author: LANGDON, J.

text:
    [L. A. No. 15913.
    In Bank.
    March 31, 1938.]
    In the Matter of the Estate of JENNIE D. HART, Deceased. BARTON DARLINGTON, as Executor, etc., Appellant, v. FRANCIS D. HART et al., Respondents.

      John E. Carson and William G. Randall for Appellant.
    Euler & Subith and B. R. Ware for Respondents.
   LANGDON, J.

This is an appeal from an order settling the final account of an executor and ordering distribution. The principal issue is whether the matter was heard by J. W. Mullin, Jr., as a referee or merely as a court commissioner.

Appellant Darlington, executor of the will, filed his first and final account, report and petition for distribution. Respondents Francis and Richard Hart served and filed separate exceptions and objections. Appellant answered and the hearing was set for November 14, 1935, and continued to November 29, 1935. At this time the matter was referred to Mr. Mullin, a court commissioner. A full hearing was had, and a number of witnesses were examined. Findings were prepared by counsel for respondent Francis Hart, properly served and filed, and on January 20, 1936, Mr. Mullin wrote counsel that the order of the court adopting his findings and conclusions as referee would be adopted by the court on January 29, unless additions or exceptions were received prior thereto. Counsel for appellant executor prepared alternative findings, which were filed January 29. On February 5th, said counsel wrote Mr. Mullin, stating that he desired to exercise rights under section 259a of the Code of Civil Procedure, in particular to except to the commissioner’s report and argue his exceptions before the court. Thereafter Mr. Mullin’s report, findings and conclusions of law were filed, and adopted by order of the court, which rendered judgment thereon.

The issue raised by the appeal is a simple one. The powers of a court commissioner are limited, and under section 259a of the Code of Civil Procedure any party to a contested proceeding heard before such commissioner has a right to argue exceptions before the court after notice of motion given. If Mr. Mullin held this hearing as a court commissioner, the statutory rights of appellant were concededly violated, and the judgment cannot stand.

The position of respondents, however, is that Mr. Mullin heard the matter as a referee, under the voluntary reference provisions of the Code of Civil Procedure, sections 638-645. A referee is authorized by section 638 “to try any or all of the issues in an action or proceeding, whether of fact or of law, and to report a finding and judgment thereon”. His findings are the findings of the court, and reviewable in like manner. If Mr. Mullin acted in this case as referee, the procedure was in accordance with law, and appellant’s claim is untenable.

A referee may exercise these statutory powers by order of the court, upon agreement of the parties filed with the clerk or entered in the minutes. The record before us is not as full as it might be, and there is some uncertainty as to what was actually intended by the parties, but we think the circumstances are such that the uncertainty must be resolved in favor of the judgment. The minutes of the clerk, on January 9, 1936, contain the statement with respect to this cause: “Referred to J. W. Mullin, Jr.” During the hearing Mr. Mullin repeatedly discussed the legal issues involved, and his intention to rule thereon. Counsel for apellan! sought to leave to brief the matter, and Mr. Mullin stated that he would appreciate any brief on the law. The parties argued the law before him. At the conclusion of the hearing Mr. Mullin said, in the course of remarks concerning which was the proper party to prepare findings: “while I am hearing it as a referee, and must make a finding to the court”, adding that he did not think findings would be waived. He discussed his views on the issues again at this time, and thereafter both sides prepared proposed findings and submitted them to him, whereupon he adopted those of respondents and rejected those of appellant. The judgment of the court, entitled “Order of Court adopting referee’s Report”, recites that J. W. Mullin, Jr., was appointed referee to hear and determine the issue set out in said report. While the original minute order of reference was so brief as perhaps to be uncertain, the subsequent developments must necessarily have made clear to appellant that Mr. Mullin was acting as a referee, and if in fact there was no agreement of reference, it is most extraordinary that no point was made as to this until after adverse findings were clearly indicated. The participation in the hearing and subsequent consideration of the case, with knowledge of Mr. Mullin’s statements, is indicative either of a prior consent to the reference or a waiver of objection thereto. (See Garland v. Smith, 131 Cal. App. 517 [21 Pac. (2d) 688]; Shain v. Peterson, 99 Cal. 486 [33 Pac. 1085].)

Moreover, the judgment of the lower court herein recites the fact of reference, and this recital, though not conclusive on a direct attack by appeal, is presumed to be correct. In the absence of a strong showing to controvert it, and there is no affirmative evidence in the record which does so, it must be accepted as true. (See Sichler v. Look, 93 Cal. 600 [29 Pac. 220].)

The findings are supported by the record, and no points raised in connection therewith require discussion.

The judgment is affirmed.

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


source: Caselaw Access Project

author: THE COURT.

license: Public Domain

text:
    [L. A. No. 16461.
    In Bank.
    March 31, 1938.]
    A. MEYERS, Respondent, v. BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION et al., Appellants.

      Willedd Andrews, Louis Ferrari, Edmund Nelson and G. L. Berrey for Appellants.
    Joe Crider, Jr., and John J. Ford for Respondent.
   THE COURT.

From the record herein it appears that in the course of the conduct of the business in which plaintiff was engaged, on each of numerous occasions his office manager received certain checks which theretofore had been made payable to plaintiff; that thereupon plaintiff’s said office manager forged upon them the name of the payee and negotiated them with defendant Wascher, who paid full value therefor; that plaintiff’s said manager wrongfully converted the value of said checks to his own use; that upon such receipt of said»checks, in the ordinary course of his business, defendant Wascher deposited them in his bank account with the defendant bank, which thereafter presented them to the respective drawees thereof, and received full payment therefor. It also appears that at and during all the times in question plaintiff was indemnified against damage which might result from the wrongful acts of his office manager by a bond which theretofore had been executed by United States Guarantee Company, and that following the discovery of said manager’s dishonesty in the premises, the bond company reimbursed plaintiff for the loss which thus had been sustained by him. At the same time plaintiff assigned to the bond company any cause of action of which he then was the owner as against the defendant bank, together with the right to maintain an action at law thereon in the name of plaintiff. Acting in behalf of the assignee, plaintiff brought this action. In pursuance of the commencement and prosecution of such action, a judgment was rendered in favor of plaintiff, and it is from such judgment that the instant appeal is presented to this court.

On the part of appellant bank, in effect, it is contended that whatever right plaintiff’s assignee may have had to maintain an action against the defendants, ultimately, if at all, its success must have depended upon an application of the doctrine of subrogation. On the other hand, respondent insistently urges the point that since originally he was the owner of an assignable cause of action against the defendant bank, he also had the legal right to assign it to his indemnitor; furthermore, that because both the right of action and its assignment were legal in their nature, the action was one at law, with the necessary consequence that the equitable doctrine of subrogation was inapplicable.

In that regard, at the outset, it should be noted that assignment of an assignable cause of action is but one of the recognized forms of subrogation, and that when one is entitled to substitution in the place of one entitled to institute and to maintain an action, neither a written, nor an oral contract, is necessary to effect a transfer of such right; consequently, with reference thereto, repeatedly it has been ruled not only that a formal, written assignment of a claim of the nature of that here involved adds nothing to the enforceability by the assignee of the cause of action, but also, that it is subject to the same defenses as though no assignment thereof of any sort had been made. Notwithstanding that principle of law, with respect to the factual situation hereinbefore set forth, great reliance is placed by respondent in the ruling announced 'in the analogous case of Grubnau v. Centennial Nat. Bank, 279 Pa. 501 [124 Atl, 142], that (syllabus) “Where an insurance company had paid a loss resulting to insured from the forgery of checks on its deposit at a bank, and had taken an assignment of its cause of action against the bank, there was no subrogation wherein the equities of the bank could be said to exceed those of the insurer. ’ ’

Nor, in that regard, may it be said that the legal principle there declared is out of harmony with other precedents of like nature, as may be noted on consideration of the following authorities cited by respondent: Metropolitan Casualty Ins. Co. v. First Nat. Bank in Detroit, 261 Mich. 450 [246 N. W. 178], Offer v. Superior Court, 194 Cal. 114 [228 Pac. 11], Estate of Elizalde, 182 Cal. 427 [188 Pac. 560], Title Guaranty etc. Co. v. Duarte, 54 Cal. App. 260 [201 Pac. 790], Martin v. Federal Surety Co., 58 Fed. (2d) 79, First & Tri State Nat. Bank & Trust Co. v. Massachusetts Bonding & Ins. Co., 102 Ind. App. 361 [200 N. E. 449], and National Surety Co. v. Bankers Trust Co., 210 Iowa, 323 [228 N. W. 635].

But in appellants’ behalf, especially with reference to the foundation upon which in an action of this character, a right of a substituted plaintiff to maintain a suit for the recovery of damages originally suffered by another must rest, appellants have directed the attention of this court to a line of cases which in their legal effect is wholly at variance with those to which reference hereinbefore has been had.

However, before proceeding to a consideration of the pertinent authorities, a statement that occurs in 60 C. J., page 749, with reference thereto should be noted, to wit: “While the creditor may properly make an assignment of his rights and remedies to the surety where the surety is entitled to be subrogated, the completion of the surety’s subrogation, and his right to pursue the rights and remedies of the creditor, is not dependent on the willingness of the latter to make an assignment, for in equity the surety’s payment causes an assignment by operation of law and no formal assignment or transfer is necessary. On the other hand, it seems that, if the surety is not entitled to subrogation, an assignment by the creditor will be ineffectual to give the surety a right of subrogation he would not otherwise have.” (Italics added.)

Illustrative of that rule, is the case of American Surety Co. of N. Y. v. Lewis State Bank, 58 Fed. (2d) 559, wherein suit was brought against the bank by the surety on a state game commissioner’s bond, to recover by right of subrogation for the payment of warrants fraudulently drawn by its principal to fictitious payees. After the surety had paid the state the amounts of the moneys thus converted, it took an assignment, or “subrogation agreement”, to all actions which the state had against the defaulter or any third person answerable to the former or to the state. The contention was made that the suit was one in the right of its assignor, the state of Florida, which could not have maintained the suit in the federal court. In holding this contention to be without merit the court said: “The cause of action asserted here is one in equity for subrogation, not at law upon the assignment. ... It (subrogation) is properly applied in favor of a surety on a fidelity bond only against persons who have participated in the wrong of its principal. ... It is never applied against an innocent person wronged by the principal’s fraud.” (Italics added.)

