Opinion
Rehearing Denied March 23, 1928.
Hearing Granted by Supreme Court April 23, 1928.
Appeal from Superior Court, Los Angeles County; Charles S. Crail, Judge.
Action in partition by Thomas J. Horan against Mary A. Varian, H. M. Driscoll, R. McColgan, and others, in which H. M. Driscoll filed a cross-complaint. From the judgment, McColgan appeals. Reversed. COUNSEL
George D. Collins, Jr., of San Francisco, for appellant.
Loyd Wright, of Los Angeles, and Ford, Johnson & Bourquin, of San Francisco, for respondent Driscoll.
OPINION
NOURSE, J.
Plaintiff sued for the partition of certain real property situated in Los Angeles county, joining as parties defendant the heirs of the estate of Sabina Lanon, deceased, certain assignees of portions of the shares of such heirs and Driscoll, who was an attaching creditor in an action pending in the superior court against three of said heirs and one Eugene A. Platt. The answer of the defendant McColgan set up that he was the owner in fee simple of an undivided five-eighteenths interest in the property in suit and that he held the mortgage upon an undivided five fifty-fourths interest in said property held by defendant Cox. The answer of the defendant Driscoll pleaded that on November 14, 1922, she commenced an action in the superior court against the three heirs named as parties defendant in this proceeding and against Platt for an indebtedness claimed to be due her in the sum of $8,000, and that attachments were duly levied, and notices of garnishment as to defendant Platt were served upon defendant McColgan and others, but that she was unable to ascertain what, if any, sum of money was due Platt from them. She also alleged that the five twenty-sevenths interest in the property in the name of defendant Russell was held by him in trust for Platt. Thereafter Russell disclaimed any right of interest in the premises, and this disclaimer was duly filed of record. On June 20, 1924, the defendant Driscoll filed an amendment to her answer, accompanied by what she terms a cross-complaint. In this amendment she alleged that the defendant McColgan was the attorney in fact for defendant Platt, who at all the times mentioned resided in Paris, France; that prior to November 14, 1922 (the date of the commencement of her action in which the attachment was issued), McColgan, as said attorney in fact, "without instructions from, notice to, consent of, valuable or any consideration to, or thereafter or at all reporting the same to, said Eugene A. Platt," executed and delivered an assignment of an undivided five-eighteenths interest in said property to Lyman Russell; that said interest at the time the attachment was levied stood of record in the name of said Russell; that thereafter said Russell conveyed said legal title to said interest to defendant McColgan; and that said McColgan acquired and now holds an undivided five twenty-sevenths interest in the same; and that said McColgan holds said undivided five twenty-sevenths interest in trust for said Platt and not otherwise. As a separate answer, defendant Driscoll alleged that Russell acquired the undivided five eighteenths interest in said property "as trustee of a constructive trust in favor of Eugene A. Platt" and that said McColgan acquired said five-eighteeenths interest and now holds a five twenty-sevenths interest in said property "with full knowledge of said facts and acquired and at all of said times held and now holds the same as trustee of a constructive trust in favor of said Eugene A. Platt and not otherwise." It was also alleged in this amendment to the answer that these transactions between McColgan, Platt, and Russell were all taken for the purpose of defrauding creditors of Platt, but no attempt was made to prove any of these allegations, and this defense was apparently abandoned. Attached to this amendment is a cross-complaint pleading two causes of action. The first cause merely refers to paragraphs of the answer and the amendment thereto and makes them a part of this pleading. The same method is used in pleading the second and third causes of action. A prayer follows asking that the property be partitioned, but that, if this cannot be done without material injury, the premises be sold and the proceeds divided among the parties according to their respective rights. On July 16, 1924, the defendant Driscoll filed a second amendment to her answer in which she pleaded that the deed heretofore mentioned from Russell to McColgan was made for the purpose of securing the payment by Eugene A. Platt to McColgan of certain indebtedness then owing, and that said deed was intended to be a mortgage for the security of said indebtedness.
