Opinion
Hearing Granted March 7, 1962.
Opinion vacated 23 Cal.Rptr. 761, 373 P.2d 849.
C. Douglas Wikle, Walter Atkinson, W. Alan Thody, Los Angeles, Dell L. Falls, Lancaster, for petitioners.
Cooper & Boller, Los Angeles, for real parties in interest.
FRAMPTON, Justice pro tem.
Petitioners seek a writ of mandate directing respondent court to dismiss the action below unless the trustees in bankruptcy of Each petitioner owns a promissory note secured by a trust deed on separate parcels of land, such notes and trust deeds having been purchased from Los Angeles Trust Deed and Mortgage Exchange. As to each trust deed Newhall Industrial Specialists, Inc., is the trustor, Title Insurance and plaintiffs; to strike from Inc., is the named beneficiary. Each of said notes and trust deeds was similar to, except as to amount, and was issued at the same time as 2,137 other trust deeds were issued.
The complaint below names the parties as follows: Joseph F. King, et al. * * *; on behalf of themselves and all others similarly situated, Plaintiffs, v. Los Angeles Home Company, a corporation; Villa Nipomo, Inc., a corporation; County-Wide Improvement Co., a corporation; Saugus-Newhall Developers, a corporation; Newhall Industrial Specialists, Inc., a corporation; Quigley Canyon Terraces, a corporation; Saxonia Park Sites, a corporation; St. John's View Sites, a corporation; Soledad Land and Farming, a corporation; Don Wilmot, individually; Walter Mosher, individually; Howard M. White, individually; C. E. Callahan, doing business under the fictitious firm name and style of Cecco Company, a sole proprietorship; Does One through Two Thousand, inclusive, defendants. It is entitled 'Complaint for Foreclosure.'
Plaintiffs complain on behalf of themselves and all others who may come in and seek relief and contribute to the expense of this action, and for cause of action allege that the issue stated in this action and the questions herein to be determined are of common and general interest to all of the owners and beneficiaries of the deeds of trust hereinafter described and affect all of the owners and beneficiaries of said deeds of trust in exactly the same manner as these named plaintiffs are affected; that because such other persons are so numerous, amounting to excess of 2,000 in number, and because so many of them are not residents of this state, it is impracticable to bring all of said persons before the court as individual plaintiffs. Plaintiffs then allege the corporate existence and residence of the respective defendants. Plaintiffs further allege that about September 9, 1959, defendant Los Angeles Home Company conveyed to defendant Villa Nipomo said real properties situated in the county of Los Angeles; that subsequent thereto but as part of the same transaction Villa Nipomo, Inc., about September 10, 1959, granted said real properties to defendants County-Wide Improvement Co., Saugus-Newhall Developers, Newhall Industrial Specialists, Inc., Quigley Canyon Terraces, Saxonia Park Sites, St. John's View Sites and Soledad Land and Farming. That subsequent thereto and as part of the same transaction, September 10, 1959, the last above-named defendants, for a valuable consideration, made and delivered to defendant Villa Nipomo, Inc., 2,139 promissory notes in amounts varying from $500 to $1,400, with interest at 10 per cent dated September 10, 1959, due September 10, 1964. That the total amount of indebtedness as evidenced by said promissory notes was the sum of $1,987,750. That the terms and provisions of said notes were identical except as to the amounts. At the same time said defendants executed and delivered to defendant Villa Nipomo, Inc., 2,139 trust deeds on the real property here involved in which said defendants were named as trustors, the Title Insurance and Trust Company was named trustee and defendant Villa Nipomo, Inc., was the named beneficiary. That thereafter, for a valuable consideration, the defendant Villa Nipomo, Inc., transferred its interest in and to all of said notes and trust deeds to the Los Angeles Trust Deed and Mortgage Exchange, a corporation. Plaintiffs further allege that all of the foregoing matters were part of the same transaction the ultimate purpose of which was to transfer the 2,139 notes and trust deeds to the Los Angeles Trust Deed and Mortgage Exchange; that thereafter between September 19, 1959, and June 7, 1960, said 2,139 notes and trust deeds were purchased respectively by the plaintiffs herein from, and were transferred to, such plaintiffs by said Los Angeles Trust Deed and Mortgage Exchange, and that the former are now the legal and equitable owners and beneficiaries thereof. That default has been made in payment of all of the aforesaid notes and at the election of plaintiffs the entire principal thereof plus interest at 10 per cent per annum from September 10, 1959, is now due, owing and unpaid. There follows the usual prayer for forclosure of the trust deeds.
