author: THE COURT.

text:
    [S. F. No. 15674.
    In Bank.
    June 2, 1938.]
    A. S. HOLMES et al., Appellants, v. ROBERT E. HATCH, Respondent. A. S. HOLMES et al., Respondents, v. ROBERT E. HATCH, Appellant.
    [S. F. No. 15736.
    In Bank.
    June 2, 1938.]

      Morrison, Hohfeld, Foerster, Shuman & Clark for Plaintiffs and Appellants.
    Robert E. Hatch, in pro. per., and Hatch & Mahl for Defendant and Appellant.
   THE COURT.

We are here confronted with consolidated cross-appeals from a judgment entered in favor of plaintiffs and against the defendant Hatch in the sum of $15,000. In the briefs filed in support of their judgment roll appeal the plaintiffs request that we direct the trial court to enter judgment for the full amount of $21,100 prayed for in the complaint, while the defendant upon liis appeal, prosecuted under the alternative method, seeks a reversal of the judgment as entered. In passing, it should be stated that the cause was tried as to the defendant Hatch alone and we need not now concern ourselves with the other defendants named in the complaint.

Briefly stated, the record discloses that in December, 1930, a corporation, referred to herein as Hub, Ltd., entered into a sublease or drilling agreement by which it undertook to continue and complete the drilling of a partially sunk oil bore on certain land in the Signal Hill area. As consideration therefor it was to receive 56 per cent of the oil and gas produced. The lease or drilling agreement contained a forfeiture clause in the event of default by Hub, Ltd., at any time for a period of ten days. In order to finance its operations under the drilling agreement Hub, Ltd., sold to the general public, including plaintiffs’ several assignors, certificates representing royalty interests in and to the proceeds of the expected production of the well. Plaintiffs’ assignors, with subsequent contributions, invested $21,100, the amount here in litigation. As indicated, others similar^ invested. Unknown to the purchasing public, the certificates representing such royalty interests were sold without first procuring a permit from the commissioner of corporations. This fact, however, is not inimical to the rights of the plaintiff? in this litigation. (Western Oil Co. v. Venago Oil Corp., 218 Cal. 733 [24 Pac. (2d) 971, 88 A. L. R 1271].)

The money so invested by the purchasers of royalty interests proved inadequate to complete the well and place the same on production. It was while Hub, Ltd., was in this plight that the defendant Hatch came on to the scene. His first connection or association with Hub, Ltd., or the well, was in a representative capacity. As counsel for one of the royalty interest purchasers or unit holders, he was engaged to investigate conditions. He soon discovered the uncompleted condition of the well and the financial status of Hub, Ltd. As a result of his association with the officers of Hub, Ltd., and others in charge of the well, he was induced to interest himself personally in the well by advancing money to insure its completion. There is a conflict in the record as to what he was to receive for putting his money into the well. He testified, in substance, that he agreed to invest in the well upon the promise of Allen, the then president of Hub, Ltd., that he would arrange with the unit holders to procure for him a percentage interest in the production of the well when completed. Admittedly nothing came of the asserted endeavor to arrange a percentage interest for the defendant in consideration of his money advances. Allen, on the other hand, testified that as president and director of Hub, Ltd., he attempted to interest the defendant in the well, discussing with him the assets and liabilities of Hub, Ltd., and pointing out to him that the machinery and equipment on hand was worth approximately $18,000. Allen denied that he discussed or agreed with the defendant that he would communicate with and arrange for the unit holders to grant or contribute to the defendant sufficient units to insure him one-half or any other proportion of the interest Hub, Ltd., had in the production of a completed well. On the contrary, Allen testified that they did not discuss the matter of his communicating with the unit holders but that in consideration of a transfer of all of the assets of Hub, Ltd., together with a few unsold units or royalty interests, not to exceed six or eight “percents”, and worth $1500 a “percent”, the defendant agreed to and did advance several thousand dollars to complete the well. The witness denied stating to the defendant, as the latter testified, that it was impossible to get financial assistance elsewhere or that if the defendant refused to help, the well would be abandoned.

Allen’s testimony in this respect is corroborated by that of Terry, who preceded him as president of Hub, Ltd., in that he testified that in a conversation with the defendant, the defendant’s oil expert and admitted agent Young, and Allen, in October, 1931, Young stated that he had made a physical examination of the properties and was satisfied “The territory offered a fair chance of getting a good well”, whereupon the defendant inquired as to the number of units or “percents” he would be guaranteed in the event he decided to advance the necessary money to complete the bore and place the well on production. In response to this query, Allen, according to the witness, replied that six and possibly eight “percents” would be furnished. At this same conversation, the witness testified, one of the parties stated that the equipment was worth $21,000 or more. Hatch agreed to come in. Several days later, the defendant asked the witness to assist Allen in gathering the units that were to make up the six or eight “percents” he was to receive. This witness also testified that the equipment at the well cost “around $19,000”. These two witnesses likewise fixed the market value of the drilling agreement held by Hub, Ltd., as of the time the defendant interested himself in the situation, in excess of $40,000.

The plaintiff Holmes testified that when talking with the defendant at or about the time the latter was interesting himself in the well, the defendant fixed the value of the equipment at approximately $15,000. Defendant denied any such statement and offered other testimony that the equipment was worth $7,500.

As stated above, the defendant agreed to finance the completion of the well whereupon all of the outstanding stock of Hub, Ltd., viz., three qualifying shares, were endorsed in blank and left with the defendant. The resignation of all officers of Hub, Ltd., followed. In a letter addressed to the unit holders in which defendant suggested a reorganization, he pointed out that the oil experts were 11 optimistic as to the success of this well”. A new corporation, referred to herein as Hub corporation, was then formed by the defendant. Defendant was listed on letterheads as the president thereof. Other than the filing of articles of incorporation, nothing was done in the organization of the new corporation. It issued no capital stock. Hub, Ltd., thereupon assigned its drilling contract or sublease to the new corporation, the consideration therefore being the money advanced and to be advanced by the defendant for drilling operations. Thus the assets and equipment of Hub, Ltd., came into the possession and control of the defendant.

Within the next few months the defendant testified that he advanced in the neighborhood of $50,000, or more, but failing to receive any cooperation from the unit holders in the way of a percentage in the contemplated production, he refused to make further advances. Other than his own assertion, the defendant offered no proof as to the extent of his advances for upon the trial, and here, he frankly states that he has written off the venture as a loss and waives all claim for any and all such advances. Whether for lack of the desired cooperation, or otherwise, the drilling operations terminated in less than three months after the defendant came into the venture. Thereupon and for violation of its forfeiture provisions, the drilling agreement or sublease running to Hub, Ltd., and assigned, as indicated, to the new corporation, was terminated by the lessor. While on the stand, the defendant admitted that though previously in touch with plaintiffs’ counsel in an effort to adjust their rights or differences, he did not notify them in December, 1931, that drilling operations had ceased or that there had been a forfeiture under the sublease. He asserts that he was unable to locate the unit holders. Bight days subsequent to the forfeiture of the drilling agreement, a new, and practically identical, drilling agreement or sublease was granted by the lessor to the defendant’s brother-in-law, who admittedly was a mere “dummy” in the transaction. Following execution of the new sublease, the defendant eoneededly made further advances of money which served to complete the well and to place it on production. Defendant testified that the proceeds derived from the sale of the production of the well were deposited in a trustee account standing in the name of his brother-in-law. At no time during the trial, however, was any effort made by the defendant to account for the production of the well or the proceeds derived therefrom. This matter shall be more fully treated at a later point in this opinion.

Under date of January 2, 1932, the defendant addressed a letter to the unit holders, or those he could locate, in which he reviewed the troubled financial history of the well, the default and forfeiture under the original sublease and the granting of a new sublease to “another party”. The letter failed to disclose defendant’s relationship or business connection with such other party. He attempted to explain this by stating that he was not the real party in interest but the record fails to support such an explanation. Allen, who was president of Hub, Ltd., when defendant personally interested himself in the well, and the plaintiff Holmes testified, respectively, that they did not learn of the forfeiture under the original sublease until seven or ten days after it had occurred. The former stated that it came out of a “clear sky”.

In addition to the conflicts in the testimony herein specifically mentioned, there were others which we find it unnecessary to here discuss. They were matters for the trial court to resolve. Following a protracted trial wherein the history of the well was developed with much more detail than we have here attempted, the trial court, apparently in an effort to do justice to all parties who had put money into the well, by means of a memorandum.opinion, intended to guide counsel in the preparation of findings and an interlocutory judgment, indicated that he was of the view that a money judgment should not be entered against defendant, that no actual fraud was committed by the defendant in connection with the taking of the new sublease but that as a result of the taking of such new sublease a trust in the returns from the production of the well existed in favor of all the unit holders and the defendant in proportion to their interests therein. It was then indicated that an accounting was indispensable to a determination of such relative interests and that the interlocutory decree should so provide. As part of the interlocutory decree entered approximately six months later, it was found, among other things, that the purported transfer of the property and assets of Hub, Ltd., to the successor Hub corporation was of no force and effect because the organization of the latter corporation was never completed and it was therefore without capacity to receive a conveyance ; that said property and assets were, and since October 2, 1931, had been, in the sole possession and control of the defendant, who since that time has owned and controlled Hub, Ltd.; that defendant’s conduct in the premises has not been motivated by an actual fraudulent intent; and that an accounting was necessary as to the amount of money and property received by defendant from the sale or other disposition of the oil, gas and other petroleum products derived from the well, the amount of money expended by defendant in completing and operating the well, the aggregate sum paid by the unit holders and the amount of unpaid claims. It was thereupon concluded that plaintiffs were entitled to a judgment against the defendant decreeing that as creditors of Hub, Ltd., they were entitled to repayment of their $21,100 out of a proportionate share of the net proceeds of the production of the well available under the sublease, such proportionate share being expressed by a fraction, the numerator of which was the sum of $21,100 and the denominator of which was the total of all moneys paid or advanced by all unit holders plus the advancements of defendant for the completion and operation of the well. It was also concluded that the judgment should decree that defendant should ‘ ‘ account to plaintiffs, and is indebted to plaintiffs for plaintiffs proportionate share” of the proceeds of the oil, gas and other petroleum products received by the defendant under the sublease, and decreeing that “defendant . . . shall thereafter be liable to plaintiffs and shall account to plaintiffs as Trustee, for plaintiffs proportionate share” as above specified; and “that plaintiffs are entitled to an accounting from defendant”, with respect to all moneys or property paid into or received by him from the well. The interlocutory decree thereupon appointed a referee and directed the defendant to “render a full account” as detailed in the findings and conclusions.