The trial court found the respective interests in the property to which the plaintiff and the three other heirs named as defendants were entitled and also found that at the time of the commencement of the action in partition Russell held an undivided ten fifty-fourths interest in the property; that prior to the commencement of this action he signed and acknowledged a deed conveying legal title to such interest to defendant McColgan, but that said deed was not delivered until after the commencement of the action; that said McColgan acquired and holds said interest as trustee of a constructive trust in favor of Platt and not otherwise. The court further found that all the allegations of the first and second separate defenses contained in the amendment to the answer of defendant Driscoll and that all the allegations of the first and and second counts of her cross-complaint were true. It was also found that upon motion of defendant Driscoll the determination of other issues between her and defendant McColgan should be reserved until the final determination of the action entitled Driscoll against Varian in which the attachment was issued. At this point it should be noted that no findings were made upon the third defense of defendant Driscoll that the transfer from Platt to Russell to McColgan was in fraud of creditors of Platt or upon the fourth defense raised by her that the deed delivered in this transaction was intended to be a mortgage for the security of a debt due from Platt to McColgan.
The appeal is taken by McColgan from the judgment and at the outset he attacks the finding that the appellant holds a ten fifty-fourths interest in the property as the trustee of a constructive trust in favor of Platt and not otherwise, as well as the finding as to the date of delivery of the deed from Russell to McColgan. As to the latter finding, it is contrary to all the evidence in the record. This deed was executed on October 3, 1922, and delivered to McColgan immediately after it was acknowledged on the same day. The complaint in this action was filed on June 11, 1923, while the complaint in the attachment suit was filed on November 14, 1922. There is the testimony of George K. Ford, who is the assignor of the defendant Driscoll and who was the counsel for the defendant McColgan at the time these transactions were had, that on October 22, 1922, he had Russell make a deed of a five fifty-fourths interest in this property to one Cox, and that the deed had been executed by Russell rather than by McColgan because the record title was in the former. It is in the testimony of this same witness that on March 23, 1923, McColgan stated to him "that he had not had Lyman Russell deliver the deed to him; that the title still stood in Lyman Russell." There is no dispute that the deed was not recorded until August, 1923, while the positive testimony of the grantor and the grantee that it was delivered in October, 1922, is contradicted by this testimony of Mr. Ford. This testimony might have sustained a finding that the deed was not delivered until after March 23, 1923, but there is no testimony of any character supporting the finding that it was not delivered until after June 11, 1923, the date this action was commenced. We cannot say that the trial court believed the testimony of Mr. Ford as to what was said on October 22, 1922, and March 23, 1923, and we cannot say that the finding should be changed so as to find that delivery had not been made at either one of those dates. The whole question is of little importance, however, inasmuch as the attachment suit was against Platt and not against Russell or McColgan. There is neither allegation nor proof that Russell stood in any confidential relation with Platt; that he had any knowledge of any confidential relation between Platt and McColgan; that he took the assignment in fraud of Platt; or that when he executed or delivered the deed he had knowledge of the attachment or of any interest claimed to be in Platt.