In the case of American Bonding Co. of Baltimore v. State Sav. Bank, 47 Mont. 332 [133 Pac. 367, 46 L. R. A. (N. S.) 557], the facts of which were analogous to those presented here, after a county had recovered against a surety for defalcations of its principal, the surety took an assignment of any right of action which the county might have had against the bank, and sought recovery against the latter. The court there said: “At law this surety company would not have any right of action against the bank; but, to state a cause of action at all, it must allege such facts as will appeal to the conscience of a court of equity.” (Italics added.)

Likewise, in the case of Louisville Trust Co. v. Royal Indemnity Co., 230 Ky. 482 [20 S. W. (2d) 71], hereinafter referred to, the court there said: “We do not regard the assignment taken some time after the indemnity company had discharged its obligation as adding anything to the surety's right of action against the trust company. In the circumstances, its case depends altogether on the doctrine of subrogation, which is essentially a creature of equity.” (Italics added.)

Under these cases the conclusion seems inevitable that one who asserts a right of subrogation, whether by virtue of an assignment or otherwise, must first show a right in equity to be entitled to such subrogation, or substitution, and that where such right is clearly shown by the application of equitable principles, an assignment adds nothing to his right thereto. Otherwise stated, where by the application of equitable principles, a surety has been found not to be entitled to subrogation, an assignment will not confer upon him the right to be so substituted in an action at law upon the assignment. His rights must be measured by the application of equitable principles in the first instance, his recovery being dependable upon a right in equity, and not by virtue of an asserted legal right under an assignment. With these conclusions as a premise, we shall proceed to an examination of the line of cases relied upon by appellant bank as authority for its contention that in equity respondent has no right of subrogation under the facts of this case.

In the case of New York Title & Mortgage Co. v. First Nat. Bank, 51 Fed. (2d) 485 [77 A. L. R. 1052], a loan broker, through forgeries and misrepresentations procured title insurance policies, by which a loan association was guaranteed against loss by reason of defects in the mortgagor’s title to realty described in mortgages or deeds of trust by which certain loans- were secured. In each case, the purported borrower was a fictitious person. In that connection, upon his receipt of a check from the loan association, the broker forged the name of the payee thereof, deposited it in the drawee bank and converted the proceeds to his own use. The bank, after paying such check, charged the amount thereof to the account of the loan company. The title insurer paid the loss to the loan company and brought suit against the bank for the total amount so paid. In that case the court pointed out that there were two independent contracts involved, the one being that the bank would not pay the checks of its depositor upon forged indorsements, and the other, that existing between the loan company and the plaintiff indemnitor. The court said: “Plaintiff’s payment to the loan company was a discharge of its primary contract liability. . . . Plaintiff paid the loan company only what it contracted primarily to do, but now, retaining the premiums or benefit of its contract, it seeks reimbursement from the bank, on the theory that the bank, under a wholly separate and independent contract, was liable to the loan company for having paid checks on forged indorsements. ... If we assume that neither the plaintiff nor the bank was the wrongdoer, but, by independent contract obligation, each was liable to the loan company, then the satisfaction of such primary liability by the plaintiff would not give rise to a right to recover against the bank under the doctrine of subrogation, the bank not being a wrongdoer (citing cases). But if there were any doubt as to the soundness of this position, we think it clear that plaintiff is not entitled to invoke the remedy of subrogation, because that right is an equitable one, and is applicable in cases in which one party is required to pay a debt for which another is primarily answerable, and which, in equity and good conscience, ought to be discharged by the latter. It is the method which equity employs to require the payment of the debt by him who in good conscience ought to pay it, and to relieve him whom none but the creditor could ask to pay. It cannot, as a matter of right, be invoked in all eases without regard to circumstances, but only in eases in which justice demands its application, and the rights of one asking subrogation must have a greater equity than those who oppose him. As said by this court in American Surety Co. v. Citizens’ Nat. Bank, 294 Fed. 609, ‘The right of subrogation is an equitable right, and where equities are equal the right does not exist and there can be no relief. ’ ” After commenting upon the fact that the bank had been guilty of no negligence in the transactions involved, the court stated that, “the primary cause of plaintiff’s loss was the forgeries committed by Smith” (the loan broker), and that “Here, . . . the bank paid the checks on which the indorsements were forged, without negligence, and the circumstances surrounding the transactions involved do not give rise to any superior equities in favor of the plaintiff; nor can it be said that in good conscience the defendant bank ought to stand the loss. ... In our view, the equities in favor of the defendant bank constitute an insuperable barrier to plaintiff’s right of recovery.’’ (Italics added.)

In the ease of Louisville Trust Co. v. Royal Indemnity Co., supra, an employer recovered on a fidelity bond because of an employee’s misappropriation of checks of the former by depositing them to his own credit in a trust company. The employer assigned its claim against the trust company to its surety. There the court said: “We do not regard the assignment taken some time after the indemnity company had discharged its obligation as adding anything to the surety’s right of action against the trust company. (Godfrey v. Alcorn, 215 Ky. 465 [284 S. W. 1094, 51 A. L. R. 925].) In the circumstances, its case depends altogether on the doctrine of subrogation, which is essentially a creature of equity, and is called into play only when it is necessary to bring about an equitable adjustment between the parties. . . . The case is one between a paid surety and the trust company, whose negligence it is claimed caused the loss. It must be conceded that the rule that makes the trust company liable to the (employer) ... is to say the least, a hard one. . . . Therefore, as between the employer and the bank, there is much to be said in favor of the position that the loss should fall on the employer who selects an unfaithful agent, and thus vouches for his integrity, rather than on the bank whose officers in many instances are called upon daily to examine and keep account of a large number of checks, a duty which, to say the least, operates as a severe strain on ordinary care. Though the rule as between the bank and the employer is settled, yet, in view of its extreme harshness, we are not inclined to go further and hold that the equities of a surety that has been paid to bear the loss are superior to those of the bank that receives no benefit from the transaction.” (Italics added.)

In Northern Trust Co. v. Consolidated Elevator Co., 142 Minn. 132 [171 N. W. 265, 4 A. L. R. 510], the Supreme Court of Minnesota had before it a case factually similar to the facts in the instant matter, and which involved the question of subrogation, wherein it stated: “When it is sought to enforce the right (of subrogation) something more must be shown than that defendant could have been compelled by the original creditor to pay the debt. While a surety may assert the right against one with whom he had no contractual relations, it must appear that the defendant participated, with, notice, in the illegal act of the principal which served to bring about the loss. The right to recover from a third person does not stand on the same footing as the right to recover from the principal. As to the latter, the right is absolute— as to the former, it is conditional.” (Italics added.)

In the case of American Bonding Co. v. State Sav. Bank, 47 Mont. 332 [133 Pac. 367, 46 L. R. A. (N. S.) 557], a court clerk manufactured jury certificates and sold to the bank. The county took up the certificates and paid the bank without having discovered the fraud. The surety company on the clerk’s bond made the loss good and then sued the bank. It was held that although the county could have recovered from the bank, as between the surety company and the bank the equities were at least equal and that the bank was not liable to the surety. There the court said: “The doctrine of subrogation had its origin in the civil law. It has been adopted and invoked by courts of equity in order that justice may be done as nearly as possible. The application of the doctrine must therefore depend upon the circumstances of each particular case. . . . There is not any charge of negligence or wrongdoing on the part of the bank in purchasing the certificates. . . . Some one must suffer now for Farrell’s official misconduct. Shall it be the bank, which acted in good faith and parted with its money for the spurious certificates issued by Farrell, or shall it be the surety company which for a compensation undertook to be responsible for Farrell’s official delinquencies, not only to the state and to Silver Bow county, but to this bank as well? To such an inquiry a court of conscience can make but one answer. Upon the showing made in its complaint, the surety company has failed to show itself entitled to be subrogated to the right which the county may have had.” It was there stated that the weight of authority supported the view taken by the court.

In case of Washington Mechanics’ Sav. Bank v. District Title Ins. Co., 65 Fed. (2d) 827 [62 App. D. C. 194], wherein the facts were analogous to those here presented, except that there the check was stolen by the employee of the drawer before delivery and deposited by the employee to his own account with the defendant bank, who in turn paid out money for the deposit thereof, it was held that the bonding company could not be subrogated. The court in that case said: “We are unable to see any particular in which, the equities of the bonding company are superior to those of the appellant bank. Neither one was guilty of culpable negligence in the transaction. The bonding company, being in the business of guaranteeing for a consideration the faithful conduct of employees, enabled the defaulting employee to hold the position of trust which he occupied. The appellant bank was acting consistently with the ordinary course of banking-business in accepting a check, whose genuineness it had no reason to doubt. It cannot be said that either one of these parties, as compared with the other, was primarily liable for the default. It follows that the equities of neither are superior to the equities of the other in the transaction.”

Also in Estate of Whitney, 124 Cal. App. 109 [11 Pac. (2d) 1107], one of two cotrustees of a testamentary trust, both of whom were bonded, wrongfully appropriated to- himself funds of the trust estate without the knowledge of his co-trustee. Both trustees had an interest individually in the trust estate. The bonding company paid the loss, charged one-half to each bond, and asked to be subrogated to the claim of the estate against the innocent trustee and to have the interests of both trustees in the estate subjected to satisfaction of its claim. The court held that, although the innocent trustee was liable to the estate, the bonding company was not subrogated, and that its payment should have been charged wholly to the bond of the guilty trustee. In that case it was said: “While section 2848 of the Civil Code provides that a surety, upon satisfying the obligation of his principal, is entitled to be subrogated to that extent to all remedies which the creditor has against the principal, the question whether the obligation which is satisfied is in fact the obligation of the particular principal is to be decided in accordance with the rules of law and principles of equity. As was said in Southern Surety Co. v. Tessum, 178 Minn. 495 [228 N. W. 326, 66 A. L. R 1136]: ‘Subrogation is equity’s second method of compelling the ultimate payment by one who in justice and good conscience ought to make it— of putting the charge where it justly belongs. (Emmert v. Thompson, 49 Minn. 386 [52 N. W. 31, 32 Am. St. Rep. 566].) It is not an absolute right, but depends upon the superiority of the equities of him who asserts it over those of the one against whom it is sought. It will never be enforced when the equities are equal or the rights not clear.’ . . . ’’

To like effect is the case of American Surety Co. of N. Y. v. Waggoner Nat. Bank, 13 Fed. Supp. 295, wherein a tax collector deposited tax receipts in the defendant bank to his own credit, from which he made withdrawals. Thereafter a shortage was discovered in his accounts, and suit was brought by his surety, who had paid the loss, against the defendant bank. It was held that the surety could not recover. The court in that case likewise recognized the weight of authority to be with the view that in the circumstances, there could be no subrogation of a surety.

