author: CARTER, J. THE COURT.

text:
    [L. A. No. 16184.
    In Bank.
    March 30, 1940.]
    CHARLES B. PENDLETON, Respondent, v. P. L. FERGUSON et al., Appellants.

      Arthur F. Larrabee, Randall & Bartlett and Kenneth W. Kearney for Appellants.
    Ben F. Griffith and Malcolm Archbald for Respondent.
   CARTER, J.

By this action plaintiff sought to quiet his title as against the defendants to five certain letters patent issued to plaintiff by the government of the United States and particularly described in the complaint.. Judgment was entered in favor of the plaintiff granting the relief prayed for against all of the defendants. This appeal is prosecuted by defendants Ferguson and Automatic Deep Well Pump Company, who claim an interest in three of said letters patent based upon an agreement entered into between plaintiff and defendant Ferguson on May 15, 1924, which agreement was assigned to defendant Automatic Deep Well Pump Company on October 20; 1928. Said agreement recites that plaintiff is the owner of the mechanical devices for which patents have been issued to plaintiff and that defendant Ferguson desires to buy the exclusive right to manufacture, use, lease, sell and distribute the pumps covered by the patents in the State of California and Mexico. It was therein agreed that in consideration of the sum of twenty-five thousand ($25,000) dollars paid in cash and on time by defendant Ferguson, and for other considerations, the plaintiff sells and assigns to defendant Ferguson the exclusive right to lease, manufacture, use, sell and distribute said pumps in California and Mexico, and defendant purchases such rights from plaintiff, subject to the terms of the agreement. The terms of the purchase are that defendant agrees to pay a royalty of fifteen (15%) per cent; to have the word “PATENTED” stamped on the pumps; that defendant has the right to institute and maintain in his own name suits for accounting at his own expense and that the expense of litigation against infringers should be equally borne by the parties to the agreement. Said agreement further provides that defendant shall keep books of account, open to inspection of plaintiff, and shall deliver statements on the dates when royalties are payable; that the parties agree to cooperate in the manufacture, sale, use and rental of the pumps; that defendant Ferguson shall have the right to assign any part or all of his rights under the agreement, and agrees to notify plaintiff within fifteen (15) days after the consummation of any such assignment, and that the royalties due under the agreement shall be paid to any person upon the order of plaintiff.

The execution of this agreement .was admitted by plaintiff, but he claims that it was not the intention of the parties to convey thereby any title or portion thereof to any of the patents; that said agreement was abandoned by mutual consent of the parties and that said agreement was canceled and terminated by plaintiff prior to the assignment by defendant Ferguson to Automatic Deep Well Pump Company.

The trial court found that plaintiff was the owner of the patents described in the complaint; that plaintiff and defendant Ferguson entered into the agreement of May 15, 1924, and that said agreement had been assigned by defendant Ferguson to defendant Automatic Deep Well Pump Company. The trial court also found that defendants Ferguson and Pump Company had not done or performed the things on their part to be performed under said agreement and that neither of said defendants had any rights under said agreement. The court then found:

“That the allegations contained in Paragraphs II, III, V, and VII of the answer of defendants P. L. Ferguson and the Automatic Peep Well Pump Company are true, but the Court finds from the evidence that it was not the intention of the parties to any of the instruments mentioned in said paragraphs (Agreement of May 15, 1924, and assignment thereof to Automatic Deep Well Pump Company) to convey any title or portion thereof to any of the patents described in the complaint herein, and the Court further finds that whatever rights were vested in defendants P. L. Ferguson and the Automatic Deep Well Pump Company by the instruments described in said paragraphs were wholly and completely abandoned by the mutual and voluntary consent of all the parties to said instruments and considered of no force or effect by all of said parties at all times after October 21, 1928. The Court further finds that the instrument set forth in Paragraph II of the answer of P. L. Ferguson and the Automatic Deep Well Pump Company was cancelled and terminated by plaintiff prior to the alleged assignment thereof to the defendant Automatic Deep Well Pump Company.”

The judgment decreed that plaintiff is the sole, absolute and exclusive owner of the letters patent described in the complaint, including the sole and exclusive right to manufacture, sell,- use and distribute the property described in said patents; that none of the defendants has any right, title or interest in any of said patents, property or property rights and that said defendants are permanently restrained and enjoined from claiming any right, title or interest therein.

In presenting their appeal to this court from the judgment, the appealing defendants contend that the finding herein-above quoted is contradictory; that said finding is not supported by any evidence and that the trial court had no jurisdiction over the subject-matter of the action.

We do not deem it necessary to consider the contention of the defendants that the above-quoted finding is contradictory for the reason that we are satisfied from a very careful perusal of the record that the evidence is insufficient to support said finding and that the judgment of the trial court must be reversed on this ground.

The agreement of May 15, 1924, between plaintiff and defendant Ferguson provides in part:

“The party of the first part hereby sells and assigns to party of the second part exclusive right to manufacture, lease, use, sell and distribute the aforesaid pumps in the State of California and Mexico, and party of the second part hereby purchases from party of the first part the exclusive rights to manufacture, lease, use, sell and distribute all of said pumps and improvements thereon in the State of California and Mexico, subject to the provisions and stipulations of this agreement.
“FIRST: Party of the second part agrees to pay party of the first part a royalty equal to fifteen (15%) percent of all charges made and received by party of the second part from the proceeds of the sale, use, rental, installation or any other disposition made of each pump hereinbefore described by party of the second part. Said royalty to be paid quarterly and a separate accounting to be made of royalties payable on each pump hereinbefore described. ’ ’

We will first give consideration to that portion of the above-quoted finding of the trial court that it was not the intention of the parties to said agreement of May 15, 1924, to convey any title or portion thereof to any of the patents described in the complaint herein.

In determining whether or not this portion of said finding is supported by the evidence, our attention is first directed to the agreement in question. It is well settled that if the agreement is not ambiguous on its face, we must ascertain the intention of the parties by reference to the agreement itself.

There appears to be no ambiguity or uncertainty on the face of the agreement. It states in clear, plain and simple language an intention to convey from plaintiff to defendant Ferguson the exclusive right to lease, manufacture, use, sell and distribute the pumps covered by the patents therein described in the State of California and Mexico, subject to the provisions of said agreement.

A patent granted by the United States confers upon the patentee three exclusive rights. They ate: the right “to make”, the right “to use”, and the right “to vend” the patented article. (U. S. Comp. Stats. 1916, sec. 9428, Rev. Stats., sec. 4884.) These are the incidents of ownership of a patent and they may be granted or conferred separately. (Adams v. Burke, 17 Wall. (U. S.) 453, 456 [21 L. Ed. 700] ; Braun, Bryant & Austin v. McGuire, 201 Cal. 134 [255 Pac. 808].) By said agreement, plaintiff conveyed and assigned to defendant Ferguson all that plaintiff had to grant in said letters patent so far as the State of California and Mexico were concerned. Such being the ease, it is obvious that the finding that there was no intention to convey the title or any portion thereof to the patents described in the complaint must fall in face of'the clear and unambiguous language of the agreement. .

The only testimony claimed by plaintiff as indicating any intention on the part of defendant Ferguson to consent to the termination of said agreement appears in the testimony of the plaintiff, where, in testifying to a conversation with defendant Ferguson in regard to the terms of a subsequent agreement, the question arose as to whether or not such agreement should cover only territory outside of California, and plaintiff stated that he wouldn’t in any way or under any circumstances recognize defendant Ferguson’s 1924 contract of California, and defendant Ferguson replied, 11 Have it your way. ’ ’

Several other agreements were entered into between the plaintiff and defendant Ferguson and Automatic Deep Well Pump Company involving the same patents covered by the agreement of May 15, 1924, the first of which was entered into on August 22, 1928, and the last on January 14, 1931, but all of these agreements covered territory in addition to California and Mexico, and in none of them was any reference made to the agreement of May 15, 1924, nor was any provision made therein for the cancellation or termination of said agreement.

On page 13 of respondent’s brief, counsel state:

“Ferguson testified that the contract with Pendleton and the Pump Company was cancelled by mutual consent of all parties (Rep. Tr., p. 79, 1. 10 to p. 82, 1. 9).” We have carefully examined the transcript reference and find that the contract mentioned in the testimony was plaintiff’s exhibit 8, which was an agreement dated October 31, 1928, between plaintiff, defendant Thayer, and Automatic Deep Well Pump Company, and no reference was made therein to the agreement of May 15, 1924. From our examination of the record, we are unable to find any evidence from which an inference can be drawn that there was any intention on the part of either defendant Ferguson or Automatic Deep Well Pump Company to abandon or terminate the agreement of May 15, 1924. On the contrary, the assignment of said agreement to Automatic Deep Well Pump Company on October 20, 1928, and the recording of said assignment with the United States patent office on January 25, 1932, would negative any such intention. It is our conclusion, therefore, that the finding of the trial court that said agreement was wholly and completely abandoned by the mutual and voluntary consent of all the parties and considered of no force or effect by all of said parties at all times after October 21, 1928, is not supported by the evidence.

