author: SEAWELL, J.

text:
    [Crim. No. 4167.
    In Bank.
    April 10, 1939.]
    THE PEOPLE, Respondent, v. WILLIAM HOYT LEWIS, Appellant.

      Gladys Towles Root and Morris Lavine for Appellant.
    U. S. Webb, Attorney-General, R. S. McLaughlin, Deputy Attorney-General, and James S. Howie, Deputy Attorney-General, for Respondent.
   SEAWELL, J.

This appeal came to us on petition for hearing after decision by the District Court of Appeal, Second District, Division One. We adopt as a part of the opinion of this court the following portion of the opinion of the District Court of Appeal with respect to the questions that are involved on the appeal. It follows under quotation marks:

" Defendant was charged, in an amended information, with contributing to the delinquency of a minor, a misdemeanor. Said defendant entered a plea of guilty to the charge, and, his application for probation being denied, was sentenced to imprisonment in the county jail for a period of two years. This appeal is from the judgment and the sentence.
‘ ‘ Appellant contends that the ‘ sentence imposed was in excess of the time as prescribed by law, and was therefore contrary to the law’.
“The offense of contributing to the delinquency of a minor, which is, by section 21 of the Juvenile Court Act (Act 3966, Deering’s Gen. Laws) declared to be a misdemeanor, provides as a maximum punishment ‘a fine not exceeding one thousand dollars, or by imprisonment in the county jail for not more than two years, or by both such fine and imprisonment’. Appellant, however, relies upon section 19a of the Penal Code, enacted subsequently to the Juvenile Court Act, which provides that, ‘In no case shall any person sentenced to confinement in a county or city jail on conviction of misdemeanor, or as a condition of probation, or for any reason, be committed for a period in excess of one year. If, however, any county, or group of counties together should establish a penal farm, or if there be established a state institution for long-term misdemeanants, then commitment to such penal farms or such state institutions shall be for such period as the court may order within the limits prescribed by statute for the offense. ’ (Italics supplied.)
“Respondent asserts, in substance, that said section 19a is unconstitutional and void for the reason that the maximum period of confinement prescribed therein is not fixed and definite under all circumstances; that it does not fix the same maximum punishment for the same offense throughout the state; that the state Constitution provides that ‘all laws of a general nature shall have a uniform operation’ (sec. 11, art. I); and that said Constitution further provides that ‘the legislature shall not pass local or special laws . . . for the punishment of crimes and misdemeanors’, and shall not pass local or special laws ‘in all other cases where a general law can be made applicable’.”

Conceding that the portion of said section 19a providing for a different punishment in counties where a penal farm is established is repugnant to the Constitution, on the ground that it is neither general in nature nor uniform in operation, and in addition is conditional and indefinite, and creates a different punishment for the same offense, it is apparent that the first sentence of said section 19a is severable from the second portion, and that the second portion is not involved so far as county jail imprisonment is concerned, for the reason that the appellant was not committed under the invalid portion of said act. The plain unambiguous language and meaning of the first sentence is not affected by the invalidity which inheres in the second portion.

The first portion of section 19a, which provides that “in no case shall any person sentenced to confinement in a County or city jail on conviction of a misdemeanor, or as a condition of probation, or for any reason, be committed for a period in excess of one year”, forms a complete and perfect statute limiting the period of imprisonment on conviction of misdemeanor crimes. Then follows a scheme or plan as to commitments to penal farms for long-term misdemeanants in such counties as have established said farms. The attorney-general admits that there is no such institution in any county of the state of which he has official knowledge. We have no judicial knowledge, or any knowledge, of the establishment of any such institution by the state or any county of the state.

There is no force in the contention that the legislature would not have given its sanction to that part of section 19a which definitely fixes the maximum prison term in all misdemeanor cases but for the adoption of the portion of the statute which establishes the penal farm plan. (People v. Phair, 137 Cal. App. 612 [31 Pac. (2d) 421]; In re Phair, 2 Cal. App. (2d) 669 [38 Pac. (2d) 826].) This is made certain by the language of the section. The statute is general in scope. Prior to the amendment the maximum term of imprisonment was but six months. This statute is superseded by the comprehensive and explicit language of the amending law.

It will be noted that both the title and the body of the amended act make it clear beyond question that the concededly invalid portion of said section 19a is denominated an “added new section” and is separable matter. The purpose of the amendment was to increase the maximum term, but in no case was the imprisonment in the county jail to exceed the period of one year. Said section is a valid amendment of the section as it formerly stood as to the maximum term of imprisonment which may be imposed for the commission of a common misdemeanor. It agrees with the maximum period prescribed for imprisonment in a county jail for an attempt to commit rape (sec. 264, Pen. Code), assault with a deadly Aveapon (sec. 245, Pen. Code), and numerous other offenses which are punishable by imprisonment in a county jail.

It will be noted that penal farms, if and when established, form no part of a county jail. The subjects dealt with in the single statute are clearly distinct and separable. Neither forms a necessary part of the other. The first portion of the statute deals with the maximum term of imprisonment in the county jail on conviction of misdemeanors. The latter portion of said statute attempts to authorize the confinement of persons convicted of misdemeanors, in the discretion of the court, to a penal farm (possibly by reason of the overcrowded condition of county jails or for disciplinarian or reformatory reasons), which term may exceed the term prescribed for imprisonment in a county jail for a like misdemeanor. So much of the statute as prescribes the confinement in or on a penal farm is attacked as being unconstitutional, and it is urged that if one section of a penal act is unconstitutional, the entire statute must be treated as invalid and noneffective.

The rule of construction as to statutes invalid in part is thus stated in 5 California Jurisprudence, pages 643 and 644, supported by a long list of authorities:

“It is a general rule supported by an unbroken line of decisions that a provision in or a part of an act may be unconstitutional and beyond the power of the legislature to enact, and still the whole act may not be void. The accepted doctrine in such case is that the constitutional portions of the statute may stand alone and remain in force if they can be separated from the portions which are void. The unconstitutional provisions will not vitiate the whole act, unless they enter so entirely into the scope and design of the law, that it would be impossible to maintain it without such obnoxious provisions. ... As has been pointed out in a previous section of this article, the court will not consider the asserted unconstitutionality of portions of an act which do not affect the rights of the party raising the question, in case such portions, if unconstitutional, would fall without affecting the validity of the remainder of the statute. . . .
“Where only part of a statute is invalid for any reason, in order to render the whole statute void for the same reason, all of the parts thereof must be so interdependent as that no one part may be eliminated without destroying the force of the whole statute; but where a statute is valid in one part, and invalid in another, the former part, if not dependent in any measure upon the latter, and can, without the latter, accomplish one or all the material purposes of the act, will be sustained, and that which is void will be eliminated and disregarded.”

We can perceive of no reason why the portion of the act which is unquestionably workable and complete in itself should be rendered invalid by the tacking on of the penal farm provisions, which are as far aside from the limitation placed on county jail imprisonment as if the two subjects were treated in entirely different acts or statutes.

The judgment is reversed, with directions to the court from which the appeal originated to enter a judgment against the appellant not in excess of the term of imprisonment prescribed by section 19a, Penal Code, as of the day on which said judgment was pronounced, giving due credit for such time as appellant may have served, if any, under the judgment from which this appeal is taken. The attempted appeal from the “sentence” is dismissed.

The cause is remanded to the court in which it originated for such further proceedings as are consistent with the directions herein set forth.

It is so ordered.

Curtis, J., Waste, C. J., Shenk, J., Langdon, J., and Edmonds, J., concurred.

Houser J., dissented.


source: Caselaw Access Project

author: EDMONDS, J.

license: Public Domain

text:
    [S. F. No. 16134.
    In Bank.
    April 10, 1939.]
    LOUIS AGUDO, Appellant, v. COUNTY OF MONTEREY, Respondent.

      Alfred J. Hennessy for Appellant.
    Long & Levit, as Amici Curiae, on Behalf of Appellant.
    Anthony Brazil, District Attorney, for Respondent.
   EDMONDS, J.

The appeal in this case presents for review a judgment in favor of the defendant county after its demurrer to the plaintiff’s complaint was sustained without leave to amend. The only point in controversy is whether a cause of action based upon section 4452 of the Political Code, which provides that “Every county and municipal corporation is responsible for injury to real or personal property situate within its corporate limits, done or caused by mobs or riots,” is assignable.

