State v. Porter (In re Porter's Will)

• Decision Date: 08 November 1922
• Citation: 190 N.W. 473,178 Wis. 556
• Parties: IN RE PORTER'S WILL. STATE v. PORTER.
• Court: Wisconsin Supreme Court

178 Wis. 556

190 N.W. 473

IN RE PORTER'S WILL.STATE

v.PORTER.

Supreme Court of Wisconsin.

Nov. 8, 1922.

Appeal from Eau Claire County Court; George L. Blum, Judge.

In the matter of the will of Kate M. Porter, deceased. Proceedings to fix the amount of the inheritance tax to be paid upon the estate, opposed by Gilbert E. Porter, executor. From judgment of the county court fixing the amount of the tax, the State appeals. Reversed, and remanded for new trial.

This is an appeal from a judgment of the county court of Eau Claire county fixing and determining the inheritance tax to be paid upon the estate of Kate M. Porter, deceased.

Upon the admission of the will to probate, George B. Wheeler and Knute Anderson, two prominent business men of the city of Eau Claire, being, respectively, the president and vice president of the Union National Bank, were appointed general appraisers of the estate. The estate was appraised by them at the sum of $382,223.18. This included 313 shares of stock (par value $100 each) of the Northwestern Lumber Company, a Wisconsin corporation, which was appraised at the sum of $300 a share. The public administrator of Eau Claire county, while acquiescing in the values placed upon the other properties comprising the estate, objected to the value placed by the general appraisers upon the Northwestern Lumber Company stock for inheritance tax purposes. A hearing was had in county court for the purpose of fixing the value of this stock for inheritance tax purposes. The appraisers were both sworn, who testified that their appraisal was based upon information received from the president of the company. They testified that they had knowledge, in a general way, of the affairs of the lumber company, knew the officers thereof, and felt that the appraisal of $300 a share fairly represented the market value of the stock. They did not pretend to know anything about the book value of the stock; but from the fact that it was a close corporation, that any one buying stock therein would necessarily become a minority stockholder, that the company was in the process of liquidation, which, owing to the character of the assets of the concern, was bound to be a slow and expensive process, it seemed extremely unlikely that stock of the corporation offered for sale upon the market would bring more than $300 per share.

Gilbert Porter, the executor and one of the heirs, seemed to possess considerable knowledge concerning the affairs of the company. It appears that his father was one of the organizers of the company, and that after his death the said Gilbert Porter was for a short time, a stockholder in the company. While admitting that the book value of the stock much exceeded $300 per share, he gave it as his opinion, based on the same reasons which prompted the others, that $300 per share was the fair market value of the stock. Testimony of the same nature was given by the president of the company, Col. J. T. Barber.

This testimony was offered by the executor. Upon request of the public administrator, the hearing was adjourned, and upon the subsequent hearing an offer was made to introduce in evidence the income tax report filed with the tax commission by the lumber company about three months prior to Mrs. Porter's death. This was objected to and excluded. An attempt was made to show the value of the assets of the company, for which purpose various officers of the company were called. None of them, however, claimed to have personal knowledge with reference to the value of any of the assets, and the effort in this respect was entirely fruitless.

The county court held that there was no evidence upon which the stock could be valued at more than $300 per share. A judgment was entered fixing the value thereof at $300 per share for inheritance tax purposes. From such judgment the state brings this appeal.

William J. Morgan, Atty. Gen., Franklin E. Bump, Asst. Atty. Gen., Victor M. Stolts, Dist. Atty, and Fred Arnold, Public Adm'r of Eau Claire County, both of Eau Claire, and John Harrington, Inheritance Tax Counsel, of Madison, for the State.

Roy P. Wilcox, of Eau Claire, for respondent.

OWEN, J. (after stating the facts as above).

It is conceded that the Northwestern Lumber Company is what is known as a close corporation, and that for many years prior to the death of Mrs. Porter there have been no sales of its stock to which reference may be had for the purpose of fixing the market value thereof. Appellant contends that, in the absence of a known market value, the proper method of establishing the value of corporate stock is by proof of its actual value. 2 Cook, Corp. (5th Ed.) § 581; Greer v. Lafayette County Bank, 128 Mo. 559, 30 S. W. 319;McDonald v. Danahy, 196 Ill. 133, 63 N. E. 648;Estate of Brandreth, 28 Misc. Rep. 468, 59 N. Y. Supp. 1092. This contention is conceded by the respondent. The debated question here is whether any competent evidence was offered or received tending to prove its actual value as distinguished from the market value. On the part of appellant it is contended that the verified copy of the income tax report made by the lumber company to the tax commission, which disclosed the book value of the assets of the corporation, should have been received in evidence. To this contention there are two effectual answers.

[1] It was held in State ex rel. Pabst Brewing Co. v. Carpenter, 129 Wis. 180, 108 N. W. 641, 8 L. R. A. (N. S) 788, in a similar contest between the state and the executors of the estate of a stockholder in the Pabst Brewing Company that--

“Entries and statements made in the books, papers, and documents of the relator [Pabst Brewing Company] by its officers or agents have no more probative force as evidence in court, in the controversy between the executors and the state of Wisconsin, than oral declarations to the same effect, made by the same officers or agents, would have had. Such entries and statements were obviously mere hearsay made by third parties without the sanction of an oath. Such are the rules of evidence applicable in regular judicial proceedings.”

Unless the principle there announced is to be overruled, the books of the corporation were not admissible in evidence for the purpose of proving the actual value of the corporate stock. The book value does not necessarily reflect the actual value, and, as the entries do not constitute an admission of the stockholder, it should not be binding upon him or upon his estate. The values appearing upon the books are not values made under oath, and, as to the stockholder or his estate, are mere hearsay. The rule announcedin State ex rel. Pabst Brewing Co. v. Carpenter is not...