Davidson's Adm'x v. Davidson

• Decision Date: 03 June 1938
• Citation: 274 Ky. 28,117 S.W.2d 1044
• Parties: DAVIDSON'S ADM'X et al. v. DAVIDSON et al.
• Court: Kentucky Court of Appeals

117 S.W.2d 1044

274 Ky. 28

DAVIDSON'S ADM'X et al. v. DAVIDSON et al.

Court of Appeals of Kentucky

June 3, 1938

Appeal from Circuit Court, Warren County.

Suit by Mary Katherine Davidson and others against G. P Davidson's administratrix and others to recover on a fiduciary bond wherein defendants filed a counterclaim. From a judgment, defendants appeal and plaintiffs cross-appeal.

Affirmed.

Richardson & Redford, of Glasgow, and Rodes & Willock, of Bowling Green for appellants.

John L Stout, of Bowling Green, and Guy H. Herdman, of Frankfort, for appellees.

PERRY Justice.

At about Christmas of the year 1918, B. G. Davidson died intestate at his home in Bowling Green, Kentucky, where he was then living and stationed as the local representative and manager in charge of the branch office of Davidson Brothers, a wholesale grocery business, having its main office and place of business at Glasgow, Kentucky.

Davidson Brothers was a corporation and was operated by the four Davidson brothers, W. J., H. E., G. P. and the deceased, B. G. Davidson, who held and owned in equal shares practically all of the $500,000 capital stock of the corporation.

It appears that this large business began as a partnership and was, both before and after its incorporation in 1908, closely held by these brothers as a family built, owned and controlled business, which they continued to run after its incorporation as their partnership.

At the time of B. G. Davidson's death in 1918, he left surviving him his widow, Kate Depp Davidson, and their two infant children, a daughter, Mary Katherine, nine years of age, and a son, B. G. Davidson, Jr., four years of age.

Thereupon G. P. Davidson, one of the deceased's three brothers surviving him and co-owners with him of Davidson Brothers, was duly appointed and qualified as administrator of the estate of this deceased brother. Further, on February 12, 1919, he was also, by order of the Warren circuit court, appointed guardian for the above named infant children of his deceased brother, which trust he accepted and duly qualified as guardian for them by executing as principal, with his brothers, H. E., and W. J., Davidson, as sureties, a covenant or fiduciary bond to the plaintiff, Commonwealth of Kentucky, conditioned that he would faithfully discharge his assumed trust or guardianship in all respects as required by law.

On September 20, 1934, some fifteen years after Mr. Davidson's appointment and assumption of the duties of this guardianship and following his removal as guardian for these infants, upon complaint made of his failure to make proper settlement of his guardian's account with them covering this period, two separate actions were filed in the name of the Commonwealth in the Warren circuit court, for the use and benefit of each of these above named wards, against the defendants, G. P. Davidson and the sureties upon his bond, alleging Davidson's failure to make a proper accounting to his wards of his guardianship accounts had with them and seeking recovery against them of large amounts alleged owing them by reason of Davidson's failure to properly discharge his guardianship duties.

Many pleadings were filed and voluminous proof heard, when, upon consolidation of these two actions and their submission to the learned chancellor, Judge Porter Sims, for judgment, he adjudged, in harmony with his written memorandum opinion, that the plaintiffs were entitled to a recovery in part of the amount sued for.

Complaining of this judgment, awarding recovery against them, defendants have appealed, contending that no amount was due and owing by them upon a proper accounting, but, on the other hand, that they were entitled to a recovery against the wards upon their counterclaim filed in the actions. The appellees have also prosecuted a cross-appeal, contending that the court erred in not granting them the full extent of the relief sued for.

These questions we find have been clearly, fairly and thoroughly considered and adjudged by the learned trial court in its able opinion and as it is in complete accord with our views, we have concluded to adopt it as our own. It is as follows:

"B. G. Davidson, Sr., died about Christmas, 1918, leaving a widow, Mrs. Kate Depp Davidson, and two children, Mary Katherine, eight years of age, and B. G., Jr., four years of age. At the time of his death, he was in charge of the Bowling Green branch house of Davidson Brothers, which was a wholesale grocery, receiving a salary of $3,500.00 per annum. Davidson Brothers will hereinafter be referred to as the company.