One year subsequent to the entry of the interlocutory decree, the trial was reopened pursuant to plaintiffs’ motion. Defendant consented thereto. This was done because of defendant’s failure in the interim to account as required and in view of the death of the referee prior to the filing of his report. Upon further proceedings before the court it had been made to appear that a further reference would serve no useful purpose whereupon plaintiffs caused the trial to be reopened “in order to put the case in final shape so that your Honor can now enter whatever decree appears to your Honor to be appropriate” and so that defendant “could present any accounting or figures he might care to present, or so that [plaintiffs] could ask him to do so, if he did not wish to do so voluntarily”. At this hearing the defendant in open court waived any and all rights to reimbursement for the advancements made by him. In the ensuing discussions and while again on the witness stand the defendant denied receiving any of the proceeds from the well and stated that he never had or possessed any books or records or the log of the well that would permit him to account.

Approximately six months later and after he had been served with proposed findings of fact and conclusions of law upon which a final judgment was to be entered against him, the defendant moved the court to permit him to produce the records which he had previously failed to do “because of the heavy time and expense which would be entailed to him in getting the necessary data”. This tardy offer to account was properly rejected and the motion was denied. Thereafter the court signed and filed its findings of fact and conclusions of law, to which the defendant proposed no amendments, in which in great detail it again traced the history of the well, specifically finding that defendant’s conduct and activity in connection therewith was intended to hinder and defraud the creditors of Hub, Ltd., that the defendant conceived the idea and design of causing a default under the sublease or drilling agreement and of the issuance of a new and similar agreement to his dummy or agent, in order that he might thereby be enabled to acquire all of the property and assets formerly belonging to Hub, Ltd., having a market value of $50,000, and thus extinguish all of the rights of the unit holders, including those of plaintiffs’ assignors, for his own sole use and benefit and without making payment therefor or rendering any accounting; that the defendant “has refused to give to this court any accounting” of the property and assets so acquired or of the production of the well from which “large quantities of oil and gas have been produced”; and that defendant has kept no records of such production or of the proceeds derived therefrom and is unable to account therefor.

We cannot agree with defendant’s charge that the judgment is, in effect, a “penalty” judgment imposed solely because of his failure to account and is without any support in the record. Nor can we accept his statement that he neither “wilfully failed nor refused to account while either believing, or having reason to believe, that he was required to do so”. During the early stages of the trial and in response to defendant’s announced inability to “understand the purpose” of “any talk about an accounting in a suit for money”, plaintiffs’ counsel stated that in his opinion “there are available two possible different forms of relief which the court conceivably could grant to the plaintiffs”, viz., to treat the action as one ‘ ‘ at law in which a money judgment against you can be rendered for the amount of our claim at least, to the extent of the value of the assets which you took there, or of which you assumed control of, from Hub Petroleum Corporation, Ltd.”, or as an action “for general equitable relief” wherein the court might “entertain the view that this entire situation should be taken up by the four corners and looked at in the larger aspect, and perhaps some accounting should be made that will give some recognition to the money you have put into this thing, and will give some recognition to the money that the plaintiffs have put in”. Defendant expressed his appreciation of counsel’s explanation. It is thus apparent that defendant during the trial was fully informed as to the likelihood of a money judgment or a judgment for a proportion of the proceeds following an accounting thereof. At the conclusion of the evidence, the court below, as already stated, in an effort to do justice to all concerned suggested in its memorandum opinion that the latter course appeared to be the equitable one for it made due allowance for the investments and advancements of the unit holders and the defendant and in furtherance thereof the interlocutory judgment thereafter entered directed the defendant to account in the particulars mentioned earlier in this opinion. His failure so to do, which we have already recounted, left the trial court no alternative but to enter a personal judgment against the defendant. Upon defendant’s refusal to account as directed, the court might well presume that the evidence, if produced, would operate to his prejudice. (Bone v. Hayes, 154 Cal. 759, 765 [99 Pac. 172].) In Wright v. Salzberger, 121 Cal. App. 639, 644 [9 Pac. (2d) 860], it is declared that “Where property alleged to have been fraudulently conveyed is shown to have been sold by the grantee or converted to his own use a personal judgment for the value thereof may be entered”. See, also, Swinford v. Rogers, 23 Cal. 234, 237.

Contrary to the defendant’s contention, we are satisfied that the complaint states a cause of action. It was not necessary that plaintiffs’ claims be first reduced to judgment against Hub, Ltd. (Blanc v. Paymaster Min. Co., 95 Cal. 524, 532-534 [30 Pac. 765, 29 Am. St. Rep. 149].) We are likewise satisfied that the evidence supports the findings. In fact, defendant’s assaults on the findings and the evidence underlying them are, to say the least, most general and indefinite and are advanced with but slight reference to the record.

The presence of certain inconsistencies in defendant’s testimony, not necessary to be here detailed, coupled with his later refusal or neglect to account as directed, when considered with the further fact that the trial was reopened, by agreement of counsel, for the taking of additional evidence, at which further hearing the defendant for the first time asserted that he was not the real party in interest but that there had been put into the well certain of the money of Young, his previously admitted agent, which testimony was contrary to defendant’s earlier testimony that the money advanced was his “own personal funds”, and finally, when it is recalled that the defendant offered to produce the records, etc., when served Avith proposed findings and confronted with the spectre of a final judgment against him, we have no hesitancy in stating that the court below acted reasonably and within the-record when it concluded, in the interim between the entry of the interlocutory judgment and the final judgment, that defendant in his acquisition of the - assets of Hub, Ltd., was not motivated by the high ideals originally attributed to him. In other words, all the facts Avere not before the trial court at the time it filed its memorandum opinion and its interlocutory judgment. Under all of these circumstances, neither was final or binding. (Montecito Valley Water Co. v. Santa Barbara, 144 Cal. 578, 595 [77 Pac. 1113]; Wadleigh v. Phelps, 149 Cal. 627, 645 [87 Pac. 93]; Doudell v. Shoo, 159 Cal. 448, 454 [114 Pac. 579]; Gunder v. Gunder, 208 Cal. 559, 561 [282 Pac. 794].) In the recent case of McAllen v. Souza, 24 Cal. App. (2d) 247 [74 Pac. (2d) 853] (hearing denied here), it is stated: “We are dealing here with an interlocutory judgment ordering an accounting which differs from certain other types of interlocutory judgment known to the law. The interlocutory judgment here was not final in any sense of the word ... it required no findings to support it . . . and any findings or conclusions made at the time' of the entry thereof were subject to change or modification at the time of entry of the final judgment.”

We are not inclined, upon plaintiffs’ judgment roll appeal, to direct the court below to increase the judgment from $15,000 as entered to $21,100, the amount prayed for in the complaint. While it is true the court found that the assets of Hub, Ltd., had a reasonable market value of $50,000, it may well have concluded, when confronted with defendant’s refusal to account, and with due deference to other creditors and unit holders not before it, that plaintiffs under all of the circumstances disclosed by the record, should have judgment for a part only of their claim.

We address ourselves now to defendant’s motion for “enlargement of record”, which motion was made after submission of these cross-appeals. By his motion the defendant seeks to have incorporated into the record now before us the judgment roll in another action, prosecuted in another county, by unit holders other than those now before us. He seeks to include the same on the ground that though the causes assertedly involve identical issues they- present irreconcilable judgments. We have been furnished with the judgment roll alone in the cause sought to be incorporated. The evidence there adduced is not now before us and we perceive of no good reason why the cause of the plaintiffs herein should be influenced or governed by the ability or lack of ability of persons similarly situated to prosecute their claims against the defendant. It might be said that it was defendant’s refusal to account that precluded the trial court in the present cause from entering a judgment for the plaintiffs, as in the other case, for their proportionate share only of the proceeds derived from the production of the well. In the cause sought to be incorporated the subject was covered by stipulation of the parties. The two causes are not dependent one on the other, as was the situation in Sewell v. Johnson, 165 Cal. 762 [134 Pac. 704, Ann. Cas. 1915B, 645], relied on by the defendant. As pointed out in the cited case, the judgment there sought to be incorporated “was the sole foundation of plaintiff’s action". Such is not the situation here presented. Plaintiffs’ action and judgment are self-sufficient and may stand regardless of the prosecution by other unit holders of their claims. In addition, the motion to incorporate is slightly at variance with defendant's statement made early in the trial that he looked upon the present cause, which antedates the one now sought to be incorporated herein, “as a sort of test case which will be very useful in determining the rights of not only the parties to the immediate action, but other interest holders". Moreover, the rule of the Sewell ease, supra, relied on by the defendant, is one of “expediency, to be applied or refused application as the equities and justice of the ease require". (City of Los Angeles v. Abbott, 217 Cal. 184, 193 [17 Pac. (2d) 993].) Inasmuch as the defendant’s refusal to account precluded the trial court from decreeing that plaintiffs recover their proportionate share of the proceeds of the production of the well from the defendant, as trustee thereof, as was decreed in the cause sought to be incorporated, and inasmuch as the defendant in challenging the propriety of this form of relief, as suggested by the trial court herein in its memorandum opinion, declares in his opening brief herein “that the proposed trust was illegal", we fail to perceive wherein the equities or justice of the situation make it expedient for us to now give heed to the findings and judgment of another court, in a different action, between different parties, wherein such asserted “illegal" form of relief was granted.

