Longway v. Newbery

A hearing was granted in this court after decision by the District Court of Appeal, Third Appellate District, in order to give further consideration to the question relating to. the liability, if any, of the defendant, Cad M. Newbery, and also to the question of the sufficiency of the evidence to support certain of the findings made by the trial court.

From a judgment in favor of the defendants in an action for rescission, the plaintiff has appealed.

There was no substantial conflict in the evidence. The uncontradicted facts surrounding the purchase of two lots by

The record shows that the tract of land was owned by one C. W. Newbery, but that the legal title thereto was held in trust (No. S-7334) by the defendant Title Insurance and Trust Company, as trustee, under a subdivision trust wherein said Newbery was the beneficiary. By the terms of section two of the trust it was provided that after payment of trustee fees and expenses, and of commissions to sales agents for the sale of the lots, a certain percentage of the proceeds received therefrom was to be placed in an “Improvement Fund” and that the distribution of moneys to the “improvement fund” should continue until the trustee was furnished with evidence of the installation of all the improvements intended to be made to the real property covered thereby, and of the payment in full of all costs and expenses thereof. The record further shows that prior to the sale to plaintiff, and pursuant to its powers under the trust, the trust company employed the Howard Marr Organization, Inc., a realty firm, as its selling agent for the tract of land, and that sales agents Johnson, Langmo and Mrs. Ward, who dealt directly with plaintiff concerning the terms of the sale of the lots, were the employees of the realty company. It further appears that in the agency agreement made between the trust company and the realty company for the sale of the lots in the tract, it was provided that the realty company should have “the general care and custody of the above described property with authority to solicit and obtain purchasers thferefor and to arrange the prices and terms of sale”. (Emphasis added.) It also was provided in the agency agreement that “all of the acts, however, of said agent shall be subject to the approval and confirmation of said principal”.

The record also shows that a week after plaintiff had purchased the lots, and on November 29, 1926, C. W. Newbery assigned and transferred his entire beneficial interest in the said trust to the trust company as security for the performance by said Newbery of the obligations undertaken by him, as set forth in the trust, to install the improvements, “subject, however, to all terms and conditions of said . . . trust”. It also was provided therein that upon the default of said Newbery in the erection and completion of the improvements he would pay to the trust company such amount of money as would enable the trustee to effect the construction of the improvements.

Thereafter the trust company sent to plaintiff in Detroit two deeds dated November 26, 1926, labeled respectively, on the outside of each, as “Lot 11 A” and “Lot 11B”; but in the body of the deed labeled “Lot 11A”, the property was described as the northeasterly twenty-five feet of lot 11, tract 9179, sheets 1 and 2, as per map recorded, etc., and the property covered by the deed labeled “Lot 11B” was referred to' in the body thereof as all of lot 11 in tract No. 9179, except the northeasterly twenty-five feet thereof, etc.

Some few months after his return to Detroit, plaintiff learned that the improvements to the property were not being installed. He wrote to the trust company and to said Newbery with regard thereto, and thereafter various letters relating to the installation of the improvements were exchanged between plaintiff and the trust company, on the one hand, and between C. W. Newbery and plaintiff, on the other, until the death of said Newbery in May, 1933, and thereafter the correspondence was carried on between his widow, Cad M.

Appellant contends that he is entitled to rescind the contract and recover his money because of the alleged false representations made by defendants, or their agents, that they would install the improvements, and their subsequent failure to do so; and also that he was entitled to the return of his money in that the offer for sale and the sale of the lots were made by reference to an unrecorded map, as prohibited by . Statutes of 1907, page 290, as that statute read at the time of the sale here involved.

Regarding the latter contention, on each of several occasions it has been held by respective appellate tribunals of this state that, under the provisions of Statutes of 1907, page 290, where a contract for the sale of land is made by reference to an unrecorded map, such contract is void, and that a vendee may recover his money paid thereunder (Goodspeed v. Associated Almond Growers, 208 Cal. 121 [ 280 Pac. 530 ] ; Silverthorne v. Percey, 120 Cal. App. 83 [ 7 Pac. (2d) 746 ]; Cook v. La Vina Land Co., 3 Cal. App. (2d) 21 [ 39 Pac. (2d) 4581 ; Smith v. Bach, 183 Cal. 259 [ 191 Pac. 14 ]). In

With regard to the other question presented, i. e., whether the evidence was sufficient to support the finding of the trial court that no false representations were made, the appellant contends that the finding on this issue was without support in the evidence.

