In re the Estate of Rothko

In the Matter of the Estate of Mark Rothko, Deceased. Kate Rothko et al., Respondents; Bernard J. Reis et al., as Executors of Mark Rothko, Deceased, et al., Appellants-­Respondents; Attorney-General of the State of New York, Respondent-Appellant.

decided November 22, 1977

Argued October 4, 1977;

POINTS OF COUNSEL

Arthur Richenthal for Bernard J. Reis and another, appel­lants-respondents.

Bernard H. Greene and John A. Silberman for Morton Levine, appellant-respondent.

David W. Peck, John W. Dickey, David M. Olasov, Pamela S. Dwyer and David B. Tulchin for Marlborough Gallery, Inc., and others, appellants-respondents.

Louis J. Lefkowitz, Attorney-General (Gustave Harrow of counsel), for ultimate charitable beneficiaries, respondent-ap­pellant.

Edward J. Ross, James R. Peterson and James J. Sabella for Kate Rothko, respondent.

Judith A. Ripps-Goldstone, George E. DeSipio and Martin I. Gdanski for The Mark Rothko Foundation, Inc., respondent.

Paul Sarno, Gerald Dickler and Jack Schachner for Barbara B. Northrup, as guardian of the person and property of Christopher Rothko, respondent.

I. As a matter of law, there is no such conflict of interest to invoke the "no further inquiry” rule of a self-dealing transaction. (Phelan v Middle States Oil Corp., 220 F2d 593; Matter of Foss, 282 App Div 509; Van Heusen v Van Heusen Charles Co., 74 Misc 292; Matter of Sherman, 9 Misc 2d 731, 279 App Div 981; Fox v Arctic Placer Min. & Milling Co., 229 NY 124; Borden v Guthrie, 23 AD2d 313, 17 NY2d 571; Dodge v Richmond, 10 AD2d 4, 8 NY2d 829; Grace v Deepdale, 9 Misc 2d 538, 8 AD2d 965, 7 NY2d 987, 363 US 811; Meinhard v Salmon, 249 NY 458.) II. Prior court approval of the estate contracts was not required since there was no self-dealing. (Matter of Tannenbaum, 20 AD2d 808, 15 NY2d 829; Matter of Stulman, 146 Misc 861; Matter of Ebbets, 139 Misc 250; Matter of Pulitzer, 139 Misc 575, 237 App Div 808; City Bank Farmers Trust Co. v Smith, 263 NY 292; Matter of Ryan, 188 Misc 61, 272 App Div 799, 996; Matter of Foss, 282 App Div 509.) III. The testator waived any claim of impermis­sible conflict. (Matter of Dow, 32 Misc 2d 415, 3 AD2d 968, 5 NY2d 739; City Bank Farmers Trust Co. v Cannon, 291 NY 125; O’Hayer v de St. Aubin, 30 AD2d 419; Matter of Kellogg, 35 Misc 2d 541; Matter of Ahrens, 193 Misc 844, 275 App Div 588, 301 NY 701; Matter of Heidenreich, 85 Misc 2d 135; Matter of Foss, 282 App Div 509; Matter of Berri, 130 Misc 527; Matter of Hammer, 16 AD2d 111, 12 NY2d 893.) IV. The 1970 contracts were fair and in the best interests of the estate. (Borden v Guthrie, 23 AD2d 313, 17 NY2d 571; Matter of Vought, 70 Mise 2d 781, 45 AD2d 991; Sinkoff Beverage Co. v Schlitz Brewing Co., 51 Misc 2d 446; Simon v Electrospace Corp., 28 NY2d 136; Youssoupoff v Widener, 126 Misc 491, 219 App Div 712, 246 NY 174; Oglesby v Allen, 408 F2d 1154; MacDonald v Commissioner of Internal Revenue, 230 F2d 534; Propper v Commissioner of Internal Revenue, 89 F2d 617; Plaza Hotel Assoc, v Wellington Assoc., 55 Misc 2d 483, 28 AD2d 1209, 22 NY2d 846; Lawrence v Mullen, 40 AD2d 871.) V. As a matter of law it is improper to remove Stamos and Reis as executors. (Matter of Jung, 205 App Div 37; Matter of Berri, 130 Misc 527.) VI. The award of appreciation damages is legally erroneous and improperly punitive rather than compensatory. (Greiss v Royal Nat. Bank, 31 NY2d 1003; Vinlis Constr. Co. v Roreck, 21 NY2d 687; Ungewitter v Toch, 31 AD2d 583; 26 NY2d 687; Matter of Segal, 170 Misc 673; Menzel v List, 24 NY2d 91; Simon v Electrospace Corp., 28 NY2d 136; Wendt v Fischer, 243 NY 439.)