We have noted other contentions of the parties. They do not require discussion here. What we have said sufficiently disposes of the appeals. Defendant’s motion for a new trial was properly denied.

The motion for “enlargement of record" is denied and the judgment is affirmed.


source: Caselaw Access Project

author: CURTIS, J.

license: Public Domain

text:
    [L. A. No. 16247.
    In Bank.
    June 2, 1938.]
    SAMUEL GOLDBERG, Appellant, v. RUTH E. LIST et al., Respondents.

      Feinfeld & Feinfeld and Stick & Moerdyke for Appellant.
    John W. Carrigan, in pro. per., and Harold E. Prudhon for Respondents.
   CURTIS, J.

This action was instituted by the plaintiff, a conditional vendee of certain personal property consisting of trade fixtures and restaurant equipment, worth $2,500, covered by several conditional sales contracts, for damages for the conversion of said property by defendants, strangers to said conditional sales contracts. At the time of said conversion, the vendee was in arrears in the payment of instalments due upon said property, and subsequent to said conversion, the property, upon the demand of the conditional vendors, was turned over to them by the defendants. Judgment was entered in favor of the defendants upon a finding that plaintiff had suffered no damage by reason of said conversion. An appeal is taken by plaintiff from the judgment against him on the judgment roll alone, and the question, therefore, presented is whether or not the findings of the trial court will support the judgment.

The findings show that plaintiff, as lessee of two of the defendants, List and Stevenson, was in possession of a certain storeroom located in a building, part of which was used as a hotel. The court found that while plaintiff was in possession and occupation of said premises, but after he had ceased operating the restaurant business, the defendants “without cause, wrongfully, forcibly, unlawfully, wilfully and maliciously entered upon and took possession of said demised premises, together with the fixtures and equipment therein contained, against the will and without the consent of plaintiff . . . and converted said personal property to their own use ...” The trial court further found that “after the conversion of said personal property by the defendants, and their refusal to return said property to plaintiff upon demand, said defendants delivered, upon demand of the vendors thereof, said personal property then being purchased by plaintiff on conditional sales contracts to the various persons from whom plaintiff had purchased same under said conditional sales contract”, and that “by virtue of the plaintiff being in arrears in his payments under said conditional sales contracts, the demand for the possession thereof by the vendors, and the return by said defendants of said personal property to said vendors, plaintiff did not suffer any damages by reason of the conversion of the personal property by said defendants”.

Appellant challenges the conclusion of the trial court that he was not entitled to judgment against the defendants, who the trial court found converted the property to their own use, by reason of the fact that he suffered no damage, being in default under the conditional sales contracts at the time of the conversion, and the property having been returned to the vendors. Appellant claims that, although owning only a qualified interest as conditional vendee in the personal property, he is entitled to recover its full value, by virtue of the fact that the defendants had no ownership in the property. (24 Cal. Jur. 1057; California Cured Fruit Assn. v. Ainsworth, 134 Cal. 461 [66 Pac. 586]; Treadwell v. Davis, 34 Cal. 601 [94 Am. Dec. 770]; Thompson v. Toland, 48 Cal. 99; Booth v. Peoples Finance etc. Co., 124 Cal. App. 131 [12 Pac. (2d) 50].) Appellant also relies upon section 3336 of the Civil Code, and section 3337 of the same code as compelling this conclusion. Section 3336 of the Civil Code provides that: “The detriment caused by the wrongful conversion of personal property is presumed to be: First—The value of the property at the time of the conversion, with the interest from that time, or, an amount sufficient to indemnify the party injured for the loss which is the natural, reasonable and proximate result of the wrongful act complained of and which a proper degree of prudence on his part would not have averted. . . . ” Section 3337 of the Civil Code provides: “The presumption declared by the last section cannot be repelled in favor of one whose possession was wrongful from the beginning, by his subsequent application of the property to the benefit of the owner, without his consent. ’ ’ According to this theory, the fact that the converted property was returned by the respondents to the vendors under the conditional sales contracts upon their demand is an absolutely immaterial factor and cannot minimize the damages properly to be awarded to appellant, that is to say, the full value of the personal property converted.

We cannot agree with this contention. In the first place, we are of the opinion that section 3337 of the Civil Code does not preclude proof of the return of the property to the vendors in mitigation of the damage suffered by a conditional vendee. While it is true that the conditional vendee herein did not give his express consent to the application of the property herein to his benefit, nevertheless, at the time the conditional vendee entered into the conditional sales contract, the right of the conditional vendor upon default to require the return of the property came into existence, not necessarily by virtue of any provision of the conditional sales contract but by virtue of the retention of title under this particular form of transaction. (Jones on Chattel Mortgages and Conditional Sales, vol. 3, sec. 1283.) In other words, a consent by the conditional vendee to the retaking of possession by the vendor upon default was implied in the very form of the contract itself. The vendors exercised this right by making demand upon the respondents for the return of the property, and the respondents having no other course open to them but to comply with said legally enforceable demand, may be reasonably said to have acted pursuant to the consent given by the vendee to the vendor upon the entering into of the conditional sales contract. In any event, we are of the opinion that section 3337 can only be held to apply to a situation where the property was voluntarily applied by the party guilty of conversion to the benefit of the injured party, and can have no application to a situation such as here where the application was compelled by a legal duty.

Moreover, an analysis of the authorities which support the rule that a recovery of the full value of the property converted may be had by a person having only a limited or qualified interest therein, indicates that the underlying reason and basis for such recovery is the fact that the party having the limited or qualified interest is liable over to the owner of the remaining interest, and in order to be adequately compensated must receive sufficient compensation not only to compensate himself for his own loss but to satisfy the demands of such owner. The California cases of California Cured Fruit Assn. v. Ainsworth, supra, Treadwell v. Davis, supra, Thompson v. Toland, supra, and Booth v. Peoples Finance etc. Co., supra, all support, either by direct language to that effect, or from an examination of their facts, this theory. That this is the true basis for the permitting of the recovery of the full value of the property converted by one owning a qualified interest is demonstrated by the fact that when the action is against the owner of the general interest, the owner of a qualified interest can only recover for the value of such limited interest, in order “to avoid circuity of action”. (California Cured Fruit Assn. v. Ainsworth, supra; see, also, Vandiver v. O’Gorman, 57 Minn. 64 [58 N. W. 831]; Harrington v. King, 121 Mass. 269; Messenger v, Murphy, 33 Wash. 353 [74 Pac. 480, 481]; Angell v. Lewistown State Bank, 72 Mont. 345 [232 Pac. 90].) It would seem, therefore, that the reason for the rule permitting recovery by the owner of a qualified or limited interest of the full value of personal property converted, rests not upon the fact that the converter is a stranger and owns no interest in the personal property, but upon the fact that the owner of the qualified interest in addition to his own loss sustains a liability toward one owning a superior interest, which will need to be satisfied.

The rights and liabilities of the parties to a conditional sales contract are controlled by the terms of the particular contract under which they are bound. Some of such contracts contain provisions for continued liability after the retaking of possession of the property by the vendor. If so, the vendee therein should be permitted to recover against the converter of the personal property to the extent to which the vendee continues liable to the conditional sales vendor. However, in the instant ease, the appeal has been taken on the judgment roll alone, and it is the rule especially applicable to such an appeal, that “findings of the trial court are to receive such a construction as will uphold rather than defeat its judgments thereon, and whenever, from the facts found by it, other facts may be inferred which will support the judgment, such inference will be deemed to have been made”. (Anglo-California Trust Co. v. Oakland Rys., 193 Cal. 451, 460 [225 Pac. 452].) The contracts are not before us, and we must assume in support of the judgment that they contained no provision for continued liability on the part of the vendee after the retaking of possession of the property by the conditional sales vendor.

The finding of the trial court to the effect that the vendee suffered no damage likewise compels the conclusion that the qualified or limited interest of the vendee in the personal property at the time of its conversion was of no value. This conclusion is necessarily predicated upon the inference that the conditional sales vendee paid nothing down on the purchase price and had made no instalment payments whatever under any of the conditional sales contracts. If this be so, the limited interest of the vendee had no monetary value and was a mere naked right of possession. In view of the rule just above quoted, we must assume in support of the judgment that this inference may properly be made.

The judgment is affirmed.

Shenk, J., Waste, C. J., Seawell, J., and Langdon, J., concurred.

Rehearing denied.


author: SHENK, J.

text:
    [S. F. No. 15990.
    In Bank.
    June 9, 1938.]
    THE CITY OF LOS ANGELES (a Municipal Corporation) et al., Petitioners, v. LOS ANGELES COUNTY FLOOD CONTROL DISTRICT et al., Respondents.

      Ray L. Chesebro, in pro. per., and as City Attorney, William H. Neal, Assistant City Attorney, and Bourke Jones, Deputy City Attorney, for Petitioners.
    Everett W. Mattoon, County Counsel, J. H. O’Connor, County Counsel, and H. W. Kennedy and W. B. McKesson, Deputies County Counsel, for Respondents.
    U. T. Clotfelter and F. Ray Bennett, as Amici Curiae, on Behalf of Respondents.
   SHENK, J.

This proceeding in mandamus presents the question of the constitutionality of section 13% of the Los Angeles County Flood Control District Act added to the statute in 1937 (Stats. 1937, p. 1763). The original statute is found in the statutes of 1915 at page 1502.

