*2616 1. DEATH OF APPELLANT. - In a cause of action which survives against the estate, there is no abatement of the appeal upon the death of the appellant after the perfecting of such appeal. Green v. Watkins,6 Wheat 260.
2. SALE OF CAPITAL ASSETS. - A corporation, through its general manager, agreed verbally to sell all of its capital assets at a fixed price. After the completion of all details which insured the final consummation of the deal, the stockholders, with intent to avoid the incurring of a tax on the part of the corporation in carrying out the contract, caused a transfer of these assets to be made, without consideration, to the president of the corporation, who, in turn, conveyed to the purchaser and collected the contract sales price. Held that the president in such connection could act only for and in behalf of the corporation; and that, under the attending circumstances of this case, the transaction, as carried out, was a sale of capital assets, made by the corporation in accordance with its prior verbal agreement.
3. JURISDICTION OF THE BOARD. - Objections which challenge the jurisdiction of the Board of Tax Appeals to review assessments*2617 made under section 280 of the Revenue Act of 1926 overruled on authority of the decision in Henry Cappellini et al.,15 B.T.A. 1269">15 B.T.A. 1269.
*608 The respondent asserts a liability in law and equity against each of these petitioners in the amount of $295,331.64, and for his cause of action alleges that the petitioners are transferees, without consideration, of the assets of a corporation dissolved on December 31, 1921, against which the Government has determined an unpaid income and profits-tax liability for the year 1920 in the amount of $316,488.71, based, for the most part, on the gain alleged to have been realized from the sale of capital assets in that year. The petitioner contends (1) that the corporation sold no assets in such year, and (2) that when this proceeding was instituted they were not transferees of the assets of the dissolved corporation except in a small amount, in a secondary sense. In amended answers to the petitions herein the respondent asserts that the income*2618 and profits-tax return of the dissolved corporation for the year 1920 was false *609 and fraudulent, and asks the Board to hold that penalties for such fraud shall be added to the liability asserted against the petitioners. The petitioners allege that section 280 of the Revenue Act of 1924 is unconstitutional and that the Commissioner is without authority to determine their liability in law and equity and that the Board has no jurisdiction.
FINDINGS OF FACT.
At the time of the filing of these appeals the petitioners, both now deceased, were individuals residing at Miami Beach, Fla. At the hearing both appeals were presented by a single firm of attorneys who, when called, answered ready, and moved for a consolidation of the two for a single trial. The motion for consolidation was granted and an exhaustive trial had of the issues in each case, at the close of which the attorneys for the petitioners, for the first time, suggested the death of petitioner Michael Duggan and orally moved for a dismissal of his petition. Later, on April 9, 1929, after the submission of these cases for decision, suggestion of the death of James Duggan was filed for record with the Board.
*2619 The Johnston City & Big Muddy Coal & Mining Co. was an Illinois corporation, organized about 1901. At December 31, 1919, its outstanding capital stock, in the par value of $600,000, was owned in equal shares by James Duggan and Michael Duggan, petitioners herein, and by their sisters, Margaret Duggan and Hanna Duggan. Of these stockholders James Duggan alone was actively connected with the management of the affairs of the corporation. He regularly served as chairman of the board of directors and in July, 1913, was made its president, which position he filled until the dissolution of the corporation in 1921. During all of this time P. H. Holland was secretary, treasurer and general manager of the corporation, and also one of its directors, although not a stockholder. The third member of the board of directors was Henry Duggan, brother of James Duggan, not a stockholder of the corporation.
In the fall of 1919, beginning sometime in October, the corporation, through its general manager, Holland, began negotiations for the sale of all of its properties, real, personal and mixed, located in the counties of Williamson and Franklin, Illinois, and for they consulted from time to time. *2620 In accordance with the advice of these attorneys, the stockholders, James Duggan, michael legal guidance in connection therewith engaged lawyers with whom Duggan, Hanna Duggan, and Margaret Duggan, endorsed their respective stock certificates in blank and surrendered them to the secretary of the corporation, who in turn canceled the same and *610 issued a single certificate transferring the entire 6,000 shares of the capital stock of the corporation to the names "Michael Duggan, Margaret Duggan, and Hanna Duggan, Trustees," in accordance with an agreement entered into between said stockholders on December 31, 1919, as follows:
THAT WHEREAS, the parties of the first part are the owners of all of the capital stock of the Johnston City & Big Muddy Coal & Mining Company, an Illinois corporation, and are desirous not only of putting the control and management of said corporation and its business in said Trustees, but of giving to said Trustees power to control and manage the investment of said parties of the first part in the stock of said company with power to sell and exchange such stock and convert and invest said property in such other property as said Trustees may determine*2621 for the benefit of the beneficiaries hereinafter named.
NOW THEREFORE, for and in consideration of One ($1.00) Dollar and other good and valuable considerations, the receipt of which are hereby acknowledged, and for the purpose of accomplishing the objects herein set forth, said parties of the first have assigned, transferred and set over and do hereby assign, transfer and set over unto the said Trustees, as such trustees, and to their successors in trust hereby created, all the right, title and interest which the said parties of the first part now have in and to all of the capital stock of the said Johnston City & Big Muddy Coal & Mining Company, a corporation organized and existing under the laws of the State of Illinois, together with all rights appertaining thereto, TO HAVE AND TO HOLD upon the following trusts, uses and purposes:
First: To take and hold title to said capital stock of said Johnston City & Big Muddy Coal & Mining Company in their names, as such trustees, with all the rights, privileges and appurtenances thereunto belonging. Such Trustees shall have power and authority to vote the said capital stock as a unit in the election and selection of a board of directors*2622 to manage and control its affairs, and shall have power to receive, hold and distribute the dividends declared on said stock and all other income arising from said trust property, in whatever form such property may be held, received and invested by said Trustees as hereinafter provided.
Second: That said Trustees shall manage, control and administer all the property at any time held by them in trust hereunder in such manner as they may think for the best interests of the trust estate, it being the intention of this instrument to confer upon the said Trustees, in addition to the powers hereinafter specifically conferred upon them, as full power in the management and administration of the property and every part thereof at any time belonging to the trust hereby created, as though they were the absolute owners thereof. Said Trustees shall collect all the income, rents and profits of the property at any time belonging to the trust hereby created, and out of them, when so collected, shall pay all taxes and assessments on each and every part of such property and all expenses and charges of every kind and description, connected with, or growing out of the management of said trust property, *2623 or in the execution of the trusts hereby created.
The Trustees shall have power at any time to sell all or any of the property, real or personal, then belonging to the trust hereby created, either at public auction or by private contract, for cash or on credit, or partly for cash and partly on credit, and to receive the property and assets at any time belonging to said Johnson City & Big Muddy Coal & Mining Company, or any part *611 of the same, in the event of the dissolution of said company or of the distribution of any part or all of the property and assets of said company in exchange for some part or all of the stock of said company so held by said Trustees, and to execute and deliver all good and sufficient deeds, bills of sale, instruments of transfer, and any and all other writings necessary or proper to convey the property sold by said Trustees, and the proceeds of the sale so made or of any property so received shall be held by said Trustees upon and subject to the same trusts which the property so sold or conveyed was held by said Trustees.
