Olshen v. Kaufman

• Decision Date: 05 September 1963
• Parties: Milton OLSHEN, Appellant, v. Leonard I. KAUFMAN, Jr., and Leon W. Behrman, as Guardian, Respondents.
• Court: Oregon Supreme Court

Page 161

385 P.2d 161

235 Or. 423

Milton OLSHEN, Appellant, v. Leonard I. KAUFMAN, Jr., and Leon W. Behrman, as Guardian Respondents.

Supreme Court of Oregon, In Banc.

Argued before Department 2 and Submitted Nov. 8, 1962.

Reargued En Banc March 4, 1963.

Decided Sept. 5, 1963.

Paul R. Meyer, Portland, argued the cause for appellant. On the brief were Kobin & Meyer, Portland.

Carton R. Reiter and Lewis B. Hampton, Portland, argued the cause for respondents. On the brief were Reiter, Day & Anderson and Lewis B. Hampton, Portland.

Before McALLISTER, C. J., and ROSSMAN, PERRY, SLOAN, O'CONNELL, GOODWIN and LUSK, JJ.

LUSK, Justice.

This is an action recover the balance owing on a check for $5,750 given to the plaintiff by the defendant Leonard I. Kaufman, Jr. The other defendant, Leon W. Behrman, is the guardian of the estate of Leonard I. Kaufman, Jr., a spendthrift. When the action was commenced the only defendant was Kaufman; the guardian was not made a defendant until after the case came on for trial.

The question is whether, under the statute of this state providing for the appointment of guardians for spendthrifts, recovery may be had on the contract of a spendthrift when his guardian has repudiated the obligation.

The facts are free from dispute. Briefly stated, the record shows that in December, 1958, Kaufman induced the plaintiff, a druggist in Portland, to advance to him the sum of $1,575 as an investment in a joint venture for the purchase of toys for resale. A few months later Kaufman informed plaintiff that they had doubled their money. He offered to give plaintiff a check in settlement and at the same time proposed another venture in the purchase of binoculars to which the plaintiff agreed. Plaintiff's share of the toy business, his investment plus the profit, was $2,340. This sum and an additional $2,660, totaling $5,000, were thereupon advanced by plaintiff to Kaufman for use in the binocular business. Later Kaufman told plaintiff that the latter was entitled to $750 as his share of the profits from that venture, and he gave the plaintiff his check for $5,750, dated October 1, 1959, drawn on the Bank of California, N.A., in full settlement of his indebtedness to the plaintiff. There were insufficient funds in Kaufman's account with the bank to pay the check and no part of the debt has been paid except $1,400. Plaintiff brought this action to recover the balance of $4,350, together with interest and a reasonable attorney's fee.

There was a trial before the court without a jury, upon the conclusion of which the court entered findings to the effect that the transactions, as a result of which Kaufman delivered the check to the plaintiff, were not transactions for necessaries and that the guardian had declared void the transactions and the agreement of Kaufman to pay $5,750 to the plaintiff. Judgment accordingly was entered for the defendant. The plaintiff appeals.

We think that the case was correctly decided.

ORS 126.005, in effect at the applicable times, provided:

As used in this chapter:

'(1) 'Spendthrift' includes every person who, by excessive drinking, idleness, gaming or debauchery of any kind, shall spend or lessen his estate so as to expose or likely to expose himself or his family, to want or suffering, or to cause the county to be charged for the expense of the support of himself and his family.'

The order adjudging Kaufman a spendthrift and appointing Mr. Behrman guardian of his estate was entered by the Circuit Court for Multnomah County, Probate Department, February 25, 1953, upon a petition filed by Kaufman's mother and sister, which showed, among other things, that Kaufman had a beneficial interest in a trust created by his grandmother from which he received an income of approximately $3,000 a year. Kaufman consented to the appointment in writing, as provided for by former ORS 126.135. Behrman immediately duly qualified as guardian and has ever since acted in that capacity.

Former ORS 126.335, the statute in effect at the time of the transactions in question, provided:

'After the appointment of a guardian for a spendthrift, all contracts, except for necessaries, and all gifts, sales and transfers of real or personal estate made by such spendthrift thereafter and before the termination of the guardianship are viodable.'

The statute originally provided that the contracts of a spendthrift are 'null and void,' O.C.L.A. § 22-114. This was changed to 'voidable' by Oregon Laws 1947, ch. 524, § 17, and changed again in 1961 to 'voidable by the guardian of the estate for the ward,' Oregon Laws 1961, ch. 344, § 37; ORS 126.280.