I. Levine at all times acted honestly, prudently and reasonably, and did not commit or knowingly assent to any dereliction of duty. (Matter of Clark, 257 NY 132; King v Talbot, 40 NY 76; Matter of Weston, 91 NY 502; Matter of Brower, 71 Misc 398; Wilmerding v McK­esson, 103 NY 329; Matter of McCafferty, 147 Misc 179.) II. Levine’s reasonable reliance upon counsel’s advice combined with his exercise of prudent business judgment constitutes a complete defense in this proceeding. (United States v Jackson, 55 F Supp 517; Matter of Smith, 148 Misc 585; Matter of Joost, 50 Misc 78, Matter of Ball, 55 App Div 284; Matter of Westerfield, 32 App Div 324; Matter of Niles, 113 NY 547; Matter of Silkman, 121 App Div 202, 190 NY 560; Matter of Demmerle, 130 Misc 684; United States v Benjamin, 328 F2d 854.) III. Levine’s removal would be a flagrant miscarriage of justice. (Matter of Jung, 205 App Div 37; Matter of Leland, 219 NY 387; Matter of Israel, 64 Misc 2d 1035; Matter of Berri, 130 Misc 527; Matter of Burr, 118 App Div 482; Elias v Schweyer, 13 App Div 336; Matter of Monroe, 142 NY 484; Matter of Rosenberg, 165 Misc 92.)

I. There was admittedly no self-dealing and the "no further inquiry” rule was thus improperly applied. If there was a conflict of interest, the contracts could be set aside only if proved to be unfair. (Van Heusen v Van Heusen Charles Co., 74 Misc 292; Matter of Sherman, 9 Misc 2d 731, 279 App Div 981; Skinnell v Maho­ney, 197 App Div 808; Otier v Neiman, 96 Misc 481; Matter of Hubbell, 302 NY 246; La Vin v La Vin, 283 App Div 809, 307 NY 790; Globe Woolen Co. v Utica Gas & Elec. Co., 224 NY 483; Phelan v Middle States Oil Corp., 220 F2d 593.) II. No executor had a conflict of interest. The alleged conflict on the part of Reis, assuming it existed, was sanctioned by the decedent (who also bound his executors to deal with Marlbor­ough) and was eliminated by Reis’ recusal from the contract negotiations. (Grace v Deepdale, Inc., 9 Misc 2d 538, 8 AD2d 965; Matter of Berri, 130 Misc 527; O’Hayer v de St Aubin, 30 AD2d 419; Matter of Hammer, 16 AD2d 111, 12 NY2d 893; Matter of Kellogg, 35 Misc 2d 541; Matter of Dow, 32 Misc 2d 415, 3 AD2d 968, 5 NY2d 739; Matter of Balfe, 245 App Div 22; Matter of Johnson, 14 Misc 2d 138.) III. The 1970 sales and consignment contracts were reasonable and fair. (Matter of Bloch, 189 Misc 942; Purdy v Lynch, 145 NY 462; Costello v Costello, 209 NY 252.) IV. The Marlborough appellants lacked notice of any breach of trust and have no liability as third parties. (Bonham v Coe, 249 App Div 428, 276 NY 540; Purñeld v Kathrane, 73 Misc 2d 194; Fidelity & Deposit Co. of Md. v Queens County Trust Co., 226 NY 225; Fleck v Perla, 40 AD2d 1069; Dye v Lincoln Rochester Trust Co., 40 AD2d 583, 31 NY2d 1012.) V. The award of damages was calculated on an impermissible legal theory, was grossly excessive and admittedly punitive rather than compensatory. (Wetmore v Porter, 92 NY 77; Fleck v Perla, 40 AD2d 1069; Bullís v Bruce, 274 App Div 532; Noll v Smith, 250 App Div 453; Bonham v Coe, 249 App Div 428, 276 NY 540; Jones v Morgan, 90 NY 4; Jones v National Chautauqua County Bank of Jamestown, 272 App Div 521; Filer v Creole Syndicate, 230 App Div 509, 256 NY 346; Vanleigh Carpet Corp. v Schoor’s Iron Forge, 65 Misc 2d 504.) VI. The Surrogate had no juris­diction or authority to alter the 1969 contracts between Marl­borough and Rothko. VII. The finding of contempt was clearly erroneous. (Sternberg v Zaretsky, 20 AD2d 795, 14 NY2d 842; Silverman v Oberman, 5 AD2d 927; Tierney v James, 269 App Div 348; Ketchum v Edwards, 153 NY 534; People v Balt, 34 AD2d 932; Ziegfeld v Norworth, 148 App Div 185.)

I. There was a rising curve of prices through all of the pertinent points in time. (Murray v Cooper, 268 App Div 411; Lynch v Bailey, 275 App Div 527; Youssoupoff v Widener, 246 NY 174; Weinberg v Edelstein, 201 Misc 343; Larido Corp. v Crusader Mfg. Co., 4 Misc 2d 231; Mandel v Liebman, 303 NY 88; Elco Shoe Mfrs. v Sisk, 260 NY 100.) II. The consignment of 100 of the best paintings left by Mark Rothko involved an unbroken chain of fraudulent manipulations, concealment and finally fabrication of documents involving the consigned paint­ings. III. Paintings were sold in "contempt” of court. (Korde Corp. v Casino Classics, 280 App Div 740; Matter of Black, 138 App Div 562; Jackson v Murray, 25 App Div 140; Schieffelin v Hylan, 191 App Div 324, 229 NY 633.) IV. To the extent that paintings are not returned, the beneficiaries herein can never be made whole; therefore the only appropriate measure of damages is one which most nearly provides a substitute for failure to. return paintings. (Elco Shoe Mfrs. v Sisk, 260 NY 100; Polley v Daniels, 238 App Div 181; Matter of De Belar­dino, 77 Misc 2d 253, 47 AD2d 589; Menzel v List, 24 NY2d 91; Simon v Electrospace Corp., 28 NY2d 136; Buffum v Barceloux, 289 US 227.)

