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District Court of Appeal, Second District, Division 1, California.


Civ. 12174-S

Decided: June 28, 1939

Frank C. Dunham and M. Everett Burton, both of Pasadena, for appellant. Morin, Newell, Brown & Hamill, of Pasadena, for respondent.

This is an appeal from that portion of the judgment approving first and final account and petition for distribution fixing the statutory fees of the executrix and her attorney, and also from that portion of said judgment reducing the fees paid to an accountant who assisted executrix in the preparation of said account and of income tax returns.

A summary of the facts necessary to an understanding of the questions presented by this appeal is, briefly, as follows: The testate, just prior to his death, acquired in a trade an apartment house located in the city of Glendale, subject to a trust deed which was never signed by decedent, and upon which a balance of $38,000 remained unpaid at the date of his death. When the inventory in decedent's estate was returned, an appraisal of said apartment house was shown at $42,500. During the pendency of administration, this property was sold and the probate court made its order confirming sale at an agreed purchase price of $47,500, under the terms of which the purchaser was to pay $14,003 to the estate in cash, and to assume the balance of $33,497 which remained unpaid on the trust deed.

In her first and final account and petition for distribution, executrix accounted for a total estate of $67,799.42, and using that figure as a basis for computation of statutory fees, sought the approval of the court to the payment of $1,507.99 on account of her commissions as executrix, and an equal amount for her attorney. Respondent, as a judgment creditor of said estate, filed objections to said allowance, and also to the payment of $150 to an accountant for services rendered to the executrix in connection with said accounting and for preparing income tax returns for the years 1937 and 1938, and she also objected to the payment of $75 to said accountant for preparing income tax returns for the year 1936.

Upon the hearing of said account and objections thereto, the court found as follows:

“A. The Court finds that at the date of the death of the above named decedent, there was a Trust Deed of record on the real property belonging to the said Estate, upon which there was due approximately $35,000, and that said real property was sold by the said Executrix, said sale having heretofore been approved and affirmed by said Court for the sum of $47,500, the said purchaser paying to the said Executrix the sum of $14,003 and agreeing to assume and pay the holder of said Trust Deed the balance then due on the said Trust Deed, to-wit, the sum of $33,497.

“B. The Court further finds that there has been no claim filed by the holders of said Trust Deed with the said Executrix and that because of the foregoing facts there should be first deducted from the total amount of the Estate accounted for by said executrix, to-wit, the sum of $67,799.42, the sum of $33,497, being the amount due on said encumbrance, as hereinbefore set forth, leaving net balance of said Estate to be accounted for by said Executrix in the sum of $34,302.42, upon which the statutory fee for the said Executrix and her said attorney should be fixed, making the fee of said Executrix and her said attorney in the sum of $1016.05 to each instead of the sum of $1507.99 to each, as set forth in said Executrix' Account.”

The court allowed executrix $300 additional and her attorney $500 additional fees for extraordinary services rendered to said estate; allowed $75 paid to the accountant for preparing income tax returns for year 1936, and reduced from $150 to $60 the amount paid to said accountant for preparing income tax returns for 1937 and 1938, and for services rendered in connection with said first and final account.

This appeal is prosecuted by said executrix from the order and decree which was thereafter entered, urging that statutory fees should be based upon the gross amount of the estate accounted for, and that “the lower court was in error, in deducting the amount of the encumbrance due on the apartment house, which the purchaser agreed and assumed to pay, and thereafter fixing the statutory fee on the balance, towit, $34,302.42, instead of $67,799.42.”

It is also contended by appellant that the court erred, first, in holding that executrix exceeded her authority in employing the accountant to assist her in the preparation of her first and final account and paying him $150 for such services, and, second, in reducing said amount to the sum of $60 which the court found to be reasonable sum to be allowed said accountant “for his services rendered in the preparation of Federal and State income tax returns”.

