text:
    [S. F. No. 15709.
    In Bank.
    November 27, 1937.]
    ANNA B. NUCKOLLS, Plaintiff, v. THE BANK OF CALIFORNIA, NATIONAL ASSOCIATION, as Trustee, et al., Defendants; M. C. SYMONDS, as Trustee, etc., et al., Appellants, v. ANNA B. NUCKOLLS et al., Respondents.

      Charles A. Christin, Torregano & Stark, T. J. Keegan, Fitzgerald, Abbott & Beardsley and George D. Collins, Jr., for Appellants.
    Maurice R. Carey, Lloyd Hummel and John A. Gorfinkel, for Respondents.
   CURTIS, J.

The defendant, Horatio G. McMillan, was the owner of two-fifteenths of a certain trust estate created under the last will and testament of his father, Anthony McMillan, deceased, and established by the decree of distribution in the estate of said decedent. The Bank of California, National Association, was the trustee of said trust estate. On June 28, 1926, the said Horatio G. McMillan, executed his promissory note for $30,000 in favor of defendant, Marshall Nuckolls, and assigned his two-fifteenths of said trust estate to the said Marshall Nuckolls as security for the payment of said promissory note. The note bore interest at 12 per cent per annum, compounded semi-annually, and is referred to in the record as note No. 1. After the execution and delivery of this note, the parties to this transaction evidently became aware that the note as drawn was usurious under the Usury Law then in force in that it bore interest at the maximum rate provided by the Usury Law and in addition thereto this interest was compounded. Accordingly and for the purpose t of remedying this defect, on March 30, 1928, Horatio G. McMillan executed a new note for the same amount with the same rate of interest, except that there was no compound interest provided in the new note, which is referred to in this record as note No. 2. This note, although executed on March 30, 1928, was dated June 28, 1926 (the same date which note No. 1 bore), and interest was payable from that date. The assignment of the two-fifteenths of the trust estate given as security for the payment of note No. 1 was by the agreement of the parties made to continue as security for the payment of note No. 2.

At the time note No. 1 was executed, Marshall Nuckolls and plaintiff, Anna B. Nuckolls, were husband and wife, and the said note was their community property. Thereafter a divorce was granted to these parties, and on January 7, 1927, Marshall Nuckolls in a contemplated division of the community property of himself and wife assigned to Anna B. Nuckolls note No. 1, although he retained physical possession of said note. This note was in his possession when, on March 30, 1928, he surrendered it up to Horatio G. McMillan and received in exchange therefor note No. 2, as stated above. Thereafter on the 26th day of November, 1928, the said Marshall Nuckolls and Anna B. Nuckolls consummated their property settlement, and on that date said Marshall Nuckolls transferred and assigned to Anna B. Nuckolls note No. 2 and by written assignment transferred to her the assignment of said two-fifteenths of said trust estate held by him as security for the payment of said note No. 2 and at that date said Marshall Nuckolls delivered to the said Anna B. Nuckolls said note No. 2 and said assignment of McMillan given to secure the payment of said note. After the delivery of said note No. 2 to Anna B. Nuckolls, Marshall Nuckolls continued to collect the interest thereon at the rates specified therein for and on behalf of Anna B. Nuckolls.

Other loans were made to McMillan, all of which were secured by assignments of the two-fifteenths of said trust estate. It is not necessary to specify any of these subsequent loans except the loan of $6,000 on June 5, 1930, evidenced by a promissory note to Marshall Nuckolls. This note and security were transferred and assigned to Anna B. Nuckolls on June 6, 1930.

There were the following further transfers or liens against Horatio G. McMillan’s interest in said trust estate:

(1) On May 3', 1930, McMillan assigned his interest in said trust estate to General Motors Corporation to secure the payment of $2,980.37 with interest at 7 per cent per annum.
(2) On January 9, 1932, McMillan made a further assignment of his interest in said trust fund to secure the payment of a promissory note for $1,000.
(3) On June 30, 1933, McMillan borrowed $2,500 from the Pacific National Bank and assigned his interest in said trust to secure the payment of said sum.
(4) On September 24, 1934, in an action brought by T. J. Keegan against McMillan, a writ of attachment was served upon the defendant, the Bank of California, National Association, as trustee, in an action to recover $15,983.

This action was instituted on October 10, 1933, by plaintiff Anna B. Nuckolls to recover the several amounts due her from McMillan on the several loans held by her against McMillan, and to foreclose the interest of McMillan in said trust estate. All of the above-named persons and corporations claiming liens against McMillan’s interest in said trust estate were made parties defendant. McMillan was also made a defendant, but after the institution of the action he was declared bankrupt and M. C. Svmonds, his trustee in bankruptcy, was made a party to the action, and filed an answer and cross-complaint. All the defendants, including Symonds as trustee, set up usury as a defense to various of the claims of plaintiff. The General Motors Corporation set up an additional defense which will be stated more definitely and considered later in this opinion.

The court found that note No. 2 and certain of the other obligations of Horatio G. McMillan, held by plaintiff and mentioned above, were, at the respective dates upon which they were incurred, usurious and in violation of the Usury Law of 1918, but that said Usury Law had been repealed on November 6, 1934, by the adoption of article XX, section 22, of the state Constitution; accordingly neither note No. 2 nor any of the other obligations were usurious or contrary to any usury statute of the state of California, and that they are “and each of them is founded and based upon a valuable, good, and sufficient consideration”. Judgment was rendered in favor of plaintiff Anna B. Nuckolls for the full amount of her several claims with interest. The following-named defendants have appealed from said judgment: M. C. Symonds, the trustee in bankruptcy; Pacific National Bank, George L. Crabtree, General Motors Corporation and T. J. Keegan.

Only two points are raised in appellants’ opening brief. One of these affects the interest and is made in behalf of all of the appellants and the other concerns the judgment only in so far as it determines the rights of the appellant General Motors Corporation. These points, as stated in the brief, are as follows: (A) Was the Usury Law of the state of California repealed by the constitutional amendment of 1934? (B) The court erred in holding that the six-thousand-dollar note of Horatio G. McMillan executed in favor of Marshall Nuckolls and by him assigned to the plaintiff Anna B. Nuckolls had priority over the claim of General Motors Corporation.