I. All the relief granted is war­ranted by the fundamental rule of undivided loyalty. (Munson v Syracuse, Geneva & Corning R. R. Co., 103 NY 59; Wendt v Fischer, 243 NY 439; Albright v Jefferson County Nat. Bank, 292 NY 31; City Bank Farmers Trust Co. v Cannon, 291 NY 125; Dabney v Chase Nat. Bank of City of N. Y, 196 F2d 668; United States v Mississippi Val. Co., 364 US 520; Matter of Hufnagel, 258 App Div 1088; Manson v Curtis, 223 NY 313; Diamond v Oreamuno, 29 AD2d 285, 24 NY2d 494; Globe Woolen Co. v Utica Gas & Elec. Co., 224 NY 483.) II. The Surrogate granted the proper relief as to Reis, Stamos and Levine. (Matter of McGillivray, 138 NY 308; Pyle v Pyle, 137 App Div 568, 199 NY 538; Matter of Wagner, 257 App Div 972; Matter of Giaimo, 73 Misc 2d 130, 41 AD2d 600; Matter of Israel, 166 Misc 156, 256 App Div 1063; Earle v Earle, 93 NY 104; Matter of Slensby, 169 Misc 292; Matter of Wester­ñeld, 32 App Div 324; Matter of Durston, 297 NY 64; Frontier Excavating v Sovereign Constr. Co., 30 AD2d 487, 24 NY2d 991.) III. The Surrogate correctly set aside the two contracts. (Wendt v Fischer, 243 NY 439; City Bank Farmers Trust Co. v Cannon, 291 NY 125.) IV. Marlborough is liable with respect to the two contracts. (Rippey v Denver United States Nat. Bank, 273 F Supp 718; Matter of Gauthier, 143 Misc 788; Fidelity & Deposit Co. of Md. v Queens County Trust Co., 226 NY 225; Kirsch v Tozier, 143 NY 390.) V. The facts of this estate required the executors either to distribute the paintings in kind or at a minimum to determine whether the beneficiar­ies wanted a distribution in kind or preferred a hurried disposal of all the paintings, a small amount of cash and a 12-­year interest-free receivable. (Lane v Albertson, 78 App Div 607; Matter of Hostin, 33 Misc 2d 206; Matter of Morrison, 173 Misc 503; Matter of Thompson, 41 Misc 420, 178 NY 554; Hancox v Meeker, 95 NY 528.) VI. The courts below applied the proper measures of damages. (Baker v Drake, 53 NY 211; Menzel v List, 24 NY2d 91; Meinhard v Salmon, 223 App Div 663, 249 NY 458; Simon v Electrospace Corp., 28 NY2d 136; Guckenheimer v Angevine, 81 NY 394; Kinsey v Leggett, 71 NY 387; Noce v Kaufman, 2 NY2d 347.) VII. The Surrogate correctly found that provisions of the February 21, 1969 contracts between Rothko and Marlborough were abandoned and abrogated. (Matter of Ryan, 63 Misc 2d 415.) VIII. Lloyd and Marlborough violated the temporary restraining order and injunction and were properly adjudged in contempt.

I. The lower courts correctly held Marlborough, who had knowl­edge of the executors’ breach of trust in entering into the estate contracts, liable for money damages measured by the value of the unrecoverable paintings at the date of the deci­sion. (Rippey v Denver U. S. Nat. Bank, 273 F Supp 718; Bonham v Coe, 249 App Div 428, 276 NY 540; First Nat. Bank of Paterson, N. J. v National Broadway Bank, 156 NY 459; Bullís v Bruce, 274 App Div 532; Matter of Gauthier, 143 Misc 788.) II. The courts below imposed the correct measure of money damages on the executors guilty of disloyalty and conflict of interest: the value of the unrecoverable paintings measured at the date of the decision. (Mooney v Byrne, 163 NY 86; Menzel v List, 24 NY2d 91; Simon v Electrospace Corp., 28 NY2d 136; Markham v Jaudon, 41 NY 235; Baker v Drake, 53 NY 211; Hartford Acc. & Ind. Co. v Walston & Co., 22 NY2d 672; Mayer v Monzo, 221 NY 442.) III. The Surrogate was fully justified in imposing a higher measure of damages on the two executors guilty of conflict of interest and breach of loyalty. (Meinhard v Salmon, 249 NY 458.) IV. The Surro­gate’s computation of appreciation damages was correct. (Story Parchment Co. v Paterson Co., 282 US 555; Eastman Co. v Southern Photo Co., 273 US 359; Alexander’s Dept. Stores v Ohrbach’s, 269 App Div 321; Matter of Hyde, 149 Misc 291; Madden v Atkins, 24 Misc 2d 4, 10 AD2d 989, 11 AD2d 802; Latham Holding Co. v State of New York, 16 NY2d 41; Enmac Realty Corp. v State of New York, 38 AD2d 650.) V. The estate is entitled to the monetary equivalent of the irrevocably lost paintings; no reduction may be made for hypothetical and speculative "wholesale” values, commissions or expenses. VI. Appellants’ claim of a duty to sell the estate paintings as a justification for using May, 1970 values for the computation of damages is without merit. (Matter of Bulova Fund, 30 AD2d 321, 31 AD2d 526; Matter of Schmitt, 179 Misc 83; Matter of Durston, 297 NY 64.)

