Petition for Writ of Certiorari — Estate of Duval v. Commissioner

Iu the Supreme Ubu ty tt

1946

Ouek

Rnited States

Ocroper Term, 1945

No. L001

Estate or Erne M. DuVat, Deceased, by

Thomas M. Robinson, Jr., and Weston Shat-

tuck Robinson, as Executors of her Last Will

and Testament,

BS

Petitioners,

vs,

CoMMISSIONER OF INTERNAL REVENUE,

Respondent.

PETITION FOR WRIT OF CERTIORARI

to the United States Circuit Court of Appeals

for the Ninth Circuit

and

BRIEF IN SUPPORT THEREOF.

Cartes A. BEarpsLey,

Central Bank Building, Oakland 12, California,

Attorney for Petitioners.

Frrzceratp, Assott & BErarpsLry,

Central Bank Building, Oakland 12, California,

Of Counsel.

Subject Index

Pages

Petition for Writ of Cortionari. . oo... ccc scccteccccccecs 1

Summary and Statement of the Matter Involved........ 1

NOR SIND 6.0. sien s ase nn ees vaie Ade bhO Sams 3

Reasons Relied on for the Allowance of the Petition .... 4

et OF Cen -s.. itanecbakcbentadacs Anns cdenes 6

et Oy SINE QU WIND og n.o se naccaadacaceneeeeeuece-s 7

i Pe. nin ut iahenesanhseid isan Ue apeanesnes 7

TY Se EE Pe TN ee ERE ey ey eee ye 8

NNR: OE TD 5 5 id dnsina ods bind tesa eeeeidcewwas 9

aE restart eerie eer ee 12

Db I o icvANGs Lead akwenskelees wr aehewevedsens 13

Cases Believed to Sustain the Jurisdiction ............. 39

RSS REED FEE RE RR NE TT ee ETT TN 41

P< Vena, tisdincchsss ssh cncasanwebe en thind saber i-ii

BE SEEDS hc chau nbs weceetsau¥hicensae veaweee i

ES ore Ok eee educa aetubeas é i

SE, PEN ccacyh kdnaccqndenae sCsetenndseounas ii

Table of Cases Cited

Pages

Ardenghi v. Helvering (CCA 2d, 1938), 100 F. (2d) 406,

Cert. den. 307 U.S. 622, 59 S. Ct. 793, 88 L. Ed. 1501 ... 24

Arp. v. Blake (1923), 63 Cal. App. 362 at 366, 218 Pac.

WOM TEI A ds etc eWin coer cb akidec ch SSaeaeeiane ese’ 21, 40

Bank of California v. Commisioner (CCA 9th, 1943), 133 F.

EPEC IEE SES Regine ec heey Leen Sp eee 31

Bradley v. Burwell (1846), 3 Denio (N.Y.) 61, 66 ........ 19

Brown v. Commissioner (CCA 7th, 1941), 119 F. (2d) 983. 24

Buck v. Helvering (CCA 9th, 1934), 73 F. (2d) 760 ...... 33

Bunker v. Osborn (1901), 132 Cal. 480, 64 Pac. 853....... 19, 40

Burnet v. Harmel (1932), 287 U.S. 103, 53 S. Ct. 74, 77 L.

Be EE Feud waa 6s REAR CESS RA RN CK YS CEL AD ACAECKRE DOORS 25

Carney v. Benz (CCA Ist, 1937), 90 F. (2d) 747 ......... 14, 33

Cecil H. Gamble (1935), 33 BTA 94, 99, aff’d. 101 F. (2d)

