34 BTA 603 - Taft v. Commissioner

McMahoN,

¶1dissenting: The order of the Probate Court of Hamilton County Ohio, as set forth in the majority opinion, entered on March 26, 1930, pursuant to section 10840, Page’s Annotated Code o,f Ohio, as set forth in the majority opinion, is a valid adjudication in partial distribution in kind and is binding and conclusive upon us in this proceeding. This order, like all similar orders, rulings, decrees, and judgments of probate courts or other courts of record o.f similar character having jurisdiction of the subject matter, the administration and settlement of an estate, or any other matter involving property rights, and of the parties, can not be impeached collaterally. Herron v. Dater, 120 U. S. 464;1Magruder v. Drury, 235 U. S. 106;2Freuler v. Helvering, 291 U. S. 35; Edward T. Blair, 31 B. T. A. 1192;3Commissioner v. Blair, 83 Fed. (2d) *609655,4 reversing Edward T. Blair, supra, on another ground; and Cincinnati, S. & C. R. Co. v. Village of Belle Centre, 27 N. E. (Ohio) 464.5

¶2The principles of the above cases which deal with orders, ruling, judgments, or decrees of probate or similar courts are, in this respect, in consonance with the well settled rule of law governing the adjudications of courts of record having other jurisdiction; a collateral attack can be successful only to the extent that it discloses a lack of power, jurisdiction, or fraud as distinguished from mere error in the exercise of power, Johnson v. Manhattan Railway Co., *610289 U. S. 479;6Commissioner v. Blair, supra;7 and Cincinnati S. & C. R. Co. v. Village of Belle Centre, supra; in Ohio, under the rule of the latter case, “their records import absolute verity” to the jurisdiction of its probate courts; and, there as elsewhere, a judicial act performed in the exercise of a jurisdiction conferred by law, even if erroneous, can be corrected only upon review on appeal or otherwise and is not void or open to collateral impeachment. Ex parte Roe, 234 U. S. 70;8 and Cincinnati S. & C. R. Co. v. Village of Belle Centre, supra.

¶3There is no showing in the instant proceeding that the Probate Court of Hamilton County, Ohio, did not have jurisdiction of the subject matter, the estate, the executrix or the trustee (the distrib-utee) ; there is ample showing to the contrary; and there is no showing that collusion or fraud was committed in procuring the order of the Ohio probate court. It may be added that, while the order or decree of the probate court “was not unlike a consent decree”, it is binding here. Commissioner v. Blair, supra. This order of that court has never been reversed upon review or otherwise by any other court, nor has it been attacked in any other way in any court of competent jurisdiction, so far as this record shows; and no presumption to this effect can be indulged in. On the contrary, the parties before that court have procured and acquiesced in the adjudication of that court and have acted upon it and in pursuance of it, have benefited by it and, hence, are estopped to question its validity. Sanborn v. Sanborn, 140 N. E. (Ohio) 407,9

¶4 *611and 34 C. J. 510, sec. 814.10 The ruling laid down by these authorities, in this respect is analogous to the rule that he who avails himself of the benefits of a legislative act can not thereafter successfully challenge the power of the legislative body to enact the legislation invoked. F. L. Bateman, 34 B. T. A. 347, and cases cited therein at page 21, footnote 29. Hence, the adjudication of that court can not be attacked collaterally1 in any court, or in a proceeding before this Board. This is true even if the court committed an error in designating the distributee, which it is not necessary to here decide. There is no occasion, much less justification, for here speculating as to whether another Ohio court would have reversed the probate court upon review, under all of the peculiar facts and circumstances of the procuring of, issuing of, acquiescence in and compliance with, the order of the probate court, as here disclosed. However, we may say, in passing, that if the probate court did commit an error it was a harmless error, and it has been held that a harmless error is not a ground for reversal. Chicago & N. W. Ry. v. Gray, 237 U. S. 399.11 It may be further added that the error, if any, is harmless because even if the court’s designation of the distributee was erroneous, it does not detract from the validity of the remaining provisions of the order, those remaining provisions being sufficient to constitute a valid order of partial distribution. If the words “to herself as trustee under the Will of Charles P. Taft, deceased”, the inclusion of which is at most a mere irregularity, were stricken from the order its remaining provisions would be valid and constitute an adequate order of distribution. To the extent of its jurisdiction over the subject matter a court’s adjudications are partially valid. 34 C. J. 510, sec. 812;12Dreyer v. Bigney, 8 Ohio Dec. (Reprint) 562;13 and Audas v. Highland Land & Bldg. Co., 205 Fed. 862. This is akin to the rule in Ohio and elsewhere that a judgment may be valid as to some even though notl *612as to all defendants. 33 C. J. 1130, sec. 11.14Such words are, at most, mere surplusage, since the trustee was the only distributee. Too, she is not even named in this quoted language of the order. The majority opinion, in effect, recognizes the partial validity of the order in reaching the conclusion there reached, since it does not hold that there was no valid distribution.