I. The Rothko consignment contract is damning in its failure to protect, let alone benefit, the artist’s estate. (Matter of Cohen v Cocoline Prods., 309 NY 119; Matter of Maidman v Central Foundry Co., 27 AD2d 923; Garrett v United States, 120 F Supp 193; Smith v Dunn, 224 F2d 353; United States v Winthrop, 417 F2d 905; Brown v Commissioner of Internal Revenue, 143 F2d 468; Matter of Ullman, 56 Misc 2d 495.) II. The sales contract is grossly unfair to the estate. The price paid on a deferred basis is extraordinarily low for these outstanding 100 works. (Plaza Hotel Assoc, v Wellington Assoc., 37 NY2d 273; Thomas v State of New York, 37 AD2d 1030; Dormann v State of New York, 4 AD2d 979; Pauly v State of New York, 14 Misc 2d 3Í4.) III. The persistent concealment by the executors and Marlborough of their activities is probative of conflict of interest and breach of loyalty which led to fraud and great waste of estate assets. (Matter of Levy, 19 AD2d 413; Matter of Perutz, 23 Misc 2d 229; Matter of Kopytkiewicz, 156 Misc 297; Harrington v Sharif, 305 F2d 333; Globe Woolen Co. v Utica Gas & Elec. Co., 224 NY 483; Bailey v Baker’s Air Force Gas Corp., 50 AD2d 129; Allen v Stokes, 260 App Div 600; Larsen Baking Co. v City of New York, 30 AD2d 400, 24 NY2d 1036; Matter of Bayside Mason Supplies v Barber Co., 31 Misc 2d 921.) IV. Appellants may not properly rely on testimony given and self-serving documents prepared by Marlborough. (People ex rel. MacCracken v Miller, 291 NY 55; Cooper v Kaufman, 13 AD2d 915.) V. The beneficiaries have every right to the third alternative remedy, appreciation damages, where there is a breach of the duty of loyalty known to a third party who benefits from it and despoils the estate by violating an injunction and by "reselling” in bulk for inadequate prices. (Hammond v Pennock, 61 NY 145; Meinhard v Salmon, 249 NY 458; Buffum v Barceloux Co., 289 US 227; Jacobs v Mulford, 197 App Div 835; Michalowski v Ey, 7 NY2d 71; Simon v Electrospace Corp., 28 NY2d 136; City Bank Farmers Trúst Co. v Cannon, 291 NY 125; Matter of De Planche, 65 Misc 2d 501.)

OPINION OF THE COURT

Cooke, J.

Mark Rothko, an abstract expressionist painter whose works through the years gained for him an international reputation of greatness, died testate on February 25, 1970. The principal asset of his estate consisted of 798 paintings of tremendous value, and the dispute underlying this appeal involves the conduct of his three executors in their disposition of these works of art. In sum, that conduct as portrayed in the record and sketched in the opinions was manifestly wrongful and indeed shocking.

Rothkos’ will was admitted to probate on April 27, 1970 and letters testamentary were issued to Bernard J. Reis, Theodo­res Stamos and Morton Levine. Hastily and within a period of only about three weeks and by virtue of two contracts each dated May 21, 1970, the executors dealt with all 798 paint­ings.

By a contract of sale, the estate executors agreed to sell to Marlborough AG., a Liechtenstein corporation (hereinafter MAG), 100 Rothko paintings as listed for $1,800,000, $200,000 to be paid on execution of the agreement and the balance of $1,600,000 in 12 equal interest-free installments over a 12-­year period. Under the second agreement, the executors con­signed to Marlborough Gallery, Inc., a domestic corporation (hereinafter MNY), "approximately 700 paintings listed on a Schedule to be prepared”, the consignee to be responsible for costs covering items such as insurance, storage restoration and promotion. By its provisos, MNY could sell up to 35 paintings a year from each of two groups, pre-1947 and post-­1947, for 12 years at the best price obtainable but not less than the appraised estate value, and it would receive a 50% commission on each painting sold, except for a commission of 40% on those sold to or through other dealers.

Petitioner Kate Rothko, decedent’s daughter and a person entitled to share in his estate by virtue of an election under EPTL 5-3.3, instituted this proceeding to remove the execu­tors, to enjoin MNY and MAG from disposing of the paintings, to rescind the aforesaid agreements between the executors and said corporations, for a return of the paintings still in possession of those corporations, and for damages. She was joined by the guardian of her brother Christopher Rothko, likewise interested in the estate, who answered by adopting the allegations of his sister’s petition and by demanding the same relief. The Attorney-General of the State, as the repre­sentative of the ultimate beneficiaries of the Mark Rothko Foundation, Inc., a charitable corporation and the residuary legatee under decedent’s will, joined in requesting relief sub­stantially similar to that prayed for by petitioner. On June 26, 1972 the Surrogate issued a temporary restraining order and on September 26, 1972 a preliminary injunction enjoining MAG, MNY, and the three executors from selling or otherwise disposing of the paintings referred to in the agreements dated May 21, 1970, except for sales or dispositions made with court permission. The Appellate Division modified the preliminary injunction order by increasing the amount of the bond and otherwise affirmed. By a 1974 petition, the Attorney-General, on behalf of the ultimate charitable beneficiaries of the Mark Rothko Foundation, sought the punishment of MNY, MAG, Lloyd and Reis for contempt and other relief.

