The opinion of the court was delivered by: Legge, Justice.
October 13, 1958.
The United States, originally a defendant and later intervening plaintiff in this action to settle the insolvent estate of the late Samuel Want, appeals from a circuit decree which, affirming a special referee's first report,
(1) adjudged barred certain claims based upon alleged transferee and fiduciary liability of Samuel Want for estate and gift taxes due by the estate of his brother, Jacob A. Want, of which Samuel had been co-executor;
(2) disallowed certain of its claims based upon alleged transferee and fiduciary liability of Samuel Want for income taxes due by the estate of his said brother;
(3) approved certain disbursements made by Samuel Want as co-executor of his said brother's estate; and
(4) rejected its claim of priority over certain other creditors of Samuel Want's estate.
Samuel Want, a prominent lawyer of Darlington, South Carolina, died testate on December 9, 1953. His widow, Fannye M. Want, qualified as executrix and duly published the required notice to creditors. On January 3, 1955, more than eleven months having elapsed since completion of such publication, she instituted this action, joining as defendants all persons who had filed claims against the estate. In her complaint she alleged:
(1) That pursuant to an order of the Probate Court for Darlington County she had had an audit of her decedent's affairs made by a firm of certified public accountants, and their audit had been filed in said court.
(2) That the assets of the estate had been inventoried and appraised, and the inventory and appraisement had been filed in the said Probate Court.
(3) That the Probate Court had not undertaken to settle the affairs of the said estate, or to pass upon the validity of claims filed against it; and that the interests of all concerned would be best served if the Court of Common Pleas would accept jurisdiction, pass upon all claims, and settle the estate.
(4) That she had received, and was chargeable with, funds collected for the estate (which she itemized) aggregating $90,176.33, from which she had made expenditures (also itemized) amounting to $18,848.12, leaving a balance of $71,328.21, including an item of $3,080.08 which Darlington County Bank & Trust Co. had, without authority from the plaintiff or from the Probate Court, withdrawn from the account of Samuel Want in said bank after his death and placed in an escrow account, the bank claiming this fund as beneficiary of a constructive trust.
(5) That all of the personal assets of the estate had been liquidated except:
(a) Three notes and mortgages, appraised at $7,459.44;
(b) Unpaid balances due the estate from sales of parts of decedent's law library and office furniture, aggregating $1,494.20;
(c) Fees, some contingent, and all of doubtful collectibility, due decedent for legal services;
(d) A disputed claim, appraised at $2,531.98, secured by assignments (only one of which was in writing) of policies of insurance on the life of one Sam J. Woodward;
(e) A deposit of $100.00 in First Federal Savings & Loan Association, Darlington; and
(f) $43 due from purchaser of one share of stock of Darlington Theaters, Inc.
(6) That the following claims had been filed against the estate:
(a) Open accounts (6) . . . . . . . . . . . . . . . $278.13
(b) For return of fees allegedly unearned (3) . . . 616.66
(c) By persons claiming as beneficiaries of
constructive trusts in decedent's bank account
(5) . . . . . . . . . . . . . . . . . . . . . . 11,622.64
(d) By persons claiming property as beneficiaries
of trusts ex maleficio (52) . . . . . . . . . . 301,823.93
(e) Claim as debt due United States . . . . . . . . 5,000.00
(f) Funeral expenses . . . . . . . . . . . . . . . 1,030.00
(7) That the audit of decedent's affairs showed that at the time of his death he had on hand funds belonging to L.H. Sompayrac (a defendant) amounting to $1,243.66, for which the said Sompayrac had not yet filed, but had informed the plaintiff that he would file, a claim.
(8) That defendant's son, LeRoy M. Want, had voluntarily paid some small open accounts due by the estate, aggregating $562.96, and also salaries of decedent's employees from December 1 through December 9, 1953, amounting to $247.59.
