Court Opinion

ID: 4611723
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:49:33.817096+00
Date Added: 2024-06-11T07:54:18.739609
License: Public Domain

C. E. STEWART, ET AL., ADMINISTRATORS, ESTATE OF A. W. SHULTHIS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Stewart v. CommissionerDocket No. 11232.United States Board of Tax Appeals15 B.T.A. 1354; 1929 BTA LEXIS 2676; April 11, 1929, Promulgated 1929 BTA LEXIS 2676">*2676  Decedent having had no "interest" in certain securities at the time of his death within the meaning of section 402 of the Revenue Act of 1921 and there having been no valid claim against the estate with respect thereto within the meaning of section 403 of that Act, the value thereof should not be included in the gross estate, nor the alleged liability therefor deducted in the computation of the net taxable estate.  Walter F. Mehrlich, Esq., and Thomas P. Dudley, Jr., Esq., for the petitioner.  C. H. Curl, Esq., for the respondent.  MORRIS 15 B.T.A. 1354">*1355  This proceeding is for the redetermination of a deficiency in estate tax of $22,868.97.  The errors urged by the petitioner are that the respondent erred in failing to allow as a deduction from the gross estate certain liabilities of the decedent and his estate to the Citizens First National Bank and Kansas Savings & Trust Co. in the aggregate amount of $422,960.04, arising out of transactions between the decedent and said banks in connection with bonds and other evidences of indebtedness and, correlatively, in not including in the gross estate the fair market value of said bonds and other evidences1929 BTA LEXIS 2676">*2677  of indebtedness in the amount of $244,414.57, or, in the alternative, that the respondent erred in not allowing as a deduction from said gross estate an amount representing the difference between (a) the amount paid by the estate in discharging the aforesaid liabilities of the decedent to said banks in the sum of $422,960.04, and (b) the fair market value of said bonds and other evidences of indebtedness in the amount of $244,414.57.  FINDINGS OF FACT.  The petitioners herein are the administrators of the estate of A. W. Shulthis, who died suddenly on December 29, 1922.  At the time of his death the decedent was president and director of the Citizens First National Bank, and an officer and director of the Kansas Savings & Trust Co., an affiliated company, both of Independence, Kans., and of the Coffeyville Vitrified Brick & Tile Co., the Mineral Wells Paving Brick Co., the Francis Vitric Brick Co., and the Western States Portland Cement Co.  He was also a stockholder in each of those organizations, and a partner in the firm of Stanton-Amerman Co., contractors.  The decedent owned 816 shares of stock of the Citizens First National Bank of the total of 3,000 outstanding.  The1929 BTA LEXIS 2676">*2678  foregoing brick and cement concerns in which Shulthis was interested were engaged in the manufacture and sale of brick or cement and sold large quantities of their product to contractors engaged in the construction of public roads and other improvements for municipalities or other political subdivisions.  As these improvements were made, municipal bonds or other certificates of indebtedness were issued to the contracting parties, payable over a period of years out of assessments against the benefited property.  For the purpose of financing the operations of the contractors and providing funds for them and for the brick and cement companies, Shulthis from time to time took over the bonds or other certificates of indebtedness of various municipalities and political subdivisions, which he in turn lodged with either the said Citizens First National 15 B.T.A. 1354">*1356  Bank or the Kansas Savings & Trust Co.  The bonds or certificates of indebtedness so lodged with those institutions by Shulthis, which are in controversy here, are: Par valuePawhuska, Okla., Dist. #8$28,000.00Pawhuska, Okla., Dist. #1117,000.00Chelsea, Okla., Dist. #1142,433.45Nowata, Okla., Dist. #10111,500.00Canadian Texas7,244.71Collinsville, Okla., Dist. #3139,021.69Cherokee, Okla., Dist. #18,000.00Cherokee, Okla., Certificates732.001929 BTA LEXIS 2676">*2679  He also lodged with the bank $52,000 par value of Constantine Refining Co. bonds which he had obtained through a trade for some City of Coffeyville municipal bonds.  The amount of the par value of these holdings was later reduced to $27,000.  Upon turning these bonds or certificates of indebtedness over to the auditor of those banks for recordation in the books of account, the said auditor was instructed by Shulthis to so record them that they would be made assets of the bank.  