Said Trustees shall have power to invest the moneys and convert the property, real and personal, belonging to the trust*2624 hereby created into money and invest the same in such government or municipal bonds or securities, stocks or bonds of corporations created under the laws of the United States or of the State of Illinois, or of any other state, bonds or notes secured by mortgage or pledge of either real or personal property or other interest-bearing or income-producing securities, or in income-producing real estate, or in certificates, receipts, or any other papers executed or issued by any trustee or trustees holding the title to real estate situated anywhere in the United States, and evidencing any interest in such real estate or in the income or proceeds of the sale thereof, as said Trustees may, in their sole discretion see fit.
Said trustees shall also have power to make leases of all or any part of the real estate at any time belonging to this trust, for such term or terms and upon such conditions as said trustees may in their discretion deem best, including long term leases.
Said trustees shall also have power to settle, adjust, compound or compromise, on such terms and conditions as they, in their discretion, may determine, any claim or claims, demand or demands of any kind or description*2625 whatsoever which may be brought or made against them as trustees under this agreement or on their own behalf as such trustees against any other person or persons, corporation or corporations.
The receipt of said trustees, or any one of them, for the purchase money and proceeds of any property authorized by this instrument to be sold by said trustees, and for any other moneys paid to said trustees, or any of them, and for any stocks, bonds, notes or other securities, and for any other property of any kind or description whatsoever, transferred to said trustees, in the execution of any of the trusts or powers contained herein shall respectively, fully and effectually discharge the person or persons so purchasing the property so sold by said trustees, or so paying said other moneys, or so transferring such stocks, bonds, notes or other property therefrom, and from being bound to see to the application of such funds, or being answerable for the loss or misapplication of the same.
Said trustees shall have power to employ such agents and servants, and such attorneys and counsellors at law, as they may deem advisable, in connection with the execution of each and all of the trusts hereby*2626 created, and out of the trust property to pay the person or persons so employed such compensation for their services as said trustees may, in their discretion, deem just and proper.
Said trustees shall be entitled to be reimbursed, out of the property belonging to the trust hereby created, all costs, expenses and liabilities whatsoever by them respectively paid or incurred in connection with the execution of said trust.
No person who shall at any time be trustee hereunder, jointly with any other person or persons, shall be liable for the acts of his co-trustee or *612 co-trustees, or for any loss resulting from any error of judgment or from mistake, or for any loss not caused by his own wilful default.
Said trustees, by unanimous vote, shall have the power (by an instrument executed and acknowledged in the manner in which deeds of real estate are executed and acknowledged in the State of Illinois) to appoint any one of their number to be managing trustee hereunder, and any such trustee so appointed shall immediately upon such appointment have and possess each and all of the powers, including discretionary powers hereinbefore conferred on said trustees, as fully and*2627 to the same extent as if he had been appointed sole trustee hereunder, except that such managing trustee shall not have power to sell any real or personal property belonging to said trust estate nor to fill any vacancy in the trusteeship hereunder nor to make any distribution of the trust property, and the other powers of such managing trustee shall be subject to any and all such exceptions, limitations, conditions and provisions as the said trustees may in and by the instrument appointing him such managing trustee prescribe or direct. Any one of the trustees hereunder may at any time revoke the appointment of such managing trustee by an instrument executed and acknowledged in the manner hereinbefore provided for the execution and acknowledgment of the instrument appointing such managing trustee, and upon such revocation being so executed and acknowledged and after the service of written notice of such revocation has been served upon such managing trustee, the power of such managing trustee to act as such shall immediately cease and determine.
Whenever any vacancy or vacancies occur in the trusteeship created by this instrument by reason of death, resignation, refusal or inability*2628 to act, of any of the trustees for the time being appointed, then and in such case the remaining and surviving trustees or trustee shall appoint a person or persons to fill such vacancy or vacancies in said trusteeship. Any person or persons appointed as a successor or successors in trust to any trustee or trustees under this instrument, shall, on such appointment, without any further act, deed or conveyance, become and be trustee or trustees hereunder, with all the estate, trusts, rights, powers and duties of the trustee or trustees in whose place he or they shall have been appointed, except as limited under and by virtue of the specific terms of this trust agreement.
None of said trustees, nor any other person or persons who may at any time become trustee or trustees under this agreement, shall ever become or be personally liable on or for any contract or indebtedness whatsoever of said trust estate incurred or created by them or any of them, under any of the provisions of this instrument, but all liability on or for any such contract and indebtedness shall be limited to the trust property itself.
Third: The net income collected and received by said trustees from said trust*2629 estate shall be distributed from time to time as said trustees may in their discretion determine in equal shares to the parties of the first part, during their lives. Upon the death of one or more of said beneficiaries, the net income shall be distributed in equal shares amongst the survivors of said beneficiaries. When all of said beneficiaries shall have died except one, such sole surviving beneficiary shall be entitled to terminate this trust if he shall so elect, in which case all of the trust estate then remaining in the hands of said trustees shall be conveyed, assigned, transferred and set over to such surviving beneficiary. If such sole surviving beneficiary shall not at any time during his life elect to terminate this trust, he shall be entitled to receive all of the net income of said trust estate during his life and upon his death all of the property of the trust estate then remaining in the hands of said trustees shall be conveyed, assigned, transferred and set over to such person or persons as said sole surviving beneficiary *613 may by his last will and testament appoint, and in default of such appointment, shall be conveyed, assigned, transferred and set over*2630 to the heirs of said sole surviving beneficiary according to the statutes of descent of the State of Illinois then in force.
In addition to the net income directed to be distributed amongst said beneficiaries as aforesaid, the trustees shall have power at any time and from time to time, in their discretion, to distribute in equal shares to the beneficiaries who at any time may be entitled to receive the net income of said trust estate as aforesaid, a portion or all of the principal of said trust estate at that time held by said trustees. No such distribution of principal, however, shall be made at any time unless all of the trustees hereunder shall concur in the making of such distribution.
IN WITNESS WHEREOF the said parties of the first part have hereunto set their hands and seals, and the said parties of the second part, as trustees, have also set their hands and seals, to evidence their acceptance of the trusts hereby created, the day and year first above written.
On the 31st day of March, 1920, Hanna Duggan, James Duggan, Margaret Duggan, and Michael Duggan by identical instruments each assigned to Henry Duggan and Hulda Duggan "one-sixth of his or her interest in all*2631 of the rights, titles, interests, estates, benefits and things whatsoever which I now have or many hereafter be possessed of or entitled to as a beneficiary in or under or by virtue of a certain indenture made the 31st day of December, A.D. 1919, by and between James Duggan, Hanna Duggan, Michael Duggan and Margaret Duggan, as parties of the first part, and Michael Duggan, Hanna Duggan and Margaret Duggan, as trustees, and parties of the second part."