In part the trial court found as follows: That the trust company was the trustee in an agreement wherein C. W. Newbery was the beneficiary, but that the latter had no interest in the trust at the time of his death; that the plaintiff had entered into an agreement for the purchase of the lots, described upon an unrecorded map as lots 11A and 11B, and paid to the trust company the full purchase price therefor; that both the receipts and Trust No. S-7334 provided for the installation of specified improvements at no cost to the purchaser ; that with the exception of sidewalks, substantially none of the other improvements had been made, and that the defendants had not advised plaintiff that the remainder of the improvements could not and would not be installed by them. However, in respect to those improvements which had not been made, the trial court also found that no false representations in that regard 'had been made by the defendants, their agents, or any of them, and that any representations that had been made at any time in connection with the installation of said improvements were believed by the makers or maker thereof to have been true, and that said or any representations were not made with intent to deceive plaintiff; that it was not true that plaintiff discovered in 1934, and for, the first

It is against the findings last hereinabove set forth that the appellant’s attack is directed as being without support in the evidence. As hereinbefore has been stated, in part, the testimony of plaintiff was that certain representations were made to him by agents of the trust company prior to his payment of the purchase price, to the effect that the improvements would be installed. Not only was that testimony uncontradicted, but, of the four persons allegedly present at the time the representations in question were made, the agents Johnson and Langmo were in court at the time of the trial and each corroborated the statements of plaintiff in that regard. Appellant contends the rule is that an intent to defraud may be inferred from the facts and circumstances shown in the case (citing Wilson v. Rigali & Veselich, 138 Cal. App. 760 [ 33 Pac. (2d) 455 ]), and that, considering all the facts and circumstances here shown to be present, particularly the import of certain of the letters which he received from the trust company and from G. W. Newbery, together with the actual failure to install all the improvements, there was evidenced on the part of the defendants at the time of purchase, an intent to deceive the plaintiff by the promise to install the improvements; that the statements made by the trust company and G. W. Newbery in their letters to him lulled him into a sense of security, situated as he was, several thousand miles from the property in question; that in reliance upon those letters he was entitled thereafter to believe that at least some of the improvements had been installed and that the remainder would be; and that under those circumstances the statute of limitations would not commence to run, in fact, until he had learned that all the improvements had not been and would not be installed.

The first letter written by plaintiff to the trust company was in October, 1927, in which he stated that he had been told no improvements were being made on the tract. Shortly thereafter the trust company replied: “It is our understanding Mr. Newbery caused certain promises to be made with reference to the installation of improvements in the said Tract, which improvements have not yet been installed. We notified

In another letter from the trust company to plaintiff in April, 1928, the trust company said, ‘The Beneficiaries under both of the said trusts agreed to install sidewalks and public utilities at their own cost . . . Our reports indicate that most of these improvements have been fully installed and the beneficiaries in both Trusts are bonded to fully complete the improvements according to their promises. ...” (Emphasis added.)

Also, in April, 1928, C. W. Newbery wrote to plaintiff: “We have been very busy installing our improvements, and I regret very much that you cannot come to California at this time, since the tract now presents a very pleasant appearance, and I am sure that you would be pleased with the present situation, and our prospects for the future.”

In the case entitled Wilson v. Rigali & Veselich, 138 Cal. App. 760 [ 33 Pac. (2d) 455 ], relied upon by appellant, the plaintiffs bought two lots in the city of Burbank, California. Certain representations were made to the vendees to induce the purchase of the lots, one of which was that the installation of water, electricity, and all street improvements would be commenced shortly. The improvements were not made in accordance with the representations, although the defendants continued to make statements implying that they would be; and ultimately an action was brought by the plaintiffs for cancellation of the contracts. In upholding the judgment in favor of the plaintiffs, the court said: “The intention not to perform a promise is a matter of inference from the facts proven and subsequent conduct may be sufficient to show such intention (Snyder v. City Bond & Finance Co., 106 Cal. App. 745 [ 289 Pac. 859 ]; Bouey v. Porterfield, 96 Cal. App. 674 [ 274 Pac. 766 ]). . . . Without the consideration of other evidence, the subsequent failure to perform warrants the inference that appellants did not intend to perform when they promised.” (Emphasis added.) To the same effect see Estate of Barrow, 27 Cal. App. (2d) 402 , 405 [ 80 Pac. (2d) 1006 ], and Cox, Executor, v. Klatte, 29 Cal. App. (2d) 150 [ 84 Pac. (2d) 290 ]. In the case last cited it also was said, “ . . . The making of a promise without intent to perform