The agreement contains no provision for its termination or forfeiture for nonperformance of any of its terms and no instrument in writing was ever executed by defendant Ferguson or Automatic Deep Well Pump Company, which could be construed as evidencing an intention on their part to cancel, abandon or otherwise terminate said agreement.

However, on October 26, 1926, plaintiff wrote a letter to defendant Ferguson in which he stated:

“You are hereby notified of the cancellation and termination of agreements made by myself and the Automatic Pump Company and myself and P. L. Ferguson, dated May "15, 1924, covering the manufacture, lease, use, sale and distribution of automatic fluid pressure displacement pumps covered by patent numbers 1368528—1473512—1523709.”

Defendant Ferguson ignored said letter and refused to recognize plaintiff’s right to cancel or terminate said agreement.

While the letter written by plaintiff to defendant Ferguson on October 26, 1926, might be considered as a notice of the intention of plaintiff to cancel and terminate said agreement, such notice was of no force or effect for the reason that the agreement of May 15, 1924, contained no provision authorizing its cancellation or termination upon notice by either party thereto, and therefore the mere giving of such notice did not constitute a cancellation or termination of said agreement.

The letter above mentioned is the only basis upon which plaintiff predicates his contention that the agreement of May 15, 1924, was canceled and it was evidently the basis of the finding of the trial court to that effect. We therefore hold that the finding of the trial court that the agreement of May 15, 1924, was canceled and terminated by plaintiff prior to the alleged assignment thereof to the defendant Automatic Deep Well Pump Company is not supported by the evidence.

The due execution of the agreement of May 15, 1924, between plaintiff and defendant Ferguson being admitted, and no evidence having been offered to establish the termination of said agreement, and it not having by its terms expired, it is still in full force and effect, and the finding of the trial court to the contrary must be set aside and the judgment based thereon must be reversed.

Appellants contend that the trial court had no jurisdiction to hear or determine this action, but we cannot agree with this contention.

A review of the authorities convinces us that the issues raised by the pleadings in this action bring the ease clearly within the jurisdiction of the courts of this state.

It appears to be the settled rule that while the federal courts have exclusive jurisdiction of all cases arising under the patent laws, such jurisdiction does not extend to all questions in which a patent may be the subject-matter of the controversy, for courts of a state may try questions of title, and may construe and enforce contracts relating to patents.

As we understand the issues in this case, they simply involve a contract relating to the title to certain patents. A determination of whether or not the relief prayed for should be granted must be arrived at by the application of rules and principles of equity cognizable in the courts of this state and in no degree whatever upon any act of congress concerning patent rights.

In the ease of Luckett v. Delpark, Inc., 270 U. S. 496 [46 Sup. Ct. 397, 70 L. Ed. 703], the late Chief Justice Taft, in an exhaustive opinion reviewed the cases on this subject and quoted with approval the rule announced by Chief Justice Taney in the ease of Wilson v. Sandford, 10 How. 99 [13 L. Ed. 344], which appears to be directly in point in the case at bar. In the case of Luckett v. Delpark, Inc., supra, Chief Justice Taft said:

“In Wilson v. Sandford, supra, a bill in equity was filed in a federal circuit court setting forth complainant’s ownership of a patent, an assignment to defendants of a license in consideration of five promissory notes, with a condition of reversion to complainant on failure to pay any note. The bill averred that the first two notes were not paid, insisted that the license was forfeited by the failure and the licensor was fully reinvested at law and in equity with all his original rights, that the defendants were using the patented machine and were infringing the patent, prayed an account of profits since forfeiture, a temporary and permanent injunction, and a reinvestiture of title in the complainant. On demurrer, the bill was dismissed for lack of jurisdiction as not arising under the patent laws. Chief Justice Taney, speaking for the Court, said:
“ ‘The rights of the parties depend altogether upon common law and equity principles. The object of the bill is to have the contract set aside and declared to be forfeited; and the prayer is, “that the appellant’s reinvestiture of title to the license granted to the appellees, by reason of the forfeiture of the contract, may be sanctioned by the Court”, and for an injunction. But the injunction he asks for is in consequence of the decree of the Court sanctioning the forfeiture. He alleges no ground for an injunction unless the contract is set aside. And if the case made in the bill was a fit one for relief in equity, it is very clear that whether the contract ought to be declared forfeited or not, in a court of chancery, depended altogether upon rules and principles of equity, and in no degree whatever upon any act of Congress concerning patent rights. ’ ”

The judgment of the trial court is reversed.

Curtis, J., Shenk, J., Gibson, J., and Waste, C. J., concurred.

Houser, J., dissented.

A rehearing was denied on April 29, 1940, and the following opinion then rendered thereon:

THE COURT.

Respondent has petitioned for a rehearing or a modification of our decision to the extent of affirming the judgment of the superior court quieting respondent’s title to two of the five patents which are the subject of this action. The two patents referred to are No. 1837669, issued December 22, 1931, and No. 1872801, issued August 23, 1932. Neither of these patents is mentioned in the agreement of May 15, 1924, under which agreement defendants Ferguson and Automatic Deep Well Pump Company claim to have acquired the rights asserted by them to the remaining three patents. Said agreement, however, granted to defendant Ferguson the exclusive right to manufacture, lease, use, sell and distribute all pumps and improvements thereon in the State of California and Mexico covered by the patents mentioned in said agreement.

No issue was raised at the trial nor on this appeal as to whether the patents issued ón December 22, 1931, and August 23, 1932, respectively covered improvements on said pumps, and therefore passed to defendants Ferguson and Automatic Deep Well Pump Company under the terms of the agreement of May 15, 1924, and the record in this case is insufficient to enable us to pass on this issue.

We did not purport to pass upon this issue in our decision, and in the event of a retrial of this case it will be within the province of the trial court to determine the same. Respondent’s petition for a rehearing or modification of our decision is therefore denied.


source: Caselaw Access Project

author: GIBSON, J. CARTER, J., Concurring.

license: Public Domain

text:
    [L. A. No. 16698.
    In Bank.
    March 30, 1940.]
    In the Matter of the Estate of WALTER S. KEET, Deceased. THE FARMERS AND MERCHANTS NATIONAL BANK OF LOS ANGELES (a National Banking Association), as Trustee, etc., Appellant, v. GEORGIA KEET YOUNG REED et al., Respondents.

      Chenoweth & Whitehead, Morton L. Barker, Lawler & Felix and Lawler, Felix & Hall for Appellant.
    Walter E. Drobisch, Frank G. Finlayson, James S. Bennett, Hubert T. Morrow, John A. Hewicker, George I. Devor, George L. Reimbold, Overton, Lyman & Plumb, S'warts & Tannenbaum, Howard F. Shepherd, Ben W. Utter, ’ M. J. Rankin, Milo V. Olson, Loyd Wright, Charles'* E. Millikan and S. Earl Wright, as Amici Curiae, bn Behalf of Appellant.
    Howard & Littlefield, Frederick L. Howard, Forrest E. Littlefield and Newby & Newby for Respondents.
   GIBSON, J.

This is an appeal from a decree of the probate court disallowing a portion of a current account and report of a testamentary trustee.

Walter S. Keet died August 13, 1926, leaving respondent, his widow, surviving. His will, admitted to probate September 13, 1926, created trusts in a part of the estate, which trusts were embodied in the decree of distribution made November 14, 1927.

The relevant trust provisions of the will as contained in the decree of distribution were as follows: (1) A general trust was created, to collect and accumulate the income of most of the property until a future date. The trustee was given broad powers of management, with right to sell and reinvest. (2) Next, the trustee was directed to pay to a Mrs. Emma Hubbard the net income from certain specified property. (3) The provision involved herein then follows: “Said trustee shall set apart as a separate and special fund all common stock belonging to decedent in the United Steel and Wire Company of Battle Creek, Michigan, and shall pay to said Georgia S. Keet, widow, the net income derived therefrom during her natural lifetime—and shall pay to said widow all dividends accruing upon said stock from the date of death of the decedent herein; and upon the death of said widow, this separate and special trust fund shall become a part of the general trust fund of said estate. ’ ’

Leslie Clawson, the named trustee, subsequently resigned, and was replaced by appellant bank. The new trustee treated the various trusts separately, and the only' questions on this appeal arise in connection with its administration of the trust for respondent widow. At the time of its appointment, in March, 1928, the corpus of this trust consisted of 3,240 shares of United Steel and Wire Company, appraised at $24,300. Later in 1928 the company split its stock, issuing two new shares in place of each old one, thus making 6,480 shares in the trust.

In 1934 and the following year the trust investment officers of appellant on several occasions discussed the advisability of disposing of part of the stock, and the purchase of high-grade bonds, for diversification of investments. Investigations were made as to the price which might be obtained (the stock being unlisted), and finally in March, 1936, respondent was advised that appellant’s trust investment committee had decided to seek authority from the probate court to sell a substantial portion.