The negotiations for the sale of the corporation properties begun by said Holland continued during this period without success until sometime during the following January, 1920, at which time he came into contact with D. W. Buchanan of the Old Ben Coal Corporation. Holland made a flat offer to Buchanan at their first meeting to sell him these entire properties for the sum of $2,000,000, payable one-half cash and one-half "otherwise." Negotiations were entered into between Holland and the said Buchanan and continued without interruption during February and the greater part of March, following, during which time surveys, examinations and inspections of the physical properties, as well as examinations of abstracts of titles, records, *2632 etc., were made. On or about the 20th day of March, Buchanan made a counter offer to Holland of $1,800,000, all cash, for the property, which was accepted and became the agreed price at which the property was sold. During these negotiations Buchanan and the interests he represented had been engaged in the flotation of a bond issue against their properties to raise the money to meet this payment and on March 25 had completed the details which assured the final consummation of the deal, and so notified the sellers. On this date the lawyers theretofore engaged to supervise the transaction *614 began the work of preparing corporation records, contracts, deeds and legal documents intended to carry out a plan whereby a legal transfer of the title to the property being sold could be made to the purchaser in a manner that would avoid the incurring of a tax liability on the part of the corporation. Accordingly, with this in mind, these attorneys prepared for the use of the corporation several sets of "minutes," to be used in recording actions thereafter to be had by the corporation in meetings of its board of directors and stockholders. These "minutes" were in skeleton form with*2633 blanks for dates of meetings and names of parties participating left open, but setting forth, however, the resolutions to be adopted and other corporate action contemplated, as having been accomplished on the dates to be shown, when finally filled in and completed. The original drafts of these "minutes," resolutions, etc., were delivered to the Old Ben Coal Corporation, but carbon copies were later filled in with appropriate dates, names, etc., and pasted into the books of the corporation as the original minutes of the meetings they purport to evidence. According to these minutes, three special corporate meetings were held at the respective hours of 9, 10, and 11 o'clock in the forenoon of March 31, 1920, in room 744 Conway Building, Chicago. The first of these was a meeting of James Duggan, Henry Duggan, and P. H. Holland, as directors of the corporation. The minutes show that each signed written waivers of the statutory notice for the calling of such meeting, and that a resolution was adopted at the meeting which recited, among other things, that certain real, personal and mixed properties of the corporation, constitution a part of its capital and located in the counties of Williamson*2634 and Franklin, Illinois, were "no longer necessary to the business of the company," and that it was "desirable to distribute the same to the stockholders of the company." The resolution then provided for the calling of the stockholders into session at a special meeting to the held at 10 o'clock, following, and directed the secretary to proceed forthwith to obtain written waivers of notices for such a meeting from all of said following. The second meeting was one of the stockholders, with stockholders. The meeting then adjourned to meet at 11 o'clock James Duggan, Henry Duggan, and P. H. Holland attending. Written waivers signed by the stockholders, Hanna Duggan, Michael Duggan and Margaret Duggan, Trustees, for this special meeting are shown in the record, although the evidence shows that all of them were in Peoria, Ill., on this day. Their stock is represented by Henry Duggan, in virtue of a written proxy executed by them on March 29, 1920. In record shows that at this meeting the following resolution was adopted:
*615 RESOLVED, that all of the real, personal mixed property of the Johnston City & Big Muddy Coal & Mining Company within the Counties of Williamson and*2635 of Franklin in the State of Illinois be forthwith distributed in kind to the stockholders of the company;
AND FURTHER RESOLVED, that it is the express desire of the stockholders that their distributive shares of said property be distributed to them in kind by the Company assigning, transferring and conveying the said property to James Duggan;
AND FURTHER RESOLVED, accordingly that the Company forthwith assign, transfer and convey the said property to said James Duggan;
AND FURTHER RESOLVED, to that end, that the Board of Directors of the Company be and hereby is authorized and empowered to take any and all steps and to do any and all things necessary or proper to be done to cause said property so to be distributed, assigned, transferred and conveyed, free and clear from liens and encumbrances, and with title acceptable to said James Duggan, and to authorize and empower the President acting on behalf of the Company to do any and all such things, and, with the Secretary of the Company, to execute any and all proper instruments and deeds to that end.
These records further show, at the end of the foregoing minutes, a certificate of ratification, as follows.
We, the undersigned, *2636 being all of the stockholders of Johnston City & Big Muddy Coal & Minding Company, an Illinois corporation, do hereby ratify, approve and confirm all that has occurred at the foregoing meeting, the minutes of which we have read, and in signification of our approval, ratification and confirmation, and of our assent to any and all acts at said meeting, do hereby sign our names this 31st day of March, A.D. 1920.
(Signed) HANNA DUGGAN
MICHAEL DUGGAN
MARGARET DUGGAN,
Trustees.
This certificate was signed by these trustee stockholders at Peoria, Ill., several days prior to the 31st day of March and pasted into the book after the meeting was held.
The third meeting was an adjourned meeting of the directors in which a resolution is shown as being adopted which, after reciting the resolution hereinabove set forth as having been passed by the stockholders, contains the following provision:
AND FURTHER RESOLVED, to that end, that the Board of Directors of the Company be and hereby is authorized and empowered to take any and all steps and to do any and all things necessary or proper to be done to cause said property so to be distributed, assigned, and transferred and conveyed, *2637 free and clear from liens and encumbrances, and with title acceptable to said James Duggan, and to authorize and empower the President acting on behalf of the Company to do any and all such things, and, with the secretary of the Company, to execute any and all proper instruments and deeds to that end.
AND FURTHER RESOLVED, that the President of the company be and hereby is authorized and empowered, acting on behalf of the Company, to take any and all steps and to do any and all things necessary or proper to be done to cause said property so to be distributed, assigned, transferred and conveyed, free and *616 clear from liens and encumbrances, and with title acceptable to said James Duggan, and with the Secretary of the Company, to execute any and all proper instruments and deeds to that end.
On the same date, March 31, 1920, a contract previously prepared for the occasion by the attorneys as aforesaid was executed by the Old Ben Coal Co. and the trustee stockholders in the following words, figures and form:
THAT WHEREAS the Johnston City & Big Muddy Coal & Mining Company, hereinafter referred to as the Johnston City, etc., Co., is a corporation duly organized under and*2638 existing by virtue of the laws of the State of Illinois, and is the owner of certain real, personal and mixed properties within the Counties of Williamson and of Franklin in the State of Illinois, the nature and extent of which is fully known both to the Purchaser and to the Sellers;
AND WHEREAS the Sellers as Trustees are owners of all of the capital stock of said Johnston City, etc., Co.;
AND WHEREAS the Purchaser is engaged in the business of coal mining in Franklin County, Illinois, and the workings of its operations have approached and are rapidly further approaching certain coal lands of said Johnston City, etc., Co., included among its said properties, and the Purchaser desires to cause to be organized a corporation under the laws of the State of Illinois for the purpose of operating the said properties of said Johnston City, etc., Co., so that the life of the mines at present being operated by the Purchaser may be naterially prolonged.
Now, THEREFORE, it is agreed by and between the Purchaser and the Sellers, each in consideration of the other's agreement and undertakings hereinafter set forth and in further consideration of other good and valuable considerations by*2639 each from the other received, as follows:
1. The said properties of said Johnston City, etc., Co., consist of approximately 3972.16 acres owned in fee and 751.705 acres of coal, oil and gas and other minerals only, if which approximately 1,023 acres of the number 6 vein, of the coal, has been mined out, leaving approximately 3700 acres of unmined number 6 vein coal, together with four shafts, tipples, engines, boilers, buildings to make up the entire top work equipment for two completely developed mines, mine cars, locomotives, mules, mining machines, equipment necessary to make up underground operation of two completely developed coal mines, mine supplies and repair parts ample for their continuous present operation, farms, farm buildings and equipment, mine ponds, reservoirs, miners' houses and buildings, railroad tracks, siding, switches and connections, powder magazines and all other equipment not enumerated herein but which is necessary and used for the continuing operation of these two properties, and all personal property of every kind or character whatsoever belonging to said Johnston City, etc., Co., and contained on or about the said properties.
