74 P.2d 401 | Mont. | 1937
Lead Opinion
These appeals are from the final order of the district court of Silver Bow county determining the inheritance tax due the state in the estate of William A. Clark, Jr., deceased.
The state by its appeal seeks a review of that portion of the order allowing as a deduction the total amount of the federal estate tax paid for the purpose of determining the clear market value of the property of the estate in order to compute the amount of the inheritance tax due the State of Montana.
The executors of the last will and testament of the deceased, and the testamentary trustees for George John Pale, to whom the residue of the estate was left under the terms of the will, have filed their cross-appeal seeking a review of the same order of the district court, and in particular of that portion thereof fixing the tax as to this residue upon the basis that George John Pale was a stranger to the blood, instead of at the rate fixed by the statute for an adopted child.
William A. Clark, Jr., was a resident of Silver Bow county, and died testate on June 14, 1934. His last will and testament was duly admitted to probate in the district court of that county. He left estate partly within and partly without the State of Montana. There is no controversy as to the gross value of the estate. He left numerous legacies, bequests, and devises to individuals and institutions about which there is no controversy.
The two questions here involved may be stated as follows: Was the amount of the federal estate tax a proper deduction in arriving at the clear market value of the property of the estate?
Was George John Pale an adopted child of the deceased, *406 within the meaning of the applicable statutes? We proceed to the consideration of the first question.
Our first Inheritance Tax Law comprised sections 7724 to 7751 of the Revised Codes of 1907, and it was expressly repealed by a new Act in 1921 on the same subject. (Secs. 10377 to 10400, inclusive, Rev. Codes 1921.) Thus far no mention was made in the inheritance tax laws by our legislatures, when considering deductions, in arriving at the clear market value of estates, of federal estate taxes paid.
In 1923 (Chapter 65, Laws 1923) subdivision 7 of section 10377 of the Revised Codes of 1921 was rewritten, so that, in determining the "clear market value" of property passing by transfers within the purview of the Act, the amount of federal estate tax was included among the deductions. The applicable portion of the amended section reads as follows: "The following deductions, and no other shall be allowed; debts of the decedent owing at the date of death, expenses of funeral and last illness, all state, county and municipal taxes which are a lien against property situated in this state at the date of death, the ordinary expenses of administration, including the commissions and fees of executors and administrators and their attorneys actually allowed and paid, and Federal estate taxes due or paid." (Laws 1923, Chap. 65, sec. 1 (8).)
By the same Act, subdivision 4 of section 10387, Revised Codes of 1921, was also amended so as to read as follows: "Whenever a tax may be due from the estate, or the beneficiaries therein, of any resident or nonresident decedent upon the transfer of any property, when the property or estate left by such decedent is partly within and partly without this state, or upon any stocks, bonds, mortgages, or other securities representing property or estate partly within and partly without the state, any beneficiary of such estate shall be entitled to deduct only a portion of his share of the debts, expenses of administration, federal estate taxes, and of his Montana exemption, equal to the proportion which his interest in the property within the state or within its jurisdiction bears to his entire interest in such estate." (Laws *407 1923, Chap. 65, sec. 11 (5).) This latter section relates in its entirety to estates partly within and partly without the state, and, in particular, to the procedure to be followed in such estates in the computation and collection of the inheritance tax from them.
Thus, the Inheritance Tax Law clearly continued to allow federal estate taxes as a proper deduction until the amendment of 1927 (Chap. 105, Laws 1927), when the already amended section 10377, supra, was again amended (sec. 1) so that after enumerating the various items properly deductible in arriving at the clear market value of the estate, the amended Act provided as follows: "But no deduction shall be made for any federal estate inheritance or transfer taxes paid to the United States." By the same Act (sec. 2) the provisions of section 10387, which we have quoted above, were further amended by inserting the identical language appearing in section 10377 as it was amended by the same Act, with reference to federal estate taxes.
In 1935 the legislature, by Chapter 186 (sec. 1), again amended what was then section 10377 of the Revised Codes of 1921, as then amended, now section 10400.1 of the Revised Codes of 1935, by inserting in subdivision 8, among the deductions allowable in arriving at the clear market value of the estate, the following language: "And federal estate taxes due or paid." The legislature did not rewrite or expressly amend amended section 10387 of the Revised Codes of 1921, now, as stated above, section 10400.11 of the Revised Codes of 1935, and that section remains unchanged in so far as it attempted to enumerate the deductions, and left the express language of the section in the same condition as it existed after the amendment of 1927.