The petitioners allege their ownership of lands situated and assessable within the Los Angeles County Flood Control District but outside the confines of certain named drainage districts within the flood control district. The petition shows that in December, 1937, the board of supervisors of Los Angeles County, acting as the board of supervisors of the flood control district, by resolution, accepted a transfer to the flood control district of the storm drain improvements, drainage improvements and drainage systems of drainage districts numbers 1 and 3, organized under the statute of 1903 (Stats. 1903, p. 354), and of drainage districts numbers 8, 9, 11, 17, 22, 23, 25, 26 and 29, organized under the Drainage District Improvement Act of 1919 (Stats. 1919 p. 731), and amendatory acts. All of said drainage districts and drainage district improvements are located within the territory comprising the Los Angeles County Flood Control District. In the course of the proceedings accepting the transfer the board did not expressly make a finding of the necessity or usefulness of such property for any of the purposes of the flood control district, nor was any hearing ordered or had on the question of such usefulness or necessity. The terms of the conveyance and acceptance provided for the transfer to the flood control district of funds on hand in the several drainage districts and for the assumption by the flood control district of the obligation to pay the principal and interest remaining unpaid on all outstanding bonds, issued by such districts to cover the cost of the improvements conveyed, maturing subsequent to the date of the conveyance or transfer. The petition" discloses an intent on the part of the board of supervisors to proceed pursuant to the power vested in it by said section 13%.

It is alleged that the bond redemption and interest requirements of drainage districts 8, 9, 11, 17, 22, 23, 25, 26 and 29 aggregate $4,234,001.25; but what proportion, if at all, of this amount represents obligations maturing subsequent to the date of transfer is not indicated. It is stated that the board of supervisors intends to levy annual special assessments upon all the real property within the flood control district sufficient to meet the outstanding obligations incurred for the drainage improvements accepted by the board. It is alleged and claimed by the petitioners that such special levy on lands within the flood control district but outside of the drainage districts whose obligations would be affected thereby is illegal and void because, so it is urged, it would be a special assessment levied against property without regard to the accrual of benefits to the lands assessed, and therefore would be a denial of due process and the equal protection of the laws enjoined by the state and federal Constitutions. The petitioners seek to employ the remedy here invoked to restrain the assessment contemplated by the board on lands outside the drainage districts. The alternative writ issued.

Questions of law only are involved. They are presented by a demurrer interposed on behalf of the respondents.

By section 13 of article XI of the state Constitution the legislature is given power “to provide for the supervision, regulation and conduct, in such manner as it may determine, of the affairs of irrigation districts, reclamation districts or drainage districts organized or existing under any law of this state”. (Amendment adopted Nov. 3, 1914.)

The objects and purposes of the Los Angeles County Flood Control District Act were stated in section 2 to be: “to provide for the control of the flood and storm waters of said district, and to conserve such waters for beneficial and useful purposes by spreading, storing, retaining or causing to percolate into the soil within said district, or to save or conserve in any manner, all or any of such waters, and to protect from damage from such flood or storm waters the harbors, waterways, public highways and property in said district”. By section 16 the board of supervisors was given the power to do all work and to construct and acquire all improvements necessary or useful for carrying out any of the purposes of the act; also to acquire either within or without the boundaries of the district, by purchase, condemnation, donation or by other lawful means, from private persons, corporations, reclamation districts, swamp land districts, levee districts, protection districts, drainage districts, irrigation districts, or other public corporations, or agencies, or districts, all lands, right of way, easements, property or materials necessary or useful for carrying out any of the purposes of the act, and to compenstate any private owner or reclamation or other district or agency for property taken over- or acquired by the flood control district as part of its work of control or conservation or protection.

Section 13% added by Statutes of 1937 provides that the board of supervisors of the Los Angeles County Flood Control District, by a four-fifths vote may accept a transfer and conveyance of all, but not less than all, storm drain improvements, drainage improvements or drainage systems lying within the territorial limits of the flood control district and within certain described classes, including those constructed prior to January 1, 1937, pursuant to provisions of the 1903 and 1919 acts hereinabove mentioned. Said section 13% also contained the following provisions: “Upon the transfer or conveyance to said flood control district of any such storm drain improvements, drainage improvements or drainage systems, to pay the cost and expense of the construction of which bonds of any drainage improvement district have been issued, said flood control district shall thereupon be and become liable for the payment of the principal upon the bonds of such drainage improvement district maturing subsequent to the date of such conveyance and upon the indebtedness of such drainage improvement district represented by interest coupons maturing subsequent to such date of transfer. The board of supervisors of the flood control district shall levy a special tax each year upon the taxable real property in said flood control district sufficient to pay the principal and interest on the bonds of said drainage districts as such principal and interest become due subsequent to the date of such conveyance and transfer. Such tax shall be levied and collected on said real property at the time and in the same manner as the general tax levy for county purposes, and when collected shall be paid into the county treasury of said county of Los Angeles to the credit of said district fund and shall be used for the payment of the principal and interest on said drainage district bonds and for no other purpose.”

It will be noted that neither section 16 nor section 13% provides for a hearing prior to acquisition of any of the property described therein, and that section 16 alone expressly restricts the acquisition of property to that which is necessary or useful for the purposes of the' district. It will also be noted, however, that section 16 does not refer to specific property, such as is described in section 13%. In other words, section 16 provides generally for the acquisition of such property as, in the opinion of the board of supervisors, may be necessary or useful to carry out the purposes of the flood control act. Section 13%, on the other hand, refers to the acceptance of a limited class of described property, namely, the specified storm drain improvements, drainage improvements, and drainage systems, which from the nature of such property indicates without any express declaration its relative usefulness for the purposes of the flood control district.

The petitioners contend that inasmuch as the legislature in enacting section 13% did not expressly find that drainage improvements constructed within the Los Angeles County Flood Control District are beneficial or useful to the lands in the district, and did not provide the means for a hearing and a finding in that respect by a designated body, an assessment levied on lands within the flood control district and outside the drainage districts to meet any part of the cost of such improvements constitutes a deprivation of due process of law. The contention, however, is necessarily grounded on the hypothesis that the drainage improvements are not per se useful for the purposes of the flood control district and therefore not beneficial to all the lands within that district, and that the absence of any legislative declaration of such benefit, or any provision for a hearing on the question of benefit to the lands affected, is fatal to the validity of the section.

To support their theory the petitioners argue that when the drainage districts were formed, especially the districts organized subsequent to the creation of the flood control district, they presumably included all of the territory which would be benefited by the respective drainage improvements, and that the omission from the districts of any surrounding area conclusively indicates that such area would not be benefited thereby. The petitioners rely generally on eases which hold that only the lands benefited may be assessed to pay the cost of such special improvements (Spring St. Co. v. City of Los Angeles, 170 Cal. 24 [148 Pac. 217, L. R A. 1918E, 197]; Atchison, T. and S. F. Railway Co. v. Reclamation Dist. No. 404, 173 Cal. 91 [159 Pac. 430]), and on cases holding that to permit assessments for special improvements without a legislative declaration of benefit to the lands assessed or a provision for a hearing and finding by a properly constituted body, is to deprive the owner of due process in violation of the state and federal Constitutions. (Fallbrook Irr. Dist. v. Bradley, 164 U. S. 112 [17 Sup. Ct. 56, 41 L. Ed. 369]; Miller & Lux v. Board of Supervisors, 189 Cal. 254 [208 Pac. 304].)

Nevertheless the petitioners correctly concede that if the legislature itself has found, either by designating the territory to comprise the district or by expressly so declaring, that the lands included or affected are benefited, such a finding presupposes appropriate and adequate inquiry and is conclusive upon the property owners in the district and upon the courts (Fallbrook Irr. Dist. v. Bradley, supra; People v. Sacramento Drainage Dist., 155 Cal. 373, 386 [103 Pac. 207]; Brookes v. City of Oakland, 160 Cal. 423 [117 Pac. 433]; Miller & Lux v. Board of Supervisors, supra); and in such case it is not essential that the benefits be realized in fact, if otherwise there is any reasonable foundation for the finding of potential benefit. (Board of Directors of Crawford County Levee Dist. v. Dunbar, 107 Ark. 285 [155 S. W. 96].)

The petitioners point to the inclusion in section 16 of language specifying that lands or improvements within or without the district to be acquired pursuant to the authority of that section, must be such as will be necessary or useful for carrying out the purposes of the act, and to the absence of any such qualifying language in section 13%, as indicative of the invalidity of the latter section. The petitioners, however, have not fully appreciated the necessity for the inclusion of such qualifying language in section 16 and the reason for its omission from section 13%. As noted, section 16 confers the general power upon the board of supervisors to acquire such lands or works, wherever they may be situate, as may be necessary or useful for the purposes of the act. In contrast to that, by section 13% the legislature itself has specified particular property which may be acquired by the flood control district. Flood control necessarily covers a much larger field and a broader program than one restricted merely to drainage of a specified area. It conceivably includes works or improvements which may be far removed from the lands which will be protected and benefited thereby. It is therefore within the legislative discretion to conclude that a system of drainage improvements, although initially employed to the direct beneficial use of a restricted area for drainage purposes, may be employed in conjunction with flood control facilities for the benefit of a much larger area. By designating in section 13% the particular property which may be acquired by the flood control district it must be presumed that the legislature concluded that the entire flood control district would be so benefited by the use of the designated drainage improvements in the larger and broader program of the flood control act. The petitioners do not question the propriety of a legislative finding that the designated improvements would be so beneficial. They complain of the absence of an express declaration in that regard. But from the import of section 13% the legislature must be deemed to have exercised its plenary power to make such a finding. That section is not construed as granting a general power to the board of supervisors to acquire properties for the use of the district. It is rather a special declaration that it may acquire on behalf of the flood control district certain designated properties, namely, drainage works and improvements and systems constructed prior to January 1, 1937, by certain classes of drainage districts within the flood control district. This particularity of description of the improvements and property authorized to be accepted by the district presupposes a prior inquiry and investigation on the part of the legislature and a finding by it that such designated improvements will be useful for the purposes of the district and beneficial to the territory comprising the flood control district. It is obvious therefore that sections 16 and 13% have no necessary relation to each other. Nor is section 13% inconsistent with section 4 of the act, which requires the board of supervisors to employ engineers to formulate the best plan for carrying out the purposes of the act. In the matter of the acquisition of the property described in section 13% the legislature has itself decided the .usefulness of the property to the purposes of the flood control district. Section 13%, together with the enactment of a general statute on the same subject (Stats. 1937, p. 1761), evidences the adoption by the legislature of a comprehensive program of drainage and flood control in the various counties to be carried out by flood control districts, rather than divided among counties, drainage districts and flood control districts.