2. The Purchaser has*2640 examined all of the properties hereby agreed to be conveyed, and has received satisfactory abstracts of title covering all of said real properties constituting a part thereof, and has caused an examination of said abstracts of title to be made, and hereby agrees to pay to the Sellers, in consideration of the conveyance and transfer to it of all of said properties, the sum of One million eight hundred thousand ($1,800,000.00) Dollars, and also to correct existing defects in the title to said properties. The Sellers shall be entitled to all rentals accruing from said properties up to April 1, 1920.
*617 3. The conveyance of the property and assets hereinbefore described shall be made by the Sellers, or shall be caused by them to be made, by good and sufficient warranty deed or deeds and bills of sale, and, concurrently with delivery of the same, the Purchaser shall pay unto the Sellers the sum hereinbefore mentioned.
4. It is understood and agreed between the parties that all mine supplies, and repair parts and material for operating said properties received and in the possession of the Johnston City, etc., Co., or of the Sellers at Johnston City, Illinois, prior*2641 to April 1, 1920, except as hereinafter provided, are or shall be paid for by the Sellers and shall become the property of the Purchaser from and after April 1, 1920. It is understood that the following property, which has been previously ordered by the said Johnston City, etc., Co., from the respective corporations and on the respective terms stated below, shall be accepted and paid for by the Purchaser at and for the prices below indicated:
| American Car & Foundry Company | |
| 250 Mine cars at $201.50 each, F. O. B. Johnston City | $50,375.00 |
| 20 Mine car bodies only at $120.75 each F. O. B. Johnston City | 2,415.00 |
| Fulton Kenova Company | |
| 100 Pit cars at $203.00 each F. O. B. Johnston City | $20,300.00 |
| Jeffrey Manufacturing Company | |
| 1 Double inlet reversible fan 16 ft. X 5 ft.: | |
| Price of fan proper | $8,000.00 |
| Price side drift doors | 580.00 |
| Price steel hood and expansion | 580.00 |
| Price air lock doors and frames | 80.00 |
| 1 Dynamo double ring bearing, - 9 inch | 350.00 |
| 1 Shaft, 5 ft. long, 9 in. diameter | 175.00 |
| 1 Cast steel half coupling | 150.00 |
| F. O. B. Columbus, Ohio. | |
| Railway & Mine Supply Company | |
| 2 Cages complete at $1150.00 | $2,300.00 |
| 1 Extra cage | 950.00 |
| F. O. B. Kincaid, Illinois. | $86,255.00 |
*2642 It is further understood that the Sellers will deliver to the Purchaser a list of all other material which shall have been ordered by the Johnston City, etc., Co., but which shall not be delivered prior to April 1, 1920, and the Purchaser agrees that it will pay for such material at the prices agreed to be paid by said Johnston City, etc., Co.
5. It is understood and agreed that all stationery, papers, books, records and office files of said Johnston City, etc., Co., and of the Sellers shall be retained and remain the property of said Johnston City, etc., Co., and of the Sellers.
6. It is understood and agreed that all trade marks, good will and lists of wholesale customers of the Johnston City, etc., Co., and of the Sellers used in connection with the conduct of its business are included in the sale and shall become the property of the purchaser.
*618 7. It is understood and agreed that the present stockholders, officers and directors of the Johnston City and Big Muddy Coal and Mining Company, and the Johnston City Coal Company, will refrain, for a period of fifteen years from the date hereof, from entering into business in any manner or form whatsoever in connection*2643 with the operation of any coal mine or mines in the Counties of Franklin, Williamson, Jefferson, Saline, Jackson or Perry, of the State of Illinois.
8. It is understood between the parties that the personal and real estate taxes for the year 1920 shall be paid by the Purchaser, but the Sellers agree to reimburse the Purchaser for the proportion of the year prior to April first by paying to it in cash at the time of the consummation of this contract one-fourth of the amount paid by it for personal and real estate taxes for the year 1919. All taxes and assessments for the years prior to 1920 shall be paid by the Sellers.
9. It is understood that the Purchaser hereunder assumes no outstanding contracts or obligations of the Johnston City, etc., Co., or of the Sellers, except such as may be mutually agreed upon.
10. All liabilities which shall have been incurred in the operation of said properties prior to midnight of the 31st of March, 1920, shall be paid by the Sellers and the Sellers shall indemnify and hold harmless the Purchaser hereunder, and its assigns or grantees, of and from any loss, expense or damage whatsoever on account of any acts of the Sellers done or performed*2644 by it at any time prior to April 1, 1920. The provisions hereof shall be binding upon the assigns of the parties hereto.
On April 1, 1920, the Johnston City of Big Muddy Coal & Mining Co., by two separate deeds of conveyance, duly executed under its corporate seal, conveyed unto James Duggan certain coal lands and coal rights in the counties of Williamson and Franklin, Illinois. Each deed undertook to warrant and defend the title so conveyed to James Duggan individually, and recited that it was conveyed pursuant to authority of the board of directors, without qualifying reservations or limitations, for a consideration of "One Dollar ($1.00) and other good and valuable consideration, in hand paid." By bill of sale of same date, with similar recitals, said corporation conveyed unto James Duggan certain personal property described as follows:
All the personal and mixed properties within the Counties of Williamson and of Franklin in the State of Illinois, including contracts and good will, owned by the party of the first part on April 1st, A.D. 1920, except cash on hand and in bank, accounts and bills receivable, all stationery, papers and books, records and office files of said*2645 party of the first part;
Also all trade names, trade-marks, licenses, copyrights, contracts, options and good will for the wholesale sale and wholesale distribution of coal produced in said two Counties or either of them, it being the intention to convey to the party of the second part, together with all properties above mentioned, all transferable rights of the party of the first part in the matter of the production and the wholesale sale and wholesale distribution of Williamson and Franklin CountyIllinois Coal, the party of the first part reserving unto itself, however, all retail trade rights.
*619 No immediate delivery of these instruments of conveyance was made to James Duggan, but after execution they remained in the possession of the manager of the corporation until April 9, following, at which time the parties met in the office of the Old Ben Coal Corporation to complete the transfer and sale. At this meeting appeared James Duggan, Henry Duggan, P. H. Holland, and their attorney, representing the sellers of the property, and Gordon Buchanan and attorneys representing the buyer. Three bank drafts were tendered in payment of the purchase price; one drawn payable*2646 to the order of James Duggan, and the other two payable to the order of R. Stuart Smith but endorsed to the order of James Duggan. The sellers' attorney, after inspection of the drafts and finding that their sums totaled the full amount of $1,800,000, directed Holland to deliver the deeds and bill of sale from the corporation to James Duggan, which was accordingly done, after which conveyances were then executed by James Duggan as follows: (1) Warranty deed conveying a part of the real estate and coal rights described in the deeds of conveyance from the Johnston City & Big Muddy Coal & Mining Co. to him unto Gordon Buchanan for a recited consideration of $8,000; (2) warranty deed conveying the real property and coal interests, conveyed to him by said corporation but not included in the first-mentioned deed, to the Buchanan Coal Mining Corporation for the consideration of $1,500,000; and (3) bill of sale conveying the personal property described in the corporation's bill of sale to him to the Buchanan Coal Mining Corporation for the named consideration of $292,000. Upon the delivery of these deeds and other conveyances, the checks and drafts in payment of the purchase price were delivered*2647 to James Duggan, who in turn indorsed them in blank and turned them over the Henry Duggan, who invested their proceeds in United States certificates of indebtedness. Cash books were kept under the direction of the secretary of the Johnston City & Big Muddy Coal & Mining Co., wherein its bookkeeper entered a record of these investments, and changes affecting them, from time to time. The first of these was opened on April 9, 1920, the day of the sale of the property, the initial entry under caption "Capital Account" being as follows:
$1,797,997.65 net amount received from Jas. Duggan, Trustee, after paying $2,022.30 being the amount of our proportion of taxes for the year 1920 - as per contract.
