Thompson v. Thompson

Plaintiffs sued as legatees of specific bequests under the will of George G. MacKay, deceased, charging the defendant Thompson with fraud, deceit, and concealment through which he obtained the bulk of the MacKay estate. The cause was tried before the court sitting without a jury and resulted in findings and judgment favorable to the defendants from which the plaintiffs have appealed upon a bill of exceptions.

MacKay died testate on the eighteenth day of October, 1921, and by the terms of his will, executed May 20, 1921, he made specific bequests aggregating $150,000 to the plaintiffs herein—two sisters, a brother, and two nieces, all of whom resided in Canada at all stages of this proceeding. In due course of administration of the estate a final decree of distribution was entered February 14, 1923, reciting that all the money on hand for the payment of such bequests was the sum of $20,808.81 and awarding to each of said legatees a proportionate amount of the sum named in the will, leaving an unpaid balance to plaintiff Edith Thompson of over $43,000 and an unpaid balance to each of the four other legatees of over $21,000. Charging that the de

The business association of MacKay and Thompson began some time in 1905 for the purpose of acquiring real property in the city of San Diego. MacKay was a resident of the city of Los Angeles, where he was employed as a silk buyer and was reputed to be a man of means, and Thompson was an employee in the shoe department of a dry-goods concern located in the city of San Diego. The two were warm friends who trusted each other implicitly and entered, into their real estate venture without any formal articles of partnership. In this manner they acquired a number of properties in that city, title always being taken in the name of Thompson, but in February, 1910, they executed a partnership agreement reciting the fact that they had acquired the properties in the manner stated and that the purpose of the agreement was to declare that each owned an undivided one-half interest in all the properties acquired, that is to say, the properties which they at the time held and which were expressly described in the partnership agreement. Thereafter and on September 21, 1910, MacKay signed a grant deed conveying to Thompson an undivided one-half interest in all the real property described in this partnership agreement and handed the deed to a notary public, who took the acknowledgment, with instructions to deliver it to Thompson on the death of the grantor. The parties continued under their partnership arrangement to buy and sell other properties in the city and some time in the year 1913 they erected the Knickerbocker Hotel on lots A and B

On the day following the death of MacKay, Thompson and his agent, Nat R. Titus, moved quickly to perfect their plan to acquire possession of all the property and interest which MacKay had in these corporations. First Titus went to the executor named in MacKay’s will and advised him that the hotel property in San Diego was mortgaged for all it was worth. A few days later he produced the deed executed by MacKay in 1910 and had it recorded, and, at

Thereafter and on November 16, 1921, less than 30 days from the death of the decedent, Thompson served upon the executor written notice that he owned all the stock in both companies. On the same day Thompson, Nat R. Titus and Thompson’s attorney Johnson went to Los Angeles and conferred with the executor and his attorney, one W. W. Butler. The testimony of no one of the five parties present at this conference agrees as to what occurred. But it stands out unmistakably from the record that Thompson, his agent and his attorney did everything possible to deceive the executor and his attorney as to the facts relating to the ownership of the properties in San Diego and that they concealed from them practically all the facts and circumstances relating to the various transfers and other transactions which we have heretofore recited. The executor who had been a warm friend of the deceased and who now became a partisan of the defendant Thompson was apparently satisfied by what occurred at this conference to sit idly by and let Thompson have his own way as to the disposition of the

As pointed out by the trial court in summing up the evidence at the close of the trial, there was so much false testimony and concealment on the part of Thompson that it is difficult to analyze the evidence as to what has been proved and what has been left to conjecture. The facts which we have heretofore stated, independent of the contentions of the respective parties, were all found to be true by the trial court, but upon these facts the trial court drew the conclusion that the plaintiffs had failed to prove a case of fraud which would justify the court in setting aside the pledgee’s sale of the stock, decree quieting title thereto or the final settlement and decree of distribution in the probate proceedings. On this appeal it is the theory of the appellants that the pledgee’s sale was so tainted with fraud that the court should have no hesitation in declaring it void and of no effect; that the decree quieting title to the stock, which was based upon this sale and the collusion of the parties to that suit, was procured wholly through extrinsic fraud on the part of the respondents and that equity should declare that decree void and of no effect; that the final settlement and decree of distribution in the probate proceedings are not necessarily attacked in this action, but that the court could, if it supported appellants’ charge of fraud, declare what portion of the property involved rightly belonged to the MacKay estate and that that property could then be administered on in the probate proceedings as property discovered after the final decree of distribution. The trial court in ruling upon appellants’ contentions took the position that though the facts proved unquestionably showed unfair and reprehensible conduct on the part of Thompson and inexcusable stupidity and incompetence on the part of the executor and his attorney in their failure to protect the interest of the heirs in probate proceedings, there was no duty upon Thompson or his agent to play fairly with the executor or