And in the case of First & Tri State Nat. Bank v. Massachusetts Bonding & Ins. Co., supra, cited by respondent, the statement is made: “The doctrine of (subrogation) has been applied most frequently in the courts to certain types of insurance cases. It has with almost unanimity been held not to apply in favor of a surety on a fidelity bond, except only against persons who participated in the wrongful act of the wrongdoer.” (See, also, National Surety Co. v. Arosin, 198 Fed. 605 [117 C. C. A. 313], Baker v. American Surety Co., 181 Iowa, 634 [159 N. W. 1044], United States Fidelity & Guar. Co. v. Home Bank, 77 W. Va. 665 [88 S. E. 109], Emmert v. Thompson, 49 Minn. 386 [52 N. W. 31, 32 Am. St. Rep. 566], American Surety Co. of N. Y. v. Citizens Nat. Bank of Roswell, (N. M.) 294 Fed. 609, Stewart v. Commonwealth, 104 Ky. 489 [47 S. W. 332], Southern Surety Co. v. Tessum, 178 Minn. 495 [228 N. W. 326, 66 A. L. R. 1136], and American Bonding Co. v. First Nat. Bank, 27 Ky. Law Rep. 393 [85 S. W. 190].) (Italics added.)

Thus, it may be observed that there are two lines of cases governing the questions here presented, each wholly at variance with the other. We think the great weight of authority rests with the group last referred to, and that the principles there announced, in good conscience ought to be applied to the circumstances of this case. As stated hereinbefore, the right to maintain an action of this kind and to a recovery thereunder involves a consideration of, and must necessarily depend upon the respective equities of the parties. Here, the indemnitor has discharged its primary contract liability. It has paid what it contracted to pay, and has retained to its own use the premiums and benefits of such contract. It now seeks to recover from the bank the amount thus paid. It must be conceded that the bank is an innocent third party, whose duty to the employer was based upon an entirely different theory of contract, with which the indemnitor was not in privity. Neither the indemnitor nor the bank was the wrongdoer, but by independent contract obligation each was liable to the employer. In equity, it cannot be said that the satisfaction by the bonding company of its primary liability should entitle it to recover against the bank upon a totally different liability. The bank, not being a wrongdoer, but in the ordinary course of banking business, paid money upon these checks, the genuineness of which it had no reason to doubt, and from which it received no benefits. The primary cause of the loss was the forgeries committed by the employee, whose integrity was at least impliedly vouched for by his employer to the bank. We cannot say that as between the bank and the paid indemnitor, the bank should stand the loss. Under the facts of this case, as is stated in Northern Trust Co. v. Consolidated Elevator Co., 142 Minn. 132 [171 N. W. 265, 4 A. L. R 510]: “The right to recover from a third person does not stand on the same footing as the right to recover from the principal.” (Italics added.)

Our conclusion, as hereinbefore has appeared, is that since the bonding company had no superior equities, it was not entitled to be subrogated to any claim plaintiff might have had against the bank.

The judgment is reversed.

Rehearing denied.


author: SHENK, J.

text:
    [L. A. No. 15777.
    In Bank.
    April 1, 1938.]
    CHARLES L. FLACK, Executor, etc., Appellant, v. WILLIAM F. BOLAND et al., Respondents.

      H. R. Griffin for Appellant.
    Robert Mack Light for Respondents.
   SHENK, J.

This appeal on the judgment roll is taken by the plaintiff as executor of the estate of Max Janka, deceased. From this record it appears that the defendants Boland, on August 3, jl926, executed and delivered a promissory note for $1500 to the decedent, payable three years after date, and secured the same by a trust deed on certain real property. On August 20, 1931, the defendants Boland executed and delivered to the defendant and cross-complainant Mack, another promissory note for $1,000, payable one year after date, and secured the same by a second trust deed on the same property.

On December 15, 1934, the plaintiff commenced an action to foreclose the trust deed given to Janka and joined Mack as a party defendant. The defendants Boland defaulted. The defendant Mack filed an answer in which he denied the allegation that the lien of his trust deed was subordinate to the plaintiff’s lien and alleged that the plaintiff’s cause of action was barred under subdivision 1 of section 337 of the Code of Civil Procedure. Mack also filed a cross-complaint in which he sought to foreclose his trust deed and to have the plaintiff’s claim subordinated to his claim and lien.

The court rendered its decree foreclosing both trust deeds and adjudging that the lien of the defendant and cross-complainant Mack was prior to the lien of the plaintiff. It was therefore ordered that upon the sale of the property the proceeds be applied, first, to satisfy the claim of the defendant and cross-complainant Mack; secondly, to satisfy the claim of the plaintiff; and thirdly, that the surplus, if any, be paid to the defendants Boland.

It is conceded by the parties that the action to foreclose the plaintiff’s trust deed and the cross-complaint to foreclose the Mack trust deed were brought pursuant to the provisions of section 725a added to the Code of Civil Procedure in 1933. That section provides: “The beneficiary or the trustee named in a deed of trust upon real property or any interest therein to secure a debt or other obligation, shall have the right to bring suit to foreclose the same in the manner and subject to the provisions, rights and remedies relating to the foreclosure of a mortgage upon such property.”

The first question presented on this appeal is whether the defense of the statute of limitations is available in an action to foreclose a deed of trust under section 725a, above quoted.

Although the statute of limitations does not run against the power of sale in a deed of trust (Grant v. Burr, 54 Cal. 298; Travelli v. Bowman, 150 Cal. 587 [89 Pac. 347]; Sacramento Bank v. Murphy, 158 Cal. 390 [115 Pac. 232]; Bank of Italy v. Bentley, 217 Cal. 644 [20 Pac. (2d) 940]), the limitation of the statute does apply to the commencement of actions (sec. 335, Code Civ. Proc.), including actions for the foreclosure of mortgages, and commences to run upon the maturity of the obligation secured (18 Cal. Jur., pp. 408-428, and cases there cited). The note is the principal obligation and the mortgage is an incident thereto. The plea of the statute is an answer to the merits and when supported by proper pleading and proof this defense operates not only to bar the action on the debt but also deprives the mortgagee of the right to enforce the lien of his mortgage. (Lord v. Morris, 18 Cal. 482; Allen v. Allen, 95 Cal. 184 [30 Pac. 213, 16 L. R. A. 646]; Lilly-Brackett Co. v. Sonnemann, 157 Cal. 192 [106 Pac. 715, 21 Ann. Cas. 1279].) And a subsequent mortgagee or attachment lienholder may invoke the aid of the statute against the mortgagee (Foster v. Butler, 164 Cal. 623 [130 Pac. 6]; 18 Cal. Jur., p. 416 et seq.), even though the mortgagor, as between himself and the mortgagee, may have waived its protection. (Brandenstein v. Johnson, 140 Cal. 29 [73 Pac. 744].)

Furthermore, section 2911 of the Civil Code provides: “A lien is extinguished by the lapse of the time within which, under the provisions of the Code of Civil Procedure, an action can be brought upon the principal obligation.” There is no distinction in this respect between a mortgage lien and any other lien. (Puckhaber v. Henry, 152 Cal. 419 [93 Pac. 114, 125 Am. St. Rep. 75, 14 Ann. Cas. 844]; Faxon v. All Persons, 166 Cal. 707, 715 [137 Pac. 919, L. R. A. 1916B, 1209].)

There appears to be no good reason why the foregoing rules should not be applied in an action to foreclose a deed of trust under section 725a of the Code of Civil Procedure. Indeed, the very language of section 725a would seem to admit of no other determination. A proceeding taken thereupon authorizes the foreclosure of a deed of trust “in the manner and subject to the powers, rights and remedies relating to the foreclosure of a mortgage on such property.”

Therefore, applying the foregoing rules with reference to the foreclosure of mortgages to the foreclosure of the trust deeds in question, it would follow that if the defendants Boland had not defaulted but had answered, setting forth the defense of the statute of limitations, the plaintiff’s foreclosure action would have been defeated, the plaintiff’s lien declared to have been extinguished, with judgment in Bolands’ favor. The Bolands could not, by their default, prevent the second incumbrancer Mack from interposing the same defense and compelling the same result so far as his lien was concerned. Their default constituted a waiver of the defense of the statute of limitations, which waiver, however, could not operate to the prejudice of Mack who was clothed under the circumstances with the defense available to but not asserted by the Bolands.

The trial court was therefore correct in holding that the plaintiff’s right to foreclose as against Mack was barred by the statute of limitations and in ordering the foreclosure of his deed of trust with payment first to him from the proceeds of the sale.