In the opposite column appears the following:
1920 - April 9 - Investment a/c - $1,798,000 (Certificates of Indebtedness) Amt. paid to Ft. Dearborn Nat. Bank in payment of U.S. Certificates of Indebtedness.
*620 A series of entries follows these, indicating a continual shifting and changing in these investments through selling, collection, buying and reinvesting of the funds, covering a period of four or five years, or perhaps longer. These records also indicate certain capital*2648 additions by way of dividends received from the Johnston City & Big Muddy Coal & Mining Co., and from sales of its assets; also distributions made from time to time to Michael, James, Hanna, Margaret, Henry, and Hulda Duggan of the funds. During the years 1922, 1923, and 1924, these records indicate the payment of salaries from these investment properties to Henry Duggan, F. E. Hirsch, and P. H. Holland and other items, including one of $11.60 as office expense of the Holland Coal Co. Three cash books in all were kept of these transactions, all entries therein up to the close of 1921 being made by Michael J. Barry, bookkeeper of the corporation, and after that date by F. E. Hirsch, purchasing agent for Henry Duggan.
The minutes of the corporation show that on May 30, 1920, a special meeting of the board of directors of the Johnston City & Big Muddy Coal & Mining Co. was held at which a resolution was regularly adopted, providing as follows:
RESOLVED, That a dividend of One Hundred Thousand ($100,000.00) Dollars be paid to the stockholders of the corporation, of record on May 1st, 1920;
AND FURTHER RESOLVED, That said dividend be paid in cash out of the earnings of the Company*2649 in so far as the earnings for the year 1920 may be applicable to a dividend, and that the remaining portion of such One Hundred Thousand ($100,000.00) Dollars, in the event that the earnings of the year 1920 applicable thereto shall not be sufficient to pay such amount in full, shall be paid as part of a liquidating dividend, by distribution of corporate properties, in the course of the dissolution of the Corporation.
On or about December 31, 1920, the trustee stockholders surrendered to the secretary of the Johnston City & Big Muddy Coal & Mining Co. their stock certificate for 6,000 shares, constituting the entire issue of the capital stock of that corporation, duly indorsed by them, for cancellation, whereupon the secretary reattached the same to corresponding stub in the stockbook of the company with indorsement across the face of said certificates, as follows:
Cancelled in course of distribution of corporate assets, Dec. 31st, 1920. P. H. Holland.
On January 3, 1921, a corporation deed, also a bill of sale, both in regular form, were executed by this company conveying to James Duggan all of its real estate, personal and mixed properties in Tazewell County, Illinois, the*2650 deed containing the following clause:
This deed is executed pursuant to authority given by resolution of the stockholders of the Johnston City & Big Muddy Coal & Mining Company, passed in a meeting of said stockholders duly and regularly held according to law for the purpose of effecting a dissolution of said corporation.
*621 James Duggan, by deed and bill of sale, conveyed these properties to the Regal Coal Co. on February 3, 1921, the recited consideration alleged being $1.
According to the books of the corporation two special meetings of its stockholders were held after the cancellation of its capital stock, as hereinbefore noted. The first of these was held January 3, 1921, pursuant to a written waiver executed by the former trustee stockholders, the date of which does not appear. These stockholders were represented at the meeting by Henry Duggan by virtue and authority of written proxies executed by each of them in his favor on December 15, 1920, before the cancellation of said stock. Each of these proxies, which is identical in form and recitals with the others, authorizes Henry Duggan to appear at the meeting mentioned and vote the stock of the signer with*2651 full power, etc., "as fully as I could do if personally present." There is nothing in either of the three proxies to indicate what stock, if any, any of the parties own or claim to own in the corporation, or that they are executed otherwise than as individuals, since they are so signed without reference to "trustee." The minutes of this meeting show the following resolution was duly adopted:
RESOLVED, THAT WHEREAS certain steps and proceedings have heretofore been taken toward the end and object of dissolving the Johnston City And Big Muddy Coal And Mining Company, an Illinois corporation;
AND WHEREAS, pursuant to due and proper authorization providing for the distribution of the properties of the corporation, certain conveyances, bearing date of the First day of April, A.D. 1920, were made of the major portion of the real and personal property of the corporation by the corporation, through its President and Secretary, said conveyances having been made unto James Duggan, of the City of Peoria, in the County of Peoria, and State of Illinois;
AND WHEREAS, also, pursuant to resolutions passed unanimously by the directors of the corporation on the thirtieth day of April, A.D. 1920, *2652 it was provided that a dividend of $100,000.00 should be paid to the stockholders of the corporation of record on the first day of May, A.D. 1920, to be paid in cash out of the earnings of the corporation in so far as the earnings of the year 1920 should be applicable thereto, the balance to be paid as a part of a liquidating dividend in the course of the distribution of the properties of the corporation to the stockholders.
AND WHEREAS, such dividend of $100,000 has been paid to the stockholders of the corporation;
NOW, THEREFORE, BE IT RESOLVED, that all actions of the President and Secretary in executing such conveyances be and the same hereby are approved, ratified and confirmed, as having been made in contemplation of the dissolution of the corporation;
AND FURTHER BE IT RESOLVED, that the Johnston City and Big Muddy Coal and Mining Company, an Illinois corporation, be forthwith dissolved;
AND FURTHER BE IT RESOLVED, that the corporation shall forthwith collect all its corporate assets and pay and discharge all of its corporate debts and liabilities, which, if any, are unpaid and undischarged;
*622 AND FURTHER BE IT RESOLVED, that all of the real, personal and*2653 mixed properties of the corporation constituting its corporate assets, wheresoever situated, remaining after the payment and discharge of all of its corporate debts and liabilities, shall be forthwith distributed in kind to the stockholders of the corporation;
AND FURTHER BE IT RESOLVED, that it is the express desire of the stockholders that their distributive shares of said property be distributed to them in kind by the corporation assigning, transferring and conveying the same unto James Duggan, of the County of Peoria in the State of Illinois;
AND FURTHER BE IT RESOLVED, accordingly, that the corporation forthwith assign, transfer and convey the said property, after the payment and discharge of all of the corporate debts and liabilities of the corporation, to said James Duggan;
AND FURTHER BE IT RESOLVED, to that end, that the President and Secretary of the corporation, acting upon behalf of the corporation, be and hereby are authorized and empowered to take any and all steps and do any and all things necessary or proper to be done to cause said property so to be distributed, assigned, transferred and conveyed free and clear from liens and encumbrances, so far as the same*2654 may be possible, and with title acceptable to said James Duggan, and to execute any and all proper instruments and deeds to that end;
AND FURTHER BE IT RESOLVED, that the President or Vice-president and Secretary of the corporation be and hereby are given and vested with plenary power to do any and all acts and things on behalf of the corporation which in their discretion may be deemed proper and fitting in the course of the dissolution of the corporation and the payment and discharge of the corporate debts and the distribution of the corporate properties.