By the terms of section 901 of the Probate Code, “The executor, when no compensation is provided by the will or he renounces all claim thereto, or the administrator, shall receive commissions upon the amount of estate accounted for by him, as follows. *”

Section 920 of the Probate Code provides that “Every executor and administrator is chargeable in his accounts with all of the estate of the decedent which comes into his possession, and with all the income, issues and profits of the estate. *”

The quoted portion of said section 920, supra, is based upon former section 1613 of the Code of Civil Procedure, which was repealed in 1931, reading as follows: “Every executor and administrator is chargeable in his account with the whole of the estate of the decedent which may come into his possession, at the value of the appraisement contained in the inventory, except as provided in the following sections, and with all the interest, profit, and income of the estate.”

In connection with the question of the computation of executor's commissions as affected by a lien on property of the estate, the following annotation appears in volume 46, A.L.R. at page 239: “In view of the practical importance of the question and the fact that it is seemingly one which would often arise in the administration of estates, there are surprisingly few adjudicated cases upon it. The cases that have passed upon it present such a variety of facts, points of view, and conclusions, that it is impossible to cite them accurately under any precise general rule. In some instances the manner in which the executor or administrator treated the transaction, rather than its essential character, seems to have influenced the result. In other cases the court seems to have gone behind the form and looked at the real nature of the transaction, and denied commissions on the gross receipts notwithstanding that a colorful aspect was given to the transaction which would support a technical argument in favor of the claim for commissions on that basis.”

Appellant cites in support of her first point the Estate of Pease, 149 Cal. 167, 85 P. 149, in which it appears that there was a sale by the executor of certain land in Alameda county which was subject to a mortgage of $882, which had been presented as a claim against the estate and allowed. The sale was for $1500, and the probate court allowed commissions only on the net amount realized after deducting the amount of the mortgage from the amount for which the property was sold. The court there said, 149 Cal. at page 171, 85 P. page 151: “We think commissions should have been allowed on the entire $1,500. An executor or administrator is to be allowed commissions based on the value of the estate which has been taken into his possession and accounted for. Estate of Simmons, 43 Cal. 543, 549; In re Ricaud's Estate, 70 Cal. 69, 11 P. 471. Here the executor testified: ‘I never got the $1,500. I only got what was left after paying off the mortgage.’ The ruling of the trial court was based, apparently, on the view that the $1,500 had not come into the executor's possession. The general rule appears to be that where property subject to an incumbrance is sold, the executor is entitled only to commissions on the net purchase price in excess of the incumbrance. 2 Woerner's Am.Law of Adm., 2d Ed., [p.] 1166; Buerhaus v. De Saussure, 41 S.C. 457, 19 S.E. 926, 20 S.E. 64; Baucus v. Stover, 24 Hun, N.Y., 109; cf. Hitchcock v. Mosher, 106 Mo. 578, 17 S.W. 638. An examination of these cases indicates that what was sold was merely the equity of redemption, and it may well be held that where property is sold subject to an incumbrance which still remains, the commissions should be calculated only on the value of the interest sold. Here, however, the mortgage had been presented as a valid claim against the estate. The sale was not made to the mortgagee, but to a third party. Under the Code of Civil Procedure, § 1569, where there is a sale of lands subject to a mortgage or other lien, the purchase money must be applied first to the satisfaction of the mortgage or lien. The property offered for sale and sold is not the equity of redemption (as it may, for this purpose, be termed), but the entire interest of the estate, regardless of the mortgage. It is the executor's duty to apply the purchase price to satisfying and removing the lien for the benefit of the purchaser, and this was done here. The statement of the appellant that he did not get the $1,500, but only the surplus over the mortgage, can mean at most that the purchaser or a broker paid the mortgagee directly, instead of paying the full price to the executor and having him pay off the mortgage. But this does not alter the real nature of the transaction. Whoever paid the mortgagee did it as agent of the executor. In effect, the executor sold the land for $1,500, and with the proceeds paid off the mortgage debt. ‘The executor is bound to account to the court for the entire proceeds of sales made under its order.’ Estate of Turner, 128 Cal. 388, 392, 60 P. 967. In this account the executor charged himself with the sum for which the sale was made, and he should be allowed commissions on it. ‘It would be a narrow construction of the statute to hold, that because he did not demand its delivery that therefore in law he did not receive nor pay out that for which he was responsible as received and paid out.’ Huddleston v. Kempner, 87 Tex. 372, 28 S.W. 936.” (Italics added.)