565 (CCA 6th, 1939), Cert. den. 306 U.S. 664 (1939) ... 30

Chipman v. Morrell (1862), 20 Cal. 53 ...............088. 19, 39

Commissioner v. Hallock (CCA 6th, 1939), 102 F. (2d) 1

Oe eee eee aL Ee Cak UES pb A GR LAARLEGS KG OkNERASOAKA 38

Commissioner v. Lyne (CCA Ist, 1937), 90 F. (2d) 745

SE eRe eih da OC aaek Sa dKe KAR bOD ARS ASDA Sen Aue 38

Commissioner v. Porter (CCA 2d, 1937), 92 F. (2d) 426

Lh hs deity eee oe eda bkbia b AGS CAWKSD RO eeGKS RUST 14

Commissioner v. Strauss (CCA 7th, 1935), 77 F. (2d) 401

ESE SpE mre es Gye any a Pen ee ty men pe 38

Commissioner v. Windrow (CCA 5th, 1937), 89 F. (2d) 69

UP este heath G bene haben chbaka tines th Aeees chad 38

Commissioner v. Wragg (CCA ist, 1944), 141 F. (2d) 638

Se Oe ey Se eee Fe TO ee Ee 32, 37, 41

Crystal v. Hutton (1905), 1 Cal. App. 251, 81 Pac. 115 ....19, 40

Davies Warehouse Co. v. Bowles (1943), 321 U.S. 144 at

155, 64 S. Ct. 474 at 480-81, 88 L. Ed. 635 at 643 ...... 24

Deputy v. DuPont (1940), 308 U.S. 488, 60 S. Ct. 363,

ee. EE Nak achcce baba cH OSSKT akd Nokes ee bees t6ks 38

TABLE oF Cases CrrTeD iii

Pages

Eckhart v. Commissioner (1935), 33 BTA 426 at 440 ..... 33

Erie Railroad v. Tompkins (1937), 304 U.S. 64, 58 S. Ct.

817, 8&3 L. Ed. 1186, 114 A.L.R. 1487 ............ 00005. 16

Estate of Daniel Guggenheim (1939), 39 BTA 251 ........ 35

Estate of Rogers v. Commissioner (1942), 320 U.S. 410 at

414, 64 S. Ct. 172 at 174, 88 L. Ed. 134 at 187 ......... 25

Estate of Lay (1939), 40 BTA 522 ...................... 32

Estate of Parrott (1926), 199 Cal. 107, 248 Pac. 248 ...... 15

Fernandez v. Wiener (1945), ....... U.S......., 66 S. Ct. 178, at

Se, Ce ac EE MOD wckik scce deen korea ds Seen 24, 26, 41

Foy v. Rothensies (CCA 3rd, 1940), 115 F. (2d) 42 at 44... 24

Gammons v. Hassett (CCA Ist, 1941), 121 F. (2d) 229 at

231, Cert. den. 314 U.S. 673, 62 S. Ct. 1386, 86 L. Ed. 539. 24

Griffin v. Long (1910), 96 Ark. 268, 1381 S. W. 672 ....15, 16,19

Guggenheim v. Helvering (CCA 2d, 1941), 117 F. (2d) 469,

Cert. den. 314 U.S. 612, 62 S. Ct. 66, 86 L. Ed. 449......

pa Glhiba Wak hbab eae RON at Reba den) abn dh eb Raise Oke 32, 34, 37, 41

Harris v. King (1931), 113 Cal. App. 357 at 362-64, 298

ek See Oe EE 4-48 0 Awd kA Kw hb es bad aoa Cease 20, 40

Hartford Nat. Bank & Trust Co. v. Smith (D.C.Comm. 140),

a I MED Aida Cekhe) Kee eh mad Che Sheeads ack bike 32

Heiner v. Mellon (1937), 304 U.S. 271, 58 S. Ct. 926, 82

Dh Ge CE HEN canis bd Kd eben DiAaea bak eke ck hen 25

Helvering v. Hallock (1939), 309 U.S. 106, 60 S. Ct. 444,

i) Wk WORD kot cia nad ds ehua sua sd cceWUe Remake dhe va 0d 30

Helvering v. Northwestern Nat. Bank, ete. (CCA 8th,

Ee BAe, OR Fe Re re eter er eer 38

Helvering v. O’Donnell (CCA 2d, 1938), 94 F. (2d) 852

EE. bp dcG Gs Sad 60008 e 5 RRR A Rae ass Keb Rk be baad 38

Helvering v. Reynolds (1940), 313 U.S. 428, 61 S. Ct. 971,

8 ee Set nee ree een eee eee oe 30

Helvering v. Reynolds Co. (1938), 306 U.S. 110 at 114, 59

S. Ct. 423 at 425, 83 L. Ed. 536 at 540 ............ . .28, 30

Helvering v. Stuart (1942), 317 U.S. 154 at 162, 63 S. Ct.

140 at 144-45, 87 L. Ed. 154 at 159 .................... 24, 41

Helvering v. Wilshire Oil Co. (1939), 308 U.S. 90, 60 S. Ct.

ae Gh UE 4 ns Nose be Aas BRS 2b Sos Chek bh di aces 30

iv Taser or Cases Crrep »

Pages

Huey v. Patterson (1918), 37 Cal. App. 335 at 341-42, 174

i, GF Re errr hee ee 19, 40

Ithaca Trust Co. v. United States (1929), 279 U.S. 151,

ee SR Me errr eer re rereeer etree 31

Lang v. Commissioner (1937), 304 U.S. 264, 58 S. Ct. 880,

Be Se I 4, GAA 9 CSAs CdGh DRG Kas Ress maehENS ob aie 41

Legg’s Estate v. Commissioner (CCA 4th, 1940), 114 F.