The second meeting shown by these minutes was held on December 16, 1921, after notice by publication having been made. At this meeting the corporation stock was again voted by Henry Duggan by authority of proxies executed in his favor by Michael Duggan, Hanna Duggan, and Margaret Duggan, respectively, identical in form and recitals and, excepting as to signatures, being as follows:
I hereby make, constitute and appoint H. Duggan as my proxy to vote for me at a meeting of the stockholders of Johnston City and Big Muddy Coal and Mining Company, to be held at Room 744, in the Conway Building, at 111 West Washington Street, in*2655 the County of Cook and State of Illinois, on Thursday the 16th day of December, A.D. 1921, at 2:00 o'clock P.M., or at any adjournment thereof, for the purpose of voting on the proposition to dissolve the corporation, and for the transaction of such other business as may be deemed necessary, according to the number of votes I would be entitled to cast if personally present.
WITNESS my hand and seal this 10th day of December, A.D. 1921. In the presence of
The minutes show that at this meeting the following resolution was adopted:
RESOLVED THAT WHEREAS certain steps and proceedings have heretofore been taken towards the end and object of dissolving the Johnston City and Big Muddy Coal and Mining Company, an Illinois corporation,
AND WHEREAS, pursuant to due and proper authorization providing for the distribution of the properties of the corporation, all properties of the corporation *623 have heretofore been duly distributed in manner acceptable to the stockholders of the corporation;
AND WHEREAS, all corporate debts and liabilities of the corporation have been fully paid and discharged;
NOW, THEREFORE, BE IT RESOLVED, that the Johnston City and Big Muddy Coal and*2656 Mining Company, an Illinois corporation, be and the same is hereby dissolved.
On the 29th day of December, 1921, a certificate dissolving the Johnston City & Big Muddy Coal & Mining Co. was issued by the Secretary of State of the State of Illinois upon the filing in the office of said official on said date a certificate of dissolution by the president and secretary of this corporation with intent to show its statutory compliance with the provisions of the laws of the State pertaining thereto. This certificate failed to show any assets of any kind or character as having been distributed to the stockholders of the corporation upon dissolution, but answers the statutory questions calling for an itemized statement showing all capital assets distributed, the date of distribution, the names of each stockholder, and the amount of assets received by him, with the following statement: "No corporate assets or property at the time of passage of resolution to dissolve."
Prior to the final dissolution of the Johnston City & Big Muddy Coal & Mining Co., all of its tangible assets, as hereinbefore stated, had been converted to cash and reinvested in commercial securities under the direction*2657 of James Duggan, its president. After such dissolution James Duggan continued in possession and control of these securities, the income from which he, from time to time, distributed among the stockholders and certain assignees. This management remained in the hands of James Duggan until after the death of Michael Duggan, the last of the stockholders then surviving, except James Duggan, which death occurred February 24, 1928, at which date there remained in the hands of said James Duggan, as shown by the property account in his books at the close of business for that day, assets belonging to the distributees of this dissolved corporation of a total value of $2,123,909.35. On March 10, 1928, James Duggan, "individually and as trustee," entered into a contract with Henry Duggan and Hulda Duggan, who claimed a one-sixth interest each in the assets of the stockholders' trust in virtue of assignments made to them on March 31, 1920, whereby a settlement was made of their claims by delivery to them, from the assets held by him for distribution to stockholders, of stocks and securities of a total value of $708,292. The remaining assets of the dissolved corporation, valued at $1,415,617.35, *2658 were retained by James Duggan as the sole surviving distributee of such corporation.
*624 The parties have agreed that, if the transaction here involved is held by the Board of Tax Appeals to have been a sale of capital assets by the Johnston City & Big Muddy Coal & Mining Co., the consideration for such sale was $1,814,000 and the basis for computing gain or loss resulting therefrom was $1,147,396.81, and that the invested capital of such corporation for the year 1920 was $1,457,305.54.
The Johnston City & Big Muddy Coal & Mining Co. and the Johnston City Coal Co., an affiliated corporation, timely filed their consolidated income and profits-tax return for the calendar year 1920. Subsequently, on or about February 11, 1922, an amended return was filed showing thereon a net income of $62,107.58. Neither return included income or profits arising from the sale of capital assets.
Thereafter a revenue agent examined the books and on or about September 26, 1922, rendered his report in which he recommended that there be added to the income of Johnston City & Big Muddy Coal & Mining Co., as shown on the amended return, the sums of $730,473.31 and $1,117.61, as profits realized*2659 on sales of capital assets. He made other minor adjustments and reported the consolidated net income of these companies for 1920 to be $739,240.58. On December 6, 1924, the Commissioner mailed a notice to the Johnston City & Big Muddy Coal & Mining Co., in which he announced his approval of the above described revenue agent's report, with certain adjustments, and found the consolidated net income of these companies for 1920 to be $736,626.56, and notified the company that a deficiency in income and profits tax for 1920 of $316,620.61 had been assessed against it. This letter contained the usual notice that the taxpayer had the right to file with the collector a claim for the abatement of the tax or any part of it. The company having been theretofore dissolved and no legal representative thereof being in existence, such claim could not be executed and no summary action for the collection of the tax could be taken by the Commissioner. Thereafter, under date of April 15, 1926, the Commissioner mailed to each of the parties herein a letter proposing in each instance an assessment in the amount of $295,331.64 as liability as a transferee of the assets of the Johnston City & Big Muddy*2660 Coal & Mining Co.
OPINION.
LANSDON: Preliminary to our consideration of the several issues presented by the record, we are called upon to determine the status of the appeal of Michael Duggan, Docket No. 17209, whose death *625 is suggested by the attorneys for the appellants in their motion to dismiss, filed at the close of the hearing.
The record shows that Michael Duggan died on February 24, 1928, nearly two years after his appeal to this Board had been perfected and before hearing or decision thereof, and also that the action is one which survives against his estate. The single duty imposed by law on the Board of Tax Appeals is to review the administrative determinations of deficiencies or liabilities asserted by the Commissioner, and to redetermine the amounts, if any, due the Government. It is clear, therefore, that jurisdiction resulting from an appeal here, in conformity with law and our rules of procedure, continues unimpaired until our functions are terminated by decision or dismissal. There is no abatement of an appeal upon the death of the appellant, and the motion to dismiss is, therefore, overruled. *2661 ; .