In Chapter 186, Laws 1935 (sec. 1), the entire section 10400.1 was set out at length, with the amendments incorporated therein. As a part of this chapter a provision is found in section 4 to the effect that "all Acts and parts of Acts in conflict herewith are hereby repealed." *408
In may be observed, in passing, that between 1923 and 1935 other amendments to the Inheritance Tax Law were made, but since they in nowise affect its provisions in so far as the question at hand is concerned, we have not referred and will not refer to them, since so to do would tend to confuse rather than to clarify.
Subdivision 4 of section 10400.1, as it was amended in 1935, provides that the tax shall be imposed upon, and the provisions of the Act applied, "to all estates of all decedents who have died since the first day of April, 1921, and which estates remain undistributed on the date when this Act takes effect, to the same extent and in the same manner as though this Act had been in full force and effect at the dates of death of such decedents."
The deceased died since 1921, and his estate has not as yet[1] been distributed. The amended section (sec. 10400.1) declares that its provisions are applicable both to estates of residents and nonresidents alike. The state contends that the effect of the amendment of 1935 is to divide estates into two classes: (a) Those where all the property of the decedent is within the state, and (b) those where the property is partly within and partly without the state. It contends that if the estate of the decedent falls into the first class, the federal estate tax due or paid may be deducted in arriving at the clear market value of the estate; whereas, if the estate falls into the latter class, such deduction may not be made. Among its contentions, it is asserted that section 10400.47 prevents the provisions of the amendment of 1935 becoming operative against this and all estates where the date of death of the decedent antedated the effective date of the law. Section 10400.47 expressly repealed all then existing inheritance tax laws, but provided that their repeal should in nowise affect any suit, prosecution, or proceeding pending at the time the Act would take effect. The section preserved all existing rights which had accrued under the repealed laws. This section has never been amended or re-enacted since 1923; therefore, it cannot operate to preserve rights in the state or others which arose subsequent to its enactment. *409
It is further contended that section 10400.1 and section[2, 3] 10400.11 are in pari materia, and must be construed together so that both sections may stand. To be in parimateria, statutes must relate to the same subject-matter and must not be inconsistent with one another. (State ex rel. Riley
v. District Court,
We concede the rule to be that repeals by implication are not favored by the courts. (Box v. Duncan,
In the older inheritance tax statutes it was said these deductions might not be made. In the later statute the exact contrary appears, as applied, not to some transfers, but as to all. One statute asserts the affirmative, and the other the exact negative; hence they are inconsistent, one with the other, and the later must prevail. (Wilkinson v. La Combe, supra; Stateex rel. Esgar v. District Court, supra; State ex rel. Eagye
v. Bawden,
Following the conclusion of the argument and during our[4, 5] deliberations after we had arrived at the conclusion thus *410 far announced, it was suggested by one or more members of this court that if the Act of 1935 was applicable to this estate, and all others where the death of the deceased occurred prior to the operative date of the Act, and such estates were undistributed on that date, the Act, as to all such estates, was violative of section 39, Article V of our Constitution, reading as follows: "No obligation or liability of any person, association or corporation, held or owned by the state, or any municipal corporation therein, shall ever be exchanged, transferred, remitted, released or postponed, or in any way diminished by the legislative assembly; nor shall such liability or obligation be extinguished, except by the payment thereof into the proper treasury."
This constitutional question was neither suggested, briefed, nor argued in the case prior to its submission for decision. Thereupon we submitted two questions to respective counsel, which may be summarized as follows: (1) Does the Act of 1935 violate section 39 of Article V? (2) May this court with propriety in the circumstances decide this constitutional question? Together with these questions there was appended a list of citations from other jurisdictions which might be said to incline to the view that the Act was unconstitutional in so far as it retroactively allowed additional deductions in the computation of the tax, for the consideration of counsel. They have now filed briefs setting forth their arguments on the questions submitted by this court. We now proceed to a consideration of the second question.
Courts have adopted many rules, the observance of which enables them to refrain from passing upon the delicate question of the constitutionality of Acts of law-making bodies. The delicacy of these questions, where one of the three co-ordinate departments of the government is called upon to annul the Acts of another, justifies the attitude of the courts in declining, wherever possible, to pass upon the decision of constitutional questions. This court is now in the situation that if we do not consider this question, the case must be affirmed, at least on the appeal of the state; however, if it is decided that the Act is *411 unconstitutional, as applied to this estate, then the portion of the judgment from which the state has appealed must be reversed.
