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March 27, 1942

McLAUGHLIN, Former Collector of Internal Revenue; SAME v. LADNER, Former Collector of Internal Revenue

The opinion of the court was delivered by: MOORE

Motion for summary judgment is filed by both the plaintiff and the defendants. The primary question is whether or not the plaintiff is exempt from taxation as a cemetery company under the provisions of Sec. 103(5) of the Revenue Act of 1928, c. 852, 45 Stat. 791, 26 U.S.C.A. Int.Rev. Code, § 101(5). There is a further question raised by the pleadings whether, if plaintiff is determined not to be exempt from taxation, it is still entitled to a refund for certain overpayments alleged to have been made. This question is not properly a part of the hearing on the motions for summary judgment; hence a conclusion that plaintiff is not exempt from taxation does not result in sustaining defendant's motion for summary judgment, but the case proceeds on the question of the alleged overpayments. On the other hand, if the issue of exemption is determined in favor of the plaintiff, it is entitled to summary judgment.

The case is submitted upon a voluminous stipulation of facts which may be briefly summarized as follows: On November 9, 1869, defendant was incorporated as a Pennsylvania corporation by the Court of Common Pleas of Montgomery County, Pennsylvania. Prior to its incorporation, on October 20, 1869, one John Jay Smith, representing the prospective incorporators, acquired in his own name approximately 88 acres of land for which he paid $53,032.50. On November 16, 1869, Smith and his wife executed and acknowledged an absolute deed of conveyance of this land to the West Laurel Hill Cemetery Company. Appended to this deed is a writing signed by John Jay Smith and Rachel P. Smith, his wife, acknowledging receipt of the sum of $53,032.50 as full consideration for the conveyance. On November 23, 1869, at the first meeting of corporators and stockholders, the deed was delivered to the company and on the same day was recorded in the office for recording deeds in Montgomery County. The books of the company do not show that the consideration of $53,032.50 was paid to Smith in cash, but the first entry on the company's day book credits him with that sum in the following words: "Land Account dr. to John Jay Smith for 88-3875/1000 acres purchased of him at $600.00 per acre $53,032.50." The books show that capital stock in the total sum of $150,000 was subscribed for, and $112,500 paid in on the stock subscriptions. It is apparent from a study of the book entries and the minutes of the company (although they are by no means clear) that the sum of $53,032.50 due to Smith as a consideration for the conveyance of the land was applied as a payment on stock subscribed for by him in the total amount of $75,000. Certificates were issued for the entire $150,000 of stock subscribed for. During the subsequent history of the company it purchased additional land from time to time amounting in the aggregate, up to the year 1926, to 150.9 acres.

 On November 21, 1881, at a special meeting of the board of managers of the company, the following proceedings took place as shown by the minutes:

 "Mr. B. M. Boyer submitted the following report as a Declaration of the Trusts under which the Cemetery Company holds its lands:

 "Whereas, the purchase money of the lands, tenements and premises conveyed to The West Laurel Hill Cemetery Co., and the monies required for the necessary improvements of the same to adapt the same to the purposes of a Cemetery or place of interment for the dead, have been advanced and contributed in certain proportions by certain persons who associated themselves together for that purpose, and who in order conveniently to effect the same, caused the conveyance of said premises to be made to the said company, which argeed to hold the same In Trust for the uses and intents for which said monies were advanced, that is to say, for the uses and trusts hereby declared, viz. --

 "First -- In Trust to have and hold, use, appropriate and apply the said lands and tenements, premises and appurtenances for the purposes of a Cemetery or place of interment or burial, under and subject to the provisions of the Charter and By-Laws, Rules and Regulations of "The West Laurel Hill Cemetery Company" aforesaid, which now are or hereafter shall at any time be established.

 "Secondly -- In further trust to make and execute in consideration of prices, by said Cemetery Company to be fixed and regulated, sufficient deeds of conveyance to purchases, their heirs, executors or administrators, of rights of interment, and the en clusive use, possession and enjoyment of, in, and to any lots, parts or portions of said premises, for such purposes, subject to the By-Laws and Regulations of "The West Laurel Hill Cemetery Co." aforesaid from time to time adopted, and to receive, set apart and invest a certain proportion, to wit, ten per centum of all purchase monies received as and for a permanent fund, the principal of which shall not be diminished, the annual interest and income of which shall be applied for the preservation forever of the Cemetery premises aforesaid in good order and repair.

 "Thirdly -- In further trust to apply, and appropriate out of the remainder of said purchase monies that may from time to time be received from said sales, and from any other uses of said Cemetery premises, First, -- to the current repair and proper care and improvement of said premises, and if deemed expedient, to set apart a portion thereof, not exceeding ten percent for the formation of a contingent fund for the purchase of additional land or other useful or necessary purposes incident to said Cemetery, and Secondly, -- to apply appropriate and divide the annual net income and monies from time to time received from said sales, not required for the aforesaid purposes, to and among the contributors aforesaid, their heirs, Executors, Administrators and Assigns, in proportion to their respective interests and shares in the same and for which they shall hold certificates to be issued by the said Company, the whole being divided into 3,000 equal parts or shares, and which shall be transferable only upon the books of said Company, which said net income out of the proceeds of said sales to be paid by the West Laurel Hill Cemetery Company aforesaid is the consideration for the conveyance of the said premises to the said Company for the aforesaid purposes.

 "Fourthly -- The persons named as Corporators in the Charter of said Cemetery Company shall be deemed stockholders in the same entitled to one vote each, and eligible as Managers of said Company; and in case of the death of any of said Corporators, the survivors of them shall elect as such stockholders in his stead, some one from among the lot-holders in said Cemetery, who at the same time is not a holder of one of said Certificates, and upon whose death his successor shall be elected in like manner.

 "The holders of the aforesaid Certificates shall have all the rights and privileges of Stockholders in the said Company with a vote for each share represented by the aforesaid Certificates respectively, and eligible as Managers of said Company.

 "The following Resolution is submitted for adoption. Resolved -- That the contributions subscribed for the aforesaid purposes shall hereafter be considered and treated as fully paid up, and that upon the surrender of the present certificates for cancellation, new certificates shall be issued in the following form --

 "Whole No. of Shares 3,000

 "The West Laurel Hill Cemetery ...

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