
38 F.2d 791 (1930)
FARWELL
v.
COMMISSIONER OF INTERNAL REVENUE.
No. 5.
Circuit Court of Appeals, Second Circuit.
February 17, 1930.
*792 In 1895 James R. Langdon of Montpelier, Vt., died. With the exception of certain specific bequests, all of his property passed by his will to trustees to pay the income thereof in equal shares to his two daughters, Lucy R. and Lizzie W., during their lives; upon the death of one daughter, to pay the entire income to the survivor during her life; and upon the death of the survivor to distribute the principal in equal shares among the children of the two daughters and their respective heirs. Lucy R. was a widow with four children. Her name appears on the instruments to be considered later as Lucy L. Schroeder. Lizzie W. never married. When her father died, she was insane. A guardian was appointed for her October 23, 1895, and she continued under guardianship until she died on May 31, 1923.
In 1901, Mrs. Schroeder, finding herself unable to maintain the standard of living she desired without more than her share of the income from the property left in trust by her father, and the income of the insane Lizzie being in excess of her then present or probable future needs, made an arrangement with the guardian to pay to her a portion of Lizzie's share of the trust income. Under this arrangement twenty-three payments amounting to $220,000 were made. The first was on December 12, 1901, and the last on December 8, 1921. When each such payment was made an instrument was given to the guardian in tenor and effect like the one copied below. The persons who signed, other than Mrs. Schroeder and the guardian, were her four children.
         "New York City, Dec. 12, 1901.
"For Value received, we jointly and severally promise to pay on Demand to Lizzie W. Langdon, her Guardian or Estate, the sum of Ten Thousand Dollars ($10,000) with interest at one and three quarters per cent. (1¾%) per annum.
                     "Lucy L. Schroeder.
                     "J. Langdon Schroeder.
                     "Lucy Swinnerton Dyer.
                     "Henrietta M. Stout.
                     "Henry Schroeder."
*793 Agreement made at time of giving note:
"Whereas the Guardian of Lizzie W. Langdon, of Montpelier, Vermont, loans to the other signers hereof the sum of $10,000 (of which each of us receives $2,000) and whereas the other signers hereby give to the said Guardian a note reading as follows:
         "`New York City, Dec. 12, 1901.
"`For Value received, we jointly and severally promise to pay on Demand to Lizzie W. Langdon, her Guardian or Estate, the sum of Ten Thousand Dollars ($10,000) with interest at one and three quarters per cent. (1¾%) per annum.'
"Now: It is mutually understood and agreed that this sum of $10,000 so loaned to the other signers hereof by the Guardian, is in the nature of an advancement of moneys from the said Lizzie W. Langdon's Estate, by the Guardian thereof, and that this note and agreement given and signed is for the protection of the Guardian in case such sum so paid, or loaned, or advanced is ever demanded in part or in whole by any or all of the signers of said note in settlement of his accounts as said Guardian. And we therefore hereby mutually agree for ourselves and each other, that we will protect the Guardian or his Estate from any loss or damage coming to him from such loan, payment, or advance of money.
"It is agreed and understood that in case of the death of said Lizzie W. Langdon, before her sister, Mrs. Lucy L. Schroeder, the first signer of this note, the said Mrs. Lucy L. Schroeder then becoming the sole heir of her sister's Estate, that this note shall be accepted by her in full for its value, as a portion of her sister's Estate, and shall be cancelled by her as against the four other signers.
"In the event of the said Mrs. Lucy L. Schroeder's decease before the death of her sister, Miss Lizzie W. Langdon, then the said note shall be accepted by each one of the other four signers, or as many of them as shall be surviving at the decease of said Lizzie W. Langdon, and the said four signers, or the survivors, becoming her heirs, shall for themselves and for each other, accept the above mentioned note as a portion of the assets of their Aunt Miss Lizzie W. Langdon.