(9) That certain stock certificates, registered in the name of Samuel Want, had been pledged by him as security to his note given to South Carolina National Bank, on which there was, at the time of his death, an unpaid balance of $9,090.00. That the plaintiff, under authority of an order of the Probate Court, had paid this obligation and recovered said securities, the value of which far exceeded the debt. That thereafter, in the course of the audit of decedent's affairs, it had been found that his records indicated that he had held these stocks in trust for the defendant Marie K. Haynsworth. That since decedent's death the plaintiff had received dividends on these stocks to the amount of $1,132.75, which sum she was holding in a special account in Darlington County Bank & Trust Co. That the said Marie K. Haynsworth, asserting a constructive trust in said stocks, had filed a claim against the estate, demanding delivery of the stocks and payment to her of the dividends received thereon since decedent's death.
(11) That the personal assets of the estate being insufficient to pay debts and expenses of administration, resort must be had to decedent's real estate, consisting of two parcels in the city of Darlington; and that the same should be sold under the direction of the court and the proceeds, after provision for dower and homestead, applied to the payment of the debts of the estate. Plaintiff also claimed homestead for herself and her son in the personal assets of the estate.
(12) That should the Darlington County Bank & Trust Co. fail to establish, in this action, its claimed right to the sum of $3,080.08 withdrawn by it as before mentioned from the account of Samuel Want, it should be required to account for it to his estate.
(1) For admeasurement and allotment of dower and homestead;
(2) That the defendants be required in this cause to prove their claims against the estate;
(3) That the court fix the amount of commissions to be allowed plaintiff as executrix, and a reasonable fee for the estate's attorneys; and
(4) For approval of plaintiff's accounting to date and, upon complete liquidation of the assets of the estate, approval of her accounting then to be made, and for directions as to the distribution to the creditors.
Of the answers of the several defendants claiming as beneficiaries of trusts ex maleficio, the transcript of record reproduces three as typical, viz.:
Lurline W. McCullough: That she placed in the hands of Samuel Want $24,349.05, in trust to be invested by him for her; that there were withdrawals from and charges against said sum aggregating $12,484.52, leaving a balance of $11,864.53 held in trust by Samuel Want for this defendant; that he did not invest the said sum for her, but without her knowledge or consent misappropriated the same to his own use and thereby established a constructive trust ex maleficio, under which she is entitled to, and has filed, a claim against his estate in the amount of $11,864.53, with interest. Further, that with funds placed by her in his hands for investment, he purchased 20 shares of the capital stock of Technicolor, Inc., and 3 shares of the capital stock of Armstrong Cork Co., certificates for which were issued in his name and by him endorsed in blank for transfer; that dividends thereon were paid to her until his death; that she is the sole owner of said certificates and is entitled to their possession and to dividends received thereon since the death of the said Samuel Want; and that she has filed claim therefor.
Marion McMillan: That she deposited with Samuel Want for the purpose of investment for her in sound securities $684.32; that he used said funds for other purposes without her consent; and that she is thereby entitled to, and has filed, as beneficiary of a trust ex maleficio, a prior and preferred claim against his estate in the amount of $684.32.
J.C. Flowers: That Samuel Want collected for this defendant, on a mortgage obligation, $337.52; that the said Samuel Want did not remit the amount so collected, but placed the same in his own account; and that therefore "a lien is impressed upon all of the assets of the late Samuel Want for the payment of this indebtedness, regardless of the source of said assets, and that this defendant, is, therefore, entitled to a priority over all other creditors of said estate for the amount of his debt."