The petition states that some 2,000 persons including the named plaintiffs below purchased the trust deeds from the Los Angeles Trust Deed and Mortgage Exchange. That on November 28, 1960, said Exchange was adjudicated a bankrupt in the District Court of the United States for the Southern District of California, and its assets are currently in the process of liquidation by the duly appointed trustees in bankruptcy. That in the assets of the bankrupt estate there are, including some of the notes and trust deeds involved in the within action, in excess of 15,000 trust deed notes allocated to th accounts of more than 8,000 investor-creditors of the bankrupt. That about one-third of these notes were partially paid for by such investors under separate executory contracts to purchase them. The other two-thirds were fully paid for by the investors. That the bankruptcy court has held that the investors could obtain the fully paid trust deed notes allocated to them on the books of the bankrupt by paying a $25 processing fee. That the investors can obtain the partially paid for notes and trust deeds by paying to the bankrupt estate the unpaid balance due on their contracts to purchase. That if investors to whom partially paid for notes and trust deeds have been allocated, do not pay such unpaid balances, their notes and trust deeds will be sold at auction in six months' time from May 11, 1961, for the accounts of the investor to whom the notes were allocated.
The petition further states that 17 of the trust deed notes and trust deeds sought to be foreclosed in the action below had not, at the time of adjudication of bankruptcy, been disposed of by the bankrupt and became part of the bankrupt estate. These 17 notes ranging in face value from $500 to $1,400 each were sold by the trustees in bankruptcy to one Howard for $150 each.
That the reasonable market value of the separate parcel of land securing each note and trust deed will vary from 20 per cent to 70 per cent of the face value of the note.
The petition further states that each deed of trust covers and is secured by a separate parcel of real property and no deed is secured by more than one parcel. That each of said notes and deeds was sold to an investor in a separate transaction at different times from September 10, 1959, to June 8, 1960. That many of the notes and trust deeds are held by investors. On the other hand many investors who were buying notes and trust deeds on purchase contracts do not have title thereto at this time and may not obtain title and therefore do not have any right to foreclose.
The petition further states that the individual parcels of real property securing the individual notes and trust deeds differ widely in size and widely in value depending on their size, proximity to roads, or commercial development, or whether they are corner or interior lots.
Petitioners assert that the following remedies are available to one who owns a note and trust deed. He may foreclose by sale; foreclose by judicial decree; sue on his promissory note; sue for damages for fraud under the Securities Act of 1933 or the Securities Exchange Act of 1934, 15 U.S.C.A. §§ 77a et seq., 78a et seq.; rescind the Petitioners further assert that if the action below proceeds to a judgment of foreclosure, the named plaintiffs through their counsel intend to bid in every parcel of property described in the complaint at the face value of the note secured by the trust deed on the theory that they represent and can act for all investors or note and trust deed holders. That if this should occur it will destroy the right to any deficiency judgment. On the other hand, the petitioners state, if said plaintiffs fail to bid in the property for the full sum due and owing on the note, this will create an equity of redemption for one year during which the owner of the lots may remain in possession to the exclusion of the trust deed holders.
The petition further alleges that petitioner and 600 other investors in the subject notes and trust deeds, sought to be foreclosed by the action in the court below, are plaintiffs in an action now pending in the United States District Court for the Southern District of California entitled Charles E. Smith, et al. vs. Villa Nipomo, Inc., et al., No. 195-61-Y, in which the trustors named in the trust deeds and some of the other defendants named in the action below are defendants. That the complaint in the action before the federal court seeks rescission of the sale of the notes and trust deeds; states a cause of action under section 12 of the Securities Act of 1933 and a cause of action under the California Corporate Securities Act, Corporations Code, § 25000 et seq. That if the state court proceeds to foreclose petitioners' trust deeds, such action may destroy the causes of action in the federal court by making it impossible to tender the trust deed note as required to sustain their cause of action under section 12 of the Securities Act of 1933 or their action in rescission.
The petitioners with leave of the lower court filed their complaint in intervention in which they prayed for judgment of dismissal on the ground that such action cannot be brought and maintained as a class action. Thereafter they moved the respondent court to dismiss the action as to all parties or persons purportedly represented as members of a class except the individually-named plaintiffs and such motion was denied. They assert that the lower court in permitting the complaint to be brought in the name of plaintiffs below 'on behalf of themselves and all others similarly situated,' i. e., as a class action, is acting in excess of its jurisdiction.
