Kaufman et al. v. Kaufman's Adm'R et al.

• Decision Date: 08 December 1942
• Court: United States State Supreme Court — District of Kentucky
• Parties: Kaufman et al. v. Kaufman's Adm'r et al.

292 Ky. 351

Kaufman et al. v. Kaufman's Adm'r et al.

Court of Appeals of Kentucky. Chancery Branch, First Division.

December 8, 1942.

1. Executors and Administrators. — In determining liability of an administrator for loss resulting from fault of attorneys properly retained by the administrator, the question is essentially one of good faith and reasonable diligence and where that appears the acts are treated with indulgence, and mistaken judgment is not enough to impose liability.

2. Executors and Administrators. — An administrator has duty to collect and distribute the estate among creditors and heirs in accordance with the statutes.

3. Executors and Administrators. — The administration of an estate involves all that may be done rightfully in collection and preservation of assets and management of the estate, with that prudence and diligence which is observed in regard to private affairs by men of reasonable prudence and fair average capacity, and an administrator is personally liable for losses resulting from failure to exercise that care.

4. Executors and Administrators. — An administrator is not personally liable for loss through his lawyer's misconduct, negligence or nonfeasance, if administrator exercised due prudence in selection of the lawyer.

5. Executors and Administrators. — An administrator cannot surrender all of the duties of the trust or delegate all functions of his office without becoming responsible to distributees for any loss sustained.

6. Executors and Administrators. — Generally an administrator who permits an attorney to retain for several years money of the estate collected by him without any effort to recover from the attorney is liable for its loss to the estate.

7. Executors and Administrators. — In determining whether administrator and sureties on his bond were liable for embezzlement of funds of decedent's estate by an attorney to whom funds were entrusted, the conduct of the administrator was required to be judged by standard of average prudent and diligent man in handling his personal affairs.

8. Executors and Administrators. — Where administrator who had little experience in financial matters placed entire management of estate in hands of an attorney and turned over to the attorney collections made by administrator himself, the administrator in permitting attorney to assume exclusive control of the estate and retain funds thereof for a period of five years without requiring an accounting, failed to perform and discharge all duties of his trust faithfully, and he and his surety were liable for embezzlement of funds of the estate by the attorney.

9. Trusts. — A beneficiary's waiver of right to object to breach of trust does not enlarge powers of trustee.

10. Estoppel. — Silence, or failure to act, to work an "estoppel" must be bad faith silence, or failure.

11. Estoppel. — Passivity does not ordinarily deprive one of his legal rights, unless in addition thereto he does some act to induce or encourage another to alter his condition, thereby making the awarding of the claimed rights unconscionable.

12. Executors and Administrators. — Decedent's heirs were under no duty to inform surety on administrator's bonds of any mismanagement by the administrator.

13. Executors and Administrators. — Decedent's heirs who did not exercise privilege of demanding settlement of estate at end of two years and who remained passive for period of five years during which time the administrator permitted entire management of estate to rest in hands of an attorney who embezzled funds of the estate, were not "estopped" from recovering the amount embezzled from the administrator and his sureties who allowed settlement of estate to drag along for five years without taking notice of the situation (Ky. Stats., sec. 3858).

14. Executors and Administrators. — Where administrator of deceased father's estate subsequently qualified as administrator of the estate of his mother which consisted of share in the father's estate, the administrator on collecting certain sum on behalf of father's estate should have paid himself in his capacity as administrator of mother's estate, at least half of the sum received, and as administrator of mother's estate he and his surety were liable for loss to mother's estate as result of embezzlement by an attorney in whose hands administrator had placed management of the father's estate, because of failure to collect the share to which mother's estate was entitled.

15. Executors and Administrators. — Where new attorneys for decedent's estate were retained by administrator on discovering that former attorney was guilty of misappropriation of estate funds and the new attorneys made considerable investigation and sought to straighten out tangled affairs of the estate and recover something of the former attorney, the new attorneys who represented the administrator until his removal were entitled to reasonable allowance for services performed measured by the usual criterion, even though they recovered nothing for the estate.