Se RE SAW chee shave caciNavacaue bets eeul ours 24

Lowenthal v. Coonan (1902), 135 Cal. 480, 64 Pac. 853 ... .19, 40

Lusthaus v. Commissioner (U.S. S. Ct., 1946), 14 L.W.

SR SS is cars ison Vi abese 1dabe nau: 25

Lyeth v. Hovey (1938), 305 U.S. 188, 59 S. Ct. 155, 83 L.

Sachs Oak bncoas cdan Shh an bois bab eV Sb S005 bes 25

McCoy v. Rosquin (CCA 2d, 1939), 102 F. (2d) 434....... 33

Metropolitan Life Ins. Co. v. United States (CCA 6th,

1939), 107 F. (2d) 311 at 313, Cert. den. 310 U.S. 630,

ae ee es ss ni acke puxa cin be nceaebe 24

M. K. McCann Co. v. Denny (1928), 205 Cal. 147 at 152,

A I Cas Ca dicadacnap bass viahuckges sine 40

Morgan v. Commissioner (1940), 309 U.S. 78 at 80-81,

60 S. Ct. 424 at 426, 84 L. Ed. 585 at 588........... 24, 25, 41

Morrissey v. Commissioner (1935), 296 U.S. 344 at 354,

56 S. Ct. 289 at 294, 80 L. Ed. 263 at 269 .............. 28, 30

Norris v. Churchill (1898), 20 Ind. App. 668, 51 N. E. 104. .15, 16

Offer v. Superior Court (1924), 194 Cal. 114, 117, 228 Pac.

DEE Fc aaah cs caw ennd eeberl camdgecenvsvacdbecans 31

©. A. CR) GOR. BOG FP. COR) BOGS kn. viens caveats 16, 21, 40

Page v. Hopie (CCA Ist, 1939), 104 F. (2d) 918 at 919-20.. 16

Parrott v. Commissioner, 30 F. (2d) 792 (CCA 9th, 1929),

Cert. den. 279 U.S. 870, 49 S. Ct. 512, 73 L. Ed. 1007....

bixidewnacass tenawenensins tha dedeeedins py Sebee 14, 15, 33, 39

Poe v. Seaborn (1930), 282 U.S. 101 at 117, 51 S. Ct. 58

eo oe FS Sf} eee: rer Sere 24, 26, 41

- TABLE OF Cases Crrep Vv

Pages

Porter v. Commissioner (1933), 288 U.S. 436 at 441, 53 S.

Ct. 451 at 454, 77 L. Ed. 880 at 883 ................... 38

Rice v. Southgate (1860), 16 Gray (82 Mass. 142)...15, 16,17, 19

Richter v. Henningsam (1895), 110 Cal. 530 at 537, 42 Pac.

EN cfs scl Wa Vea beh «vik dcwibas soe os 19, 20, 40

Sherwood v. Dunbar (1855), 6 Cal. 53 ................... 19, 39

ees WR. CAM, Be Bile vcs ccvecdtacnaavavas ocak s; ae

Tooley v. Commissioner (CCA 9th, 1941), 121 F. (2d) 350

are dd ei aS ewe hoes beth his +a kn RA OA Cooke 16

United States v. Mitchell (CCA 7th, 1934), 74 F. (2d) 571. 33

United States v. Pelzer (1940), 312 U.S. 399, 61 S. Ct. 659,

Re LE Ch ccctsacs Fi chlkea lens cciaeawamwenes 25

United States v. Seattle First National Bank (1944), 321

U.S. 583, 64 S. Ct. 713, 88 L. Ed. 944 ..............008, 30

Webster v. Commissioner (CCA 5th, 1941), 120 F. (2d) 514. 24

W. H. Marston Co. v. Fisheries Co. (1927), 201 Cal. 715 at

724, ae Pos. ORS at GOS ic .kc cc Lite ree is 17, 20, 40

Bat ratiarg Vath pre mentee spate re ae a eile AA Ey 14

Table of Textbooks and Statutes Cited

Pages

Avant, SURETYSHIDP ......-....cccccccccscccseenscces 15, 19

Arnold, SURETYSHIP AND GUARANTY ............-. 19

Barton, ‘‘The Effect of State Laws on Federal Tax Laws’’

(1982), 10 Tax Mag. 11 ............. cee reece cece coeee 27

Cahn, ‘‘Local Law in Federal Taxation’’, 52 Y. L. J. 799

ee eee soi Cenk 6458 sc Oke eu hws s 6k ee Rae eS OER 27

California Civil Code:

