Opinion
7-1-1959
Matter of the ESTATE of Harry AUSLENDER, Deceased. Morris Ausien, Petitioner and Respondent, Harry Auslen, Respondent and Appellant. * Civ. 9472.
George Olshausen, San Francisco, for appellant. Leonard S. Lurie, San Francisco, for respondent.
Matter of the ESTATE of Harry AUSLENDER, Deceased.
Morris Ausien, Petitioner and Respondent,
Harry Auslen, Respondent and Appellant. *
As Modified July 21, 1959.
Hearing Granted Aug. 26, 1959.
George Olshausen, San Francisco, for appellant.
Leonard S. Lurie, San Francisco, for respondent.
VAN DYKE, Presiding Justice.
When Harry Auslender died two of his nephews were appointed co-administrators of his estate. They were brothers. Harry Auslen, appellant herein, was the older of the two and by far the more active in the work of administration. He filed an account current and Morris objected thereto. The court disallowed substantial items claimed by Harry as credits and he appeals from that order. Morris and his attorney both filed accounts, claiming reimbursement for certain expenses they had met and Harry objected to the allowance thereof as charges against the estate. The items were allowed and Harry appeals from the orders making those allowances. This second appeal is minor in importance compared with the first and principally involves the claim that the items of expense allowed were wholly unsupported by vouchers or other evidence. The order settling the account of Harry surcharged his account in the total sum of $49,859.58.
The inventory listed a commercial account in the Anglo-California National Bank in the amount of $5,675.14 and a second commercial account in the same bank amounting to $19,370.80. There was a note appended to this latter item which recited the following: That the administrators had taken the account into their possession but that the ownership was disputed by Elton Investment Company, a corporation, which had filed a suit in the superior court to establish ownership of the fund. The inventory listed 2,500 shares in Fashion Shop, a California corporation, appraised at $14,705.89, and 20,002 shares of Elton Investment Company, a California corporation, appraised at $35,750. There was listed a claim against Fashion Shop appraised at $12,867.52. To this item there was appended a note stating that Fashion Shop had filed a claim against the estate in the sum of $25,000 and had brought suit upon it. There were two promissory notes listed, one calling for payment to decedent of $1,410.76, the other of $2,685.02. To these items there was also appended a note reciting that the ownership thereof was in dispute and was the subject of an action brought by Fashion Shop, wherein that corporation claimed ownership. There were two parcels of real estate with one of which we are not concerned. The second parcel was a portion of Lot 4, in the Block bounded by J and K, 6th and 7th Streets in Sacramento city, appraised at $70,000. Again a note was appended to the listing of this item, stating that Elton Investment Company claimed ownership and had brought an action to establish its title. The total appraisal figure was $162,983.03. The inventory was filed January 13, 1954. On the 7th of May following the Superior Court in Sacramento County, in the exercise of its general jurisdiction, rendered a judgment in favor of Fashion Shop against the estate of decedent, decreeing that Fashion Shop owned the two promissory notes claimed by it and directing delivery of the notes to it by the administrators. The judgment also decreed that Fashion Shop have judgment against the administrators as such for the sum of $10,000 to be paid in due course of administration, but further decreed that Fashion Shop 'pay out and expend a sum of not to exceed Two Thousand Five Hundred Dollars ($2500.00) for and on account of the administration expenses of said estate,' the same when so paid to constitute 'a pro tanto satisfaction of the money judgment.' On the same day judgment was entered in the suit brought by Elton Investment Company. That judgment decreed that Elton Investment Company was the owner of the real property at 7th and J Streets in Sacramento city and directed conveyance by the administrators. It also decreed that Elton Investment Company recover the sum of $50,000 to be paid by the estate in due course of administration but that Elton Investment Company 'pay out and expend a sum of not to exceed Seven Thousand Five Hundred Dollars ($7,500.00) for and on account of the administration expenses of said estate', the same when so paid out to constitute 'a pro tanto satisfaction of the money judgment.' After the rendition of the two judgments the administrators filed a supplemental inventory, wherein they eliminated from the inventory as first filed the property adjudged to belong to the two corporations.
Elton Investment Company and Fashion Shop, hereinafter called Elton and Fashion, were corporations mostly owned and wholly dominated by the decedent during his lifetime. Appellant investigated their stock ownership, and found that the stock books indicated decedent had owned 20,002 shares of the capital stock of Elton and that C. Appelbaum, an aunt of decedent, owned 14,000 shares; that decedent had owned 2,500 shares of the capital stock of Fashion, and C. Appelbaum 1,750 shares. However, there was strong evidence that Appelbaum was a dummy stockholder for the benefit of decedent and that she held as his trustee. Decedent died September 29, 1952. Beginning January 22, 1953, there occurred a series of corporate meetings. Officers were elected and as to both corporations there were created the offices of treasurer and managing director. Appellant was elected to those offices 'with full and unlimited authority to act for and in behalf of [naming the corporation] in all matters pertaining to the same.' Respondent became a director of both corporations. Directors' meetings followed. Resolutions were adopted for each corporation, declaring that the administrators as such owned 20,002 shares of the capital stock of Elton and that C. Appelbaum owned 14,000 shares; that the administrators owned 2,500 shares of the capital stock of Fashion and C. Appelbaum 1,750 shares thereof. New stock certificates were issued accordingly. At later corporate meetings reports were made that investigation of the affairs of the corporations indicated that much of the property standing in the name of decedent when he died really belonged to one or the other of the two corporations and the corporate officers were directed to take steps to protect the interest of each corporation in respect thereto. The managing director was ordered to make a thorough study of the situation and if just claims for the corporations against the estate were indicated the secretary was authorized to file claims against the estate. Claims were filed, were rejected by the administrators and thereafter suits were brought by the corporations resulting in the judgments hereinbefore referred to.