On May 7, 1936, appellant filed a petition under section 1120 of the Probate Code, entitled, “Petition for Instructions, for Authority to Sell Stock and for Authority to Invest Proceeds Prom Sale of Stock. ” In it the trustee alleged “that after careful investigation made by your petitioner, your petitioner has concluded that it is for the best interests of said estate and in order to bring about a more extensive diversification in the assets held by your petitioner, to sell approximately one-half of three thousand two hundred forty (3,240) shares of said common stock of the United Steel and Wire Company; that your petitioner desires this Honorable Court to authorize and direct your petitioner to sell said three thousand two hundred forty (3,240) shares of common stock of the United Steel and Wire Company on the open market at the current market price on the date of sale at a price not less than $7.50 a share.” It was further alleged that the trustee desired authorization to invest the proceeds in national government, state or municipal bonds or such securities as are authorized as legal investments for savings banks.

Due notice of hearing was given, and respondent was fully informed of the time and purpose of the proceeding. She had a discussion with a trust officer of appellant prior to the hearing, at which she expressed objections, but declared that in view of the thorough investigation which was represented to have been made, she would not protest the sale if the trustee thought it was for her best interests. Thereafter on May 22, 1936, the court granted the petition and made its order authorizing the sale of 3,240 shares at not less than $7.50 per share, and reinvestment of the proceeds in municipal bonds. The order recited that it appeared “to the best interests of said estate” that the trustee be authorized to make the sale and reinvestment. In the next few months appellant proceeded to sell to various persons who had bid on the stock as follows: To Mr. Genebach, president of the United Steel and Wire Company, 1,000 shares at $9.75 per share; to a brokerage firm, 1,000 shares at $14 per share; and to another brokerage firm, 1,000 shares at $14% per share. The balance of 240 shares was left unsold. Recommendations of substitute securities were made by the trustee to respondent, and her approval obtained, whereupon the bonds were purchased.

The change proved unprofitable. The stock kept on rising in value until in November, 1936, its market price was $19 per share. Substantial dividends were continued, and in 1937 another stock split-up of two shares for one was made. On the other hand, a premium had been paid for the municipal bonds, and their market value declined slightly. In figures, it was stipulated that at the time appellant filed its present account, in April, 1937, the value of the corpus was $106,050, and would have been $129,600 if the stock had been retained. It was also stipulated that respondent would have received an additional income of $2,034 in the accounting period if the sale had not been made.

On April 6, 1937, appellant filed its report and eighth current account as trustee, for the accounting period of March 8, 1936, to March 8, 1937. The sale and reinvestment was set forth, and prayer was made for the allowance of trustee’s fees and attorneys’ fees. Respondent filed objections to the account, alleging the loss of income, and after answer by appellant, a trial was had before ,a new judge. The court found that appellant trustee had sold the stock without authority to do so; that it had no power to reinvest the proceeds in the bonds which it purchased; and that it was chargeable with 6,480 shares (or 12,960 shares under the second split-up) of the stock of the company, at its market value of $129,600. The detailed conclusions of law filed by the court, which more fully disclose its theory, may be summarized as follows: The testator’s object was to set aside a special trust fund for his widow in the common stock of this company, to be kept intact, and the income paid to her; that it was the testator’s intention that it should not be sold for any purpose ; that under the provisions of the decree of distribution the trustee had no power to sell that stock; that the petition filed by the trustee did not ask for a construction of the decree as to the trustee’s power to sell, and that the other court in granting the petition did not determine or attempt to determine the powers of the trustee; that the court had no jurisdiction to change the terms and conditions of the decree of distribution, and that its order was in conflict with those terms and void. Accordingly, the present court made its order disallowing the eighth current account with respect to the sale of stock and purchase of bonds, and adjudged appellant chargeable with the stock and liable for the difference in income. Appellant was ordered to file a corrected report and account. The request for trustee’s fees was granted, but attorneys’ fees in connection with the sale were denied. This appeal followed.

It is apparent that the order of the lower court must be reversed, on well settled principles. Respondent’s objection to the eighth current account on the ground mentioned, namely, lack of power in the trustee to sell the stock, constitutes a collateral attack on the original order authorizing the sale. The petition for instructions and authority to sell was a distinct and independent proceeding, and the order of the court was appealable. (Prob. Code, sec. 1240.) No appeal was taken, and consequently it became a final determination of the matters adjudged, with the force and effect of a final judgment. (See Security etc. Bank v. Superior Court, 1 Cal. (2d) 749 [37 Pac. (2d) 69] ; Estate of Davis, 151 Cal. 318 [86 Pac. 183, 9 Pac. 711, 121 Am. St. Rep. 105] ; Baldwin v. Stewart, 218 Cal. 364 [23 Pac. (2d) 283].) On a collateral attack, any attempt to show mere error of the court must necessarily fail. The judgment is conclusive unless wholly invalid on its face, that is, unless its invalidity appears from the judgment roll. (Security etc. Bank v. Superior Court, supra.) The question then is whether respondent has succeeded in establishing the invalidity of the judgment so as to subject it to collateral attack.

The first theory relied upon by respondent and the lower court is that the order was void because it purported to authorize an act—sale of the stock, in violation of the terms of the will and decree of distribution. We may here concede that there is grave doubt as to whether the general power of sale first given in the will was intended to apply to the special trust for respondent, in view of the testator’s express direction that the stock should be set apart and the income paid to the widow. We may further assume, for the purposes of this appeal, that it was error for the court to order the sale in the light of the language of the will and decree, and the lack of any sufficient showing of emergency arising from changed conditions and justifying deviation from the trust provisions. (See Security-First Nat. Bank v. Easter, 136 Cal. App. 691 [29 Pac. (2d) 422]; Restatement, Trusts, sec. 167; note, 23 Cal. L. Rev. 86.) Nevertheless, it was not impossible to construe the terms of the will and decree so as to make the general power of sale in the trustee applicable to this particular trust. It would also have been possible for the trustee, upon a proper showing, to secure permission from the court to deviate from express restrictions against sale. When appellant petitioned for instructions and authority to sell, it sought a judicial determination of its powers under the will, the decree, and the applicable law. The court, in granting the petition, made an adjudication of such powers. Its jurisdiction over such proceedings is established by section 1120 of the Probate Code, and appellant complied with all procedural requirements of the section. Having jurisdiction of the subject matter and of the parties, the order of the court, whether correct or not, became res judicata on the issue of power to sell.

The fact that the petition did not specifically request a construction of the decree of distribution, but simply alleged that petitioner had concluded that it was for the best interests of the estate to sell and diversify investments, is not controlling. Since the trustee’s powers were derived from the decree of distribution, the meaning and effect of its provisions were necessarily in issue in the proceeding. The scope of a judgment, when collaterally attacked, is not limited to the factual or legal points expressly urged by counsel or considered by the court; it extends to matters which could have been raised and considered in the particular proceedings under the particular pleadings. (See Silverston v. Mercantile Trust Co., 18 Cal. App. 180 [122 Pac. 976].) As applied to the instant case, since the powers of the trustee could be derived only from the decree of distribution, the court in granting authority to sell necessarily decided that the decree of distribution permitted such a sale, or that the legal doctrine of deviation in emergency, an exception implied by law in any trust instrument, permitted it. If the court reached its conclusion after a careful study of the decree, a full consideration of the evidence, and an examination of the relevant authorities, its decision would be entitled to great weight. If, on the other hand, as respondent contends and the present lower court found, it did not even have the decree of distribution before it, and made its order without being fully advised in the matter, its decision would hardly be persuasive on appeal. But in either case, the most that respondent could show would be that the decision was erroneous, that is, that it decided the issue of power to sell, and decided it wrongly. Such legal error committed by a court within its jurisdiction can be corrected only on direct attack, as by appeal; and when the opportunity for direct attack is gone, the judgment can no longer be questioned.

The other contention of respondent and the lower court is that the first court, before which the original petition was filed, had no jurisdiction to determine the issue of power to sell, because the petition did not allege sufficient facts to give it jurisdiction under section 1120 of the Probate Code. The argument seems to be that though entitled “Petition for Instructions’’, it did not allege any doubt as to the trustee’s power, nor did it seek any instructions, but merely requested authority to sell on the basis of the allegation of the trustee that it had concluded this would be to the best interests of the estate.

It may be noted here that the basic assumption of this argument is wrong; the section requires no particular form of application, but merely states that the trustee may petition the court, from time to time, for instructions as to the administration of the trust. Moreover, the decrees of the probate court in matters which, like these, are clearly within its statutory grant of jurisdiction, have the same effect, and are supported by the same presumptions on collateral attack, as the judgments of a court of general jurisdiction. Allegations of the jurisdictional facts in the pleadings are therefore unnecessary. (Wood v. Roach, 125 Cal. App. 631 [14 Pac. (2d) 170]; Security etc. Bank v. Superior Court, supra.)