The Constitution and the decisions do not preclude the carrying out of that program by the enactment of the legislation referred to. As pointed out in Hadley v. Dague, 130 Cal. 207, 220 [62 Pac. 500], the mode in which the expense is to be borne as well as the district which is to bear the expense and the manner of distributing the expense are legislative questions. It was there held that although the theory upon which the expense is charged to the land in the district is that the property has received a particular benefit, nevertheless the validity of the assessment does not depend upon the ability to show that the property received a benefit commensurate with the amount of the assessment, that is, that the benefit is identical with the burden. And quoting from Fallbrook Irrigation District v. Bradley, supra, the court recognized that although the method of arriving at the amount of the burden may in some instances result in inequalities, that circumstance was 1‘ far from arising to the level of a constitutional problem and far from the case of taking property without due process of law”. The Hadley case referred to the case of Lent v. Tillson, 72 Cal. 428 [14 Pac. 71], and the statement therein that the benefits need not be immediate, but that the only just limitation, if any existed, with respect to assessing for such benefits, was that “a tax will not be upheld when the courts can plainly see that the legislature has not really exercised its judgment at all, or that manifestly and certainly no such benefit can or could reasonably have been expected to result. The judge should not place his mere opinion against that of the legislature”.

The following language from the case of Los Angeles County Flood Control Dist. v. Hamilton, 177 Cal. 119, 124, 125 [169 Pac. 1028], might well be held applicable in disposing of the petitioners’ contention herein: “The mere passage of the act, then, must be taken to import a finding by the legislature that the proposed work will answer a public purpose and that its execution will benefit the land within the district to such an extent as to warrant the imposition upon such land of the cost in the manner provided. The findings thus implied are as fully effective as if declared in express terms in the act itself. (San Christina Inv. Co. v. San Francisco, 167 Cal. 762, 769 [141 Pac. 384, 52 L. R A. (N. S.) 676].) The fixing ‘of the district which is to bear the expense of a local improvement and the mode in which such expense is to be borne and distributed are primarily legislative questions. ’ ’ It has long been settled that adjustments in such matters which are within the legislative discretion may be made subsequent to the organization of such corporate bodies and districts. (Johnson v. City of San Diego, 109 Cal. 468 [42 Pac. 249, 30 L. R. A. 178]; Palo Verde Irr. Dist. v. Seeley, 198 Cal. 477 [245 Pac. 1092].)

The legislature has been invested with an enlarged discretion by section 13 of article XI of the Constitution. Cogent reasons must therefore appear in support of objections urged against particular statutory provisions relating to the conduct of such districts enacted subsequent to the adoption of the constitutional amendment before the court would be justified in declaring them invalid. (Wores v. Imperial Irr. Dist., 193 Cal. 609, 622 [227 Pac. 181].)

Our conclusions herein are not opposed to the holding in the case of Reclamation Dist. v. Birks, 159 Cal. 233 [113 Pac. 170], relied upon by the petitioners. The present case does not involve a “sale” of improvements from one district to another as was contemplated by the action of the trustees of-the reclamation district in the cited case. It was held in the Birks case that one district may not acquire property of another and impose upon the property owners payment of the debts of the one from which the property has been acquired unless the land so burdened will derive a commensurate benefit therefrom. The result in that case has been obviated here by the action of the legislature declaring in effect that the lands so to be burdened have been or will be benefited by the transfer of the specified property. The same distinction supported the validity of an act which authorized the transfer of properties from a smaller to a larger district in the ease of Barber v. Galloway, 195 Cal. 1 [231 Pac. 34], The ease of City of Redwood City v. Myers, 7 Cal. (2d) 283 [60 Pac. (2d) 291, 108 A. L. R. 727], does not support the petitioners’ position. That ease involved the validity of the Municipal Investment Bond Act (Stats. 1915, p. 109), which purported to .permit the municipality to levy an assessment for the purpose of issuing bonds the proceeds of which were to be used for purchasing and retiring improvement bonds of the city or its improvement districts. In line with the case of Reclamation Dist. v. Birks, supra, it was held that the legislature was without the power to authorize the imposition of a tax upon all the lands in the municipality for the purpose of retiring a bond issue, the proceeds of which were to be used for purchase of such bonds; that the permanent purchase of bonds merely to effect their retirement and as a relief measure was not a beneficial use of the proceeds of the bond issue within the holding of the Birks case.

Our conclusion herein that the statute involved is valid also finds support in Palo Verde Irr. Dist. v. Seeley, supra. In that' case the writ of mandate directed the respondent to sign refunding bonds pursuant to the Palo Verde Irrigation District Act (Stats. 1923, p. 1067). That act provided for the organization of the Palo Verde Irrigation District which comprised and joined the territory and functions of three former independent agencies, a levee district, a drainage district, and a mutual water company. The legislature expressly declared that all of the improvements of each former district were uniformly advantageous and beneficial to all the lands of the new district. The refunding bonds were issued pursuant to an amendment of 1925 (Stats. 1925, p. .637), for the purpose of redeeming the bonds of all three districts. The power of the legislature to authorize the imposition of the obligation upon-the larger district to pay for improvements constructed within the smaller districts was upheld. The respondents there contended that in fixing the boundaries of the smaller district it must have been determined that the lands included therein only and no others were benefited by the works there constructed. But the contention was considered unavailing. The court said: “It may well happen that by the extension of the original plans lands which would not be benefited by the original construction work would derive a benefit not only from the additional improvement but from the original improvement as well.” It is true that in that ease the legislative declaration of benefit was express, but it is seen that the same effect should obtain where, as here, from the nature of the enactment, the implication that the legislature so found is unmistakable and unavoidable.

The statement in the case of Van De Water v. Pridham, 33 Cal. App. 252, 261 [164 Pac. 1136], that there is a radical difference between the purposes of the Drainage Act and the Flood Control Act, the purpose of the former being to dispose of the water as an injurious element and of the latter to conserve it as a beneficial agent, is not necessarily inconsistent with the conclusions herein expressed. It is not difficult to perceive that the object to be attained by the legislation here questioned, namely, the combination of the functions of drainage and flood control to the end that drainage waters may as well be conserved through the joint facilities of the drainage and flood control districts, is well within the legislative power.

The peremptory writ is denied and the alternative writ is discharged.

Langdon, J., Curtis, J., Waste, C. J., and Seawell, J., concurred.

Rehearing denied.


text:
    [L. A. No. 16580.
    In Bank.
    June 10, 1938.]
    THE VENTURA COMPANY, INC., Petitioner, v. JUSTUS F. CRAEMER, as Building and Loan Commissioner, etc., Respondent.

      John C. Campbell and Franz R. Sachse for Petitioner.
    Clock, McWhinney & Clock and James C. Ingebretsen for Respondent.
   SHENK, J.

This proceeding in mandamus was brought to compel respondent State Building and Loan Commissioner to pay liquidating dividends allegedly due to the petitioner, as well as claims of all other creditors similarly situated.

On July 30, 1931, the commissioner took possession of the business, property, and assets of the United Building and Loan Association for the purpose of liquidating its affairs. At that time Emma H. Ingram was the owner of investment certificates issued by the association and was also the owner of twenty-one-shares of its guarantee stock. On March 25, 1932, she filed a creditor’s claim with the commissioner for $6,873.75, the amount of her investment certificates and interest. On August 19, 1932, this claim was approved contingently. It was listed with other claims aggregating $73,473.01, filed by those who were both investors in and stockholders of the association, in a schedule headed: “III-D-Approved Contingent on Stockholder’s Liability”, and accompanied by the following explanatory note: “All claims comprising Schedule III-D . . . are approved contingent on the excess, if any, over and above claimant’s liability as a holder of guarantee capital stock of the United Building and Loan Association for the respective pro rata of any deficiency of assets of said association as provided by the statutes in such cases made and provided.”

On March 28, 1935, by partial mesne assignments, the petitioner Ventura Company acquired a $2,100 interest in the claim filed by Emma H. Ingram. Thereafter, in the course of liquidation of the association, the commissioner received sufficient funds to pay a fifty per cent dividend to claimants. He paid this dividend in full to holders of approved claims, but retained a portion of the sums due holders of contingently approved claims. He withheld any payment to the latter class which would have the effect of reducing the value of a contingently approved claim below the par value of the guarantee capital stock standing in the name of the claimant during the period in which obligations which have not been paid were incurred by the association. The petitioner, itself never a stockholder, is relegated to that class by the commissioner by virtue of its ownership of a partial interest in the claim of Emma H. Ingram. It challenges the right of the commissioner to withhold dividends as an offset against the liability, if any there be, to which claimant-stockholders may be subjected, if and when such liability shall be established; and it seeks by this proceeding to compel the commissioner to pay the dividend to which it claims to be entitled, as well as the dividends due other claimants similarly situated.

It is our conclusion that the retention of these dividends by the commissioner is unwarranted. There are three possible alternatives which may be claimed to support the commissioner’s contention that the stockholder’s liability attaches so as to justify his withholding the dividends as an offset.