If an Act of the legislature is repugnant to the Constitution, the courts have the power, and it is their duty, so to declare. (State ex rel. Toomey v. State Board of Examiners,
In the case of Schwartz v. People,
All officers of this state, including judicial officers, are by constitutional mandate required to take an oath that they "will support, protect and defend the Constitution of the United States and the Constitution of the state of Montana." (Section 1, Art. XIX.) In the case of Marbury v. Madison, 1 Cranch. 137, 179,
"All taxes imposed by" the Inheritance Tax Act "shall be due[6, 7] and payable at the time of the death of the decedent" (sec. 10400.5, Rev. Codes), except as in the Act "hereinafter provided." The property of a testator, including devisees and bequests, vests in the devisees and legatees at the moment of the death of the testator. (Sec. 7040, Id.; In re Estate ofDeschamps,
The constitutionality of inheritance tax laws has been upheld[8, 9] by this court upon the theory that such law imposes a tax upon the right of privilege of receiving, and not a tax upon the property of the deceased. (Gelsthorpe v. Furnell, supra;State ex rel. Rankin v. District Court,
The state of California has a constitutional provision similar to that of section 39, Article V, supra. In the case of In reEstate of Stanford,
The California court followed the rule of the Stanford Case
in Trippet v. State,
In the case of McDonald v. Tax Commission,
In the case of Commonwealth v. Paynter's Admr.,
All of the foregoing decisions either follow, or to some extent rely upon, the case of In re Stanford's Estate, supra, wherein it was said: "`An heir or legatee must take his estate on such conditions as at the time the state may have imposed,' and that subsequent legislation could not affect such vested right; and *415 this rule, as already held, applies equally to the state, whose right to the fund in question accrued under the Act of 1893."
Counsel assert that these cases are not persuasive on the question at hand in view of the quotation supra, since this court has announced a rule, declared in the case of Gelsthorpe v.Furnell, supra, and followed in the case of State ex rel.Rankin v. District Court, supra, which is exactly contrary to that declared by the California court. In our two cases it was held that an inheritance tax may be retroactively imposed upon the beneficiaries of the estates of deceased persons who had died before the operative date of the Inheritance Tax Act, but whose estates had not been distributed. This contention presents a serious question, which, in turn, raises the further questions: Did these two previous decisions announce the correct rule of law, and (2) does the construction adopted by this court amount to a taking of property without due process of law within the Fourteenth Amendment of the federal Constitution, as decided by the Supreme Court of the United States in subsequent cases?
The first question would, perhaps, not be worthy of consideration in view of the long standing of the rule, and our hesitation to overturn the established rule of law, were it not for the existence of the second one. In other words, if our former decisions are not in accord with the decisions of the court which speaks with ultimate authority where the Constitution of the United States is involved, it would be idle for us to follow these decisions however long they may have endured.
We may observe, in passing, that whether the legislature has the power to impose a succession tax, with reference to an undistributed estate of a person who died before the Act imposing the tax was enacted, is a very difficult question and one on which the courts are not agreed and their decisions irreconcilably conflict. (Note. 26 A.L.R. 1461.)
This court in the case of Gelsthorpe v. Furnell, supra, first decided that the tax was not a property tax, but one on the right to receive. It then decided that the legislature might constitutionally tax retroactively, with reference to undistributed estates. And of this latter question the court said in part: *416
"Now, clearly, it is not obnoxious to the Constitution to lay a tax on the right to take, even where such right is vested while the estate is subject to the control of the district court to ascertain the exact value of the right, and the possession of an executor for purposes of administration. It is this important restriction to the vested right which respondent seems to have overlooked in the case. The acts of administration are conservatory means directed by the state to ascertain those vested rights. But, although vested, the rights of the legatees `are subordinate to the conditions, formalities, and administrative control prescribed by the state in the interests of its public order, and are irrevocably established upon its abdication of this control at the period of distribution.' (Carpenter v. Commonwealth of Pennsylvania, 17 How. 456 [
The first case cited is Carpenter v. Commonwealth ofPennsylvania, 17 How. 456,
The case of Succession of Oyon, 6 Rob. (La.) 504, 41 Am. Dec. 274, decided in 1844, held that the Taxing Act under consideration was not retroactive, after which construction the court did express views supporting the language used in theGelsthorpe Case. *417
The case of Succession of Deyraud, 9 Rob. (La.) 357, merely followed the preceding case involving similar facts, the same law, and was decided the same year.