16. Executors and Administrators. — Where administrator and sureties on his bonds were held liable for embezzlement of estate funds by an attorney to whom the funds were entrusted, interest was recoverable only from date of judgment and not from date suit was filed (Ky. Stats., sec. 2218).

17. Interest. — The statute which provided that judgment should bear legal interest from its date was not construable as declaring but a maximum rate of interest and authorizing lower rate to be imposed in a particular case, and required interest at legal rate of 6 per cent. per annum to be imposed on judgment (Ky. Stats., secs. 2218, 2220).

18. Equity. — Equity follows the law, and whenever rights of the parties are clearly governed by rules of law, courts of equity will follow such legal rules.

19. Equity. — Courts of equity may no more disregard statutory and constitutional requirements and provisions than can courts of law and are bound by positive provisions of a statute equally with courts of law.

20. Interest. — Under statute providing that judgment should bear legal interest from its date, interest on judgment imposing liability on administrator and sureties on his bonds for embezzlement of estate funds by attorney to whom they were entrusted was allowable at legal rate of six per cent. and court of equity improperly allowed interest only at rate of three per cent. per annum on theory that the statute authorized allowance of interest at less than six per cent., regardless of fairness of allowance of three per cent. interest under circumstances (Ky. Stats., secs. 2218, 2220).

Appeal from Jefferson Circuit Court.

Allen P. Dodd, Jr., W.S. Heidenberg, Davis, Boehl, Viser & Marcus and Booth & Booth for appellants.

Gilbert Burnett and Davis W. Edwards for appellees.

Before Churchill Humphrey, Judge.

OPINION OF THE COURT BY STANLEY, COMMISSIONER.

Affirming on direct and reversing on cross-appeal.

The principal question is the liability of an administrator and the sureties on his bond for the embezzlement of funds of the estate by an attorney to whom they were entrusted. A cross-appeal questions the time from which interest allowed in the judgment began and the power of the court to decree that it should bear 3% interest instead of the legal rate of 6%.

Upon the insistence of his brothers and sisters Henry Kaufman qualified as administrator of the estate of his recently deceased father, Peter Kaufman, in January, 1933. Kaufman is a farmer with little schooling or experience in financial matters and was reluctant to undertake the responsibility; but it was agreed that he should employ an attorney and some of the heirs suggested that the lawyer would attend to the business. The personal estate consisted principally of notes, many of which were secured by mortgages. Kaufman retained W.L. Doolan, Sr., as his attorney and placed in his hands the entire management of the estate. At that time Doolan was a highly respected and reputable lawyer. It is not contended that the administrator was negligent in retaining him as counselor. The National Surety Corporation was engaged by Doolan to become surety on Kaufman's bond in the sum of $10,000.

When Peter Kaufman's widow died eighteen months later, Henry Kaufman qualified as the administrator of her estate also, with the New Amsterdam Casualty Company as surety, in the sum of $1500. Her estate consisted of her distributable share of her husband's property.

In 1938 it was developed that Doolan had systematically embezzled the Kaufman and other estates and funds of his clients, and nothing was recoverable of him. Shortly before this discovery Doolan had filed a suit to settle the father's estate. It is believed now that this was done to obtain further time and avoid an earlier settlement required by the county court. When the situation had been developed, Kaufman employed other counsel and endeavored to salvage something. They filed an amended petition on July 31, 1938, consistent with the developments. Kaufman was removed in August and the estates placed in the hands of the public administrator. He intervened in the suit, brought in the two sureties and sought to recover the sums lost to both estates. In a clear and exhaustive manner the master commissioner by his deputy reported his findings of facts and recommendations. The chancellor adjudged a recovery as on a devastavit against Henry Kaufman in the sum of $12,162.63 with interest from the date of the judgment at the rate of 3% per annum. Judgment was also rendered against the National Surety Corporation for $10,000 and the New Amsterdam Casualty Company for $1,500, both being included in the judgment against their principal, Kaufman. They join in the prosecution of this appeal.

The honesty and good faith of the administrator is not questioned. His inexperience and reliance upon the dishonest lawyer is what got him into trouble. Kaufman kept no records or...