The case of Greenberg v. DuBain Realty Corp., 2 Cal. (2d) 628 [ 42 Pac. (2d) 628 ], presents a factual situation analogous to that in the instant case. There the plaintiff bought two lots in 1923, while in California, from the defendant realty corporation, through its agents. Plaintiff lived in New York, and shortly after making the agreement to purchase the lots, he returned thereto and did not again visit California until in October, 1931. During that period he wrote to the defendants, asking them to install certain improvements represented by them to be a part of the consideration for the purchase by him of the lots. The replies led the plaintiff to believe that the defendants would install the improvements, and the plaintiff continued to make payments on the purchase price of the lots. Upon his return to California in 1931, plaintiff learned that the improvements had not been installed and thereupon notified the defendants of the rescission of the contract, and brought an action therefor. In sustaining a demurrer to the complaint, the trial court held that the plaintiff was not entitled to rely upon the alleged fraudulent representations of the sales agents because of a stipulation contained in the contract limiting the agents’ authority and, further, that the action was barred by the statute of limitations. In reversing the judgment, this court held that notwithstanding the attempted limitation of liability on the part of the principal, the latter was liable on the theory of unjust enrichment—the money retained by the principal being held by it as a constructive trustee for the person defrauded—in accordance with the rule stated in the ease of Speck v. Wylie, 1 Cal. (2d) 625 [ 36 Pac. (2d) 618 , 95 A. L. R. 760 ] ; and that the action was not barred either by laches or by the statute of limitations. (See, also, Weiner v. Roof, 10 Cal. (2d) 450 [ 74 Pac. (2d) 736 ].)

Under the rulings in the decisions hereinafter cited, the trust company may not evade liability by relying on such an assertion, if in fact it had been made. It would be liable not only for the representations of its agents made at the time of the sale to plaintiff, but also for its own representation set forth on the receipts which plaintiff received, to the effect that the trust provided for the installation of the improvements. In this regard see: Weiner v. Roof, 10 Cal. (2d) 450 [ 74 Pac. (2d) 736 ]; Graham v. Los Angeles First N. T. & S. Bank, 3 Cal. (2d) 37 [ 43 Pac. (2d) 543 ]. A trust company, or one who holds the legal title to land becomes itself a principal and those who actually sell the land for such principal are its agents, and it is liable for their representations on the theory of unjust enrichment. (Graham v. Los Angeles First N. T. & S. Bank, 3 Cal. (2d) 37 [ 43 Pac. (2d) 543 ].) In the case last cited, which was an action for rescission of a contract for alleged fraudulent representations made in connection with the purchase of real property, the corporate defendant held the legal title to the land, as trustee, the beneficiaries being the sellers of the land. Representations were made to the plaintiffs by one of the defendants to the effect that certain improvements would be installed, and upon learning that they were not so installed, the plaintiffs brought the action to rescind. The trial court sustained a demurrer to the complaint filed by the defendant bank. In reversing the judgment this court said: “Although the complaint does not state that the bank as trustee holds funds for or is indebted to the

In the case entitled Weiner v. Roof, 10 Cal. (2d) 450 [ 74 Pac. (2d) 736 ], legal title to a tract of land then being sold was held by a trust company under a subdivision trust. The trustee executed all contracts of sale and collected the proceeds thereof. The contract of the plaintiff, who had purchased one of the lots, was subsequently assigned by the trustee to the appellant bank, to which the plaintiff continued to make payments toward the purchase price. Upon discovery of the falsity of certain representations made prior to and at the time of the sale, the plaintiff brought the action to rescind. The court held that the plaintiff was not precluded “from rescinding the contract for false representations of the selling agent and recovering the money paid thereunder from the principal or any trustee to whom the same had been paid; . . . ”. (Emphasis added.)

A consideration of all the facts and circumstances connected with the purchase of the lots by plaintiff herein, in the light of the declarations set forth in the aforementioned authorities, impels the conclusion, as a matter of law, that there was no evidence to support the findings upon which judgment for the defendant trust company was predicated.