In defending the judgment respondents emphasize three defenses which they insist are conclusive against any cause of action urged by the appellant. These are, first, the transfer by the decedent, in his lifetime, to Thompson of all his interest in the physical properties of the partnership; second, the subsequent purchase at the pledgee’s sale by Thompson of all the stock in the two corporations, and, third, the decree of the superior court quieting title in Thompson to

As to the deed executed by the decedent in 1910 conveying to Thompson an undivided one-half interest in the real property owned by the partnership, the trial court found that it was delivered to Nat R. Titus by the decedent with instructions to hold the same until the death of decedent and thereupon to deliver the same to Thompson. Prom these facts the trial court concluded that the decedent thereupon surrendered the possession and control over the deed to Titus and reserved no right to recall it or to change its provisions. This finding is attacked by the appellants- upon the ground that it is not supported by tlic evidence. The evidence of the actual transmission of the deed is found in the testimony of Nat R. Titus alone. When asked to state the circumstances of the execution and delivery to him he answered, “Well, I told you I didn’t remember so much about the execution of it, but I remember his giving it to me and telling me to hold it, and if he died before Thompson, to give it to Thompson.” On further examination of this witness by respondents’ counsel he repeated that nothing had been said to him by the decedent excepting what has just been quoted. But later in his examination, in answer to the question, “Precisely just what were his instructions to you?” the reply was, “To give it to Thompson when he died.” As bearing upon the intention of the grantor in making and delivering this deed we find the testimony of respondent Thompson that “MacKay and I had this understanding: When he died his property —all his property should come to me; and I had this understanding with MacKay: When I died all my property should go to MacKay.” There is also the testimony of the witness Campbell, executor of the MacKay estate, to the effect that MacKay said there was such an understanding between himself and Thompson, and the testimony of the same witness that MacKay informed him “That several years ago a deed had been prepared and executed and placed in trust of all the property in San Diego, and was to be delivered upon—to Mr. Thompson, upon his death, whenever it might be.” Then there is the testimony of Dr. Cook, an intimate friend of the two partners, that the decedent said to him, “I have deeded the San Diego property to Thompson

The vital question to be determined in a ease of this kind is whether the grantor intended to vest a present title in the grantee upon delivery to the holder of the deed or whether delivery by the holder to the grantee was conditional upon the prior death of the grantor. If the latter, the purpose of the grant is deemed to be testamentary and subject to all the rules required by the law of wills, and if these rules have not been complied with the deed cannot be given effect as vesting any title in the grantee. (Williams v. Kidd, 170 Cal. 631 , 637 [Ann. Cas. 1916E, 703, 151 Pac. 1 ].) The best evidence of the intention of the grantor is the evidence of the instructions given by him to Titus at the time of the delivery of the deed. This evidence is that the grantor told Titus to hold the deed and deliver it to Thompson if he, the grantor, died before Thompson. This clearly implies that the delivery of the deed was conditional upon the prior death of the grantor and demands a holding that it was ineffectual for the purpose of vesting a present title in Thompson. (Stone v. Daily, 181 Cal. 571 , 575 [ 185 Pac. 665 ].) These facts, taken with the undisputed evidence of the conduct of the parties with full knowledge of the transaction, would require a finding that