The plaintiff argues at length in support of his contention that he should not be barred from exercising his right to satisfy his claim by a trustee’s sale and that the doctrine of election of remedies should not thus be forced upon him. We see no occasion for the application of the doctrine of election of remedies in this case. That doctrine proceeds on the theory that the claimant, having two inconsistent remedies and having availed himself of one, is estopped from also pursuing the other. (Commercial Centre R. Co. v. Superior Court, 7 Cal. (2d) 121, 129 [59 Pac. (2d) 978, 107 A. L. R. 714].) Such is not the ease here. Even before the enactment of said section 725a the holder of a trust deed could maintain an action to foreclose the same. (Felton v. Le Breton, 92 Cal. 457, 465 [28 Pac. 490].) He could also proceed at the same time to foreclose by trustee’s sale. In other words, the pendency of the action in foreclosure was not a bar to the foreclosure of the deed of trust through the form and procedure of a trustee’s sale. (Mayhall v. Eppinger, 137 Cal. 5 [69 Pac. 489]; McDonald v. Smoke Creek Live Stock Co., 209 Cal. 231, 237 [286 Pac. 693].) The pending foreclosure action could have gone forward after the trustee ’s sale for the purpose of obtaining a judgment for the deficiency, if any, especially when no question of the statute of limitations was involved. (Commercial Centre R. Co. v. Superior Court, supra.) In such a situation the plaintiff had two concurrent remedies, one by action in foreclosure and one by trustee's sale. The fact that he could not enforce his obligation by court action would not prevent him from pursuing the alternative remedy. Whether he could do so after a final judgment against him in the foreclosure action presents a question which is not before us. But having two remedies available to him at the outset, and having unsuccessfully availed himself of but one, and no question of election of remedies being involved, the plaintiff is in no position to complain that he could not, because of Hack’s cross-complaint, dismiss his foreclosure action, since such dismissal was not essential to the pursuit of his right to proceed by trustee’s sale.

The judgment is affirmed.

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


author: EDMONDS, J.

text:
    [L. A. No. 16113.
    In Bank.
    April 1, 1938.]
    In the Matter of the Estate of D. W. BELDON, Deceased. Mrs. ROSE DePARCQ et al., Appellants, v. WILLIAM J. O’BRIEN et al., Respondents.

      Dempster McKee, Charles Fox, Jr., Dwight D. Bell for Appellants.
    E. Swift Torrance and Wright, Monroe, Thomas & Glenn for Respondents.
   EDMONDS, J.

A controversy between the heirs of William Beldon, deceased, over the construction of his will has reached this court upon an appeal from a final decree of distribution of his estate.

By an holographic will the testator made certain specific bequests, among which is one of $30,000 to his sister, Rose DePareq. He also provided as follows: “My sister Rose is hereby appointed administratrix & executrix without Bonds of this will, to the legal Descendants of Roberts (Pat) Nellies 3 children Rosemary & Will & Frances & His 2 Grandchildren 15 per cent of the balance of my estates and 10 per cent to Mikes son. after all my just Debts are paid anyones who tries to interfere with the purpose & intent of this will shall Be cut off with an allowance of not over $1.00 inheretance under this will.” The probate court held that by the language “Rosemary & Will & Frances” the testator referred to the three children of Nellie Ameling, his deceased sister. The expression “& his 2 Grandchildren” was intended by the testator, the court found, to refer to the two children of Catherine Andres, the deceased daughter of his deceased brother, Robert, or Pat, O’Brien. This brother also had two sons, who are now living and who will share in the estate under the clause mentioning his “legal descendants”. Another finding of the court is that by the words “Mikes son” the testator referred to William» Loftus O ’Brien, the son of William O’Brien, another deceased brother. A further intent of the testator, as found by the probate court, was that his will should dispose of all of his property. Upon these findings 7% per cent of the residue of his estate was distributed to each of the “2 Grandchildren”, 10 per cent to William Loftus O’Brien, and 15 per cent to each of the other persons. Rose DeParcq and William Loftus O’Brien appealed from that determination.

The testator’s family name is O’Brien. He and his brothers and sisters were orphaned early in life and were “farmed out” to neighboring families. At the age of fifteen the testator ran away from his foster parents to make his own way in the world. Different occupations carried him to the far corners of the earth, and for many years his relatives knew nothing of his whereabouts. During and after the World War he was a member of this country’s secret service, and it was then that he changed his surname to Beldon. The testator never married and in his later years he sought out his sister Rose O’Brien DeParcq and his nieces Rosemary and Frances, who are the daughters of his deceased sister, Nellie. In the course of the few visits and the correspondence that followed, a cordial friendship developed, especially between him and his sister. Rose. It was she who, at a time prior to the making of his will, furnished him with a complete list of his heirs and it was she who attended him in his last illness. At different times he wrote her that she was the executrix of his will and a legatee under it. In one letter he said: “When the time comes inform your husband that I have specified you Rose as executrix of my estate in mjr will and the two copies of same and it all is left to my Brothers and Sisters or Pro Rata to their children Mikes Boy & Pats Boys & daughters children & Nells 3 living children.”

The testator’s estate was appraised at almost $190,000. His heirs at law are his sister Rose, four nephews, two nieces, and two children of a deceased niece. When the various legatees named in the residuary clause of the Beldon will are identified, it appears that “the legal Descendants” of Pat, “Nellies 3 children” and the “2 Grandchildren” number seven persons, other than “Mikes son”. To these persons the testator left “15 per cent of the balance of my estates”. As “Mikes son” is given 10 per cent of the residue of the estate, the seven persons cannot each be given 15 per cent of it. The construction of the will which was adopted by the probate court avoided this impossible result by considering the “2 Grandchildren” as the legatees of one 15 per cent share, and dividing it between them. By this method the entire residue of the estate was distributed to the persons named by the testator.

The appellants concede the rule that where ambiguity exists, a construction which reaches complete testacy is proper, but they insist that the uncertainty here relates only to the identity of the beneficiaries and not to the quantum of the bequest. The testator, they say, has imperfectly described a group of seven people but has limited his gift to that group with absolute clarity; he has said “15 per cent” not “15 per cent each”. If the appellants’ position is correct, the testator died intestate as to 75 per cent of the residue of his estate.

“The making of a will raises a presumption that the testator intended to dispose of all his property. Residuary clauses are generally inserted for the purpose of making that disposition complete, and these clauses are always to receive a broad and liberal interpretation, with a view of preventing intestacy as to any portion of the estate of the testator, and this general rule is in harmony with the declaration of our code that the provisions of a will must be construed, if possible, so as to effect that purpose.” (O’Connor v. Murphy, 147 Cal. 148, 153 [81 Pac. 406].) But there is no room for application of the rule if the testator’s language, taken in the light of surrounding circumstances, will not reasonably admit of more than one construction. A court’s inquiry in construing a will is limited to ascertaining what the testator meant by the language which was used. If he used language which results in intestacy, and there can be no doubt about the meaning of the language which was used, the court must hold that intestacy was intended. A testator has the right to make a will which does not dispose of all of his property but leaves a residue to pass to his heirs under the law of succession. Such a will is not the usual one but when the language which leads to that result is clear the will must be given effect accordingly. (Estate of Young, 123 Cal. 337 [55 Pac. 1011]; Estate of Blake, 157 Cal. 448 [108 Pac. 287]; Estate of Johnson, 107 Cal. App. 236 [290 Pac. 314].)

Possibly David William Beldon intended to leave his property as it was distributed by the decree of the probate court. But he did not express this intention in his will. Certainly he did not intend to leave fifteen per cent of the' residue of his estate to each of seven persons with ten per cent to another, and there is nothing to support the division of one of the fifteen per cent shares between the “2 Grandchildren” except mathematical necessity. To say that because a will does not dispose of all of the testator’s property it is ambiguous and must be construed so as to prevent intestacy, either total or partial, is to use a rule of construction as the reason for construction. But a will is never open to construction merely because it does not dispose of all of the testator ’s property. ‘1 Courts are not permitted in order to avoid a conclusion of intestacy to adopt a construction based on conjecture as to what the testator may have intended although not expressed.” (Estate of Hoytema, 180 Cal. 430 [181 Pac. 645].) Only where there is an ambiguity may the rule which directs a court to prefer that mode of interpretation which prevents intestacy, be applied. (Sec. 102, Prob. Code.) A court may not, under the guise of construction, make a will for a testator to take the place of the one made by him if its intent is plain. And this is so regardless of the consequences of the testator’s will.

The decree is, therefore, reversed.

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

Houser, J., concurred in the judgment.

Rehearing denied.


text:
    [Sac. No. 5142.
    In Bank.
    April 1, 1938.]
    I. W. RAYNOR, Respondent, v. CITY OF ARCATA, Appellant.

      Blaine McGowan, Bronson, Bronson & McKinnon and John H. Painter for Appellant.
    Ray L. Chesebro, City Attorney (Los Angeles), Frederick von Schrader, Assistant City Attorney, Bourke Jones, Deputy City Attorney, F. Bert Fernhoff, City Attorney (Oakland), John W. Collier, Assistant City Attorney, J. Kerwin Rooney, Deputy City Attorney, and John J. O’Toole (San Francisco), as Amici Curiae, on Behalf of Appellant.
    E. S. Mitchell for Respondent.
   THE COURT.

Plaintiff received personal injuries when his automobile was struck by an automobile of defendant city which was being operated by the fire chief in response to an alarm. From a judgment entered on a jury verdict assessing the damages of plaintiff in the sum of $5,000, defendant city prosecutes this appeal. The action was brought under section 1714%,. Civil Code (now section 400, Vehicle Code), by which cities are made liable for injuries to person or property resulting from negligent operation of municipally owned motor vehicles by city officers, agents or employees.

The accident occurred in the intersection of Sixteenth and G Streets in defendant city. The Redwood highway proceeds along G Street at this point. Plaintiff was driving southerly along said highway at about 5:30 o’clock on the afternoon of March 20, 1933. The traffic was heavy on both sides of the highway. Plaintiff entered the intersection with his car in second gear, at a speed estimated by him to be about twenty miles an hour.

The fire chief, James A. Wyatt, in response to a fire alarm, was proceeding easterly along Sixteenth Street. Plaintiff testified that he looked to the right and left as he entered the intersection, but did not observe the fire chief’s car. He also testified that he heard no siren or horn sounded. He did not know what hit him until he recovered consciousness after the accident, but thought perhaps it was an aeroplane.

The fire chief’s automobile was a Ford roadster painted red. The fire chief testified that when he heard the alarm, sounded as customarily by the blowing of a whistle at the California Barrel Company, he was at his home, a distance of five blocks from the intersection where the collision occurred. The number of blasts of the whistle indicated the general locality of the fire. As he proceeded easterly along Sixteenth Street the emergency red light on his car was lit and the siren was sounded continuously. The siren was a standard type used on fire equipment and was in working order. The speed of the chief’s car was estimated by witnesses at fifty miles an hour.