The auditor was advised with respect to the Pawhuska bonds that he, Shulthis, was a partner of the Stanton & Amerman Paving Co., which made the improvements at Pawhuska, Okla., and that he had advanced cash as needed to the company to the extent of $40,000; that as these improvements were completed the company was negotiating for the sale of those bonds, but pending said sale it might need additional capital to carry on its work.  Therefore, the auditor was instructed to make the entries so that these bonds would be assets of the Citizens First National Bank and the said Stanton & Amerman Paving Co.  At or about this time a so-called repurchase agreement was entered into between Stanton & Amerman Paving1929 BTA LEXIS 2676">*2680  Co., by A. W. Shulthis, and the Citizens First National Bank, which reads as follows: DATED NOVEMBER 17TH, 1922.  FOR AND IN CONSIDERATION of the amount of One Dollar and other valuable consideration, the receipt of which is hereby acknowledged, we hereby sell to the Citizens-First National Bank of Independence, Kansas Bonds numbered one to forty-one inclusive for One Thousand ($1,000.00) Dollars each, of Series No. 8, City of Pawhuska, Oklahoma Street Improvement, at par, and hereby agree to re-purchase the same bonds from the Citizens-First National Bank of Independence, Kansas, upon demand by them; Said re-purchase price to be par and accrued interest at the rate of six per cent from the date of this agreement.  As the foregoing bonds were entered in the books of account of the banks, credits were recorded to the contractors or to the various companies furnishing the materials.  Other than the aforementioned repurchase agreement there were no other writings concerning these obligations.  15 B.T.A. 1354">*1357  About two years prior to the death of Shulthis, the officers of the bank became somewhat alarmed because of the vast amount of paper being placed with the bank by Shulthis, 1929 BTA LEXIS 2676">*2681  but because of his resentful attitude whenever his administration of the bank was questioned, the officers were extremely reluctant to bring this matter to his attention.  This was brought about, however, by the appointment of an examining committee, consisting of G. F. Mann and A. H. Black, vice presidents at the time, and Hoyt Cates, assistant cashier, who were instructed to examine the assets and liabilities of the bank, especially with reference to the officers' and directors' accounts with the bank, and to list those liabilities.  The principal motive impelling the appointment of this committee, and the examination of the accounts, was to bring before the board of directors Shulthis' alleged liabilities to the bank.  The committee proceeded with its examination and prepared its report, which disclosed the bonds here in question and notes, etc., to the extent of between $450,000 and $500,000, and presented its findings to the board of directors.  When this matter was brought to the attention of the board, in Shulthis' presence, the amount thereof was disputed, which led to a discussion and further examination of the records, in the presence of the directors, whereupon the report1929 BTA LEXIS 2676">*2682  was verified.  Shulthis upon this occasion informed the board members that he did not propose to subordinate his banking methods to a board of directors and that if at any time they thought him incapable of conducting the affairs of the bank in a satisfactory manner he would resign.  As a result of this examination and discussion, Shulthis finally said that anything he put in the bank he was absolutely back of at all times and at such time as the board wanted them withdrawn he would, upon demand, take them up with his own personal funds.  At this time those obligations had been in the bank for several years.  Shulthis, however, had made similar statements several times before.  Shulthis' attention was later called to the fact that these documents of indebtedness were not endorsed by him, whereupon he said that his reason for not so doing was that he found it convenient to use them as collateral with other banking institutions.  About a year prior to Shulthis' death, the bank examiners visited the bank and very vigorously demanded that certain items be taken out of the bank.  The bank was from that time until several months after Shulthis' death on the special list for examination1929 BTA LEXIS 2676">*2683  by bank examiners.  About two weeks prior to Shulthis' death there was another examination and further discussion with respect to these items.  The bank examiners questioned the directors individually about conditions.  As a result of this further examination and investigation, A. H. Black, director and vice president, called upon Shulthis and again took up with him the matter of these items.  