The serious question is whether the facts warrant the finding of the trial court that appellant McColgan held a ten fifty-fourths interest in the property as trustee of a constructive trust in favor of Platt and not otherwise. In this connection it is pointed out that the trial court found that all the allegations in the first and second separate defenses contained in the amendment of the answer of Driscoll were true. These allegations are that the appellant, acting as attorney in fact for Platt "without instructions from, notice to, consent of, valuable or any consideration to, or thereafter or at all reporting the same" to, Platt, had executed and delivered an assignment of this interest to Russell who thereafter deeded the same interest to McColgan, and that the latter holds said interest in trust for Platt; also that Russell acquired and held said interest as trustee of a constructive trust in favor of Platt and that McColgan acquired the interest therein with full knowledge of all the facts. It should be noted that there is no allegation of any facts constituting fraud or breach of fiduciary relation, and no effort was made to prove that either of the transfers were made "without instructions from, notice to, consent of, valuable or any consideration to, or thereafter or at all reporting the same" to, Platt. If we are to assume that the allegation means that the power of attorney under which appellant was acting required instructions, notice, consent, or report to Platt, the written power is evidence to the contrary. This document which was drawn by Mr. Ford, as counsel for the appellant at that time for the purpose of enabling the latter to satisfy the indebtedness owing him from Platt, is in the usual form of a general power of attorney and particularly authorizes the appellant to sell, convey, and mortgage land, choses in action, and other property in possession or in action, and to sign, execute, and deliver deeds, agreements, evidences of deeds, and other instruments in writing of every kind, and particularly to assign, transfer, and convey any and all interest, estate, and property vested in Platt by virtue of any agreement or assignment of any interest conveyed to him in any estate or estates of any person deceased. The power of attorney was executed under an arrangement with Platt to enable the appellant to realize on any of the assignments for the purpose of liquidating the debts due from Platt to him. The evidence is that this arrangement was made in 1921 before Platt left San Francisco for France; that thereafter the power of attorney was sent to him for signature in accordance with a promise which Platt had made to appellant at the time he had borrowed the money from him; that the assignment from Platt to Russell, executed by the appellant under this power of attorney was made for the benefit of the appellant as a part of the arrangement between appellant and Platt; that it was made for the purpose of effecting a part payment of indebtedness of Platt to the appellant; and that it was not taken as security. It is also in the evidence that through an express agreement with Platt and the appellant any property acquired in this manner was to be transferred to the appellant by assignment, and that the appellant should apply the same or the money realized from the sale thereof in part payment of the indebtedness owing from Platt. This is the undisputed evidence of the purposes for which the power of attorney was given to appellant, and of the circumstances under which the assignments were made, while respondent has not shown any evidence tending in any way to support the allegations of her cross-complaint.
In addition to this, we find that on April 11, 1924, Platt fully ratified and confirmed all acts done by the appellant under this power of attorney. In this ratification he recited that the power of attorney had been given to appellant for the special purpose of enabling and authorizing the latter to transfer, convey, and dispose of all property in which he had any interest to the end that appellant could apply the proceeds from the sale or other disposition thereof to the payment of the indebtedness due him from Platt. It is also recited that, whereas the appellant had conveyed and assigned to him and conveyed and assigned to others for him and for his benefit certain property in which Platt held an interest, the latter for value received fully ratified, confirmed, and approved all these conveyances and assignments. When this ratification was offered in evidence an objection was made by counsel for Driscoll, but the objection was not pressed, and counsel admitted that it was "relevant and material in the matter for the purpose of showing whether Mr. McColgan has title or not." The importance of the document is that it was some evidence explaining the intention of the parties in the execution of the power of attorney, that it disclosed that a valuable consideration was received for the transfer to appellant, and it completely foreclosed Platt from asserting that the appellant held title as trustee of a constructive trust for him.
Passing the question of the insufficiency of the pleadings to raise the issue that a constructive trust arose, and assuming for the moment that an attaching creditor may sue to impress a trust on behalf of his debtor, we will consider the case in the light of the objection as to the insufficiency of the evidence to support the finding that either Russell or appellant held as a trustee for Platt. A constructive trust arises regardless of intention "wherever by fraud or in breach of a fiduciary relation one uses the property of another to make a purchase in his own name." Lezinsky v. Mason Malt W. D. Co., 185 Cal. 240, 252, 196 P. 884, 890. It is essential, however, that the use of the principal’s money for this purpose or the taking of title by the agent in his own name or in the name of the third person should be unauthorized or fraudulent." 39 Cyc. p. 190. In 26 Ruling Case Law, p. 1236, it is said:
"It is a well-settled general rule that if one person obtains the legal title to property, not only by fraud, or by violation of confidence of fiduciary relations, but in any other unconscientious manner, so that he cannot equitably retain the property which really belongs to another, equity carries out its theory of a double ownership, equitable and legal, by impressing a constructive trust upon the property in favor of the one who is in good conscience entitled to it, and who is considered in equity as the beneficial owner."
