Court Opinion

ID: 6908468
Source: CourtListenerOpinion
Date Created: 2022-07-23 22:06:18.192575+00
Date Added: 2024-06-11T16:06:27.445278
License: Public Domain

COSHOW, J.
 Much of the argument and many of the authorities cited by plaintiffs appertain to sales made by an administrator, executor or other trustee to himself. Such a sale is absolutely void in this state. If that was the problem presented it would have been easily solved: Or. L., § 1276; Adams v. Kennard, 122 Or. 84 (253 Pac. 1048); Gilbert v. Branchflower, 114 Or. 508, 516 (231 Pac. 982); Acton v. Lamberson, 102 Or. 472, 488 (202 Pac. 421, 732). *46Executors are trustees of the beneficiaries of the will they are executing: 11 R. C. L. 23, § 6; 23 C. J. 1170, § 387; Woerner, Administration (2 ed.), §§ 383, 500; 2 Story’s Equity Jurisprudence (14 ed.), 187, § 800; 1 Lewin on Trusts, § 190; Roach’s Estate, 50 Or. 179 (92 Pac. 118); Stewart v. Baldwin, 86 Wash. 63 (149 Pac. 662, 664); McCulley v. Rivers, 203 Mich. 417, 427 (170 N. W. 24). In Roach’s Estate, above, a distinction is drawn between executors and trustees in the ordinary sense in which that term is used.
This case presents two different capacities in which defendant Wood as executrix acted and of which complaint is made by plaintiffs. These are: First, purchasing from plaintiffs, beneficiaries of the will of which defendant Wood was executrix, their legacies at a large discount. It is contended on behalf of plaintiffs that the estate of defendant’s testate was solvent; that the executrix of the will of her testate could not, with the estate solvent, buy up the legacies at a discount; that it is contrary to public policy to permit an executrix thus to speculate in the claims against the estate she is called upon to administer, and to benefit by her purchases from the beneficiaries of the estate. Second, purchase by defendant executrix of the contingent interest of plaintiffs in the shares of the capital stock of John Wood Iron Works which said executrix held as trustee for her son, John Wood, Jr., herself and plaintiffs; that the general rule of law applicable to the purchase by a trustee of property from his cestui que trust is, such dealings are scrutinized with jealous concern by courts of equity; that such purchases must be fairly and openly made after all information possessed by the trustee has been communicated to the cestui que trust, and the trustee is not guilty of any inequitable conduct.
*47It is against public policy for an executor who is administering a solvent estate to purchase from the heirs of the legatees, at a discount, their interest in the state: Goodwin v. Goodwin, 48 Ind. 584, 592; Hancock v. Hancock, 63 Ind. App. 173 (111 N. E. 336); Markwell v. Gray, 9 Ky. Law Rep. 534; Michoud v. Girod, 4 How. (U. S.) 552 (11 L. Ed. 1076, see, also, Rose’s U. S. Notes). An executor is not permitted to make a profit for himself directly or indirectly in the administration of his testate’s estate: 1 Perry on Trusts and Trustees, §§ 427, 428; 1 Story’s Equity Jurisprudence (14 ed.), 425, 428, § 446; Allen v. Gillet, 21 Fed. 273, 276; St. Paul Trust Co. v. Strong, 85 Minn. 1 (88 N. W. 256); Baker v. Springfield & Western Missouri Ry. Co., 86 Mo. 75; Irwin v. Sample, 213 Ill. 160, 168, 169 (72 N. E. 687); Luff v. Lord, 34 Beav. 220, 226 (56 Eng. Rep. 619); Colton v. Stanford, 82 Cal. 351 (23 Pac. 16, 19, 20, 16 Am. St. Rep. 137); Bigelow on Fraud, 315, 318; 11 R. C. L. 365, § 433; Collier v. Collier, 137 Ga. 658 (74 S. E. 275, Ann. Cas. 1913A, 1110, and extensive notes following); Mills v. Mills, 57 Fed. 873, 63 Fed. 511; Cardoner v. Day, 253 Fed. 572, 576. It will be noticed that in practically all the cases and texts cited sustaining the purchase from a beneficiary of the will by the executor that this contention is always attached to the approval, viz., that the contract must be fair on the part of the executor and no advantage taken by him of his position as executor. Applying that rule, which seems to be universal, to the instant case, we are of the opinion that the purchase of the legacies owing to the plaintiffs by the defendant executrix was contrary to public policy and is void.