The case of Prevost v. Greenaux, 19 How. 1, 7,
Thus it will be observed that the foundation, in so far as cited authorities are concerned, of that opinion, is none too secure on the point under discussion. Much is said in the[10] Gelsthorpe Case and in the Rankin Case, relative to the inherent power of the state giving it the right to lay the tax, but that power can only be exercised within the limitations of the state and federal Constitutions.
Furthermore, there is this important distinction between the Inheritance Tax Law of 1897 (Laws 1897, p. 83), which was under consideration in the Gelsthorpe Case, and all of our Acts commencing with the Act of 1923, the one considered in the *418 Rankin Case; namely, in the old Act the tax was not immediately due and payable on death, but only after an appraisement of the property to be made immediately after death. Therefore, under that Act, the right to the tax did not vest in the state until expiration of the length of time required for making an appraisement after death. By reason of this distinction what we have said with reference to the Gelsthorpe Case is not for the purpose of condemning it as an improper decision under the law there considered, but only to demonstrate that it is not a controlling authority on the question now under consideration.
In the case of State ex rel. Rankin v. District Court, supra, the court had under consideration the Inheritance Tax Law of 1923, which provided that the tax was due and payable immediately upon death; but no mention of any such provision is found in the opinion. It rests in the main, and quotes liberally from, the opinion in the Gelsthorpe Case. The effect of this provision, if any, is not discussed in the opinion in the RankinCase. However, the case of Cahen v. Brewster,
The courts of other states have taken a contrary view, which decisions have been cited and quoted from with approval by the Supreme Court of the United States in the Coolidge Case, supra. In that case the facts may be summarized as follows: On July *419
29, 1907, a husband and wife transferred real and personal property to trustees, the income from the property to be paid to the grantors during their lifetime, the principal to be divided equally among their five sons upon the death of the survivor, and provided that if any of the sons should predecease the survivor, then such son's share should go to those entitled to take his intestate property under the statute of distribution in force at the death of such survivor. When the declaration of trust was executed, no statute was in effect in Massachusetts under which the succession to the trust property could have been subjected to the tax. Soon after the creation of the trust and long before the death of either of the settlors of the trust, such a statute was enacted. The state court held that the property so settled in trust was subject to the tax under the statute enacted after the creation of the trust. (Coolidge v. Commissioner,
The Supreme Court of the United States stated the question involved as follows: "The fundamental question here is whether rights had so vested prior to the taking effect of the tax statute that there was thereafter no occasion in respect of which the excise might constitutionally be imposed. The state court held that the succession was not complete until the death of the survivor of the grantors, and that therefore the tax is valid." It stated its reasons, in part, for its conclusions in the following language: "Upon the happening of the event specified without more, the trustees were bound to hand over the property to the beneficiaries. Neither the death of Mrs. Coolidge nor of her husband was a generating source of any right in the remaindermen. (Knowlton v. Moore,
The court made the following observations in the course of its opinion: "No Act of Congress has been held by this court to impose a tax upon possession and enjoyment, the right to which had fully vested prior to the enactment. * * * This court has not sustained any state law imposing an excise upon mere entry into possession and enjoyment of property, where the right to such possession and enjoyment upon the happening of a specified event had fully vested before the enactment." It quoted and commented upon certain decisions from various state courts, as follows:
"The overwhelming weight of authority sustains the conclusion that the succession in the present case was complete when the deed took effect. In Matter of Pell's Estate,
"Matter of Craig's Estate.
"In Hunt v. Wicht,
The conclusion of the court was as follows: "We conclude that the succession was complete when the trust deeds of Mr. and Mrs. Coolidge took effect, and that the enforcement of the statute imposing the excise in question would be repugnant to the contract clause of the Constitution and the due process clause of our Fourteenth Amendment. We need not consider whether it would also conflict with the equal protection clause."
But it may be said that these cases are distinguishable, since they all involve remainders created by conveyances, and, further, that the court pointed out that the property involved in theCoolidge Case had never been in the custody of any court; but the Supreme Court of the United States, in using the language it did, was carefully guarding its statements.