"The Guardian of Miss Lizzie W. Langdon hereby understands and consents to the above agreement, and agrees that the note mentioned shall be held as a part of the said Lizzie W. Langdon's property and assets, only as a voucher in the adjustment and settlement of his accounts, except, that in the event of such note being refused or objected to by any one of the signers of the note who may be surviving at Miss Langdon's decease, then said note shall be in full force.
"In witness whereof we set our hands and seals this twelfth day of December A. D. 1901 to this instrument executed in sex-tuplicate.
          "Lucy L. Schroeder
          "J. Langdon Schroeder
          "Lucy Swinnerton Dyer
          "Henrietta M. Stout
          "Henry Schroeder
          "Albert Tuttle
            "Guardian Lizzie W. Langdon."
Mrs. Schroeder died December 14, 1921. From that date the entire income of the trust was payable to Lizzie. Her guardian, however, made from such income seventeen payments of $2,000 and two payments of $10,000, amounting in all to $54,000 to the children of Mrs. Schroeder. The first was made January 1, 1922, and the last May 1, 1923. When each such payment was made, the guardian took a written instrument in the following form, signed by all of such children:
                           "May 1, 1923
"For value received we jointly and severally promise to pay on Demand to Lizzie W. Langdon, her guardian or estate, the sum of Two Thousand Dollars ($2,000) with interest at one and three quarter per cent. (1¾%) per annum.
"It is agreed that the sum of Two Thousand Dollars ($2,000) is in the nature of an advance from said Lizzie W. Langdon's estate by the guardian thereof and it is agreed that this note is for the protection of the guardian in case such sum so advanced is ever demanded in part or in whole by any or all of the signers of said note in settlement of the accounts of said guardian, and all the signers hereto jointly and severally waive all the provisions of the Statute of Limitations both as to principal and interest."
During all of the time Lizzie W. was under guardianship, her guardian rendered annual accounts to the probate court for the district of Washington, state of Vermont. The payments involved in this action were all charged to expense in such accounts under various designations. The first is in the account filed for the period beginning October 1, 1901, and ending September 30, 1902. It read, "To Schroeder Family to the family on their bond and note." And in the next statement it appears as "Schroeder *794 Family, note and bond." The next statement shows it as "Schroeder family, viz. $10,000 on bond and note." Later statements mention it as "Loaned on joint note Mrs. Schroeder and her 4 children;" "Paid Schroeder family on note"; "Loaned Schroeder;" "Schroeders;" "Sent Schroeder family;" "Lent Schroeder family;" and so in somewhat similar ways it appears as an expense item in each statement filed. Every annual account of the guardian was examined, allowed, and ordered recorded by the probate court. In none of them were the Schroeder notes carried into the schedule of guardianship assets, although all such notes then held by the guardian are mentioned separately in the account allowed August 14, 1905, and the amount of them is given in the accounts allowed August 1, 1906, and August 20, 1909. They were not referred to at all in the account allowed August 24, 1910, or in subsequent accounts including the last and final settlement of the guardianship estate which was approved and allowed by the probate court January 21, 1926.
The deficiency tax claimed due is made up of $260.13, which is based on certain adjustments made in the return filed by the petitioner and is not disputed, and of $16,929.31, which was assessed because the Commissioner of Internal Revenue included as assets of the estate of Lizzie W. Langdon, and added to the return filed, the forty-two Schroeder notes above mentioned having an aggregate principal sum of $274,000, together with interest thereon amounting to $43,083.09. None of the signers ever "refused or objected to" any such note or ever "demanded in part or in whole" when the guardian settled his account.
George L. Shearer, of New York City (M'Cready Sykes, Harry J. Campaign, and George L. Shearer, all of New York City, of counsel), for petitioner.
G. A. Youngquist, Asst. Atty. Gen. (Sewall Key and Andrew D. Sharpe, Sp. Assts. to Atty. Gen. and C. M. Charest, Gen. Counsel, and Prew Savoy, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.