Here is the situation as we see it: The defendant executrix was directed by the will to call a stock*48holders’ meeting immediately after the death of the testate for the purpose of declaring a dividend to pay to each of the daughters of the decedent the sum of $1,000. At that time there was in the possession of the executrix more than $5,000 in cash, an amount sufficient to pay the sum bequeathed. Instead of obeying the mandates of the will defendant conducted the business of the iron works for more than a year at a loss, according to her own testimony. Even before a year had expired she was borrowing money for the purpose of operating said iron works. She made no attempt to pay the legacies which she was directed to pay as soon as convenient after her testate’s death. It is true that some discretion was left to the executrix, but this was not an arbitrary discretion. The language and spirit of the will clearly indicates that it was the testator’s intention that $1,000 be paid to each of his daughters very soon after he had passed on. The executrix herself testified that she did not pay these legacies because it was not good business for her to do so. In refusing to 'obey the directions of the will she did so in her own interest exclusively. Courts of equity are chiefly concerned in supervising the relations between a trustee and the cestui que trust to prevent the trustee from serving his own interest at the sacrifice of the interest of his cestui que trust. Defendant, according to her own testimony and the testimony of her attorney who was advising and directing her, deliberately and wilfully violated that principle of equity. Said executrix apparently, according to her own testimony, was concerned chiefly in caring for her own, although by so doing she was sacrificing the interest of plaintiffs.
*49“Q. You stated, Mrs. Wood, that you were so anxious to pay these girls, weren’t you? A. Yes, sir, at all times.
“Q. Why didn’t you pay them? A. I didn’t have any money.
“Q. Why didn’t the John Wood Iron Works declare a dividend as you were directed in the will? A. There wasn’t anything to declare a dividend on.
“Q. Didn’t you have $6,000 in April, 1915? A. We may have had.
“Q. Why didn’t you then declare a dividend to pay them? A. Because that would only give us $1,000 to operate the iron works. * *
“Q. After the report of the auditor had been made it was discovered by you, as president of the corporation, that there was approximately $6,000 cash on hand; is that not true? A. I believe it is true.
“Q. Why didn’t you then call a meeting of the Board of Directors, as provided in the will, and declare a dividend and pay these girls a thousand dollars dividend? A. How could I? That would leave us just $1,000 to run the iron works. One thousand dollars would be used up in one pay day. We had no supplies on hand. We had to replenish our supplies. * *
“Q. As I take it, you believed it was to the best interests of John Wood Iron Works to retain that cash on hand instead of declaring a dividend and paying the bequests to the girls? A. Yes, sir.
“Q. And that is the reason why you didn’t do it? A. Yes, sir.”
The record clearly shows that at the time referred to in the testimony the assets of the said iron works exceeded $40,000 and the indebtedness was a little more than $2,000. After more than a year and the plaintiffs had importuned repeatedly to be paid the $1,000 provided for them in the will to be paid soon after the death of their father, defendant executrix induced plaintiffs, who began to believe they would *50not receive anything if they did not get a settlement soon, to accept $6,000 in full payment of the $10,000 provided for them in the will. Defendant then borrowed the money to pay them. This was after she had operated the iron works for more than a year and at a heavy loss. It would seem that she could have borrowed the money much more easily in April or May, 1915, before incurring that loss for operating expenses, than she could borrow such a large sum in 1916 with which to pay the legacies. She doubtless would have declared a dividend and paid the legatees the $1,000 then due them had she not believed that to have done so would have been injurious to her interests.