In many and perhaps a majority of the states personal property passes on death to the personal representative, and heir or legatee secures no title until distribution; hence, the heir has no vested interest, and a retrospective tax, imposed before distribution, would therefore deprive him of no vested interest. There can be no doubt as to this conclusion, for we find the court in this very opinion making the following observation: "As the court said in United States v. Jones,
These two opinions, we think, exhaust the subject. They review every case, both state and federal, that might in anywise *424
be persuasive or controlling. Subsequent to the decision of theCoolidge Case, from which we have quoted so liberally, the Supreme Court of the United States, in the case of Milliken v.United States,
We have demonstrated that both by statute and decision we are committed to the rule that upon death all of the property of the deceased, whether real or personal, vests immediately in those who are entitled by will or under the law to succeed to it. The[11] right of the state to an inheritance tax likewise vests at the same moment. Neither those entitled to succeed, nor the state, may then know the extent or value of their respective rights. The property of the estate is, during the course of administration, in the custody of the court, but the court gives no title in its decree of distribution to the successors of the deceased, for that is vested in them by the law.
In view of what we have said, and in the light of the[12] decisions of the Supreme Court of the United States since rendered, the holding in the Gelsthorpe and Rankin Cases may not now be followed as authority for the proposition that the legislature may retroactively tax estates, and the contention of respondents relying thereon must fail. The Act of 1935 must fall as being in violation of section 39, Article V of the Constitution, in so far as it attempts retroactively to permit all to deduct federal estate taxes paid, in determining the clear market value of property for inheritance tax purposes.
Nothing said herein is at war with what was said in the case of State ex rel. Sparling v. Hitsman,
Accordingly, the district court was in error in allowing the deduction of the federal estate tax paid. It is demonstrated by what we have said above that the learned district judge who made the order determining the tax, did not have the opportunity of considering the question, the decision of which necessitates the reversal of his order in part.
We pass now to the consideration of the cross-appeal.[13, 14] Approximately eleven years before the death of decedent, Martha Pale was, and continued to be until his death, a servant in his household. Her son, George John Pale, was then seven years of age. She was divorced from the father of her son, John Pale. Thenceforth the deceased supervised and directed the boy's education in private schools and military academies. He spent most of his vacation periods in the home of the deceased. Up to May 15, 1932, the deceased had a natural son of mature years who maintained a separate home from that of his father. The decedent, after the loss of his own son, considered the matter of adopting George John Pale as his son. He discussed these plans with the mother and her son in the fall of 1933, to which both of them consented. Thereafter, George John Pale occupied quarters in the portion of the home of the deceased which he himself occupied. The deceased paid all expenses incurred by him for living, and continued his education. On November 4, 1933, the deceased directed his personal counsel to secure the consent of the boy's father, if necessary, to the proposed adoption. The will of the deceased was dated December 5, 1933, wherein he declared, with reference to George John Pale, "whose education I have directed and whom I intend to formally adopt as my son." In the spring of 1934, all the necessary documents to consummate the adoption had been prepared for approval. Counsel had arranged for the hearing of the matter of the adoption at Butte on June 12, 1934. The deceased, the boy, and his mother left Los Angeles, where they had been sojourning, for Butte on June 10, 1934, and arrived in Butte on June 12 following. The deceased, having become unwell during the journey to Butte, expressed a desire to go to his home at Salmon Lake, where he went and *426 died on June 14, 1934. No hearing was had on the adoption proceeding. The documents prepared for use at that time were never executed, since they were required to be signed in the presence of the district judge. (Sec. 5861, Rev. Codes.)
The pertinent part of the statute is subdivision 1 of section 10400.2, providing as follows: "Where the person or persons entitled to any beneficial interest in such property shall be the husband, wife, lineal issue, lineal ancestor of the decedent, or any child adopted as such in conformity with law, or any child to whom such decedent for not less than ten (10) years prior to such transfer stood in the mutually acknowledged relation of a parent, provided, however, such relationship began at or before the child's fifteenth (15) birthday, and was continuous for ten (10) years, or any lineal issue of such adopted or mutually acknowledged child," the inheritance tax imposed shall be 2 per cent., etc.
It is not here contended that the deceased "stood in the mutually acknowledged relation of a parent" to George John Pale, but that he was in legal effect "a child adopted as such in conformity with the law" by the deceased.
