Kentucky National Bank v. Stone , 93 Ky. 623 ( 1893 )

JUDGE BENNETT

delivered the opinion op the court.

In 1886 ¥m. Cromey, by a written assignment duly recorded, etc., assigned to the appellee all of his estate, which consisted of personalty, for the equal benefit of his creditors, which trust was accepted. Thereafter the appel - lee, acting as his own attorney, filed his suit in the Law and Equity Court, Louisville, Ky., to have a settlement of the trust and the trust funds distributed among the creditors. The assets .reported for distribution were $3,883.43. The court ordered the distribution, and the commissioner allowed the appellee five per cent, commission on the amount that came to his hands, which amounted to $194.17, and $125.00 attorney’s fee for bringing the suit and conducting it. The appellee also presented another claim amounting to $1,100, for services as attorney rendered for ¥m. Cromey in a case of the trustees of John Bull against him to compel him to pay over money which he had received as former trustee. The appellee was not proceeded against as trustee in said action, but was employed by Cromey in said action before his assignment, and continued his services under said employment after the assignment to the end of the litigation. The appellee asked that said claim be allowed as a preferred claim. The court, upon final hearing, allowed .the appellee the gross sum of $1,200 as commissions and attorney’s fees. The appellants as creditors have appealed. And the grounds urged here, among others, are that the appellee as trustee had no right to charge and appropriate fees to himself in the double capacity of •trustee and attorney, the capacity as attorney and trustee being inconsistent. The appellee contends, first, that the two capacities are not inconsistent; and, second, that the deed of assignment authorizes it.

As to the first proposition, it is, as we understand it, settled that a trustee will not be permitted to charge attorney’s fees for legal services rendered to himself as trustee; because, to. allow the trustee to charge himself 'With attorney’s fees for services that he as attorney rentiers to himself as trustee, places him as trustee in a position that is inconsistent with his duties as trustee; which position he ought not to be permitted to occupy, for the same reason that he ought not to be permitted to purchase at his own sale, or do any other act that would tempt him to abuse his trust duties. To require him to employ a third person to act for him as attorney in matters appertaining to his trust duties, he would proceed, in all probability, to do so prudently, and with an eye single to the best interest of the trust estate; but to allow him to employ himself as attorney, and charge fees for it, would tempt him beyond what a trustee ought to be required to bear in handling the trust estate; for as a layman trustee he would be ignorant of even the most common duties, and would feel compelled to consult himself as attorney in regard to them, in order to increase his compensation. The foregoing views are sustained by tlie following authorities: Judge Walworth, in the case In re Bank of Niagara, 6 Paige, 213, says: “ The receiver was not entitled to charge for extra counsel fees to himself in addition to the legal taxable costs in suits prosecuted or defended by him as attorney or solicitor, nor was he entitled to any allowance in the character of counsel for himself or his co-receiver in relation to any other matter. The employment of counsel, and the payment of a proper allowance for such services, wh$n necessary, requires the exercise of a sound discretion on the part of receivers or the trustees of the fund out of which such services are to be paid. It would, therefore, be as unsafe to allow a receiver or other trustee to contract with and pay himself for such extra services as it would be to allow him to become the purchaser of the trust property which it is his duty to sell to the best advantage for the benefit of the estate. If he employs third persons as counsel, and has no interest in employing and paying them for services which are not absolutely necessary, there is comparatively little danger that the estate intrusted to his care will be charged with counsel fees which might safely have been dispensed with.” Also, in the case of State v. Butler, 15 Lea (Tenn.), 118, the court quoted the foregoing language, and approved of it, and added : “ The particular case before us is one in which these words have peculiar force, as it presented a fruitful source of temptation to contests of every kind which it would not be proper to impose upon the receiver. The temptation to earn fees as counsel was liable to warp his judgment, and is more than human nature ought to be required to meet in the execution of so important a trust.” Other cases of the same import might be referred to, but it is unnecessary.

As to the second proposition. The deed of assignment provides that, after paying the expenses of executing the trust, including commissions and reasonable attorney’s fees, out of' the trust fund, the balance shall be equally distributed among the creditors. The appellee contends that said provision authorizes the assignee to employ himself as attorney, and pay himself as attorney out of the trust fund. As to the meaning of the clause, “ a reasonable attorney’s fee,” it must be interpreted to mean such attorney’s fees as the trustee is allowed by law to charge. And as we have shown that the trustee is not allowed to charge for his own services as attorney, it follows that the clause refers to such attorney’s fees as the law allows to be charged in such cases. Eor the deed of assignment to allow the assignee to render professional services for himself, and charge extra therefor, would be a fraud upon the creditors of the assignor; for it would tempt the assignee, and would in fact authorize him to withdraw funds that ought to go to the equal benefit of creditors, and appropriate the same to his own use as attorney without reference to the fact as to whether such professional services were needed. He as trustee would be entirely ignorant of his duties, but as attorney he would be most wise, and would have to be consulted upon all occasions —the most trivial — in order to increase his own emoluments. (See Heacock, &c., v. Durand, &c., 42 Ill., 232-3.)

Therefore, instead of the said clause conferring valid authority upon the assignee to charge for the services rendered by himself as attorney, it seems that the clause would have the tendency to render the assignment invalid. The conclusion is that the appellee had no right to make extra charges for professional services rendered the trust estate by himself, and that the only charge for services that he is entitled to make is not exceeding five per cent, for his services as assignee.

The appellee is a practitioner of this court, and is known to each member to be a gentleman, and incapable of doing knowingly a personal or professional wrong; nor is any wrong imputed to him in this ease, nor does any appear; but the foregoing principles are based upon public policy that applies to all persons similarly situated.

The judgment is reversed, with directions for further proceedings consistent with this opinion.