The plaintiff alleges in his complaint that in 1934 one Cañete was a labor contractor hiring men to work in the fields, and that he boarded and maintained them in certain bunkhouses on his ranch in Monterey County; that on September 21, 1934, a mob of seventy-five persons armed with loaded guns and rifles applied gasoline to the buildings in which fifty-three of these laborers were living and destroyed personal property of a stated value belonging to each of them, without any negligence on their part and against their consent. He also alleges that within one year thereafter, each of the persons whose property was destroyed filed with the board of supervisors of the county a verified claim for its value and, after it was rejected, assigned his claim to the plaintiff.

The county successfully contended in the superior court and asserts upon this appeal that a cause of action for the value of property destroyed by a mob is not assignable. The plaintiff concedes that if the statute allows the recovery of a statutory penalty, the county’s position is correct, but he claims that as the statute authorizes a property owner to recover only actual damages it confers a compensatory or remedial right which is assignable. (See Peterson v. Ball, 211 Cal. 461 [296 Pac. 291, 74 A. L. R 187]; Western Mortgage & Guar. Co. v. Gray, 215 Cal. 191 [8 Pac. (2d) 1016, 80 A. L. R 866].) The nature of the statute is, therefore, determinative of the question for decision.

The statute upon which the plaintiff bases his cause of action was enacted in 1872 and is substantially the same as the enactments of other states which have provided a remedy for persons whose property has been destroyed by rioters. All of this legislation stems back to a series of English statutes of very ancient origin. The genesis of the principle involved has been traced to the Statute of Winchester enacted in 1285 (1 Stat. 13 Edw. I, p. 2, ch. 3), which provided that a person robbed might sue the inhabitants of the hundred or county in which the robbery had taken place. In ancient England, the individual inhabitants of each community were in theory responsible for the preservation of peace and order therein; hence it was considered just to impose civil liability upon them for damage to property resulting from criminal disorders which should not have been permitted. (See 25 Halsbury’s Laws of England, 2d ed., 359.) The American statutes rest largely upon the same fundamental principle. Local subdivisions of government which have been invested with police power to maintain law and order are subjected to a correlative liability for injuries to property occasioned by rioters. (See Louisiana v. Mayor etc. New Orleans, 109 U. S. 285, 287 [3 Sup. Ct. 211, 27 L. Ed. 936].)

The prototype of the present American statutes is found in a section of the statute 1 Geo. I, St. 2, Oh. 5, commonly known as the “Riot Act”. In the main the act was penal, making it a felony to engage in riots or public tumults, but one clause (section 6) created civil liability against the inhabitants of the hundred in which a riot had resulted in injury to private property. Liability was measured by the loss sustained, and consequently actions brought under this section of the act were held to be primarily remedial in spite of the fact that it was embodied in a statute which otherwise was entirely penal. For example, in the ease of Hyde v. Cogan, 2 Doug. 699; 99 Eng. Rep. 445, the plaintiff brought an action against the inhabitants of the hundred of Ossulton to recover damages for his dwelling house and furnishings which had been demolished in a riot. Section 6 of the Riot Act provided express indemnity for injury to dwelling houses but made no mention of furniture or chattels. It was held that the section, being remedial, should be liberally construed; hence plaintiff was entitled to damages for the loss of his personal property as well as his house.

In various American jurisdictions statutes based upon section 6 of the English Riot Act usually have provided for compensatory damages to the person whose property was injured or destroyed, and in construing them the courts have generally followed the English view that the sufferer’s right to damages is remedial. (County of Allegheny v. Gibson, 90 Pa. St. 397 [35 Am. Rep. 670]; Febock v. Jefferson County, 219 Wis. 154 [262 N. W. 588]; Yalcnezian v. Boston, 238 Mass. 538 [131 N. E. 220] ; Barnes v. Chicago, 255 Ill. App. 31; Marshall v. City of Buffalo, 50 App. Div. 149 [64 N. Y. Supp. 411].) Respondent cites Underhill v. Manchester, 45 N. H. 214, and Champaign County v. Church, 62 Ohio St. 318 [57 N. E. 50, 78 Am. St. Rep. 718, 48 L. R. A. 738], as holding that the right created by such statutes is essentially penal rather than remedial. The New Hampshire decision concerned the right to recover damages for a saloon illegally conducted by the plaintiff and which was destroyed by a mob. The court states that the statute of that state was “first and chiefly punitive”, its purpose being “to prevent and suppress riots” and reasoned that “Riots being the chief mischief to be remedied, the statute is to be construed, if possible, so as to suppress the mischief. The business in which the plaintiff was engaged is a fruitful source of riots . . . and, to relieve persons so employed from risks incident to their calling would tend to foster riots rather than to prevent them.” Thus it appears that the decision is in reality bottomed upon the doctrine of assumption of risk; one who incites a riot cannot claim the benefit of the statute. The Ohio case was decided under a statute which differs from the usual one in providing for damages in a sum certain regardless of the extent of the plaintiff’s loss. In view of this fact the court’s conclusion that the statute was “essentially penal and corrective” appears to be sound. The statement in the opinion to the effect that this would be so even though the particular statute provided for compensatory damages was unnecessary to the decision and upon principle does not seem correct.

In this state a statutory penalty has been frequently defined as “one which an individual is allowed to recover against a wrongdoer, as a satisfaction for the wrong or injury suffered, and without reference to the actual damage sustained.” (Los Angeles County v. Ballerino, 99 Cal. 593 [32 Pac. 581, 582, 34 Pac. 329].) Clearly, the damages provided for in section 4452 of the California Political Code are measured by the property loss which the injured party suffered. Moreover, this section and the companion provisions following it (sections 4453 to 4457, inclusive) are a reenactment of a statute originally adopted in 1868 entitled “An Act to provide for compensating parties whose property may be destroyed in consequence of mobs or riots.” (Stats. 1867, 1868, p. 418, chap. 344.) It seems plain from the standpoint of both legislative intention and historical interpretation that the purpose of section 4452 was to provide a compensatory remedy to persons whose property has been injured or destroyed by mob violence. The rights created in the plaintiff’s assignors by this section were, therefore, assignable.

Cases such as Moss v. Smith, 171 Cal. 777 [155 Pac. 90], Peterson v. Ball, 211 Cal. 461 [296 Pac. 291, 74 A. L. R. 187], and Western Mortgage & Guar. Co. v. Gray, 215 Cal. 191 [8 Pac. (2d) 1016, 80 A. L. R. 866], which construe former section 309 of the Civil Code as penal rather than remedial, are not at variance with this conclusion. The determination in these cases that the liability imposed upon participating directors of a corporation for debts created in excess of its subscribed capital stock was a statutory penalty necessarily followed a construction of the statute “making the directors liable for the full amount of the excess of the debts which they may have authorized, regardless of loss or damage which may have been occasioned by their acts”. (Moss v. Smith, supra, p. 784.) In each of these cases it is clear that the court regarded the action as essentially punitive, because the damages were not based on actual loss, and they do not support defendant’s contention that although the statute gives the property owner a remedial right, if it is punitive as far as the defendant county is concerned, the action is not assignable. The general distinction which this court made between a statutory penalty and a remedial right in the case of County of Los Angeles v. Ballerino, supra, is based upon sound legal principles. “Where the damages are given wholly to the party injured as compensation for the wrong and injury, the statute having for its object more the indemnification of the plaintiff than the punishment of the defendant, the action is not penal, properly so called, but remedial.” (1 Am. Jur. 89.)

The judgment is reversed and the trial court is directed to overrule the demurrer to the plaintiff’s complaint.

Curtis, J., Shenk, J., Seawell, J., Waste, C. J., and Houser, J., concurred.


author: THE COURT. EDMONDS, J., Dissenting.

text:
    [S. F. No. 15772.
    In Bank.
    April 17, 1939.]
    PAUL ENTREMONT et al. Petitioners, v. LEON O. WHITSELL et al., Respondents.

      Albert E. Sheets, C. C. Carleton, C. R. Montgomery, Robert E. Reed, Frank B. Durkee and P. N. McCloskey for Petitioners.
    Ray L. Chesebro, City Attorney (City of Los Angeles), Frederick von Schrader, Assistant City Attorney, Bourke J ones, Deputy City Attorney, and Carl R. Schulz, as Amici Curiae, on Behalf of Petitioners.
    Ira H. Rowell, Roderick B. Cassidy, Frank B. Austin, Scott Elder and Mary J. Moran for Respondents.
    Edward M. Berol, Wallace K. Downey, H. J. Bischoff, San-born, Roehl & MacLeod, Douglas Brookman, Hugh Gordon, Reginald L. Vaughan, Varnum Paul, Robert Brennan, Gerald E. Duffy, Frank Karr, E. E. Bennett, C. W. Dooling, L. N. Bradshaw, MeCutchen, Olney, Mannon & Greene, Guy V. Shoup, C. O. Amonette and R. E. Wedekind, as Amici Curiae, on Behalf of Respondents.
   THE COURT.