In 39 Cyc. p. 27, it is said:
"Constructive trusts are those which arise purely by construction of equity, and are entirely independent of any actual or presumed intention of the parties. *** They are entirely in invitum, and are forced upon the conscience of the trustee for the purpose of working out right and justice or frustrating fraud."
One of the most frequent instances in which a constructive trust arises is where an agent or one acting in a fiduciary relation procures, through the means of his agency or fiduciary relation, a benefit to himself adverse to his principal. Thus where an agent, acting under a power of attorney from his principal, in his own name, without consideration and without the principal’s consent, equity will generally declare a constructive trust in favor of the principal. But an agent is not always barred from dealing with his principal’s property, and the mere fact that he acts under a power of attorney from his principal does not in itself denounce the transaction as a fraud upon the principal. When the power of attorney is broad enough to authorize the agent to so act, there is nothing inherently wrong in the agent taking property of the principal in his own name. Of course, if the transaction is without consideration to the principal, the agent will be presumed to have obtained an advantage, and the burden is then cast upon the agent to show that the transaction was bona fide and authorized by the principal. Mechem on Agency, § 1221; 1 Am. & Eng. Ency. of Law, 1081; Burke v. Bours, 98 Cal. 171, 176, 177, 32 P. 980. In the Burke Case it is said:
"There is no inhibition upon a purchase by an agent from his principal, ‘where the facts are fully disclosed, and the agent acts in good faith, taking no advantage of his situation. The principal may, if he sees fit, deal with the agent as with any other person.’ Mechem on Agency, § 466; Rochester v. Levering, 104 Ind. 562, [4 N.E. 203]. The agent has the same right to deal directly with his principal as has a stranger. The rule which prevents the agent from purchasing the property which he is authorized to sell for his principal is based upon the maxim that no man can serve two masters, and that an agent shall not unite in his own person his individual with his representative character, or place himself in a position where his personal interest will be in conflict with his duty to his principal. When, however, the agent deals with his principal ‘at arm’s length, and after a full disclosure of all that he knows with respect to the property’ (Murphy v. O’Shea, 2 Jones & L. 425), or when the principal ratifies the purchase from himself with full knowledge of the circumstances connected with the transaction, he can thereafter avoid the sale only upon the same grounds as if the purchase had been made by a stranger. The powers of an agent in dealing with the property of his principal are limited in the same manner as those of a trustee. A trustee is not forbidden to deal with the trust property when the beneficiary, with a full knowledge of the motives of the trustee, and of all other facts concerning the transaction which might affect his own decision, and without the use of any influence on the part of the trustee, permits him to do so. Civ. Code, § 2230."
In any event, where the agent has taken title in his own name or in the name of a third person for his benefit, the principal may ratify or confirm the transaction, and, if he does so, "such ratification has the effect of a previous authorization for such purchase, and a constructive trust in such lands will not arise in favor of the principal; there being no want of authority on the part of the agent to make the purchase nor fraudulent use of the principal’s money." 39 Cyc. p. 190.
Respondent insists that this ratification cannot affect her rights because of section 2313, Civil Code, which provides that:
"No unauthorized act can be made valid, retroactively, to the prejudice of third persons, without their consent."
The section applies to an "unauthorized" act of an agent, and is merely a restatement of the common-law rule of estoppel; that is to say:
"Ratification applies to a formal declaration of approval of the act of another by the party sought to be bound, whereas estoppel is where a party is bound by his own act." Zenos v. Britten-Cook Land, etc., Co., 75 Cal.App. 299, 307, 242 P. 914, 917, citing Curtin v. Salmon River, etc., Co., 141 Cal. 308, 312, 74 P. 851, 99 Am. St. Rep. 75.
Thus a lessee of land cannot be disturbed by the lessor’s ratification of a previous lease of the land made by an agent who was not authorized to make the lease. Borderre v. Den, 106 Cal. 594, 600, 39 P. 946. If a third party has obtained a benefit because of an unauthorized act of the agent, then the Code section steps in and stops the ratification of the act by the principal if such ratification would work to the injury of the third person. The appellant does not rely on the ratification as the basis of his authority to act as Platt’s agent-that authority is found in the power of attorney. The ratification was offered for two purposes-to show the construction or understanding of the power of attorney by the parties intrusted, and to show that Platt was foreclosed from making any claim of trust for his own benefit.