Plaintiffs below summarize their position as follows: 'David Farrell, the principal owner of the Los Angeles Trust Deed and Mortgage Exchange, had been conducting an extremely lucrative business. He was taking in from $3,000,000.00 to $4,000,000.00 per month from investors upon the promise that the Exchange would assign to them secure trust deeds on real property in order to give them a return of at least 10% on their investments. Unfortunately, the investors' money was coming in too quickly. There simply were not enough trust deeds available. Accordingly, various land developers approached David Farrell or he approached them in order to obtain more trust deeds for the investors. In approximately 147 land tracts in California, the following procedure, with some variations, was adopted:
'The land developers would take an option on a tract of raw land, in the larger tracts, as must as 500 to 1200 or 1300 acres. Two corporations were formed by the developer, one becoming the trustor corporation and the other the beneficiary corporation. The first corporation took title to the land and became the trustor on the trust deeds as well as the payor on the promissory notes. The second corporation became the beneficiary on the trust deeds and the payee on the promissory notes. (In the Newhall tract, which is the one involved herein, there was one beneficiary corporation but there were seven trustor corporations.) In some tracts these trust deeds were secured by illegal lots that had not yet been approved for subdivision purposes but were merely divided by means of a tentative 'However, when Los Angeles Trust Deed and Mortgage Exchange purchased these trust deeds in gross for a 27% discount, they did not give the entire amount to the land developer. Interestingly enough, the amount immediately paid in cash coincided with the purchase price of the land. The balance of the money was held up by the Exchange and was to be paid to the developer upon the completion of certain off-site improvements such as roads, utilities and sewers. Further, the contract between the beneficiary corporation and the Exchange stated that the trustor was obligated to make the payments ont he trust deeds when due, but the Exchange was holding back monies sufficient to make the payments on said trust deeds for one year which the Exchange 'might' apply on said trust deeds if the trustors failed to do so.
'In every tract, the value of the land at the time said trust deeds were created was less than the total face value of the trust deeds. Fortunately, though, land values in California are constantly appreciating and now the value of the land in many of the tracts is worth substantially the face value of the trust deeds. For example, on the Bell Canyon Tract in Los Angeles County, there were 302 trust deeds created, each with a face value of $4,000.00 or a total amount of $1,208,000.00 Los Angeles Trust Deed and Mortgage Exchange purchased all of said trust deeds for a total sum of $900,000.00 but only gave the developers $600,000.00 in cash, which happened to be the price of the land. The land presently is worth, on a cash sale, between $750,000.00 and $1,000,000.00. However, in many of the tracts, including Bell Canyon, the trust deeds were only secured by part of the tract, the developer retaining some portions of the tract for himself free of any encumbrances. All of the trust deeds were first deeds of trust to be subordinated to a construction loan; but most of the tracts never developed to that point because Los Angeles Trust Deed and Mortgage Exchange went into receivership before any construction began. Therefore, with some exceptions, these are all first deeds of trust presently in default. Accordingly, in most of the 'raw land' tracts, including this tract, there are no roads, sewers, utilities or houses; and unless the tract is developed as one unit, the alternative is complete chaos. One can imagine the difficulties that would be encountered in building a road through hundreds of tiny lots without the benefit of condemnation proceedings.'
Plaintiffs below urge that this is a proper class action.
Class actions are governed by the provisions of section 382 of the Code of Civil Procedure which reads: 'Of the parties to the action, those who are united in interest must be joined as plaintiffs or defendants; but if the consent of any one who should have been joined as plaintiff cannot be obtained, he may be made a defendant, the reason thereof being stated in the complaint; and when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before The following cases illustrate the application of the law to class actions.
In Carey v. Brown (1881), 58 Cal. 180, 181, 183-184, plaintiff brought suit to quiet his title to several parcels of land in which defendants claimed an interest. It further appeared that defendants claimed an interest in some 30,000 acres which included plaintiff's parcels as well as land of a large number of other persons all of whom deraigned title from a common source. Plaintiff sued "in behalf of himself, and all other persons interested in common with plaintiff, in the subject-matter, and question hereinafter mentioned, who shall in due time come into Court and seek relief by and contribute to the expense of this action." He prayed 'that the claims of the defendants to the lands owned by the plaintiff and others in whose behalf he sues, be determined and adjudged to be invalid.' The demurrer upon the grounds among others that plaintiff had attempted to sue on behalf of others not named was overruled and the trial resulted in a judgment for plaintiff. Thereafter, several persons, treated as intervenors, presented petitions in which they claimed that they severally owned land in said 30,000 acre tract; that they derived their several titles from the same source as the plaintiff derived his; that the defendants claimed adversely to them as well as to the plaintiff, and prayed that a decree similar to that entered in favor of plaintiff be entered in their favor. Judgment was entered in favor of plaintiff and intervenors. On appeal the Supreme Court sustained the judgment in favor of plaintiff and reversed the judgment in favor of the intervenors. In passing upon the propriety of the suit as a class action the court said: 'According to the allegations of the complaint the claim of the defendants to an interest or estate in the land claimed by the plaintiff, if valid, would be equally valid as to lands claimed by many other persons; and it is contended that this constitutes a question of such common or general interest to many, as will enable one to sue for the benefit of all. It is conceded that their interest in the land are several. There is no privity of estate between them. Is the question in which they are all alleged to be interested one of common or general interest to many persons within the meaning of the code?