15 B.T.A. 1354">*1358  Thereafter the board of directors met again with the examiners, at which time Shulthis stated that a lot of the items about which the bank was being criticized belonged to him personally and, furthermore, he stated that he was going to clean up all of his obligations with the institution and that the others would be written off or handled in a manner satisfactory to the bank examiners' department.  No demand was made for the immediate removal of these bonds from the banks during his lifetime.  A. H. Black having succeeded Shulthis as president of the bank, the directors approached him, and insisted that the items in question be taken out of the bank, and in the event the estate did not do so they insisted that proceedings be instituted to collect the amount from the estate.  Thereupon, 1929 BTA LEXIS 2676">*2684  the items which Shulthis had placed in the bank were listed, and Black called upon the administrators of the estate in December, 1923, and informed them that legal proceedings would be commenced and made a demand for the liquidation of these obligations.  The administrators, after having received this demand, investigated the circumstances surrounding the transactions of Shulthis and sought legal advice.  Having learned that Shulthis placed these securities with the bank; that the money derived therefrom was used in financing companies in which Shulthis was personally interested and that Shulthis had said to the directors at different times that he would take them out of the bank at any time that they demanded that he do so, a petition to the Probate Court of Montgomery County, Kansas, was filed by Mary B. Shulthis, Beatrice S. Stewart, and Muriel A. Noonan, widow and two daughters of said Shulthis, being all of the heirs at law of his estate.  That petition, among other things, recited: II That at the time of the death of the said A. W. Shulthis, there was in The Citizens-First National Bank, and The Kansas Savings & Trust Company, obligations of the said A. W. Shulthis, represented1929 BTA LEXIS 2676">*2685  by certain municipal bonds and tax warrants, in the total sum of Four Hundred Eighty-four Thousand, Three Hundred Ten and 52/100 Dollars ($484,310.52), an itemized statement of which is hereto attached and made a part of this petition to the same extent as though fully set forth herein, and marked Exhibit "B." That said estate is entitled to a discount thereon in the sum of Forty-seven Thousand, One Hundred Thirty-seven and 21/100 Dollars ($47,137.21), leaving a total balance unpaid, which it is fair and just for this estate to liquidate and pay, in the sum of Four Hundred Thirty-seven Thousand, One Hundred Seventy-three and 31/100 Dollars ($437,173.31).  That said estate has the cash with which to take up and pay said obligations and that it is just and right that it should do so and hold said bonds as set forth in the itemized statement and recover therefrom such amounts as it is proper for it to recover and collect thereon.  * * * WHEREFORE, 15 B.T.A. 1354">*1359  Your petitioners pray an order of this Court authorizing the administrators of said estate of A. W. Shulthis, deceased, to-wit: The Kansas Savings & Trust Company, E. Sewell and C. E. Stewart, from any funds now in their hands, 1929 BTA LEXIS 2676">*2686  or to come into their hands, to pay all of the personal notes and indebtedness of A. W. Shulthis, deceased, as occasion may arise, and if they may deem it to the best interest of said estate, to take up all of the obligations consisting of notes as set forth in Exhibit "A," and all bonds as set forth in Exhibit "B" to the end that the obligations of said A. W. Shulthis, deceased, with The Citizens-First National Bank and The Kansas Savings & Trust Company, may be fully discharged and liquidated.  * * * Exhibit B referred to in that part of the petition quoted above is as follows: Bond Liability as of Oct. 31, 1923.Collinsville, Oklahoma, District No. 1:Bonds No. 1, 3 to 7, 9 to 19, 22 to 42, 44 to 47, 50 to 55, 58 to 86, 89 to 98, 100 to 103, 105 to 106, 108 to 129, 134 to 141, 143 to 150, 152 to 169.  Total$14,926.53Collinsville, Oklahoma, District No. 3:Bonds No. 1 to 3, 5 to 7, 9 to 20, 23 to 45, 47 to 55, 57 to 58, 60 to 71, 74 to 75, 77 to 89, 91 to 105, 107 to 112, 114 to 116, 118 to 123, 125, 127, 129 to 138.  Total127,498.90Chelsea, Oklahoma, District No. 1:Bonds 16 to 100, 102 to 190, 202 to 226, 228 to 240.  Total142,433.45Nowata, Oklahoma, District No. 10:Bonds 20 to 212, inc., 225 to 242, inc.  Total111,500.00Pawhuska, Oklahoma, District 11:Bonds 7 to 16, inc., 17 to 23, inc., 57 to 84, inc.  Total45,000.00Cherokee, Oklahoma, District No. 1:Bonds 134 to 149, Inc.  Total8,000.00Canadian Texas:Total amount7,244.71Cherokee, Oklahoma, Tax Sale Certificates:Total amount706.93Constantine Refining Company:Bonds No. 731 to 750, 792 to 798, inc., 27 bonds.  