Complainant alleged that the fire chief drove at an excessive speed; that he failed to stop or slacken his speed at the boulevard stop at Sixteenth Street entering the highway; that the chief’s car did not have a proper or efficient siren, and that the chief did not sound a siren or other signal with sufficient distinctness to be heard.

Under our recent decision in Lucas v. City of Los Angeles, 10 Cal. (2d) 476 [75 Pac. (2d) 599], the vital issue in this case is whether the fire chief sounded his warning siren as he proceeded at a high rate of speed in response to the fire alarm. The plaintiff himself and the driver of the car immediately following his car testified that they heard no siren. Negative testimony of this sort is sufficient to create a conflict in the evidence as to whether a warning siren was in fact sounded. (Thompson v. Los Angeles & S. D. B. Ry. Co., 165 Cal. 748 [134 Pac. 709]; Keena v. United Railroads, 197 Cal. 148 [239 Pac. 1061]; Rogers v. City of Los Angeles, 6 Cal. App. (2d) 294, 296 [44 Pac. (2d) 465].)

Nevertheless we are of the view that the judgment in favor of plaintiff must be reversed as being incompatible with the law as declared in the Lucas case, supra. In the Lucas case, supra, the plaintiff was a guest in an automobile involved in an intersection collision with a police car responding to an emergency call. It was contended that the police car was being operated at an unlawful rate of speed and that the driver was negligent in failing to obey a mechanical signal at the intersection, which showed "Stop” for traffic moving in the direction of the police car, and "Go” for traffic moving in the direction of the car in which plaintiff was a guest.

Our decision in the Lucas case, supra, reversed a judgment for plaintiff. Our opinion states that no contention was made that the siren was not sounded. A warning siren having been sounded, negligence of the driver could not be predicated on his rate of speed or failure to obey the ‘1 Stop ’ ’ sign. An authorized emergency vehicle responding to an emergency call is exempt from limitations of speed and other rules of the road, such as those relating to the right of way. The exemption from speed limits and right of way is statutory. (Secs. 120 and 132, Motor Vehicle Act, as amended by Stats. 1929, pp. 539, 542; later secs. 517 and 554, Vehicle Code; sec. 517 was repealed by Stats. 1937, p. 168, but see sec. 454, added by Stats. 1937, p. 168.) The exemption from other rules of the road has been established by judicial decisions, notably by Balthasar v. Pacific Elec. Ry., 187 Cal. 302 [202 Pac. 37, 19 A. L. R. 452],

The provisions in sections 120 and 132, supra, to the effect that the exemptions there given shall not relieve the driver of an emergency vehicle of the duty to drive with due regard to the safety of the public means that the driver must, "by suitable warning, give others a reasonable opportunity to yield the right of way ... ”. (Lucas v. City of Los AnAngeles, supra.) The sections also provide that the exemption shall not protect the driver from "an arbitrary exercise” of the privileges there granted. But an arbitrary exercise of said privileges cannot be predicated upon the elements of speed and failure to observe other rules of the road where a warning has been given. ‘ ‘ In such cases speed, right of way, and all other ‘rules of the road’ are out of the picture.” (Lucas v. City of Los Angeles, supra.)

In the instant case the evidence as to whether a warning signal was given was in conflict. The vice of the instructions given to the jury is that they authorize the jury to predicate a finding of negligence on dhe fire chief’s speed and failure to observe the boulevard stop even though the jury should conclude upon the conflicting evidence that a sufficient warning signal had in fact been given. The effect of the instructions was to authorize the jury to determine as a matter of fact whether in traveling at the rate of speed shown and in failing to observe the boulevard stop the fire chief had driven “with due regard for the safety of all persons using the highway” or had been guilty of an “arbitrary exercise” of the privileges accorded emergency vehicles.

The court also gave the following instruction: “You are further instructed that when operating a fire automobile on and over the streets, a greater amount of care is required than in those cases of the use of motor vehicles where the maximum limit of speed is fixed by the law.” This admonition to the jury was repeated in the instruction immediately following, couched in slightly different phraseology. In view of the rule, declared in Lucas v. City of Los Angeles, supra, that the conduct of the driver of an authorized emergency vehicle responding to an emergency call is actionable only where it is in the nature of “wilful misconduct”, the above instructions were prejudicially erroneous.

Although our recent decision in the Lucas case, supra, was rendered after trial of the action herein, said decision is declaratory of existing law applicable when the accident herein occurred. The effect of said decision was to settle the law, which theretofore had been in a state of confusion due to conflicting appellate court decisions.

If appellant city is correct in certain further contentions urged by it, then the action should not be retried under correct instructions, but entry of judgment for defendant should be directed. We are of the view that these further contentions cannot be upheld.

Appellant contends that a city cannot be held liable for any act of a member of its fire department committed while responding to a fire alarm, for the reason that under chapter 263 of the Statutes of 1929 (p. 568) the fireman himself cannot be held liable. Chapter 263 was approved by the governor on the same day as section 171442. Civil Code, which was enacted as chapter 260 of the Statutes of 1929 (p. 565). Chapter 263 was as follows: “No member of a fire department or police department maintained by a county, city and county, incorporated or unincorporated city, town or district, shall be held liable in any civil action for damage to persons or property occasioned by any act of such member arising’ out of the operation, in line of duty, of a motor vehicle of such department while responding to an alarm of fire or an emergency police call.” (Italics ours.) (Now embodied in sec. 401, Vehicle Code.)

Section 1714%, Civil Code (now sec. 400, Vehicle Code) imposes liability on cities and other governmental agencies for negligent operation of motor vehicles by public officers and employees. The second paragraph of the section gives the public employer a right of subrogation to recover from the officer or employee the amount of any judgment recovered by the injured person against the public employer. The third paragraph authorizes the public employer to insure against the liability imposed. The effect of this section was to impose liability on the public employer for negligent operation of public vehicles in the performance of governmental, as well as proprietary, functions. The section contains no exemption from liability where the vehicle is a police or fire department automobile responding to an emergency call.

The decisions of the appellate courts are in conflict on the question whether a public employer may be held liable for “negligent operation” of a police or fire department car under section 1714%, Civil Code, Avhen the operator himself is free from liability under chapter 263. In Armas v. City of Oakland, 135 Cal. App. 411 [27 Pac. (2d) 666, 28 Pac. (2d) 422], and Tuten v. Town of Emeryville, 139 Cal. App. 745 [35 Pac. (2d) 195], liability of the public employer is denied.

The doctrine of the cited cases is that when liability of the public employer rests solely on’ the doctrine of respondeat superior, that is, liability of an employer, itself free from blame, for the wrongful acts of an employee, a law which releases the employee must be construed as relieving the employer. Said decisions find that the right of the public employer which has been held liable in damages to recover from its employee the amount of the judgment against it, is an inseparable incident of the liability imposed on the public employer by section 1714%. Where the right over against the employee does not exist, which is the case where chapter 263 applies, section 1714% imposes no liability on the public employer, said decisions hold.

On the other hand, a contrary conclusion is reached in Rogers v. City of Los Angeles, 6 Cal. App. (2d) 294 [44 Pac. (2d) 465], and Lossman v. City of Stockton, 6 Cal. App. (2d) 324 [44 Pac. (2d) 397]. In those cases the vehicle was a police ambulance responding to an emergency call. Such a vehicle would seem to come within chapter 263 as a vehicle of the police department responding to “an emergency police call”. In the Lossman ease, supra, the relation of section 1714% and chapter 263 of the Statutes of 1929 was discussed at length, it being assumed that the police ambulance driver was within chapter 263. In the instant ease the fire chief was responding to a fire alarm and hence was plainly within chapter 263. The fire chief was not acting outside the line of his duty because the fire was on the other side of the street which marked the city limits. He was under a duty to respond to the alarm whistle blown within the city. It was not shown that he was aware that the fire was beyond the city limits. Furthermore, protection of lives and property within the city required his presence at the scene of the fire and the extinguishing of a fire scarcely over the line.

We regard the remarks made by the appellate court in the Lossman case, supra, as correctly declaring the law on this phase of the case. The court there said: “It is a well-recognized rule that statutes upon the same subject matter should be read together and each given full force and effect as far as possible. The legislature recognized that members of the police and fire departments in the performance of their duties are often called upon to exceed the ordinary speed limit and take the right of way. If such employees were compelled to weigh the chances and assume a personal responsibility, speed and efficiency would be affected. The legislature, however, realized that such operation of motor vehicles on the streets did create a hazard to the general public and therefore provided that the city should be held liable when the exercise of governmental functions resulted in injury to its people. The legislature also at the same time authorized its governmental agencies to obtain insurance to indemnify itself against loss by such actions. If, too, an employee is unduly reckless or careless in the operation of the vehicle under his control the municipality still retains its rule-making and disciplinary powers and can, as any private concern, under similar circumstances, exercise restraint over its employees.

“It cannot be argued that because the state deemed it expedient to waive its right of subrogation against its employees, it thereby denied a right of action against itself. Subrogation is the substitution of one in the place of another, and if for any reason the one in whose favor such subrogation runs cares to waive such privileges, no one can complain. ‘Subrogation is considered as the creature of equity and is so administered as to secure real and essential justice without regard to form.’ ...” (6 Cal. App. (2d) 324, 331 [44 Pac. (2d) 397].)

We are mindful of the rule that statutes imposing a liability on governmental agencies in derogation of the common-law rule are to be strictly construed. But this does not confer upon courts the power to nullify legislation where- the statute itself evinces a clear intention on the part of the lawmakers to depart from the common-law rule.

The liability of the city or other public employer still rests on the doctrine of respondeat superior. In order that the public employer may be held there must be a “negligent operation” of the vehicle by the employee. The fireman or policeman responding to an emergency call is relieved of personal liability for his negligence, but the city may be held therefor. It follows from the discussion in the earlier part of our opinion herein that there is a “negligent operation” of an authorized emergency vehicle responding to an emergency call only where the driver of such vehicle fails to give a timely warning, or otherwise makes an “arbitrary exercise” of the exemption from rules of the road which can be said to be wilful misconduct.