But there is another and simpler answer to this argument: The asserted defect in the petition is not, in truth, a failure to allege jurisdictional facts. The contention of respondent is that although the court had jurisdiction over the trust, the trustee, and the beneficiary, that is, the subject matter and the parties, the petition failed to state sufficient facts to warrant the granting of relief. Failure to state a cause of action is not, however, a jurisdictional defect, and cannot be a ground of collateral attack. (Gillespie v. Fender, 180 Cal. 202 [180 Pac. 332] ; Christerson v. French, 180 Cal. 523 [182 Pac. 27] ; Behrens v. Superior Court, 132 Cal. App. 704 [23 Pac. (2d) 428].)

The judgment, in so far as it disallows the report and account of the trustee and denies attorneys’ fees, is reversed with directions to allow the report and account, and to award such attorneys’ fees as the court may deem reasonable. That part of the judgment which allows trustee’s fees is affirmed.

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

CARTER, J., Concurring.

With some mental reservation I concur in the conclusion reached in the opinion of Mr. Justice Gibson, which, as I understand said opinion, is predicated upon the proposition that the order of the trial court authorizing the trustee to sell the United Steel and Wire Company stock had become final and that it was not subject to collateral attack in the manner in which respondent sought to attack said order in this proceeding. Prom a strictly legal standpoint, this conclusion is inescapable.

However, the trial court found that the trust officers of appellant represented to respondent that they had made a full and fair investigation of United Steel and Wire Company and that there was something wrong with it, whereas, in truth and in fact, said trustee had not made a full and fair investigation, and that such investigation if actually made would have revealed that said company was in a sound financial condition; that at the time the trust officers represented to respondent that the sale would be to her best interest, the trustee well knew that the sale of said stock would result in a loss of income and injury to respondent rather than benefit; that respondent relied upon the representations of the trustee, had no independent legal advice, and the trustee never suggested that she obtain it; that in relying upon the representation of the trustee, she did not contest the petition for leave to sell the stock; that she approved the subsequent purchase of bonds without knowledge of the loss that she was suffering. Respondent also asserts that the trustee did not inform her that any doubt existed as to its power to sell the stock; that it concealed this doubt from the court by framing the petition in such a manner as to lead the court to believe that a general power existed and that the trustee was simply asking for instructions on a matter within the discretion of the trustee; and that in such proceeding it failed to disclose to the court the contents of the decree of distribution relative to the above-mentioned stock.

In my opinion the above-mentioned matters constitute sufficient grounds upon which respondent can obtain relief in a proper proceeding for the injury suffered by her as the result of the conduct above narrated. There can be no question but that gross misrepresentation by a trustee, resulting in loss to a beneficiary, constitutes a breach of trust, justifying both removal of the trustee and damages for any loss suffered by the beneficiary. Such relief, however, must be obtained in an appropriate action by the beneficiary against the trustee. The original decree authorizing the sale of the stock would, of course, be res adjudicata, on the power to sell the stock and would preclude any subsequent attack on the trustee’s action on the theory of bad judgment in the matter, but it would not prevent a wholly distinct action for damages for actual fraud under the facts and circumstances claimed by respondent to have existed in connection with the transaction which is the subject of this controversy. In addition, there may be a further remedy for the alleged imposition practiced upon respondent and the trial court by the trustee in failing to disclose the source of its power and the doubt which existed as to its right to sell the stock. If respondent can make out a case of imposition upon the court amounting to extrinsic fraud, an independent action in equity could be brought to set aside the original decree authorizing the sale of the stock, without regard to lapse of time.

I deem it advisable to mention the foregoing matters because both the trial court and the District Court of Appeal held in favor of respondent in the case at bar, which is a persuasive indication to my mind that there is merit in respondent’s claim that she suffered injury as a result of the improper conduct of the trustee, and I regret that because of the rules announced in the majority opinion, the redress to which respondent is entitled cannot be obtained in this proceeding.

Rehearing denied. Curtis, J., Houser, J., and Carter, J., voted for a rehearing.


author: THE COURT.

text:
    [L. A. No. 16187.
    In Bank.
    April 12, 1940.]
    WILLIAM MINIKIN, Respondent, v. FRED HENDRIX, Appellant.
    James W. Briscoe and Stanley T. Tomlinson for Appellant.
    W. Stuart Smith for Respondent.
   THE COURT.

This action was brought for a dissolution of partnership; for the appointment of a receiver; for an accounting, a sale of the partnership assets, and distribution of proceeds to the partners. As the result of the trial of one of the issues with respect to the accounting, the trial court rendered a judgment for plaintiff in the sum of $290, which was found to be one-half the total cost of several improvements made by the partnership on certain real property owned by defendant. The latter has appealed from that judgment.

It appears from the facts found by the trial court that on or about the 1st day of July, 1929, at Santa Barbara, California, the parties hereto formed a partnership for the purpose of engaging in a general woodworking business under the name and style of “Custom Woodworkers”; that the partners transacted the partnership business for the period of approximately five and one-half years; that during the continuance of the partnership certain real property personally owned by the defendant partner was occupied and used by the partnership for business purposes; and that pursuant to an agreement between the partners certain improvements were made on the said real property at the expense and for the use of the business of the partnership.

It further appears that on or about February 6,1935, plaintiff brought the instant action for dissolution of the partnership. Thereupon a receiver was appointed and, pursuant to stipulation of the parties and directions of the trial court in that regard, he proceeded to dispose of the physical personal 'property of the partnership—excepting therefrom the improvements to the real property, the disposition of which was specifically excepted from Ms duties by the terms of the said stipulation. After the debts of the partnership had been paid and the net proceeds had been distributed to the partners, the receiver’s account was allowed and approved,—which left for disposition by the trial court the issue as to what accounting should be made in connection with the said improvements. The trial court received evidence as to the cost of the various improvements, on the theory that plaintiff was entitled to a one-half share of their total cost. In that regard the trial court found that the respective improvements were as follows: The erection of a stucco addition to another building theretofore erected on the premises; an improvement (consisting of ceiling and siding) to a building used by the partners as an office; the installation in one of the buildings of electric lighting facilities; and the erection and installation of a work bench and vise, a lathe bed, and five nests of drawers.

Appellant contends that the evidence was insufficient to support the findings of the trial court as to the cost of the several items of improvements, and in that regard asserts particularly that the evidence given by plaintiff on that issue was based on conjecture and speculation. Plaintiff testified that the figures given by him as the cost of the various items admittedly were approximations, for the reason that he did not know what the bookkeeping entries of the partnership disclosed in that regard, due to the asserted fact— which was found by the trial court to be true—that defendant had “at all times kept the books of the said partnership and that plaintiff has had no knowledge of the entries made therein relative to the partnership business”. Defendant offered no evidence 'in refutation of plaintiff’s testimony regarding the estimates of cost of the several items, nor was any other evidence offered by either party which related to that issue. However, plaintiff further testified that he personally helped in the erection or installation of some of the improvements; that his' estimates of cost of some of the others were based on the amount of lumber used in their construction and on the period of time consumed in such construction and installation. With respect to the figure given by him as the cost of installation of electric lighting facilities, he testified that he knew the length of time spent in such installation and “what ‘they’ charge for putting those in”.

From the foregoing the trial court clearly may have assumed that plaintiff was not without some knowledge of the cost of the various improvements to which he testified. Also, as one of the owners of the said improvements plaintiff was qualified to testify concerning their value. (Los Angeles Co. F. C. Dist. v. Abbot, 24 Cal. App. (2d) 728, 737 [76 Pac. (2d) 188]; People v. Haney, 126 Cal. App. 473, 475 [14 Pac. (2d) 854].) In the latter case it was said: “‘The owner of an article, whether he is generally familiar with such values or not, ought certainly to be allowed to estimate its worth. ’ ” Furthermore, as hereinbefore has been noted, defendant was found to have retained exclusive possession of the books of the partnership, and he offered no evidence in contradiction of the estimates of cost as given by plaintiff. Section 2061, Code of Civil Procedure, provides that “ . . . evidence is to be estimated not only by its own intrinsic weight, but also according to the evidence which it is in the power of one side to produce and of the other to contradict; ... ”. Manifestly, in the instant ease, the rule to be followed is that “ 1 ... an appellate court must accept as true all evidence tending to establish the correctness of the finding as made, taking into account as well all inferences which might reasonably have been thought by the trial court to lead to the same conclusion. ... ’ ” (Iffland v. John, 128 Cal. App. 531, 533 [17 Pac. (2d) 1028].) The trial court was the judge of the credibility of plaintiff as a witness. Its finding as to the value of the several items was based on the minimum figures testified to by plaintiff. Under the circumstances hereinbefore indicated this court may not declare that the findings herein challenged were not sufficiently supported by the evidence,-—since the rule is that the determination reached by a trial court on a question of fact is binding upon a reviewing court, except in the single instance where there is no substantial evidence to support the challenged findings. If believed by the trial court, plaintiff’s testimony as to the cost of the improvements sufficiently supported the findings, inasmuch as it is well settled that the testimony of one witness entitled to credit is sufficient to establish a fact in a civil case. (Leffingwell v. Faubion, 89 Cal. App. 157 [264 Pac. 306].)

