188 Ky. 788 | Ky. Ct. App. | 1920
Opinion of the 'Court
Affirming in part and reversing in part.
By his will, which was duly probated, Paul C. Barth, who died August 21,1907, devised all of his estate except a few minor bequests in equal shares to his three infant sons, Frank L., Paul C. and Albert T. Barth, to be held in trust however until the youngest child became twenty-two years of age.
The appellee, Fidelity & Columbia Trust Company, was named as executor of the will and trustee for his infant children and qualified both as executor and trus- ■ tee on August 26,1907, and the following day John M,
On September 17, 1907, less than a month after Barth’s death, the executor sold the fifteen shares of Ohio River Sand Company stock, the par value of which was $1,500.00 for $27,500.00 to its co-appellees, John M. Settle and Charles H. Bohmer.
In this action, originally filed by the executor for a settlement of its accounts, 'the three sons of the testator, one of whom was still a minor when their cross-pleading was filed, seek a cancellation of the sale of this stock to Settle and Bohmer and an accounting by them of all profits realized since the acquisition of the stock, and failing in that, to secure damages of over a hundred dollars against the fiduciary.
From the judgment of the chancellor denying them relief against either Settle and Bohmer or the fiduciary they have prosecuted this appeal.
The cancellation of the sale to Settle and Bohmer is sought upon three grounds; first, that the fiduciary did not have the authority to sell; second, that John M. Settle, being an appraiser, could not buy; and, third, that the sale as to both Settle and Bohmer was fraudulent.
1. The will did not authorize the executor to sell personal property, and by section 4707 of the Kentucky Statutes an executor is forbidden to sell dividend paying stock, such as this was, except upon certain prescribed conditions. This section is as follows:
“All persons or corporations holding stocks, bonds or other securities, in. a fiduciary capacity for loan or investment, shall have power to sell and transfer the same whenever in the judgment of such fiduciary such sale will benefit the trust estate, and reinvest the proceeds as in section 4706 of this chapter authorized; but no administrator or executor shall sell any dividend pa ing stocks, bonds or other security which the decedent owned at his death, until so ordered by a court of general equity jursidietion in the county where letters of administration were granted or the will recorded; and the court, or in vacation, the judge thereof, may, upon the ex parte petition of said fiduciary, make said order when
Before making the sale to Settle and Bohmer the appellee trust company filed in the Jefferson circuit court the following ex parte petition. -
“The petitioner, the Fidelity Trust Company, states that it is a corporation organized under the laws of the state of Kentucky, with power to sue and be sued, contract and be contracted with, and to act as executor and trustee of the estate of deceased persons.
“The petitioner states that on the 21st day of August, 1907, Paul C. Barth departed this life a resident of and domiciled in the city of Louisville, Jefferson county, Kentucky, leaving a last will and testament which was duly ádínitted to probate- by the Jefferson county court. In and by said will this petitioner was appointed the executor and trustee of his said estate and on the 26th day of August, 1907, qualified as executor and trustee by executing bond with surety and taking the oath prescribed by the statute, assumed said trust and is now administering upon the assets of said estate.
“'The petitioner states that among other property which came into its hands as such executor and trustee is fifteen shares of capital stock of the Ohio River Sand Company and sixty shares of the capital stock of the Island Land Company. The petitioner states that both of said concerns are commercial corporations subject to the influence of business changes and reverses and it is the opinion and belief of said trustee that-, owing to the death of said Paul C. Barth and the loss of his influence in the management of both said companies, that it is advisable and desirable that said stocks be sold and the petitioner requests advice of this court in the matter.
“Wherefore, the petitioner prays that'judgment be entered as herein prayed.”
The petition was verified by the vice president of appellee. Nothing else appears of record upon that nplication except the order which was entered by the court upon the same day the petition was filed, which is as follows :
Immediately thereafter the sale to Settle and Bohmer was consummated at the price of $27,500.00 theretofore agreed upon.
Appellants insist that this section of the statute is mandatory and confers a special power upon a court of general equity jurisdiction to order a sale of this character of decedent’s property only when it is necessary to pay debts or to protect the estate or the interest of a beneficiary ; that such a necessity is a fact that must be manifested by the record to sustain jurisdiction; that the petition does not aver or the judgment declare any such necessity, and .that therefore the court was without jurisdiction of the matter and the order or judgment is absolutely void.
Appellees contend, first, that since under the common law in force in this state the executor already had title, and absolute power to sell personal property just as did the decedent, the statute confers no new power but directs only how an existing power shall be exercised, and is therefore merely directory; and, second, that, if mandatory, the judgment, which has never been set aside or modified, was not void, but voidable only at most and cannot be attacked in this a collateral proceeding; that in either event the purchaser, unless guilty of fraud, will be protected.