The petitioners' several causes of action will be discussed, the merits thereof determined, and the questions raised decided in the order in which they are argued in their brief. Their first contention is that "No profit can be imputed to the corporation upon a sale of assets made by the stockholders after a distribution in kind in liquidation." This allegation requires us to determine whether the sale of capital assets which resulted in the alleged gain which the respondent here seeks to tax was made by the Johnston City & Big Muddy Coal & Mining Co., hereinafter sometimes designated the corporation, or by the single stockholder of such corporation after the receipt by it of such property as a liquidating dividend distributed in kind. The parties agree that if the sale was made by the corporation it had net taxable income in the year 1920 in the amount of $736,626.56 and that there is a deficiency in payment of tax liability thereon in the amount of $316,620.61.
Counsel for petitioner throughout the hearing and in their briefs repeatedly declare that*2662 the Board is herein called on only to determine a simple question of fact. Whether the sale was made by the corporation or by the Duggan Trust is, of course, a question of fact, but it is a fact that can be ascertained only by inquiring and deciding whether the procedure adopted for the purpose of making the sale without incurring tax liability was legal in all its material steps. Not later than March 20, 1920, the corporation and the purchaser agreed on the consideration and terms of the sale, and not later than the 25th of March the purchaser completed all its arrangements for necessary funds and notified the corporation that it was ready to close the deal.
The purchaser was not concerned with any question of taxes, but desired a good title to the assets, for which it had agreed to pay *626 $1,800,000 in cash. Much of the property was real estate and it was necessary to satisfy the statute of frauds by corporate acts of record sufficient to complete the deal and pass legal title to the assets involved from the corporation to the purchaser. Accordingly, a sales contract purporting to be an agreement between the Duggan Trust and the purchaser was drawn by counsel for*2663 the parties thereto. This contract was dated and signed as of March 31, 1920, and thereafter nothing remained to complete the sale except the delivery of the property with title by the seller upon receipt from the purchaser of the stated consideration.
On March 31, 1920, the directors of the corporation, James Duggan, Henry Duggan, and Holland, adopted a resolution relating to the distribution of property no longer needed in the business and called a meeting of the stockholders for 10 a.m. of the same day. At such called meeting, in which none of the stockholders were present in person and all were represented by proxy theretofore given to Henry Duggan, who on that date was neither a stockholder nor a beneficiary of the trust, the directors were authorized to distribute in kind certain of the assets of the corporation to the stockholders - that is, to the Duggan Trust. At 11 a.m. the directors again met and authorized James Duggan, the president, to act in behalf of the company and together with the secretary, Holland, to make and execute all proper instruments incident to such distribution. Whether these meetings were in fact held and, if so, just what was legally done, we*2664 are unable to determine. The records introduced in evidence are made up of filled in skeletons of carbon copies, pasted into the minute book without regard to the sequence or nature of the meetings they purport to report and, in some instances, signatures and entries appearing therein are repudiated by the secretary. It seems clear, however, that the corporation at no time ever intended to part with title to the assets sold until a conveyance was made to the purchaser and it received the purchase price. This fact is shown from the circumstance that it retained the deeds theretofore made to James Duggan until April 9, when the money was counted out to it in the office of the Old Ben Coal Co. At this time, but not until the checks had been verified by him, its attorneys directed the secretary of the corporation to surrender the deeds to James Duggan, who simultaneously therewith delivered the instruments that passed the title to the purchaser. We think the inferences fairly deducible here show conclusively that a sale was contemplated long before the alleged distribution in kind; that except in the event of a sale the corporation intended to continue to hold and operate these*2665 properties; and that the delivery of the deeds and bill of sale to James Duggan, an act necessary to the alleged distribution, was wholly contingent on the *627 completion of the sale. The unconditional delivery and acceptance of a deed as an essential requirement to pass title is too elemental for serious discussion and must be conceded. ; ; ; .
Even if accomplished as claimed by the petitioners, the procedure on March 31, all of which was a part of a program previously planned for the admitted and we believe the sole purpose of avoiding any tax to the corporation on gains which it was then known would be realized from a sale of capital assets not merely contemplated but actually made as to its terms and conditions, is questionable in several particulars. Inasmuch as the evidence discloses that the disposition of corporate property proposed by the directors and authorized by the stockholders was to include capital assets in addition to surplus earnings, it is clear that either a partial liquidation by reduction*2666 of capital or a complete liquidation as a step towards dissolution was contemplated.
That the corporation transferred the assets in controversy to its stockholders "in process of dissolution," as now claimed, is conclusively negatived by its certificate of dissolution, filed with the Secretary of State of Illinois long after the transaction here involved. This certificate is required by section 75 of chapter 32, at page 678, of the Revised Statutes of Illinois, of all corporations seeking voluntary dissolution, as a condition precedent, to show their prior compliance with all of the laws pertaining to payment of the corporation debts, and the distribution of its capital. Among other things the corporation is required to show by listing, in specific detail, what assets, either in kind or money, were distributed to the stockholders. The form required to be filed provides blank spaces for setting forth the names and addresses of each stockholder receiving any part of the corporations's property, and the value, in money, of the same. The obvious purpose of this statute is to furnish information to the State, and the unpaid creditors of the corporation, which will enable them, in*2667 proper cases, to follow the assets into the hands of the distributees. The certificate filed by the corporation in this case gave no names of any distributees of its property, but, on the contrary, stated that the corporation owned no assets on the date of the adoption of the resolution to dissolve. Nothing in the record even remotely suggests that at the date of the proposed distribution it was regarded or taken as a step in the reduction of capital in conformity with chapter 32, paragraph 59, at page 676, of Cahill's Illinois Revised Statutes. In these circumstances it would seem that the alleged distribution in kind was not legally effected and that the sale under the contract was a mere conversion of a mixed body of assets *628 into cash without in any way affecting the resources of the corporation or the rights of its minor stockholders and creditors.
If the alleged distribution was a step in the transfer of the assets of the corporation to the corpus of the Duggan Trust, it failed of its purpose, since the procedure adopted was in violation of the express terms of the following provision of the trust instrument:
The Trustees shall have power at any time to sell*2668 all or any of the property, real or personal, then belonging to the trust hereby created, either at public auction or by private contract, for cash or on credit, or partly for cash and partly on credit, and to receive the property and assets at any time belonging to said Johnston City & Big Muddy Coal & Mining Company, or any part of the same, in the event of the dissolution of said company or of the distribution of any part or all of the property and assets of said company in exchange for some part or all of the stock of said company so held by said Trustees, and to execute and deliver all good and sufficient deeds, bills of sale, instruments of transfer, and any and all other writings necessary or proper to convey the property sold by said Trustees, and the proceeds of the sale so made or of any property so received shall be held by said Trustees upon and subject to the same trusts which the property so sold or conveyed was held by said Trustees.
Obviously this language provides for three ways in which additional property may be received into the corpus of the trust, which originally included only the stock of the corporation. It might receive and use the income incident to its*2669 stock ownership; it might receive a part of the capital of the corporation distributed in partial liquidation and in return therefor surrender for cancellation a ratable proportion of the stock held by it, or, in the event of dissolution, it might receive all the property of the corporation. The purposes of these provisions of the trust instrument are not clear, but it is reasonable to assume that no dissolution was then contemplated and that in certain conditions the corporation was to continue in business as a retail coal dealer with reduced capital, as is indicated by some provisions of the sales contract. It is plain enough, however, that under the terms of the instrument the trustees were required to surrender stock whenever they received assets of the corporation in partial liquidation. Even if the alleged distribution by the corporation to the stockholders was a legal act as contemplated by the corporation laws of Illinois, which in the circumstances here is more than doubtful, it is evident that the trustees, as such - that is, the Duggan Trust, could not legally receive such property into the corpus of the trust unless they complied with the conditions set forth in the*2670 trust instrument. No stock was surrendered. Neither was there any prior dissolution, and we conclude, therefore, that the assets in question did not pass, as claimed, into the ownership of the Duggan Trust on March 31, 1920.
