Kaufman v. Kaufman's Adm'r

• Decision Date: 08 December 1942
• Citation: 166 S.W.2d 860,292 Ky. 351
• Parties: KAUFMAN et al. v. KAUFMAN'S ADM'R et al.
• Court: Kentucky Court of Appeals

166 S.W.2d 860

292 Ky. 351

KAUFMAN et al. v. KAUFMAN'S ADM'R et al.

Court of Appeals of Kentucky

December 8, 1942

Appeal from Circuit Court, Jefferson County; Churchill Humphrey Judge.

Suit by William Henry Kaufman, administrator of the Estate of Peter Kaufman, deceased, to settle decedent's estate wherein the administrator was removed and the estate was placed in the hands of the public administrator who intervened in the suit and brought in the National Surety Corporation and another, in an attempt to recover for the embezzlement of funds of the estate by an attorney to whom they were entrusted by the administrator. From the judgment William Henry Kaufman and others appeal and Peter Kaufman's administrator de bonis non and others cross appeal.

Judgment affirmed on direct appeal except as to failure to make allowance compensating certain attorneys, and on crossappeal judgment affirmed except in respect to rate of interest it should bear.

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

Gilbert Burnett and Davis W. Edwards, both of Louisville, for appellees.

STANLEY Commissioner.

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 bank account as administrator, but turned everything over to Doolan, including collections he made himself. The attorney deposited the funds in his individual account and gave personal checks for disbursements, including some to the heirs. The administrator testified that he was kept busy during the time collecting rents, and supposed he had conferred with his lawyer on an average of once a week. Doolan advised there should be a joint control of the funds of the estate, but that he would take care of them. On one occasion Kaufman issued a check for $12.50, signed "Henry Kaufman, Administrator," in refund of interest paid by his sister to the estate, and it went through all right. It was developed in the trial that Doolan had given the bank his check for that sum, marked "for Kaufman check," and it was cleared with Doolan's check attached. He testified he issued a check for about $500 for his father's funeral expenses. It appears that Doolan simply did not use that check but gave his own to cover the bill. Kaufman had no knowledge of these manipulations and supposed he could issue checks for the estate just as Doolan could, but he never made any inquiry about it. From time to time he and some of the others asked Doolan about a settlement and he gave some plausible excuse and said the money was drawing interest. Judge Gilbert Burnett, as attorney for one of the heirs, talked with Doolan several times over a period of three years before his exposure and was told that the estate was complicated, requiring the collection of a number of lien notes, which Judge Burnett realized did take time. He testified he and everyone else had confidence in Doolan and his investigation showed the administrator to have a sound surety and he so advised his client. Thus, Doolan lulled the administrator, the heirs, and the attorneys of one of them into inaction for five years.

It is not always easy to describe or discern the liability of executor or administrator or other fiduciary for loss resulting from the negligence or fault of agents or attorneys properly employed or retained by him. The question is essentially one of good faith and reasonable diligence. Where that appears, the acts are treated with indulgence. Mistaken judgment is not enough to impose liability. There is a vague distinction, in general, between the functions and duties of an executor or administrator and a trustee. Bogert on Trusts and Trustees, Sec. 12. But in relation to conditions like the present, there appears to be no distinction within the limitations of fiducial duties of a personal representative. Cf. Thompson v. Fraley, 279 Ky. 323, 130 S.W.2d 793. Those duties are to collect and distribute the estate among creditors and heirs in accordance with the statutes or will. The administration involves all that may be done rightfully in the collection and preservation of the assets and the management of the same, with that prudence and diligence which is observed in regard to private affairs by men of reasonable prudence and fair, average capacity. Barth v. Fidelity & Columbia Trust Co., 188 Ky. 788, 224 S.W. 351; Melheiser v. Central Trust Co. of Owensboro, 237 Ky. 757, 36 S.W.2d 377; Schouler on Wills, Executors and Administrators, Section 3362. For losses resulting from the failure to exercise that care the representative is personally liable. Schouler, Sections 2480, 2490. But this degree of prudence obviously calls for the exercise of administrative discretion, which, in turn, often requires the use of agents and assistants, particularly in the performance of duties of a ministerial nature or of a type the executor or administrator could not reasonably be expected to perform personally. In the instant case there is no doubt that prudence and discretion required the employment of a lawyer as counselor, and, in respect to some of the assets, to his services as an attorney to collect and reduce the same to cash. And it is the generally accepted view that an administrator is not personally liable for loss through his lawyer's misconduct, negligence or nonfeasance if he exercised due prudence in the selection of the lawyer. 24 C.J. 126. But this necessary authority cannot extend to the surrender of all the duties of the trust or the delegation of all functions without becoming responsible to distributes for any loss sustained. Schouler, Section 2258; 24 C.J. 126. "The trustee is under a duty to the beneficiary not to delegate to others the doing of acts which the trustee can reasonably be required personally to perform." Thus, he cannot properly commit the entire administration of the trust to an agent or other person unless he is permitted to do so by the terms of the trust. Restatement of Law of Trusts, A. L. I., Sec. 171. If he does that without such permission and loss results he is responsible for it.

Under similar states of fact, it is generally held that an administrator permitting an attorney to retain for several years money of the estate collected by him without any effort to recover it from the attorney is liable for its loss to the estate. Note, 24 C.J. 126, citing Abercrombie v. Skinner, 42 Ala. 633; Reilly v. Porcher, 46 A.D. 290, 61 N.Y.S. 662; Cheever v. Ellis, 134 Mich. 645, 96 N.W. 1067. See also In re Beer, Sur., 124 N.Y.S. 423; In re Chandler's Estate, 136 Or. 128, 297 P. 841. It was held to be gross negligence, with consequent liability, in Re Estate of Skeer, 236 Pa. 404, 84 A. 787, 42 L.R.A., N.S., 170, for an administratrix to permit an attorney in fact to handle an estate for nine years without an accounting and settlement, during which...