Following a nonjury trial covering 89 days and in a thor­ough opinion, the Surrogate found: that Reis was a director, secretary and treasurer of MNY, the consignee art gallery, in addition to being a coexecutor of the estate; that the testator had a 1969 inter vivos contract with MNY to sell Rothko’s work at a commission of only 10% and whether that agree­ment survived testator’s death was a problem that a fiduciary in a dual position could not have impartially faced; that Reis was in a position of serious conflict of interest with respect to the contracts of May 21, 1970 and that his dual role and planned purpose benefited the Marlborough interests to the detriment of the estate; that it was to the advantage of coexecutor Stamos as a "not-too-successful artist, financially”, to curry favor with Marlborough and that the contract made by him with MNY within months after signing the estate contracts placed him in a position where his personal interests conflicted with those of the estate, especially leading to lax contract enforcement efforts by Stamos; that Stamos acted negligently and improvidently in view of his own knowledge of the conflict of interest of Reis; that the third coexecutor, Levine, while not acting in self-interest or with bad faith, nonetheless failed to exercise ordinary prudence in the per­formance of his assumed fiduciary obligations since he was aware of Reis’ divided loyalty, believed that Stamos was also seeking personal advantage, possessed personal opinions as to the value of the paintings and yet followed the leadership of his coexecutors without investigation of essential facts or consultation with competent and disinterested appraisers, and that the business transactions of the two Marlborough corpo­rations were admittedly controlled and directed by Francis K. Lloyd. It was concluded that the acts and failures of the three executors were clearly improper to such a substantial extent as to mandate their removal under SCPA 711 as estate fiduciaries. The Surrogate also found that MNY, MAG and Lloyd were guilty of contempt in shipping, disposing of and selling 57 paintings in violation of the temporary restraining order dated June 26, 1972 and of the injunction dated Septem­ber 26, 1972; that the contracts for sale and consigment of paintings between the executors and MNY and MAG provided inadequate value to the estate, amounting to a lack of mutual­ity and fairness resulting from conflicts on the part of Reis and Stamos and improvidence on the part of all executors; that said contracts were voidable and were set aside by reason of violation of the duty of loyalty and improvidence of the executors, knowingly participated in and induced by MNY and MAG; that the fact that these agreements were voidable did not revive the 1969 inter vivos agreements since the parties by their conduct evinced an intent to abandon and abrogate these compacts. The Surrogate held that the present value at the time of trial of the paintings sold is the proper measure of damages as to MNY, MAG, Lloyd, Reis and Stamos. He imposed a civil fine of $3,332,000 upon MNY, MAG and Lloyd, same being the appreciated value at the time of trial of the 57 paintings sold in violation of the temporary restraining order and injunction.1 It was held that Levine was liable for $6,464,880 in damages, as he was not in a dual position acting for his own interest and was thus liable only for the actual value of paintings sold MNY and MAG as of the dates of sale, and that Reis, Stamos, MNY and MAG, apart from being jointly and severally liable for the same damages as Levine for negligence, were liable for the greater sum of $9,252,000 "as appreciation damages less amounts previously paid to the estate with regard to sales of paintings.” The cross petition of the Attorney-General to reopen the record for submission of newly discovered documentary evidence was denied. The liabilities were held to be congruent so that payment of the highest sum would satisfy all lesser liabilities including the civil fines and the liabilities for damages were to be reduced by payment of the fine levied or by return of any of the 57 paintings disposed of, the new fiduciary to have the option in the first instance to specify which paintings the fiduciary would accept.

The Appellate Division, in an opinion by Justice Lane, modified to the extent of deleting the option given the new fiduciary to specify which paintings he would accept. Except for this modification, the majority affirmed on the opinion of Surrogate Midonick, with additional comments. Among oth­ers, it was stated that the entire court agreed that executors Reis and Stamos had a conflict of interest and divided loyalty in view of their nexus to MNY and that a majority were in agreement with the Surrogate’s assessment of liability as to executor Levine and his findings of liability against MNY, MAG and Lloyd. The majority agreed with the Surrogate’s analysis awarding "appreciation damages” and found further support for his rationale in Menzel v List (24 NY2d 91). Justice Kupferman, in an opinion styled "concurring in part and dissenting in part”, stated that, although he had "ex­pressed reservations with respect to various factors to be considered in the calculation of damages”, he concurred "in the basic conclusion and, therefore, in order to resolve the matter for the purpose of appeal” voted to modify as per the Lane opinion (56 AD2d 499, 505-506). Justices Capozzoli and Nunez, in separate dissenting in part opinions, viewed Menzel v List as inapplicable and voted to modify and remit to determine the reasonable value of the paintings as of May, 1970, when estate contracts with MNY and MAG had their inception in writing.