As to the first of these two points which involves the present status of the Usury Law in this state, the question therein involved was considered and determined by this court in its opinion in the case of Penziner v. West American Finance Co., ante, p. 160 [74 Pac. (2d) 252], It was there held that the Usury Law of 1918 was still in full force and effect except as to those provisions thereof which are in conflict with article XX, section 22, of the Constitution, adopted in the year 1934. It is not necessary to repeat here our decision of that subject as contained in the opinion in that case upon the present status of the Usury Law in this state.

However, appellants were apparently not willing to rest their ease upon the sole ground that the Usury Law has not been repealed, as they have devoted a considerable portion of their opening brief under the “first point” to an attempt to show that Anna B. Nuckolls was not a holder in due course of the notes and securities held by her, which were executed by the said Horatio G. McMillan and secured by assignments of his interest in said trust estate, and not being such a holder of these securities the defense of usury was available to appellants to defeat, or at least to reduce the amount of, her claims as fixed by the judgment in this action.

In connection with this question, the record shows that the court found that Anna B. Nuckolls acquired said obligations before maturity in good faith and for value without actual notice of any infirmity in any of the instruments or defect in the title of the defendant Marshall Nuckolls, and without any actual notice of any defense to any of said instruments.

There was nothing usurious on the face of any of the obligations and there was nothing in the body of any of them to indicate to an innocent purchaser that it was usurious. The law in this state is well established that the defense of usury is not available against a holder in due course. (Brown v. Guaranty Mortgage Co., 220 Cal. 532 [31 Pac. (2d) 788], Connon v. Goebel, 217 Cal. 399 [18 Pac. (2d) 931], Community Lumber Co. v. Chute, 215 Cal. 268 [10 Pac. (2d) 57], and Baker v. Butcher, 106 Cal. App. 358 [289 Pac. 236].)

Appellants contend, however, that other specific findings of the court show that plaintiff was not the holder of said note in due course, and that after she became the owner of said note she knowingly collected usurious interest thereon. The court found that plaintiff acquired said note in a property settlement with her husband Marshall Nuckolls, from whom she had been divorced. Appellants make no claim that plaintiff did not acquire said obligation for value, but base their contention that the defense of usury is available to them against the plaintiff as to note No. 2, upon the claim that it was community property, and, therefore, Anna B. Nuckolls was not a holder thereof in due course, and, furthermore, that after the note was assigned to Anna B. Nuckolls, Marshall Nuckolls acted as her agent in charging, allocating, and demanding usurious interest.

We shall first consider the contention that Anna B. Nuckolls was not a holder in due course. As we have seen, the court expressly found that plaintiff became the holder of said note without any actual notice of any infirmity therein. The only showing under which she could be held to have received constructive notice would be that, as the note was the community property of herself and husband, notice to him would be imputed to her. In other words, appellants contend that Anna B. Nuckolls had constructive notice that the note was usurious, and therefore she was not a holder in due course. Section 3137 of the Civil Code provides that: “To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.” In the case of Merced Security Sav. Bank v. Bent Bros., 207 Cal. 652, 656 [279 Pac. 765], we find this section cited and followed in the following language: ‘To constitute notice of an infirmity in the cheek of the appellant, or defect in the title thereto of the Farmers & Merchants National Bank, the respondent must have had actual knowledge of the infirmity or defect, or knowledge of such facts that its action in taking the instrument amounted to bad faith. (Civ. Code, sec. 3137.) The check was complete and regular upon its face, and it had not been previously dishonored. It was taken by the respondent in good faith and for valuable consideration, passing by reason of the settlement for the balance due on the clearances on September 18th, and respondent had no notice of any defect in the title of the negotiating bank.” The following cases contain similar statements of the law: Goodale v. Thorn, 199 Cal. 307, 314 [249 Pac. 11]; James Mills Orchard Co. v. Bank of America, 137 Cal. App. 299, 305 [30 Pac. (2d) 626, 32 Pac. (2d) 342]; Ross v. Title Guarantee Co., 136 Cal. App. 393, 399 [29 Pac. (2d) 236]; Drukker v. Howe & Haun Investment Co., 136 Cal. App. 437, 442 [29 Pac. (2d) 289].

There is nothing in the findings which would indicate that Anna B. Nuckolls had actual knowledge of any facts that would put her upon inquiry as to whether the note was usurious or indicated that in taking the note she was acting in bad faith. On the other hand, the whole tenor of the findings of fact is that she acted innocently and in perfect good faith in accepting the note as a part of her share of the community property. The record shows that at the time of the divorce the parties were the owners of community property of the reasonable value of over two hundred and seventy thousand dollars, and that in the settlement she received only a fair and equitable division thereof. It does not stand to reason that if she had knowledge of any fact that would cause her to question the validity of said note she would have accepted it as part of her share of the community property instead of other property of the community of unquestioned validity. We are, therefore, of the conclusion that Anna B. Nuckolls is a holder for value and in due course of said promissory note No. 2. The same conclusion applies to all the other obligations of Horatio G. McMillan which she held and which are involved herein. None of them showed on its face that it was usurious.

We now come to the further contention of appellants that after note No. 2 and also the other obligations upon which it is claimed usurious interest was collected, were assigned to Anna B. Nuckolls, Marshall Nuckolls acted as her agent .in collecting usurious interest upon these obligations and that the acts of her agent rendered the transactions usurious.