As a constructive trust arises by operation of law and not by agreement or intention, and is based upon fraud, actual or constructive (39 Cyc. 109; Lezinsky v. Mason Malt W. D. Co., 185 Cal. 251, 252, 196 P. 884), the title chargeable with such a trust is voidable merely and not void (39 Cyc. 182). This being so, the cestui que trust may enforce or renounce the trust at his option. 39 Cyc. 182, 183. The rule is uniform that the ratification by the principal, who would become the cestui que trust, makes it impossible for him to set up a constructive trust, and, when the principal is unable to do it, no one can do it for his benefit. 1 Mechem on Agency, § § 1222, 1239; Long v. King, 117 Ala. 423, 429, 23 So. 534. In section 1239 of his work on Agency, Mr. Mechem has said:
"In any case in which the principal complains of the misconduct or breach of loyalty of his agent, the principal cannot, even against the agent, recover, where he himself has consented to, waived, or condoned the act."
In section 1222 it is said:
"It is not infrequently said *** that the agent’s act is void. No more is meant by this, however, than that the act is voidable at the principal’s election. The rule is designed for the principal’s protection, and, like other similar rules, its benefit may be waived if the principal sees fit to do so. If he is satisfied with the act, after full knowledge, no one else can complain."
In Mobile Land Imp. Co. v. Gass, 142 Ala. 520, 528, 39 So. 229, 232, it is said:
"Now the purchase of property by an agent or trustee, or by any person acting in a fiduciary capacity, is not void aborigine and absolutely. It is voidable only. It is made subject to the right of the principal or beneficiary, in a reasonable time, to say that he is not satisfied with it. It is valid in equity, as well as law, unless the parties interested repudiate it, or complain of it."
See Perry on Trusts (6th Ed.) § § 195 and 198, and Bresee v. Bradfield, 99 Va. 331, 340, 38 S.E. 196, where the Virginia court, following the same reasoning, held that, where the cestuique trust did not elect to question the act of her agent in acquiring property in his name, her creditors could not do so.
Appellant insists that, even in the absence of ratification or waiver, an attaching creditor may not sue to have a constructive trust established in favor of his debtor, that such an action can be maintained by a judgment creditor only, and that a judgment creditor may sue for such purpose only in the case of a spendthrift trust where the credit has been given the debtor on the strength of the trust relation. Respondent apparently concedes the rule, as she merely refers to authorities holding that the conveyance may be attacked by an attaching creditor when he is sued by the alleged fraudulent trustee and that equity will come to the aid of judgment creditors where it appears that the conveyance was made to defraud creditors. It is not necessary to consider these authorities, as the exceptions upon which they lie are not present in this case. The alleged trustee is not suing the attaching creditor, and there is neither evidence nor finding that the conveyance was made in fraud of creditors of Platt; that it was not made in settlement of a bona fide debt due appellant; that Platt had any other creditors at the time; or that he was then, or at any other time, insolvent.
Appellant insists that respondents’ whole case must fall because the decree of distribution in the Lanon estate determined that the whole title to this share was in Russell through assignments from the heirs, and that, the probate proceeding being one in rem, this decree is conclusive and binding upon the entire world. Appellant cites William Hill Co. v. Lawler, 116 Cal. 359, 48 P. 323, and a line of cases following, which hold that because of section 1678, Code of Civil Procedure, relating to distribution to heirs and their assignees the decree of distribution became final as to assignees of heirs in the same manner and to the same extent as it is made conclusive upon heirs under section 1664, Code of Civil Procedure. It is not necessary to determine the point, because, assuming that the creditor could assert an interest in Platt adverse to the finding of the decree of distribution, it is apparent that she has not done so by either pleading or proof.
Judgment reversed.
We concur: KOFORD, P. J.; STURTEVANT, J.