The remaining questions, two in number, are controlled by well-settled and familiar rules of corporation law.

Complainant owned one half of the stock and | risdiction to issue the injunction in question. defendant the other half. Suit was filed to The court assumed to exercise visitorial restrain the defendant from acting as treas-powers over two foreign corporations which urer and for a receiver. In denying an or- are not parties to this suit and to regulate der for an injunction and receiver, Vice Chan- the management of their internal affairs. cellor Pitney held that the remedies available The phrase "internal affairs of a corporaas between partners and "joint adventurers" tion," as here used, is well defined in the case cannot be applied to stockholders of corpora- of North State, etc., Mining Co. v. Field, 64 tions. The basic proposition upon which the Md. 151, 20 Atl. 1039, as follows: "Where bill and the injunction rest, viz., the partner- the act complained of affects the complainant ship and agency theories, having thus been solely in his capacity as a member of the cordisposed of adversely to the complainant, the poration, whether it be as stockholder, direccontention that a court of equity, acting in tor, president, or other officer, and is the personam, may bind the conscience of a par- act of the corporation, whether acting in ty even to the extent of sequestrating prop- stockholders' meeting, or through its agents, erty in a foreign state, falls with it. the board of directors, then such action is the management of the internal affairs of the corporation, and, in case of a foreign corporation, our courts will not take jurisdiction." The next question is whether the alleged The courts of this state do not possess such agreement relied upon by the complainant, | jurisdiction, and any suggestion of its asthat the directors of the Illinois corporation sumption we emphatically repudiate. An inother than Jackson and Hooper should be junction which enjoins the directors of a cormere nominal directors without independent poration as individuals, but with respect to judgment and subject to their joint dicta-corporate affairs, is an injunction against the tion and control, is enforceable. The com- corporation. We are quite satisfied again to plainant's position is that this agreement has approve of the language of Vice Chancellor, been violated, and he asks the court to en- now Mr. Justice Reed, when in the case of force it. Our corporation law (P. L. 1896, p. Stockton, Attorney General, v. American To281, § 12) provides that "the business of bacco Co., 55 N. J. Eq. 352, 36 Atl. 971, he every corporation shall be managed by its said: "Nor, in my judgment, is this result directors." The law of Illinois is to the evaded by enjoining the officers individually same effect. The law thus confides the busi- instead of restraining the corporation. It is ness management of the corporation to its perfectly obvious that what has been done directors. The directors must act in behalf since the organization, and what is intended of the corporation. They represent all of to be done in the future, are corporate, and the stockholders and creditors, and cannot not individual, acts. The power of the corenter into agreements, either among them- poration to select its officers and agents in selves or with stockholders, by which they the manner prescribed by the corporation act abdicate their independent judgment. Mr. Justice Garrison, in a recent decision of this court, expresses the same thought when he says: "A contract by which the directors of such corporations in conclusive form abdicate their duty of management in this respect, and turn it over to an alien body, is in direct violation of the words and meaning of the statute, and is as typical an instance of an ultra vires act as can well be imagined. To do so in a given instance would be an illegal act." McCarter v. Firemen's Ins. Co., 73 Atl. 80, 85. The United States Court in West v. Camden, 135 U. S. 507, 10 Sup. Ct. 838, 34 L. Ed. 254, lays down the same rule. A director who does not direct is liable for his neglect of duty. Kavanaugh v. Commonwealth Trust Co. of New York, 64 Misc. Rep. 303, 118 N. Y. Supp. 758. The very contract upon which the complainant relies, so far as it provides for the creation, election, and maintenance of dummy directors, is contrary to every principle of the laws of this state. See v. Heppenheimer, 69 N. J. Eq. 36, 75, 61 Atl. 843. For a discussion of the nullity of the acts of dummy directors by Leonard M. Wallstein, of the New York bar, see 15 Yale Law Journal, No. 3, January, 1906.

or permitted by law is plenary. Now, it seems a paradox to say that a corporation can do through its agents what the agents cannot do. Inasmuch as corporate existence can only be manifested through its officers, and corporate privileges can only be utilized by means of agents, it is impossible to detach the corporation from those who represent it and deny to the latter what is conceded to the former. An injunction which ties the hands of the officers and agents of a corporation from transacting any corporate business is the exact equivalent of an injunction which prevents the corporation from transacting any business, which, as already remarked, is the equivalent of a judgment on quo warranto." It is unnecessary to analyze again the terms of the injunction in referring to its extraordinary scope and effect. In a form sweeping, mandatory, and embodying the ingenious theory of the complainant, the injunction, while purporting not to disturb or interfere with the integrity and autonomy of the foreign corporations, but only to enjoin the individuals from transferring property of an extensive business having its situs in foreign states, does, in fact, substance, and effect, regulate and conFinally, the Court of Chancery had no ju- trol the internal affairs of corporations char