Total27,000.00484,310.52Less discount47,137.21437,173.311929 BTA LEXIS 2676">*2687  Pursuant to the foregoing petition of the heirs at law of Shulthis, the probate court on November 16, 1923, ordered, among other things: Now, On this 16 day of Nov., A.D. 1923, the above and foregoing cause coming on for hearing upon the petition of Mary B. Shulthis, Beatrice S. Stewart, and Muriel A. Noons, praying the court for the payment and allowing of claims and debts, also for certain advancements to the heirs and for an order of the court permitting the administrators to take up certain obligations of the said A. W. Shulthis, deceased, and to ratify all acts of the administrators done in said estate, all as set forth in the petition filed herein, and the said administrators appearing in person, and by their attorneys, Banks, O'Brien & McVey, and it appearing to the court that this order has been presented to the said petitioners 15 B.T.A. 1354">*1360  and that they fully understand the contents thereof, and consent thereto, which consent is in writing and attached hereto and made a part of this order, asking this court to make this order, and the court upon full investigation and inquiry, and being fully advised in the premises, both find that the orders prayed for in said1929 BTA LEXIS 2676">*2688  petition are proper and to the best interest of said estate.  IT IS THEREFORE, BY THE COURT CONSIDERED, ORDERED AND ADJUDGED, * * * 3.  That said administrators be, and they hereby are, authorized and directed to invest the funds of said estate in taking up the obligation of the said A. W. Shulthis, to The Citizens-First National Bank and The Kansas Savings & Trust Company, all as set forth in Exhibit "B" to said petition attached, being certain municipal bonds and obligations held by The Citizens-First National Bank and The Kansas Savings & Trust Company, all as set forth in said petition; said Exhibit "B" being hereto attached, and made a part of this order, being marked Exhibit "B" hereto.  On December 22, 1923, the board of directors of the Citizens First National Bank passed a resolution providing: WHEREAS, there has been held by the Citizens-First National Bank and the Kansas Savings & Trust Company certain evidences of indebtednesses, to wit, paving certificates and bonds, as follows, to wit, by the Citizens-First National Bank: Cherokee tax sale$706.93Nowata bonds105,500.00Constantin Refg. Co27,000.00Pawhuska bonds$35,391.23Pawhuska bonds10,000.0045,391.23Cherokee bonds8,000.00Collinsville bonds #317,874.62Chelsea bonds141,933.45Collinsville bonds #13,721.55Canadian Texas7,244.71Collinsville coupons #31,183.17Nowata Coupons360.00$361,251.77Less Collinsville #3 sinking fund1,212.07Less special reserve34,470.8535,682.92Total323,232.741929 BTA LEXIS 2676">*2689 By the Kansas Savings & Trust Company:Collinsville #3, principal amount of bonds and coupons in bank$85,857.51Bonds out for collection, receipts attached12,412.13Total98,269.64Less special reserve10,468.54Total87,801.10AND, WHEREAS, there was at the time of the death of the said A. W. Shulthis held by the said Citizens-First National Bank certain other obligations in the form of promissory notes, which were either directly or indirectly the obligations of the said A. W. Shulthis, hereto attached, marked Exhibit "A." 15 B.T.A. 1354">*1361  AND, WHEREAS, it has been agreed by the said bank and the said trust company and the estate of A. W. Shulthis, deceased, acting by and through its administrators, the Kansas Savings & Trust Company, C. E. Stewart and Ernest Sewell, that all of the obligations above listed and set forth would be paid and taken care of by the estate of A. W. Shulthis, and in consideration of this agreement that no other claims would be made by said bank or said trust company against the said estate, excepting that said estate is to pay its proportionate share of the loss, if any, upon the loan made by said bank to Barton Blakeslee, which1929 BTA LEXIS 2676">*2690  said loan has been taken up by the directors of said bank.  NOW, THEREFORE, in consideration of said agreement said estate has secured an order of the probate court of Montgomery County ratifying and confirming said agreement and directing and permitting said administrators of said estate to make said settlement, which has been agreed to by all the heirs of A. W. Shulthis, deceased, and on, to wit, the 19th day of December, 1923, there was paid by said estate to said bank and said trust company the sum of $411,033.84, in full of the balance of said settlement, and in and for the considerations above named, full receipt of which is hereby acknowledged, the directors of said bank and said trust company hereby release and acquit said estate from any further obligations accrued or to accrue by reason of the acts of said A. W. Shulthis, except as above stated, to pay the estate's proportionate share, if any, of the loss in the Barton Blakeslee loan.  