel. Rankin v. Harrington, 68 Mont. 1, 217 P. 681; Commercial Credit Co. v. O'Brien, 115 Mont. 199, 146 P.2d 637; In re Small's Estate,151 Pa. 1, 25 A. 23.

For the reasons above given and upon the authorities above cited the order of the district court to the effect that "no inheritance tax is due the state of Montana from the above entitled estate" finds no support either in fact or in law.