Since the Surrogate’s findings of fact as to the conduct of Reis, Stamos, Levine, MNY, MAG and Lloyd and the value of the paintings at different junctures were affirmed by the Appellate Division, if there was evidence to support these findings they are not subject to question in this court and the review here is confined to the legal issues raised (CPLR 5501, subd [b]; Simon v Electrospace Corp., 28 NY2d 136, 139; Matter of City of New York [Fifth Ave. Coach Lines], 22 NY2d 613, 620-621).

In seeking a reversal, it is urged that an improper legal standard was applied in voiding the estate contracts of May, 1970, that the "no further inquiry” rule applies only to self-­dealing and that in case of a conflict of interest, absent self-­dealing, a challenged transaction must be shown to be unfair. The subject of fairness of the contracts is intertwined with the issue of whether Reis and Stamos were guilty of conflicts of interest.2 Scott is quoted to the effect that "[a] trustee does not necessarily incur liability merely because he has an individual interest in the transaction * * * In Bullivant v. First Nat. Bank [246 Mass 324] it was held that * * * the fact that the bank was also a creditor of the corporation did not make its assent invalid, if it acted in good faith and the plan was fair” (2 Scott, Trusts, § 170.24, p 1384 [emphasis added]), and our attention has been called to the statement in Phelan v Middle States Oil Corp. (220 F2d 593, 603, cert den sub nom. Cohen v Glass, 349 US 929) that Judge Learned Hand found "no decisions that have applied [the no further inquiry rule] inflexibly to every occasion in which the fiduciary has been shown to have had a personal interest that might in fact have conflicted with his loyalty”.

These contentions should be rejected. First, a review of the opinions of the Surrogate and the Appellate Division manifests that they did not rely solely on a "no further inquiry rule”, and secondly, there is more than an adequate basis to conclude that the agreements between the Marlbor­ough corporations and the estate were neither fair nor in the best interests of the estate. This is demonstrated, for example, by the comments of the Surrogate concerning the commissions on the consignment of the 698 paintings (see 84 Misc 2d 830, 852-853) and those of the Appellate Division concerning the sale of the 100 paintings (see 56 AD2d, at pp 501-502). The opinions under review demonstrate that neither the Surrogate nor the Appellate Division set aside the contracts by merely applying the no further inquiry rule without regard to fair­ness. Rather they determined, quite properly indeed, that these agreements were neither fair nor in the best interests of the estate.

To be sure, the assertions that there were no conflicts of interest on the part of Reis or Stamos indulge in sheer fantasy. Besides being a director and officer of MNY, for which there was financial remuneration, however slight, Reis, as noted by the Surrogate, had different inducements to favor the Marlborough interests, including his own aggrandizement of status and financial advantage through sales of almost one million dollars for items from his own and his family’s exten­sive private art collection by the Marlborough interests (see 84 Misc 2d, at pp 843-844). Similarly, Stamos benefited as an artist under contract with Marlborough and, interestingly, Marlborough purchased a Stamos painting from a third party for $4,000 during the week in May, 1970 when the estate contract negotiations were pending (see 84 Misc 2d, at p 845). The conflicts are manifest. Further, as noted in Bogert, Trusts and Trustees (2d ed), "The duty of loyalty imposed on the fiduciary prevents him from accepting employment from a third party who is entering into a business transaction with the trust” (§ 543, subd [S], p 573). "While he [a trustee] is administering the trust he must refrain from placing himself in a position where his personal interest or that of a third person does or may conflict with the interest of the beneficiar­ies” (Bogert, Trusts [Hornbook Series—5th ed], p 343). Here, Reis was employed and Stamos benefited in a manner contem­plated by Bogert (see, also, Meinhard v Salmon, 249 NY 458, 464, 466-467; Schmidt v Chambers, 265 Md 9, 33-38). In short, one must strain the law rather than follow it to reach the result suggested on behalf of Reis and Stamos.

Levine contends that, having acted prudently and upon the advice of counsel, a complete defense was established. Suffice it to say, an executor who knows that his coexecutor is committing breaches of trust and not only fails to exert efforts directed towards prevention but accedes to them is legally accountable even though he was acting on the advice of counsel (Matter of Westerñeld, 32 App Div 324, 344; 3 Scott, Trusts [3d ed], § 201, p 1657). When confronted with the question of whether to enter into the Marlborough contracts, Levine was acting in a business capacity, not a legal one, in which he was required as an executor primarily to employ such diligence and prudence to the care and management of the estate assets and affairs as would prudent persons of discretion and intelligence (King v Talbot, 40 NY 76, 85-86), accented by "[n]ot honesty alone, but the punctilio of an honor the most sensitive” (Meinhard v Salmon, 249 NY 458, 464, supra). Alleged good faith on the part of a fiduciary forgetful of his duty is not enough (Wendt v Fischer, 243 NY 439, 443). He could not close his eyes, remain passive or move with unconcern in the face of the obvious loss to be visited upon the estate by participation in those business arrangements and then shelter himself behind the claimed counsel of an attorney (see Matter of Niles, 113 NY 547, 558; Matter of Huntley, 13 Misc 375, 380; 3 Warren’s Heaton, Surrogates’ Courts [6th ed], § 217, subd 3, par [b]).

Further, there is no merit to the argument that MNY and MAG lacked notice of the breach of trust. The record amply supports the determination that they are chargeable with notice of the executors’ breach of duty.

