Decided upon the authority of Shwab v. Doyle, ante,
258 U. S. 529
275 F. 545 reversed.
Error to a judgment of the circuit court of appeals reversing a
judgment of the district court for the plaintiff, Knox, in an
action to recover a sum collected as an estate tax.
Page 258 U. S. 543
MR. JUSTICE McKENNA delivered the opinion of the Court.
The case was determined in the court below upon demurrer to the
complaint. The complaint alleged that, on the 19th day of December,
1902, and for some time prior thereto, Henriette Levy was the owner
of 22,014 shares of the capital stock of the Levy Estate Company, a
corporation. On that date, she conveyed to the plaintiffs Harriet
L. Levy, Pauline Jacobs, and Adeline Salinger, each 5,000 shares of
that stock. On the 14th day of January, 1903, she conveyed to these
plaintiffs 2,660 shares each.
On the 17th day of January, 1907, she and the plaintiffs entered
into an agreement which recited errors made in the issue of the
stock, and agreed that the number of shares to which each was
entitled was as follows: to Henriette Levy, 10 shares, to Harriet
L. Levy, 7,328 shares, to Pauline Jacobs, 7,338 shares, to Adeline
Salinger, 7,337 shares, and to Ruth Salinger, 1 share.
On the same date, the agreement was carried out by the board of
directors of the company, and on that date, Henriette Levy conveyed
her 10 shares to Harriet L. Levy.
The transfers of the stock to plaintiffs were complete, and
there were no agreements or stipulations by which Henriette Levy
would be entitled to a return of the stock, except that the
plaintiffs promised and agreed to pay to her the dividends accruing
thereon during her lifetime,
Page 258 U. S. 544
she, however, retaining no testamentary disposition or any legal
right whatsoever over the stock, or any of it, or any right of
Henriette Levy, at the time of the transfers, was in good health
and made them to get rid of the care and worry of business, and to
vest in plaintiffs definite and irrevocable present rights of
ownership in the stock, and the transfers were not in contemplation
of, or intended to take effect in possession or enjoyment at or
after, her death.
She died on the 15th day of December, 1916, being at that time,
and at the time of the transfers, a resident of Alameda County,
California. Plaintiffs are her surviving children, and were at such
time, and are now, residents of the state.
She left no property or estate or assets whatever, and
consequently there was no estate to administer, nor any estate upon
which any tax could be levied. Notwithstanding the facts, the
Commissioner of Internal Revenue of the United States, assuming to
act under the provisions of the Act of September 8, 1916, attempted
to levy and assess a tax in the sum of $12,460.84, and demanded and
threatened to enforce payment of the same. In consequence thereof,
the plaintiffs paid the tax. Subsequently they demanded a refund of
the tax, which demand was refused.
At the time of the transfers, there was no law of the State of
California imposing any transfer or inheritance tax, nor was there
a law of the United States to that effect, and all of the transfers
were intended to take effect in possession and enjoyment upon their
date. The act of Congress therefore should not be construed to be
retroactive, and, if so construed, was in violation of the
Constitution of the United States in that it would take the
property of plaintiffs without due process of law in violation of
the Fifth Amendment, and would not be, besides,
Page 258 U. S. 545
a transfer tax or an indirect tax, but would be a direct tax
thereon, in violation of Article 1, § 9, subdivision 4, of the
Constitution of the United States, because not laid in proper
relation to census or enumeration as therein provided.
Judgment was prayed for the sum of $12,460.84, with interest
from the 26th day of December, 1917.
Wardell filed a demurrer to the complaint, which was sustained,
and the action dismissed. To that judgment this writ of error is
directed. For the reasons stated in Shwab v. Doyle, ante,
258 U. S. 529
think the judgment was erroneous.
There was a proceeding in the case to which we must give
attention. The judgment of dismissal was entered January 20, 1921.
On February 14, 1921, an order of the court was made and entered
which recited the resignation of Wardell as collector, and the
appointment of John L. Flynn as collector, and, as doubts existed
as to whether the case was proper for the substitution of Flynn as
successor of Wardell, it was ordered that, so far as the action was
against Wardell in his official capacity, the same might be
maintained against Flynn, and that, so far as it was against
Wardell personally, it might be continued against him personally,
without further pleadings or process.
On February 15, 1921, Flynn entered his appearance, which, after
reciting the fact of his substitution as defendant in place of
Wardell, insofar as the action was against Wardell in his official
capacity, declared that he (Flynn) appeared in the "action as such
It will be observed that there was no resistance by Flynn to his
substitution, and the subsequent proceedings were directed as much
against him as against Wardell, the bond upon the writ of error
running to both. As we have said, however, in Union Trust Co.
v. Wardell, ante, 258 U. S. 537
this Court decided in Smietanka v. Indiana Steel
Page 258 U. S. 546
U.S. 1, that an action could not be maintained against a
collector of internal revenue for the recovery of a tax in the
collection and disbursement of which he had no agency.
This was Flynn's situation, and bringing him into the case was
error. Therefore, upon return of the case to the district court, he
shall be permitted to set up the defense of nonliability, if so
advised, and, if he set up the defense, it shall be ruled as
sufficient for the reasons we have given.
Judgment reversed and cause remanded for further proceedings
in accordance with this opinion.