I NS ee occas <yals ewhpis Chakabbe 0s been et wh 19

NR EE oa OLS . ras s eG eA nu ka Gedenaeeae tracnctasG 14

| Re re eer err rrr rst yt Tee ees 10, 14

I ee oe 5 Lenssen uate sh omnes Sega hee ee 10

NE ee Sona Mdina bob's bd tbs abies a> 4s Kp eho eenas 10

ON nic ccc cece cscceencnnssens 22

28 Cali Jur., p. 183, § BO... 2... ccc cece cen rccccnees 22

23 Cal. Jur., p. 941, § 19 ... 0... cecececeseceseeenecens 22

California Probate Code:

Sik cae dae bee awake wee anhe 14

a ce ey Chen heasdebheaenenseshas 14

Internal Revenue Code (1939) :

Oe CO rrr rrr rr rT ee Tree eee TT 13, 28, 29

Seton GIB CB) (CB) ond linc ce dk leila sec ca asicnidans 13, 14

Note (1941) 55 H.L.R. 255-64 2.0... .. ccc eee eee eee 16, 27

2 Parsons, CONTRACTS .......... cece cece eee eee e eens 19

1 Paul, FEDERAL ESTATE AND GIFT TAXATION:

ep) DA reer here eer erer fier rt 38

“Ee LSS See rrrrier rte rite ake 14

2 Paul, FEDERAL ESTATE AND GIFT TAXATION:

ie | Str Tree ere heck he 29, 30

Paul, SELECTED STUDIES IN FEDERAL TAXATION:

eS PVEPTTITOTTITITITT TATE 14

PP. BB-BB 2... cece cece cece ecer ccc csccccenccecccees 27

Regulations 68 (1924) Art. 13(1)

Regulations 70 (1929) Art. 13(1)

. <a

TaBLE oF TEXTBOOKS AND STATUTES CITED vii

Pages

Regulations 80 (1934) Art. 13(1) ............eeeeeeeees 29

Regulations 80 (1937) Art. 10(a) .........seeeseeeeeeees 29

Regulations 105 (1942):

I ee ack yin a Gedaus 549K 54 ca da whee ake 28, 29

SS 4 ER a a ee \ cas vewus weate 14

Revenue Act of 1916 (Sec. 202(a)) ...........--2000-s any. ee

Revenue Act of 1918 (Sec. 402(a)) ................0.00-, 29

Revenue Act of 1921 (Sec. 402(a)) ..............eeeeeees 29

Revenue Act of 1924 (Sec. 302(a)) .........-cccccccceces 29

Revenue Act of 1926 (Sec. 302(a)) ............- cece eeeee 29

I eed ues vai binned heabnob en bene 30

ee ca sce pales ca habe eee os Rn 30

ERT ee Tere ere ree ee 30

$e aa, dae xg WS kine RM als NEES OA 30

i 4. eRe chs oc odie ab os cehie keen hak 30

oe E&P reer ry 30

i rr Or Oe ok seca us vavkewosees kok eee kee 30

NNN, NE UE EE <b. kno vc bk wh ade ke ne ba eha ORAS RAMU ES 30

United States Code Annotated:

ED oka ees kab oo v iain eke hes keds shane ed 8

Zengel, ‘‘The Effect of Erie Railroad v. Tompkins’’ (1939),

Se aa ee Be iw ek kd hw be bw xkaeke sabe k aces 16

ORT LiF RGIS EF EE EI OE GIB

a 2 ae

Iu the Supreme Court

OF THE

United States

Octoser TERM, 1945

No.

Estate oF EruHet M. DvuVat, Deceased, by :

Thomas M. Robinson, Jr., and Weston Shat-

tuck Robinson, as Executors of her Last Will

and Testament,

=

Petitioners,

Vs.

CoMMISSIONER OF INTERNAL REVENUE,

Respondent.

PETITION FOR WRIT OF CERTIORARI

to the United States Circuit Court of Appeals

for the Ninth Circuit.

To the Honorable Harlan Fiske Stone, Chief Justice of

the United States, and to the Honorable Associate

Justices of the Supreme Court of the United States:

SUMMARY STATEMENT OF THE MATTER INVOLVED.

Ernet M. DuVat (hereinafter referred to as the ‘‘de-

eedent’’) died on April 9, 1942. Her executors, Thomas

M. Robinson, Jr., and Weston Shattuck Robinson, filed

a Federal Estate Tax return on her estate and paid a

tax thereon of $14,302.19. (R. 14, 21.)

