U.S. Supreme Court HULBURD v. COMMISSIONER OF INTERNAL REVENUE, 296 U.S. 300 (1935)

[Page 296 U.S. 300, 303]

Hulburd, c/o De Forest Hulburd, 86 East Randolph Street, Chicago, Illinois.' In this he gave notice of a proposed assessment 'against the estate' by reason of its liability as transferee of the assets of the Illinois corporation. The amount of that liability was stated to be $24,000, but was afterwards reduced to $8,000, the cash received by the testator. In announcing this assessment, the Commissioner acted in reliance on section 280 of the Revenue Act of 1926 (26 U.S.C. App. 1069, 26 USCA 1069 and note); which permits an assessment against the transferee of a taxpayer upon the taxpayer's default. Before the passage of that act, shareholders who had received the assets of a dissolved corporation might be compelled to discharge unpaid corporate taxes, but only by bill in equity or action at law. Phillips v. Commissioner, 283 U.S. 589, 592, 593 S., 51 S.Ct. 608. A summary procedure was added by the statute. Phillips v. Commissioner, supra. Upon the default of the taxpayer, the Commissioner is to apportion the deficiency among the transferees of the property and to give notice accordingly. Revenue Act 1926, 274(a), 26 USCA 1048. If the transferee is dissatisfied, he may petition the Board of Tax Appeals to redetermine the existence of liability and its proper distribution.

On October 27, 1926, when notice of the proposed assessment was sent to the petitioner, the estate of Charles H. Hulburd had been settled, the assets distributed, and the executors discharged. [Footnote 1] The discharged executors sub-

[Page 296 U.S. 300, 308]

this time to approve or disapprove them. In this case there was neither waiver nor estoppel, but a steady insistence that the deficiency had been assessed against the estate and no one else, and that the liability of the estate had ended. To hold that by consent, either tacit or express, the proceeding had been turned into one to review the validity of a different assessment, and one never in fact made, would be a perversion of the record.

Second: The estate having been settled and the executors discharged, the petitioner was functus officio under the law of Illinois, and was no longer subject to an assessment in his representative capacity.

The Court of Appeals in upholding the liability of the executors as such put its ruling upon the ground that they had failed to give notice to the Commissioner of the termination by decree or otherwise of their fiduciary capacity. The notice was thought to be requisite under section 281(b) of the Revenue Act of 1926 (26 USCA 1070(b), which is quoted in the margin. [Footnote 3] But the Revenue Act of 1926 became a law in February of that year (section 286, of the act, 26 USCA 931 note), and the executors were discharged in February, 1925. If there liability as executors was ended at that time, the statute will not be read as attempting to revive it. White v. United States, 191 U.S. 545, 24 S.Ct. 171; Winfree v. Northern Pacific R. Co. 227 U.S. 296, 33 S.Ct. 273; Union Pacific R. Co. v. Laramie Stock Yards Co., 231 U.S. 190, 199, 34 S.Ct. 101; Shwab v. Doyle, , 42 S.Ct. 391, 26 A.L.R. 1454; Liberman's Committee v. Commissioner (C.C.A.) 54 F.(2d) 527.

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Nothing short of clear necessity would cause him to be ousted. In the absence of peril to the estate, responsibility and power were not to be renounced when once they had been assumed. So the law of England continues even now. [Footnote 4]

The common-law rule is preserved in some of our states today, but in many has been abandoned, at times as the result of statute, at times through the combined force of statute and decision. The diversity of doctrine is surprising, and so often is its obscurity. The commentators tell us, however, and, as the cases show, correctly, that the growing tendency in this country is away from the English rule. [Footnote 5] Some states, though they make provision for an accounting, make none for a discharge, and hold the executor suable after the estate has been distributed upon the chance that other property may be discovered later on. The judgment will be collectible out of assets in futuro, or quando acciderint, as was said in early days. Williams, supra, vol. 2, p. 1253; Mary Shipley's Case, 8 Co. 134, a, b; Noell v. Nelson, 2 Saund. 226. This in effect is the practice in New York (Mahoney v. Bernhard, 45 App.Div. 499, 501, 63 N.Y.S. 642, affirmed 169 N.Y. 589, 62 N.E. 1097; Willets v. Haines, 96 App.Div. 5, 7, 88 N.Y.S. 1018; Rosen v. Ward, 96 App.Div. 262, 266, 89 N.Y.S. 148; Pearse v. National Lead Co., 162 App.Div. 766, 769, 147 N.Y.S. 989; Paff v. Kinney, 1 Bradf. (N.Y.) 1, 9), where a judicial settlement of accounts is conclusive as to the past, but is never ultimate in the sense that it relieves the fiduciary from liability for the future. See, also, Hazlett v. Estate of

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Blakely, 70 Neb. 613, 617, 97 N.W. 808; Weyer v. Watt, 48 Ohio St. 545, 551, 28 N.E. 670. On the other hand, there are states where by express provision of the statutes the executor is to be discharged upon a showing of full administration, and others where the requirement of a discharge has been read into the statutes by a process of construction. [Footnote 6]

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Whatever doubt may survive a reading of the case is dispelled or greatly attenuated when we pass to an examination of the statutes and the plan that they reveal.