The sales contract specifically declares that at the date thereof the stock of the corporation was the property of the Duggan Trust and that the assets to be conveyed were the property of the corporation. *629 Even if the trust was a party to the agreement to sell, the terms of that instrument indicate that it was no more than an executory contract to convey certain property or cause such property to be conveyed. Its completion could be effected either by the acquisition of the property and subsequent conveyance to the purchaser, or by causing the conveyance to be made by the corporation. Since we have decided above that the Duggan Trust did not receive the property it follows, of course, that it was not able directly to convey to the purchaser. If it caused the property to be conveyed by the corporation, the Commissioner's contention that the sale was made by the corporation is established.
Inasmuch as the sales agreement was executed and the*2671 property transferred with title satisfactory to the purchaser, we are of the opinion that it must be regarded as nothing less than a contract for and on behalf of the corporation, entered into for the purposes of binding these stockholders to see that the verbal agreement, theretofore made by the corporation, to sell these properties, would be carried out. The logic of the events, following the conclusion of these negotiations, as well as the things undertaken to be performed in this contract, justify such conclusion, since these directors could not have legally bound the corporation in a contract for the sale of all of its capital assets without special authority from the stockholders. The stockholders, however, could be personally bound by such a contract which, when joined in by all of them, would afford the purchaser the extreme limit of protection to be legally had in the conditions. Under such circumstances a contract by all of the stockholders, they possessing among themselves the power to force its adoption by the corporation, becomes for all intents and purposes the contract of the corporation. *2672 ; ; affd., ; ; ; ; ; ; ; ; ; . That the sale should be considered a corporation transaction is shown by the fact that the final closing of the deal was made by the officers of the corporation with the purchasers, in the absence of the trustees, and without their knowledge, advice, or assistance, in so far as the record shows; that it was James Duggan, president of the corporation, who executed the conveyance to the purchaser and received from it the full purchase price of $1,800,000. In so doing we think Duggan acted for and in behalf of the corporation, and that his acts, under these circumstances, constituted a*2673 complete sale and delivery of this *630 property by the corporation to the purchaser, and the receipt by said corporation of the selling price.
The circumstances herein are practically on all fours with the facts in , which we decided adversely to the contentions of the petitioners. Since the avowed purpose of the various transactions here other than the actual sale was to avoid tax liability, it becomes the duty of the Board to look through the form to the substance thereof. It has been held that one may lawfully dispose of his property to escape taxation, but that the law will not uphold any mere manipulation, under the guise of disposition, the only effect of which is to defeat the tax. ; ; ; . In the various manipulations of record in this proceeding none effected any change in the beneficial ownership of the assets involved. There was no disposition of property either in form or substance*2674 that in any way lessened or changed the proportional beneficial interests of the several stockholders of the corporation who surrendered their certificates to the trust on December 31, 1919. At the end of all the complicated procedure indulged in, each of the stockholders of the corporation, except for certain assignments among themselves which are not material here, was in full enjoyment of all the interest therein which he had owned before counsel devised the plan or plot for the avoidance of taxes. We are of the opinion that the sale here involved was made by the Johnston City & Big Muddy Coal & Mining Co. and the taxable income realized therefrom is taxable to it.
Petitioners next challenge the legality of the assessments made against them under and by virtue of the provisions of section 280 of the Revenue Act of 1926, and the jurisdiction of this Board to redetermine the same, for the reason, as claimed by them, that said section is unconstitutional and void. The issues of law raised by these petitioners in respect to the validity of this section of the Act were considered by us in *2675 , and there decided adversely to the contentions made by them here. By authority of this decision we now overrule the motion so made by them at this time.
Petitioners' third objection raises the question as to their exemption from liability based upon the theory that they were not in possession of the corporation's assets at the time the assessment against it was made; but that the Duggan trustees, if anybody, were at said time liable, they being, as claimed by petitioners, the primary transferees and in possession of ample property out of which to pay the tax.
*631 The record, however, fails to establish the facts as contended for by the petitioners in respect to the receipt by the so-called Duggan Trust of the assets of the corporation. The property under consideration here, either in its present or preconverted form, has at all times been in the actual or constructive possession of the corporation or these petitioners, without intervening transferees. The money received for the sale of the property was received by James Duggan, as president of the corporation, before its dissolution, and invested in securities, *2676 records of which were kept by the corporation. After dissolution of the corporation, these records were continued by Henry Duggan, a director of the corporation. There is no evidence to show when, how, or by what authority all the assets listed therein, less certain distributions, appear on the property account of James Duggan at the date of the death of the last of the trustees. On March 10, following, James Duggan made distribution to Hulda Duggan and Henry Duggan of the portion of such assets not retained by himself, in accordance with a contract of settlement entered into between himself and said distributees on said date, in which contract, as shown by the receipts taken from distributees, he assumes to act "individually and as Trustee." We are without information as to the nature of the trust under which James Duggan claimed to hold this property, unless it be by virtue of law which casts a trust upon all officers and directors of a dissolved corporation to hold its property and assets for the benefit of its creditors and stockholders, the latter being tenants in common of the same and entitled to legal distribution after debts and paid. *2677 . Under these circumstances James Duggan could make distribution of the corporation assets, but the distributee stockholders would be liable for the unpaid taxes to the extent of the value of the property received by each; and, since it is the property of the dissolved corporation which must stand for the payment of these obligations, and not the stockholders individually, it is immaterial as to what means were employed in effecting distribution, so long as the property reached them and is found in their possession. ; . The record shows that at the final distribution of these assets on March 14, 1928, James Duggan retained as his portion thereof money and securities of a total value of $1,415,617.35; but there is a total absence of evidence to show that Michael Duggan, or his estate, in any manner shared in said distribution, or received any of such assets. We, therefore, hold that, as to the petitioner James Duggan, liability as transferee of the assets of the defaulting dissolved corporation for the*2678 unpaid taxes, limited to the value of the assets thus *632 received, is established; but that, as to the petitioner Michael Duggan, his assignment of error in respect to such liability must be sustained.
We next come to the important question of fraud raised by the respondent in his amended answer and for which he prays the imposition of the 50 per cent penalty against the dissolved corporation. Careful consideration of the record upon which the respondent relies to support his imposition of the fraud penalty convinces us that the return here in question, though false, was not wilfully made for the purpose of evading taxes. The charge of fraud is dismissed.
In conformity with the foregoing findings of fact and opinion, we conclude that the petitioner, James Duggan, Docket No. 17208, is liable for the unpaid taxes of the Johnson City & Big Muddy Coal & Mining Co. for the year 1920, not exceeding the amount, in value, of the assets of said corporation received by him, as found. .
Reviewed by the Board.
Decision will be entered under Rule 50 in Docket No. 17208. Decision will be entered for the petitioner*2679 in Docket No. 17209.