The statutes of other states regarding spendthrifts usually provide, as ours formerly did, that the contracts of a spendthrift while under guardianship, except those for necessaries, are null and void. We are of the opinion that the change from 'null and void' to 'voidable' in 1947 was made with the idea in mind that some contracts which a spendthrift might enter into would be for his benefit and that the guardian in such a case should be granted the discretion to determine that question and to avoid the contract if he thought that this would be in the interest of the ward, but if otherwise to affirm it. The 1961 amendment adding the words 'by the guardian' after 'voidable' was evidently adopted to clarify the meaning of the statute and to remove any doubts that might have arisen as to who was authorized to avoid the spendthrift's contracts. See Elliott Grocer Co. v. Field's Pure Food Market, Inc., 286 Mich. 112, 281 N.W. 557, 118 A.L.R. 845. This right to avoid a contract was given for the protection of the spendthrift. A similar right in the case of insane persons is ordinarily exercised by a guardian. Woerner, Guardianship, § 129; Atwell v. Jenkins, 163 Mass. 362, 40 N.E. 178, 28 L.R.A. 694, 47 Am.St.Rep. 463; Allen v. Berryhill, 27 Iowa 534, 536, 1 Am.Rep. 309; Carrier v. Sears, 4 Allen (Mass.) 336, 81 Am.Dec. 707. So, also, of infants. Oliver v. Houdlet, 13 Mass. 237, 7 Am.Dec. 134. An Illinois statute provided that every contract with a 'spendthrift made after the application for the appointment of a conservator, may be avoided, except in favor of the person fraudulently making the same.' Rev.Statutes of Illinois, 1905, ch. 86, § 15. In Sheldon v. Eakle, 160 Ill.App. 282, this right to avoid a contract was held to be in the conservator.

The purpose of the appointment of a guardian of the estate of a spendthrift is to protect the ward in his property against his wasteful and vicious habits which expose him or are likely to expose him or his family to want or suffering or to cause any public authority to be charged for any expense for his support or that of his family. ORS 126.005, supra. See Inhabitants of Norton v. Leonard, 12 Pick. 152, 29 Mass. 152, 161. It would seem to be fairly obvious that for the fulfillment of that purpose the responsibility of declaring void a contract entered into by the ward naturally devolves upon the guardian, along with his other duties. That this is what the legislature intended when it adopted the amendment in question we think there is no reason to doubt.

The guardian in this case having elected to declare the contract void, the plaintiff cannot recover upon it, unless there is merit in his contentions now to be considered.

By way of reply to the affirmative answer alleging the guardianship of Kaufman and the avoidance by the guardian of the contract sued upon, the plaintiff alleged that since 1957 Kaufman had regularly engaged in business as a wholesaler of toys, sporting goods, radios, and other merchandise; that defendant Behrman knew of Kaufman's business activities and made no inventory of the property of Kaufman used in them; that the contracts entered into by Kaufman in the pursuit of such business activities were the contracts of the guardian and that the defendants had waived any right to avoid the check which is the basis of plaintiff's claim, and are estopped to deny its validity.

The evidence is uncontradicted that Kaufman did engage in at least some of the business activities alleged. He maintained an office. He had commercial accounts in the Bank of California, N.A., and the United States National Bank of Portland and borrowed money from both banks. In June 1960 he borrowed $7,000 from the Bank of California, giving as collateral security a warehouse receipt for binoculars and 84 shares of stock of Trans Carribbean Airways, Inc., standing in his name. It is not necessary to go into these matters in further detail.

That Mr. Behrman knew about some of his ward's doings is not disputed. He testified that he learned of the bank accounts and instructed Kaufman not to maintain them and the banks not to allow them and that he remonstrated with his ward regarding his engaging in business, but, in effect, that he could not control Kaufman.

Despite all this, it cannot be questioned that Kaufman had been duly adjudged a spendthrift and Behrman duly appointed his guardian and that the guardianship was in existence at the time of the transactions which led to this lawsuit. This is not a case of a 'dormant guardianship' referred to in Reeves v. Hunter, 185 Iowa 958, 967, 171 N.W. 567, where the ward is 'restored to mental competency, and * * * the guardian, recognizing such fact, surrenders to him his estate, and thereby becomes entitled to an order of discharge, but neglects to obtain the same,' but a case 'of an active, 'going' guardianship.' Annual reports were regularly filed and their approval secured, and petitions presented and orders thereon taken relating to the routine business of the estate. The value of the estate as shown by the second supplemental inventory and appraisement filed March 11, 1958, was $63,410.17. The eighth annual account filed February 16, 1961, showed total assets valued at $86,381.38.

The question presented, therefore, is whether, if a spendthrift engages in...