Conceding the force of appellees’’ argument that the statute should be construed as directory only, if, as claimed, it does not materially change the character of the title of the personal representative to the personal estate of a decedent, or confer upon him any power he
Clearly then the statute does not merely direct how the executor may exercise a recognized power, because it both limits the power and prescribes how, when and where it may be obtained. The fact, too, that the purchaser from such a fiduciary is by the statute absolved only from the duty of looking to the application of the proceeds of such sale by necessary implication charges him with the duty of seeing that the statute has been substantially complied with in obtaining power to make the sale.
We are, therefore, confident the statute must be held to be mandatory rather than directory and must be substantially complied with by the personal representative or he will fail in his effort to obtain the desired power to sell, without which, of course, he cannot confer title upon the purchaser,- who must always know, at his peril, the character of title (or the extent of power to sell, which is the same thing') of the seller.
Clearly such a' sale by the fiduciary is .not a judicial sale by the court in any sense. Hence section 696 of the Civil Code, which requires judicial sales to be public and upon such terms as the court may order within prescribed limits, is not applicable.
Nor is the proceeding or the statute under which it is had at all like the’ proceedings or -the statutes under .which a sale may be had of real estate of infants and other persons under a disability, to which appellants would have us liken it. In such proceedings the infants hold title to the land, the sale is by the court, and the infants must be brought into court -in the manner prescribed before the court procures jurisdiction to act. The statute in such cases is in derogation of common law rights of property in that it deprives certain classes of persons of title to property vested in them in a manner not permissible at common law and not now applicable to other classes of title holders, whereas the statute here applies to all classes of persons alike and is not in derogation of common law property-rights but is remedial and for the better protection of equitable interests in certain classes of property. The question of necessity for the sale is therefore not a jurisdictional fact that must affirmatively appear of record, but is the state of fact upon which the court or judge exercises his discretion conferred by statute and must be presumed unless the contrary affirmatively appears.
But even if the harsher rule ought to be applied, we think such a necessity for a sale to protect the estate and beneficiaries as- the statute implies is sufficiently shown for jurisdictional purposes from the record involved
Although not perfectly pleaded of course, the following facts, it seems to us, are presented to the court’s discretion as reasons why the sale ought to be made.
The sand company and land company are commercial corporations, which by their very nature and of common knowledge are of a hazardous nature and of such character that a fiduciary may not invest therein funds intrusted to his care. Paul C. Barth was connected with the management of both companies and his death increased the hazard of stock ownership therein in the judgment of the fiduciary to such an extent a sale is advisable and'desirable for the protection of the estate and the interest of the beneficiaries.
These are certainly considerations upon which a court or judge might reasonably base a conclusion that a sale ought to be made for the protection of the estate and beneficiaries, and this, in our judgment, is all that was ever intended or can be reasonably inferred from the statute. If not, then what one judge or court might consider sufficient to render a sale necessary -for the protection of the estate and beneficiaries another court or judge might consider quite insufficient, and no one would ever know until this court had passed upon the sufficiency of the facts of a case whether a sale was legal or void. Such a construction would reduce the statute to an absurdity and thwart the very purpose of the legislature in prescribing an informal summary method of determining the question.
Such a construction does no violence to the language of the statute, makes it salutary and reasonable in its effect, and satisfies fully every conceivable purpose the legislature could have had in mind.
The first ground upon which appellants seek the cancellation of the sale is therefore untenable.
2. Another purely legal objection to the validity of the sale is that Settle, because an appraiser, could not be a purchaser in good faith. In support of this contention counsel for appellants cite cases from other jurisdictions which would not be without force perhaps if this court had not already definitely settled this question by the adoption and observance of a contrary rule for many years which we feel constrained to follow for the sake of stare decisis, if for no other reason. Jones v. Deposit and Peoples Bank, 180 Ky. 395; Baker v. Weeks, 178 Ky. 515; Ison v. Kinnaird, 13 R. 569, 17 S. W. 633; Barlow v. McClintock, 10 R. 894, 11 S. W. 29. An examination of these cases will disclose the fact that this court is committed to the rule that an appraiser may become a purchaser of property he has appraised unless it is shown that he made the appraisement with a view of becoming a purchaser and undervalued the property with that in mind.
The appraisement in this case shows that Settle refused to place any value at all upon this stock and stated that its value was unknown, as did the other appraiser.
3. Nor is there proof of any fraud upon the part of Settle in making the purchase. His testimony that Barr, president of the trust company, and not he suggested that he become a purchaser and made the approaches which resulted in the sale is .not contradicted by anyone, - and- it ■is also clearly -established — in fact admitted by Barr — ■ that -he was in possession 'of every fact from-which the true value -of the stock might have been ascertained, and that every representation of any fact relevant upon such ani inquiry made by Settle was. .literally- and- exactly true. His refusal to value this stock was sufficient to put the executor upon notice that he must ascertain for himself its value before-■ making a sale thereof, and Barr admits that S-ettle’s refusal to appraise the stock'and what he told him about it did not mislead him in any way but actually put him upon guard that in dealing .with Settle he must rely upon his own judgment and information as to the value of the stock. . .