This is an original proceeding in certiorari instituted by petitioners Entremont and the State Department of Public Works against the Railroad Commission to secure an annulment of an order of the respondent commission. In the order sought to be annulled it was found that Entremont, as a private carrier, and subject to regulation by the commission, had charged the Department of Public Works less than the minimum rates fixed for such service by the commission, and Entremont was ordered to collect from the department the amount of such undercharge and to abstain from charging less than the rate fixed for such service by the commission.

There is practically no dispute as to the facts. So far as pertinent here they are as follows:

In 1935 the legislature passed the Highway Carriers' Act (Stats. 1935, chap. 223, p. 878; Deering’s 1935 Supp., Act 5129a, p. 1358), conferring upon the commission, with certain exceptions, the power to fix the rates to be charged by highway carriers, as distinguished from common carriers. Acting pursuant to the power thus conferred, the commission fixed the minimum rate for the transportation of sand, rock, gravel, excavated material, and road building material in automobile dump trucks of three and one-half cubic yards capacity, at $2.59 per hour. After this order was made, Entremont, who then held a permit as a radial highway common carrier, on February 11,1936, as the lowest responsible bidder, entered into a contract with the Department of Public Works, Division of Highways, whereby he agreed to “rent” three dump trucks of the above-described capacity, with drivers, to the department, the trucks to be used as needed for the transportation of road building or excavated material in the repair of highways. This contract fixed a “rental” price of $2.50 per hour for the use of such trucks and drivers. After entering into this contract the three trucks were used by the department pursuant to the agreement for 251 hours. According to the rate fixed by the contract, less a discount of ½ per cent for cash, the return to Entremont was $25.72 less than he would have received had he charged the minimum rate of $2.59 per hour fixed by the commission for such service.
Upon its own motion, the commission instituted an investigation into the charges Entremont was making for the use of his dump trucks under the contract. In this proceeding the department intervened on behalf of Entremont. Several truck associations likewise intervened. As a result of this investigation, and after a full hearing, the eommissiion determined that the contract between Entremont and the Department of Public Works called for the transportation of materials on the highway within the meaning of the order of the commission fixing the minimum rates for such service. It thereupon made and entered its order here sought to be annulled.

The petitioners make two main contentions:

First, assuming the constitutionality of the Highway Carriers’ Act, supra, it is contended that the transactions here involved were not within the purview of that act; and second, that if the transactions were within the act, the statute is unconstitutional.

In connection with the first contention, the main arguments of petitioners are that the transaction is controlled not by the Highway Carriers’ Act, but by sections 136 and 136.5 of the Streets and Highways Code (Stats. 1935, chap. 29, p. 248) ; that the trucks were contributing to the maintenance of the highways, and, therefore, were not being operated over the public highways within the meaning of the Highway Carriers’ Act; and that the act, in any event, does not apply to hauling performed by the state. In our opinion, none of these arguments is sound.

The first argument is predicated upon the premise that the contract between Entremont and the department did not constitute the transportation of property for compensation over the public highways, but was in fact the leasing or renting of trucks within the meaning of sections 136 and 136.5 of the Streets and Highways Code. These sections require competitive bidding for the “leasing or renting of tools or equipment for state highway purposes” by the department. It must be conceded that if Entremont had rented or leased his trucks to the department, and, if then the department had operated these trucks, clearly the transaction would not be subject to the rate regulations of the commission. In that event the transaction would be governed by the sections of the Streets and Highways Code. On the other hand, if Entremont, under the contract, operated the trucks, and transported the property of the state over the public highways for compensation or hire as a business, then the Highway Carriers’ Act is applicable and the Streets and Highways Code provisions have no application.

It is our opinion that the contract, denominated by the parties as a “Service Agreement”, was for the transportation of property by motor vehicle, and was not for the renting or leasing of tools or equipment. The contract provides that Entremont, “hereinafter called the vendor, hereby agrees to furnish the services or rental ... to the Department of Public Works . . . and agrees to receive and accept as full compensation therefor the prices named in the following memorandum:

“For the rental of three only three and one-half yard dump trucks for 500 hours each at $2.50 each per hour, including operation.
“The trucks are to be used principally under power shovels for hauling gravel, slide material, etc., and for other miscellaneous hauling jobs as required anywhere in District 1.”

After designating the specifications of the trucks, the agreement contains certain “special provisions”. It is therein provided, among other things, that “the equipment is to be operated by the vendor, and the vendor is to furinsh competent operators, all operating supplies such as gasoline, oils, etc., and all repairs necessary to keep the equipment in efficient running order”; that “the equipment will only be used as required that the trucks must be kept within District 1 ready for immediate call; that “the operators furnished under this Service Agreement are to perform their duties to the satisfaction of the Department of Public Works, and the vendor is to replace them at any time that they do not prove satisfactory, at his own expense”. The agreement required Entremont to carry compensation insurance and to assume all liability for damage to other property or injury to persons caused by the operation of the equipment. It also was provided that “all persons engaged on this work are employees of the vendor and none are employees of the Department of Public Works”.

Although the solution of the problem is not entirely free from doubt, it is our opinion that this contract did not constitute the renting or leasing of equipment to the department but was a contract calling for the transportation of property by motor vehicle by Entremont. This conclusion follows from the fact that under the contract the possession and control of the trucks and the operators thereof did not pass to the department—the operators did not become the employees of the department—but such possession and control remained in Entremont. The chief characteristic of a renting or a leasing is the giving up of possession to the hirer, so that the hirer and not the owner uses and controls the rented property. (Civ. Code, secs. 1925, 1955.) The record is clear that the only supervision exercised by the department over the operators of the trucks was to direct them where to load and unload the material hauled, when to go on or leave the job, and to inform the operators whether the load should be dumped or spread. The department had no power to discharge the drivers—that power, and the power of selection, rested in Entremont. That is a factor of some importance in ascertaining whether Entremont or the department controlled the operators. (Lowell v. Harris, 24 Cal. App. (2d) 70 [74 Pac. (2d) 551].) Moreover, the provisions of the contract indicate that it was not the intention of the parties that the department should exercise exclusive control over the operators. The contract required Entremont to keep the trucks in repair; to pay all expenses incidental thereto; to supply all oil, gas and other materials necessary for their operation; to carry compensation insurance on the drivers, and expressly provided the operators were the employees of Entremont. Further, under the contract, Entremont assumed all responsibility for damage or injury to other persons or property by reason of the operation of the trucks. This provision strongly implies that exclusive control was not conferred on the department.

The general rules applicable to this situation have been correctly stated in many cases. The applicable rule is stated in 39 Corpus Juris, section 1462, page 1274, as follows: “A servant of one employer does not become the servant of another, for whom the work is performed merely because the latter points out the work to the servant, or gives him signals calling the service into activity, or gives him directions as to the details of the work and the manner of doing it.” This rule has been adopted by many cases in this state. (Billig v. Southern Pac. Co., 189 Cal. 477 [209 Pac. 241]; Stewart v. California Imp. Co., 131 Cal. 125 [63 Pac. 177, 52 L. R. A. 205]; Lowell v. Harris, supra; see, also, Wagner v. Larsen, 174 Wis. 26 [182 N. W. 336]; Shepard v. Jacobs, 204 Mass. 110 [90 N. E. 392, 134 Am. St. Rep. 648, 26 L. R. A. (N. S.) 442]; Morris v. Trudo, 83 Vt. 44 [74 Atl. 387, 25 L. R. A. (N. S.) 33] ; Cook v. Wright, 177 Miss. 644 [171 So. 686].)

