Opinion ID: 2384488
Heading Depth: 1
Heading Rank: 2

Heading: Action To Set Aside Purchase by Decedent's Fiduciary of Decedent's Interest in Bradford Petroleum

Text: Within six months of decedent's death and prior even to the filing of an inventory in the Miller Estate, Mrs. Hawkins purchased from the surviving partners for her own interest, for a recited consideration of $1 but an actual consideration of $75,000, decedent's 3/8ths interest in Bradford Petroleum. The acquisition of this 3/8ths interest from the estate by the executrix personally was accomplished without notice to the appellants, to their guardian and without any notice to, petition to, or allowance by, the court. Approximately five weeks subsequent to said purchase, Mrs. Hawkins, as executrix, filed an inventory and appraisal of the value of the personal property of decedent and, in said inventory and appraisal, the 3/8ths interest in Bradford Petroleum was appraised at $48,700.99. [12] When Mrs. Hawkins filed her first and partial account she set forth as an additional charge against herself an alleged gain of $26,299.01 resulting from a sale of the 3/8ths interest in Bradford Petroleum, although she did not divulge the fact that she had been the purchaser. During the period from the date of decedent's death to the date of Mrs. Hawkins acquisition of the interest in Bradford Petroleum, the net operating profit of Bradford Petroleum before depletion and depreciation allocable to the 3/8ths interest was $21,588.24 for which no accounting whatsoever was made either to the court, the Bank or appellants. The oil properties owned by Bradford Petroleum had then a daily average production of over 125 barrels of crude oil and from the time of decedent's death to 1954 the properties produced over 579,000 barrels of crude oil. On December 31, 1942, Mrs. Hawkins, without consideration and as a gift, conveyed the interest which she had acquired in Bradford Petroleum to her husband, Lynn Hawkins. On January 14, 1953,  after years of highly profitable operation of Bradford Petroleum  Lynn Hawkins, joined by his wife, Mrs. Hawkins, and the other partners  H.W. Loveland and C.M. Oliver  conveyed their interest in certain of the properties of Bradford Petroleum to South Penn Oil Company and the United Refining Company for a recited consideration of $135,000 but an actual consideration of $150,000. Even though the court found that the alleged fraud and breach of trust complained of by appellants were not discovered by them until February 27, 1954, and even though this action was instituted on June 1, 1954, the action was dismissed on the ground of laches for failure of diligent prosecution. Our examination of this record compels us to the same conclusion reached in the 1946 action, i.e.,  that the delay in prosecuting this litigation should be visited equally upon the appellants, the appellees and the court. In dismissing this action on the ground of laches the court below fell into error. The action of the fiduciary in purchasing for her own interest the decedent's interest in Bradford Petroleum was flagrant self-dealing. In Meinhard v. Salmon, 249 N.Y. 458, 164 N.E. 545, the late Mr. Justice (then Judge) CARDOZO said: A trustee is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the `disintegrating erosion' of particular exceptions. [citing a case]. Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd. It will not consciously be lowered by any judgment of this court. A fiduciary may not profit at the expense of the estate or its beneficiaries ( Steele Estate, 377 Pa. 250, 257, 103 A. 2d 409) and the rule forbidding self-dealing is inflexible, without regard to the consideration paid or honesty of intent: Chorpenning's Appeal, 32 Pa. 315, 316; Noonan Estate, 361 Pa. 26, 30, 32, 33, 63 A. 2d 80; Comerford Estate, 388 Pa. 278, 295, 130 A. 2d 458; Downing Estate, 162 Pa. Superior Ct. 354, 360, 57 A. 2d 710, aff'd. 359 Pa. 534, 535, 59 A. 2d 903. The purchase of decedent's interest in this partnership by the fiduciary for her own interest was self-dealing which cannot be countenanced and the sale must be set aside. The Act of April 22, 1856, P.L. 532, 12 P.S. § 83  a statute of limitations  does not apply in the case at bar where the self-dealing of the fiduciary and fraud so clearly are evident [13] and where the interest sold was an interest in a partnership. The parties intended the transaction as a transfer of personalty and the fact that the sale was accomplished by employment of a deed  perhaps to evade the 1856 Act  does not detract from the evident intent of the parties that the transfer was of personalty, not realty. This sale was concealed for almost fourteen years from appellants and, in the meantime, the interest acquired by Mrs. Hawkins was transferred as a gift to her husband, Lynn Hawkins. Certainly it cannot be contended that Lynn Hawkins is either a bona fide holder of title or a holder who paid any value for such title. Under the circumstances portrayed on this record the sale of this partnership interest was in fraud of appellants and must be set aside. It naturally follows that appellants may have recourse against both the Estate of Mrs. Hawkins and Lynn Hawkins to recover the moneys unlawfully realized by either or both of them from the purchase of appellants' interest by Mrs. Hawkins. Whether recourse can be had against H.W. Loveland, the Estate of C.M. Oliver, South Penn Oil Company and/or United Refining Company will depend on the bona fides under which they received title and whether they knew or should have known of Mrs. Hawkins self-dealing. Such question remains for resolution in the court below. Decree reversed and matter remanded to the court below for proceedings consonant with this opinion. Costs on Mrs. Hawkins' Estate.