The courts have uniformly assumed the validity of executory contracts to adopt (1 Am. Jur., sec. 16, p. 630). Contracts to adopt, not performed by effectual adoption proceedings during the life of the adoptive parent, will, upon the latter's death, be enforced to the extent of decreeing that the child is entitled to such right of inheritance from the estate of the adoptive parent as a natural child would enjoy, where the child in question has fully performed the duties to the adoptive parent, when circumstances require the relief as a matter of justice and equity. (1 Am. Jur., sec. 20, p. 631; Burns v. Smith,
Since the courts will specifically enforce contracts to adopt where they have been performed by the child, at least to the extent of securing to the child the share of the estate which it would have inherited if the adoption were completed, it is argued that George John Pale was adopted in conformity with *427 law. In 2 C.J., section 27, page 401, it is said: "In upholding such a remedy, the courts do not hold that the child is entitled to the right of inheritance as an heir. They do not undertake to change the status of either party, but merely to enforce a contract which has been fully performed on one side."
In the case of Chehak v. Battles,
The trial court correctly held that George John Pale was not a child adopted as such in conformity with law, and therefore its determination of the amount of tax due was correct in this respect.
The cause is remanded to the district court of Silver Bow county, with direction to modify the order appealed from in conformity with the views expressed in this opinion, and, when so modified, the order will then stand affirmed. The appellants will recover their costs on this appeal.
ASSOCIATE JUSTICES STEWART, MORRIS and ANGSTMAN concur.
Concurrence Opinion
I heartily concur in the foregoing opinion, but I think it quite appropriate to relate the remarkable circumstances under which the state was about to lose a total sum of $233,994. *428
The law of 1923 (Chap. 65) provided that, in making the computation of inheritance taxes, the inheritance tax paid to the federal government should be deducted by the state before computing at the fixed legal rate, i.e., the computation was based on the net inheritance. This law was changed by the legislature of 1927 so as to compute on the gross inheritance; that is to say the federal tax was not deducted in making the computation.
Mr. W.A. Clark, Jr., died in 1934, when the law was in this condition. The legislature of 1935 (Chap. 186) undertook to amend this law. The rules of the House then provided that any changes proposed in a bill should be italicized in such bill. This rule was overlooked, or at least not obeyed, in printing the bill, and the attention of the legislature was therefore not directed to this change. The State Board of Equalization was about to compute the rate based on the law of 1935, i.e., upon the net sum to be distributed. As suggested in the opinion, however, the Constitution (Art. V, sec. 39) provides that where a debt has accrued in favor of the state, the legislature has no authority to change the amount, and as Mr. Clark died in 1934, the attempted change by the legislature of 1935 is determined to be unconstitutional as to this estate by the now unanimous opinion of this court. Undoubtedly we have reached a correct conclusion. Unfortunately, this change from a gross to a net base for computation was not understandingly considered by the legislature of 1935. As the law now stands and as affecting all estates since the Act of 1935, the net distributive estate will be the correct base for all inheritance computations until a change is made.
The legislature of 1937 had this matter under consideration and permitted the law to remain as enacted in 1935; that is, the tax to be computed on the net inheritance as a base. If the legislators fairly understand the importance of this issue, it is well, but it is quite unfair to the state and to the legislators if the matter is not thoroughly understood. There are arguments both for and against; but it seems quite fair to state that when the law was changed in 1935, the legislators did not *429 understand just what an important change they were making. The clerks or legislators responsible for the failure to italicize the changes made in the Act of 1935 should be severely criticized for the error, especially if it were intentional.
Dissenting Opinion
I dissent from the opinion of the majority in the above matter, since section 10400.6, Revised Codes, provides: "If such tax is paid within eighteen months from the accruing thereof, a discount of five per cent., shall be allowed and deducted therefrom. If such tax is not paid within eighteen months from the accruing thereof, interest shall be charged and collected thereon at the rate of ten per cent. per annum from the time the tax accrued; unless by reason of claims made upon the estate, necessary litigation or other unavoidable cause of delay, such tax shall not be determined and paid as herein provided, in which case interest at the rate of six per cent. shall be charged upon such tax from the accrual thereof until the cause of such delay is removed, after which ten per cent. shall be charged, providedthat litigation to defeat the payment of the tax shall not beconsidered necessary litigation. In all cases when a bond shall be given under the provisions of section 10400.9, interest shall be charged at the rate of six per cent. after one year from the date of death, until the date of payment thereof."