Before SWAN, AUGUSTUS N. HAND, and CHASE, Circuit Judges.
CHASE, Circuit Judge (after stating the facts as above).
Since each of these notes was part of a special written agreement made by the parties at the time they were given, the estate of Lizzie W. Langdon, which was named as one of the payees, could not collect them except in accordance with the provisions of the special agreement. In Burke v. Dulaney, 153 U. S. 228, 14 S. Ct. 816, 38 L. Ed. 698, Storey v. Storey (C. C. A.) 214 F. 973, and other cases too numerous to make additional citation worth while, it was held that the conditional delivery of a note could be shown by parol. Here it is shown by the papers themselves; and the conditions upon which a note is delivered may defeat the express promise to pay. Montpelier Seminary v. Smith's Estate, 69 Vt. 382, 38 A. 66. Indeed, these notes are only so called herein for convenience to distinguish them from the remainder of the written contracts of which they are but a part. These contracts plainly disclose that they were all contracts of indemnity for the benefit of the guardian, and enforceable only in the event that one or more of the recipients of the payments questioned his right to credit himself with such payments when he settled his account with the probate court. No such contingency ever arose nor could arise after the final account of the guardian was approved and allowed by the probate court on January 21, 1926, since no petition for re-examination was filed or appeal taken. Therefore the notes themselves do not and never did represent money due and owing to the estate. In view of this, we need not consider the petitioner's claim as to the effect of the statute of limitations.
Nor has the estate any claim upon the guardian for the recovery of the payments on the ground of unlawful diversion of the guardianship assets. Whether the money made available to Mrs. Schroeder or her children be called gifts or conditional loans, the result is the same, for the intent of the parties controls rather than the name given to the transaction. The intent was clearly to give the Schroeder's some of Lizzie's income which she did not and would never need; which they did presently require and some or all of them would eventually share as her heirs.
The general rule is that surplus income from the estate of an incompetent may, with the approval of the court having jurisdiction, be applied for the benefit of those the incompetent would probably have aided if of sound mind. Woerner on Guardians, 457; Potter et ux. v. Berry, 53 N. J. Eq. 151, 32 A. 259, 34 L. R. A. 297, 51 Am. St. Rep. 626; Matter of Flagler, 248 N. Y. 415, 162 N. E. 471, 59 A. L. R. 649; Matter of Heeney, 2 Barb. *795 Ch. (N. Y.) 326; Matter of Earl of Carysfort (1840) Craig & Ph. 76; In re Whitaker, 42 Ch. Div. 119. And the court may, of course, ratify and approve what it had the power to authorize. Estate of Hain, 167 Pa. 55, 31 A. 337. The payments made were gifts, as in Matter of Farmers' Loan & Trust Co., 181 App. Div. N. Y. 642, 168 N. Y. S. 952, unless the Schroeders or one of them by objection called into play the terms of the indemnity agreements.
Because the probate court ratified and approved every payment made by the guardian and no application for re-examination and correction was made within two years, or appeal taken, the decision of that court is final and conclusive. General Laws of Vermont, § 3712. Although the probate court is of limited jurisdiction, its acts, orders, and decrees, within the scope of its jurisdiction are as conclusive as those of any other court. Sparhawk v. Buell's Administrator, 9 Vt. 41; Tryon's Administrators v. Tryon, 16 Vt. 313. And the probate court has exclusive jurisdiction of the settlement of accounts of guardians. Probate Court v. Slason, 23 Vt. 306. As gifts to Mrs. Schroeder and her children, approved by the probate court, the payments diminished the property and subsequent estate of Lizzie W. Langdon by their sum total, and her administrator has never had any right or credit which could inure therefrom to the benefit of the estate. No claim is made that they were gifts in contemplation of death.
This cause is remanded, with directions to compute the deficiency tax only on the adjustments hereinbefore mentioned.