State.

tered by foreign sovereignties and prevents [ment and assessment of an inheritance tax. freedom of action on the part of corporations Appraisement and assessment affirmed. not made parties to the suit, which we have Argued November term, 1909, before held to be distinct legal entities and con- REED, J. trolled by foreign laws. In violation of every James & Malcolm G. Buchanan, for prosobligation of official duty and responsibility ecutor. Edmund Wilson, Atty. Gen., for the imposed by law upon officers and directors, it substitutes the will of the Chancellor for deliberate corporate action. Such assumption of power cannot be approved or tolerated without a complete destruction of equitable doctrines as applied to corporations, and a subversion of the law affecting corporate rights, duties, and relations. As Chancellor Runyon said in Gregory v. N. Y., etc., Ry. Co., 40 N. J. Eq. 38: "It is almost too obvious for remark that this court cannot regulate the internal affairs of foreign corporations, nor can it enforce its decrees out of this state." State comity is opposed to the assumption of such jurisdiction and to the usurpation by one state of the power of another over its own institutions. The deci

sion of the foregoing questions renders it unnecessary to discuss the other subordinate propositions raised by the briefs.

We hold that the parties are not partners as to the corporate property, but merely stockholders in two foreign corporations, distinct legal entities; that the agreement whereby these dummy directors were bound to act in accordance with the will of the com

plainant and Hooper was illegal, and therefore unenforceable in any court; that the whole subject-matter of the controversy relates to, and the injunction attempts to regulate, the management of the internal affairs of two foreign corporations; that the Court of Chancery has no jurisdiction to entertain the bill; and that the injunction and all pro

ceedings thereunder should be vacated and held for naught.

For the reasons already given, the order appealed from is reversed, with costs.

(79 N. J. L. 302)

TILFORD v. DICKINSON et al. (Supreme Court of New Jersey. Feb. 28, 1910.)

(Syllabus by the Court.) TAXATION (8 867*)-INHERITANCE TAX-PROPERTY LIABLE.

The decedent left a

REED, J. Wesley H. Tilford died on March 9, 1909, while a resident of the state of New York. He died possessed of personalty worth $11,626,897.98, of which $7,601,962.50 was composed of shares of stock of certain corporations incorporated under the laws of New Jersey. will, of which he appointed Henry M. Tilford sole executor. The will was probated, and letters testamentary were issued in the state of New York. By this will the testator bequeathed to certain collateral relatives legacies amounting to $4,150,000. The residue went to brothers and sisters of the de

cedent, one of the brothers being the executor, and the prosecutor of this writ. By the will, the executor was authorized either to

sell and convert the property or any of it, and pay the legacies out of the proceeds, or to transfer the securities themselves to the legatees in payment of the legacies. The executor has paid the collateral inheritance tax due to the state of New York. The executor has elected to pay the $4,150,000 legacies to the collateral legatees, out of that portion of the estate which does not comprise shares of stock in New Jersey corporations, with the exception of 841 shares of the capital stock of the Standard Oil Company which he has used to assist in paying the legacies to the estate, including all the shares of stock the collateral legatees. The remainder of

of the New Jersey corporations (except the 841 shares of Standard Oil Company stock already mentioned) the executor has elected to transfer to himself as residuary legatee, he being a brother of the testator, and to another brother, and to a sister, who are also legatees. The register of the prerogative | court appointed an appraiser to determine the testator's estate. The appraiser fixed the value of the stock of the New Jersey corporations at the sum of $7,601,962.50, but made a deduction from the value of the stock of these corporations in the ratio provided for by the act of 1909 (P. L. 1909, p. 236), and fixed the tax at $138,378.52 this being calculated upon the reduced valuation, under the statute, of $2,767,570.47. There is no contest respecting the imposition of a collateral inheritance tax upon the value of the 841 shares of Standard Oil Company stock, which was used by the executor in the payment of the collateral legatees. The contest is in reCertiorari by Henry M. Tilford, executor spect to the remainder of the stock of the of Wesley H. Tilford, against Samuel D. New Jersey corporations, devoted by the exDickinson and others to review the appraise-ecutor to the payment of legacies to persons

A testator died domiciled in the state of New York, leaving personal property in New York, and also in New Jersey, and leaving bequests to persons which were exempt, and bequests to persons which were taxable, under our inheritance tax statute (P. L. 1906, p. 432).

Held, that the executor could not relieve the property in New Jersey from taxation by ap; plying it to the payment of exempt legacies, and by paying the taxable legacies out of the New York property.

