Kline v. Orebaugh

• Citation: 214 Kan. 207,519 P.2d 691
• Decision Date: 02 March 1974
• Docket Number: No. 47182,47182
• Parties: Ruby KLINE and Ruth Shelor, Co-Conservators of the Estates of W. D. Orebaugh and Minnie B. Orebaugh, Appellees, v. Roy OREBAUGH et al., Appellants.
• Court: United States State Supreme Court of Kansas

Page 691

519 P.2d 691

214 Kan. 207

Ruby KLINE and Ruth Shelor, Co-Conservators of the Estates

of W. D. Orebaugh and Minnie B. Orebaugh, Appellees, v. Roy OREBAUGH et al., Appellants.

No. 47182.

Supreme Court of Kansas.

March 2, 1974.

Syllabus by the Court

1. The relation of principal and agent is a fiduciary one, and if a wrong arises because of the conduct of the agent the same remedy exists against the wrongdoer on behalf of the principal as would exist against a trustee on behalf of the cestui que trust.

2. In an equitable proceeding brought against a trustee for violation of his fiduciary obligation a court of equity may mold its judgment or decree to furnish relief suitable to the circumstances of the case before it.

3. Where the trustee by the wrongful disposition of trust property acquires other property, the beneficiary is entitled at his option either to enforce a constructive trust of the property so acquired or to enforce an equitable lien upon it to secure his claim against the trustee for damages for breach of trust, as long as the product of the trust property is held by the trustee and can be traced. (Following Restatement, Second, Trusts § 202.)

4. If the trustee in breach of trust transfers trust property to, or creates a legal interest in the subject matter of the trust in, a person who takes for value and without notice of the breach of trust, and who is not knowingly taking part in an illegal transaction, the latter holds the interest so transferred or created free of the trust, and is under no liability to the beneficiary. (Following Restatement, Second, Trusts § 284.)

5. If the trustee in breach of trust transfers trust property to a person who takes with notice of the breach of trust, the transferee does not hold the property free of the trust, although he paid value for the transfer. (Following Restatement, Second, Trusts § 288.)

6. If the trustee in breach of trust transfers trust property and no value is given for the transfer, the transferee does not hold the property free of the trust, although he had no notice of the trust. (Following Restatement, Second, Trusts § 289.)

7. Where the trustee wrongfully uses trust funds in discharging an obligation owed by the trustee or by a third person, the beneficiary is entitled to be subrogated to the rights which the obligee had before the obligation was discharged. If the obligation was a secured obligation, the beneficiary is entitled to be subrogated to the security interest held by the obligee.

Harry A. Waite, Dodge City, argued the cause, and was on the brief for appellants.

B. G. Larson, Williams, Larson, Voss & Strobel, Dodge City, argued the cause, and James A. Williams, George Voss, Ken W. Strobel, and Max Eugene Estes, Dodge City, were with him on the brief for appellees.

PRAGER, Justice:

This is an action brought on behalf of two aged parents against their son and the members of his immediate family for an accounting and other equitable relief. The action was the result of the misappropriation of the parents' property by the son through the misuse of their powers of attorney. The plaintiffs-appellees are Ruby Kline and Ruth Shelor, conservators of the estate of their parents, W. D. Orebaugh and Minnie B. Orebaugh. The defendants-appellants are Roy Orebaugh, his wife, Elsie Orebaugh and his son and daughter-in-law, Kent Valere Orebaugh and Joyce Orebaugh. Ruby Kline and Ruth Shelor are the daughters of W. D. and Minnie B. Orebaugh and the sisters of Roy Orebaugh. The facts in this case are not in dispute and are as follows: W. D. Orebaugh and his wife, Minnie B. Orebaugh, were in poor health and unable to look after their own affairs. In February of 1968 W. D. Orebaugh, then age 82, executed a power of attorney to his son, Roy. On March 28, 1969, Minnie B. Orebaugh, age 79, executed her power of attorney to Roy. In March of 1969 W. D. and Minnie B. Orebaugh owned real and personal property of a value estimated to be between 175,000 and 200,000 dollars. During the following three years Roy Orebaugh sold his parents' real estate and expended their funds in the total amount of $194,271.40; of these expenditures $28,164.59 was for the benefit of W. D. and Minnie B. Orebaugh. It is clear from the record that Roy Orebaugh misappropriated for his personal use or for the use of his wife, Elsie, or his son and daughter-in-law, the sum of $166,670.62.