Finding No. 9 reads as follows: ‘ That it is true that after the 26th day of November, 1928, said defendant, Marshall Nuckolls, for himself and as agent for plaintiff, Anna B. Nuckolls, the subsequent assignee of said note ‘No. 2’, charged, allocated and continued to demand from defendant, Horatio G. McMillan, and Lilian McMillan interest at semi-yearly intervals upon the principal sum of said note ‘No. 2' and upon the interest accruing thereupon after the taking of said note. ’ ’

Similar findings were made as to the other obligations on which usurious interest was charged and demanded. It will be noted that the language used in the finding is that Marshall Nuckolls “charged, allocated and continued to demand from defendant . . . interest at semi-yearly intervals upon the principal sum . . . and upon the interest accruing thereupon after the taking of said note.” It will be further noted that while the court found that Marshall Nuckolls, as the agent of his wife “charged, allocated, and continued to demand” interest upon the interest, there is no finding that he paid said illegal interest, or any part thereof, to his wife. We have carefully gone over the voluminous findings of the court, and we are unable to discover any finding therein that Marshall Nuckolls paid any part of the usurious interest to Anna B. Nuckolls, his wife. Furthermore, the findings compel the inference that Anna B. Nuckolls did not assent to or know that any usurious interest was being charged or collected by Marshall Nuckolls. The transaction was not therefore rendered usurious by the acts of her agent in making an excessive and unlawful interest charge. (Vaughan v. Peoples Mortgage Co., 130 Cal. App. 632, 641 [20 Pac. (2d) 335]; Niles v. Kavanaugh, 179 Cal. 98, 100 [175 Pac. 462, 1 A. L. R 831]; St. John v. Fowler, 229 N. Y. 270, 273 [128 N. E. 199]; Chicago Fire-Proofmg Co. v. Park Nat. Bank, 145 Ill. 481 [32 N. E. 534, 535]; Franzen v. Hammond, 136 Wis. 239 [116 N. W. 169, 128 Am. St. Rep. 1079, 1082, 19 L. R. A. (N. S.) 399]; Freedman v. Katz, 246 Mich. 296 [224 N. W. 325, 326, 63 A. L. R. 831, 834]; New York Mortgage Co. v. Garfinkle, 231 App. Div. 327 [247 N. Y. Supp. 313, 315, 316].)

A few excerpts from these authorities will serve to clarify this rule. In the Niles v. Kavanaugh, supra, case, this court held that “a payment to an agent of the lender is, in .effect, a payment to the lender himself. But where th'e lender is in no way interested in a charge, or connected with it, the transaction is not to be denounced as usurious ’ ’. In Franzen v. Hammond, supra, the Supreme Court of Wisconsin stated the rule in the following language: “It is not within the apparent scope of a legitimate business agency to violate the law. So where an agent loans money, exacting a bonus for himself, the presumption is rather that it is without the knowledge of the principal than with such knowledge.” The Supreme Court of Michigan in Freedman v. Katz, supra, after reviewing the authorities upon this question, stated the conclusion as follows: “The great weight of authority is that a loan is not rendered usurious by the lender’s agent charging the borrower, for his own benefit, a commission or bonus for procuring the loan, in excess of the maximum legal rate of interest, where such charge is made without the lender’s knowledge or consent, either expressed or implied, and is not ratified or shared by him.” In Vaughan v. Peoples Mortgage Co., supra, the rule is concisely stated in the following language: “Where an individual wishes to invest money through an agent, the integrity of the loan is not affected by the act of the agent in charging usury, unless the lender has knowledge of the transaction or assents to it or receives some benefit from it.” Our conclusion from the foregoing discussion and citation of authorities is that the act of her agent in collecting usurious interest without her knowledge or consent did not render the transaction usurious as to Anna B. Nuckolls where no part of such usurious interest was received by her.

The second point raised by appellants concerns only the appellant General Motors Corporation. This appellant holds an assignment by Horatio G. McMillan of his interest in said trust estate to secure the payment of $2,980.37 and interest. The date of this assignment is May 3, 1930. After this assignment was executed and delivered and notice thereof served upon the Bank of California, the trustee of the trust estate, McMillan, on June 5, 1930, made the assignment of his interest in said trust estate to secure the payment of said promissory note of $6,000 as stated Shove. No notice of the assignment to the General Motors Corporation was given to the plaintiff or to Marshall Nuckolls, and when dividends were paid by the bank to Marshall Nuckolls he applied a sufficient amount of these dividends at the special instance and request of Horatio G. McMillan to the payment of said promissory note of $6,000. Appellant contends that this money should have been paid on the interest due on said $30,000 promissory note thereby reducing the amount of interest due thereon. The trial court found that said $6,000 note had been paid in full. No claim is made that either plaintiff or Marshall Nuckolls did not act in the matter in perfect good faith. It cannot be questioned that the lien of General Motors Corporation was prior to that securing the $6,000 note, and had General Motors Corporation notified plaintiff of its lien and directed the payment of said dividend to the amount due on the $30,000 note, its lien on said funds would have been preserved, but no such notice was given to the plaintiff. As a result of this lack of notice and at the instance and request of the debtor these dividends were applied to the payment of the $6,000 note. The situation here is much like that shown to have existed in the ease of Anderson v. Northwestern Trust Co., 184 Minn. 200 [238 N. W. 164], In its decision of that ease, the court ruled as follows: “So payments and application thereof were facts accomplished and made in accordance with the directions of the debtor and under the law applications made were rightful and legal when made. The then undisclosed equities, if any, of the plaintiff would not overturn what had rightfully been done. In Pond & Hasey Co. v. O'Connor, 70 Minn. 266 [73 N. W. 159,160, 248], this court said: ‘It is the rule that the application once rightfully made by either party is conclusive and final. Also that the law will not disturb an application once made by the parties. ’ ” A reasonable application of this rule to the facts in the present case renders it necessary to hold that as the funds in question were applied according to the agreement between the debtor and the creditor without any knowledge on the part of the creditor of the equities of a third party, “the law will not disturb an application once made by the parties”.

The judgment is affirmed.

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

Rehearing denied. Shenk, J., and Edmonds, J., voted for a rehearing.


source: Caselaw Access Project

author: HOUSER, J.

license: Public Domain

text:
    [S. F. No. 15908.
    In Bank.
    November 27, 1937.]
    THE PEOPLE et al., Petitioners, v. SUPERIOR COURT OF SAN BERNARDINO COUNTY, Respondent.

      U. S. Webb, Attorney-General, Robert W. Harrison, Chief Deputy Attorney-General, and Neil Cunningham and Walter K. Olds, Deputies Attorney-General, for Petitioners.
    Guthrie & Curtis, O'Melveny, Tuller & Myers, William W. Clary, Jackson W. Chance and Ray IT. Lindman for Respondent.
   HOUSER, J.