¶5Since we should accept the order of the Probate Court of Hamilton County, Ohio, as conclusive and binding upon us, the instant proceeding is governed by Harwood Robbins, 33 B. T. A. 880; Emma W. Davis, 32 B. T. A. 943; and William R. Huntley, 30 B. T. A. 931. In each of those cases we were concerned with the identical provision of the statute here involved, namely, section 113 (a) (5) of the Revenue Act of 1928. In those cases we held that the effective date of the order of distribution of the court having jurisdiction of the subject matter was “the time of the distribution” within the meaning of that section. In the interests of brevity we forego restating here the reasons there set .forth in support of those decisions. They establish well a sound, .fair, workable rule and should be adhered to. In the instant proceeding the order of the probate court was effective forthwith, immediately.

¶6As correctly pointed out in the majority opinion, “distribution” means the separation and segregation from the corpus of the estate so that the property distributed no longer forms any part of the estate, citing and relying upon Willcuts v. Ordway, 19 Fed. (2d) 217, also cited and relied upon in Emma W. Davis, supra. Furthermore, the phrase “the time of the distribution” has reference to the time at which the property is delivered to or made available for the use of the distributee. Harwood Robbins, supra.15Here the order Oif the Probate Court of Hamilton County, Ohio, effected a separation or segregation of the shares of stock in question from the corpus and made such shares available to the trustee, the only distrib-utee entitled to them. The order of March 26, 1930, removed all restraint on the executrix and trustee in the matter of distributing this stock. Thereafter she, as executrix, had the power and duty to deliver and she, as trustee and distributee, had the right to immediately demand, receive, and receipt for the stock in question. In *613short, the stock then became available to her as distributee. The stock was even more readily mailable to her as distributee than was the property involved in Harwood Robbins, supra, Emma W. Davis, supra, and William R. Huntley, supra, because here she was executrix, trustee, and distributee; and since she, as executrix, already had possession of the stock, another delivery to herself, as trustee or distributee, was not necessary. Any other delivery would have been futile; and it is elementary that the law does not require that which is futile. What was thereafter done by her either as executrix, trustee, or distributee was only by way of getting the certificates in form to evidence, upon the books of the corporation, the passing of title. After the entry of the order of the court there was nothing to prevent her as trustee and distributee from selling the stock on the exchange, receiving the purchase price, and delivering the certificates endorsed in blank. What was done after the entry of the order was done to enable the purchaser to have transfer made on the books of the company and was done after there had been a segregation or distribution. Mere delay occasioned by effectuating the transfer on the books of the corporation should not be permitted to operate to give the distributee a more advantageous time for the fixing of the basis of the cost on a subsequent sale.

¶7There is no valid escape from the final conclusion that in the instant proceeding “the time of the distribution” within the meaning of section 113 (a) (o) of the Revenue Act of 1928 was March 26, 1930, the date on which the Probate Court of Hamilton County, Ohio, entered its order of distribution.

¶8In the instant proceeding the real controversy involves a limited question, which is that of “the time of the distribution” under the Revenue Act of 1928; and this arises in connection with a broader question, which is that of the determination of the basis of the stock in question for purposes of establishing gain or loss upon a sale made subsequent to the time, or date, of distribution. We are not here even concerned with the litigation of the title to the stock as between two or more alleged distributees or others. No such limited question was presented in any of the Ohio cases cited in the majority opinion. These cases are, for this and other reasons, not in point in the instant proceeding. These cases are further distinguishable in that here, and not there, the order was procured, acquiesced in, and complied with by the only parties interested, the executor, trustee, and distributee so far as the record shows, and, in fact, the same person acted in all these capacities; there is no showing of harm to anyone, and the order operated to the advantage of the trustee, whose successor is now before us as petitioner.

Aenold and Tyson agree with this dissent.