First in order of importance is the statute regulating the settlement of accounts. [Footnote 8] An executor is required to exhibit a report of his administration within thirty days after the expiration of one year from the date of his letters. That being done, he must exhibit a report thereafter, whenever required by the court, 'until the duties of administration are fully completed.' He may from time to time at his own volition file 'a final report of his administration to a specified date,' which, even if approved, will not terminate his office. He may also make a final report 'at the conclusion of administration.' [Footnote 9] Such a report, if approved upon notice to all parties in interest, shall be binding upon them 'in the absence of fraud, accident or mistake.' A final report 'at the conclusion of administration' assumes that there is a stage when administration is over. The executor is functus officio when discharged by the court after that stage has been attained.

Another statute of high significance is one that makes provision for an appraisal of the assets. [Footnote 10] If the executor discovers after the making of an inventory and appraisal that the assets of the estate do not exceed the amount of the widow's allowance, after deducting necessary expenses, he is to report the facts to the court. Thereupon the court, if it finds the report to be true, shall order the assets to be delivered to the widow, 'and discharge the executor

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or administrator from further duty.' Plainly such a discharge is equivalent to a termination of the office. There is not only exoneration for the past, but absolution for the future. [Footnote 11]

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The controversy in this aspect is one of local law, which, once it is ascertained, must be accepted as controlling. Security Trust Co. v. Black River National Bank, supra; Forrest v. Jack, 294 U.S. 158, 55 S.Ct. 370, 96 A.L.R. 1457; Seabury v. Green, 294 U.S. 165, 55 S.Ct. 373, 96 A.L.R. 1463. The decree discharging the executors amounts to a construction of the Illinois statute by a court of the state, and a court of special competence and experience in disposing of such questions. There being no satisfactory showing that the decision overpasses the bounds of jurisdiction, we yield to its authority.

The decree of the Circuit Court of Appeals is reversed and the order of the Board of Tax Appeals affirmed.

It is so ordered. Footnotes

Footnote 1 The decree of the probate court of Cook county, Ill., the place of administration, was made on February 26, 1925, and, the text being important, is quoted in full:'In the Matter of the Estate of Charles H. Hulburd, Deceased.'This day came Hugh McBirney Johnston and De Forest Hulburd, executors of the last will and testament of Charles H. Hulburd, deceased, and presented to the court and filed herein their final account with the estate of said decedent, showing that said estate has been fully administered.'And it now appearing to the court that more than one year has elapsed since the granting of letters testamentary herein; that due notice has been given to all of the heirs at law, legatees and beneficiaries; that all assets of said estate have been collected; that no claims have been filed against said estate; that specific legacies have been paid; that the Inheritance tax, Federal estate tax, Income tax, court costs and all other costs and expenses of administration herein have been paid, and that the balance of said estate has been distributed according to the last will and testament of said decedent, and guardian ad litem consenting to the approval of said final account.'It is therefore ordered by the court that said final account be approved and recorded, that the estate be and it is declared settled and that the executors be and they are hereby discharged.'

Footnote 2 Commissioner v. New York Trust Co. (C.C.A.) 54 F.(2d) 463; Haag v. Commissioner (C.C.A.) 59 F.(2d) 516; Burnet v. San Joaquin Fruit & Investment Co. (C.C.A.) 52 F.(2d) 123; Warner Collieries Co. v. United States (C.C.A.) 63 F.(2d) 34; American Equitable Assurance Co. of New York v. Helvering (C.C.A.) 68 F.(2d) 46; Continental Products Co. v. Commissioner (C.C.A.) 66 F.(2d) 434; Buzard v. Helvering, 64 App.D.C. 268, 77 F.(2d) 391; Commissioner v. Nichols & Cox Lumber Co. (C.C.A.) 65 F.(2d) 1009; Pittsburgh Terminal Coal Corp. v. Heiner (D.C.) 56 F.(2d) 1072.

Footnote 3 'Upon notice to the commissioner that any person is acting in a fiduciary capacity for a person subject to the liability specified in section 280 (section 1069 of this title), the fiduciary shall assume, on behalf of such person, the powers, rights, duties, and privileges of such person under such section (except that the liability shall be collected from the estate of such person), until notice is given that the fiduciary capacity has terminated.'