'The only question involved in this action is one of title to the land claimed by the plaintiff and the defendants adversely. It does not appear that any one had a common or general interest with the plaintiff in that question. A judgment in his favor would simply quiet his title to land in which no one else had any interest.
'This case is distinguishable from one in which a creditor sues on behalf of himself and all other creditors to enforce the terms of an assignment for the benefit of creditors; or to set aside such an assignment on the ground that it is illegal and void; or in which one judgment creditor sues on behalf of all other similar creditors to reach the equitable assets, and to set aside fraudulent transfers of the debtor. It is nearly or quite analogous to a case in which one taxpayer attempts to sue on his own behalf and that of all others in a local district to prevent the enforcement of a tax which would be a lien upon all the land within the district. In such a case it has been held that the question is not one of a common or general interest of all the persons affected by the tax. (Newcomb v. Horton, 18 Wisc. 566.) It seems to us that the code permits one to sue or defend for the benefit of many persons, only in cases where they are so united in interest with the person who brings the action or defends against it, as to make them necessary parties, under the first clause of § 382, Code Civ.Proc., which precedes the clause that authorizes one to sue or defend for many.'
In Baumann v. Harrison (1941), 46 Cal.App.2d 73, 115 P.2d 523, relied on by plaintiffs below as authority for bringing their suit as representatives of a class, the plaintiff Anna Baumann was the holder of four notes or bonds of the face value of $8,000, In the companion case (Baumann v. Harrison, 46 Cal.App.2d 84, 89, 115 P.2d 530, 534), the jurisdiction of the court was challenged for want of the necessary parties. The court, in rejecting this contention stated, 'It would be a most amazing solution if the appellant here could sustain his contention that because certain bondholders are not named in the complaint the plaintiff's attempted statement of a cause of action is fatally defective. The appellant is the nominee of Lane and Lane Mortgage Company and is scarcely in a position to take advantage of the unfairness of those whose nominee he is and attempt to prejudice the plaintiff for not reciting in her complaint that which she had no means of knowing because of the inequitable concealment of relevant facts by Lane and his alter ego. Equity can tolerate no such injustice. It will further be noted that section 382 of the Code of Civil Procedure provides an exception designed to protect a plaintiff in such a position as that which the respondent now occupies. '* * * but if the consent of any one who should have been joined as plaintiff cannot be obtained, he may be made a defendant, the reason thereof being stated in the complaint; and when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all.' Code Civ.Proc., sec. 382. See, also, Farmers' & Merchants' Natl. Bank v. Peterson, 5 Cal.2d 601, 55 P.2d 867; Moore v. Bowes, 8 Cal.2d 162, 64 P.2d 423.'
In the Baumann case there was but one fund in which all the note or bondholders had a common interest differing only in the proportion that the face value of his note or bond bore to the face value of the total notes or bonds issued. That is not the situation here.
The case of Mabry v. Scott, 51 Cal.App.2d 245, 124 P.2d 659, cited and relied on by plaintiffs below simply confirms the established rule permitting virtual representation of unborn contingent remaindermen where the validity of the trust is under attack. Here again there is a common interest in the law and the fact. There is a common fund involved in which all beneficiaries have an interest. The Mabry case is distinguishable on its facts from the case here under consideration.
