Court Opinion

ID: 3839425
Source: CourtListenerOpinion
Date Created: 2016-07-06 08:08:28.369581+00
Date Added: 2024-06-11T13:45:24.436052
License: Public Domain

ON THE MERITS.
MODIFIED. REHEARING DENIED.
Truman L. Adams died in Multnomah County, Oregon, August 17, 1917. He was then a partner with William Kennard in a department store in Portland besides owning other private property. He left a will of which the defendants Kennard and Bates were named as executors and as trustees to act without bonds in the management and settlement of the estate. After making provision for his widow in lieu of her dower, which provision was afterward accepted by her, the document devised to the defendants Kennard and Bates, as trustees for the benefit of the plaintiffs herein and his now deceased mother not here involved, all the other property of the estate and empowered them in their discretion to conduct the business, the net income of any such business to be paid to the plaintiffs share and share alike, or to close it out and pay the proceeds thereof to the plaintiffs. Adams and Kennard were *Page 104 
equal owners of the department store in question. Appraisers were appointed in regular course when the will was probated and they appraised the partnership property at a net value of $15,000. In substance, the complaint alleges that the defendants procured the appraisers to be appointed and to make the appraisement of $15,000, which was averred to be far below the actual value of the partnership estate, fraudulently and in pursuance to a conspiracy to secure a low valuation for the purpose of enabling the defendant Kennard to buy the partnership estate at less than its true value.
The defendant Raffety was employed as an attorney to represent the other two defendants in the settlement of the estate and he is included in the complaint by appropriate averments as one of the joint tort-feasors engaged in bringing about the untoward result of which the plaintiffs complain. In passing, it is to be noted that the Circuit Court hearing this case dismissed the suit both as to Raffety and as to Bates. No appeal has been taken as to either of them, so the present issue is between the plaintiffs as respondents and the defendant Kennard as appellant.
It is said in the complaint that the defendants on August 8, 1918, filed in the County Court of Multnomah County a petition to that court praying that a citation issue to the heirs of the estate to show cause why the interest of the estate of Truman L. Adams, deceased, should not be sold to William Kennard, the surviving partner of the firm, he being at the time one of the executors of the estate of Adams, at the appraised value of $7,500. Without reciting any order of the court authorizing such action, the complaint avers, in substance, that thereafter the executors *Page 105 
"transferred and sold all of the interest of the estate of Truman L. Adams, deceased, in and to said partnership business to the said William Kennard to the loss and damage of these defendants in the sum of thirteen thousand, one hundred forty-five and 77/100 ($13,145.77) Dollars."
It is charged that prior to the sale of the interest of the decedent in the partnership estate, the executors continued to transact the business of the partnership from the death of Adams until August 24, 1918, and it is alleged that during that time there was a profit in excess of $12,000 for the year 1917 and $18,458 in the year 1918, all of which had been retained by the defendants and converted to their own use. The complaint goes on to state, in substance, that the defendants Kennard and Bates filed their final account as executors, showing the sale of the Adams interest to Kennard for the sum of $7,500, omitting to state any account of the profits of the store during the time it was conducted, and afterward on November 3, 1918, the final account of the executors was approved and they were discharged, and thereafter Kennard and Bates, as trustees, paid to the plaintiffs herein a part of the money arising from the sale of said interest in the partnership business for $7,500, but wholly failed and refused to pay to them or account for the true value of the said interest in said partnership, as aforesaid, or to pay or account to plaintiffs for any of the net profits of said business during the time it was conducted by the said Geo. W. Bates, Jr., and William Kennard as trustees as aforesaid, to the plaintiffs' great loss and damage. What part of the proceeds of the sale was paid to the plaintiffs is not stated. *Page 106 
It is averred and admitted that the plaintiff Roy Adams was a minor until November 9, 1921, and that Mabel P. Adams was under the guardianship of Theresa H. Johnson from and after September 12, 1917. The representative character of the defendants and their appointment are admitted; the making and probate of the will are likewise conceded, and the application to the court for leave to sell the interest of the decedent in the partnership property at $7,500 is avowed. It is stated that with the consent of the legatees and in pursuance to the order of the court upon citation issued to the heirs to show cause why the interest of the decedent should not be sold to the defendant at the appraised value of $7,500, that interest was sold and transferred to Kennard.