The cases which hold that after an ordinary private employee has been held not negligent, his private employer may not be held on the doctrine of respondeat superior are not controlling here. The basis of said decisions is that after it has been held that the employee is free from negligence it cannot he held in an action against the employer that such employee has been guilty of negligence. But in the situation before us the exemption of the employee does not rest on an adjudication of his freedom from negligence, but on the statutory declaration that he should be free from personal liability for his negligent acts. It is but the exercise of the police power of the state, which inheres in sovereignty. Any exercise of this power which has a'tendency to protect life and limb is in the interest of the public weal.

The plaintiff was not required to file a claim for his injuries with the city council within ninety days after the accident. The provisions of Statutes of 1931, page 2475 (Deering’s Gen. Laws (1931), Act 5149, p. 2562), are not applicable herein, where the injury is alleged to have resulted from negligent operation of a public motor vehicle, rather than from the dangerous or defective condition of public property. Act 5150 (Stats. 1931, p. 2476) relates to liability of public officers, not to liability of the city or other governmental agency. (Jackson v. City of Santa Monica, 13 Cal. App. (2d) 376 [57 Pac. (2d) 226].)

For prejudicial error in the instructions given the judgment is reversed.


text:
    [L. A. No. 15392.
    In Bank.
    April 4, 1938.]
    CORA LORD COPP, Appellant, v. VELLZORA MILLEN et al., Defendants; WINFIELD RUSSELL, Respondent.

      Andrew J. Copp, Jr., for Appellant.

      Walker R. Flint for Respondent.
   SHENK, J.

This appeal presents a question of priority as between a mortgage, which had been released of record and renewed, and a contract of sale executed by the owner to a third person between the date of the execution of the original mortgage and the date of the release and renewal thereof.

On July 15, 1923, Vellzora Millen executed and delivered to Andrew J. Copp, Jr., a mortgage for $1250, due in three years, on a parcel of land in the city of Los Angeles. At the same time she also executed a deed of trust to Copp on the same property to secure payment of $885.55. The aggregate of those sums represented the balance due from Vellzora Millen to Copp on the original purchase price of $2,500. Both instruments were duly recorded. Subsequently and on November 1, 1923, Vellzora Millen entered into' a contract of purchase and sale of said property with Winfield Russell for the sum of $3,500. No mention was made in the contract of sale of the mortgage and trust deed, and Russell had no actual knowledge of their existence. He went into possession and made monthly payments of principal and interest on the purchase price. The contract was not recorded.

The mortgage and trust deed were assigned by Copp to his wife, Cora Lord Copp, the plaintiff herein. Vellzora Millen defaulted in the payments under the mortgage and trust deed, and on September 10, 1929, when the statute of limitations was about to bar an action in foreclosure, she executed and delivered to Cora Lord Copp a new note and mortgage for $1458.48, which represented the balance due under the original mortgage and trust deed. At the same time the original mortgage and trust deed were satisfied and discharged of record. The new mortgage was duly recorded.

At the time of the discharge on the record of the original mortgage and trust deed, Russell had paid $2,917.27 to Vellzora Millen on the principal amount called for under his contract of purchase, plus interest thereon, and subsequently he paid the balance due thereon.

On May 25, 1934, Cora Lord Copp brought an action to foreclose the mortgage dated September 10, 1929, naming as defendants Vellzora Millen and Winfield Russell. Vellzora Millen defaulted. Russell answered alleging ownership and possession of the property under the contract of sale and the plaintiff’s actual knowledge thereof. He also filed a cross-complaint wherein he sought to quiet his title to the property. The plaintiff filed an answer to the cross-complaint wherein she set up the mortgage and trust deed of July 15, 1923, and denied knowledge of the existence of the contract. She also alleged that the mortgage of September 10, 1929, was a renewal of the mortgage and trust deed of 1923; that such renewal was intended by the parties as a continuance of the obligation; that the satisfaction of record was solely for the purpose of extending the maturity of the principal obligation and continuing the lien upon The real property as security therefor; that the recital on the record of the release and discharge of the mortgage and trust deed was made by mistake of the parties, but that in truth the debt had not been paid and that the release was given merely for the purpose of affording the mortgagor Vellzora Millen more time within which to pay the debt secured by the mortgage and trust deed.by permitting her to make a renewal thereof; that the only agreement between the parties in fact was not one of release but was to the effect that the renewal was given and accepted for the purpose of extending the time of payment of the balance due on the original debt. On those allegations the plaintiff sought judgment of foreclosure as prayed in her complaint.

The trial court found that on September 10,1929, the plaintiff had actual notice and knowledge of the unrecorded contract of sale. On the basis of such knowledge, and its findings of the facts hereinabove noted, the court rendered judgment in the sum of $1439.95 for the plaintiff and against the defendant Vellzora Millen, but denied the plaintiff any right of foreclosure. It decreed the right of the defendant Russell to the ownership and possession of the property. The plaintiff appealed. She charges error in the conclusion of the court that she is not entitled to foreclosure, and in its rulings excluding certain proffered evidence. She invokes the application of the equitable principles stated in Parker v. Tout, 207 Cal. 590 [279 Pac. 431], White v. Stevenson, 144 Cal. 104 [77 Pac. 828], Van Sandt v. Alvis, 109 Cal. 165 [41 Pac. 1014, 50 Am. St. Rep. 25], Shaffer v. McCloskey, 101 Cal. 576 [36 Pac. 196], and Tolman v. Smith, 85 Cal. 280 [24 Pac. 743].

The evidence, including that offered and rejected by the court, is that the parties did not intend the mortgage of September 10, 1929, as payment of the debt, but intended merely to extend the time for payment by executing a renewal mortgage for the balance due, and that the entry on the record of satisfaction and release of the original security was by mistake of the parties thereto. It also appears therefrom that the entry of the release was due to the mistake of the parties acting under the belief that such renewal mortgage would be a first lien on the property, and that this belief was induced by the report of the title company that no intervening liens appeared of record. Where such facts are present and the equities justify it, the courts have decreed a revival of the old mortgage as a continuing lien. The equitable principle has been variously stated, according to the circumstances of each case: “But as to the debts secured by the original mortgage . . . , we regard the cancellation of the old mortgage and the substitution of the new as contemporaneous acts. It was not creating a new encumbrance, but simply changing the form of the old. A court of equity, looking to the substance of such a transaction, would not permit a release, intended to be effectual only by force of and for the purpose of giving effect to the last mortgage, to be set up, even if the last mortgage was inoperative.” (Van Sandt v. Alvis, supra,, p. 169, quoting from Swift v. Kraemer, 13 Cal. 530 [73 Am. Dec. 603].) Applying that principle it was held that the trial court was justified in concluding that the first mortgage, having been satisfied only for the purpose of giving effect to the second one, would in equity be deemed to be and remain in force until the demand secured thereby was barred, and that a foreclosure could be decreed as to the note which was not barred.

In Tolman v. Smith, supra, it was said (p. 287) that the substitution of a new mortgage did not operate to discharge the old ones, but merely suspended the remedy upon them. “It is well settled that, in the absence of an agreement to that effect, the payment of one note by another is only conditional and not absolute payment. It extends the time for payment until the maturity of the new note, or, as it is said, ‘suspends’ the remedy upon the old note, but does not extinguish it.” And at page 289: “And so where, as in the case before us, one mortgage is substituted for another, equity will keep the first alive when the interests of justice require it.”

“By a doctrine closely akin to that of equitable subrogation, and it seems to us one founded in equal equity and reason, the old mortgage, though released, must be substituted for the new and treated as a continuing lien securing the continuing debt.” (American Sav. Bank & Trust Co. v. Helgesen, 67 Wash. 572 [122 Pac. 26, Ann. Cas. 1913A, 390].)

The defendant Russell contends that the action by the plaintiff must have been one brought to revive and continue the old mortgage in existence, and that the plaintiff is not entitled to the relief sought under the allegations of her complaint. However, the material allegations in that respect appear by the cross-complaint and the answer thereto, which may be deemed appropriately to have raised those issues in connection with the action of foreclosure (White v. Stevenson, supra, p. 112), and for that reason the trial court erred in dismissing the cross-complaint.

Assuming that otherwise the equities are in favor of reviving and continuing the old mortgage and trust deed, it becomes apparent that the same can be revived and continued as against the defendant Russell unless the bar of the statute of limitations intervenes to prevent it. (Sec. 337, Code Civ. Proc.; Barber v. Babel, 36 Cal. 11, 23.) The defendant Millen could not, by renewal, extension, default or otherwise, waive the bar of the statute so as to preclude its invocation by the defendant Russell. (Flack v. Boland, ante, p. 123 [77 Pac. 1090]; Ekmann v. Plumas County Bank, 215 Cal. 671, 673 [12 Pac. (2d) 433]; 18 Cal. Jur., p. 416 et seq., and cases cited.) Inasmuch as the defendant Russell did not urge the bar of that statute, we deem it expedient to examine into the considerations controlling the equities between the parties aside from any question of the statute of limitations.

In White v. Stevenson, supra, it was said: “Mistake is the foundation of one of the chief branches of equity jurisprudence, and the exercise of equity jurisdiction is frequently had where a contract as written does not express the terms of the actual agreement between the parties. This jurisdiction is often invoked to set aside or cancel the release of a mortgage that has been given under a mistake of fact, or contrary to the evident intention of the parties; notably when, upon the execution of a new mortgage, in renewal or as a substitute for a prior one, the former mortgage is released in ignorance of the existence of an intervening lien. Equity looks at the intention of the parties, and will control the effect of a release executed under a mistake of fact, or cause it to be cancelled, when no intervening rights have accrued by reason of the mistake.” And, quoting from Barnes v. Camack, 1 Barb. (N. Y.) 392: "The principle which runs through all cases of this description is that when the legal rights of the parties have been changed by mistake, equity restores them to their former condition, when it can be done without interfering with any new rights acquired on the faith and strength of the altered condition of the legal rights, and without doing injustice to other persons.” The granting of equitable relief is, however, not limited to those cases wherein the mortgagee had no notice of the lien of the intervening encumbrancer. In Iowa County Bank v. Pittz, 192 Wis. 83 [211 N. W. 134], the mortgagee had both constructive and actual knowledge of intervening liens. It was held that the equities of the case required that the original mortgage be maintained as a continued and paramount lien.