The measure of damages was the issue that divided the Appellate Division (see 56 AD2d, at p 500). The contention of Reis, Stamos, MNY and MAG, that the award of appreciation damages was legally erroneous and impermissible, is based on a principle that an executor authorized to sell is not liable for an increase in value if the breach consists only in selling for a figure less than that for which the executor should have sold. For example, Scott states:

"The beneficiaries are not entitled to the value of the property at the time of the decree if it was not the duty of the trustee to retain the property in the trust and the breach of trust consisted merely in selling the property for too low a price” (3 Scott, Trusts [3d ed], § 208.3, p 1687 [emphasis added]).

"If the trustee is guilty of a breach of trust in selling trust property for an inadequate price, he is liable for the difference between the amount he should have received and the amount which he did receive. He is not liable, however, for any subsequent rise in value of the property sold”. (Id., § 208.6, pp 1689-1690.)

A recitation of similar import appears in Comment d under Restatement, Trusts 2d (§ 205): "d. Sale for less than value. If the trustee is authorized to sell trust property, but in breach of trust he sells it for less than he should receive, he is liable for the value of the property at the time of the sale less the amount which he received. If the breach of trust consists only in selling it for too little, he is not chargeable with the amount of any subsequent increase in value of the property under the rule stated in Clause (c), as he would be if he were not authorized to sell the property. See § 208.” (Emphasis added.) However, employment of "merely” and "only” as limiting words suggests that where the breach consists of some misfeasance, other than solely for selling "for too low a price” or "for too little”, appreciation damages may be appro­priate. Under Scott (§ 208.3, pp 1686-1687) and the Restate­ment (§ 208), the trustee may be held liable for appreciation damages if it was his or her duty to retain the property, the theory being that the beneficiaries are entitled to be placed in the same position they would have been in had the breach not consisted of a sale of property that should have been retained. The same rule should apply where the breach of trust consists of a serious conflict of interest—which is more than merely selling for too little.

The reason for allowing appreciation damages, where there is a duty to retain, and only date of sale damages, where there is authorization to sell, is policy oriented. If a trustee authorized to sell were subjected to a greater measure of damages he might be reluctant to sell (in which event he might run a risk if depreciation ensued). On the other hand, if there is a duty to retain and the trustee sells there is no policy reason to protect the trustee; he has not simply acted imprudently, he has violated an integral condition of the trust.

"If a trustee in breach of trust transfers trust property to a person who takes with notice of the breach of trust, and the transferee has disposed of the property * * * [i]t seems proper to charge him with the value at the time of the decree, since if it had not been for the breach of trust the property would still have been a part of the trust estate” (4 Scott, Trusts [3d ed], § 291.2; see, also, United States v Dunn, 268 US 121, 132). This rule of law which applies to the transferees MNY and MAG also supports the imposition of appreciation damages against Reis and Stamos, since if the Marlborough corporations are liable for such damages either as purchaser or consignees with notice, from one in breach of trust, it is only logical to hold that said executors, as sellers and consign­ors, are liable also pro tanto.

Contrary to assertions of appellants and the dissenters at the Appellate Division, Menzel v List (24 NY2d 91, supra) is authority for the allowance of appreciation damages. There, the damages involved a breach of warranty of title to a painting which at one time had been stolen from plaintiff and her husband and ultimately sold to defendant. Here, the executors, though authorized to sell, did not merely err in the amount they accepted but sold to one with whom Reis and Stamos had a self-interest. To make the injured party whole, in both instances the quantum of damages should be the same. In other words, since the paintings cannot be returned, the estate is therefore entitled to their value at the time of the decree, i.e., appreciation damages. These are not punitive damages in a true sense, rather they are damages intended to make the estate whole. Of course, as to Reis, Stamos, MNY and MAG, these damages might be considered by some to be exemplary in a sense, in that they serve as a warning to others (see Reynolds v Pegler, 123 F Supp 36, 38, affd 223 F2d 429, cert den 350 US 846), but their true character is ascer­tained when viewed in the light of overriding policy considera­tions and in the realization that the sale and consignment were not merely sales below value but inherently wrongful transfers which should allow the owner to be made whole (see Menzel v List, 24 NY2d 91, 97, supra; see, also, Simon v Electrospace Corp., 28 NY2d 136, 144, supra).

The decree of the Surrogate imposed appreciation dam­ages against Reis, Stamos, MNY and MAG in the amount of $7,339,464.72—computed as $9,252,000 (86 works on canvas at $90,000 each and 54 works on paper at $28,000 each) less the aggregate amounts paid the estate under the two rescinded agreements and interest. Appellants chose not to offer evi­dence of "present value” and the only proof furnished on the subject was that of the expert Heller whose appraisal as of January, 1974 (the month previous to that when trial com­menced) on a painting-by-painting basis totaled $15,100,000. There was also testimony as to bona fide sales of other Rothkos between 1971 and 1974. Under the circumstances, it was impossible to appraise the value of the unreturned works of art with an absolute certainty and, so long as the figure arrived at had a reasonable basis of computation and was not merely speculative, possible or imaginary, the Surrogate had the right to resort to reasonable conjectures and probable estimates and to make the best approximation possible through the exercise of good judgment and common sense in arriving at that amount (see Story Parchment Co. v Paterson Co., 282 US 555, 562-563; Eastman Co. v Southern Photo Co., 273 US 359, 379; Wakeman v Wheeler & Wilson Mfg. Co., 101 NY 205, 209-210; Alexander’s Dept. Stores v Ohrbach’s, 269 App Div 321, 328-329; Sutcliffe v Potts, 88 NYS2d 55, 57, affd 277 App Div 751; cf. Sheldon v Metro-Goldwyn Pictures Corp., 106 F2d 45, 51 [L. Hand, J.]). This is particularly so where the conduct of wrongdoers has rendered it difficult to ascertain the damages suffered with the precision otherwise possible (Story Parchment Co. v Paterson Co., supra, at p 563; East­man Co. v Southern Photo Co., supra, at p 379). Significantly, the Surrogate’s factual finding as to the present value of these unreturned paintings was affirmed by the Appellate Division and, since that finding had support in the record and was not legally erroneous, it should not now be subjected to our disturbance.