This is a very clear invitation to pay the tax claimed by the state, and if it should later be determined that the tax is not due to the state, the money will be refunded. Failure to pay entails a chance, just as in a suit on a note if contested, until final determination interest will be charged on the total amount finally found due on the note during the entire litigation. If part of the debt is admitted, payment of such part is necessary to stop interest on that part. The same privilege prevails here. *434 See section 10400.8, which says: "Any person from whom such tax is or may be due may make an estimate of and pay the same to the clerk of court, who shall receipt therefor, at any time before the same is determined by the court, and shall thereupon berelieved from any interest or penalty upon the amount so paid in the same manner as if the tax were then determined. The money shall be paid to the clerk of the district court who must deposit same with the county treasurer for credit to the clerk of the district court's deposit or trust fund until the correct amount of the tax has been determined. As soon as the correct amount of inheritance tax has been determined, any excess so paid shall be refunded to the person so paying or entitled thereto by such clerk of court out of said trust fund, and the county treasurer shall receipt for the amount of the inheritance tax so determined by the court."
The express proviso of section 10400.6, quoted above, is directly applicable in this case. The executors claimed a reduced rate, first, by reason of the fact that Pale was an adopted son, which, if allowed, would reduce the tax by the sum of $223,914.39; and, second, a decrease in the tax of $233,914.39, because of the fact that $730,982.42 had been paid to the federal government as an estate tax. This court has now found against both contentions, and, no deposits having been made to cover either of these claims until February 15, 1937, interest at 10 per cent. was chargeable until such date. Therefore, the rate of 10 per cent. should apply on both sums from the date of death on June 14, 1934, until paid, as provided by section 10400.6, instead of interest of 6 per cent., as found by the majority opinion; that is, the rate of 10 per cent. should be charged on $223,914.39, from June 14, 1934, until February 15, 1937, which, computed, amounts to $45,564.89, and from that time to the present at the rate of 10 per cent., when the above deposits were made. In addition, the amount of tax due because of the disallowance of the federal estate tax as a tax basis deduction, to-wit, $233,914.39, should be chargeable with interest at 10 per cent. from the date of death until it shall finally be paid. Figured to December 27, 1937, such interest will amount to *435 $82,714.72. The interest, at 10 per cent. on the two amounts paid February 15, 1937, calls for an additional payment of $45,564.89. Thus this estate should pay an additional interest penalty, figured as above, of $128,279.61, which difference is worthy of the careful consideration of all members of the court.
However, since preparing the above, my attention is directed to the character of the objections raised by the state and approved by the majority of this court to the 10 per cent. rate. It will be noted that the lower rate is premised upon a law passed eight months after the death of Clark. The title of the Act gives no hint of the large reduction in this inheritance tax. Indeed, the title would lead a casual reader to assume that the tax was intended merely to cover an enlarged number of inheritance taxpayers, instead of a reduction of the amount to be paid by this estate in particular.
The text of the Act reads: "This Act shall apply to all estates of all decedents who have died since the first day of April, 1921, and which estates remain undistributed on the date of this Act." (Laws 1935, Chap. 186, p. 404, sec. 1.) The exception allowing deduction for federal inheritance taxes paid is tucked away to the Act in a very unobtrusive manner. No attention is directed to this very important change, and it is safe to say that very few of the legislators sensed the important contribution they were making to this millionaire stranger to the Clark family. The legislators who may have been aware of this generous contribution probably had little regard for the taxpayers of the state who suffered the loss of this tax amounting to over a third of a million dollars as this court was at first disposed to grant, and as finally settled grants, this young man the princely deduction of over $128,000.
It is suggested that the rate of 10 per cent. for delayed payments of inheritance taxes is the correct rate, but the district court improperly fixed the rate at 6 per cent., and no appeal from that portion of the order was made to this court; therefore, the order for the 6 per cent. rate must continue. That argument would be good if it did not conflict with section 39, Article V of the state Constitution, which reads: "No obligation *436 or liability of any person, association or corporation, held or owned by the state, or any municipal corporation therein, shall ever be exchanged, transferred, remitted, released or postponed, or in any way diminished by the legislative assembly; nor shall such liability or obligation be extinguished, except by the payment thereof into the proper treasury."
Any legislative Act providing for an appeal would be in contravention of this constitutional provision, and, therefore, ineffectual to foreclose the consideration in the case before us. The debt in favor of the state cannot be "remitted, released orpostponed, or in any way diminished by the legislativeassembly." Any code of procedure by which failure to proceed in a certain specified manner in this court would contravene this constitutional inhibition. It is not now too late for this court to raise, of its own motion, the disputed question of the correct interest rate, and any order made by this court reducing the debt would be in disregard of the last-quoted constitutional provision.