First, there is the old stockholder’s liability which was declared by section 3, article XII of the Constitution (repealed November 4, 1930), and section 322 of the Civil Code (repealed August 14, 1931; Kaysser v. McNaughton, 6 Cal. (2d) 248 [57 Pac. (2d) 927]). This was a direct liability of the stockholder to the creditor, which the commissioner was never authorized to enforce. (Williams v. Carver, 171 Cal. 658 [154 Pac. 472].)

Secondly, there is the liability imposed by the present law regulating building and loan associations (Stats. 1931, p. 483), which became effective on August 14, 1931, replacing the earlier act (Stats. 1911, p. 607, as amended, Stats. Extra Session 1911, p. 7), and section 643d of the Civil Code. The provisions of the 1931 act are not applicable to liability for obligations incurred prior to the date the act came into effect. (Drapeau v. Fullerton, 8 Cal. (2d) 189 [64 Pac. (2d) 944]; Rainey v. Michel, 6 Cal. (2d) 259 [57 Pac. (2d) 932, 105 A. L. R. 148].) Here admittedly all unpaid obligations of the association were incurred prior to August 14, 1931.

This leaves only the question of the applicability of the Act of 1911 (sec. 9). The pertinent provisions of that statute, in our opinion, were violative of section 3, article XII, of the Constitution. The constitutional provision and section 322 of the Civil Code fixed the minimum limit of the liability which could be imposed upon stockholders for corporate debts incurred prior to August 14, 1931. (Wood v. Hamaguchi, 207 Cal. 79 [277 Pac. 113, 63 A. L. R. 861]; Rainey v. Michel, supra, p. 284.) The constitutional provision read: “Each stockholder of a corporation . . . shall be individually and personally liable for such proportion of all its debts and liabilities contracted or incurred, during the time he was a stockholder, as the amount of stock or shares owned by him bears to the whole of the subscribed capital stock, or shares of the corporation or association.’’ Section 322 of the Civil Code provided: “Each stockholder of a corporation is individually and personally liable for such proportion of all its debts and liabilities contracted or incurred during the time he was a stockholder as the amount of stock or shares owned by him bears to the whole of the subscribed capital stock or shares of the corporation. Any creditor of the corporation may institute joint or several actions against any of its stockholders, for the proportion of his claim payable by each, and in such action the court must ascertain the proportion of the claim or debt for which each defendant is liable, and a several judgment must be rendered against each, in conformity therewith ..." Section 9 of the Act of 1911 stated: “In every ease where any such association . . . shall have a paid in guarantee capital, and the realization of assets shall be insufficient to meet the liabilities due to all other classes of stockholders, shareholders, members and investors, the Commission shall enforce, by action or otherwise, the liability of each and every of the holders of the guarantee capital stock for his or their respective pro rata of any such deficiency ..."

It will be observed that while the constitutional provision drew no distinction between the individual liability of a stockholder in a solvent corporation and one in an insolvent corporation, the 1911 statute would not come into operation until after the commissioner had taken possession of -the business and property of an association for purposes of liquidation; also that while the constitutional provision declared only a direct and primary proportionate liability of the stockholder for debts of the corporation, the statute purported to impose a proportionate liability for any deficiency existing at the time of final liquidation, thus including a liability for charges of collection as well as for payment of debts. This was clearly a provision for a further, different, and additional liability from that fixed by the Constitution. Thus, as the statute of 1911 was in conflict with the constitutional provision, it was inoperative and void. (Wood v. Hamaguchi, supra; Rainey v. Michel, supra.)

It follows that, as there is no stockholder’s liability which the commissioner is authorized to enforce against the petitioner for debts of the association incurred prior to August 14, 1931 (and these are the only debts for which possible liability is alleged to exist), the withholding of dividends to which the petitioner may be entitled, as an offset against such liability, is wrongful. This pronouncement is not meant to imply that if there were a stockholder’s liability, the commissioner would have the right to retain dividends for the purpose of applying them against such liability. This question of right of offset need not be determined and we refrain from expressing any views upon it.

The petitioner requests that this court allow it a percentage of the amounts recovered by all the claimants on whose behalf this proceeding was prosecuted as reasonable compensation for its attorneys and to recover the costs which it has incurred herein. This request must be denied. The record herein does not afford a sufficient basis for the fixing of such an allowance by this court.

Let the peremptory writ issue.

Curtis, J., Seawell, J., Waste, C. J., and Langdon, J., concurred.


text:
    [L. A. No. 16511.
    In Bank.
    June 23, 1938.]
    MARTIN E. GEIBEL, Petitioner, v. THE STATE BAR OF CALIFORNIA, Respondent. CHARLES R. MORFOOT, Petitioner, v. THE STATE BAR OF CALIFORNIA, Respondent. WALTER FRANK SHELLEY, Petitioner, v. THE STATE BAR OF CALIFORNIA, Respondent.
    [L. A. No. 16510.
    In Bank.
    June 23, 1938.]
    [L. A. No. 16502.
    In Bank.
    June 23, 1938.]

      Joseph L. Lewinson and Morris E. Cohn for Petitioner in L. A. No. 16511.
    Charles R. Morfoot, in pro. per., and Franklin P. Bull for Petitioner in L. A. No. 16510.
    Walter Frank Shelley, in pro. per., and Charles E. McGinnis for Petitioner in L. A. No. 16502.
    Philbrick McCoy for Respondent.
   THE COURT.

Petitioners seek a review of recommendations of The State Bar suspending them from practice. The Board of Governors recommended that Geibel be suspended for three years, and Morfoot and Shelley for one year. The charge against petitioners is that they aided and abetted two unlicensed persons, J. J. Driscoll and Anita Le Bourgeois, to practice law and aided and abetted said persons in the collection of fees for maintaining vexatious and malicious litigation. Each of petitioners had been admitted to practice for more than twenty-five years.

The amended order to show cause lists five suits alleged to have been maliciously and vexatiously instituted in the United States District Court for the Southern District of California, Central Division, at Los Angeles:

(1) Elt B. Fowler Estate, Ltd., v. Kneeben et al., No. 401—J;
(2) Elt B. Fowler Estate, Ltd., v. McDuffie et al., No. 541—J;
(3) Fowler and Geibel v. Seymour, No. 825-Y;
(4) Holmgreen Estate, Ltd., v. Bank of America et dl., No. 512-H;
(5) Gross Estate, Ltd., v. Title Insurance and Trust Go., No. 514-J.

These suits were filed between September 18, 1934, and January 30, 1936. All were dismissed before trial.

Petitioners contend that this court lacks jurisdiction to discipline them for the reason that the charges involve their conduct in federal court actions, and the federal court has instituted no proceedings against them. In Barton v. State Bar, 213 Cal. 186 [2 Pac. (2d) 149], an attorney was suspended for six months for his conduct in a federal bankruptcy proceeding. He did not object to the jurisdiction of the state court to suspend him. The federal court thereafter suspended him for a like period on the record of his suspension by the state court. (In re Barton, 54 Fed. (2d) 810.) In the federal court he contended that the state court lacked jurisdiction to suspend him for his conduct in federal court matters. The federal court held that the record of suspension in the state court did “not intrinsically disclose any such infirmity as would warrant the court in refusing to follow the order of suspension”.

If an attorney admitted to practice in the courts of this state commits acts in reference to federal court litigation which reflect on his integrity and fitness to enjoy the rights and privileges of an attorney in the state courts, proceedings may be taken against him in the state court. (People v. Green, 9 Colo. 506 [13 Pac. 514, 524]; State v. Grover, 47 Wash. 39 [91 Pac. 564]; In re Lamb, 105 App. Div. 462 [94 N. Y. Supp. 331]; Re Sherwood, 259 Pa. 254 [103 Atl. 42, L. R. A. 1918D, 447]; Selling v. Radford, 243 U. S. 46 [37 Sup. Ct. 377, 61 L. Ed. 585, Ann. Cas. 1917D, 569]; 5 Am. Jur. 433; 7 C. J. S., sec. 18a, p. 730.)

Petitioners rely on our decision in the ease of In re McCue, 211 Cal. 57 [293 Pac. 47]. In that case The State Bar opposed the application of McCue, a Montana attorney, to be admitted in this state, on the ground that he had been practicing law in this state without a license since coming from Montana. With regard to McCue’s admitted practice in the federal courts in this state, we said that said courts are governed by their own rules of admission, and the state does not place any restrictions upon the persons who may appear before the federal courts within this state. Upon coming to California Me Cue had been admitted to practice in the Federal District Court, Northern District of California, by virtue of his admission in Montana, in accordance with the rules for admission then in effect in said federal court. His activities in the federal court, therefore, were lawful and did not afford grounds for denying his application to practice in the state courts. Said decision does not support the contention of petitioners herein.

It further contended that the proceeding herein must be dismissed for a violation of rule 26 of the Rules of Procedure of the State Bar. (213 Cal. cxxviii.) Said rule provides as follows: “ . . . No continuance shall be for a longer period than thirty (30) days, nor for periods aggregating more than ninety (90) days, without the approval of the president or a vice-president, or a member of the Board resident in the district in which the proceeding is pending. ’ ’ Hearings were held on seven different dates between March 27, 1936, and December 18, 1936. The total period of continuances was approximately 265 days. Continuances between the hearing of March 27, 1936, and the hearing of May 15, 1936, were for 48 days, and the continuances between hearings of May 15, 1936, and October 9, 1936, for 147 days. In only one instance was approval obtained as provided by rule 26. The continuances for all except twenty-one days of the 147-day period were due to petitioner Morfoot’s inability to be present on account of a broken leg. A continuance from May 22d to May 29th was due to Geibel’s absence, and a continuance from September 25th to October 9th, to absence of his attorney in Mexico. In three instances a short continuance was granted because a quorum of the committee was not present on the date set.