As a part of this transaction, there is outstanding certain Oklahoma street paving bonds or tax certificates heretofore sold by said bank and said trust company, which are now in the hands of the purchasers thereof, of which the following1929 BTA LEXIS 2676">*2691  is a list, as near as it is possible to ascertain: Chelsea, Oklahoma, Mack Jackson, #191$500.00Nowata, Oklahoma, J. E. Thibus, #213 to 224, inc6,000.00Collinsville, Oklahoma, Dist. #1, Citizens Investment Co., Guarantors:D. R. Kinhead, 9, 38, 63, 86, 152-154, 118, 161, 163-164, 166-168$851.32M. A. Stone, 68-70, 72-74, 78, 122-123, 136, 155-157581.73O. P. Gamble, 40-41200.34Ross Clendinnin, 36, 66, 98198.90Eva R. Whitsell, 100, 16297.71Mary E. Jones, 6, 1066.26J. E. Thibus, 13-18, 23-28, 42, 46, 48-50, 52, 58, 79-84, 115, 124-127, 137-139, 1603,288.65A. E. Page, 29, 30, 62212.94John W. Stanford, 11, 19, 37, 39107.20E. R. Whitsel, 94, 95, 15067.32Citizens Investment Co., 89, 90, 9334.82Individuals unknown, 12, 113, 140-141, 149334.416,041.60Collinsville, Oklahoma, Dist. #3:E. C. Chaney, 6, 19, 20, 493,016.27John Thibus, 9, 10, 11, 13, 15, 16, 187,268.08Mrs. H. A. Noland, 23384.53Zelda Wiltsie, 5643.8610,712.7423,254.3415 B.T.A. 1354">*1362  In the event that any of such bonds, or certificates whether correctly listed herein, or not, are offered said bank or trust1929 BTA LEXIS 2676">*2692  company for repurchase, whether on or before maturity, the said bank and trust company are authorized to purchase any and all such bonds or certificates for the account of the Estate of A. W. Shulthis, and to charge the purchase price thereof to an account in said bank or trust company, which will be maintained by said estate for that purpose.  Pursuant to the probate court's order the estate paid by check between December, 1923, and July, 1928, varying amounts, aggregating $424,401.44, to take up the bonds or other certificates of indebtedness and to pay the interest thereon.  These payments were made either to the Kansas Savings & Trust Co., the Citizens First National Bank, or the individuals to whom bonds had been sold by the banks under a guarantee that they would be taken up at their face value.  This guarantee, however, was not made in writing.  Between the date of death of the decedent and the time when these bonds were acquired by the estate, foreclosure proceedings had been instituted in some instances to recover properties in payment of the bonds and they were depreciating in value for the reasons that payments of assessments by property owners were becoming more and1929 BTA LEXIS 2676">*2693  more delinquent and the oil boom, which was in progress at the time and in the towns where these improvements were made, had ceased and the towns were practically abandoned.  Sometime subsequent to the death of Shulthis there was litigation affecting the Pawhuska bonds, and a suit was filed by a railroad company, resulting in a temporary injunction restraining the officials from collecting assessments under the Chelsea bonds, District No. 1.  See Pointer v.Town of Chelsea, No. 16,888, in the Supreme Court of the State of Oklahoma.  As a result of this litigation the market for the Pawhuska bonds was destroyed, and since Shulthis' death not only has there been a default in the principal, but all of the interest has not been paid.  The Chelsea bonds are still in litigation.  A case involving substantially the same issues as raised in the Pointer case was pending at the time of Shulthis' death and is still pending in the Supreme Court of Oklahoma.  While these bonds have been free from litigation at times since Shulthis' death, there have been suits pending in the courts of Oklahoma affecting bonds of a like kind.  In December, 1923, at the time these bonds were taken1929 BTA LEXIS 2676">*2694  over by the estate, the Chelsea, Nowata, Canadian, Tex., Collinsville, and Constantine securities were in default of the payment of interest and the Constantine Refining Co. had gone into bankruptcy and a receiver had been appointed to wind up its affairs.  The values on December 29, 1922, of the municipal bonds listed in the estate-tax return filed by the estate were: Item No.DescriptionPar valueFair market value51Pawhuska, Okla., District #8$28,000.00$23,141.2352Pawhuska, Okla., District #1117,000.0015,500.0053Chelsea, Okla., District #1142,433.4588,929.1254Nowata, Okla., District #10111,500.0040,000.0055Canadian, Tex7,244.717,244.7156Collinsville, Okla., District #3139,021.6948,567.5157Cherokee, Okla., District #18,000.006,800.0058Cherokee, Okla., certificates732.00732.0059Constantine Refining Co. bonds27,000.0013,500.00Total480,931.85244,414.5715 B.T.A. 1354">*1363  The foregoing securities were listed in the return filed by the estate at $275,593.26.  