But aside from this the trial court found upon undisputed evidence that for a period of six years after the execution of this deed the parties continued to deal in the properties covered by the deed as partners or joint owners, each owning an undivided one-half thereof. During all this time the record title of all the properties involved stood in the name of Thompson and the interest of MacKay therein was fixed so far as any writing is concerned by the articles of copartnership wherein the interests of the two parties were declared to be an undivided one-half of the whole. This condition continued until the formation of the two corporations in 1916 when Thompson, holding the record title of all the property, and with full knowledge of the MacKay deed, voluntarily conveyed all to the Thompson-MacKay Company and added to the deed a lot which was not included in the MacKay deed. At this time Thompson took oath that all the property belonged to Mac-Kay and thus denied any claim which could have been made at that time that the MacKay deed vested complete title in him. This arrangement, it is true, was made by Thompson for the purpose of defrauding his own creditors, but it nevertheless served the purpose of transferring to the corporation all the title which Thompson had or might- claim either legal or equitable in all the properties mentioned in the MacKay deed. Thus if the MacKay deed had transferred to Thompson the equitable title to one-half of the property, the deed of Thompson to the corporation made six years thereafter transferred to the corporation all the title which Thompson then had both legal and equitable, and the subsequent testimony of Thompson given to the commissioner of corporations and in the superior court on supplementary proceedings to the effect that MacKay was the sole owner of the stock of the corporation to which this property had been transferred and that he, Thompson, had no interest or claim to any portion of the stock or assets of the corporation, disposes of any claim which he may make at this time that he was in fact an equitable owner of a one-half interest in the physical property of the corporation by reason of the MacKay deed.

We are satisfied from our review of the undisputed evidence that the court erred in concluding from the evidence and its findings that the deceit and misrepresentations of Thompson were made between parties acting at arm’s length and did not constitute actionable fraud. The evidence and the findings show that Thompson upon more than one theory was bound to act toward the executor and the legatees, whom the latter represented, with the honesty and fidelity exacted by law of a trustee. This is the pivotal point in the case for, once granting that Thompson could not deal with the executor as one at arm’s length it then follows: First, that his misrepresentation to the executor of facts concerning the property of the estate was actionable fraud; second, his misrepresentation forestalling a defense to the action quieting title to the stock was extrinsic fraud preventing the appellants herein from having their day in court; third, his misrepresentation forestalling the executor from reclaiming the pledged stock to the estate was also actionable fraud which entitled those who were defrauded thereby either to sue in damages for the deceit or to follow in equity the said stock so fraudulently obtained by Thompson and to claim the property into which the said stock was transmuted by Thompson’s subsequent machinations.

Thompson was bound to this degree of fidelity to the representative of the deceased because: (1) He was the surviving partner of a partnership which owned the property which stood in the name of the corporation (s), equity looking through the form of the corporation and seeing the real partnership thinly disguised behind the corporate dress; (2) or because he was a surviving partner of a partnership which may have been temporarily dissolved at the time

Whether Thompson comes within one or the other of the three categories just enumerated is immaterial in this case. His duty was the same in each. There might have been some difference as to the form of accounting and remedy available to appellants if the partnership owned stock in a corporation and not the very property of the corporation, but that difference can now no longer exist because Thompson has again transmuted the corporate stock back into tangible property.

The trial court found that at the time of MacKay’s death “there existed between said Omer C. Thompson and George Grant MacKay Hie most friendly and confidential relationship.” And in an opinion filed by the trial judge immediately following the submission of the case his views upon this issue were expressed as follows: “It is my opinion that from the date of the written partnership or property agreement, in February, 1910, down to the death of Mr. MacKay, in October, 1921, the Thompson and MacKay San Diego property, including the stock of Thompson-MacKay Company (after its incorporation), was owned jointly by Thompson and MacKay, an undivided one-half interest in each, and that both Thompson and MacKay so understood it, regardless of what either of them said about the ownership of the property for the purpose of evading or defrauding creditors, or for any other purpose, and regardless of who had possession of the stock or other property or in whose name it appeared on the records.” These views of the trial judge are fully supported in the evidence and this

But the question of the existence of the partnership at the time of MacKay’s death is important only in so far as it goes to the matter of the degree of good faith required on Thompson’s part. The theory upon which the appellants proceeded is that Thompson occupied a position of trust and confidence with MacKay and that he dealt with the executor of the estate on the basis of this fiduciary relation; that, immediately upon the death of MacKay, Thompson and his agent Titus made every effort to gain the confidence and trust of the executor and his attorney and that they trusted these parties implicitly and dealt with Thompson as the confidential representative of the deceased. In Hemenway v. Abbott, 8 Cal. App. 450 , 463 [ 97 Pac. 190 , 195], it is said that this- fiduciary relation “exists and relief is granted in all cases in which influence has been acquired and abused, in which confidence has been reposed and betrayed. The origin of the confidence and the source of the influence are immaterial. The rule embraces both technical fiduciary relations and those informal relations which exist wherever one man trusts in and relies on another.” The facts here are similar to those in Morgan v. Asher, 49 Cal. App. 172 [ 193 Pac. 288 ], where the court required of an executrix a greater degree of good faith because of her confidential relation with the decedent who was her husband. Here Thompson was the trusted agent and business associate of the decedent for a period of eleven years or more, during a portion of which time he acquired real property, had taken the legal title in his own name, and managed all the