In a case in which the intervening lienor held a mortgage which was a matter of record, it was held nevertheless that the equities required the continuance of the old lien as against the intervening lienor. The court said: "The effect of the transaction was merely to continue plaintiff’s original mortgage ... If it had by mistake released its mortgage without intending to do so, as, for instance, by executing a release supposing that it had a paper of a different character, or that the release executed was that of a mortgage upon a different piece of property, there can be no doubt that equity, upon the satisfactory proof that it requires in such case, would relieve the plaintiff from the result of such action, and reinstate the mortgage which had been discharged by mistake. Equity always looks to the substance, and not to the form, of the transaction. There being no intention to release the lien of the first mortgage, its actual release for á momentary period should not, in equity, permit a subsequent lienor to intervene and acquire priority. ’ ’ It was concluded that the relief could be granted although the mistake was not unmixed with negligence. "Unless the mistake is rectified, Isaes [the subsequent lienor] will obtain an unconscionable advantage. The correction of the mistake will leave him in his original position and deprive him of no right to which he is justly entitled.” (Lomas & Nettleton Co. v. Isacs, 101 Conn. 614 [127 Atl. 6].)

In Capital Lumbering Co. v. Ryan, 34 Or. 73 [54 Pac. 1093], the subsequent encumbrance was a mechanic’s lien. The mortgagee was relieved from the mistake in releasing the original mortgage and taldng a renewal thereof where at the time the mortgagee knew that a building was in course of construction and uncompleted. In Bormann v. Hatfield, 96 Wash. 27 [164 Pac. 921, L. R. A. 1917E, 1052], the intervening lien was a matter of public record at the time the release and renewal were executed. The representation of the mortgagor that no intervening liens existed was held to excuse the omission to examine the records before executing the renewal mortgage. The court concluded: “Therefore a subsequent mortgagee 'who becomes such anterior to the discharge of a prior mortgage cannot, with any show of reason or justice, claim to be injured by the setting aside of the subsequent release and restoring the lien of the prior mortgage. He. is in no way prejudiced, but is left to enjoy exactly what he expected to get when he accepted the second mortgage. (Citing cases.) ” It was pointed out in Holt v. Mitchell, 96 Colo. 412 [43 Pac. (2d) 388, 98 A. L. R. 838], referring to McKenzie v. McKenzie, 52 Vt. 271, that they who are not injured should not be permitted to “speculate in another’s blunders”. (See, also, Pacific National Agricultural Credit Corp. v. Wilbur, 2 Cal. (2d) 576 [42 Pac. (2d) 314]; and notes, 33 A. L. R., p. 149 et seq.; 98 A. L. R., p. 848 et seq.)

As shown by the decisions herein cited, the courts in this state have applied the principle that wherever it is shown that the discharge or release was intended, not as payment, but as an extension or renewal of or substitution for the original debt and security, relief will be granted in accordance with the equities in each individual case. Thus in Shaffer v. McCloshey, supra, the intervening lien was on record at the time the supposed satisfaction was given. The contention was that the plaintiff was bound by the constructive notice. The court affirmed a judgment granting the equitable relief saying: “In our opinion the judgment should be affirmed. It will be noticed that the judgment in this case does not weaken any position which appellants were induced to take by any conduct of the respondent. It does not take away from them, any money which they were induced to invest by any act or laches of respondent; nor does it lessen the value of any security which he in any way induced them to take. They did not acquire any lien after the mortgage had been marked satisfied, and were not led by a clear record to invest money in the land. They took the deed of trust while the mortgage was in full legal existence, recorded and unsatisfied, and with perfect understanding that it was a valid prior lien, and they are merely seeking to take an advantage offered by an inadvertence or mistake of respondent. This is what equity will not allow. ’ ’

It follows from the foregoing that some knowledge or means of knowledge of the existence of other person’s rights in the property does not in every case preclude the court from granting the relief sought. So that if, notwithstanding the mortgagee had some knowledge or notice, the intervening lienholder is not prejudiced by the continuance of the priority of the original mortgage and is in no different position than he would have been had the release not been recorded, equity will place the parties in their original position.

There is evidence in the record to sustain the trial court’s finding that the plaintiff had actual knowledge that the property had been sold by Vellzora Millen to Russell and that the latter was in possession. But it does not appear that the plaintiff knew or should have known that Russell’s unrecorded contract to purchase was not subject to the plaintiff’s mortgage.

The position of Russell has not been materially changed by the release on the record, with the possible exception relating to the amounts thereafter paid by him under his contract. Therefore under the applicable authorities the plaintiff is entitled to relief at least to the extent that Russell suffered no prejudice by said release. The trial court apparently concluded that the plaintiff’s knowledge of the existence of Russell’s contract was alone sufficient to exclude the plaintiff from any relief by way of foreclosure. The court refused to admit evidence offered by the plaintiff to show the circumstances under which the release and renewal of the mortgage and trust deed were made. In this the court was in error substantially affecting the rights of the plaintiff. Such evidence was admissible, as well as evidence on the question of whether Russell suffered any prejudice for which the plaintiff was responsible.

When a defendant fails to avail himself of the defense of the statute of limitations, it is discretionary with the trial court whether after a reversal on appeal he should be allowed to urge the defense on a second trial. This right was allowed in Trower v. San Francisco, 157 Cal. 762, 769 [109 Pac. 617], On the other hand action of the trial court in refusing to permit the defendant to make a tardy plea of the statute during a first trial has been sustained. (San Joaquin Valley Bank v. Dodge, 125 Cal. 77, 83 [57 Pac. 687]; Cooke v. Spears, 2 Cal. 409 [56 Am. Dec. 348]; Rossi v. Jedlick, 115 Cal. App. 230, 236 [1 Pac. (2d) 1065]; Richards v. Silveria, 97 Cal. App. 166 [275 Pac. 478]; Hewel v. Hogin, 3 Cal. App. 248 [84 Pac. 1002].)

The judgment is reversed.

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

Rehearing denied.


text:
    [L. A. No. 16521.
    In Bank.
    April 4, 1938.]
    FRIEND W. RICHARDSON, as Superintendent of Banks, etc., Appellant, v. JOHN J. CRAIG et al., Respondents.

      John G. Clock, Clock, McWhinney & Clock for Appellant.
    Mathes & Sheppard, Lloyd Melvin Smith and William Guthrie, as Amici Curiae on Behalf of Appellant.
    John J. Craig for Respondents.
    Devlin & Devlin & Diepenbrock, A. I. Diepenbrock, Chase, Barnes & Chase, Lucius K. Chase, Thomas R. Suttner, Ben A. Hill, George P. Adams, Charles E. Beardsley, H. P. McCarthy, E. L. H. Bissinger, Randolph Karr, Evans, Pearce & Campbell, W. E. Evans, John L. Fleming, Henry G. Bodkin, A. H. Brazil, C. P. Kaetzel, Gibson, Dunn & Crutcher, H. F. Prince, Ira C. Powers and Frederic H. Sturdy, as Amici Curiae on Behalf of Respondents.
   LANGDON, J.

This is an action by the Superintendent of Banks to enforce an assessment against stockholders of an insolvent bank, pursuant to the provisions of the California Bank Stockholders’ Liability Act (Deering’s Gen. Laws, Act 652a).

The Firestone Park Bank was closed on January 7, 1932, and on that date the Superintendent of Banks took over its assets and management for purposes of liquidation. On January 28, 1932, in accordance with the statutory authority given him, he determined that it was necessary for payment of the debts to “enforce the individual liability of the stockholders” of the bank by an assessment of $100 per share. The order for assessment was then made, specifying March 7, 1932, as the date when the same should become due and payable. Defendants having failed to pay, the superintendent commenced this action on February 8, 1935, in the superior court. Defendants demurred, setting up the bar of the statute of limitations, and the trial court sustained the demurrer and dismissed the action. From the judgment of dismissal this appeal was taken by the superintendent. The single issue before us is whether the action is barred by the statute of limitations, and, as will hereinafter appear, the precise question is when the statute began to run on the liability of defendants.

The Bank Stockholders’ Liability Act, which establishes the obligation, makes the general statement in section 1 that the stockholders “shall be held . . . individually liable, equally and ratably . . . for all contracts, debts and engagements of such corporations”. It is further provided that the Superintendent of Banks may determine the necessity of an assessment, and may levy and call for the same. It then states:

“If any stockholder of any bank shall fail to pay said assessment in full upon the date specified in said order as the date upon which said assessment shall be due and payable, a right of action shall immediately accrue to the Superintendent of Banks to recover the amount of said assessment or the amount remaining unpaid thereon from the stockholder or stockholders failing to pay the assessment in full ...”

This act does not contain a special statute of limitations. Accordingly we turn to the Code of Civil Procedure for the applicable time limitation. Section 359 provides: “This title does not affect actions against directors or stockholders of a corporation, to recover a penalty or forfeiture imposed, or to enforce a liability created by law; but such actions must be brought within three years after the discovery by the aggrieved party of the facts upon which the penalty or forfeiture attached, or the liability was created.” This statute is the only one which by its terms covers the liability of stockholders of a corporation for its debts. The liability involved in this action clearly comes within the language of the section, which has heretofore been applied by this court to suits to enforce bank stockholders’ liability originating under the laws of other jurisdictions. (See Royal Trust Co. v. MacBean, 168 Cal. 642 [144 Pac. 139]; Miller v. Lane, 160 Cal. 90 [116 Pac. 58].) Its applicability was assumed in a recent decision of the District Court of Appeal dealing with stockholders of an insolvent bank under the New York law (Broderick v. Kunde, 23 Cal. App. (2d) 587 [74 Pac. (2d) 333]), and expressly held applicable in an action against stockholders of an Oklahoma national bank, in Johnson v. Greene, 88 Fed. (2d) 683. We therefore hold that section 359 is the governing statute of limitations, and we shall briefly notice hereinafter the argument of plaintiff that it has been repealed by implication.