The whole charge of fraud upon the- part of-Settle is based solely upon the fact that he was a director and managing officer of the Ohio--River Sand Company and. upon the assumption that because of that fact he knew the real value of the stock was greatly in- excess of what he was paying for it, and that he was under the -duty of dislosing to Barr, the -fiduciary of -the' stockholders- in the corporation, because of that relationship, - his knowledge of--the value of the stock.
-Even if we assume that Settle knew the . stock was worth more -than he was agreeing to pay for same, which he denies, the mere fact that he was an officer of the corporation did not impose upon him any duty of imparting such knowledge- to his stockholders, or a representative of his stockholders from whom he was purchasing stock in the corporation. The only legal duty of any kind that Settle -owed to the trust company or its -wards was the duty to deal fairly and without fraud. As an officer -of the corporation he,- of course, owed to the'trust company acting -for -its w^ards,- who were stockholders, the same duty, .and no more, that he owed to every other stockholder in the corporation; that is, to make no misstatement of any material fact with reference to the corporation about-which he was asked,-or about which he volun
4. This brings us to a consideration, of whether the fiduciary, by reason of fraud or negligence upon its part, is liable in damages for any loss that may have been sustained by> appellants as a result of the sale of this stock for less than it was then worth. At the very outset the question of fraud may be eliminated because the only charge of fraud, made by appellants is against the purchaser and not the seller, it being their claim that the latter was overreached and the sale vitiated by the fraud practiced by the former. But even though the sale was without fraud by or profit to the fiduciary, it is nevertheless liable for any l.oss appellants sustained if resultant from the negligence of. the fiduciary. Counsel for the parties agree, as do the authorities, that the fiduciary wa.s. under the legal duty of exercising with respect to this stock, as well as with respect to all matters pertaining to the estate, that degree of care and diligence which ordinarily careful and. prudent persons exercise in their own personal affairs.; that is, ordinary care. Pomeroy 3rd,Equity Jurisprudence, 1070. The failure to exercise this . care, is, of course, negligence for .which the fiduciary .will be. liable to respond in damages. This is a fact that the appellants had to prove before they could recover, of the fiduciary. Negligence is imputed to..the .fiduciary not only in the sale but in applying to the court for authority to make the sale. ...
As already set forth, the order of the court entered upon the- ex parte application- of the fiduciary was not a judicial sale by the court but was merely a grant -of power for the exercise of which the executor must answer to its wards. Hence, even though the court or judge was authorized upon a showing made in the prescribed form in granting the power to sell -and the sale was- legal and valid, the executor is not protected thereby but must be held liable for any loss resultant therefrom if negligently made.
The stock, because of the hazardous nature of the business doubtless should have been sold for the protection of the estate and the beneficiaries, but only, of course, if its real value could be obtained; and its uniform earning capacity covering a period of twelve or fourteen years was at least an element to be considered in determining its value.
The order authorizing the executor to sell certainly imposed upon it the duty to sell at its value or not to sell at all. Neither the estate nor the beneficiaries could be protected by a sacrificial sale that fully discounted every possible depreciation in its value. It could not have realized much less for them upon a liquidation, since the assets were worth as much as was realized from the sale. The death of Mr. Barth, and of Captain Duffy a short time theretofore, two of the three owners of all of the stock in the company, and who had jointly managed its affairs without salary, as well as the fact that the company had to buy its sand from others and owned no patent or other exclusive right that gave it a monopoly or control of business, materially decreased, of course, the value of the past earning capacity as a criterion of the present worth, but certainly .did not entirely remove that factor from consideration and justify a hasty sale by the executor upon the basis of the bare value of the company’s assets to the first and only person approached about the matter. The sons of Captain Duffy, who had succeeded him in the business, and who owned fifty per cent of the company’s stock, were not apprised of the executor’s desire to sell, or even consulted to learn if they would help find a purchaser or assist in determining the stock’s real value. The company had withstood the death of Captain Duffy some eight months previously without material, if any, impairment in its earning capacity. It had never failed to pay enormous dividends in any year since its organization, did not owe a dollar, had never borrowed a cent, and owned assets worth, accord
We are convinced that the executor did not exercise that care in making this sale that ordinarily prudent persons exercise in the management of their own affairs, and was therefore guilty of negligence and must answer in damages to appellants whatever loss they sustained thereby.
Neither the court nor its commissioner to whom the case was referred to hear evidence took this view of the case, and consequently did .not attempt to fix the damages. This is a court of error and not of original jurisdiction, and as has been our practice in numerous such cases — Holloway v. Brown, 181 Ky. 716; United Iron Works Company v. Watterson Hotel Company, 182 Ky. 113 — the cause will be remanded for a trial by the lower court of this issue, upon which the evidence already taken upon the issue, as well as any other evidence that either of the parties may offer, will be considered.
Wherefore the judgment is affirmed as to Settle and Bohmer and reversed as to the Fidelity & Columbia Trust Company, executor.