The United States having claimed that the estate of Samuel Want was indebted to it by reason of the decedent's liability for certain income, estate, and gift taxes, but having filed no claim in this action with regard thereto, on or about May 8, 1956, upon application of the plaintiff, with the consent of the answering defendants, but without notice to the United States, the circuit judge issued an order permitting amendment of the summons and complaint by joinder of the United States as a party defendant, and requiring it to prove in this action any claims that it might have against the estate of Samuel Want. On July 9, 1956, the United States demurred to the amended complaint upon the ground that the court was without jurisdiction to bring it into the cause except with its consent, which had not been alleged. On July 21, 1956, after hearing, an order was issued overruling the demurrer and barring any claims that the United States might have against the estate of Samuel Want unless it should assert them in this cause on or before August 20, 1956. The United States filed notice of intention to appeal from said order, but that appeal appears to have been abandoned (or, as the agreed statement puts it, "dismissed") on August 31, 1956.
On or about August 31, 1956, the United States filed an intervening complaint, in which it set forth two causes of action. The first was, in substance, as follows:
That Samuel Want, as co-executor of the estate of Jacob A. Want (who had died insolvent in New York on February 7, 1947), had converted various assets of said estate, which had been in the possession of Jacob A. Want at the time of his death, and had applied these assets toward satisfaction of debts other than those due the United States; and that Samuel Want had thereby become personally liable to the United States, both as transferee and by virtue of Section 3467 of the Revised Statutes (31 U.S.C.A. § 192), for the following assessments against Jacob A. Want for income taxes for the years 1943, 1944 and 1945, and interest and penalties thereon:
Deficiency Year Assessment Interest Penalty
1943 . . . . . . . . $15,988.54 $5,189.92 $8,210.11
1944 . . . . . . . . 30,488.91 8,067.45 15,244.46
1945 . . . . . . . . 35,169.44 7,195.76 17,584.72
And that, Samuel Want having died insolvent, the government's
claim based upon his personal liability for said income taxes and interest and penalties thereon has priority,
by virtue of Section 3466 of the Revised Statutes (31 U.S.C.A.
§ 191), over all other claims against his estate.
Paragraph VIII of the first cause of action in the intervening complaint, as it appears in the transcript, has nothing to do with the government's claim against the estate of Samuel Want arising out of the decedent's alleged personal liability for the additional income taxes, interest and penalties assessed against Jacob A. Want. In that paragraph it is alleged that there are pending in the Tax Court of the United States, on petitions filed by Estelle Want and Samuel Want, proceedings concerning alleged estate and gift tax liabilities of Samuel Want that arose by virtue of his position as co-trustee of a trust established by Jacob A. Want for Jacqueline Want, and by virtue of his position as co-executor of the estate of Jacob A. Want; that in those proceedings Fannye M. Want, as executrix of the estate of Samuel Want, has been substituted in the place of said decedent; and that under the provisions of Section 6213 of the Internal Revenue Code of 1954, 26 U.S.C.A. § 6213, the United States is prohibited from asserting these claims in the present action until their final determination by the Tax Court.
The second cause of action in the intervening complaint has not been reproduced in the transcript of record, but it is referred to in the Special Referee's First Report as follows:
As reproduced in the transcript, the answer of the plaintiff and the third party defendants to the first cause of action of the intervening complaint consisted of:
1. Admission of the factual allegations of Paragraph VIII;
2. Denial that the United States is precluded, by the proceedings pending in the Tax Court, from asserting in the present cause the claims referred to in Paragraph VIII;
3. Denial of the remaining allegations of the said first cause of action; and
4. Plea of the statute of limitations in bar of the alleged transferee liability of the estate.
If answer was made to the second cause of action of the intervening complaint, its substance does not appear in the transcript.
Issue having been thus joined, the cause was referred to the Honorable Henry E. Davis, as Special Referee, to take testimony and report the same to the court, together with his conclusions and recommendations on both the law and the facts and with leave to report any special matter.