It is unfortunate that the hearings extended over so long a period. But the postponements were due largely to inability or failure of one or the other of petitioners, or their counsel, to be present on dates set. Approval of continuances should have been obtained under rule 26. But the failure to comply with this procedural requirement does not render the proceeding void, nor require dismissal of the charges.

The plaintiff in each of the five actions listed in the order to show cause is described -as a “benevolent trust estate, organized under citizenship, common law rights of contract, constitution, federal laws and immunities vouchsafed to all persons, as provided in and by the Constitution of the United States of America”. These “estates” were described by petitioners as common law or Massachusetts trusts. The instrument creating each of said trusts, except the Holmgreen Estate, Ltd., was drawn by J. J. Driscoll and Anita Le Bourgeois, referred to throughout the proceedings as Madame Le Bourgeois. Said persons were not licensed as attorneys in the state or federal courts in this state. All or some of these declarations of trust, as well as others prepared by Driscoll and Madame Le Bourgeois, were recorded in Arizona. It does not appear that said instruments were entitled to be recorded there. There is no suggestion that the trusts in any case involved Arizona lands. The instruments generally gave as the principal place of business of the trust estate an address which was shown in the proceedings herein to be that of the “All Car Rapid Auto Wash” in Phoenix, Arizona. By arrangement with the owner, cards had been tacked to the wall of a shack on the premises to the effect that the location was the general headquarters of two trust estates other than those listed in the order to show cause. The declaration of trust creating the Holmgreen “benevolent trust” was drawn by petitioner Geibel.

The instruments creating the trusts listed in the charges do not appear in full in the record, but there appears the declaration establishing the Fowler Trust Estate, Ltd. (Not to be confused with the Elt B. Fowler Estate, Ltd.) Since the trust instruments were admittedly similar in important particulars, consideration of the Fowler Estate declaration is important as bearing on the intent and purposes of Driscoll and Madame Le Bourgeois, whose illegal practices petitioners are found to have aided. Under said instrument, Arch K. Fowler and Maud M. Fowler, “conveyors”, transferred their prop- . erty, real and personal, including their household furnishings, to themselves as trustees, for the benefit of themselves as beneficiaries. The trust was to continue for twenty-one years and automatically renew itself every twenty-one years “during the life and existence of the Constitution of the United States”. Upon the death either of Arch Fowler or Maud Fowler, a named relative Avas to become trustee and beneficiary. The instrument indicates^ purpose to place the property of the Fowlers beyond reach of their creditors and to avoid probate upon their deaths.

It does not appear that this trust-was involved in litigation. In most instances concerning which there is evidence in the record the trusts were organized Avith the object of commencing litigation. Trust instruments were recorded in Arizona on the theory that thereby the trust estate would have an existence as a nonresident entity to bring suit in the federal courts in California against California residents. They led some of the laymen with whom they came in contact to believe at first that they Avere attorneys licensed in this state and, later, that they were licensed to practice elsewhere. After their names in the Los Angeles directory for 1936 appeared the designation 11 lawyer ’ ’.

It was the litigation commenced in the name of the Bit B. Fowler Estate, Ltd., which led to the filing of charges against petitioners with The State Bar by Russell B. Seymour, trustee in bankruptcy of the Estate of Frazier McIntosh, and Thomas S. Tobin, attorney for said trustee. Frazier McIntosh, or Seymour, as trustee of his estate, was a defendant in said litigation. FolloAAdng service on Seymour of an amended complaint in action 541-J, Seymour procured an examination to be held in the bankruptcy matter to ascertain the nature of the claim of the Elt B. Fowler Estate, Ltd., in property to AAdiich Frazier McIntosh had asserted ownership. Shortly after said examination, held under section 21a of the Bankruptcy Act (U. S. C. A., see. 44 (a) ), the complaint was filed against petitioners.

According to petitioners, the purpose of the three suits prosecuted in the name of the Elt B. Fowler Estate, Ltd., was to recover possession of oil lands. Certain stockholders in the Stockholders Petroleum Corporation, Ltd., formerly Deuel Petroleum Corporation, purchased at tax sales the interest of the owner-lessor (Amy Kneeben) in lands upon which the Stockholders Petroleum Corporation, Ltd., held an oil lease. The purchase was made in the name of Elt B. Fowler, acting for said stockholders. Thereafter in an action to quiet title brought in the name of Fowler in the Superior Court of Los Angeles County, judgment was entered holding the tax sales void as to two of the lots for insufficiency in the description in the assessment. The sale of the third lot was held void also on the ground that the assessor improperly included a portion of the lot which had been conveyed to the city of Venice. The judgment quieted title in defendant Amy Kneeben. In a separate judgment previously entered in said action, and not appealed from, it was determined in favor of Amy Kneeben upon her cross-complaint that Frazier McIntosh had no interest in the land.

This state court action was commenced on September 25, 1931. Judgment in favor of Kneeben as against Fowler was entered in October, 1933. Bit B. Fowler died, and the stockholders for whom he was acting were substituted as plaintiffs. Attorney J. B. Joujon-Roche, who had tried the action, took an appeal. No suggestion is made that Mr. Joujon-Roche was in anywise connected with the alleged vexatious and malicious federal court litigation. The District Court of Appeal reversed the judgment of the superior court as to lots 5 and 6, block 6, Silver Strand tract, holding that the tax sale had not been shown to be void. As to the third lot-lot 1, block 6—the judgment was affirmed. (Mallman v. Kneeben, 11 Cal. App. (2d) 484 [54 Pac. (2d) 46].)

If Mrs. Kneeben’s title was superior to that of McIntosh, as held in the trial court, and if Mrs. Kneeben had no ground to attack the title of Fowler except that rejected by the District Court of Appeal, then it would seem to follow that Bit B. Fowler, as trustee for the stockholders whom he was representing, had a good title to lots 5 and 6. But it does not appear that any steps were taken in the superior court upon the going down of the remittitur to obtain entry of judgment quieting plaintiff’s title either against Kneeben or McIntosh.

While the appeal in the state court action was pending, two of the federal court suits (401-J and 541-J), involving the Fowler tax title were filed. The third federal court action (825-Y) was commenced on January 30, 1936, shortly after the decision on appeal in the state court.

The group of stockholders of the Stockholders Petroleum Corporation, Ltd., for whom Bit B. Fowler had purchased tax titles, had been holding occasional meetings. In the summer of 1934, while the appeal in the state court action was pending, Arch K. Fowler, brother of Bit B. Fowler, introduced J. J. Driscoll and Madame Le Bourgeois to them. At the suggestion of Driscoll and Madame Le Bourgeois, the Bit B. Fowler Trust Estate, Ltd., a “benevolent trust”, was created, with A. K. Fowler, Mrs. B. M. Sipes, and petitioner Geibel as trustees. The members of this group of stockholders then transferred their stock to the trust. Although not clearly shown, it is to be inferred that the tax titles to the Silver Strand tract lots were also transferred to the trustees.

Thereafter the three federal court actions were brought by the Bit B. Fowler. Estate, Ltd., and the trustees thereof. In action 401-J Geibel appeared as attorney of record on the original complaint and the first amended complaint, and Geibel and petitioner Morfoot as attorneys on the second amended complaint. In action 541-J, petitioner Shelley appeared as attorney on the original complaint, petitioner Morfoot on the amended complaint. Petitioner Geibel appeared as attorney of record in the last action, 825-Y.

The complaint in action 401-J prays for a decree quieting title and for restitution of possession of real and personal property, for an accounting of the proceeds of two oil wells on certain lots, and for “liquidated” damages in the sum of $25,000,000 against 145 defendants, including the attorney-general of the state of California, the corporation commissioner, a number of the major oil companies, and four Los Angeles banks. It is also asked that the plaintiffs themselves be appointed receivers of the property pending trial.

The first amended complaint reduced the number of defendants to 113, while the second amended complaint named 38 defendants. The defendants include persons who were defendants in the state court action and others. The amended complaints made only minor changes in the original. The action related to the Silver Strand tract lots which were the subject of the appeal pending in the state District Court of Appeal and also to numerous “oil and gas lease rights” in Los Angeles, Santa Barbara and Orange County lands. It is to be inferred that the Bit B. Fowler Estate, Ltd., had succeeded to whatever title Bit B. Fowler had by virtue of his purchase of the Silver Strand tract lots at the tax sale for the benefit of approximately twenty of the stockholders of the Stockholders Petroleum Corporation. But as between the B'lt B. Fowler trust estate, on the one hand, and the Stockholders Petroleum Corporation, Ltd., on the other, the “oil and gas lease rights were the property of the Stockholders Petroleum Corporation”. Geibel admitted that they had never been transferred to the Bit B. Fowler Estate, Ltd.

The committee found that said complaint was a “hodgepodge of irrelevant and meaningless expressions” and in part “incoherent and unintelligible”. • It alleges that the defendants are illegally holding possession of real and personal property of plaintiffs, “in violation of the constitutional citizenship and property rights of the complainants herein, without due process of law”, and that “defendants and each of them, have and are continually violating the constitutional citizenship and property rights, and also the constitutional privileges and immunities of the complainants herein, without due process of law. ...” Charges of fraud are made without any indication of the nature of the fraud. The complaint refers to the action in the state court, then pending on appeal in the state District Court of Appeal, with the statement that the Superior Court of Los Angeles County had unconstitutionally set aside tax deeds.

The memorandum of points and authorities is a mass of generalities, including extensive quotation from the Constitution of the United States, and citation of such land marks of constitutional law as Marbury v. Madison, 1 Cranch. 177 [2 L. Ed. 60], and Munn v. Illinois, 94 U. S. 113, 134 [24 L. Ed. 77], Petitioner Geibel’s name appears as attorney of record on the original complaint and the first amended complaint, while Geibel and Morfoot appear on the second amended complaint.