By act of the legislature of this state, duly approved by the governor thereof (Stats. 1935, p. 1465), authority was conferred upon a commission that purportedly was created by said act to establish “the (a) Southern California prison under the management and control of the state board of prison directors; to provide for purchase or acquirement of farm lands by unconditional gift or use of lands owned by the state therefor; and the construction of build-. ings and other improvements in connection therewith; to provide for the commitment and transfer of prisoners thereto and therefrom; to provide for the equipment, conduct and management thereof; and to make an appropriation therefor ’ ’. To that end, to the commission was delegated the right to select a suitable site for such prison. In addition thereto, by the terms of section 12 of the act, it was provided that ‘The title to the land shall be taken in the name of the State of California. The commission shall select such farm site and acquire the same by unconditional gift or purchase or if the same cannot be so acquired, may institute condemnation proceedings for the acquisition of the site. ’ ’

In assumed due course, a selection by the commission of certain property that was proposed to become the site of the prison was made; but neither by purchase nor by “unconditional gift” was the commission able to, nor did it, acquire the property from the owner for the state of California. Failing in that regard, for the purpose of acquiring the site for prison purposes, an action in the exercise of the right of eminent domain was commenced by the State of California against the owner of the property. As a part of its answer to the complaint that was filed in the action, and as a defense thereto, the defendant therein alleged that “Plaintiff has no capacity to institute or maintain this proceeding in eminent domain,-in that there is an agency of the State of California especially directed and empowered to institute such proceedings, to-wit, the Special Commission for the selection of a prison site in Southern California, by virtue of Stats. 1935, Chap. 414, Sec. 12.” A motion that was presented by the plaintiff to the trial court to strike such defense from the answer of the defendant was denied; following which, a motion that likewise was made to the trial court by the plaintiff to set the cause for trial also was denied. Thereupon, at the instance of the plaintiff, this court caused its alternative writ of mandate to issue, directed to the trial court, to the effect that it either set said cause for trial, or that on a specified date, it show cause why it had not done so. In response thereto, the respondent to said alternative writ has filed its “return and answer” to the petition, and the cause is now ready for determination by this court.

From the record herein, the fact is disclosed that the allegation by the defendant in its answer to the complaint, to the effect that the plaintiff therein, to wit: the State of California, has no capacity either to commence or to maintain the action, rests upon the foundation that, by the terms of the enabling statute, the right to institute the action was exclusively conferred upon the special commission, the creation of which was provided for by the terms of the statute. Consequently it is contended by the defendant that the action having been brought, not by the commission, but by the State of California, the incapacity of the latter in the premises is conclusively established. On the other hand, the position of the plaintiff, State of California, is that, notwithstanding the fact that within the body of the statute authority to institute the action was attempted to be conferred upon the special commission, such purported authority is void and of no effect in the face of the additional fact that the title to the act was fatally defective in that nowhere therein, in disregard of the requirements with reference thereto which are contained within the provisions of section 24 of article IV of the Constitution, was either the subject of eminent domain mentioned, or the authority of the special commission to exercise such privilege in any manner set forth.

At the outset, it should be noted that this court withholds its approval of the irregular procedure, or that which may be termed the “short-cut” method which has been pursued by the parties with reference to their apparent purpose to obtain an advance ruling herein on an issue which, if thought desirable by the aggrieved party in the litigation, ordinarily should have been determined on an appeal from the judgment. Regarding proper procedure, it is apparent that ordinarily, in like circumstances, an alternative writ of mandate should riot issue. However, since with the obvious concurrence of all interested parties to the action the matter has been presented to this court, and is now before it for determination, and since the litigation is one in which the public is concerned, the deciding issue will be given consideration.

As hereinbefore has been indicated, the basic question is, considering the fact that by the terms of section 24 of article IY of the Constitution, the statute under consideration was required to “embrace but one subject, which subject shall be expressed in its title”,—were the pertinent words of the title to the statute sufficient to legally authorize the special commission to condemn land,—the title thereof to be “taken in the name of the State of California”?

By the language contained in section 12 of the instant statute specific authority is conferred upon the special commission to “institute condemnation proceedings for the acquisition of the site”. And in substance, by the terms of subdivision 7 of section 675 of the Political Code, where in appropriate circumstances no other agency of the state has been empowered to institute a condemnation proceeding, the director of finance is authorized to do so “In the name of the State of California”. In the premises, if the special commission, the creation of which is authorized by the terms of the statute, has the power to institute the action, manifestly it takes precedence in that regard over the general power of the State of California, acting through its designated agent, the director of finance.

Reverting to the wording of the title to the statute, as far as is here pertinent it appears that it was “An act to establish the Southern California Prison ... j to provide for purchase or acquirement of farm lands by unconditional gift or use of lands owned by the state therefor; . . . ”

Although concededly the title to the act embraces but “one subject”, it is obvious that in terms it does not purport to authorize or to empower any agency either to institute or to maintain an action in eminent domain to effectuate either or any of the manifest purposes of the statute. It is clear that the objective of the statute was “to establish the (a) Southern California Prison”. That much is expressed in unmistakable terms. Ordinary intelligence would indicate that in order that such an objective be successfully accomplished, for the location of a prison, it would be most desirable that the most suitable site therefor should be obtained; also that in the efficient selection of such a site numerous elements or factors of economic desirability would receive consideration;—for example, general climatic conditions, soil, water supply, availability of gas and electricity, transportation facilities, and distance from the different centers, not only of general supply but also of possible inmates of the prison. In that connection, readily, if not spontaneously, would occur to the “mind” of the thinking public the thought that, after due and careful deliberation, the commission having reached a conclusion regarding the selection of the most desirable site, for any one of various reasons the owner thereof might be averse either to the sale or other disposition of his property even for ordinary uses; but especially with knowledge of the certainty, that if sold to the state, it would be used for prison purposes, would the owner decline or refuse to sell either a part or the whole of his property. In these days when everyone is witnessing the completion of vast construction projects not only by the state but also by the federal government, the inference is so persuasive that its strength 'approaches the force of a conclusive presumption that resistance to the wishes of such agencies is useless, and that eventually governmental forces, although perhaps not unwilling to negotiate with private individuals, nevertheless “take what they want”. In such circumstances, the average citizen would naturally assume that if the state were to insist upon acquiring the property, the only means by which it might accomplish its purpose in that regard would be by the method known as a condemnation proceeding or, “speaking by the book”, by an action in the exercise of the right of eminent domain.