We think the rule of these eases rather than the doctrine stated in Department of Water & Power v. Industrial Acc. Com., 220 Cal. 638 [32 Pac. (2d) 354], and Independence Indemnity Co. v. Industrial Acc. Com., 203 Cal. 51 [262 Pac. 757], cases relied upon by petitioners, is applicable here. These last two cases recognized that where the special employer exercises some measure of control comparable to the control here involved, an injured employee under the Workmen’s Compensation Act can secure an award against both his special and general employer. We think that in ascertaining whether the contract called for a rental of equipment or for services to be performed by Entremont, the eases above cited dealing with the doctrine of respondeat superior rather than the cases dealing with compensation under the Workmen’s Compensation Act state the proper rule. This is so because the problem is who operated the trucks, and who was responsible for their operation, and not as to the liability to special employees under the Workmen’s Compensation Act.

The ease of People v. Tedesco, 18 Cal. App. (2d) 667 [64 Pac. (2d) 966], cited by petitioners, is not helpful on this issue. That decision was on demurrer, and the actual facts of the operation do not appear.

There are two other factors which are of some importance, although neither is conclusive, on this phase of the problem. If it should be held that under the contract the equipment, with operators, was rented to the department, and that the department was, therefore, in exclusive control of the operators, then the operators would be employees of the state, and, it would probably follow, that the contract would be illegal and void under the provisions of article XXIV of the state Constitution, and of the Civil Service Act (Deering’s Gen. Laws, (1937) Act 1401, p. 740), as these provisions have been interpreted in State Compensation Ins. Fund v. Riley, 9 Cal. (2d) 126 [69 Pac. (2d) 985], and Stockburger v. Riley, 21 Cal. App. (2d) 165 [68 Pac. (2d) 741], Where two interpretations are possible, one rendering the contract valid and the other rendering it illegal,- the former, under elementary principles, is to be preferred.

Secondly, it should be mentioned that petitioner Entremont apparently conceived the transaction to be one whereby he was engaged in the transportation of property by motor vehicles upon the highways, instead of a renting contract, because in his return filed with the state board of equalization pursuant to the Motor Vehicle License Tax Act (Stats. 1933, chap. 339, p. 928), he included the income paid to him by the department as part of his gross receipts. That act, so far as pertinent here, would not be applicable if the transaction involved a rental.

From all these circumstances it must be held that the transaction lacks that element of a transfer of use and possession of property to the hirer which is essential to the existence of a leasing (Holmes v. Railroad Com., 197 Cal. 627 [242 Pac. 486]; Reavley v. State, 124 Tex. Cr. Rep. 528 [63 S. W. (2d) 709]); that the provisions of the Streets and Highways Code have no application; and that the operation called for by the contract was the transportation of property for compensation over the public highway as a business within the meaning of the Highway Carriers’ Act.

Petitioners’ next contention is that the transportation involved herein was for the purpose of maintaining a public highway, and did not constitute transportation upon a public highway within the meaning of the act. The contract itself described the operation as “hauling gravel, slide material, etc., and for other miscellaneous hauling jobs as required anywhere in District 1”. The evidence shows that the department needed these trucks, in addition to trucks owned and operated by it, as emergency equipment to assist it in keeping the public highways in District 1 in proper repair. Although District 1 includes Del Norte, Humboldt, Mendocino and Lake Counties, and part of Trinity and Siskiyou Counties, the evidence shows that the actual operations of Entremont under the contract were limited to an eleven-mile strip of the state highway between the Sonoma-Mendocino County line and the town of Hopland. The trucks were used either to transport gravel from the gravel pits to the point where the gravel was used for the purpose of filling washed out portions of the road, or to transport excavated material from where excavated to the point of disposal. A major portion of each movement of the trucks was the transportation of these materials over the public highway, which highway was then open to public travel. The hauls varied in length from eleven miles to a few hundred feet. As far as Entremont is concerned, he being the person, as already held, who was performing the operation, clearly the above-described activities constitute the transportation of property for commercial purposes for a compensation over the public highways within the meaning of the Highway Carriers’ Act. So far as Entremont is concerned, he was transporting the material to be used in repair of a highway over the highway. He was engaged in a commercial enterprise. He was employed to transport road building or waste material from one point on the highway to another. So far as he was concerned, that was a carriage of property for a commercial purpose. If the trucks had, in fact, been operated by the department, then petitioners’ contentions would be sound. Clearly, the building of a highway or bridge by a governmental agency is not a “commercial” purpose (New York v. Graves, 299 U. S. 401 [57 Sup. Ct. 269, 81 L. Ed. 306]), but that doctrine has no application to the activities of a trucker who is employed to transport some of the materials to be so used over the highways.

There is nothing in Oswald v. Johnson, 210 Cal. 321 [291 Pac. 579], heavily relied upon by petitioners, contrary to these views. That case involved the question as to whether certain contractors were liable for the gasoline tax imposed on fuel used in vehicles operated on the public highways. It was held that gasoline used in rollers and tractors used in the construction of a highway then not open to the public was not taxable. The court stated (p. 322):

“The Gasoline Tax Act was intended to provide for a license tax on motor vehicle fuel used on public highways of the state available for public travel and in aid of the construction, maintenance and repair of public highways. Obviously, it was not intended to require a license tax on motor fuel used exclusively on the right of way under construction.
“When, as here, the rollers and tractors are being used in such construction, the public highway is not being ‘operated upon’ in the sense intended by the statute. Practically this same question was presented to the Supreme Court of South Dakota in Allen v. Jones, 47 S. D. 603 [201 N. W. 353], where it was held that a traction engine while in use in the construction of a highway is not ‘operated upon a highway’ as contemplated by a Gasoline License Tax Act of that state, similar in effect to our own statute with regard to exemptions. It is pertinently observed in that case, however, that motor fuel used in propelling tractors or trucks in the transportation of road building material or motor fuel to or from the site of construction is used in ‘operation upon’ the highways and is not purchased subject to refund.’’

The problem involved in the instant case is very similar to the situation discussed in the italicized portion of the above quotation. The next contention of petitioners is that, assuming the contract called for the transportation of property for a commercial purpose by Entremont over the public highways, and therefore was superficially within the terms of the Highway Carriers’ Act, the statute should be so construed as to render the transaction here involved as not within the statute. The reasons advanced are, first, that the state is not bound by its statutes unless expressly mentioned; and second, that the Public Utilities Act and the Civil Code indicate a legislative policy or intent to exempt transportation for the state from regulation, and to favor preferential charges to the state.

On this phase of the litigation we are satisfied with that portion of the first opinion prepared herein by Justice Lang-don dealing with these two issues. (Cal.) [68 Pac. (2d) 964]. We therefore adopt as our conclusions thereon the following portions of that opinion:

“ The first reason is obviously based upon an unsound assumption. The Department of Public Works was in this case only a shipper, with materials to be moved. Entremont was the carrier. The statute does not cover shippers, but carriers, and the Commission’s regulation was directed toward the carrier, and not toward the state. Accordingly the mere fact that Entremont was engaged in transportation for the state does not mean that the Commission was regulating a state agency.

“ The second reason requires fuller consideration. Section 17 (a)4 of the Public Utilities Act (Peering’s Gen. Laws, Act 6386) provides that common carriers may transport persons or property ‘free or at reduced rates’ for the United States, state, county or municipal governments, where such free or reduced rate transportation is provided for in the contract. Section 17.5 of the Act makes the same provision where transportation is for contractors carrying out contracts with the United States, state or other governmental agency in this state. Section 2171 of the Civil Code provides: ‘A common carrier must always give a preference in time, and may give a preference in price, to the United States and to this state. ’ These provisions permit preferential rates to governmental agencies such as the Department of Public Works, and there is nothing in the Highway Carriers’ Act which attempts to prohibit such preferences. This has been recognized by the Commission in a number of instances in which reduced rates to the state or subdivisions have been approved.

“But though it is conceded that preferences to governmental agencies are authorized by the Public Utilities Act and not prohibited by the Highway Carriers’ Act, it does not follow that any and every contract for a reduced rate is thereby rendered valid. The declaration of policy is not an absolute guarantee of preferences, and it does not determine questions of procedure. In this connection, an important section of the Highway Carriers’ Act must be read. Section 11 of said act provides: ‘If any highway carrier other than a common carrier desires to perform any transportation or accessorial service at a lesser rate than the minimum rates so established, the Railroad Commission shall, upon finding that the proposed rate is reasonable authorize such rates less than the minimum rates established in accordance with the provisions of section 10 hereof. ’ This section recognizes the possibility of valid preferential rates, and thereby supports and does not conflict with the declared policy in the above quoted provisions of the Public Utilities Act. But it adds a requirement for highway carriers which is not made in the case of common carriers, namely, a prior application to the Commission for authority to establish the rate; and it gives the Commission power to reject the proposed preference if it appears to create an unjust or unreasonable discrimination, against the public interest.