On February 21, 1969, decedent made a contract with MAG which provided that "Mark Rothko agrees not to sell any works of art for a period of eight years, except to Marlborough A.G. if a supplementary contract is made.” A supplementary contract made that same day recited that "Mark Rothko has the option to sell to Marlborough A.G. an additional four paintings each year at prices not below Marl­borough A.G.’s then current selling prices, the price to be paid being [90%] of the current selling prices.” The Surrogate reasoned that the fact that the 1970 agreements for the sale and consignment of paintings were voidable because of self-­dealing did not revive the 1969 inter vivos agreements and found that the parties by their conduct intended to abandon and abrogate these 1969 agreements. In turn and in effect, the Appellate Division agreed with this finding of abandonment (56 AD2d, at p 501). "A voidable contract is one where one or more parties thereto have the power, by a manifestation of election to do so, to avoid the legal relations created by the contract; or by ratification of the contract to extinguish the power of avoidance” (Restatement, Contracts, § 13). Where a contract is voidable on both sides, as where there has been a violation of the duty of loyalty and improvidence by executors knowingly participated in and induced by the other contract­ing parties (see 84 Misc 2d, at p 858), the transaction is not wholly void, since in order to prevent the contract from having its normal operation the claim or defense must in some manner be asserted and also since the contract is capable of ratification, such a contract affects from the outset the legal relations of the parties (1 Williston, Contracts [3d ed], § 15, pp 28-29). The question of whether there has been an abandonment or abrogation of a contract is usually one of fact (see Green v Doniger, 300 NY 238, 245) and the circumstances disclosed by the record, including a showing of the new agreements in 1970, contained a sufficient basis for the finding of the abandonment or abrogation of those which came into being in 1969 (see Schwartzreich v Bauman-Basch, 231 NY 196, 203).

The Marlborough corporations and Lloyd contend that there was no violation of either the temporary restraining order or the preliminary injunction by the delivery of paint­ings sold prior to the court’s restraints and that, therefore, the finding of contempt was erroneous. The Attorney-General in response contends that the "group” sales did not pass equita­ble ownership and that even if the invoices had been typed prior to said order and injunction no sale took place until after the injunction. In support of the latter position, the Uniform Commercial Code (§ 2-106, subd [1]; §§ 2-307, 2-401, subds [2], [3]) is cited for the proposition that as a matter of law the questioned sales took place on delivery to the purchas­ers which in all instances occurred after the injunction, the latter of the two court restraints. MNY, MAG and Lloyd counter with the argument that, under art market custom, invoices of paintings are sales and that the restraining order and preliminary injunction failed to clearly state what acts were prohibited. In any event, the plain and simple import of both the order and the injunction—not to sell or otherwise dispose of the paintings (cf. Matter of Black, 138 App Div 562, 565)—was violated by dispositions of them. Consequently, it is immaterial how the applicable Uniform Commercial Code provisions might be interpreted. If MNY, MAG and Lloyd had invoiced paintings and were acting in good faith, they would have advised the court of their prior commitments.

We have considered the other alleged errors urged by the parties, and find those arguments to be without merit. In short, we find no basis for disturbing the result reached below.

Accordingly, the order of the Appellate Division should be affirmed, with costs to the prevailing parties against appel­lants, and the question certified answered in the affirmative.

Chief Judge Breitel and Judges Jasen, Gabrielli, Jones, Wachtler and Fuchsberg concur.

Order affirmed, etc.

1

. The decree of the Surrogate’s Court, New York County, dated January 15, 1976, was amended in this respect pursuant to an order filed April 28, 1976 by substituting "63” for "57” as the number of paintings sold and disposed of and "$3,872,000” as the amount of the fine instead of "$3,332,000”.

2

. In New York, an executor, as such, takes a qualified legal title to all personalty specifically bequeathed and an unqualified legal title to that not so bequeathed; he ' holds not in his own right but as a trustee for the benefit of creditors, those entitled to receive under the will and, if all is not bequeathed, those entitled to distribution under the EPTL (Blood v Kane, 130 NY 514, 517; see Bischoff v Yorkville Bank, 218 NY 106, 110-111; Bankers Sur. Co. v Meyer, 205 NY 219, 223-224; but see Restate­ment, Trusts 2d, § 6; Bogert, Trusts [Hornbook Series—5th ed], p 31).