In the consciousness of the situation which ordinarily obtains in the “mind” of the affected public, it may be well to consider the purpose of the constitutional requirement to which reference hereinbefore has been had.

As was declared in Ex parte Liddell, 93 Cal. 633, 636 [29 Pac. 251]: “The object of the provision (see. 24, art. IV, Const.) is to prevent legislative abuse,—to prevent the passage of acts bearing deceitful and misleading titles. It is intended to protect the members of the legislature, as well as the public, against fraud; to guard against the passage of bills the titles of which give no intimation to the members of the legislature or to the people of the matters contained therein,” (To the same effect, see In re Werner, 129 Cal. 567, 570 [62 Pac. 97], Law v. San Francisco, 144 Cal. 384, 388 [74 Pac. 1014], People v. Sacramento Drainage Dist., 155 Cal. 373, 385 [103 Pac. 207], Kaiser L. & F. Co. v. Curry, 155 Cal. 638, 658 [103 Pac. 341], Estate of Elliott, 165 Cal. 339, 344 [132 Pac. 439], Moore v. Williams, 19 Cal. App. 600, 606 [127 Pac. 509] , People v. Wong, 61 Cal. App. 497, 503 [215 Pac. 409], and People v. Sterling Refining Co., 86 Cal. App. 558, 566 [261 Pac. 1080].)

In the light of such declaration of the purposes of the constitutional provision, and having in mind that which might be termed the universal knowledge of the public with reference to the usual means which from “time immemorial” have been employed by sovereignty in acquiring for public use the lands or other property of its private citizens or denizens, to wit, by an action in the exercise of the right of eminent domain, it becomes clear that the title to the act in question neither adversely affected, nor conld so affect, either any member of the general public, or any member of the legislature, as far as it might deceive, mislead or defraud him or them concerning the authority of the state to condemn any suitable property for “the establishment of the (a) prison in Southern California”.

It also may be noted that included within the title to the act, following the statement to the effect that its purpose is “to establish the Southern California Prison”, the language employed is “to provide for purchase or acquirement of farm lands by unconditional gift or use of lands owned by the state therefor”.

Directing attention to the particular words that occur therein, to wit: “to provide for purchase”, it well may be argued that ‘‘ex proprio vigore”, such language imports authority not only to acquire lands by bargain and sale agreement for their agreed cash value, by possible exchange of some previously-owned land by the state for other land that might be more suitable for prison purposes, or even by the means that was adopted and sought to be made effective herein, to wit: by means of an action in the exercise of the right of eminent domain. In other words, that the word “purchase” is broad enough to include within its meaning any means other than by descent. The books abound with general definitions of the word “purchase”. In Words and Phrases, volume 7, page 5853, may be found references to many different cases, wherein it is held, respectively, that “ ‘Acquisition by purchase’ includes every mode of taking title except descent or inheritance”; also, “The term ‘purchase’ in its general signification, and which is the legal sense of it, includes all modes of acquiring property except by descent . . . ”. In full accord with such authorities and extending the principle specifically to situations in analogy with that herein presented, in each of several condemnation suits, it has been held that the word “purchase” includes authority to bring a condemnation proceeding. In the case of United States v. Beaty, 198 Fed. 284, the court said: “When used in a statute, the word ‘purchase’ is frequently held to include any method of acquisition other than by descent. (7 Words and Phrases, 5853.) To construe the word here to mean only acquisition by buying, we must assume that Congress had in mind the method of acquisition rather than the general purpose to acquire. The mere use of the word ‘purchase’— which may have been used in its technical sense—is not to my mind a sufficient reason for such assumption. If, as we must, we give the members of Congress credit for a reasonable knowledge of human nature, they must be assumed to have known that to restrict acquirement to voluntary sales by the owners would most probably defeat the chief purpose for which the appropriation was made . . . The very purpose of that (first) section was to authorize condemnation whenever, theretofore or thereafter, an act of Congress authorized land to be ‘procured’ for public use.” (See, also, United States v. Whipple Hardware Co., 191 Fed. 945, and Trustees of Schools v. Berryman, 325 Ill. 72 [155 N. E. 850].)

Again, as is expressly declared, the purpose of the act is “to establish the Southern California Prison”. The several dictionary definitions of the word “establish” include the meaning of originating, founding, instituting or creating anything with a view to securing its permanent existence, such as a colony, a state, or “other institution”. And in “establishing” a prison, it is manifest that in a proper and pertinent sense as applied to the subject-matter of the act, many different and sundry things necessarily would require performance. It would seem most improbable that anyone could conceive of the establishment of a modern prison in the absence of at least the construction of suitable buildings for that purpose; and if the existence of such an element in the consummation of the general purpose be conceded, very naturally it would follow that a location or site for the building or buildings would be of paramount necessity;—from which situation, the mind of any interested person would be directed to the several means by or through which a suitable site might be obtained; and as hereinbefore has been indicated, either as a matter of personal experience, or through general reading or observation regarding the construction of state projects, he would at once understand and appreciate the fact that one of the available means to that end would be by or through the procedure commonly known as a condemnation of the property of some private citizen.

It is a well established legal principle that although the power of eminent domain is inherent in sovereignty, nevertheless neither the state itself nor any subsidiary thereof may lawfully exercise such right in the absence of precedent legislative authority so to do. And equally established is the rule that the agency to which has been delegated the authority to institute a condemnation action has the exclusive power in the premises. In that regard, in the case of San Joaquin etc. Irr. Co. v. Stevinson, 164 Cal. 221, 226 [128 Pac. 924], it is said: “It is conceded by plaintiff that the power of eminent domain is vested in the state, and that no person or corporation can avail himself or itself of that power, even in aid of a recognized public use, unless the state has granted to such person or corporation a right to exercise the power for the particular use proposed. There must be a statute conferring the power, either expressly or by necessary implication ...” To the same effect, see 20 C. J. 885, 887; Nichols on Eminent Domain, volume 1, section 19; also, Ventura County v. Thompson, 51 Cal. 577.