“In our opinion this section is clearly applicable to transactions with governmental agencies, and there is no reason for construing it otherwise. If it were not applied, preferences to such agencies would be entirely uncontrolled, with the consequent evils of unwarranted discrimination and price cutting by irresponsible carriers. The Commission was given authority to approve reasonable preferences, and its authority must be upheld. Competitive bidding is not prevented; it is still possible to the fullest extent, subject to the Commission’s approval of the final bid, before the rate goes into effect. An instructive discussion of a similar authority of the Interstate Commerce Commission will be found in United States v. Tennessee, 262 U. S. 318 [43 Sup. Ct. 583, 67 L. Ed. 999]. See, also, City of Hillsboro v. Public Service Corn., 97 Or. 320 [187 Pac. 617, 192 Pac. 390], where the court held that service to municipalities was within the regulatory powers of the Commission.

“It is to be noted, also, that the requirement of prior application to the Commission follows logically from the nature of the regulatory provisions of the Highway Carriers’ Act. Under the Public Utilities Act, carriers subject thereto establish their own rates by filing tariffs with the Commission, subject to the power of the Commission to change them for good cause. Doubtless such carriers, under the provisions of the act dealing with preferences, may themselves contract for preferential rates to governmental agencies, and the rates thus made will apply, subject to any later action by the Commission. Under the Highway Carriers’ Act, perhaps because of the prior experience with large numbers of truckers who engaged in bitter competition at ruinously low rates, a system was established whereby the Commission itself fixes the original rates and approves all changes, before they go into effect. There is no logical reason why this prior approval should not be secured before any preferential rate is given. It is to be assumed that the Commission will act in accordance with the statutory declaration of policy in favor of preferences to the state, and, under section 11 of the Highway Carriers’ Act, will approve any requested preference unless the evidence shows that the particular preferential rate will constitute an unjust or unreasonable discrimination, and that the public interest will suffer thereby. The present proceeding, of course, does not involve any issue of abuse of discretion in the disapproval of a preferential rate. ’ ’

Both petitioners, and numerous amici' curiae, have filed exhaustive briefs on the question of the constitutionality of the Highway Carriers’ Act. It is urged that the regulation of the rates of private carriers is not cognate and germane to the regulation of common carriers, and that therefore the legislature was powerless to confer such power on the Railroad Commission. Substantially, the same arguments were advanced in challenging the constitutionality of the City Carriers’ Act (Stats. 1935, chap. 312, p. 1057) as amended in 1937 (Stats. 1937, chap. 286, p. 629). In Morel v. Railroad Com., 11 Cal. (2d) 488 [81 Pac. (2d) 144], all of these arguments were held to be unsound. No good reason exists for repeating the conclusions therein reached. Upon the authority of the Morel case it is concluded that the statute is constitutional.

For the reasons stated, we are of the opinion that the order of the respondent Railroad Commission should be, and it is hereby affirmed.

EDMONDS, J., Dissenting.

As I read the contract which is the basis of the controversy between the parties in this case, it provides for the rental of equipment and not for the transportation of property. If this is the correct construction of the instrument, then the petitioner is not subject to the commission’s rate fixing power, for the relationship created by it is primarily determinative of the question for decision.

The contract did not, as the commission found, call for the use of Entremont’s trucks for 500 hours each. The Department of Public Works was not bound to use his trucks for any length of time, for it expressly reserved the right to terminate the agreement “at any time. . . when the equipment is no longer needed” or “when state owned equipment is available”. The contract, therefore, was not one for a specific transportation service, but was merely to make extra equipment available for emergency service or whenever state-owned trucks were not available.

Several other factors strongly indicate that it was a rental agreement. The rate of compensation was measured solely by the period of time during which the trucks were used and did not depend upon the use to which the trucks were put during that period. Although Entremont undoubtedly had the right to employ truck drivers of his own choosing, he was bound to replace anyone who was unsatisfactory to the department. However, with respect to the direction of trucking operations during the performance of the work under the agreement, the evidence unequivocally shows that Entremont neither possessed nor attempted to exercise any right of control.

Use and control of the hired property is the chief characteristic of a rental agreement. (Civ. Code, secs. 1925, 1955.) To say, as the commission found, that the trucks were subject to Entremont’s control throughout the performance of the hauling and that the directions given to the operators by the foreman “were only such as a carrier would normally have received from one for whom he is transporting property” is in plain contradiction with the facts established at the hearing. The evidence introduced before the commission shows that the trucks were used in conjunction with those of the Department of Public Works for the purpose of clearing slides and filling washouts on the state highways during the winter season. In doing this work material was carried for distances varying from a few hundred feet to as much as eleven miles, depending upon the necessities of the occasion, and the operators of Entremont’s trucks took orders solely from the foreman in charge of the highway maintenance crew, who gave them instructions where to load and unload. In short, during the time the Department of Public Works used the petitioner’s equipment, they were a part of the fleet of trucks engaged in the repair work then being done, and no distinction was made between a privately owned unit and one belonging to the state.

It is true that the contract required Entremont to keep the trucks in repair and to pay for all supplies necessary for their operation and that it characterizes the operators-as the employees of Entremont. However, it is common business practice to lease construction machinery “including operation”, and such facts are in no way inconsistent with the theory of lease. In Stewart v. California Imp. Co., 131 Cal. 125 [63 Pac. 177, 52 L. R. A. 205], the city of Oakland “hired the use of the street-roller outfit from the defendant company—to wit, the roller, engine, and the engineer to manage the same—for so much a day” and the court held that the “relation of master and servant existed between said defendant Conger, and not between the city of Oakland and defendant Conger”. (See, also, Billig v. Southern Pac. Co., 189 Cal. 477 [209 Pac. 241]; Lowell v. Harris, 24 Cal. App. (2d) 70 [74 Pac. (2d) 551].) Nor is the fact that under the contract Entremont assumed liability for damage or injury to other property or persons inconsistent with a lease. It was "competent for the parties to agree inter se upon the incidence of delictual responsibility and no doubt such a contract would be binding as between themselves.

Cases such as Department of Water & Power v. Industrial Acc. Com., 220 Cal. 638 [32 Pac. (2d) 354], and Independence Indemnity Co. v. Industrial Acc. Com., 203 Cal. 51 [262 Pac. 757], indicating that the department would be a “special employee” under the terms of the Workmen’s Compensation Act, are not in point. The term “special employee” is a statutory relationship created by that act and is sui generis.

The case of People v. Tedesco, 18 Cal. App. (2d) 667 [64 Pac. (2d) 966], lends full support to the conclusion that Entremont was not engaged in the transportation of property upon the highways within the meaning of the Highway Carriers’ Act. That case arose upon the sustaining of a demurrer to complaints brought by the state to recover penalties under the Highway Carriers’ Act. The complaints alleged that the defendants had engaged in the transportation of property by motor vehicles for compensation in violation of the lawfully established rates for such service. By other allegations of the complaint it appeared that the defendants had hired out trucks of a specified capacity “with operators” to the United States government. The court held that the complaints failed to show that the defendants were “highway carriers”.

Holmes v. Railroad Com., 197 Cal. 627 [242 Pac. 486], is not contrary to a conclusion that the Entremont contract is a rental agreement. In that case the facts show “leases” between the parties which were a mere subterfuge, because it was apparent on the face of the contracts that the rate payable to the truck owners was based upon the weight of the goods carried and not upon the period of time during which the truck was used. While the “rental” of each truck purported to be $19.50 per day, the court pointed out that “It is apparent from the other provisions of these ‘leases’ and from the manner in which they were performed by the parties that they are nothing more than contracts for the transportation of merchandise for compensation at the rate of thirty-two and one-half cents per hundred pounds, subject to a minimum charge of sixty-five cents per shipment.” On the other hand, the rate of compensation payable to Entremont under his contract with the department was based solely upon the element of time of use and was in no way dependent upon the weight of the materials carried. The contract did not define either the time involved for performance or the route or termini the trucks were to follow.

In my judgment, a consideration of all of these elements, together with the fact that the direction and control of the operators during performance was vested in the department, compels the conclusion that the contract was a lease.

I am, therefore, of the opinion that the order of the Railroad Commission should be annulled.

Houser, J., concurred.