¶9 In Herron v. Daterthe Supreme Court stated in part:

“* * * It is scarcely necessary to cite authority in support oí the proposition that the orders, judgments and! decrees of the Orphans’ Court, in a ease where it had jurisdiction of the subject-matter, camiot be impeached collaterally; …. In Dreishner v. Allentown Water Co., 52 Penn St. 225, 229, Mr. Justice Strong said: ‘Orphans’ Court decrees are doubtless conclusive. They cannot he impeached collaterally. … ”

¶10[Emphasis supplied.]

¶11 In Magruder v. Drury, the Supreme Court stated in part:

“It is well settled that the decree of the court which has acquired jurisdiction of an estate and settled an account cannot he collaterally attacked, Jonison v. Hapgood, 7 Pickering, 1, 7. …” [Emphasis supplied.]

¶12 In Edward T. Blair we stated in part:

“In Freuler v. Helvering, 291 U. S. 35, the Supreme Court held that … the decision of a court of the State of California haying jurisdiction of the trust in an action brought by the trustee for approval of his account is binding. … it also held that it constituted am adjudication of the property rights of the beneficiaries wMeh must be considered in determining the Federal income taw liability of the beneficiaries. The Supreme Court stated in part:

“Moreover, the decision of that court, until reversed or overruled, establishes the law of California respecting distribution of the trust estate. It is none the less a declaration of the law of the state because not based on a statute, or earlier decisions. The rights of the beneficiaries are property rights and the court has adjudicated them. What the law as announced by that court adjudges distributable, is, we think, to be so considered in applying section 219 of the Revenue Act of 1921.

*609“It is well settled that the decision of a state court of competent jurisdiction upon property rights as between the parties to the proceeding in the state court is conclusive upon the Federal courts until it is reversed or overruled. Freuler v. Helvering, supra; Utterhart v. United States, 240 U. S. 598; Hubbell v. Helvering, supra;and Commissioner v. Field, 42 Fed. (2d) 820, affirming Marshall Field, 15 B. T. A. 718, …

¶13[Emphasis supplied.]

¶14 In Commissioner v. Blair the Circuit Court stated in part:

“Although there are these distinctions between the Freulercase and the instant one, we accept it as authority for holding that a final decree of a state court, supreme or inferior, entered in a specific matter such as the interpretation of rights under a testamentary trust, is binding upon a Federal court in determining the character of a trust, the income from which is the subject of a Federal tax.

“The logic supporting the adoption of such a rule is the same as that which furnishes the basis of res judicata. We are adopting the ruling of a court homing jurisdiction of the subject matter and of the person. The orderly administration of justice and final settlement of property rights will be promoted by so doing. It is true that this court has previously reached a contrary conclusion — that the trust was a spendthrift one— but our decision was before the Illinois court had declared itself in reference to a matter to which its jurisdiction extended. Moreover, the previous proceeding in this court was one to which the beneficiaries were not a party, whereas they were the parties to the state court proceeding.

* ⅝ … ⅜ *

<⅛ … The gnaj aeciSi0n 0f guCh a court, which is not appealed from, is binding upon the Federal court for the purpose of determining the character of the trust which in turn may be determinative of a Federal income tax assessment. …” [Emphasis supplied.]

¶15 In Cincinnati, S. & C. R. Co. v. Village of Bell Centre, the Supreme Court of Ohio stated in part:

“The probate court is empowered by the constitution, in addition to its jurisdiction in probate and testamentary matters, and others expressly enumerated, to take such other jurisdiction as may be provided by law. … It is clear, therefore, that if the probate court had jurisdiction of the parties, and of the property involved, its judgment established the right of the village to enter upon and hold the property thus appropriated, and to subject it to the proposed uses, and must necessarily operate to defeat the plaintiff’s action; for such a judgment, until reversed, is final and conclusive between the parties, and cannot be collaterally impeached. This we do not understand to be seriously controverted. The contention of the plaintiff here is that the probate court, in the appropriation proceedings, acquired no jurisdiction, either over it or its property, …

“… u Seems well settled that the probate courts of the state are courts of record, competent to decide on their own jurisdiction, and exercise it to final judgment, and that their records import absolute verity. Shroyer v. Richmond, 16 Ohio St. 455. The class of tribunals to ’which they belong, and the character of their jurisdiction, are aptly pointed out in the opinion of the court in the case just cited, in the following language: ‘True, it [ the probate court] is a court of limited jurisdiction, and it is equally true that the jurisdiction of each of the courts of the state is expressly limited, either by the constitution or by statute. But, as was said in the case of Sheldon v. Newton, 3 Ohio St. 500, “the distinction is not between courts of general and those of limited jurisdiction, but between courts of record, that are so constituted as to be competent to decide on their own jurisdiction, and exercise it to final judgment, …