Full recognition by the legislature of this state of the former foregoing rule appears not only within the statute here in question, but also by the general statute to which reference hereinbefore has been had, to wit: subdivision 7 of section 675 of the Political Code.

Furthermore, by judicial interpretation or construction, it has been held that the legislative intent as expressed by it in conferring statutory authority must be strictly pursued. (Stamford v. Worn, 27 Cal. 171; McCarty v. Southern Pac. Co., 148 Cal. 211 [82 Pac. 615]; City of Los Angeles v. Glassell, 203 Cal. 44, 46 [262 Pac. 1084]; Cooley's Constitutional Limitations, 8th ed., p. 1119; Bensley et al. v. Mountain Lake Water Co., 13 Cal. 306, 307, 315, 316 [73 Am. Dec. 575]; United States v. Rauers, 70 Fed. 748, D. C. Ga., and Wise v. Yazoo City, 96 Miss. 507 [51 So. 453, Ann. Cas. 1912B, 377, 26 L. R. A. (N. S.) 1130]; see, also, sec. 387, Lewis on Eminent Domain, 3d ed.)

In other words, unless with reference to the power delegated, the statute be unconstitutional, the action must be commenced and maintained by the agency which has been specially authorized by legislative act to institute it.

Many decisions that heretofore have been rendered by this court attest the rule in substance, that a statute is not within the constitutional inhibition (sec. 24, of art. IV), where it appears that the title to such act affords a clear indication of- the ends that are proposed to be effectuated by the questioned legislation, but which title does not embrace “an abstract or catalogue” of the entire contents of the act, provided that from a reading of the title it would be apparent to an ordinarily intelligent mind that the details, incidents or methods of procedure, for -which provision is made in the body of the act, are germane to the main purpose of the statute and obviously are necessary to its accomplishment. In the case of Ex parte Liddell, 93 Cal. 633 [29 Pac. 251], it is said: “In Abeel v. Clark, 84 Cal. 226, 229 [24 Pac. 383], we held it was not necessary that the title of the act should embrace an abstract of its contents. ... It certainly was not intended that the title should be a repetition of the provisions found in the body of the bill; ... If the title contains a reasonable intimation of the matters under legislative consideration, the public cannot complain. . . . Numerous provisions having one general object fairly indicated by the title may be united. (Montclair v. Ramsdell, 107 U. S. 147 [2 Sup. Ct. 391, 27 L. Ed. 431].) When the general purpose of the act is declared, the details provided for the accomplishment of that purpose will be regarded as necessary incidents. . . . The title of the act clearly shows what the legislature intended to accomplish, and the provisions referred to simply conduce to that object; they are auxiliary to and promotive of the main purpose of the act, and have a ‘necessary and natural connection’ therewith. They are germane to the subject stated in the title of the act; ...” Also in Estate of McPhee, 154 Cal. 385, 388 [97 Pac. 878], the court said: “It is now well settled that the constitutional provision requiring the subject of the act to be expressed in its title must be liberally construed, and that all that is required to be contained therein in order to meet the constitutional requirement is a reasonably intelligent reference to the subject to which the legislation of the act is to be addressed.” It is not necessary that it should “embrace an abstract or catalogue of its contents.” And in the late case of People v. One Ford V8 Tudor Sedan, 12 Cal. App. (2d) 517 [55 Pac. (2d) 908], wherein the constitutionality of the State Narcotic Act was challenged upon the ground that its title did not embrace the subject-matter of the act, the court said: “The title is not required to give the substance of the bill, as that would make it almost as cumbrous as the bill itself and would tend to defeat rather than to accomplish its purpose. Nor need it express all of the details found in the hody of the act? as the details provided for the accomplishment of the general purpose of an act will be regarded as necessary incidents thereto. So, also, the title need not embrace an abstract or catalogue of the contents of a statute, or consist of an index of all the provisions thereof. It is sufficient if provisions not mentioned in the title are germane to the general subject expressed.” (See, also, In re Bonds of South San Joaquin Irr. Dist., 161 Cal. 345 [119 Pac. 198], Wheeler v. Herbert, 152 Cal. 224 [92 Pac. 353] , Evans v. Superior Court, 215 Cal. 58 [8 Pac. (2d) 467], Coachella Valley County Water District v. Stevens, 206 Cal. 400 [274 Pac. 538] , Estate of Wellings, 192 Cal. 506 [221 Pac. 628], and People v. Standley, 126 Cal. App. 739, 748 [15 Pac. (2d) 180].)

With reference to general principles of constitutional law, judicial decisions abound with declarations to the effect that all presumptions and intendments favor the validity of statutes; that mere doubt by the judicial branch of the government as to the validity of a statute will not afford a sufficient reason for a judicial declaration of its invalidity, but that statutes must be upheld as constitutional unless their invalidity clearly, positively, and unmistakably appears.

So tested, and especially in consideration of the views hereinbefore expressed, this court experiences no hesitancy in declaring, as it now does, that, as far as the issue here presented is concerned, the statute in question is not properly subject to the objections or either of them that have been urged by petitioners herein, with the consequence that each of the several rulings that were made by the lower court and to which the attention of this court has been directed, should be and are approved;—from which it follows that the alternative writ of mandate that hereinbefore has been caused to issue, should be and it is discharged.

Waste, O. J., Edmonds, J., Seawell, J., Langdon, J., and Shenk, J., concurred.

Rehearing denied.


author: LANGDON, J.

text:
    [L. A. No. 15362.
    In Bank.
    November 27, 1937.]
    SAMUEL L. CARPENTER, Jr., as Insurance Commissioner, etc., Petitioner and Appellant, v. PEOPLES MUTUAL LIFE INSURANCE COMPANY (a Corporation), Defendant; RAY L. RILEY, as State Controller, etc., Claimant and Appellant.
    Frank L. Guerena for Petitioner and Appellant.
    U. S. Webb, Attorney-General, and John O. Palstine, Deputy Attorney-General, for Claimant and Appellant.
   LANGDON, J.