In determining the effect of section 359 on the action before us, we may note that there are three possible dates upon which the statute may have begun to run: (1) The date upon which the banking corporation incurred the debt or debts which made necessary the present assessment. (2) The date upon which the assessment was levied (January 28, 1932). (3) The date upon which the assessment was due and pajmble (March 7, 1932). If either of the first two dates applies, the action was barred. But it was filed within three years after the due date of the assessment, and if that was the date upon which the statute of limitations began to run, the action was timely. This last date would apply under the usual statute of limitations, following the almost universal rule that it does not begin to run unless there is a cause of action to be barred; in other words, until the cause of action accrues. And this result is generally reached in cases from other jurisdictions involving the liability of stockholders of national and state banks, where the nature of the liability is essentially the same as our own. (See Broderick v. Aaron, 151 Misc. 516 [272 N. Y. Supp. 219]; Broderick v. Adamson, 148 Misc. 353 [265 N. Y. Supp. 804]; De Weese v. Smith, 106 Fed. 438 [66 L. R. A. 971]; McClaine v. Rankin, 197 U. S. 154 [25 Sup. Ct. 410, 49 L. Ed. 702, 3 Ann. Cas. 500]; Broderick v. Kunde, supra.)

But the above decisions, while concerned with bank stockholders’ liability statutes similar to ours, did not involve statutes of limitation comparable to section 359 of the Code of Civil Procedure. This peculiar statute differs from the usual provision elsewhere, and from other provisions in our own code, in that it requires the bringing of the action within three years after the liability “was created”, instead of three years after the cause of action accrued. The interpretation of the section has been settled by a long line of cases which, construing the language literally, have held that actions are barred within three years after the obligation was incurred. As applied to our former unlimited proportional stockholders’ liability, the extraordinary result followed that if a corporation borrowed money on a four-year promissory note, the obligation was incurred, and the stockholders’ liability arose on the making of the note; three years after-wards the statute of limitations had run and the action was barred, though the cause of action itself had not even accrued. (See Hunt v. Ward, 99 Cal. 612 [34 Pac. 335, 37 Am. St. Rep. 87]; Gardiner v. Royer, 167 Cal. 238 [139 Pac. 75].) Severe criticism has been directed at this anomalous rule (see Gardiner v. Royer, supra; 7 Cal. L. Rev. 346), but as far back as 1914 this court considered the question finally settled by the decisions and declined to review it. (Gardiner v. Royer, supra.) Though our entire substantive law on corporations has been revised in recent years, section 359 has remained unamended, and we must accept the interpretations set forth above, establishing the distinction between creation of the liability and accrual of the cause of action, as the present meaning of the statute.

It would appear, then, that the statute began to run either at the time the debts of the bank were incurred, or at the time the assessment was levied, for on one of these dates the liability was certainly “created” within the meaning of section 359, regardless of whether it was immediately enforceable by action. But plaintiff advances two arguments against this view, which may be briefly considered.

The first is that the adoption of the bank stockholders ’ liability statute repealed by implication the provisions of section 359 in so far as they apply to the liabilities of such stockholders. There is no merit in this contention, for the new statute, though it establishes the liability and provides a procedure for enforcement thereof, makes no reference to the time within which the action must be brought. Hence the provisions of the Code of Civil Procedure dealing with the commencement of actions must govern. Plaintiff would have us ignore section 359, which in express terms refers to liability of “stockholders of a corporation”, and choose such sections as section 338, referring generally to “liability created by statute”, or section 343, covering actions not otherwise provided for, both of which are conventional in form, i. e., they start to run only upon the accrual of the cause of action. Under such a theory, however, any change in a substantive liability might be deemed to supersede an unrepealed limitation provision. There is no warrant for this kind of statutory construction, and bearing in mind the strong presumption against repeals by implication (see Penziner v. West American Finance Co., 10 Cal. (2d) 160 [74 Pac. (2d) 252]), we conclude that section 359 is still in force, and applicable to such liability of corporation stockholders as the general statutes may establish, unless a specific limitation is prescribed for any particular liability, or the provisions of section 359 are expressly negatived.

The second contention is that the holding of the cases interpreting section 359 was based upon the unusual stockholders’ liability in force prior to the revisions of 1930 and 1931, and that the different type of liability established by the new statute requires a different holding as to when the statute of limitations begins to run. We agree with this contention in part, but not to the extent urged by plaintiff. A brief comparison of the two kinds of liability at this point will clarify the issue.

The former liability was direct, primary and unlimited, though in proportion to the shares of the stockholder. The creditor did not have to proceed first against the corporation, but could sue the stockholders directly, irrespective of solvency of the corporation. (See Gardiner v. Bank of Napa, 160 Cal. 577 [117 Pac. 667]; Ellsworth v. Bradford, 186 Cal. 316 [199 Pac. 335]; Aronson & Co. v. Pearson, 199 Cal. 295 [249 Pac. 191]; 15 Cal. L. Rev. 240; 5 Cal. L. Rev. 248.) In the ease of banking corporations, the creditors and not the Superintendent of Banks had the right to enforce the liability. (Williams v. Carver, 171 Cal. 658 [154 Pac. 472].) It was this direct character of the liability which gave rise to the rule that it was “created” when the debt of the corporation was incurred.

The liability of bank stockholders under our present law, similar to that in force under the National Bank Act and the state laws of many other jurisdictions, bears no resemblance to the former one. The present liability is limited in amount to the par value of the shares of the stockholder, and is indirect and contingent. The creditor has no right of action unless the corporation is insolvent, and then has no direct remedy against the stockholder. He must present his claim to the Superintendent of Banks, and it is enforced by the superintendent. The stockholders’ liability is not measured by the amount of the creditor’s claim, as under the old law, but by the amount of the assessment levied by the superintendent. The stockholder is under no obligation to pay unless and until the superintendent has determined the necessity for an assessment, fixed the amount thereof and specified the due date. The cause of action is given to the superintendent, and on default he brings the action. The liability of the stockholder is not for the corporation debt, but for the assessment; and it is not to the creditor, but to the bank superintendent, a state administrative officer. This liability is not “created” when the corporation incurs the debt, nor even when the corporation becomes insolvent; it does not exist at all prior to the making of the assessment. It follows that our former decisions holding that the statute begins to run when' the corporation incurs the debt cannot be controlling in the case of the completely different liability established by the present statute. In other words, the liability is not “created” when the bank becomes indebted to the creditor.

But this does not mean that the statute will not run until the cause of action accrues. Section 359 still applies, and. under its provisions the statute commences to run when the liability is created. We must therefore determine when the liability for the assessment was created. In our opinion, there can be no doubt that it was created when the assessment was levied, though the cause of action did not accrue until a short time afterward. The possibility of liability which confronted the bank stockholder when the bank failed became a certainty when the assessment was levied. The nature and amount of the assessment, the duty to pay it, and its time for payment were then fixed. To say that no liability was then created is to ignore the distinction between the creation of the liability and the accrual of the cause of action to enforce it, laid down in the decisions construing section 359, for the action applies “independent of any question as to whether that liability is absolute or contingent, or as to when the right to enforce it may accrue”. (Coulter Dry Goods Co. v. Wentworth, 171 Cal. 500 [153 Pac. 939].)

This conclusion, that under our section 359 the time begins to run when the assessment is made, was directly held in Johnson v. Greene, supra, by the Circuit Court of Appeals of the Ninth Circuit, affirming the District Court decision, 14 Fed. Supp. 945. The case dealt with liability under the National Bank Act, which is substantially the same as that established by our own law. Wc are in accord with the views expressed in this case, and the contrary holding in Broderick v. Kunde, supra, must be disapproved.

The judgment is affirmed.

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

Rehearing denied.


text:
    [L. A. No. 16594.
    In Bank.
    April 15, 1938.]
    BUEL R. WOOD, Petitioner, v. THE STATE BAR OF CALIFORNIA, Respondent.
    Buel R. Wood, in pro. per., for Petitioner.
    Philbriek McCoy for Respondent.
   THE COURT.

The petitioner seeks a review of the recommendation of the Board of Governors of The State Bar that he be suspended from the practice of law for a period of three months.

The petitioner, a native of South Dakota, now forty-nine years of age, was admitted to practice law in this state in November, 1923. He had previously practiced in South Dakota and Texas. In May, 1937, he was heard before the local administrative committee of Los Angeles County on charges of violation of his duties as an attorney and of conduct involving moral turpitude.

No serious dispute is presented as to the facts. The petitioner was employed in April, 1936, by Hazel Carothers, a minor, and her father to commence an action for damages on account of personal injuries sustained by the minor alleged to have been caused by the negligence of another. On April 18, 1936, the petitioner received from the Carothers the sum of $7. The receipt given by him 'showed that it was accepted as “retainer”, and that there remained unpaid “balance of fee $8.00”. On April 24th he receipted for $7 as the filing fee. An additional $10 was paid during the same month, which, together with the previous $7 on account of retainer, the committee found constituted the petitioner’s retainer fee for preparing and filing the complaint and the application for appointment of guardian ad litem. The payment of fee for further services was contingent upon recovery and to be measured by twenty per cent of the amount of recovery. A complaint in the action was never filed by the petitioner.

On June 19, 1936, this court adopted the recommendation of the board of governors in a previous disciplinary proceeding and ordered the suspension of the petitioner for a period of six months commencing July 19, 1936, and terminating January 19, 1937. The petitioner did not communicate the fact of this suspension to the Carothers, and failed to communicate with them until February 12, 1937. The content of his letter at that time was a request for payment of the filing fee, which in fact had already been paid to him. The Carothers thereupon retained other counsel to commence the action which was about to be barred by the statute of limitations, and complained to The State Bar of the petitioner’s misconduct.

The board of governors adopted the findings of the local administrative committee, with the exception that it found that the retainer was to be $25 instead of $17.

The record shows that in 1930 a reprimand was administered to the petitioner for neglect in connection with still another matter heard by the then local administrative committee of Los Angeles County.

The petitioner has not shown herein that the findings or recommendation of the board are erroneous, unlawful or improper. The petitioner’s own statements in the record furnish additional evidence that he still is remiss in his duties and obligations as an attorney. Under all the circumstances the discipline recommended by the board is not too severe.

It is therefore ordered that the petitioner be suspended from the right to practice law in this state for a period of three months to commence thirty days from and after the filing of this order.