Two references have been held, the first on October 1, 1956, and the second on October 30, 1956. At the reference on October 1 it was decided that at the second reference the Special Master would receive testimony on all claims against the estate, and, at the conclusion thereof, hear arguments as to the establishment of claims and as to their respective priorities, after which he would file a First Report thereon, leaving all other matters open for later determination. It was also determined that the matters set forth in paragraphs 13, 14 and 15 of the amended complaint, i. e., the claim of Marie K. Haynsworth to certain stocks and dividends, and the similar claim of Lurline W. McCullough to certain other stocks and dividends, would not be taken up at the second reference, but would be considered later and disposed of in the Special Master's final report. In connection with the motion to proceed in the manner just stated, the United States took the position that it could not be required to present in this action its claims against the estate of Samuel Want pending in the Tax Court, and that it would therefore be improper for the Special Referee to make any determination at that time (i. e., after the second reference) as to the establishment of claims against the estate and as to their respective priorities.
On November 12, 1956, the Special Referee filed his First Report, in which, after full review of the facts and the law, he found and recommended as follows:
As To Claims Against Bank Accounts In Name Of Samuel
Want, Attorney, In Peoples Bank of Hartsville And
In Darlington County Bank & Trust Company.
1. That Ola Mae Kilgo, for whom Mr. Want had been making monthly collections of $46.97 on a mortgage obligation payable to her, had traced into his account in Peoples Bank of Hartsville five of said monthly collections, aggregating $234.85; and that she was therefore entitled to payment in full, out of that account, of her claim against the estate in that amount.
(a) $4,000.00 to H.C. and Erminie Dickey, who had on December 7, 1953, paid to Mr. Want $4,000.00 in cash in trust for the purpose of paying for them a mortgage obligation to Peoples Bank of Hartsville;
(b) $2,476.59 to Darlington County Bank & Trust Co. (of which Mr. Want had been president), being that part of its claim of $3,080.08 identifiable as included in the deposit balance before mentioned. The claim in the amount of $3,080.08 was founded upon an agreement between decedent and one T.J. Sansbury whereby a check payable to Sansbury in the amount of $3,180.08 had been delivered by Sansbury to Want in trust to disburse the proceeds as follows: $100.00 to Sansbury, and $3,080.08 toward payment of sansbury's obligations at Darlington County Bank & Trust Co. The check for $3,180.08 had been deposited by Want in his account before mentioned on December 3, 1953, along with another check for $4,547.85, representing the proceeds of a collection made by Want for Mrs. Mollie H. Johnson (see sub-paragraph c immediately following). The remainder of the bank's claim of $3,080.08, towit: $603.49, was accorded priority in the distribution of assets, as an unremitted collection.
(c) $3,347.22 to the Estate of Mollie H. Johnson, being that part of the claim of her estate for $4,162.85 identifiable as included in the deposit balance before mentioned. This claim was based upon a collection made by Mr. Want for Mrs. Mollie H. Johnson in the amount of $4,547.85, which he had deposited in the account before mentioned on December 3, 1953, along with the Sansbury check referred to in (b) above. It appeared that Mr. Want had previously advanced to Mrs. Johnson $385, so that she was entitled to only $4,162.85 of the collection of $4,547.85. The difference, $815.63, between the claim of $4,162.85 and the payment of $3,347.22 from this account was accorded priority in the distribution of assets, as an unremitted collection.
It will be noted that the Special Referee, in disposing of the deposit balance of $9,823.81 before mentioned, applied the rule in Clayton's case (1816), 1 Meriv. 572, 35 Eng. Reprint 781, 15 Revised Rep. 161, 3 Eng. Rul. Cas. 329, that where a trustee has commingled the funds of several trusts into one fund and has improperly depleted that fund so that the balance remaining is insufficient to satisfy all of the trusts, the claims of the cestuis are entitled to payment in order inverse to that in which their moneys went into the fund. The correctness of this holding is not in issue here.
As To Funeral And Administrative Expenses
That all reasonable funeral expenses and expenses of administration, including attorney's fees and commissions, should be paid before any other claims. The claim of Kistler Funeral Home, $1,030.00, for funeral expenses, (on which the executrix had paid $530.00 on her own account) was approved. The matters of commissions to be ...