However, other contentions with regard to the said improvements are made by appellant, for example, the claim that some of them were “trade fixtures” and, consequently— in the event it be ruled that such improvements were a partnership asset—that pursuant to an accounting they should have been removed from the realty and sold. It also is contended that the said improvements were “trivial” and, therefore, that in the absence of a specific agreement therefor it would be inequitable to require the partner who owned the land to pay the other for improvements made thereon, for the asserted reason that it might be found that such improvements had not enhanced the value of the real property. And in that regard appellant contends that it was incumbent upon respondent to have shown an enhancement in value to the real property due specifically to the said improvements.

In answer to those contentions respondent asserts that, although no California ease may be found which presents the question here involved, the ease of Flint v. Flint, 87 N. J. Eq. 560 [100 Atl. 754, 755], is decisive of the instant matter, and that it provides a complete answer to the foregoing contentions made by appellant herein. There it was said: “It is conceded by defendants that the fact that the land was the land of one of the partners and the improvements were made with partnership funds operates to prevent the owner of the soil from asserting, as against the partnership and its representatives, the right to hold the improvements without some compensation. The question is, What is the right of the partnership? Is it a right in the property or a right against the property? Is it a right of ownership in the property, or is it in the nature of a lien against the property for the value put into it? I think the latter. What the partnership used was money, personal property. This money was used to purchase personal property. That personal property was put upon real estate, and although its physical nature was not in any wise altered, it became, by virtue of a rule of convenience, real estate, but not I think the real estate of the partnership. By virtue of the relations existing between the parties a duty arose upon the part of the owner of the soil in this case to account to the partnership. The right of the partnership was a right to recover from the owner of the soil, not real estate but personal property, to wit, money. (Deveney v. Mahoney, 23 N. J. Eq. 247.) Such a right is a chose in action which is personal property. To hold otherwise would result in endless confusion. It is impossible or impracticable, of course, to sell the improvements apart from the soil. It is impossible to actually partition the improvements apart from the soil. ...” (Emphasis added.) In that case judgment was rendered in accordance with the views thus expressed.

The same decision was reached in the case entitled Marston v. Marston, 277 Mass. 129 [177 N. E. 862], where it was said: “The judge found and ruled that greenhouses numbered 3, 4, 5 and 6, erected after the formation of the partnership, were partnership property, that there was no agreement that they should become the property of T. Franklin Marston [one of the partners], the owner of the real estate, and that the rule that improvements made on the land owned by one partner, if made with partnership funds or for the purpose of the partnership, are treated as the personal property of the partnership and must be accounted therefor, applied to this property. . . . Where partners are to give their whole time to the business and share equally all profits and losses, structures erected by the partners for the partnership business with partnership funds upon the land of one of the partners are partnership property in the absence of any agreement as to the title to those structures or of facts showing a different intention. See Dyer v. Clark, 5 Metc. (Mass.) 562 [39 Am. Dee. 697] ; Deutschman v. Dwyer, 223 Mass. 261 [111 N. E. 877].”

It is the conclusion of this court that the foregoing cases correctly state the law with regard to the situation herein presented. In the instant case it was conceded by the partners that the improvements were purchased with partnership funds and placed on the real property owned by one of the partners; that the latter was compensated by the partnership for the use of the real property; and that no contract was entered into by the partners respecting the disposition to be made of the improvements in the event of dissolution. Under those circumstances the improvements became a partnership asset and, as such, on dissolution of the partnership the non-land-owning partner was entitled to his proportionate share of their value. The evidence showed that with the possible exception of the item “nests of drawers” each of the improvements was affixed to the realty in such manner that severance therefrom would have been impracticable and perhaps impossible. Furthermore, it would appear that the partners recognized the impracticability of severing the improvements for purpose of sale in view of the fact that they specifically stipulated that disposition of the improvements to the real property be excepted from the duties of the receiver in the matter of selling or otherwise disposing of the partnership personalty.

In view of the conclusions reached herein, it follows that no other contention made by counsel need be discussed.

The judgment is affirmed.


author: CURTIS, J.

text:
    [L. A. No. 16771.
    In Bank.
    April 12, 1940.]
    KATHERINE MacDONNELL, Appellant, v. CALIFORNIA LANDS INC. (a Corporation) et al., Respondents.
    Edgar K. Brown and Leo B. George for Appellant.
    Keyes & Erskine and Preisker, Goble, Twitchell & Stephan for Respondents.
   CURTIS, J.

The amended complaint is in two counts, the first of which is in the usual form of an action to quiet title. In the second count, it is alleged that defendant, California Lands, Inc., was the owner of said real property and agreed to sell the same to plaintiff for the sum of $6,000: $700 in cash and the balance to be represented by a promissory note for $5,300, secured by a trust deed upon said real property. Pursuant to said agreement, defendant executed a deed of said real property and plaintiff paid to defendant the sum of $700, and executed and delivered to defendant a promissory note in favor of defendant and a trust deed to secure the payment of said promissory note; that the deed from defendant was not delivered to plaintiff but was recorded in the office of the county recorder of the county in which said real property was located; that said deed, without the knowledge of plaintiff, contained a provision excepting and excluding therefrom all oil and mineral rights in said real property; and that said provision was fraudulently inserted in said deed by the defendant; that plaintiff believed and supposed that a deed in her favor had been made conveying all of said real property to her; and that she would not have paid said price, or any part thereof, nor would she have executed said promissory note and trust deed had she not believed that she was receiving a conveyance of all of said real property, including all subsurface rights therein. In the prayer to said complaint, plaintiff asked that defendant be required to execute to her a good and sufficient deed of conveyance of all of said property without exception of mineral rights, that her title be quieted except as to said trust deed, and that it be determined that defendant has no estate or interest in said real property. The ease was tried upon said amended complaint and the answer thereto of defendant in which defendant in substance admitted that it sold to plaintiff said real property upon the terms stated by her in said amended complaint, excepting that it reserved from said sale all oil, gas, and mineral rights in and to the same. It further alleged that it was the owner of all said oil, gas, and mineral rights, and denied that plaintiff had any interest therein. It further denied all allegations of fraud contained in plaintiff’s amended complaint, and alleged that it sold said real property to plaintiff under an agreement that all oil, gas, and mineral rights contained therein would be and were reserved to defendant. The answer of defendant also pleaded the statute of limitations and laches. Certain fictitious parties were named in the amended complaint, and two parties defendant appeared, claiming to have been served under fictitious names. They represented that they had acquired a certain interest in the mineral rights in said real property through an agreement with the plaintiff. It will not be necessary to deal with their alleged rights in this opinion. The main defendant in this action is the California Lands, Inc., mentioned above, and we shall continue to refer to it as the defendant, or the respondent. The action resulted in a judgment in favor of the defendant, and the plaintiff has appealed.

It is first contended by the appellant that the trial court erred in sustaining respondent’s objection to questions propounded to the appellant respecting conversations between appellant and certain persons, who the appellant claims were agents of the respondent and through whom she purchased said real property. The basis of respondent’s objection to said questions was that there was no proper foundation laid for the admission of any evidence of said conversations, or in other words, that there was no evidence tending to show that the persons with whom the appellant had said alleged conversations, were the agents of the respondent or had any authority to bind respondent.