An executrix is a trustee and a trustee is not permitted to sacrifice for her own benefit the interest of her cestui que trust. The vice of the position of defendant is that her conduct gave her the opportunity to depress the value of the legacies, and placed in her hands the power of procuring their legacies at a very heavy discount, notwithstanding the fact that the estate was solvent. This conduct the law absolutely prohibits as is fully shown by the authorities cited above.
We do not believe that defendant intentionally and wilfully conducted the affairs of said iron works for the purpose of depressing the value of the plaintiff’s legacies, but to uphold what she did do is to put within the power of a trustee so to conduct the business of his cestuis as to do that very thing. That thing is abhorred by the law and prohibited by public policy. The result is just the same whether the trustee so conducted herself for the purpose of taking an unfair advantage of her cestuis que trustent or whether she did it in her own interests without any *51intention at all to injure her cestuis que trustent. The law prohibits a trustee from so manipulating the property of the cestuis que trustent as to reap profit at the latter’s expense. The defendant in the instant case has reaped a large profit by the way she conducted the affairs of the estate. At the time she purchased the legacies from plaintiffs she was the owner of more than 90 per cent of the capital stock of said iron works. She owned something over six shares in her own right and over ninety-two shares as executrix. Those shares belonged to her. She refused to follow the directions of the will and seems to have conducted the business as executrix with a view looking solely to her own welfare. Public policy forbids any trustee from doing that at the expense of the cestui que trust.
It is earnestly urged that plaintiffs are of age, in possession of their faculties, and were represented by able counsel when they made the settlement which was sanctioned by the probate court.
As a rule courts favor settlements. This rule is not applicable, however, where a settlement is attempted to be made against public policy. An illustration is that courts will not permit a collusive divorce, notwithstanding it may be the adjustment of long-continued differences. Courts do not permit married people to agree to be divorced because to do so is against public policy. For the same reason courts will not permit an executor or other trustee to deal with his cestui que trust to the disadvantage of the latter.
The record, in the instant case, clearly shows that the executrix, the defendant, refused to obey the mandates of the will, refused to declare a dividend and pay the legacies as directed by the will, refused to *52borrow money for that purpose until the legatees, doubtless in fear of losing all, compromised by accepting 60 per cent of the value of their legacies. The defendant executrix then borrowed the money. In other words, the executrix used her position of trust to profit herself instead of for the advantage of cestuis que trustent. She will not be permitted to retain the profit so acquired.
The other cause of dispute is based upon plaintiffs’ right to two thirds of the shares of the capital stock of the said iron works bequeathed to John Wood, Jr. By the terms of the will the shares so bequeathed to him were to be distributed to plaintiffs and defendant, two thirds to the former and one third to the latter in case said John Wood, Jr., died before he became twenty-one. He died at the age of nineteen, in 1922. In the contract between plaintiffs and defendant whereby the latter paid the former $6,000 for $10,000, a clause was embodied transferring to defendant the contingent interest of the plaintiffs in the shares of stock bequeathed to the said John Wood, Jr. Since we have held that the contract between plaintiffs and defendant for the purchase of the legacies is void because constructively fraudulent, it follows that the pretended purchase by defendant of the interest of plaintiffs in the capital stock bequeathed to John Wood, Jr., is also void. We think it is on another ground also. There is no consideration for the sale and transfer. Defendant should have paid to plaintiffs $10,000 when she paid them only $6,000. There was then no consideration for the assignment and transfer of the shares bequeathed to John Wood, Jr. We think that plaintiffs are entitled to two thirds of the shares so bequeathed to John Wood, Jr., and all dividends thereon after his death, *53and to $4,000 additional on account of the legacies bequeathed to them.
The decree of the Circuit Court is reversed and one will be entered here in harmony with this opinion.
Reversed. Rehearing Denied.
McBride, Brown and Belt, JJ., concurring.