The following cases cited and relied on by plaintiffs below, Deckert v. Independence Shares Corporation (D.C.E.D.Pa.1939) 27 F.Supp. 763; Independence Shares Corporation v. Deckert (3 Cir.1939) 108 F.2d 51, 55; Deckert v. Independence Shares Corporation (D.C.E.D.Pa.1941) 39 F.Supp. 592, 595; and Pennsylvania Co. for Insurances, etc. v. Deckert (3 Cir.1941) 123 F.2d 979, all relate to suits brought by planholders (investors) against an allegedly insolvent investment company. In one case, Deckert v. Independence Shares Corporation, supra, 39 F.Supp. 592, 595, the court commented, 'Defendants Independence and Pennsylvania strenuously contend that this is a 'spurious' class bill, while the complainants contend that it is what is generally called a 'hybrid' class action. The question as to whether this is 'spurious' class bill or a 'hybrid' class bill according to the contending parties involves (1) the extent of relief which may be granted, and (2) the joining of additional complainants. Respondents contend that this is a 'spurious' class bill and that under the statute of limitations in Section 'The dispute between the parties as to the nature of the bill is predicated to some extent upon the course of this litigation. In my opinion (27 F.Supp. 763, 769) I specifically ruled that 'this is a class bill'. The Circuit Court of Appeals, on appeal (108 F.2d 51, 55), ruled 'The suit at bar is of the type denominated a 'spurious' class suit * * *.' The Supreme Court's opinion (311 U.S. 282, 61 S.Ct. 229, 85 L.Ed. 189) failed to append any descriptive label to the action.
'The Circuit Court of Appeals' denomination of the bill as a 'spurious' class suit must be considered in connection with its ruling that the action was one at law and not in equity, and that the complainants were merely seeking individual redress although acting as a 'group' under the permissive joinder facilities of Rule 23(a)(3) of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c.
'In my judgment this is a 'hybrid' class bill, maintainable under Rule 23(a)(2) of the Federal Rules of Civil Procedure, which reads as follows:
"Rule 23. Class Actions
"(a) Representation. If persons constituting a class are so numerous as to make it impracticable to bring them all before the court, such of them, one or more, as will fairly insure the adequate representation of all may, on behalf of all, sue or be sued, when the character of the right sought to be enforced for or against the class is
* * *
* * *
"(2) several, and the object of the action is the adjudication of claims which do or may affect specific property involved in the action.'
'In the present action the claims of the various claimants are several in nature. The action can be viewed as akin to the ordinary creditor's bill for the appointment of a receiver, an accounting, and distribution of the assets of the insolvent debtor. Although there is a mutuality of interests in the questions involved, the rights of the claimants are several and not joint; in addition, there is present a fund to be managed and distributed.
'The ruling of the Supreme Court that the instant action may be maintained under the Securities Act of 1933 is of the utmost significance in this connection. The following quotation from the Supreme Court's opinion, 311 U.S. 282, at page 290, 61 S.Ct. 229, at page 234, 85 L.Ed. 189, is highly illuminating; 'As already stated, there were allegations that Independence was insolvent and its assets in danger of dissipation or depletion. This being so, the legal remedy against Independence, without recourse to the fund in the hands of Pennsylvania, would be inadequate.''
In another such case the court stated, 'Upon the present record we think that it is impossible to conclude that the plaintiffs are fairly representative of the class of planholders. The fact that counsel for the parties make many diametrically opposed assertions as to the status and state of mind of the remaining 13,000 planholders who have not appeared is itself an indication of the speculative character of the assertions. We think that the representations of all or even of a substantial number of planholders has not been fairly insured. Sparks v. Robinson, 115 Ky. 453, 74 S.W. 176. Cf. Pelelas v. Caterpillar Tractor Co., 7 Cir., 113 F.2d 629, 632, certiorari denied, 311 U.S. 700, 61 S.Ct. 138, 85 L.Ed. 454; 2 Moore's Federal Practice, Sec. 23.03, p. 2234. The standing of the plaintiffs to sue in the representative capacity they assert must be demonstrated before a receiver can be appointed or an injunction paralyzing the functioning of the trusts be sustained.' (Pennsylvania Co. for Insurances, etc. v. Deckert (3 Cir.) 123 F.2d 979, 984.) In all these cases there was a common fund.
