In re Smith's Estate

Decision Date20 June 1921
Docket Number4346.
CourtMontana Supreme Court

Appeal from District Court, Meagher County; John A. Matthews, Judge.

In the matter of the estate of John M. Smith, deceased. From an order dismissing the contest of J. Stanley Smith against claim of William Smith, Gertrude Mayn Smith, as the executrix of the estate of J. Stanley Smith, deceased, appeals. Affirmed.

See also, 45 Mont. 535, 125 P. 987, 210 F. 947, 224 F. 1, 139 C C. A. 465.

McIntire & Murphy, of Helena, for appellant.

Walsh Nolan & Scallon, of Helena, for respondent.


It appears that in the year 1878, John M. Smith and W. A. Smith, brothers, the latter being the younger, started in the ranch and sheep business in Meagher county. For about 10 years thereafter, they did most of their own work, kept no books, had no settlements, and owned a joint bank account, upon which each drew as funds were needed. W. A. Smith married in 1884, had three children, one boy, William Smith, the respondent herein, and two girls, Anna Maud and Nellie May, all of whom were born on the ranch in Meagher county, where the family resided until they moved to Castle, Meagher county, from which latter place Mrs. Smith deserted her husband during the latter's absence, taking the two girls with her and leaving the boy in a neighbor's care. In the fall of 1891, W. A. Smith took the boy to his sister, Mrs. Reynolds, living in Fayette, Ohio, and gave him into her care and keeping to rear. In the year 1893, having gotten possession of his two daughters, he also placed them with Mrs. Reynolds for similar purpose, and all three children grew up in her family and were with her in Ohio at the time of their father's death at White Sulpher Springs, Mont., on February 13, 1897.

Smith Bros. Sheep Company was formed in 1890 to take over the property and conduct the business of the two brothers. It was capitalized for 250,000 shares of the par value of $1 per share. Of the capital stock, 5,000 shares were issued to the wives of each of the brothers, for joining in the deeds; 100 shares were issued to J. A. McNutt, a brother-in-law, who was their bookkeeper from 1888 to 1901, and the balance of the stock was divided equally between the Smith brothers, 119,950 shares to each. John M. Smith's wife retained her stock; and the wife of W. A. Smith disposed of all of hers, W. A. Smith finally getting 3,000 shares of it and John M. Smith 2,000 shares. During W. A. Smith's life he was vice president of the company, being succeeded after his death by N. B. Smith, his nephew, who then held 50 shares of stock in the company. John M. Smith was president of the company from the time it was organized until his death.

N. B. Smith was designated and duly qualified as executor of the last will and testament of W. A. Smith. John M. Smith married in 1887, and died October 6, 1908, at Battle Creek, Mich., being still a resident of Meagher county, Mont., and leaving estate therein. He designated as executrix of his will his widow, Mary Smith, who was appointed and qualified. She and his son, J. Stanley Smith, were the chief and residuary beneficiaries under the will.

John M. Smith was 63 years of age at the time of his brother's death, and both himself and wife were then in poor health, his wife being absent in California, where he wished to go to live. McNutt conceived the idea of selling the property, and, after discussing the matter, suggested the idea of taking the subject up with N. B. Smith, the executor of the estate of W. A. Smith, deceased. Thereafter, on January 24, 1898, the district court of Meagher county authorized a private sale of that portion of the stock of the Smith Bros. Sheep Company belonging to the estate of W. A. Smith, deceased, for not less than $75,000, it being the joint idea of the executor and of John M. Smith that the stock belonging to the estate of W. A. Smith would bring more if it were sold in conjunction with that of John M. Smith; ownership and control of the property in the one person appearing more desirable. So, in contemplation of making such sale, in June, 1898, McNutt was given an option on the whole property at the price of $190,000. Several attempts to make sale of the property to others failed, and finally the executor, N. B. Smith, offered the interest of the estate to John M. Smith for $85,000 cash, which, after considerable correspondence and negotiations, resulted in the sale by the executor, confirmed by the court March 25, 1899, of the stock belonging to the estate to John M. Smith for the sum of $85,000. Thereafter, on June 12, 1899, a decree of final settlement and distribution being entered in the estate of W. A. Smith, deceased, and John M. Smith having qualified as guardian for the three minor children of W. A. Smith, on May 25, 1899, on June 14, 1899, the executor paid over to the guardian the amount remaining in his hands belonging to the estate, amounting to the sum of $82,174. The guardian used $82,000 of this amount in June, 1899, in liquidation of his indebtedness to the Union Bank & Trust Company, Helena, Mont., incurred in the consummation of the purchase of the property from the executor, notes for which, given to the bank, aggregated $85,000, and bore interest at the rate of 9 per cent. per annum. On December 11, 1900, long after such use of the funds in liquidation of his indebtedness, the guardian procured an order from the district court of Meagher county, authorizing him to borrow from himself as guardian the sum of $82,000 at the rate of 3 per cent. per annum. Subsequently, in presenting his accounts in the matter of the guardianship, he charged himself only with interest on the balance due from time to time on such loan at the rate of 3 per cent. per annum from the date of the court's order permitting him to borrow the money. The respondent having reached his majority by October, 1906, the estate and guardianship was finally closed and distribution made and the guardian discharged December 27, 1906.