A hearing was granted in this case upon petition of both appellant and respondent State Controller, after decision by the District Court of Appeal, Second District, Division One, mainly for the purpose of giving consideration to a recent case from another jurisdiction just decided. Upon a study of this and other authorities, we are satisfied that the District Court of Appeal has correctly decided the main issue involved herein, and we accordingly adopt the following part of the opinion of Mr. Justice pro tempore White as part of the opinion of this court:

“Two appeals are before us from the same judgment rendered by the trial court. One appeal is by the Insurance Commissioner of the State of California from that part of the judgment wherein it was decreed that the Peoples Mutual Life Insurance Company, a California corporation, was liable for the state insurance company tax which was assessed by the state board of equalization between the first Monday in March, 1933, and the first Monday in July of that year, notwithstanding the fact that the company was not doing business in this state on the first Monday in March, 1933, and had been prohibited from doing business in this state by order of the superior court, dated November 10, 1932, decreeing its insolvency .and directing its liquidation. From that holding the insurance commissioner, as statutory liquidator of the company, takes this appeal.
“The second appeal is taken by the State Controller from that part of the judgment which decreed that the insurance company, which was ordered liquidated by the superior court of the county of Los Angeles on November 10, 1932, and which thereafter did no business in California, was liable for penalties for default in the payment of taxes accruing prior to November 10, 1932, the date of the order of liquidation, but was not liable for penalties accruing after the date of such liquidation order.
“The facts are undisputed, and epitomized, are that Peoples Mutual Life Insurance Company was an insurance company doing business as such in the state of California during that portion of the calendar year 1932 prior to November 10, 1932, on which day the court below, after full hearing upon the petition of the State Insurance Commissioner, adjudged the company insolvent, terminated its right to do business, and ordered it liquidated pursuant to the provisions of Act 3739 of Deering’s General Laws (Stats. 1919, p. 265, and amendments thereto). By said order the Insurance Commissioner was appointed liquidator. At no time after November 10, 1932, was the company engaged in the business of insurance, or doing business as an insurance company, in the state of California or elsewhere. Between the first Monday in March, 1933, and the first Monday in July, 1933, the state board of equalization purported to assess and levy a state tax against said company in the . sum of $2,284.70, representing the statutory percentage of the gross premiums received by the company from business done by it in California during the calendar year 1932, less the deductions provided by law. That tax was not paid. The State Controller filed with the liquidator a claim of the state of California for the tax in question. The claim was rejected by the liquidator, whereupon the action of the liquidator was reviewed by trial had in the manner provided by section 8 (c) of the liquidation statute (as amended, Stats. 1933, p. 1422).
" On the appeal taken by the State Insurance Commissioner as liquidator, it is contended that the state insurance company tax imposed by section 14 of article XIII of the Constitution of California is a property tax; that it is imposable only upon a company doing business on the tax accrual date; that the accrual date of said tax for the 1933 levy was the first Monday in March of 1933; and that Peoples Mutual Life Insurance Company was not subject to that tax for the year 1933 because it was not doing business and was prohibited from doing business on the first Monday in March 1933. Appellant Insurance Commissioner earnestly asserts that the test of tax liability is the existence of taxable property on the first Monday in March, and that because the insurance company was not engaged in the business of insurance on the first Monday in March, 1933, and had not been so engaged since November 10, 1932, the state board of equalization was without authority to levy what appellant Insurance Commissioner contends was a property tax as of the first Monday in March, 1933.
“Appellant Insurance Commissioner argues that under subdivision (a) of section 14 of article XIII of the Constitution, there is imposed the so-called state gross receipts tax upon railroad companies, car companies, telegraph and telephone companies, and gas and electric companies; that our Supreme Court has declared that said tax upon each of these utilities was a property tax and not an excise or privilege tax'; and that it follows therefrom that subdivision (b) of the same constitutional provision which we have under consideration imposes the same so-called state gross premiums tax upon insurance companies, and that the same constitutes a property tax and not an excise or privilege tax. However, our Supreme Court, in the case of Consolidated Title Sec. Co. v. Hopkins, 1 Cal. (2d) 414, 417 [35 Pac. (2d) 320] (certiorari denied, 294 U. S. 716 [55 Sup. Ct. 515, 79 L. Ed. 1249]), declared that there are important distinctions between those provisions of section 14, subdivision (a) of article XIII, establishing the public utilities gross receipts tax, and the provisions of section 14, subdivision (b), under which insurance companies are required to pay a gross premiums tax, by reason of which the decisions under the public utilities tax provisions are not necessarily controlling as to insurance companies. In the case just referred to, the Supreme Court, at page 418, after explaining that the theory of the public utilities tax under section 14, subdivision (a), is that gross receipts from operation furnish a fair measure for estimating the value of operative property and computing the tax upon it, uses this decisive language with reference to the tax on insurance companies (p. 419): ‘The gross premiums tax required to be paid by insurance companies, although in lieu of certain taxes upon property, is not, like the public utilities gross receipts tax, by the terms of the constitutional provision itself a tax upon property. Rather, (italics added) it is a franchise tax exacted for the privilege of doing business in this state, and is recognized as such in the amendment to section 14 which goes into effect on January 1, 1935.’ We therefore hold that the tax on insurance companies levied pursuant to section 14, subdivision (b), of article XIII of the Constitution is an excise or privilege tax and not, as contended by appellant Insurance Commissioner, a property tax. The trial court, therefore, was correct in holding that Peoples Mutual Life Insurance Company became liable for the tax here in question during 1932, because it received in the course of doing business the premiums upon which the tax was imposed, and such tax is for the privilege of doing business during the year in which the premiums were received by the insurance company.”

