Fall v. Miller Court of Appeals of Indiana, First District. April 24, 1984. Rehearing Denied May 31, 1984.

 

Statement of the Case

Petitioner-appellant William L. Fall (Fall) appeals a decision of the Putnam Circuit Court overruling specific legatee Fall's petition objecting to the Final Account and proposed distribution of the estate of Leah Curnutt (Decedent) prepared by respondent-appellee Constance Miller (Executrix).

 

We reverse.

 

Statement of the Facts

On November 6, 1980, the decedent died testate, and by the terms of her will, bequeathed certain corporate stock to Fall. During the course of the administration, though the gross estate was in excess of $80,000.00 and the debts and expenses were less than $25,000.00, and though there was no necessity to sell the stock, the Executrix filed her petition with the court, without Fall's knowledge and consent, to sell the stock, falsely alleging therein that it was necessary to do so to pay debts of the estate. The court granted its petition and in March, 1981, the Executrix sold the stock for $33,476.29.

 

However, in November, 1981, the attorney for the Executrix candidly acknowledged in a letter to Fall that a mistake had been made and promised Fall compensation for or substitution for the erroneously sold stock. Thereafter, without Fall's knowledge and consent, the Executrix reacquired on the market equal shares of the same stock for $24,671.63. In her final accounts, she proposed to distribute those shares to Fall and retain the $8,804.60 profit to be divided between herself and other residuary legatees. From an adverse ruling on his objections to the final accounts challenging that proposal, Fall appeals.

 

Issues

Fall presents two issues on appeal. He claims the trial court erred in:

I. Permitting the Executrix and other residuary legatees to keep and share the profits derived from dealing in his stock.

II. Not awarding interest on a specific legacy. [omitted]

 

Issue I: Specific Legacy

Both parties agree that the stock is a specific legacy and enjoys priority over general and residuary bequests, and that general and residuary bequests abate before specific bequests under IND.CODE 29-1-17-3. However, the Executrix argues that Fall is only entitled to receive his distribution in kind, which he did, and so her fiduciary duty is satisfied, and Fall is not entitled to any of the profit.

 

We first observe that the term "fiduciary" includes a personal representative. IND.CODE 29-1-1-3. Further, it is conceded that the Executrix had no right to sell the stock and it was a breach of her duty to do so. A personal representative is regarded as a trustee appointed by law for the benefit of and the protection of creditors and distributes. 13 I.L.E. Executors and Administrators Secs. 3 and 71 (1959). Under IND.CODE 29-1-16-1, a personal representative "shall not be entitled to any profit by the increase . . ." in the assets of the estate, and is liable for "negligent or willful" acts.

 

There is a thread which runs through the law governing fiduciary relationships which forbids a person standing in a fiduciary capacity to another from profiting by dealing in the property of his beneficiary. In Brown v. Brown, (1956) 235 Ind. 563, 135 N.E.2d 614, the Court discussed constructive trusts:

 

It has also long been the law that an executor cannot mingle estate funds with his own money, and he cannot make a profit for himself from the use of estate funds. Foorsyth v. Woods, (1871) 11 Wall. 484, 20 L.Ed. 207. Furthermore, a personal representative is personally liable for all profits derived from property of the decedent's estate. Evans v. Hardy, (1881) 76 Ind. 527; Hendrix v. Hendrix, (1879) 65 Ind. 329; and 31 Am.Jur.2d, Executors and Administrators, Sec. 267. Where an executor converts assets of an estate, he is chargeable with the value of the converted property and all the profits made during the period of conversion. Cates v. Cates, (1958) 268 Ala. 6, 104 So.2d 756. A legatee may either charge the personal representative with the value of the converted property or elect to claim and pursue the property for which it has been exchanged. Jose v. Lyman, (1944) 316 Mass. 271. 55 N.E.2d 433. The executor shall be held accountable for any profits realized from the use of the estate's money. Walls v. Walker, (1869) 37 Cal. 424.

 

In Indiana, an executor is personally liable for loss where he deposits trust funds in a bank in his individual name. Corya v. Corya, (1889) 119 Ind. 593, 22 N.E. 3. The fiduciary character of an executor extends to all legatees, and he cannot purchase the legacy of any of them for his benefit or the benefit of the other legatees. Goodwin v. Goodwin, (1874) 48 Ind. 584. The Indiana Probate Code specifically charges the personal representative with the responsibility of collecting and preserving all assets of the decedent's estate. IND.CODE 29-1-1-1. Furthermore, a personal representative who sells personal property of the estate does so at his peril. IND.CODE 29-1-5-8 and 29-1-16-1.

 

Title to decedent's personal property vests in the executor where it remains until the property is sold and the proceeds applied to the payment of the decedent's debts and the expense of administration, or until it is distributed to the heirs. However, the executor does not have absolute power over the personal property, but must dispose of it in the manner and mode prescribed by statute or by order of the Court. Root v. Blackwood, (1950) 120 Ind.App. 545, 94 N.E.2d 489.

 

The executrix cites no relevant authority whatsoever to support her acts. We conclude that the above authorities are clearly applicable to the case at bar. The executrix held Fall's stock in a fiduciary capacity, and wrongly sold it, even if by mistake. Neither she nor anyone claiming through her should be permitted to retain the profits or fruits of the transaction. Fall, as equitable owner of the stock, subject only to abatement for payment of debts, is entitled to his stock and all profits made by the executrix in wrongfully dealing in it. 

 

One rationale for the rule is that the property which generated the profit belonged to Fall and in equity and good conscience the profit should belong to him. A more persuasive rationale is that if a fiduciary is not allowed to retain any gain or profit from wrongful, speculative, or self-dealing transactions in his beneficiary's property and at the same time can be held liable for any loss incurred, an effective deterrent to such activity exists.

 

Any other rule would only encourage residuary legatees in control of the estate to speculate in estate assets. Policy forbids such conduct.

 

For the above reasons, this cause is reversed and the court is ordered to enter a judgment for Fall.

 

Judgment reversed.

 

a.  What are the relevant facts of the case?

b.  What was the issue before the Court and what did the Court decide?

c.  Do you think the decision was fair and just?  Why or why not?