[Ed. Note. For other cases, see Taxation, Dec. Dig. § 867.*]

exempt from taxation under our statute, the question being whether this property is exempt, although the property so used had its situs in this state at the death of the decedent.

The question of the taxability of this property arises under the act of 1894 (P. L. 1894, p. 318) as amended by section 1 of the act of 1906 (P. L. 1906, p. 432). The amended section reads thus: "A tax shall be and hereby is imposed upon the transfer of any property, real or personal, of the value of $500.00 or over, or of any interest thereon, or income therefrom, in trust or otherwise, to persons or corporations in the following cases: First, where the transfer is by will or by the intestate laws of this state from any persons dying seized or possessed of property while a resident of this. state: Second, when the transfer is by will or intestate law of property within the state, and the decedent was a non-resident of the state at the time of his death. All property passing to * * * a father, mother, husband, wife, child, brother or sister, or lineal descendant born in lawful wedlock, or the wife or widow of a son, or the husband of a daughter, shall be exempt from the payment of taxes under this act, but no other exemption of any kind shall be allowed."

The

tives, and left the residue of his estate to his two brothers. The executor paid the collateral legacies out of the property situated in Great Britain, leaving the property situated in New York to go into the residuary estate, and thus to decedent's brothers. The New York court held that the devotion of the New York property to the payment of decedent's brothers, who were in the exempt class under the New York statute, rendered that property immune from the imposition of collateral tax under the New York statute. In the opinion delivered in that case it was said: "If the executor determines to pay the legacies from the British estate, the American estate is thereby freed from the burden of a special tax, the imposition of which depends upon the fact of the succession by the legatee to some property which is within the state. If the American estate is appropriated to persons who are within the excepted degrees of relationship to the testator, the right to claim the tax from the executor is gone."

The Supreme Judicial Court of Massachusetts has announced a different view in respect to the power of an executor to so appropriate property as to affect the taxability of the transfers under the Massachusetts statute. That statute provides that "all properThe prosecutor insists that the property in ty which shall pass by will this state which was by the New York ex- by deed, grant, sale, or gift, made or intendecutor turned into the residuum of the es- ed to be made to take effect in possession or tate, is exempt from taxation, because it enjoyment after the death of the grantor passed to a brother and sister of the dece- * * shall be subject to a tax of five per dent. In the argument addressed to the court cent. of its value." In Hooper v. Bradford, upon this point, much stress was laid upon 178 Mass. 95, 59 N. E. 678, it was held that the construction placed by the New York taxes under the above statute were to be asCourt of Appeals upon their statute of 1887 sessed on the value of testator's property at (Laws 1887, c. 713) in the case of Matter the time of his death, and that income thereof James, 144 N. Y. 6, 38 N. E. 961. from arising thereafter, but before distribustatute so construed was an amendment of a tion of his estate, was not to be included in previous New York act of 1885 (Laws 1885, the tax value. It was said that the words c. 483) which latter act by the construction of the statute meant value of the property put upon it in the case of In re Enston, 113 at the time it passed, and that it passed and N. Y. 174, 21 N. E. 87, 3 L. R. A. 464, did not became vested at the death of the testator. impose in clear terms taxes upon the trans- In the later case of Kingsbury v. Chapin, 196 fer by will of property in New York owned Mass. 533, 82 N. E. 700, following the rule by a decedent domiciled elsewhere. The previously enunciated that a property passed amended act of 1887 was designed to include and became vested at the death of the decesuch transfers made by the will of a nonresi- dent, the Massachusetts court held that the dent testator of property within the state of executor of a decedent, who died in New New York. The amended act provided "that Hampshire leaving property in Massachusetts all property which shall pass by will or by as well as in New Hampshire, could not use intestate laws of this state from any person stock held by the decedent in Massachusetts who might die seized or possessed of same corporations, to pay debts and legacies exwhile a resident of this state at the time empted from succession tax, and so relieve of death, which property or any part thereof the property in Massachusetts from the imshall be within this state, shall be and is sub-position of such a tax. The rule so announcject to a tax of five per cent. on every $100.00 ed by the Massachusetts court in Kingsbury of clear market value of such property." | v. Chapin, supra, has subsequently been adoptThis statute was construed, as already re-ed by the Court of Appeals of the state of marked, in Re James, 144 N. Y. 6, 38 N. E. New York, so far as it applies to cases of 961. The question therein involved was iden- intestacy. In re Ramsdill, 190 N. Y. 492, 83 tical with the question presently propounded. N. E. 584, 18 L. R. A. (N. S.) 946. The Court A decedent domiciled in Great Britain left of Appeals in the last-mentioned case, howproperty there, as well as in the state of New ever. announced its adherence to the rule proYork. He gave legacies to collateral rela-pounded in Re James, supra. It distinguish

statute. The theory upon which it rests is that each distributee has an undivided interest in all the assets of an estate, and that no particular portion of such assets passes to any particular distributee. Therefore, when it is ascertained what portion of the whole estate goes to all of the collateral distributees as a class, it will be presumed that such proportion of the New Jersey property goes to such class of collaterals as the property in New Jersey bears to the property in New York; it being assumed that equal proportions of the property in both states will be devoted to the payment of collateral distributees. This rule was so applied in the present assessment.