A more extended history of the transactions in question is given by the answer of Kennard and it is said therein;
"That thereafter, in due course, said executors filed their final account in which transactions with reference to the disposition of the interest of said decedent and said partnership assets were again listed; that said account was published in the manner required by law and no objections were filed thereto on behalf of the guardian of said minor and of said incompetent, or upon behalf of any other interested party, and thereafter the said final account was duly approved by the said County Court of the State of Oregon, Multnomah County, and the said Kennard discharged as executor of said estate and that the said proceedings for the sale of said property and the said final account have been at all times and now are unattacked and final adjudications of the matters therein set forth; that thereafter there was paid to the legatees under the will of Truman L. Adams, deceased, and to the guardian of said incompetent and said minor the sums of money arising from the sale of said partnership interest, *Page 107 
and that the said sum was received, receipted for and ever since has been and now is retained."
That allegation quoted from the answer of Kennard was admitted by the reply of the plaintiffs.
Treating of the sale of property by an executor or administrator, Section 1276, Or. L., reads thus:
"The order of confirmation of sale in this chapter mentioned is conclusive as to the regularity of the sale, and no further. All purchases of the property of the estate by an executor or administrator, however made, whether directly or indirectly, are prohibited, and if made are void."
There is no escape from the true import of this language. It is a universal principle of law that a trustee cannot rightfully be at once a seller and purchaser of the property of cestui quetrust. There are many apparent exceptions to the rule but the principle is age old that no man can serve two masters. It is patent that to all intents and purposes, in the face of this statute, the plaintiffs have been deprived of their property in a manner condemned as void by the law of the land. The County Court was clearly in error in granting the order allowing the executors to transfer the interest of the decedent in the partnership estate to Kennard at any price whatever, but, as pleaded in the plaintiffs' complaint, the County Court having jurisdiction of the subject-matter and of the parties, made a decision of the issue before it and as a matter of fact, so far as it lawfully could be done, has relinquished jurisdiction of the property involved. Indeed, as shown by the evidence, it is dissipated and scattered beyond all practical means of assembling it again into one custody. As the complaint states, the business was carried on for a considerable period *Page 108 
after the executors were appointed and the testimony discloses that it was conducted as a going concern and the form of the property was changing constantly as any other stock of merchandise would, all as authorized by the will of the decedent.
Cases have been cited to the effect that a trustee who is a part owner of the property, the other moiety of which is the subject of the trust, has the right to buy the trust estate in protection of his own interest. Those precedents are not affected by prohibitive statutes like ours, and are made to depend upon the trustee-purchaser showing the utmost good faith and open dealing with the cestui que trust and paying the full value of the property. Aside from the direct and positive inhibition of our statute, the conditions of the cited precedents in the respects mentioned are not prescribed in the instant case, at least as to value of the property.
It is possible for the plaintiffs to treat the property as actually transferred from them, howbeit wrongly, and recoup themselves by the recovery of whatever damages they are able to show. The transaction of Kennard of selling to himself the Adams interest in the partnership does not involve the commission of a crime. It is a transaction which might be adopted and ratified by persons sui juris without being deemed accessories after the fact in a criminal conspiracy and it would be easy to conceive of many cases where it would be greatly to the interest of the heirs of a deceased partner that the survivor should take the property off their hands. It is manifest from a consideration of the complaint that the plaintiffs do not desire that the stock of general merchandise as described in the testimony should be assembled and their part put into their possession. They are *Page 109 
seeking to be made whole according to a monetary standard. In other words, they desire that the matter shall be reconsidered and that a proper amount of damages shall be allowed to them as compensation, not punishment, for the misfeasance of the defendants.
With these considerations in mind, we here insert some excerpts and notes of the testimony and will then state an account between the plaintiffs and the defendant Kennard.
George H. Johnson, uncle and guardian at the time of Mabel Pearl Adams and Royal T. Adams, through his attorney, on June 13, 1918, wrote Kennard as follows:
"* * the reduction of the surplus of $41,291.55, as shown by the inventory of the personal property in the partnership of Kennard and Adams by 50 per cent, was a greater reduction than the actual depreciation of the goods would warrant and that he feels that if the said surplus of $41,291.55 had been reduced by 40 per cent and $5500.00 deducted from that result on account of the lease, the amount thus obtained divided by 2 it would have given very nearly the true value of the interest of said Truman L. Adams in the personal property of said partnership."
R.E. Menefee, one of the appraisers of the estate of Truman L. Adams, testified that he had helped make the inventory and appraisement marked "Plaintiff's Exhibit G," and that, in appraising the value of the merchandise:
"* * we figured from the information furnished as to the cost value, and then considered there was considerable stock that was old and in a measure depreciated. * * I recall clearly we figured the lease as a liability to some extent. The property was paying a large rental, considering the times and the general *Page 110 
condition of business and all; we thought if the partnership or the business was discontinued, they would have considerable of a liability on their hands, considering the character of the store. * * The rental was very high * * as I remember it, there was some sort of an understanding that there would be a loss on the lease of somewhere from $140.00 to $150.00 a month."