The respondent says in his deficiency notice with respect to this amount, and an amount claimed as a deduction in computing the1929 BTA LEXIS 2676">*2695  net estate: Eight items of miscellaneous bonds, returned at $275,593.26 were eliminated from the gross estate in the tentative audit and certain items of deductions amounting to $1,068,389.26, claimed as debts of decedent by the estate, were disallowed as deductions.  These items of debts were claimed by the estate in connection with the alleged ownership of the bonds above referred to.  The Bureau is convinced upon all the evidence that the tentative action of the Bureau should be sustained.  OPINION.  MORRIS: The petitioner contends that by virtue of an express agreement the decedent became liable to save the banks harmless from any loss growing out of these bond transactions and to take up said bonds and reimburse the banks for whatever consideration with which they had parted and, furthermore, irrespective of the decedent's express agreement, that this liability existed against him during his lifetime because of the very nature of the bond transactions themselves, and therefore said liability became and constituted a claim allowable against his estate within the meaning of section 403(a)(1) of the Revenue Act of 1921, and the amount paid by the estate in discharge thereof1929 BTA LEXIS 2676">*2696  is allowable as a deduction.  The respondent, on the other hand, urges and contends that the bonds in question were not the property of the decedent, that he had no interest therein at the date of his death, that the payment by the estate was a voluntary investment of funds of the estate in said bonds, and, finally, that there was no valid and subsisting obligation on the part of the estate or the decedent to take over these bonds and that the action in so doing was purely voluntary.  The provisions of section 402 of the Revenue Act of 1921 here applicable are: That the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated - (a) 15 B.T.A. 1354">*1364  To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate.  Section 403(a)(1), invoked by the petitioner, provides: That for the purpose of the tax the value of the net estate shall be determined - (a) In the case1929 BTA LEXIS 2676">*2697  of a resident, by deducting from the value of the gross estate - (1) Such amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages upon, or any indebtedness in respect to, property (except, in the case of a resident decedent, where such property is not situated in the United States), losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft, when such losses are not compensated for by insurance or otherwise, and such amounts reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered, but not including any income taxes upon income received after the death of the decedent, or any estate, succession, legacy, or inheritance taxes.  Irrespective of the mathematical processes necessarily employed in the correct computation of the tax, that is, whether the total amount of the liability be allowed as a deduction and the fair market value of the bonds be included in the gross1929 BTA LEXIS 2676">*2698  estate, or whether the allowable deduction be the net difference between said liability and fair market value, the result to be attained here must and will be governed by the legal consequences which resulted from the acquisition of the bonds at the outset and the several promises later made by the decedent with respect thereto.  If we find from the evidence that the decedent did not have such an "interest" in these bonds at the time of his death, as is provided for in section 402(a) of the Revenue Act of 1921, or that the banks had no enforceable claim "against the estate," that is, such a claim as might have been upheld against the decedent prior to his death, we must sustain the respondent's determination.  That the decedent at the time of his death did not have such an interest in the bonds that their value should be included in his gross estate, is apparent from the record.  He received them from the contractors and concerns furnishing road building material and according to the testimony "lodged" them with the banks.  The auditor entered them as assets of the banks and credits were recorded to said contractors and companies.  The banks sold some of them to their own customers, 1929 BTA LEXIS 2676">*2699  and continued to carry the others as assets until they were resold to the estate, and even though it be admitted, due to the personal status of the decedent in the transactions, that the transfer of the bonds in question to the banks was voidable, no action was taken by the banks prior to his death to set aside such 15 B.T.A. 1354">*1365  transfers.  