Weaver v. Pasadena Tournament of Roses Ass'n, 32 Cal.2d 833, 839-843, 198 'Consistent with these observations, the present action resembles in certain aspects such cases as Carey v. Brown, 58 Cal. 180; Ballin v. Los Angeles County Fair, 43 Cal.App.Supp.2d 884, 111 P.2d 753, and Watson v. Santa Carmelita Mutual Water Co., 58 Cal.App.2d 709, 137 P.2d 757, wherein a class suit was deemed improper where the interest fo each member of the alleged represented group was several and distinct, rather than collective. Thus in the lastcited case injunctive relief was sought against the collection of assessments by a mutual water company, because of fraudulent representations made separately to plaintiffs and 1,500 other investors. In declaring such relief to be 'unwarranted' insofar as the '1,500 unnamed shareholders' were concerned, the court observed, 58 Cal.App.2d at page 719, 137 P.2d at page 762: 'Plaintiffs allege that they were defrauded by deceitful representations made to them by defendants. Such representations do not necessarily affect the rights of their unnamed companions. Plaintiffs may proceed without let or hindrance against 'So the fact that 'numerous parties' have separate and distinct claims against the same person or persons will not alone suffice to sustain a representative suit where there is no community of interest. To hold otherwise would nullify the equitable concept of section 382 of the Code of Civil Procedure as a procedural convenience for the maintenance of representative litigation. Pomeroy, Code Remedies, 5th ed., sec. 287, p. 438. However, it cannot be said that a 'representative suit' is warranted 'only in those cases where the represented group is so united in interest with the actual plaintiff in the action as to make them necessary parties under the statute [Code Civ.Proc., sec. 382].' Watson v. Santa Carmelita Mutual Water Co., supra, 58 Cal.App.2d 709, 718, 137 P.2d 757; emphasis added. The statute does not so provide and such interpretation would restrict its appropriate application in cases where 'many persons' or 'numerous parties,' though not necessary litigants nevertheless have a 'common or general interest' in the subject matter of the controversy as a premise for a class proceeding in the disposition of the merits of their collective claims. The quoted statement from the Watson case was apparently made in pursuance of a similar observation in Carey v. Brown, supra, 58 Cal. 180, 184, wherein the plaintiff as the owner of certain land sought to litigate on behalf of himself and 'a large number of other persons who derive[d] their titles from the same source that [he] derive[d] his' a title claim against defendants. In summing up the situation as one not satisfying the test of a representative proceeding, the court pertinently stated 58 Cal. at page 183: 'The only question involved in this action is one of title to the land claimed by the plaintiff and the defendants adversely. It does not appear that any one had a common or general interest with the plaintiff in that question. A judgment in his favor would simply quiet his title to land in which no one else had any interest.'
'Subject to like analysis is the case of Ballin v. Los Angeles County Fair, supra, 43 Cal.App.Supp.2d 884, 111 P.2d 753, 755, wherein the plaintiff, a patron of a licensed horse racing track, sought to recover a nominal amount on the ground that the operators of the track had erroneously computed the 'breakage' under the pari-mutuel system of wagering. But in addition to stating such individual cause of action, plaintiff further claimed by his complaint 'to represent and use for numerous other persons who [had] made wagers at defendant's track and against whom defendant [had] made the same error in figuring 'breakage,' and he demand[ed] in their behalf an accounting of all [those] transactions and [sought] to recover for them sums aggregating more than $200,000'. After observing that such allegations were 'entirely insufficient to show a case in which the law would authorize the bringing of * * * a representative suit by plaintiff or entitle him to an accounting' as correlated with that premise of legal procedure, the court referred, without discussion but as decisive of the point, to 'the principles declared in Carey v. Brown, 1881, 58 Cal. 180, 183, 184, construing section 382 of the Code of Civil Procedure, and in cases construing like statutes of other states * * *. (citing cases.)' Examination of the cited cases from other jurisdictions reveals that they rest on the proposition that there must be a 'common or general interest' in the subject matter of the controversy in order to authorize 'In concluding this discussion, there is one further point to be noted. In cases properly falling within the category of representative litigation, the judgment or decree would be res judicata for or against the class sought to be represented. Freeman on Judgment 5th ed., sec. 436, p. 952; Price v. Sixth District Agricultural Ass'n, 201 Cal. 502, 513, 258 P. 387. But that result could not be extended to entirely separate causes of action, such as the four plaintiffs have pleaded here, so as to bind 'several hundred individuals' who are not named, and who are, so far as the complaint shows, unknown and unascertainable. Rather, these unknown parties are ascertainable only insofar as each may come forward and individually present proof of all the facts necessary to authorize a recovery in accordance with the merits of his particular case, and judgment in one would by no means be a judgment in any other. Plaintiffs here do not claim to represent an association or protective committee nor do they present any reasonable basis for ascertaining the members of the alleged class for whom they seek to act in this litigation. (Cf. Marolda v. LaPiner, 81 Cal.App.2d 742, 743, 185 P.2d 40. In short, plaintiffs' complaint can be regarded as no more than an invitation to such persons as may be interested to join with them in this action in seeking relief 'arising out of the same transaction or series of transactions' (Code Civ.Proc., sec. 378), but such situation furnishes no ground for the maintenance of a representative proceeding so as to confer jurisdiction on the superior court to hear and determine plaintiffs' cause.'