Later, in his testimony, he says:
"* * I judge in liquidating a stock there is bound to be an accumulation of old and depreciated stock, shelf-worn, etc., and that would not bring anyway near the original cost value. Whether we went into those details in that way, I don't pretend to say."
Here witness thought the probable loss on the lease would be somewhere around $125 or $150 a month. He further testified that none of the appraisers suggested that $26,000 should be deducted as a liability on that lease.
J.F. Birrel, by occupation a banker and experienced in estimating the value of personal property, testified that, in appraising the estate involved, the books showing the merchandise account and containing the inventory taken the first of the year were exhibited to the appraisers. He testified:
"* * We went through the store and Mr. Kennard showed us quite a lot of old stock that had been in there for years. We took that into consideration. And there were some leases on the different stores which were a liability against the Adams estate. * * and had quite a few words pro and con amongst ourselves * * and we finally got down to the figure."
He testified that the estate was liable on account of leases, in the sum of $525 per month for one year, and the sum of $600 a month for three years; that, in consideration of the absence of activity in all real *Page 111 
estate in that vicinity, and taking into consideration the vacant stores in that neighborhood, the loss on the liability on the leases "would be over a quarter of what the total amount would be." He testified that, in the event of liquidation at that time, there would have been a loss on the leases "absolutely; because I don't believe anyone could have got the price for the rooms that they were paying at that time."
In accounting for the wide margin existing between the book value and the actual value of the estate, the witness testified that much of the stock was old, "which I presume was not worth ten cents on the dollar. What proportion we valued that stock at, I can't tell you right offhand, but it was somewhere between fifty and seventy-five per cent, probably." In other words, the witness testified, in substance, that he took the inventory of merchandise and figured its cash value "at somewhere between fifty and seventy-five per cent."
H.W. Sitton testified on behalf of the defendant that he had had fourteen years' experience acting as receiver, trustee, assignee, and in other capacities relating to the liquidation of business houses in Portland and vicinity. Based on his years of experience, he testified that in sales of bankrupt stock the amount realized would "run around from forty to sixty-five cents."
The plaintiffs have failed to prove that the executors induced the appraisers to undervalue the property of the partnership estate for the benefit of Kennard, or that a fraudulent scheme was worked upon the court; and there is but little evidence tending to prove that Kennard misrepresented the condition of the business to the Adams heirs or their representative. *Page 112 
The deceit alleged relates to the profits that were earned by the partnership during the year 1918. As aptly stated by the trial court in its opinion:
"The evidence shows that a substantial part of this profit was due to markups of the merchandise and of the fixtures."
The substantial advance in the price of merchandise was not a secret known to Mr. Kennard alone, but was common knowledge. In the matter of liquidating the Adams estate, the guardian, Geo. H. Johnson, an expert bookkeeper, a man of good sense, and who seems to have carefully deliberated upon the subject-matter, instructed his attorney that the surplus of $41,291.55, at a fair valuation, should be reduced by 40 per cent and $5,500 deducted from that result on account of liability under the lease. This is very near the figures of the appraisers.
As to the profits realized by the defendant during the time the store was operated for the estate, we have the uncontradicted testimony of William MacRae, a certified public accountant who experted the books of the concern, who testified thus:
"Now then the profits from January 1, 1918, to August 24, 1918, was $9348.60. The loss from August 17, 1917, to December 31, 1917, was $3245.41, making a net profit from August 17, 1917, to August 24, 1918, of $6103.14."
Adopting the figures of the guardian as to value and adding thereto the net profits, as stated above, we have:
Surplus as shown by inventory ........................ $41,291.55 Deduct estimated liability on store lease ............   5,500.00 __________ Book value of estate ......................... $35,791.55 *Page 113
60% estimated as liquidation value ................... $21,474.93 Add net profit during administration ..... $6,103.14 Less income tax estimated ................  2,000.00     4,103.14 _________   __________ Net value of estate .................................. $25,578.07 One half to Adams' share ............................. $12,789.03 Deduct sum already paid by Kennard ...................   7,500.00 __________ Net amount due to plaintiffs ...................... $ 5,289.03
For this net amount a decree is entered in favor of the plaintiffs and against the defendant Kennard. The decree of the Circuit Court is modified accordingly.
MODIFIED. REHEARING DENIED.