In Estate of Patton, Myr. Prob. page 241, certain of the property belonging to the estate was treated as separate property and other portions were treated as community property by the referee, who was appointed to ascertain and report to the court as to what property came into the hands of the executor; what, if any, remained for distribution, and what portion, if any, was community property. With regard to commissions due to the executors the court there held: “Each estate is chargeable with executors' commissions on its gross amount, with proper average of the legal per-centages; with all specific expenses incurred in its own preservation, care and management, and with its proportion, according to the gross amount of each estate respectively, of the general expenses of administration, so far as now paid or accrued.” (Italics added.)

In the Estate of Marvin, Myr. Prob. at page 163, it was held that where an undivided interest in lands subject to a mortgage has been set off to the estate in the district court and the tract sold to complete the partition and satisfy the mortgage, the administrator “can have commissions upon the estate's share of the surplus only.” As its reason for such ruling the court then went on to say: “The property, to the extent of the mortgage debt, was by order of the District Court taken out of the estate and never was ‘accounted for’ by the administrator in such manner as to entitle him to commissions.”

Again, in Estate of Simmons, 43 Cal. 543, at page 550, it is said: “The commissions to be allowed to an administrator are fixed by the statute. (Sec. 221.) They are a designated percentage ‘upon the amount of the whole estate accounted for by him.’ We are of opinion that an administrator cannot be said to have ‘accounted for’ an estate, in the sense of the statute, unless he shall first have taken it into possession. He is charged by the statute, as we have already seen, with the value of ‘the whole of the estate of the deceased which may come into his possession,’ etc. (Sec. 216); and it is made his duty to ‘take into his possession all the estate of the deceased, real and personal.’ (Sec. 194.) When he shall have taken the property into possession and accounted for it, he is entitled to compensation by way of commissions upon its value.”

The foregoing citations of authority indicate that it has been the tendency of the courts of this state to compute commissions upon the gross estate taken into possession and accounted for by an executor, although the general rule in some other states appears to be that where property subject to an encumbrance is sold, the executor is entitled only to commissions on the net purchase price in excess of the encumbrance.

In the instant case the executrix took the apartment house into her possession, collected the income derived therefrom and during the course of administration sold it at a price considerably in excess of the appraised value as shown in the inventory. In her first and final account and petition for distribution, said executrix made a full and complete accounting of her administration of the estate, not only of the rents received from the apartment house but also of the sale thereof. The fact that she did not actually tender the amount due on the trust deed to the trustee but sold the property subject thereto, the purchaser assuming and agreeing to pay the same under the terms of the order confirming said sale, is immaterial in so far as the question here under discussion is concerned. The property here offered for sale was owned in its entirety by decedent, regardless of the trust deed with which it was encumbered, and the executrix was entitled to receive her commissions based upon the value of the property, as of the date of the sale towit, $47,500. In other words, the proper basis for computation of said commissions was the gross value of the estate accounted for by her.

With respect to appellant's second point, it is established law that the amount and elements of expense of administration for services rendered to the estate by third persons rest in the sound discretion of the court, and in the absence of an abuse of such discretion, a disallowance of such items cannot be disturbed upon appeal. In re Moore's Estate, 72 Cal. 335, 13 P. 880; Estate of More, 121 Cal. 609, 54 P. 97. See, also, the opinion in Estate of Boggs, Cal.App., 90 P.2d 814, filed on May 24, 1939.

That portion of the judgment reducing from $150 to $60 the amount of compensation paid to the accountant is affirmed; that portion of the judgment reducing from $1,507.99 to $1,016.05 the statutory fee payable to appellant executrix and also to her attorney on account of services rendered to the said estate is reversed, and the court is directed to amend said judgment approving first and final account and petition for distribution in accordance with the views herein expressed.

YORK, Presiding Justice.

We concur: DORAN, J; WHITE, J.

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