Every lawyer in the state should carefully weigh the law laid down by the supreme court in this case, and make suggestions to the legislators from his particular section so that the next legislature may intelligently clarify the law as it applies to the large estates of the future. *437
Addendum
The cross-appellants argue that our construction of the[15, 16] inheritance statutes in our original opinion, to the effect that the amount of the federal estate tax paid may not be deducted, and that the amount of the inheritance tax shall be computed in accordance with this construction, renders the Act unconstitutional, in that a tax is imposed upon the right to receive something which in fact is never received; namely, the amount of property or money necessary to pay the federal tax estate.
Both the state tax and the federal tax are imposed at the moment of death. What was said by the United States Supreme Court in the case of Frick v. Pennsylvania,
The contention of counsel would be pertinent here if our tax were a tax upon the property instead of upon the right to receive. The inclusion of the property or money which is consumed in the payment of the federal estate tax in computing the tax is not imposing a tax upon the right to receive that particular property, but is the imposition of the tax upon the right to receive the property which the beneficiaries actually receive. The contention cannot be sustained.
The cross-appellants further argue that they should be[17] relieved from the payment of interest on the augmented sum which they are required to pay as a result of the decision of this court, relying upon our decision in the case of State exrel. Sparling v. Hitsman,
The other contentions made on behalf of the cross-appellants are disposed of to our satisfaction in the original opinion, and accordingly their petition for rehearing is denied.
Now with reference to the request on the part of the state,[18] the only authority which the Attorney General has seen fit to cite in support of this request is section 10400.6, Revised Codes. This section provides that if the tax is paid within eighteen months, a discount of 5 per cent. will be allowed. If the tax is not paid thereafter, interest shall be at the rate of 10 per cent. unless, "by reason of claims made upon the estate, necessary litigation or other unavoidable cause of delay, such tax shall not be determined and paid as herein provided, in which case interest at the rate of six per cent. shall be charged upon such tax from the accrual thereof until the cause of such delay is removed, after which ten per cent. shall be charged, provided that litigation to defeat the payment of the tax shall not be considered necessary litigation."
The trial court provided in its judgment that interest should be paid at the rate of 6 per cent., and found that necessary litigation had ensued in conformity with the statute.
In the first place, the record is silent as to whether a bond was filed in conformity with section 10400.9. If such bond was filed, interest on the tax would be payable at the rate of six per cent. Secondly, if the State of Montana was dissatisfied with the order determining the tax, the state has failed to avail itself of the right to apply for a rehearing in the district court within sixty days, pursuant to the provisions of section 10400.28 on this ground. Furthermore, and apart from these omissions, the statute itself is not reasonably susceptible of the construction for which the state must contend if the relief requested is to be granted, unless a construction which leads to an absurdity is adopted.
Reliance is placed upon the quoted portion of the above[19] section, and particularly upon the last proviso to the effect that litigation to defeat the payment of the tax shall not *432
be considered necessary litigation. We think this contention has been most effectively disposed of in the case of In re Estate ofIrwin,
The Arkansas supreme court has reached the same conclusion in the construction of a similar statute, in the case of State v.Lane, Executor,
We approve the construction of this statute as announced by the California court in the case of In re Estate of Irwin, supra, wherein it is further said: "The state is, of course, interested only in securing the payment of taxes rightfully due, and it cannot have been the intention of the legislature to coerce, by the threat of a heavy penalty for a resort to the courts, the payment of taxes to which the state may not be rightfully entitled. The result undoubtedly intended to be accomplished by the enactment of the proviso was the prevention of unjustified delay in the payment of taxes rightfully due the state by reason of unnecessary litigation. This result would be accomplished by limiting the imposition of a penalty for resort to the courts to litigation which was unjustified, leaving it for the court to decide in each instance whether or not the litigation was justified. If the litigant be successful, the court necessarily would hold that the litigation was not unnecessary and unjustified. If the litigant be unsuccessful, the court could determine in each case whether the grounds of opposition were or were not meritorious. Such a construction of the proviso is much more fair and just to both sides of a controversy involving a tax than the strict and harsh construction insisted upon by the appellant."
The construction contended for would impose a penalty of 4 *433 per cent. interest per annum upon anyone who resisted by litigation any portion of the tax sucessfully; the additional penalty being computed upon any part of the tax which would be paid. Under such a construction the law would violate the spirit, if not the letter, of section 6, Article III of the Constitution, prohibiting the sale of justice. The request of the state must be, and is, denied.
ASSOCIATE JUSTICES STEWART, MORRIS and ANGSTMAN concur.