Footnote 4 Cf. 14 Halsbury, Laws of England (2d Ed.) pp. 171, 269, 287, 288, and cases cited.

Footnote 5 See Woerner, The American Law of Administration (3d Ed.) vol. 3, 571, 572, 573, where the cases are brought together.

Footnote 6 Minnesota: Security Trust Co. v. Black River National Bank, 187 U.S. 211, 234, 23 S.Ct. 52, reviewing the state decisions; State ex rel. Matteson v. Probate Court, 84 Minn. 289, 293, 87 N.W. 783 (Since 1903 the right to a discharge has been reinforced by statute. Acts 1903, c. 195; Mason's Stats. 1927, 8886); Missouri: Grayson v. Weddle, 63 Mo. 523, 539, 540; State ex rel. Stotts v. Kenrick, 159 Mo. 631, 60 S.W. 1063; In re Estate of Rooney, 163 Mo.App. 389, 394, 143 S.W. 888; cf. Kentucky: U.S. Fidelity & Guaranty Co. v. Martin, 143 Ky. 241, 242, 243, 136 S.W. 200; West Virginia: Downey v. Kearney, 81 W.Va. 422, 426, 94 S.E. 509. See, also, Alabama: Modawell v. Holmes, 40 Ala. 391, 404; Hicky v. Stallworth, 143 Ala. 535, 39 So. 267, 111 Am.St.Rep. 57, 5 Ann.Cas. 496, 540; Code 1928, 5962; California: Willis v. Farley, 24 Cal. 490, 502; In re Clary's Estate, 112 Cal. 292, 294, 44 P. 569; Probate Code, 1933, 1066; Georgia: Carter v. Anderson, 4 Ga. 516; Groce v. Field, 13 Ga. 24, 30; Code 1933, 113-2302; Iowa: Diehl v. Miller, 56 Iowa, 313, 9 N.W. 240; Code 1931, 12052; Kansas: Musick v. Beebe, 17 Kan. 47, 53, 54; Proctor v. Dicklow, 57 Kan. 119, 125, 45 P. 86; Rev. Stats. 1923, 22-931; Montana: State ex rel. Petters & Co. v. District Court, 76 Mont. 143, 148, 245 P. 529; Rev. Codes 1921, 10311, 10331; Pennsylvania: Vandever's Appeal, 42 Pa. 74; Estate of John Wiseman, 12 Phila. 11; 20 Purdon's Stats. 911 (20 PS Pa. 911); South Carolina: Seabury v. Green, 294 U.S. 165, 169, 55 S. Ct. 373, 96 A.L.R. 1463; Quick v. Campbell, 44 S.C. 386, 392, 22 S.E. 479; McNair v. Howle, 123 S.C. 252, 266, 116 S.E. 279; Code 1932, 9024.

Footnote 7 Leading cases in Illinois are brought together in this note for the purpose of distinguishing dictum from decision: Blanchard v. Williamson, 70 Ill. 647, 650, holds that a discharge of an administrator will be treated as a nullity if made while the estate is in course of administration; Diversey v. Johnson, 93 Ill. 547, 558, holds that a discharge is of no effect if obtained by the administrator with notice of an outstanding claim and in fraud of the rights of the adverse claimant ( cf. People v. Pardin, 171 Ill.App. 226, 230); Bayless v. People, 56 Ill. App. 55, 58, holds that a surety is liable on an executor's bond where a balance available for creditors was wrongfully distributed; Starr v. Willoughby, 218 Ill. 485, 492, 75 N.E. 1029, 2 L.R.A.(N.S.) 623, holds that a power in trust, unrelated to the office of executor, will survive a decree which purports to discharge him; and Maguire v. City of Macomb, 293 Ill. 441, 453, 127 N.E. 682, is substantially to the same effect. No case has been found where an executor whose discharge had been decree after a full and fair accounting has been held suable thereafter in his representative capacity.

Footnote 8 Laws 1871-72, p. 77, at pages 105, 106, 112, amended by Laws 1919, p. 1, at page 3; Laws 1931, p. 6; Laws 1933, p. 3, at page 6; now Revised Statutes 1935 (Smith-Hurd Ann. St.), c. 3, 114.

Footnote 9 See Laws 1931, p. 6 (Smith-Hurd Ann. St. c. 3, 114).

Footnote 10 Laws 1872, p. 77, at page 92, 59; Laws 1919, p. 1, at page 2; now Revised Statutes 1935 (Smith-Hurd Ann. St.), c. 3, 60.

Footnote 11 Still another inroad upon the common-law rule is made by a statute allowing an executor to resign whenever it appears to the court that a resignation is proper. Laws 1871-72, p. 77, at page 88, 40; now Revised Statutes 1935 (Smith-Hurd Ann.St.), c. 3, 41.