In Watson v. Santa Carmelita Mutual Water Co., supra, 58 Cal.App.2d 709, 718-719, 137 P.2d 757, 762 the question was, whether the complaint in a representative suit for an injunction to inhibit the collection of assessments by a mutual water company, stated a cause of action where the basis of the action is the alleged fraudulent misrepresentations made separately to plaintiffs and 1,500 other investors in the company's stock. The court in denying the right to maintain such action stated, 'There is no proper basis for filing a representative suit and for that reason an injunction forbidding defendants to enforce the collection of the assessments against the 1500 unnamed shareholders was unwarranted. There is no allegation of a common ground on which plaintiffs and their unnamed group may stand. There is no fund in which plaintiffs and the unnamed persons have a common interest; no property is mentioned in which the unnamed have an interest in common with plaintiffs; nothing to show that the 1500 are necessary parties to the action. * * * A representative suit is proper only where the action is for the purpose of conserving a common fund or property in which all of those represented have an interest. It may not be used to reinforce the claim of one who merely seeks relief against promoters who are alleged to have received plaintiff and his fellow stockholders in the sales of corporate shares. By no principle of legalistic logic does it appear that the unnamed 1500 are necessary to the prosecution by plaintiffs of their action. Plaintiffs allege that they were defrauded by deceitful representations made to them by defendants. Such representations Petitioners herein claim the right as to some of them, to rescind on the grounds of fraud in the sale of their notes and trust deeds. This right may not be common to all the other 2,137 notes and trust deeds here involved. To permit foreclosure as to all trust deeds as sought by plaintiffs below, would deny the right to some who could establish their right to rescind to exercise such right.
A class action is proper where its object is to conserve a common fund such as the assets of a corporation for the benefit of judgment creditors where it is charged that such assets are about to be distributed to the stockholders in the form of liquidating dividends. (City and County of San Francisco v. Market Street Railway Co., 95 Cal.App.2d 648, 213 P.2d 780.)
In Heffernan v. Bennett & Armour, 110 Cal.App.2d 564, 590-591, 243 P.2d 846, 862, the court discusses the rule of class or representative suits as follows: "The propriety of representative or class suits has long been recognized in our statutory law as embraced in section 382 of the Code of Civil Procedure, enacted in 1872 and which provides as follows: 'Of the parties to the action, those who are united in interest must be joined as plaintiffs or defendants; * * * and when the question is one of a common or general interest, of many persons, or when the parties are numerous, and it is impracticable to bring them all before the court, one or more may sue or defend for the benefit of all.' (Italics added.) The italicized portion of this statute is based upon the doctrine of virtual representation, which, as an exception to the general rule of compulsory joinder of all interested parties, 'rests upon considerations of necessity and paramount convenience, and was adopted to prevent a failure of justice.' Bernhard v. Wall, 184 Cal. 612, 629, 194 P. 1040, 1048; 20 Cal.Jur., sec. 7, p. 483. Even before the cited statute, as plaintiffs note, this doctrine found expression in this state in such cases as Von Schmidt v. Huntington, 1 Cal. 55, and Gorman v. Russell, 14 Cal. 531, each of which concerned the dissolution of a joint association and the distribution of the company assets, with common interests in a common fund permitting representative or class disposition of the issues before the court in conformity with general principles of equity responsive to the exigencies of the situation showing that it was impracticable to require the joinder of all the numerous members 'interested in the subject matter' of the proceeding, and that their non-participation therein would not affect the full protection of their substantial rights. Pomeroy, Code Remedies Fifth Edition, sec. 292, p. 444. While the cited statute--typifying the usual provision adopted in the various states--thus re-enacts the long-prevailing equity rule, it applies both to legal and to equitable causes of action, since no restriction or limitation in contained in its language. [Citations, including, sec. 290 Pomeroy's Code Remedies, (5th ed.)]' Weaver v. Pasadena Tournament of Roses [Assn.], 32 Cal.2d 833, 836 and 837, 198 P.2d 514. Regardless of which of the alternative conditions of the statute is invoked as authorizing a class proceeding, 'it has been uniformly held that there must be a well-defined 'community of interest' in the questions of law and fact involved as affecting the parties to be represented. Pomeroy, Code Remedies Fifth Edition sec. 286, p. 436; Noroian v. Bennett, 179 In the Fanucchi case the class or representative action rule was upheld. This was a case where hundreds of farmers over a period of several years delivered their cotton to defendants to be ginned and the cotton, lint, and cottonseed was to be paid for on the basis of the weight of the product delivered. The cotton was weighed but the seed recovered in the ginning process was not. Instead the gin used an arbitrary formula in arriving at the weight of the recovered seed which resulted in an overage of about 10 per cent to the gin on each delivery of cotton. Eventually the accumulated overage of cottonseed in the hands of the gin, resulting from the use of the formula, amounted to 30,000 tons of seed of a value of $2,200,000. Plaintiffs representing a small group of the farmers brought an action on behalf of themselves and all other farmers similarly situated in which they sought to recover, on behalf of each farmer who had delivered cotton to the gin, his proportionate share of the fungible mass of cottonseed. Each plaintiff claimed that he was entitled to that part of the whole pile of seed in the ratio that the total amount of cotton he had delivered to the gin bore to the total amount of cotton delivered by all farmers in the district. The books and records of the defendants contained all the necessary information from which the above figures could be derived. The court held this to be a proper class action, stating, 'The essential element in such cases would seem to be the existence of a trust fund, a common fund of some sort, or a common property interest in which all of the parties were interested, and not whether such rights or interests came into existence through, or were conferred by, one simultaneous set of acts instead of through a series of acts creating a common interest in all members of a group.' (Fanucchi v. Coberly-West Co., 151 Cal.App.2d 72, 81, 311 P.2d 33, 38.)