Rehearing denied.


author: THE COURT.

text:
    [L. A. No. 16221.
    In Bank.
    April 19, 1939.]
    SAMUEL L. CARPENTER, Jr., Insurance Commissioner, etc., Petitioner and Respondent, v. THE PACIFIC MUTUAL LIFE INSURANCE COMPANY OF CALIFORNIA (a Corporation) et al., Respondents; WILLIAM H. NEBLETT, Appellant. SAMUEL L. CARPENTER, Jr., Insurance Commissioner, etc., Petitioner and Respondent, v. THE PACIFIC MUTUAL LIFE INSURANCE COMPANY OF CALIFORNIA (a Corporation) et al., Respondents; ALFRED F. MacDONALD, Appellant. SAMUEL L. CARPENTER, Jr., Insurance Commissioner, etc., Petitioner and Respondent, v. THE PACIFIC MUTUAL LIFE INSURANCE COMPANY OF CALIFORNIA (a Corporation) et al., Respondents; VERNON BETTIN et al., Appellants.
    [L. A. No. 16245.
    In Bank.
    April 19, 1939.]
    [L. A. No. 16246.
    In Bank.
    April 19, 1939.]

      William H. Neblett and Alfred F. MacDonald, in pro. per., E. Walter Guthrie, A. H. McCurdy, Bettin, Painter & Waite, Neblett, Warner & MacDonald, R. Dean Warner and LeRoy B. Lorenz for Appellants.
    U. S. Webb, Attorney-General, Earl Warren, Attorney-General, John L. Flynn and Hester Webb, Deputies Attorney-General, Frank L. Guerena, Peery Price, Shepard Mitchell and Mitchell, Silberberg, Roth & Knupp for Petitioner and Respondent.
    Herbert E. Freston, Roscoe R. Hess, Rex Hardy, Arthur E. White, Carl C. Katleman, Andrew J. Copp, Jr., Ben S. Hunter and John P. Oliver, in pro. per., and O’Melveny, Tuller & Myers, Overton, Lyman & Plumb, Hugh K. McKevitt, Rupert B. Turnbull, Manierre & Cuthbertson, Kenyon F. Lee, H. S. Dottenheim, Neil S. McCarthy, W. B. Etheridge, Delvy T. Walton, Albert E. Coger, Jacob J. Lieberman, Aaron B. Rosenthal, Lawler & Felix, David R. Rubin, Chapman, Snider, Duke & Landis, Hiram W. Johnson, Jr., Frank P. Doherty, Ivan Merrick, Oscar Lawler, Harold Judson, Shattuck, Davis & Story, Paul Overton, Latham, Watkins & Bouchard, Bell, Boyd & Marshall, Newlin & Ashburn, Garnet C. Rainey, Chapman & Chapman, Hahn & Hahn, M. W. Purcell, Loeb, Walker & Loeb, William M. Rains, D. M. Ellison, Cosgrove & O’Neil, John J. Cramer, A. A. Carmichael, Ray Howard and Henry Huntington for Respondents.
   THE COURT.

The above numbered appeals have been taken by the named appellants, policyholders of The Pacific Mutual Life Insurance Company of Californa, from an order of the superior court made under section 1016 of the Insurance Code (Stats. 1935, chap. 145, p. 496), directing the insurance commissioner to wind up and liquidate the business of the insurance company. The appeals, by stipulation, have been consolidated.

The controversy between the commissioner and the appellants had its origin in 1936 when the commissioner, acting pursuant to the powers conferred upon him by statute, took over the affairs and business of the insurance company, and worked out a plan of rehabilitation. The legality of the seizure and the lawfulness and propriety of the plan of rehabilitation have already been upheld by this court. (Carpenter v. Pacific Mut. Life Ins. Co., 10 Cal. (2d) 307 [74 Pac. (2d) 761], affirmed with opinion, Neblett v. Carpenter, 305 U. S. 297 [59 Sup. Ct. 170, 83 L. Ed. 182].) The facts and circumstances surrounding the seizure, and the provisions of the rehabilitation agreement are fully set forth in the above opinions. So far as pertinent here, it appears that on July 22, 1936, the insurance commissioner initiated proceedings against the company by filing an application for an order appointing him conservator of the company. The order was granted the same day, and the commissioner immediately took possession of the assets and business of the company. Because of doubt as to the validity of the first order, on August 11, 1936, the commissioner applied for and secured a new order of the court appointing him conservator. On the prior appeal it was held that the July order was void, but that the seizure of the assets on July 22, 1936, was valid inasmuch as the commissioner may lawfully make such seizure without a court order. After being validly appointed conservator, the commissioner worked out a plan of rehabilitation. After a full hearing, the trial court, on December 4, 1936, made its order approving the plan of rehabilitation submitted by the commissioner, and authorizing its execution. Substantially the same group of appellants as are involved on this appeal, appealed from the rehabilitation order. The order was affirmed, this court holding that the submitted plan was fair and equitable to all concerned, including appellants. The United States Supreme Court held that the plan submitted and the procedure adopted by the commissioner in no way violated appellants' constitutional rights. (Carpenter v. Pacific Mut. Life Ins. Co.; Neblett v. Carpenter, supra.)

The plan of rehabilitation thus upheld approved the organization by the commissioner as conservator of a new insurance company, the assumption by it of all the policies of consenting policyholders of the old company, and the paying off of noneonsenting policyholders. The plan contemplated that the commissioner would later be appointed liquidator of the old company for the purpose of liquidating the remaining assets of that company and the paying of the claims of nonconsenting policyholders. Appellants are in this last-mentioned group.

The commissioner, as conservator, put the plan of rehabilitation into operation, and then, as contemplated by that plan, in January of 1937, applied to the court below for an order of appointment as liquidator of the old company, and requested authority to liquidate that company. This procedure is recognized by .section 1016 of the Insurance Code, which provides in part: “If at any time after the issuance of an order under section 1011 (the section authorizing the commissioner’s appointment as conservator) it shall appear to the commissioner that further efforts to proceed under said section would be futile, he may apply to the court for an order to liquidate and wind up the business of said” insurance company. The petition recited the factual background of the transaction, and contained the requisite legal allegations required by section 1016. The petition prayed for an order directing the liquidation of the company and requested that the court fix July 22, 1936, the date of the seizure of the old company, “as the date and time as of which the rights and liabilities of respondent corporation and of creditors, policyholders, shareholders, and members, and all other persons interested in the assets of said respondent corporation shall be fixed”. The petition alleged that this last-mentioned relief was necessary to prevent confusion and conflict, and to protect the rights of all concerned. After the issuance of an order to show cause the appellants filed their return. They did not challenge any of the allegations of the petition, and particularly did not challenge the allegations that further efforts to proceed as conservator would be futile or that liquidation was necessary. The main contention made by appellants in their return was that they had appealed from the rehabilitation order; that the appeal stayed all proceedings on that order; that the liquidation proceedings ‘ are further proceedings upon the judgment of December 4, 1936, and further proceedings upon the matters embraced in that judgment”; that pending the appeal from the rehabilitation order the superior court was without jurisdiction'to entertain the proceedings to liquidate. It was also alleged that if the old company were liquidated pending the appeal from the rehabilitation order, appellants would be deprived of the benefits of their appeal from that order.

On February 3, 1937, the court entered its order entitled “Order for Liquidation”. It is from this order that the present appeals have been taken. So far as pertinent here, the order recites the facts in reference to the rehabilitation order of December 4, 1936, and what was done thereunder. It is stated that “it is the fact that further efforts on his (the commissioner’s) part, to conduct, as conservator, the business or any part of the business of respondent corporation, would be futile”. The order also recites the necessity of giving policyholders and creditors an opportunity to file their claims and that it is fair and proper to fix the rights of such persons as of July 22, 1936, and they are so fixed. The commissioner was appointed liquidator of the business of the old company, and as liquidator he was directed to wind up and liquidate the business of that company. Title to the assets of the old companj was vested in the commissioner as liquidator.