The appellant testified that the first time she saw the land involved in this controversy was on February 25, 1931, when she and her husband went out to see the land with a Mr. Hammond, a salesman for Mr. Roemer. After looking at the land they went back to the Rubel Building and there met Mr. Roemer and Mr. Glines. It was the office of the Valley Motor Sales Company of which Mr. Roemer was manager. Mr. Glines was the manager of the bank at that place. The bank here referred to was the Bank of America at Santa Maria. After arriving at the office of the Valley Motor Sales Company, the appellant and those present talked about the land. Appellant gave Mr. Glines $350, and at' the direction of Mr. Glines a receipt for this money was given her by Mr. Roemer. This receipt was offered in evidence, but upon the objection of the respondent it was not admitted except for identification. Later on the appellant sent the balance of the $700, which represented the first payment, to the Bank of America at Santa Maria. Either at this time or shortly thereafter, the appellant signed the trust deed at the request of Mr. Shields, an officer of the bank. There is no evidence, nor is it claimed that there is any evidence, that the appellant acquired said real property through negotiations with any other person than the four persons named above, Hammond, Roemer, Clines and Shields. Her evidence shows, and it is uneontradicted, that she was shown the land by Hammond, a salesman for Mr. Roemer, who thereafter took her and her husband to the office of the Valley Motor Sales Company where they met Mr. Roemer, the manager of the Sales Company, and Mr. Clines, the manager of the Bank of America at Santa Maria, where they had a conversation, which resulted in the appellant purchasing the land from the respondent. At their meeting the appellant paid Mr. Clines $350 and was given a receipt by Mr. Roemer for that amount. Thereafter appellant paid to the bank the remaining $350 to make up the cash payment, and under the direction of the bank executed the note and trust deed for the unpaid balance due from her on the land. At the time of the execution of said note and trust deed, the respondent executed and delivered a deed to the property in favor of the appellant. There is no question but that this deed was executed solely in consideration of the execution and delivery of said note and trust deed and the sum of $700 which had been paid by the appellant, partly to Roemer and Clines, and the balance to the bank. In other words, the respondent carried out in every detail the arrangement which the appellant had made with the persons who she claims were agents of the respondent. It is well established that the creation of an agenc-v may be proved by circumstantial evidence. (Hazard, Gould & Co. v. Rosenberg, 177 Cal. 295 [170 Pac. 612] ; Reid v. Clay, 134 Cal. 207, 211 [66 Pac. 262] ; Bergtholdt v. Porter Bros. Co., 114 Cal. 681, 688 [46 Pac. 738]; Puget Sound Lumber Co. v. Krug, 89 Cal. 237, 243 [26 Pac. 902]; Smith v. Schuttpelz, 1 Cal. (2d) 158, 161 [33 Pac. (2d) 836].) The respondent being a corporation could only act through agents. It accepted the fruits of the transaction entered into by the appellant with Hammond, Roemer, Clines and Shields and it would be unjust in the extreme to permit it to escape liability for any misrepresentations, if any were made by them to appellant, during these negotiations. The respondent offered no evidence to explain its connection with these four individuals with whom the appellant dealt in the purchase of said real property, nor to disclaim their apparent authority to act for it. In the absence of any showing to the contrary, we are of the opinion that the circumstances in evidence were at least sufficient to make out a prima facie case of agency. However, this conclusion does not entirely dispose of appellant’s contention that the court erred in sustaining said objections to the admissions of these conversations. In those instances when the court sustained the objections to questions propounded to appellant, she was asked to relate the conversation between her and these men whom she took to be agents of respondent. The sustaining ■of said objections was not, except on two occasions when the evidence sought to be elicited from the witness was of no materiality, followed by any offer to prove the substance of said conversations to be proven. The first of these instances when such an objection was sustained occurred when the appellant related her first visit to the property with her husband and Mr. Hammond. After stating that “the three of us went out to look at the property”, the appellant was asked if anything was told her about the property at that time by Mr. Hammond. After an objection to this question was sustained no further question was asked her respecting this conversation nor was any offer made to prove any statement of Hammond’s made during said conversation. The other instances where complaint is made that the objection was improperly sustained are similar to the one just related. There is nothing to indicate to this court whether the answer of the witness would have been favorable or unfavorable to appellant’s case. It is true that the appellant herself was the witness and it might be contended that we would be safe in assuming that her answer would have been to her interest. But may we indulge in such an assumption? We might assume that the appellant would have testified to statements made by Mr. Hammond which she construed as a representation that the property was being sold, or offered for sale, absolutely free from any mineral reservations. But the court might disagree with the appellant in her construction of such statements, and give to them an entirely different meaning. We are, therefore, of the opinion that without any offer of proof of the substance, at least, of said conversation with Mr. Hammond,—and this conclusion applies to all other conversations which appellant attempted to prove, except in the two instances when offer of proof was made,—the appellant has failed to show that error was committed by the trial court in the sustaining , of said objections. As was said by this court in a case in which the facts were similar to the instant case, “There was no offer to prove the facts sought to be elicited by it. [The question to which objection was sustained.] Therefore, it cannot be determined from the record whether there was any error or not, and as the appellant must show error, the ruling is no ground for reversal.” (Houghton v. Clarke, 80 Cal. 417, 420 [22 Pac. 288].) The rule here announced has been invariably followed by the appellate courts of this state. (Snowball v. Snowball, 164 Cal. 476, 479 [129 Pac. 784] ; Whitelaw v. Whitelaw, 122 Cal. App. 260, 263 [9 Pac. (2d) 874] ; Grandy v. Southern Pacific Co., 9 Cal. App. (2d) 441, 444 [49 Pac. (2d) 1127].) We would call attention particularly to the language of this court found on page 479 in the case of Snowball v. Snowball, supra.

Numerous other contentions are raised by the appellant in support of her appeal from the judgment against her. The most serious obstacle to appellant’s success on this appeal is the finding of the trial court that at the time the deed to said real property was executed and delivered, the appellant knew it contained the reservations to the respondent of the oil, gas and mineral rights. In support of this finding the record shows that said deed actually contained said mineral reservations. This deed was recorded at the request of a title company with whom it was placed in escrow by the parties thereto pending the negotiation for the conveyance of said property. In the ordinary course of business this deed would be returned to appellant, the grantee therein. The next day after this deed was executed, appellant and her husband executed the trust deed to secure the note for the unpaid balance of the purchase price. This trust deed contained a description of said real property and also the reservation of the oil, gas, and mineral rights therein. Appellant testified that she did not read the trust deed but signed it at the request of Mr. Shields in the branch bank of the Bank of America at Santa Maria. Appellant claimed said real property as her separate property, and some three weeks after it was deeded to her, Mr. MacDonnell, her husband, executed in her favor a quitclaim deed to said property and delivered it to her. This deed contained a reservation of the mineral rights in said land “as excepted in the deed to Katherine MacDonnell, dated March 9, 1931 and filed for record March 28, 1931”. The deed thus referred to was the deed from respondent to appellant conveying said land subject to the oil, gas, and mineral rights. While appellant had this deed from her husband in her possession from its date to the date of trial, except during the time it was being recorded, she says she never read it nor knew that it contained said mineral reservations. In addition to the probative effect of these deeds, the record contains certain correspondence and transactions between the appellant and Mr. Marston and other officials of the California Lands, Inc., which in our opinion justified the trial court in finding that appellant knew of said mineral reservations at all times. In the first of these letters, written November 14, 1933, appellant writes Mr. Marston as follows: ‘‘Mr. Marston is it possible for me to get the mineral oil rights released on property as I want to get a Federal Bank loan so I can take care of property as far as California Lands are concerned and make it easier for myself, give me an opportunity to put in crop and pump, etc. They will not give me a loan without oil rights released, so want to know what you will do about it. Please let me know at once.” Mr. Marston answered the letter, stating that his company was unable to give up the mineral rights to the land ‘ ‘ except upon payment of a substantial sum”. Appellant then telegraphed Mr. Marston as to the price of mineral rights, who replied as follows: ‘‘Not interested in selling oil and gas and mineral rights at present time. Our subrogation to Federal Land Bank will meet their requirements.” This correspondence was continued between appellant and Mr. Marston and other officers of the California Lands, Inc., for almost eighteen months, during which time nineteen letters and telegrams passed between the parties, seven of which were sent by appellant, and in not one if any of these letters was any claim made that the mineral reservations were improperly inserted in the deed to appellant, or that she did not know that they were in the deed at the time of its execution and delivery. In fact, in her very first letter to Mr. Marston, she refers to ‘‘these mineral oil rights” as an accepted restriction upon her absolute ownership of said real property and asks that respondent release them. When her request was denied, she then offered to purchase the reserved rights. Her last letter in this correspondence was dated May 31, 1935. In this letter she expressed her keen disappointment in the final decision of the Home Owners Loan Corporation in denying her application for a loan and asked for a modification of the terms of payment of her note given for the purchase of said land. In addition to this correspondence the record shows that on April 5, 1937, after foreclosure proceedings had been instituted on the trust deed against her property, she entered into an agreement with the respondent whereby she agreed to pay $500 on her indebtedness to respondent and to pay the balance in certain monthly payments. In pursuance of this agreement she paid respondent said sum of $500 and the respondent agreed “to cancel the present foreclosure action". Whether this agreement was carried out by the parties, the record does not disclose. During this long interval of time between November 14, 1933, the date of appellant’s first letter to Mr. Marston, to April 5, 1937, when she agreed to pay $500 on her loan, and its terms were to be changed, the appellant made no claim that she did not know that the mineral rights were reserved in the deed to said land, but on the other hand, she dealt with respondent in respect to said rights as valid and existing exceptions to her complete ownership of said property. There is not one word of testimony in her entire evidence in explanation of her conduct in this respect. In fact, after the introduction of said correspondence and said agreement of April 5, 1937, the appellant did not appear as a witness in the case. The amended complaint was filed in this action on October 8, 1937, just six months after said agreement of April 5 was executed by appellant. The record fails to show just the date when this action was commenced. The date of its commencement was, of course, prior to October 8, 1937, when the amended complaint was filed. Therefore, less than six months intervened between the time when appellant executed the agreement of April 5, 1937, whereby she virtually recognized said deed with its mineral reservations as a valid conveyance and the time when she commenced this action to have it declared invalid by-reason of the fraudulent insertion therein of these same mineral reservations. As we have stated, the appellant offered no word of explanation of this unusual conduct on her part. Her counsel in their brief, make a feeble attempt to excuse her for not sooner asserting her claim that said reservations were fraudulently and without her knowledge inserted in said deed, by the statement that during all of the time these negotiations were being carried on, she was in default in her payments on said promissory note and for that reason it was not to her interest to assume a belligerent attitude toward her creditor. This argument in the first place has no evidence to support it. If this were the reason that appellant remained quiescent during this long period, we would expect the appellant to have so stated to the court at the trial. Without doubt this same argument was made to the trial court, and rejected by it as the findings show. The trial court having, on the evidence before it, found that the appellant knew that said reservations were included in her deed at the date of its execution and delivery, and said evidence being sufficient to support the finding of the trial court, this court, even if it so desired, is without the power to disturb said finding.