Under such circumstances we are of the opinion that the test of the statute as to what property shall be included in the gross estate has not been met.  Whether the banks had a claim against the estate which could have been enforced against the decedent during his life determines the validity of the deduction claimed by the petitioners.  ; . The record shows that Shulthis received the bonds from time to time while he was an officer and director of the Citizens First National Bank and the Kansas Savings & Trust Co., an affiliated company, and that the bonds were taken or negotiated by said banks under his instructions for the purpose of financing contractors and brick and cement companies in which he was financially interested. 1929 BTA LEXIS 2676">*2700  The record further shows that the officers of the bank became somewhat alarmed because of the fact that Shulthis had placed so much paper with the banks and as a result of examinations made by a special committee and open discussion in the presence of the board of directors and Shulthis, Shulthis finally stated that anything he put in the bank he was back of at all times and, at such times as the board wanted him, he would upon demand, take them up with his personal funds.  Similar statements were made by Shulthis several times prior to this.  About two weeks prior to Shulthis' death there was a further examination by the bank examiners and a further discussion with respect to these items, as a result of which Shulthis stated that a lot of the items about which the bank was being criticized belonged to him personally, and that he was going to clean up all of his obligations with the institution and that the others would be written off or handled in a manner satisfactory to the bank examiners.  Notwithstanding all of these various discussions, no demand was ever made upon Shulthis during his lifetime for the immediate removal of the bonds here in question, nor was there ever any agreement1929 BTA LEXIS 2676">*2701  in writing stating that he would do so.  The petitioner's counsel, in his brief, argues that because of the decedent's pecuniary interest in both the banks and the borrowing corporations, and the fiduciary capacity in which he served the banks, he was from the very nature of the transactions themselves liable to save the banks harmless from any loss occasioned thereby.  In support of this proposition he cites a number of cases bearing upon the question of corporate directors', trustees', or other officers' relationship with the corporations which they serve and in which they are interested, which hold that "their relation requires of them the highest and most scrupulous good faith," and, furthermore, that "the law does not permit them to manage the affairs of a corporation for their personal and private advantage, nor pecuniarily to be interested in contracts which other parties make with the corporation, 15 B.T.A. 1354">*1366  through their influence and direction," and, furthermore, "that one shall not be agent for another party in a contract in which he is himself interested," and other cases to the same general effect.  It appears clearly that the other officers and directors had full1929 BTA LEXIS 2676">*2702  knowledge of these transactions at all times, which is borne out by the fact that discussions arose with respect to them upon many occasions.  If they regarded Shulthis' actions as other than within the scope of his authority, it seems to us, before we can be called upon to adjudicate the question of whether or not a liability arose, that some action should have been taken by the officers, directors or stockholders in disapproval of his actions prior to his death.  It is true that in the various discussions that took place the board of directors clearly indicated to Shulthis that they were greatly concerned, no donbt due in part to the fact that the bank examiners were criticising the officers of the bank, but for our purposes that is not sufficient to establish liability against Shulthis for his alleged malfeasance in office so as to constitute a claim against the estate within the meaning of the statute.  It is true that the probate court "authorized and directed" the administrators "to invest the funds of" the estate in taking up what it termed the "obligation" of the decedent, but it must be borne in mind that the court was first petitioned by his heirs at law and that they executed1929 BTA LEXIS 2676">*2703  a consent in writing, which the court made a part of its order, asking that such an order be made.  This, in our opinion, is not an adjudication of the decedent's liability to take up said obligation, and can not be relied upon to substantiate the contention of the petitioner.  Reviewed by the Board.  Judgment will be entered for the respondent.PHILLIPS, GREEN, and ARUNDELL dissent.