"The business started as a partnership, consisting of four brothers, W. J., H. E., G. P. and B. G. Davidson, Sr. In 1908 it was incorporated, the four brothers and their close friend and associate, Mr. W. P. Combs, owning the entire capital stock of $65,000.00. Even after the business was incorporated, it was conducted along the lines of a partnership, each stockholder using the company as his bank and borrowing from it large sums of money. The business prospered and the incorporators, instead of drawing out the earnings, used them to increase the capital stock until in 1922 the company had a capital of $500,000.00 represented by stock being issued to the original incorporators in the form of dividends. The only other stockholders were three or four trusted and valued employees, who had been with the company a long number of years and they owned a few shares of stock each.

"Mr. G. P. Davidson qualified as administrator of his brother and was appointed guardian of the two children in 1919, but really did not act as guardian or receive any funds until July 2, 1923. Mr. Davidson, at his death, owed the corporation $21,592.64 for money he had borrowed from it. It appears from this record that the administrator handled the estate of his deceased brother to suit himself, making no formal final settlement. We do not mean the administrator misappropriated any of the estate, yet he ignored the statutory regulations in such matters, as he did later in handling the estate of his wards.

"On July 2, 1923, the administrator, without making a final settlement, appears to have divided his deceased brother's estate among his heirs and on this date he appears to have qualified as guardian for the two children. In this de facto settlement the widow assumed one-half of the indebtedness her husband owed the company and the guardian for his wards assumed the other one-half, executing a note to the company, as guardian, for each ward in the sum of $5,398.16.

"Mr. Davidson's estate at his death consisted of 410 shares of stock in the company and 35 shares of Samson Tobacco Company stock, all of which was valued at par. As stated above, the administrator really did not settle his brother's estate, which was largely made up of the stock in the company, and he let the estate continue in the business until July, 1923. At this time the company's capital was $500,000, and the stock which had belonged to the deceased brother had increased from 410 to 923 shares. At this time the administrator divided these 923 shares equally between the widow on one side and the two children on the other; also, as above stated, the indebtedness owed by the deceased to the company was likewise divided. The widow's estate consisted of about $47,000.00 less $10,000.00 indebtedness to the company, and the estate of the two children aggregated the same amount.

"The administrator appears to have been devoted to his brother's widow, as much as if she had been his own sister, and he was just as devoted to her two children, his wards. The company had earned $49,000.00 in 1918; $70,000.00 in 1919; $43,000.00 in 1920; lost $3,000.00 in 1921; made $800.00 in 1922; and made $17,000.00 in 1923. These earnings were not paid out to the stockholders, but were reflected in the increase of the capital structure of the company, whose capital stock increased from $200,000 in 1918 to $500,000 in 1922. Evidently, the administrator was quite pleased with the manner in which he had handled his deceased brother's estate, having doubled it within five years. This fact perhaps accounts for his making no real settlement of the estate, but instead he divided the stock in the company owned by his brother and the debts owed the company by his brother among his heirs. Naturally, all of the Davidson brothers felt that they were rolling in wealth. The widow, Mrs. Kate Davidson, testified that the administrator of her husband's estate and the guardian of her two children told her that she and her children had more money than they could spend and encouraged her to be extravagant.

"Despite the fact the mother of his wards had a net estate of $35,000.00, the guardian borrowed $100.00 per month for each ward from the company and turned it over to their mother for the support of her children, who at that time were thirteen and nine years of age respectively. More than this, the mother was allowed to borrow $300.00 per month from the company for her own support, and this $400.00 was sent to her in a lump sum each month, after deducting whatever staple groceries and supplies she bought from the company. At this time the widow's father was a rich man, for Bowling Green and Glasgow, and he assisted his daughter. This record shows that while Mr. Davidson lived he earned $3,500.00 per year which supported his family well during the high prices existing in the time of the World War. Yet, after his death, the family income was increased from $3,500.00 to $4,800.00 per year and this was not sufficient for the widow and her two small children, as her father customarily gave her money; also, he gave her two cars during this time.

"This arrangement and the extravagant manner of living...