The foregoing disposes of all necessary issues in the case, including the issue of fraud, for if the appellant knew and accepted said deed with the mineral reservations therein, there could be no fraud on the part of respondent in having the same made a part of its conveyance to appellant.

In view of what we have already said it is unnecessary to pass upon the findings of the court respecting the statute of limitations or laches.

The judgment is affirmed.

Gibson, J., Houser, J., Shenk, J., Carter, J., Edmonds, J., and Waste, C. J., concurred.


text:
    [L. A. No. 16844.
    In Bank.
    April 12, 1940.]
    EVART W. ADAMS, et al., Respondents, v. EDNA T. COOK, et al., Defendants; F. P. NEWPORT, et al., Appellants.

      Lawrence M. Cahill for Appellants.
    James E. Mahon, Eleming & Bobbins and C. S. Tinsman for Bespondents.
   CURTIS, J.

The real property which is the subject of this action was on September 4, 1913, conveyed in trust to Title Insurance and Trust Company, as trustee, and on the 17th day of September, 1913, a declaration of trust was executed whereby the Title Insurance and Trust Company agreed to hold said real property for the purpose of selling the same at any time prior to June 1, 1916, at a gross price of not less than one dollar and fifty cents ($1.50) per square foot, and provided further that if it was unable to sell said real property prior to that date for this price, it could sell the same for such lesser sum as it might deem to be for the best interest of the beneficiaries. The trustee was given power to lease or rent said real property for such price and on such terms and conditions as it might deem best “subject to the sale of said property under the conditions of this trust”. The proceeds of sale or lease of the property were to be applied to pay trustee’s costs, fees, expenses, real estate commissions and taxes, and the balance to be divided into 250 shares and paid to “the owners of certificates of beneficial interest issued and to be issued by said trustee representing the ownership of the balance of such proceeds of sale”. The trust further provided that the trustee in all other matters connected with the trust should act upon the written order of the owners of at least two-thirds of the beneficial interest, said order to be binding on all beneficiaries. The trust was- not tó terminate until all the costs, fees and expenses of the trustee are paid. At the time the trust was created, it was the intention of those creating the trust to sell the property, but no purchaser could be found who would pay the price fixed in the trust instrument. It was not known at that time that the property was oil property and in fact oil was not found in that vicinity until a comparatively short time before the commencement of this action. Upon the discovery of oil in territory included in the land covered by the trust, the trustee was approached by several reliable oil companies for an oil lease of the premises, but the trustee refused to give a lease, as its officers questioned its power under the terms of the declaration of trust to execute a lease under the terms demanded by said prospective lessees. It seems that those desiring an oil and gas lease of said trust property refused to enter into any such lease, if the lease were made subject to the sale of the property under the conditions of the trust. In the meantime many wells were drilled upon adjacent and contiguous properties and oil was being produced from said wells, which it was contended were -draining oil from beneath the land covered by the trust property. Upon the refusal of the trustee to enter into any oil or gas lease of the property under the conditions demanded by the oil companies, this action was brought by plaintiffs, who represent more than 90 per cent of the beneficial interests under said trust, against the trustee and the remaining beneficial interest for declaratory relief, and also for equitable relief.

The complaint is in two counts. Count one is for declaratory relief and count two is for equitable relief, based upon allegations that oil and gas wells are being drilled on property adjacent and contiguous to the trust property and unless the trustee is permitted to enter into an oil and gas lease of said trust property, the oil companies leasing contiguous property will drain and remove oil and gas from beneath the trust property to the irreparable damage of unit holders, both plaintiffs and defendants. A number of the unit holders or beneficiaries who were made defendants failed to appear after being served with process, and their defaults were entered. Others appeared and filed answers to the complaint. Their answers consisted practically of denials of certain allegations of the complaint. The trustee filed an answer in which it joined with the plaintiffs in asking that the court declare its rights and duties under the declaration of trust, and furthermore, asked that the court direct it as trustee to accept the written order and direction of two-thirds in interest of the beneficiaries as to all matters pertaining to the operation of the trust and for attorneys’ fees in the pending action. The trial court found all the allegations of the complaint true, excepting certain allegations of minor importance not involving any issue before us on this appeal. It further found that all the denials and allegations in the respective answers of the defendants were untrue “in so far as the same are inconsistent with the foregoing facts”. It further found that unless the trustee is given power to enter into a mineral, oil and gas lease, free from the restrictions as to sale, said trust property will greatly depreciate in value. The conclusions of law were followed in the judgment, which provided that as a matter of necessity for the preservation of the corpus of said trust the trustee is authorized to enter into a mineral, oil and gas lease, community or otherwise, the same to extend within or beyond the terms of the trust, and that said lease or leases, or any extension thereof, shall not be made subject to the sale of the property under the condition of said trust, and furthermore and for the same reason, the trustee was specifically authorized to accept directions in all matters pertaining to the operation of said trust, whether expressly provided therein or not, upon the written order and direction of two-thirds in interest of the beneficiaries under said trust. Of the numerous parties made defendants in the action, only two have appealed from the judgment of the trial court, F. P. Newport and Letitia A. Newport. F. P. Newport is not only a beneficiary under the trust, but he was one of the two trustors who owned the property which is the subject of said trust. He is also the owner of a sizable amount of the capital stock of a corporation that is drilling an oil well in the vicinity of the trust company. He owns four beneficial interests out of 250 such interests in the trust property.

It is first contended by appellants that the court was without jurisdiction, in the absence of pleading, issue, evidence or proof, in finding that unless said trustee is given power to enter into a mineral, oil or gas lease, “free from the restrictions as to sale, that said trust property will greatly depreciate in value”. This contention is in our opinion without merit. While paragraph VII of the complaint is not in the precise language of said finding, it was sufficient to authorize the court to make said finding, provided there was evidence to support the same. It was therein alleged that unless the trustee was authorized to make an oil and gas lease to extend beyond the term of the declaration of trust, the trust property would be depleted and rendered worthless. The declaration of trust provided that the trustee might lease the trust property, but any such lease “shall be made subject to sale of the property”. No oil and gas lease of the trust property would be considered by the prospective lessees if it contained a condition that it was made subject to a sale of the trust property.

It was for the purpose of having the court, in the exercise of its equitable powers, relieve the trustee from this provision of the declaration of trust that plaintiffs instituted this action. They therefore alleged that unless the trustee was permitted to execute a lease “beyond the terms of the trust”, the trust property would be rendered worthless, which was just another way of stating that unless the trustee was permitted to execute a lease free from the restrictions as to the sale of the trust property, it would become worthless. If the trust property should become worthless, it surely would “greatly depreciate” in value. There was then a proper pleading to support the finding in question. There was ample evidence in support of this finding.. Wells were being drilled on adjacent and contiguous property and their admitted tendency would be to drain the oil and gas from the trust property, and Mr. Harris, of the Title Insurance and Trust Co., the trustee, stated that it would be impossible to lease the land for oil purposes subject to sale, for the reason that no oil company would pay a bonus for a lease with the possibility of having the property later sold. For the above reasons we are of the opinion that this first contention of appellants is without merit.

It is next contended that the trial court was powerless to change the terms of the declaration of trust so as to permit the trustee to enter into an oil and gas lease to extend beyond the terms of the trust indenture, or, in other words, a lease freed from the restrictions as to the sale of the trust property.

It is true as a general rule that courts are without authority to change the contracts of the parties, whether oral or written. This rule is well stated as follows:

“It is not the province of the court to alter a contract by construction or to make a new contract for the parties; its duty is confined to the interpretation of the one which has been made for themselves without regard to its wisdom or folly, as the court cannot supply material stipulations or read into the contract words it does not contain.” (13 Cor. Jur. 525.)

The authorities declaring this rule are legion, but the rule is so universally recognized that it seems unnecessary to mention them here. A number of them are to be found in the footnote in support of the above text from Corpus Juris.

However,, there is another factor present in the instant action, not present in the eases supporting the above rule, and that is that the property herein involved is held in trust, and the question before us is whether the powers of the trustee, as fixed by the declaration of trust, may, under the facts before us, be modified or in any way changed by a court of equity. That a court of equity has the power to change the method of administering a trust estate, when it is shown that such a change is necessary to prevent loss or destruction of the trust property, is well settled by the authorities. (Pennington v. Metropolitan Museum of Art, 65 N. J. Eq. 11 [55 Atl. 468] ; 65 Cor. Jur. 792; In re Pulitzer’s Estate, 139 Misc. 575 [249 N. Y. Supp. 87]; Mertz v. Guaranty Trust Co., 247 N. Y. 137 [159 N. E. 888, 57 A. L. R. 1114].)

