Court Opinion

ID: 6845913
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:29:03.103011+00
Date Added: 2024-06-11T16:04:58.523715
License: Public Domain

COTTERAL, Circuit Judge
(dissenting).
The question involved is whether the administrators were entitled to deduet from the gross estate $179,986.87, reached by listing as assets the market value of municipal bonds, $244,414.57, and as a claim against the estate the amount paid the banks for the bonds, $424,401.44. These items were properly eliminated, because Shulthis did not own the bonds at his death, as was required by section 402, Revenue Act of 1921 (42 Stat. 278, 279), and the banks had no claim against his estate, “allowed by the laws of the jurisdiction,” as required by section 403 of that act.
The majority opinion justifies decedent's ownership of the bonds on the untenable theories that he did not sell them to the banks, or he later repurchased them from the banks.
Shulthis was president and director of the banks. He was also a stockholder, officer, and director of three brick and cement companies, and a partner in a paving company. Those concerns furnished materials to contractors engaged in constructing municipal improvements, for which bonds were issued, payable from assessments. In order to finance these operations he took over the bonds and lodged them with the banks, instructing the auditor to record them as assets, and credits therefor were given to the contractors and material companies. Shulthis advanced $40,000 to the paving company, and agreed to repurchase from the banks its bonds at par and interest, on demand. Tr. pp. 13,14,15. Clearly those bonds were sold to the banks. He did not indorse or guarantee the payment of any of the bonds in writing. The auditor testified Shulthis said the bonds were a good investment for the bank, and at any time the directors so desired he would take them up. Tr. 43. There was no *991testimony that aside from the paving bonds he gave the banks any note or evidence of a debt to them, pledged the bonds to the banks, or agreed to pay them any interest on their outlays, which amounted to $480,931.85.. However, he indorsed personal notes to the bank for about $1,000,000.
In their petition for review, counsel for the administrators concede that Shulthis was the managing head of the banks and the companies, and that he negotiated the bonds with the banks. Tr. p. 29. In their brief, they make the same statement. Page 3. And the Board of Tax Appeals necessarily found the banks had title to the bonds in stating that Shulthis did not have “such an interest in the bonds that their value should be included in his gross estate,” the banks sold some of them to their own customers, and that, though “the transfer to the banks was voidable,” no action was taken by the banks prior to his death to .set aside such transfers. Tr. p. 24. The álarm of the other directors was due only to the amount of paper Shulthis placed with the banks and not to his authority, and their criticism related to his judgment. Tr. p. 15. He repeatedly stated he was back of anything he put in the banks, and would take it up on demand, and, about two weeks before his death told the directors and the examiners he would clean up his personal obligations and write off or handle the others satisfactorily to the banks. But these statements were quite consistent with' the title of the banks to the bonds.
It is equally certain he did not regain title to the bonds. As he held a fiduciary relation to the banks, the transactions in its behalf wherein he had a contrary interest were voidable at its election. Morse on Banks and Banking (6th Ed.) § 125a; 2 C. J. 694; 14A C. J. 115. The rule has, however, the qualification that, where the transactions are authorized or ratified, they bind the principal. In this ease, they were not only authorized by the banks, but accompanied by an agreement of Shulthis’ to be responsible for them. In any event, some affirmative action was necessary to divest the banks of their title to the bonds. This required a rescission and a tender of the bonds to Shulthis, assuming the banks were entitled to adopt that course. 14A C. J. 115. But there was no such action.
Nor was there any valid contract whereby he agreed to repurchase the bonds, except those of the paving company, to the extent of $40,000. His original agreement to be responsible for the other bonds was invalid under the Kansas statute of frauds, because it was not in writing to answer for the debts of the municipalities issuing the bonds by the party to be charged. Rev. St. Kan. 1923, 33 — 106. ■ Shulthis was the party to be charged. Edgar v. Reeser, 46 F.(2d) 277 (10 C. C. A. Jan. 2, 1931). We need not inquire whether a later contract with the directors to take up the bonds might have been, although oral, a direct undertaking with the banks, and supported by the consideration of forbearance on its part to exact payment-See Williston.on Contracts, Vol. 1, §§ 135, 136; 13 C. J. 342, 348, 349-; 6 R. C. L. 658, 659. Such- a demand of the banks would have survived against the estate. Rev. St. Kan. 1923, 60 — 3201. And the statute of frauds would have been inapplicable. 27 CJ. 147. But there was in fact no such contract of repurchase, because notice of acceptance of the proposal was wanting. Equitable Life Assur. Soc. v. McElroy (C. C. A.) 83 P. 631. Shulthis offered toi take up the bonds. There was only inaction on the part of the banks, and nothing but a satisfactory assurance on his part. The title to the bonds therefore remained in the bands, and the value of them could not properly be included as assets in the return of the administrators.
A deduction of the payment by the administrators to the banks for the bonds was not warranted as a claim against the estate. There were certain proceedings concerning-the bonds. The widow and two daughters of Shulthis, his sole heirs, filed a petition in the probate court, reciting he had placed the securities in the bank in financing his companies, and had promised the directors to withdraw them on demand; that the banks held his obligations upon notes for $1,068,389.26 and upon bonds for-$437,173.31; that the estate had the cash with which to take them up, -and it'was just and right to do so; and they prayed an order to pay from the estate the notes, and, if deemed to its best interest, to take up the bonds, in discharge of his obligations. The probate court directed 'and authorized the administrators to invest the funds of the estate in taking up both the notes and bond obligations. The directors of the banks, by resolution, ratified the transaction, with the right to repurchase some of the bonds it had sold and charge the cost to the estate. Later-the estate paid, between December, 1923, and July, 1928, amounts aggregating $424,401.44, to the banks and vendees holding bonds guaranteed to them. The bonds had declined, because of delinquent *992municipal assessments, litigation, etc., so that their fair market value was $244,414.57.
Under the laws of Kansas, a claim against an estate must be formally exhibited, and must not be allowed unless the claimant shall make oath in open court or file an affidavit that he has given credit for all payments and offsets, and the claim must be established by competent testimony before it is allowed or adjusted. Rev. St. Kan. 1923, 22 — 701, 22— 705, 22 — 708, 22 — 709. By article 33 of Regulation 63 a decision of a local court as to the amount of a claim, even by consent, is accepted. No claim was ever presented by the banks. It is true the probate court found the order to be proper and to the best interest of the estate. But the authorization to the petitioners was not to pay a claim, but to invest the funds of the estate in taking up the bond obligations. There was no claim, as the banks did not rescind the sale of the bonds to them, there was no contract for the resale of them to Shulthis, and the demand of the banks was not embodied in a claim “as allowed by the laws of the jurisdiction.” Whether a claim of the banks, if it had been presented, would have been allowed and to what extent was not determined or adjudicated. The conclusion seems unassailable that the payment made by the administrators to the banks was not of a claim which was authorized as a deduction by the Revenue Act of 1921.
In my opinion, the decision of the Board of Tax Appeals should be affirmed.