¶16 In Johnson v. Manhattan Ry. Co. the Supreme Court stated in part:

“» … In these circumstances it is plain that the attack was collateral. And, this oeing so, there was need for heeding the familiar rule that such an attack can be successful only where anú, to the extent that it discloses a want of power as distinguished from error in the exertion of power that was possessed.” [Citing Dowell v. Applegate, 152 U. S. 327, 337-340; Fauntleroy v. Lum, 210 U. S. 230, 237; Ex parte Roe, 234 U. S. 70, 72, Marin v. Augedahl, 247 U. S. 142, 149, 152.] [Emphasis supplied.]

¶17 In Commissioner v. Blair the Circuit Court stated in part:

“… ⅜ in other words it was not unlike a consent decree. But consent decrees are binding if entered by a court of competent jurisdiction with the pai-ties properly before it, in the absence of a showing of collusion between the parties or fraud upon the court. * …” [Emphasis supplied.]

¶18 In Ex parte Roe the Supreme Court stated in part:

“Whether the ruling was right or wrong, it was a judicial act, done in the exercise of a jurisdiction conferred by law, and even if erroneous, was not void or open to collateral attach, but only subject to correction in an appropriate appellate proceeding. Chesapeake & Ohio Railway Co. v. McCabe, 213 U. S. 207; In re Metropolitan Trust Co., 218 U. S. 312. …” [Emphasis supplied.]

¶19 In Sanborn v. Sanborn, the Supreme Court of Ohio stated in part:

“The latest and most authoritative declaration of principles upon facts which find a striking parallel is the case of Hopper v. Ficholas, 140 N. E. 186, just decided by this court and reported concurrently herewith, in which it was decided that proceedings in New York state, though unauthorined, in which parties participated to their substantial advantage, create an estoppel which will be a bar to subsequent proceedings, in which a different conclusion is sought in the State of Ohio.” [Emphasis supplied.]

¶20 In 34 C. J. at p. 510, sec. 814, it is stated:

“… the generally accepted doctrine is that the party who would have a right to avoid the judgment may give it validity by his acceptance and ratification of it, or be estopped by his conduct to impeach its validity. [Citing, among other cases, Blanchard v. Gregory, 14 Oh. 413.] And this he does by accepting or sharing in the fruits or benefits of the judgment … [Citing, among other cases, Dreyer v. Bigney, 8 Oh. Dec. (Reprint) 562.]

¶21 In Chicago & N. W. Ry. v. Gray, the Supreme Court stated in part:

“… But we find it unnecessary to express an opinion upon the argument since if there was an error it seems to have done the railway company no harm.”

¶22 In 34 C. J. at p. 510, see. 812, it is stated:

“… to jurisdiction of the subject matter, it seems that, although the judgment may go beyond the issues and grant relief not asked for, or not within the competence of the court, yet it may be good for so much as the court had power and authority to include in it.”

¶23 In Dreyer v. Bigney, the Ohio court stated in part:

o* … if it [the decree] was irregular as to the amount found in favor of Mrs. McGill, it did not invalidate the other portions. …

¶24 In 33 C. J. at p. 1130, sec. 77, it is stated:

“⅜ … a judgment may Be valid and enforceable as to one or some of defendants, although voidable or void as to others. …” [Citing, among other cases, Johnson v. Pomeroy, 31 Oh. St. 247; Newburg v. Munshower, 29 Oh. St. 617, 23 Am. R. 769; Ash v. McCabe, 21 Oh. St. 181; Douglass v. Massie, 16 Oh. 271, 47 Am. D. 376.]

¶25 In Harwood Bobbins we stated in part:

“The phrase ‘the time of the distribution’ as used in the 1928 Act must necessarily relate to the time at which the property is actually delivered to or made available for the use of the distributee or someone acting for him by the executors, administrators, or others having lawful possession or control thereof. See Haskell v. Commissioner (C. C. A., 3rd Cir.), 78 Fed. (2d) 869 ; certiorari denied - U. S. -, December 16, 1935. …” [Emphasis supplied.]