In the Pulitzer Estate, the deceased had by his will created a trust whereby there had been delivered to trustees large issues of stock in two publishing corporations, with directions to his trustees to hold the stock and pay the dividends to Ms children, the trust to continue during the lives of his two 3roungest sons, and, upon their death, the testator directed that said stock should be divided under varying conditions. No provision was made in the testator’s will for a sale of the stock in any manner or under any conditions. After the death of the testator and during the lives of his two younger sons, an application was made to the court for an order authorizing the trustees to sell the stock in one of said publishing corporations on the ground that the said publication had during a number of years prior to said application been conducted at a loss and that the same condition prevailed at the time said application was before the court. After an extended review of the authorities, the court held that it had the power to authorize the sale of said stock, although there was no express power given in the testator’s will, empowering his trustees to make said sale. Among the authorities relied upon by the court in holding that it had such authority was the case of Mertz v. Guaranty Trust Co., supra, in which the opinion was written by Chief Justice Cardozo. In the Mertz case, which presented a similar factual situation to that in the Pulitzer case, the court said, ‘ ‘ Enough for the present purposes that there is power. ’ ’ (Page 144.)

The above citation from Corpus Juris states the rule as follows:

“On a showing of reasonable necessity to effectuate the purpose of the trust, a court may authorize a trustee to make a lease beyond the termination of a trust.” (Citing Packard v. Illinois Trust & Savings Bank, 261 Ill. 450 [104 N. E. 275]; Denegre v. Walker, 214 Ill. 113 [73 N. E. 409, 105 Am. St. Rep. 98, 2 Ann. Cas. 787].)

The following additional authorities support this rule: Low v. First Nat. Bank & Trust Co., etc., 162 Miss. 53 [138 So. 586 [80 A. L. R. 112]; Stout v. Stout et al., 192 Ky. 504 [233 S. W. 1057]; Cary v. Cary, 309 Ill. 330 [141 N. E. 156]; Marsh v. Reed, 184 Ill. 263 [56 N. E. 306].

In the case of Pennington v. Metropolitan Museum of Art, supra, 65 N. J. Eq., at p. 22, the court said:

“If trustees disclose a situation of their trust in which a slavish adherence to the terms of the trust will operate to wholly prevent the benefits intended by its creator, and they seek instructions and directions as to their duty, I think that instruction and directions for a course of conduct which, though differing from that prescribed by the terms of the trust, will actually carry out the intent of the creator, may well be grounded upon and sustained by the necessity of the case. The benefits intended for the beneficiaries are the main subjects of consideration. The modes in which those benefits may be attained are incidental, and necessity may require a change of mode to produce the intended effect. The power of the court may well be exercised in a case of evident necessity. How far it may extend on other grounds need not be considered. ’ ’

The facts in the present case bring it within the rule established by the authorities just cited. The trust property was conveyed to the trustee for the benefit of the unit holders. It was the intent of the trustors that the unit holders or beneficiaries under the trust should secure the largest return possible on their investment. At the time of the creation of the trust it was not known, nor from what we gather from the evidence was it suspected that the trust property contained oil, gas or any mineral. It was thought, however, that the land had a prospective value for commercial purposes and the trustee was directed to sell the property at a fixed price, if it could be so sold before a given date. The trustee was unable to make a sale of the property under these conditions and no sale has been made. The trustee still holds the property and the unit holders are the owners of the entire beneficial interest therein. Recently oil has been discovered in the vicinity in which the trust property is located. The court found that the highest purpose for which said property is adapted is the production of oil and gas, and that it is unfit for any other purpose comparable to an oil and gas lease. The court found further, due to the fact that oil wells were being drilled upon land contiguous and adjacent to the trust property, that the corpus of the trust would be depleted and rendered worthless. It appears from these findings that, in the opinion of the trial court, the highest returns to the unit holders on their investments will be realized from a lease of the trust property for the production of oil and gas rather than a sale of the property or the use of the property for any other purpose.

It seems only reasonable to assume that had the trustors, at the time the trust was created, any knowledge that oil and gas could be produced from the trust property, they would have had the declaration of trust provide for a lease thereof for that purpose. In giving to the trustee this right to lease the trust property for the production of oil and gas, the court is only doing what the trustors would have done had they had the same facts before them then that were before this court at the trial of this action.

“Exigencies often arise not contemplated by the party creating the trust, and which, had they been anticipated, would undoubtedly have been provided for, where the aid of the court of chancery must be invoked to grant relief imperatively required; and in such cases the court must, as far as may be, occupy the place of the party creating the trust, and do with the fund what he would have dictated had he anticipated the emergency.” (Curtiss v. Brown, 29 Ill. 201.)

Another Illinois case involved an old-fashioned hotel, which was not fireproof. It was conveyed to trustees with a prohibition against a lease of the premises for a period longer than ten years. The trustees proved to the court that the income under a ten-year lease would be less than half the amount which could be realized from a ninety-nine-year lease, with a provision for the lessee constructing a new building. Since the income under the ten-year lease would be not sufficient to produce any income for the cestuis, the court authorized a ninety-nine-year lease. (Marsh v. Reed, 184 Ill. 263 [56 N. E. 306].)

It is perfectly clear from the above authorities that the rule against courts modifying the terms of a contract, and that they should construe it precisely as the parties had made it, does not apply to declarations of trust, where the primary purpose of the trust would not be accomplished by a strict adherence to the terms of the declaration of trust and that when it is made to appear in a court of equity, as was shown in the present case, that the benefits and advantages which the trustors desired to confer upon the beneficiaries would not accrue to them by “a slavish adherence to the terms of the trust”, the court may modify the terms of the trust to accomplish the real intent and purpose of the trustors. This rule does not run contrary to any of the canons of construction of contracts contained in the Civil Code of this state, as these sections of the code are applicable to the legal interpretation of contracts as expressed by the parties, and have no reference to the equitable powers of a court of equity to modify the terms of a trust indenture in order to meet exigencies that have later arisen and which, unless the trust were modified, would defeat the prime purpose for which it was created.

We find no merit in the contention of appellants that the findings and judgment of the court are contrary to certain express rulings made during the trial of the case. Especially so is this true as the appellants have cited us to no ruling of the court made during the progress of the trial which is contrary to the findings and judgment as later made and rendered by the court.

Finally, appellants contend that the court erred in denying the offer of proof of appellants made during the course of trial as to the testimony of the witness, F. P. Newport. These appellants offered to prove by this witness that the trust property was salable at a certain price; that it was to the best interest of the beneficiaries that said property should be sold at or about said price, and that many of the beneficiaries were aged persons and a sale of the property would be far more to their advantage than a lease. We are unable to perceive how the appellants were prejudiced by the denial of this offer of proof. This action was tried by the court without a jury. The offer, stating the price at which it was claimed the property was salable, was before the court at the time it made its finding to the effect that the highest purpose for which the property of said trust is adaptable is for the production of oil and gas, and is unfit for any other purposes comparable to an oil and gas lease. We fail to see how this finding would have been any different had the court permitted the appellants to produce the evidence of the witness Newport. As to the contention that a number of the beneficiaries were aged persons and that a sale would be more to their advantage than a lease, we think the appellants are in no position to raise this issue. They were not aggrieved by the denial of the court to admit the offered proof, as the offered testimony did not purport to show that either of the appellants was in this class of beneficiaries. If there are any beneficiaries who, on account of their age, would be deprived of their rights by a lease rather than a sale of- said property, they are not before this- court making complaint against such a lease.

We have heretofore considered the judgment in this action as one rendered strictly in a court of equity and not under section 1060 of the Code of Civil Procedure for declaratory relief. An action brought under this section of the code for declaratory relief is an equitable proceeding. (Rolapp v. Federal Building & Loan Assn., 11 Cal. App. (2d) 337, 342 [53 Pac. (2d) 974].) The remedies therein provided for are cumulative. (Code Civ. Proc., sec. 1062.) The powers of a court acting under this section in granting declaratory relief are as broad and extensive as those exercised by such court in any ordinary suit in equity. Under section 1060 of the Code of Civil Procedure the court was empowered to render judgment authorizing the execution of the oil and gas lease without restrictions as to sale, as well as under its general equitable powers. (Jones v. Interstate Oil Corp., 115 Cal. App. 302 [1 Pac. (2d) 1051].) That case in principle is in many respects like the instant case. It involved an oil and gas lease, which required the lessee to sink a well on the leased property to a stated depth. This was done. Thereafter it was discovered that there was a far more valuable deposit of oil sands at a greater depth and other wells in the vicinity began to drain oil from the leased premises. Thereupon the lessor brought an action under section 1060 of the Code of Civil Procedure and the court decreed therein that the lessee be required to drill a deeper well or permit the lessor to do so. This decree was sustained on appeal and it was held that it was proper under section 1060 of the Code of Civil Procedure and not in excess of the power granted therein. It would appear, therefore, that the judgment in this action may be sustained on either or both counts of the complaint.

We find no error in the record before us and are of the opinion that the judgment should be affirmed and it is so ordered.

Carter, J., Shenk, J., Gibson, J., Houser, J., Edmonds, J., and Waste, C. J., concurred.