It cannot be disputed that Thompson not only failed to state truly what he told the executor but that he also suppressed and concealed material facts in his plan to acquire the property of the estate. On the day following MacKay’s death his associate Nat R. Titus informed the executor that the San Diego properties were mortgaged for all they were worth, Titus and Thompson then arranged for the recording of the articles of copartnership and the MacKay deed both executed in 1910; they arranged for a meeting of the directors of the corporation controlled entirely by them and fraudulently voted to pay Thompson back salary in the sum of $34,000; they fraudulently authorized the corporations to convey all their physical properties to Thompson and deeds of conveyance were executed by Thompson’s agents for this purpose. Within 30 days after the death of MacKay they called upon the executor in company with Thompson’s attorney Johnson and informed the executor that Thompson owned all the stock and all the physical properties of the corporation; that neither the stock nor the properties were of any value over the indebtedness; hut failed to inform him or his attorney of the circumstances under which the deed of 1910 was executed and delivered; or that subsequent to the execution and delivery of that deed Thompson voluntarily deeded all interest in the properties to one of the corporations. By these acts of misrepresentation and concealment and by the institution of an action to quiet title on behalf of Thompson to all the stock

While holding this stock as a trustee for the heirs, Thompson commenced an action against the estate and A. B. Titus, purchaser, to quiet title. Belying upon the representations theretofore made to him by Thompson, the executor permitted his default to be entered and made no appearance at any stage of the proceedings. The dummy who had been procured by Thompson to purchase the stock at the pledgee’s sale was represented in court by counsel employed by this respondent. The two respondents herein, then having control of both sides of the litigation, stipulated to everything which Thompson desired in order to procure a judgment quieting title to all the stock in him. This entire transaction was a fraud upon the court and a fraud upon the executor and upon the MacKay heirs. The case comes

Having obtained possession of all the stock of the corporation belonging to the MacKay estate through fraud and breach of his fiduciary relation Thompson went through the form of conveying all the physical properties of the corporation to himself by representing himself to be the legal owner of the stock, but as trustee for the heirs in the stock he also became trustee of the physical properties of the corporation, because, not being the legal or equitable owner of the stock, he was not able to convey to himself a good title to the corporate properties. This follows because of section 2243 of the Civil Code, which provides: “Everyone to whom property is transferred in violation of a trust, holds the same as an involuntary trustee under such trust, unless he purchased it in good faith, and for a valuable consideration. ’ ’

Upon the undisputed facts in the record the appellants were entitled to a decree canceling the deed from MacKay to Thompson made in 1910; adjudging and declaring void as to them the decree quieting title to the corporate stock entered on March 24, 1922; and adjudging and decreeing that the respondents hold as trustees for the appellant an undivided one-half interest in all the properties and assets owned by the Thompson-MacKay Company at the time of MacKay’s death and the rents, issues and profits accruing thereafter, to the extent that such portion of the properties, rents, issues, and profits of this corporation come within the unpaid balance of the individual legacies to each of the appellants, and that if said legacies cannot be paid in full then each of the appellants is entitled to judgment proportionate to the amount of the unpaid balance of each.

In explanation of the foregoing it should be said that the appellants have throughout this litigation insisted that because all the stock of both corporations was issued and held by MacKay as a part of the scheme to defraud Thompson’s creditors Thompson is thereby estopped and foreclosed from making any claim to any of the stock of either corporation upon the well-settled rule found in Moore v. Schneider, 196 Cal. 380 , 385 [ 238 Pac. 81 ]. The respond

Koford, P. J., and Sturtevant, J., concurred.

A petition by respondents to have the cause heard in the supreme court, after judgment in the district court of appeal, was denied by the supreme court on July 2, 1928.

All the Justices present concurred.