In their original briefs appellants rely on three main points for a reversal. It is first urged that under section 946 of the Code of Civil Procedure the appeals from the rehabilitation order acted as an automatic stay of proceedings so as to deprive the trial court of power to entertain the order here appealed from while such appeals were pending. The answer to this contention is that the provisions of section 946 of the Code of Civil Procedure, and of the related section 949 of the same code, have no application to a special proceeding such as is here involved. The sections are found in part II of the code which deals only with civil actions. This part of the code has no application to special proceedings of this nature unless specifically made applicable thereto by statute. On the appeal from the rehabilitation order it was expressly held that the proceedings under the Insurance Code are special proceedings and that the procedural sections of part II of the Code of Civil Procedure have no application thereto. The legislature has seen fit to make the provisions of part II of the code expressly applicable to many special proceedings. Its failure to do so in reference to proceedings under the Insurance Code must be held to have been intentional. We must presume that the legislature intended that upon appeal from orders or judgments made under the Insurance Code the supersedeas should not be auto7 matic, but whether one should be granted should rest in the sound discretion of the court in the exercise of its power to grant supersedeas where no statutory stay exists.

It is next urged that it was reversible error for the trial court to fail to make formal findings of fact and conclusions of law. On the prior appeals this identical contention was considered and found to be without merit. It was there held that in making orders under the Insurance Code the trial court is under no duty to make findings of fact and conclusions of law. (Carpenter v. Pacific Mut. Life Ins. Co., supra, p. 327.)

The third contention of appellants is that the order here appealed from is void, because, it is urged, it attempts to modify the rehabilitation order then pending on appeal, in that, under the rehabilitation order, title to the stock of the new company was vested in the commissioner as conservator, while the order now under appeal purports to vest title to such stock in the commissioner as liquidator as of July 22, 1936. This contention is unsound. The fact that the order to liquidate provides, in the language of section 1016 of the Insurance Code, that assets theretofore held by the commissioner as conservator shall remain vested in him as liquidator, and that the order fixes July 22, 1936, as the date upon which creditors’ and policyholders’ rights shall be fixed, does not make the order to liquidate in these respects an amendatory order of the rehabilitation order. These provisions obviously were inserted in the liquidation order (as the statute provides) in order to provide that the alteration in the commissioner’s duties in carrying on the business of the old company as conservator, to winding it up as liquidator, should not divest nor disturb his titles. The construction of the order contended for by appellants is unwarranted. The order does not provide that the commissioner’s rights in the stock of the new company as liquidator date back to July 22, 1936. His rights as liquidator arose only upon the making of the liquidation order and the trial court did not attempt to provide otherwise. The court did not attempt to date back the change of the commissioner’s function and title—all that it did was to fix, pursuant to statutory authority, the date as of which all creditors’ rights should be fixed.

After the United States Supreme Court had affirmed the decision of this court upholding the validity of the rehabilitation order, appellants secured leave to file a supplemental brief, admittedly raising new questions described by them as being “wholly jurisdictional and constitutional’’. Several of the new arguments are based on the contention that both the rehabilitation and liquidation orders, for various reasons, deprive appellants of their constitutional rights. Many of these contentions were considered by the United States Supreme Court on the prior appeal and found to be unsound. These points need not be considered again.

Most of the new contentions, other than those already mentioned, are partially predicated upon the record of the prior appeal, of which appellants contend that we can and should take judicial notice. It is urged that the entire proceedings leading up to and terminating in the appointment of the liquidator, including all proceedings involved on the prior appeal, were and are void. It is urged first that as the law read at the time of the entry of the order here appealed from (the law in this respect has since been changed—Stats. 1937, chap. 932), the Insurance Code required that an order appointing a liquidator had to be preceded by a valid order first appointing the commissioner conservator; that in determining whether such prior order was made we are limited to the recitals found in the liquidation order; that that order recites that the commissioner was appointed conservator on July 22, 1936; that on the prior appeal it was determined that this July order was void; that, therefore, the liquidation order, so far as the record before ns shows, was not supported by a valid prior order appointing the commissioner conservator. The basic premise upon which this contention is based—that the liquidation order was based solely on the order of July 22, 1936—is unsound. When the trial court entered its order appointing the commissioner liquidator on February 3, 1937, the rehabilitation order was then pending on appeal. On that appeal one of the main questions involved was whether the commissioner had been validly appointed conservator on July 22 or August 11, 1936. It was ultimately held on that appeal that the July 22d order was void and that the commissioner was not validly appointed conservator until August 11, 1936. The trial court in framing the liquidation order referred to both the July and August orders. In other words, while it is true that the liquidation order recites that the commissioner “was appointed conservator on July 22, 1936”, it also recites that the “orders of this court appointing said conservator herein made on July 22, 1936, and on August 11,1936”. Stated another way, the order here appealed from recites on its face the making of a valid order appointing the commissioner conservator, and the mere fact it refers to the earlier void order is totally immaterial.

It is next urged, on several grounds, that the trial court never acquired jurisdiction of the rehabilitation proceedings, and therefore, all subsequent proceedings, including the instant proceeding, are invalid. It is contended that the legal effect of this court’s opinion on the prior appeal was to ratify the void order of July 22, 1936, and that this deprives the policyholders of due process. It is also urged that the order of August 11, 1936, appointing the commissioner conservator was void because made without notice to the old company, and without service upon it of the application as required by section 1038 of the Insurance Code; that the jurisdictional requirement of service was not met by the unauthorized appearance of some officers and attorneys of the old company; that such appearance was collusive; that even if such appearances were authorized by resolution of the board of directors of the old company, such resolution was ineffectual to confer jurisdiction on the superior court; that mere seizure by the commissioner without a prior order based on notice and a hearing gave the commissioner no authority to proceed. It will be noted that all of these attacks are not directed against the order from which the present appeals have been taken but at either the rehabilitation order or the order of August 11, 1936. These orders have been affirmed by this court and by the United States Supreme Court. To escape the legal effect of these affirmances appellants in their attempt to relitigate the question of the validity of the rehabilitation order and the order of August 11th, rely on the rule that the affirmance of a void order imports no force or validity thereto. (Pioneer Land Co. v. Maddux, 109 Cal. 633 [42 Pac. 295, 50 Am. St. Rep. 67].) The rule of the Maddux case only applies to questions which were not decided or involved on the prior appeals—as to all questions which were involved on the prior appeals, as to appellants, on this collateral attack, obviously, the prior determinations are res judicata. (Lake v. Bonynge, 161 Cal. 120, 131 [118 Pac. 535].) Clearly the question of the jurisdiction of the trial court to make the order of August 11, 1936, was involved on the prior appeals. Some of the points now made by appellants were in fact made on the prior appeals, and decided adversely to their present contentions. Even if some of the points now urged were not made upon the prior appeals, it is perfectly clear that both the trial court and this court in the prior action determined adversely to appellants the question of jurisdiction. From a very early date in this state it has been settled that “the first point decided by any court, although it may not be in terms, is, that the court has jurisdiction, otherwise it would not proceed to determine the rights of the parties. For the purposes of the first trial in this court, the jurisdiction was as much determined as though the point had been made and passed upon; certain it is, that unless made, it cannot now be questioned”. (Clary v. Hoagland, 6 Cal. 685, 688.) As was stated in Scrimsher v. Reliance Rock Co., 1 Cal. App. (2d) 382, 383, 393 [36 Pac. (2d) 688] : “It is plain to us that the decision of the first appeal is res judicata on the question of jurisdiction subsequently and now raised by appellant. (See White v. Fresno Nat. Bank, 98 Cal. 166, at p. 167 [32 Pac. 979] ; Clary v. Hoagland, 6 Cal. 685.) To hold otherwise on the record here presented would be lending encouragement to dilatory and highly technical procedure subversive of an effective disposition of an appeal fully briefed and decided on the merits.” Clearly, by affirming the order of December 4, 1936, this court decided that the superior court had jurisdiction, and that point cannot now be relitigated. It should be mentioned that the United States Supreme Court on the prior appeal interpreted this court’s decision as having passed on the question of jurisdiction. (Neblett v. Carpenter, supra, p. 172.)

In view of this conclusion we do not intend to consider each of appellants’ contentions at length. We think it proper to state, however, that on the merits, each of the contentions is unsound. The contention that the legal effect of this court’s opinion on the prior appeal was to ratify the void order of July 22, 1936, is entirely unwarranted and is unsound. It was held that the filing of the petition on July 22, 1936, gave the trial court jurisdiction; that the orders made on that date were void; that the order of August 11th was valid; that the seizure on July 22, 1936, could lawfully be made without court order; that the trial court had power to ratify and confirm the commissioner’s acts in this regard independently of the order of July 22, 1936. Several of the other contentions now raised are points which could properly be raised, if at all, only upon a full record. Both the present appeals and the prior appeals have been taken on the respective judgment rolls. On such appeals the evidence is not before us and cannot be considered. The contention that the record shows that the order of August 11, 1936, was made without notice to the old company and without service upon it of the application, and that section 1038 of the Insurance Code requires such notice and service, and therefore the order is void, is untenable. Even if the record did disclose these facts, it would not affect the validity of the order. Section 1038 provides that such applications shall be served upon the insurance company “in the manner prescribed by law for personal service of summons”. Section 416 of the Code of Civil Procedure provides that “the voluntary appearance of a defendant is equivalent to personal service of the summons and copy of the complaint upon him”. The record shows such voluntary appearance. The charges of fraud and collusion repeated on this appeal were considered and found to be without merit on the prior appeal.