In February of 1971 it came to the attention of Ruby Kline and Ruth Shelor that there was something wrong about the way Roy was handling their parents' property. After a family conference where the misappropriation became apparent. Ruby Kline and Ruth Shelor petitioned the probate court of Ford county for their appointment as conservators of the estate of W. D. and Minnie B. Orebaugh. On February 25, 1971, Ruby Kline and Ruth Shelor were appointed conservators. The only liquid assets of W. D. and Minnie B. Orebaugh which the conservators were able to locate came to a total amount of $4,220.14. The conservators immediately filed this action against Roy, Elsie, Kent Valere and Joyce Orebaugh. On application of the conservators the district court appointed a receiver on May 14, 1971. Each of the defendants filed a notice of appeal from the order appointing the receiver but failed to perfect the appeal. The conservators found it extremely difficult to get information out of Roy Orebaugh. A pretrial conference was held on February 8, 1972. The case then proceeded to trial before the court. The trial court made extensive findings of fact all of which are supported by the evidence contained in the record. In a general way it may be said that Roy Orebaugh misappropriated great sums of his parents' money to pay debts and living expenses for himself and Elsie and for his son and his wife, Kent Valere and Joyce Orebaugh. The conservators were never able to obtain a full accounting for these moneys. The evidence established that Roy Orebaugh had purchased in his own name three parcels of real estate and in addition purchased two tracts of land the title to which was placed in the name of Kent Valere Orebaugh and Joyce Orebaugh. The evidence further disclosed that prior to the execution of the powers of attorney, Roy and Elsie Orebaugh were the owners of an 800-acre ranch which was heavily mortgaged. Using his parents' funds Roy made mortgage payments in the total amount of $18,585.84 to apply against the indebtedness on his tract.

In its conclusions of law the trial court found that these misappropriations of funds were made fraudulent intent on the part of Roy Orebaugh. Furthermore the trial court found that Kent Valere and Joyce Orebaugh with full knowledge of the facts and of the ownership of the funds participated with Roy in the fraudulent misuse of funds and that they received for their personal use and enjoyment the sum of $52,800. The trial court found that Elsie Orebaugh did not knowingly participate in the misappropriation of funds by Roy and hence there were not sufficient grounds in the evidence upon which to base a personal judgment against her. As a part of its judgment in the case the court held that the conservators had an option either to take a personal judgment for each act of misappropriation or in the alternative to elect to have the court impress a constructive trust on any tract of land purchased with misappropriated funds. In accordance with this order the conservators elected to have a constructive trust impressed against all of the real properties which had been purchased in the name of Roy Orebaugh or in the name of Kent Valere and Joyce Orebaugh. The court imposed a constructive trust on the 800-acre ranch. In each instance the defendants were given credit for the payments made on the purchase price of these various tracts of land. In addition to the constructive trusts the trial court entered judgment against Roy Orebaugh alone in the amount of $65,587.79 and against Roy, Kent Valere and Joyce Orebaugh, jointly and severally, in the amount of $19,300. No personal judgment was entered against Elsie Orebaugh.

Roy and Elsie Orebaugh and Kent Valere and Joyce Orebaugh have appealed to this court contending that the trial court committed error in a number of respects. Each of the defendants-appellants filed a statement of points relied upon which collectively total 39 separate points. The joint brief filed on behalf of the appellants does not separate the specific points argued. With some difficulty we have analyzed their brief and concluded that it contains four points which we will consider on this appeal. Any points which have not been briefed or argued will be deemed abandoned. (Intercontinental Leasing, Inc. v. Lehr, 209 Kan. 132, 495 P.2d 900.)

At the outset it would be helpful to review some of the basic rights and obligations which came into existence when W. D. and Minnie B. Orebaugh executed their powers of attorney to their son, Roy. The relation of principal and agent is a fiduciary one, and if a wrong arises because of the conduct of the agent the same remedy exists against the wrongdoer on behalf of the principal as would exist against a trustee on behalf of the cestui que trust. (Wolcott & Lincoln, Inc. v. Butler, 155 Kan. 105, 122 P.2d 720.) In this case Roy Orebaugh having obtained a power of attorney from each of his parents was their agent. There existed a confidential relation between them. The execution of the powers of attorney was induced by that relation and Roy Orebaugh violated the confidence reposed in him by his parents. It is, of course, a universal rule of law, based upon ethics, morals and sound public policy, that one occupying a fiduciary relationship is not permitted to traffic in the trust estate to his personal profit or advantage. (Murray v. Brown, 177 Kan. 139, 276 P.2d 344.) Where a trustee violates any duty which he owes to the beneficiary he is guilty of a breach of trust and he is liable to the beneficiary to...