ed distribution of estates under the intestate | to be adopted, where property is situated as law and the administration of estates under in this class, is the rule provided for by our a will. In the former, it was said the distributee takes an undivided interest in the whole estate, and, if a part of it happens to be within our jurisdiction, he can only get his share of what is here, under our laws, through our courts. But in the case of legacies ordered to be paid by will, if the foreign executor can pay them out of the assets in another state, he can do so, and he will not be coerced into paying them out of the assets in this state for the purpose of levying a tax here. The legislation in this, as in many other states which provide for a succession tax, has followed closely the statutes of New York; and it is insisted that the decision of the New York court in Re James, supra, construing the statute of 1887, should control us in construing the act of 1894 as amended by the act of 1906. The phrasing of the latter act, however, is literally quite different, although substantially very similar to the New York statute. Its lingual shape differs much more from the act of 1887, than our act of 1894 differs from the New York act of 1885; yet in construing our act of 1894 our Court of Errors and Appeals refused to follow the New York construction of the New York act, because of the slighter changes in the language of the two acts. Neilson v. Russell, 71 Atl. 286, 19 L. R. A. (N. S.) 887. Our act of 1906 places a clause providing for the exemption of certain property from the operation of the act, in a paragraph separate from that portion of the section defining the instances where a tax should be imposed. This, in comparison with the New York act, shows a difference of verbiage which excludes the application of the rule that in adopting the legislation of a foreign state we adopted the construction of the foreign statutes by the courts of that jurisdiction.

The question then is, what is the significance to be assigned to our statute in respect to the question involved? Our act of 1906, p. 432, while differently phrased, does not differ in substance from the statutes of the two states construed in the cases already cited. The statute imposes a transfer or succession tax upon all property transferred by will, or by the intestate laws in the instances mentioned, except when the property passes to one of the exempted class of persons or objects. When a decedent is a nonresident, and a portion of his estate has its situs in this state, it is settled by the cases already cited that upon his dying intestate, and there are distributees belonging to both classestaxable and exempt-that portion of his estate within this state is taxable. The extent of its taxability is now fixed by our statute of 1909 (P. L. 1909, p. 236), which statute, however, was not in existence at the date of the death of the present decedent. Speaking of intestate estates, I am inclined to think

The question now presented is why the rule applied in intestate estates by the courts of New York and Massachusetts should not be applied, as it is in Massachusetts, in cases of testacy. The argument urged against the application of the same rule is that, in the present instance, the New Jersey property "passed" to the brother and sister of the decedent, and so is immune from taxation. By the word "passed" is meant that the executor took this property, or the proceeds of its sale, and placed it in a trust fund for the sister and brother, and in the residuary fund provided for by the will. But this action of the executor was in substance what an administrator of an estate would do, if he turned over to the distributee money arising from the sale of a particular portion of the estate, or if he distributed specific securities by agreement among the various distributees. It may be admitted that under a will specific property in this state may pass to a legatee in the exempted class, and so pass as to evade taxation in this state; but these instances are confined to legacies specifically transferred directly to the beneficiary by force of the terms of the will.

Apart from strictly specific legacies, I am unable to perceive any substantial ground for differentiating the administration of an estate by an administrator from the administration of an estate by an executor, in respect to the question now presented. Technically, of course, by will the estate goes to the executor; but it goes to him as trustee for all who are designated beneficiaries in the will which he is appointed to execute. Equity will compel him to administer the estate for the benefit of the legatees and devisees. His required assent to the payment of the legacies may be compelled in equity. 2 Williams, Ex. p. 1238. Indeed, his required assent is without substance, because by the statute of many states, including New York and New Jersey, the executor is compelled to pay the legacies within a stipulated period. 2 Woerner, Amer. Law of Adm'n, p. 997. legatee before the assent of the executor had such an inchoate title as passed to his per

The

Redfield on Wills, part 2, p. 565. Indeed, 4. PROCESS (§ 141*)-SERVICE-RETURN-CONthe schemes of administration in both testate and intestate estates are designed to secure, in the first instance, the payment of the debts of the decedent, and then to secure to the beneficiaries the remainder of the es

•For other cases see same topic and section NUMBER in Dec. & Am. Digs. 1907 to date, & Reporter Indexes 75 A.-37