Appellants make other contentions concerning the validity of the rehabilitation order, some based on alleged constitutional and others on alleged jurisdictional grounds. As already stated, the constitutional grounds were answered by the Supreme Court of the United States adverse to appellants’ contentions. The alleged jurisdictional grounds have either been already answered in this opinion or are so clearly unsound as not to merit further discussion.

From what has been said it follows that the order appealed from should be and hereby is affirmed.

Chief Justice Waste and Justice Edmonds, being disqualified, did not participate in the decision.


text:
    [Sac. No. 5138.
    In Bank.
    April 21, 1939.]
    ELIZABETH TOOMEY, Appellant, v. RICHARD J. TOOMEY et al., Respondents.

      Geary & Geary, C. J. Tauzer and W. H. Early for Appellant.
    Barrett & McConnell for Respondents.
   SEAWELL, J.

Plaintiff appeals from a judgment entered for defendants after sustaining of a demurrer to her third amended complaint. The action is to annul a property settlement. The defendant husband has been adjudged incompetent, and hence the guardian of his estate is also a defendant. Plaintiff avers that her husband procured her consent to the property agreement by fraudulently misrepresenting the value of his property, and by threat of physical violence to her, and, further, that they became reconciled and resumed marital relations with the understanding that the agreement ‘ ‘ was fully abandoned and terminated and that plaintiff was restored to her former rights as a wife”.

The property settlement recited that the parties had been living separately for more than a year, and that all property owned or possessed by the husband was his separate property. It assigned to the wife a note which named the husband as payee, in the principal sum of $15,000, secured by deed of trust, and also transferred an automobile to her. It provided that the husband should pay $37.50 a month to the wife for the support of their minor daughter, and that from the $15,000 to be paid on the above note the wife should retain $4,000 in trust for said daughter, to be paid to her when she arrived at the age of twenty-two, with the right to apply said sum to the support of the child if needed. In consideration thereof, the wife relinquished her right to claim support for herself and said child, and all rights in her husband’s property, including the right to inherit, and dismissed an action for separate maintenance brought by her.

The trial court was correct in its view that the minor daughter should have been made a party to the action. The property agreement, beside providing for monthly payments of $37.50 for the support of said child, established a trust in her favor. The present action is brought to set aside said agreement, or, as to count two, to obtain an adjudication that the agreement was set aside by a reconciliation had with the understanding that plaintiff was restored to her property rights as a wife. The question as to the effect of said reconciliation on the rights of the child as beneficiary of said trust are necessarily involved, especially in view of the fact that plaintiff offers to restore to her husband the unexpended balance of the promissory note from which the trust fund for the benefit of the child was to be created. Minor children are necessary parties to an action to terminate a trust established in their favor by a property settlement. (Loock v. Pioneer Title Ins. & Trust Co., 4 Cal. App. (2d) 245 [40 Pac. (2d) 526] ; De Olazabal v. Mix, 24 Cal. App. (2d) 258 [74 Pac. (2d) 787] ; Crowell v. Pryor, 248 App. Div. 86 [288 N. Y. Supp. 998].)

But if the complaint, or any count thereof, is good against the grounds of demurrer urged, it was the duty of the trial court to order that the child be made a party, rather than to dismiss the action for her nonjoinder. (See. 389, Code Civ. Proc.; De Olazabal v. Mix, supra.) The defendants had not objected to nonjoinder of the minor daughter.

We are of the view that as to counts one and three, which rely on fraud and threats of physical violence, the court properly sustained the demurrer on the ground that the action was brought too late, but that count two is good as against the general and special demurrer. The property settlement was executed on January 23, 1925. The present action was brought in February, 1935. If it be conceded that plaintiff alleges sufficient reasons for failing to discover the fraud until June 2, 1933, the action was brought within three years of discovery, as provided by the statute of limitations in actions for fraud. (Sec. 338, subd. 4, Code Civ. Proc.) But an action for rescission may be barred by laches for delay less than the period of limitations. (Victor Oil Co. v. Drum, 184 Cal. 226 [193 Pac. 243] ; Stevens v. Bryson, 135 Cal. App. 684 [27 Pac. (2d) 932] ; 10 Cal. Jur. 549.) In the instant ease plaintiff delayed twenty-one months after she alleges she discovered the fraud before bringing suit. A party must rescind promptly on discovery of grounds for rescission. (Sec. 1691, Civ. Code.) The decision of the trial court as to whether delay amounts to laches will not be disturbed in the absence of a clear showing of abuse of discretion. (Wolpert v. Gripton, 213 Cal. 474, 483 [2 Pac. (2d) 767]; 10 Cal. Jur. 554.)

In count two plaintiff alleges that the property settlement was abandoned and annulled by a reconciliation had with the express understanding that plaintiff should be restored “to all her rights as the wife of defendant”. (Estate of Boeson, 201 Cal. 36, 42 [255 Pac. 800], citing cases; 9 Cal. Jur. 827; note, 85 A. L. R 420.) This count is in effect an action to obtain a declaratory judgment that upon the alleged reconciliation plaintiff was restored to her rights as a wife. The alleged reconciliation took place on April 1, 1925, less than three months after the execution of the agreement. Plaintiff thereafter lived with her husband until September 1, 1926, she alleges, when he was adjudged insane and committed to an institution. In October, 1927, he was restored to capacity. She again lived with him from the “early part” of 1928 to “about the end” of 1928, she avers. In February, 1929, he was committed a second time, and is still confined.

It appears that plaintiff continued to receive payments upon the note which had been assigned to her by the property settlement and to use them for the support of herself and her daughter. But the allegations of the complaint are consistent with the theory that said agreement was abandoned and cancelled only in so far as it deprived plaintiff of her property rights as a wife. In view of the fact that the defendant husband is alleged to have owned property worth more than $50,000, he might well permit her to retain the $15,000 note upon their reconciliation. Furthermore, $4,000 of the $15,000 to be received on the note was to be held in trust by the wife for the minor child. We are of the opinion that in the face of only a general demurrer as to this phase of the complaint, this count states a cause of action based upon the rescission of the agreement upon the reconciliation of the parties in 1925.

It is true that in paragraph VIII of the first cause of action the plaintiff offers to restore the unexpended balance of the moneys received by her under the property settlement, and that this allegation is inconsistent with the allegations in count two which already have been interpreted as implying that upon the rescission the husband permitted the wife to retain the moneys given her as part of the property settlement. This paragraph was incorporated by reference into count two. This apparent inconsistency, in the absence of a special demurrer, directed to that particular point, should not, on a general demurrer, be held to defeat plaintiff’s cause of action. The true fact as to this point can be developed at the time of trial. If the evidence fails to show a rescission in 1925, with a permissive retention of the moneys received, then plaintiff will have failed to prove her case, and her offer to restore in 1935 would be ineffectual as too late.

If, as plaintiff alleges, she was by express agreement restored to her rights as the wife of defendant, she is not barred from obtaining a declaratory judgment by reason of the lapse of time since the alleged reconciliation. It is not shown that any claim to rights as a wife made by her were refused her by her husband, or his guardian. That is, there is no showing of any act on the part of the husband or his guardian in denial of the rights restored to her which would have required affirmative action on her part.

Count two is not subject to defendant’s special demurrer on the ground that it unites two causes of action not separately stated. In three separate and distinct counts plaintiff attempted to state causes of action based on fraud, on subsequent reconciliation, and on threats of physical violence, respectively. The second count is not subject to the objection that it unites two causes of action merely because it incorporates by reference allegations of the first count.

The judgment for defendants is affirmed in so far as it applies to counts one and three. As to count two, the judgment is reversed.

Edmonds, J., Langdon, J., Curtis, J., Shenk, J., and Houser, J., concurred.

Rehearing denied. Houser, J., voted for a rehearing.