In August, 1907, the respondent having learned from his sister that his guardian had not made full account and settlement with him, brought a suit in equity in Meagher county, Mont., wherein he alleged that the purchase of the stock by his guardian in the Smith Bros. Sheep Company was fraudulent, and sought to have the sale set aside to the extent of 40,983 1/3 shares, his alleged interest therein as beneficiary under the will of his father. This action resulted adversely to the respondent, and an appeal was taken to the Supreme Court of this state. On such appeal the Supreme Court affirmed the lower court (45 Mont. 535, 125 P. 987), holding that there was not such evidence of fraudulent transactions between the guardian and the executor as to warrant the court in setting aside the sale. Previously thereto, a contrary opinion on substantially the same facts was reached by the United States Circuit Court of Appeals, Ninth Circuit, in the case of Moore v. Smith, 182 F. 540, 105 C. C. A. 78. In the federal court, the action was decided in the first instance adversely to the contentions of Nellie May Moore, but on appeal to the Circuit Court of Appeals her contentions were upheld, as above indicated. Her action was instituted in the federal court because of diversity of citizenship.

Some time subsequent to the affirmance by the Supreme Court of this state of the judgment against the respondent in his suit, the respondent established a residence in the state of California, and thereafter, on the 14th day of March, 1913, he exhibited and presented his claim and demand to the executrix of the estate of John M. Smith, deceased, in the sum of $17,015.23, being the amount alleged due and owing unto him for interest unpaid upon funds used and the difference between the rate actually paid by the guardian for the use of the money, i. e., 3 per cent., and that which should have been paid, i. e., 8 per cent., compounded annually, from June 14, 1899, to June 14, 1908, the date of the guardian's final account, and simple interest thereon at 8 per cent. thereafter.

Within two months from this time, he brought suit upon such claim against the executrix in the District Court of the United States for the District of Montana, which resulted in a decree in his favor for the total amount alleged to be due ( Smith v. Smith [D. C.] 210 F. 947) and upon appeal to Circuit Court of Appeals this judgment was affirmed ( Smith v. Smith, 224 F. 1, 139 C. C. A. 465). Thereafter, based upon such judgment of the federal court, the respondent made demand upon the executrix for the payment of his claim, amounting to the sum of $24,844.99, together with interest at 8 per cent. per annum from February 10, 1914, the date of entry of decree by the federal court in respondent's favor; and in making and submitting her final account and petition for discharge, dated October 15, 1915, and filed in December, 1915, the executrix reported to the District Court the facts respecting this claim, and that it remained unpaid. In the prayer of such petition, she asked that the claims unpaid and outstanding, together with interest thereon, be directed to be paid from funds belonging to the estate.

Thereafter in December, 1915, J. Stanley Smith, son and beneficiary of John M. Smith, deceased, duly filed objections and exceptions to the final account and petition for distribution as respects the claim and demand of the respondent, William Smith. The grounds of the objections and exceptions being that the claim was not presented to the executrix of the estate of John M. Smith within 10 months after the date of the first publication of the notice to creditors of the estate; that at the time the claim was presented to the executrix it...

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