A deficiency was assessed on the return in the amount

of $48,214.31, based on the disallowance by the Com-

missioner of Internal Revenue (hereinafter referred to

as the ‘‘Commissioner’’) of a deduction taken by the

executors for a claim of the Bank of America, National

Trust and Savings Association (hereinafter referred to

as the “‘bank’’) against the estate in the amount of

$175,000. (R. 12-17.)

The bank’s claim was founded on the decedent’s abso-

lute and unconditional guaranty, with her sister, Mary

J. Robinson (hereinafter referred to as the ‘‘co-guar-

antor’’) of two notes given to the bank by the M. K. Blake

Estate Company (hereinafter referred to as the “‘corpo-

rate maker’’). The claim had been allowed by the executors,

approved by the Probate Court, and was an acknowledged

debt of the estate. In accordance with a plan agreed to

in March, 1943, by the executors and the bank, distribu-

tion of the estate is to be made to a testamentary trustee,

subject to the bank’s claim. The claim has not been paid

to date. (R. 21-23.)

At the time of decedent’s death, the maturity date of

the two notes was August 2, 1944. The unpaid balance of

the principal of the two notes amounted to $175,000. No

part of this amount has been paid since her death. (R. 23.)

The corporate maker and the co-guarantor were solvent

at the time of decedent’s death, and have remained so

to this time. The co-guarantor is aged, an invalid, and

confined to her home. (R. 24, 25.)

The matter involved is the correctness of the disal-

lowance by the Commissioner of the deduction taken by

ee! aa.

the executors of the bank’s claim for $175,000 against

the decedent’s estate on her contract of guaranty.

The Tax Court held that the deduction was properly

disallowed on the theory that the claim against the estate

had been waived by the bank. The Circuit Court of

Appeals recognized the claim and its deductibility, but

held that decedent had, at the time of her death, rights of

contribution, subrogation and reimbursement or rights to

rights of contribution, subrogation and reimbursement

(hereinafter called ‘‘rights over’’) against the corporate

maker and the co-guarantor of the notes, includable in

decedent’s gross estate, which were equal in value to the

elaim, thereby offsetting it in its entirety.

QUESTIONS PRESENTED.

The questions presented here are as follows:

1. Did rights over against the corporate maker and

the co-guarantor exist, under the law of the State of

California, in favor of the decedent at the time of her

death?

2. Does the principle of uniformity of taxation operate

to establish such rights over in decedent for federal estate

tax purposes when they did not exist under California

law?

3. Even assuming that such rights over did so exist,

may they be valued as an asset of the decedent’s estate in

the full amount of the guaranty claim simply because the

corporate maker and the co-guarantor are solvent at the

time?

4

4. Is there an ‘‘absurdity’’ in permitting the deduction

of the guaranty claim because the estates of numerous

co-guarantors might each claim a like deduction, so that

petitioner’s contentions, although otherwise correct, may

not succeed?

REASONS RELIED ON FOR THE ALLOWANCE

OF THE PETITION.

Three grounds are relied on as the reasons why this

Court should grant the petition for certiorari. They are

1. The Circuit Court of Appeals held that rights over

against the corporate maker and the co-guarantor existed,

under the law of the State of California, in decedent’s

favor at the time of her death, and thereby decided an

important question of California law directly contrary

thereto.

2. The Cirenit Court of Appeals failed to give proper

effect to the decisions of the United States Supreme

Court that state law creates legal interests and rights

and the federal revenue acts designate what interests or

rights so created shall be taxed, both by holding errone-

ously that such rights over did so exist and by holding that,

even if such rights over did not so exist, the principle

of uniformity of taxation operated to establish them for

federal estate tax purposes.

3. Even assuming that such rights over did so exist,

the Circuit Court of Appeals erred in failing to value

them by the formula established in the Internal Revenue

Code and the Regulations thereunder. There is a conflict

in the decisions as to the method of valuing such rights

5

over, and the method followed by the Circuit Court of »

Appeals was not the proper one.

Wherefore, the petitioners respectfully pray that a

writ of certiorari issue.

Dated, Oakland, California,

March 18, 1946.

Cares A. Brarpsey,

Attorney for Petitioners.

FirzceraLp, Asspott & BEARDSLEY,

Of Counsel.

ae NEMO RD Ee 3 Re Ee BN EN ee ae

; a

CERTIFICATE OF CoUNSEL.

I hereby certify that I am of counsel for petitioners

herein and that in my judgment the foregoing petition

is well founded and not interposed for delay.

Dated, Oakland, California,

March 18, 1946.

Cuarues A. BEARDSLEY,

Of Counsel for Petitioners.

ARAB, LATA REE LON REI VENER ATE) SERN HR Se NR PEA eS MOYER