The recent decision called to our attention is State v. General American Life Ins. Co., 132 Neb. 520, 272 N. W. 555. It was therein held that the gross premiums tax on foreign insurance companies was not a property tax, but an excise tax upon their privilege of doing business in the state. In this respect the case is in complete accord with our own view, hereinabove expressed. The court further states that it is a “prospective” tax, and “it never became a valid obligation against the defendant, because the old company, which had failed and been taken over and sold by the superintendent of the insurance department of Missouri, never asked for the right to sell insurance in Nebraska for that year”. This conclusion is stated without any discussion, and we are unable to follow it here in view of the obvious purpose of our own constitutional and statutory provisions, namely, to tax the company for the privilege of doing business, and to impose that tax on the gross premiums received in such business. And there is no reason why a tax based upon business done during one year may not be levied and collected in the following year. Payment of the tax may precede the exercise of the privilege or it may follow it, depending upon what system the legislature chooses to provide; and where, as here, the tax is in proportion to the amount of business alone, it is both equitable and convenient that it be paid after the conclusion of the year in which the privilege is exercised. The choice of such a method is within the legislative discretion. (See William A. Slater Mills v. Gilpatrick, 97 Conn. 521 [117 Atl. 806]; Commonwealth of Massachusetts v. Meehan, (C. C. A.) 67 Fed. (2d) 638.) The argument of the Insurance Commissioner would necessarily lead to a complete exemption of the company from taxation during the year 1932, in which it did a substantial business. Such an interpretation of the constitutional and statutory provisions is entirely unwarranted, and cannot be made where a more reasonable inference is possible. (See People v. Metropolitan Surety Co., 158 App. Div. 647 [144 N. Y. Supp. 201].)

The remaining question, raised by the State Controllers’ appeal, is whether the penalty for delinquency was properly charged to the company. The trial court was of the opinion that since the penalty accrued after appointment of the Insurance Commissioner as liquidator, the property was then in the custody of the law and no penalties could thereafter be imposed for acts in carrying on the liquidation. While there is some difference of opinion in the cases, we think the better view is that property thus in the custody of the law is not removed from the power of taxation, for the percentage penalty for delinquency is as much a part of the tax as the principal amount. (See State of California v. Hisey, (C. C. A.) 84 Fed. (2d) 802, 805.)

With respect to the matter of interest, it appears to be conceded that the state’s tax claim does not bear interest, and therefore the trial court ruled correctly in denying it.

That part of the judgment which denies recovery of penalties for delinquency is reversed, with directions to the trial court to give judgment for the State Controller for such penalties; and the judgment is in all other respects affirmed.

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

Rehearing denied.


text:
    [L. A. No. 15360.
    In Bank.
    November 27, 1937.]
    SAMUEL L. CARPENTER, Jr., Insurance Commissioner, etc., Respondent, v. PACIFIC COAST INSURANCE ASSOCIATION et al., Defendants; RAY L. RILEY, State Controller, etc., Appellant.
    U. S. Webb, Attorney-General, and John O. Palstine, Deputy Attorney-General, for Appellant.
    Frank L. Guerena and Eugene P. Fay for Respondent.
   LANGDON, J.

Pacific Coast Insurance Association was an insurance company doing business in California throughout the year 1931, and until January 19, 1932. On that date it was adjudged insolvent and ordered liquidated by the Insurance Commissioner iiursuant to statute. (Peering’s Gen. Law, Act 3739.) The said company did not file a tax report with the Insurance Commissioner in 1932, and the Insurance Commissioner did not file a report in said year with the state board of equalization, as required by statute. (Pol. Code, sec. 3666a.) Consequently the board did not assess a tax in said year on the gross premiums of business done in 1931. The tax for such omitted year was eventually assessed in 1934 at the regular time for assessment of such taxes. The amount was $7,653. The State Controller filed his claim for tax and penalties with the Insurance Commissioner as liquidator of the company, which claim was rejected. The lower court held the assessment a nullity, and the Controller brought this appeal.

The first and main issue is whether a tax and penalties on gross premiums may be assessed in March of a year following that in which the premiums were earned, notwithstanding the fact that at the time of the assessment the company is no longer engaged in business. On this issue the case is governed by Carpenter v. Peoples Mutual Life Ins. Co., recently decided by this court {ante, p. 299 [74 Pac. (2d) 508]). Under the holding in that ease, it would have been entirely proper for the state to assess and collect its tax and penalties in 1932 for operations of defendant company during the year 1931.

The second issue is whether the assessment may be made in a subsequent year. It is contended by respondent that if a tax might be validly assessed, the only proper time was in March, 1932, and that such time having passed, it was no longer possible to make a valid assessment. The authorities advanced in support of this contention merely hold that it is improper to modify the assessment roll in any period of a year other than that prescribed by law for the making of assessments. They are not determinative of the question whether in a subsequent year, at the regular time for making assessments, an omitted assessment may be made, and on this question we have found no authority squarely in point. Despite the lack of authority, however, we believe the circumstances of this case indicate clearly the proper decision. Respondent’s position is, in substance, that by violation of its statutory duty to report and thus accomplishing a concealment of its liability for the tax, the company or its representative has acquired a complete exemption therefrom. We cannot subscribe to this view, which would not only permit the company to profit by its own wrong, but would deprive the state of its legal claim for taxes in a wholly arbitrary manner. We are in accord with the contention of the state that the tax liability is imposed by the constitutional and statutory provisions (Cal. Const., art. XIII, see. 14; Pol. Code, see. 3664b), and is an obligation of the taxpayer irrespective of the assessment thereof by the board. If the delayed assessment in the present case were an error caused by the board’s own neglect to the substantial injury of the taxpayer, it might be that a different conclusion would be indicated; but in the instant case the error was a direct result of the taxpayer’s violation of its statutory duty, and there is no showing that the delay in assessment has operated unfairly to its prejudice. And these facts which disprove any prejudice or injury to the taxpayer likewise make out a case of an estoppel against the company and its representative to deny the validity thereof.

While we are satisfied that the conclusion reached herein is sound in principle, we may observe that the situation is one which called for legislative action, and in 1937 the Political Code was amended by the addition of section 3669, which authorizes assessment in a subsequent year after discovery of failure to make it in a prior year.

The order is reversed.

Shenk, J., Waste, C. J., Seawell, J., and Edmond's, J., concurred.

Rehearing denied.