The contention that there was no evidentiary support for the finding to the effect that plaintiff had not adequately complied with the provisions of section 1691, Civil Code, in that he had not tendered a deed to the defendants, must be upheld. Each of the defendants admitted receiving a formal notice of rescission from plaintiff. Therein, plaintiff made a demand for the return of the money paid by him for the lots. The notice of rescission further recited that plaintiff “offered to return and tendered the return of everything of value” received by him under the contracts. Plaintiff testified that on or about the time he brought the action he executed a quitclaim deed in favor of the trust company, and mailed the same to his attorney in Los Angeles, with instructions that it be delivered to the trust company on receipt of the moneys demanded by him in his notice of rescission. That demand was not complied with. Furthermore, the record shows that the quitclaim deed was offered in evidence at the trial, although an objection to its admission was sustained by the trial court.

Finally, the trust company asserts that the judgment rendered against it should be made collectible out of the proceeds of trust S-7334 only; and with regard to that specific trust (S-7334), the trust company declares that the assets have all been paid out, assertedly for trustee fees, real estate salesmen’s fees, street improvements and installation of sidewalks, and taxes. There is no showing that any of the proceeds from the sale of the lots were paid by the trust company to Newbery (or to his widow). Nor does the record show that all the lots in the tract were sold; if any of them have not been sold, the trust would have (potential) cash assets to the extent of the value of the remaining lots.

The cases entitled Curtis v. Title Guarantee etc. Co., 3 Cal. App. (2d) 612 [ 40 Pac. (2d) 562 , 42 Pac. (2d) 323 ], Graham v. Los Angeles First N. T. & S. Bk., 3 Cal. (2d) 37 [ 43 Pac. (2d) 453 ], and Weiner v. Roof, 10 Cal. (2d) 450 [ 74 Pac. (2d) 736 ], hereinabove referred to, were each factually similar to the case at bar, in that the purchaser of the lots, at a later time, brought an action for rescission because of alleged false representations, made at the time of purchase, relating to the sale of the property and proposed improvements thereto. In each of those cases, as in the instant case, at the time of purchase the legal title to the land was held in trust (for subdivision purposes), and recovery of the purchase price was sought ccs against the trustee.

In the case entitled Graham v. Los Angeles First N. T. & S. Bk., 3 Cal. (2d) 37 [ 43 Pac. (2d) 543 ], the trust company contended that because the complaint contained no allegation that the trust company had the money of, or was indebted to, the beneficiaries, it failed to state a cause of action against the trustee bank to recover the money. But the court said, “Since the bank had legal title to the real property which the plaintiffs agreed to purchase, it follows that in the negotiations of purchase and sale relating to the real property, the bank stood in the position of principal and the beneficiary-sellers stood in the position of agents.” (Emphasis added.) The court there further said that even though the complaint did not allege that the bank as trustee held funds for or was indebted to the beneficiaries, it did set forth the fact that the bank held legal title to the property in trust for the beneficiaries; that the purchase agreements were entered into with the bank as holder of the legal title, to whom the purchasers paid the various sums on the purchase

In Weiner v. Roof, 10 Cal. (2d) 450 [ 74 Pac. (2d) 736 ], also, the court relied on the rule of Speck v. Wylie, 1 Cal. (2d) 625 [ 36 Pac. (2d) 618 , 95 A. L. R. 760 ], that an innocent principal so contracting may not be permitted to enrich himself by reason of his agent’s fraud, and that any property received by such principal is held by him as a constructive trustee for the person defrauded After stating this rule, the court in Weiner v. Roof, supra, said: “The fact that respondent’s written contract to purchase a lot contained a clause restricting the representations to those therein set forth, did not preclude the respondent under the foregoing rule, from rescinding the contract for the false representations of the selling agent and recovering the money paid thereunder from the principal or any trustee to whom the same had been paid. However, inasmuch as the rule in Speck v. Wylie, supra, is grounded upon unjust enrichment, and was announced subsequent to the trial of this cause, we are of the view that the appellant, as trustee of the money paid to it by respondent, should be afforded the opportunity of showing, as it asserts it can, that it has paid over to the beneficial owner

It follows from the foregoing discussion that the contention of the trust company that the judgment, if any, which may be rendered against it, should be collectible only from the assets of Trust, S-7334, is without merit.

In view of the conclusion reached herein, it becomes unnecessary to consider other points argued by respective counsel, including the contention that the property described in the deeds was not the identical property mentioned in the receipts received by plaintiff.

The judgment is reversed as to the defendant trust company, and affirmed as to the defendant Cad. M. Newbery.