Plaintiffs below urge that unless the tract here involved is developed as one unit, the alternative is complete chaos. In this connection the record shows that a substantial number of notes and trust deeds are in the possession and under the control of the trustees in bankruptcy and may not be foreclosed in the subject action unless such trustees voluntarily intervene, which they have not done. Plaintiffs below may not compel such trustees to join and they may not represent them as one of a class similarly situated, for the reason that such notes and trust deeds are within the exclusive jurisdiction of the bankruptcy court. (Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281; Thompson v. Magnolia Petroleum Co., 309 U.S. 478, 60 S.Ct. 628, 84 L.Ed. 876; 2 Collier on Bankruptcy (14th ed.) p. 453.)
In the foreclosure action below there will of necessity be separate sales of each parcel of land. This will necessitate separate bids which in turn may result in title vesting in numerous owners within the tract, a situation which now prevails with respect to the ownership of the notes and trust deeds. It would seem, therefore, that the sale of the tract as a whole to one bidder cannot be accomplished by a class action to foreclose all of the trust deeds. The record shows that the face value of the notes and trust deeds varies in amount from $500 to $1,400; that the reasonable market value of the parcels of land securing the trust deeds will vary from 20 per cent to 70 per cent of the face value of the notes; the individual parcels of real property differ widely in size and value depending on their size, proximity to roads or commercial development, also whether they are corner or interior lots. Under these circumstances there is no formula upon which it can be determined that the owner of a note of the face value of $1,400 will be entitled to the same amount on foreclosure of his trust deed as the holder of a similar note, for the reason that each is If the action below is sanctioned as a proper class action, it will permit the plaintiffs below, by their selection of the remedy, to deprive other note holders of substantial rights which they may wish to assert as against the defendants, such as rescission of their contract to purchase. This would deprive the latter of a property right without due process of law. (Hansberry v. Lee, 311 U.S. 32, 61 S.Ct. 115, 85 L.Ed. 22.) There could be no common class where enforcement of the agreement in favor of some would adversely affect the substantial interests of others. (Horton v. Citizens Nat. Trust & Savings Bank, 86 Cal.App.2d 680, 685, 195 P.2d 494.)
It is one thing to say that some members of a class may represent other members in a litigation where the sole and common interest of the class in the litigation is either to assert a common right or to challenge an asserted obligation. It is quite another to hold that all those who are free alternatively either to assert rights or to challenge them are of a single class, so that any group merely because it is of the class so constituted, may be deemed adequately to represent any others of the class in litigating their interests in either alternative. Such a selection of representatives for purposes of litigation, whose substantial interests are not necessarily or even probably the same as those whom they are deemed to represent, does not afford that protection to absent parties which due process requires. The doctrine of representation of absent parties in a class suit has not hitherto been thought to go so far. (Hansberry v. Lee, supra.)
It may be most desirable from a practical standpoint, as urged by plaintiffs below, that the subject tract of land be preserved and sold as one unit. The vehicle of a class action, however, may not be used under the circumstances here presented, to accomplish such objective.
The respondent court is restrained from taking any further action on the complaint below except as such action may relate to the rights of the named plaintiffs and any others who may voluntarily join or intervene, against the defendants, and said court is directed to dismiss the action as to petitioners.
SHINN, P. J., and FORD, J., concur.