After the filing of the complaint and first amended complaint in action 401-J, action 541-J was filed in the federal court with petitioner Shelley as attorney of record on the original complaint, and petitioner Morfoot on the amended complaint. The committee found this complaint also to be a hodge-podge of meaningless expressions. It sought relief similar to that prayed for in action 401-J, with reference to the Silver Strand tract lot. It likewise prayed for damages in the sum of $25,000,000. The reason for filing a second action does not appear.

Action 401-J was dismissed by order of Judge James on motions filed by Russell B. Seymour, trustee in bankruptcy of the estate of Frazier McIntosh, and by others. Attorneys Geibel and Morfoot were both present at the hearing of the motion. Action 541-J was also dismissed by Judge James.

On January 30, 1936, the third Fowler quiet title suit was filed in the federal court. It also related to the Silver Strand tract lots. Petitioner Geibel appeared as attorney of record on this complaint. A motion to dismiss was heard by Judge Yankwich and granted. On the same date on which he filed the third quiet title suit, Geibel filed a motion to set aside the dismissal in action 401-J, without any notice of hearing thereon. Seymour caused the motion to be placed on the calendar for February 17, 1936. Geibel procured a continuance. Thereafter he filed an affidavit for a further continuance on the ground that he ‘ ‘ had not had time to make the proper service on the other defendants other than the defendants that set the motion for hearing”. However, there was already on file an affidavit of Geibel’s secretary to the effect that acting under the direction of Geibel she had served duplicate copies of the petition to vacate the dismissal upon all the attorneys representing the defendants. The motion to vacate the dismissal was denied.

In addition to the above litigation in which the Elt B. Fowler Trust Estate, Ltd., was plaintiff, the committee made findings with reference to two other federal court actions listed in the order to show cause—Holmgreen Estate, Ltd., v. Bank of America, 512-H, and Gross Estate, Ltd., v. Title Insurance and Trust Co., 514-J. Geibel appeared as attorney of record in the Holmgreen case, while Shelley appeared as attorney on the complaint filed in the Gross' case. Morfoot was substituted for Shelley, and later Geibel was substituted for Morfoot.

It also appeared from the evidence that four other actions besides those listed in the order to show cause were filed in the federal court with a benevolent trust estate, or the trustees thereof, as plaintiffs. Shelley filed the complaints in three of these other actions. The fourth was filed by one Jaynes in propria persona on stationery of “Morfoot and Sutton”.

The committee found that complaints in each of the five actions listed in the order to show cause were filed by one or the other of petitioners “in collaboration” with Driscoll and Madame Le Bourgeois, unlicensed persons. The evidence sustains the finding as to four of the actions. In the fifth, the Holmgreen ease, Geibel testified that he drew the instrument creating the benevolent trust for a client of his who did not come to him through Driscoll or Madame Le Bourgeois, and that he acted entirely without their collaboration. The conclusion is inescapable that the complaints in the other four eases and the memorandum of points and authorities which accompanied them were prepared by Driscoll and Madame Le Bourgeois and signed by one of petitioners for filing. It is contended that the work done by said unlicensed persons in connection with the case is analogous to that which may be done lawfully by an unlicensed law clerk. We cannot accede to this contention. Driscoll and Madame Le Bourgeois performed services of a legal nature as principal actors, rather than in a subservient position under licensed attorneys.

Petitioner Geibel testified that he filed the original complaint in action 401-J, one of the three Fowler suits, under the impression that petitioner Shelley had prepared it; that “he took it for granted that Shelley knew how to prepare a pleading”, and for that reason he did not go over the complaint in detail. The most cursory reading of said complaint would reveal its insufficiencies. Shelley denied that he had prepared said complaint. Furthermore, Geibel thereafter filed the amended complaint in said action, and with petitioner Morfoot filed the second amended complaint, which differ from the original only in minor respects. He also filed the complaint in action 825-Y, and the motion to vacate the dismissal in action 401-J, and took an active part in court appearances in said actions.

The position of Geibel is anomalous. He was vice-president and legal adviser of the Stockholders Petroleum Corporation, Ltd., which held leases on the Silver Strand tract lots and other property. A minority of the stockholders of said corporation purchased the interest of the owner-lessor in the Silver Strand tract lots at tax sale, in the name of Bit B. Fowler. The delinquent taxes for which the property was sold were a lien thereon before execution of the leases held by the corporation. A valid tax sale would, therefore, pass title to the purchaser free and clear of the subsequent lease in the usual case. The Stockholders Petroleum Corporation, Ltd., was a defendant in the state court action brought by Bit B. Fowler to quiet his title against the claim of said corporation and other defendants. Said corporation was also a party defendant in action 401-J in the federal court. Geibel, vice-president and legal adviser of the corporation, became one of the trustees of the Bit B. Fowler Trust Estate, Ltd., formed by this minority group of stockholders, and as attorney of record for this trust estate, he filed the action against the Stockholders Petroleum Corporation, Ltd., of which he was vice-president and legal adviser. He contends that the interests of the minority group were not adverse to that of the corporation, apparently for the reason that the minority group, if successful in recovering possession of the oil lands, intended to recognize the lease rights of the corporation, according to Geibel. But that the interests were adverse was recognized by Geibel himself, for he testified that he refused to sign the contracts by which Driscoll and Madame Le Bourgeois were employed as managers of the trust estate for the reason that he represented the corporation as vice-president and legal adviser.

The committee found that petitioners aided and abetted Driscoll and Madame Le Bourgeois “in the collection of fees for maintaining vexatious and malicious litigation”. Petitioners object that there is no evidence that any fees for legal services were paid to said unlicensed persons. They had agreed that the sum of $200 a month provided for in the contract employing them as managers should not be paid to them until the property was recovered and income producing. But, under the guise of needing funds for expenses of the litigation, including funds with which to pay the attorneys of record, they received from the Fowler Trust Estate, Ltd., more than $4,000, raised through voluntary contributions, and retained a large part of said sum. The demands for expense money were frequent and insistent. Petitioner Geibel claims that he did not receive any fees for his services, while Shelley and Morfoot received only small sums. The only reasonable inference is that Driscoll and Madame Le Bourgeois were collecting and retaining funds. The fact that petitioners may not have known what sums Driscoll and Madame Le Bourgeois were receiving does not exonerate them from discipline for their conduct, which was censurable in other respects.

Petitioners Shelley and Morfoot had no connection with the affairs of the Stockholders Petroleum Corporation, Ltd., nor with the Bit B. Fowler Estate, Ltd., until they were requested by Driscoll to act as attorneys of record in suits brought by the estate. Shelley withdrew from the litigation upon the suggestion of Judge James of the federal court, who informed Shelley, according to Shelley’s testimony, that he did not like the appearance of these cases brought by “benevolent trust estates”. Shelley further testified that he was under the impression that Madame Le Bourgeois and Driscoll were attorneys. His testimony in this respect is unconvincing. Petitioner Morfoot was not the original attorney in any of the eases. He claims to have accepted substitutions in reliance on the integrity and ability of the attorneys by whom the actions were originally filed.

Petitioners attack the finding that the federal court actions were “baseless” and “maliciously and vexatiously brought”. They point to the fact that the District Court of Appeal, in Mallman v. Kneeben, supra, reversed the judgment of the trial court against the members of the Fowler group, as to lots 5 and 6, block 6, of the Silver Strand tract. Action 401-J concerns rights of the Fowler Estate in a number of other properties not involved in the state court action, as to which there is no evidence whatsoever of any bona fide claim in said trust estate. The Stockholders Petroleum Corporation held or had held leases on certain of the properties, which admittedly had never been transferred to the trust estate, in which said estate had no interest whatsoever. In fact, Geibel, as attorney of record, subsequently brought an action on behalf of the Stockholders Petroleum Corporation to establish its interest in said lands.

The complaints failed to state grounds of jurisdiction in the federal courts. Diversity of citizenship does not appear. There is no suggestion that the trustees of the trust resided elsewhere than in California. Nor is there a sufficient statement of any federal constitutional question. The complaint contains general references to the taking of property without due process of law and to unconstitutionality of certain statutes. But, under the rule that federal jurisdiction must affirmatively appear, the general references are entirely insufficient.

As to the Fowler suits, the chief purpose would seem to have been to adjudicate conflicting claims of the Fowler Estate and Frazier McIntosh and the trustee in bankruptcy of his estate. The, judgment of the District Court of Appeal in the state court actions indicates a bona fide claim in the trust estate as to certain of the Silver Strand tract lots. But the nature of the controversy between the trust estate arid Me-. Intosh does not appear; nor does it appear that said controversy, whatever its nature, involved a federal question.

The findings emphasize the harassing effect of the actions on the defendants therein. The actions were objectionable from another point of view. The evidence indicates that the members of the Fowler group were simple laymen in humble circumstances. That they believed in good faith that a fraud had been perpetrated on them is apparent. They made repeated contributions demanded by Driscoll and Madame Le Bourgeois, supposedly to finance the litigation. Those who could not give more made contributions as low as $1. Mrs. Sipes, one of the trustees, and her husband, paid in more than $3,000, partly borrowed. Doubts raised in the minds- of members of the group by the repeated dismissals of actions were quieted with the assurance by Driscoll and Madame Le Bourgeois that the final outcome would be successful. Petitioner Geibel attended a number of meetings of the group, at which Driscoll and Madame Le Bourgeois gave purported explanations of what was being accomplished. Any merits which claims of the trust estate may have had as to any of the lands have been prejudiced by this unfortunate" litigation.

It is ordered that the petitioner, Martin B. Geibel be and he hereby is suspended from the practice of the law in this state for a period of one year; and that the petitioners, Charles R Mor'foot and Walter Frank Shelley, be and each of them is hereby suspended from the practice of the law in this state for a period of ninety days, effective thirty days from the filing of this, order.

Rehearing denied.