There were two groups of heirs, one called the eastern heirs. The other group called western heirs, resided in California. The eastern heirs were entitled to receive 60 percent of decedent's distributable estate and the western heirs were entitled to 40 percent. Appellant soon became active in attempting to purchase the interest of the eastern heirs for the benefit of the western heirs and after an extended trip east and many negotiations he succeeded in purchasing the interests of the eastern heirs for $25,000. They all assigned their interests to him as trustee for the western heirs. The assignments were presented to the probate court and approved.
In settling appellant's account the court rejected his claim that he was not required to account for the funds and property which by the two judgments had been decreed to belong to the corporations. The court's findings were that the judgments had been procured by the fraud of both administrators. It appears that the two judgments were entered upon the stipulation of the defendant-administrators presented to the trial court and the probate court took the position that the administrators as such knew that the estate had a factually supported and meritorious defense to the actions, that it was their duty as administrators to present that defense and that their acts in failing to do so were fraudulent.
The court further found that at the time of his death the decedent had been the sole, legal and equitable owner of all of the shares of stock of both Elton and Fashion; that during his lifetime the corporations were pure instrumentalities of decedent and that each of them was the alter ego of decedent; that the separate entity of each corporation for the purposes of the accounting was to be wholly disregarded and the activities, assets and liabilities of each considered and treated as being those of decedent. The court further declared that the consent judgments were void because obtained by the extrinsic fraud of the administrators and that each judgment, for the purposes of the accounting, was to be disregarded. The propriety of these findings is the subject of the principal attack made upon the orders appealed from. Appellant contends that the judgments must have been accepted as valid by the court sitting in probate, and must have been given their full legal effect with the result that the amended inventory filed after the judgments became final listed all property which belonged to the estate.
As officers of Elton and Fashion, the administrators were trustees for the corporations. They were also trustees for the estate. When they began to press the corporate claims against the estate they brought about a most objectionable situation and there can be no doubt that had the court been informed about it they would not have been permitted to represent one trust against another. As said in In re Haas' Estate, 97 Cal. 232, 234, 31 P. 893, 32 P. 327, in doing that they would most likely have misrepresented one trust or the other. Nonetheless the judgments were obtained, they became final, and notwithstanding the misconduct of both appellant and respondent the judgments may be just judgments that properly declared the rights of the parties as those rights would have been declared had each side had disinterested representation in an adversary trial. They are not void. The superior court in the exercise of its general jurisdiction had jurisdiction of the parties and of the subject-matter and there is nothing on the fact of the judgment records to indicate fraud. Until and unless they are set aside in some appropriate way as in an independent suit in equity by an interested and injured party they finally adjudicate the property rights put in issue. The superior court exercising its general jurisdiction had jurisdiction to act (Estate of Hart, 51 Cal.2d 819, 337 P.2d 73); the same court, sitting in probate, could thereafter no more decree the judgments void than it could have tried the causes in the first instance. The order surcharging appellant's account cannot rest upon the court's declarations that the judgments are void.
The probate court found that during his lifetime Elton and Fashion were alter egos of decedent. This finding does not aid respondent in upholding the surcharging of appellant's account. First, if the doctrine could have been applied against the corporations in their suits against the estate the issue must have been there presented and proved. The judgments are final as to defenses that could have been urged but were not. The title of the corporations to property claimed by the estate and their rights to money judgments against the estate were at issue in the suits they brought and whether or not alter ego could have been relied on as a defense is now immaterial. The matter is concluded by the judgments. Andrews v. Reidy, 7 Cal.2d 366, 371, 60 P.2d 832.
Respondent principally relies on In re Estate of McSweeney, 123 Cal.App.2d 787, 268 P.2d 107, to uphold the court's rulings that the judgments were void and that corporations were decedent's alter egos. Therein the probate court in settling an executor's account refused to admit evidence to show that the executor had failed, in a quiet title action against the estate, to present to the court a valid defense of which the executor had knowledge, but on the contrary had not contested the plaintiff's claims and had entered into a stipulation waiving notice of trial, written findings and conclusions and notice of entry of judgment. The omitted defense had been that the deed to the property from decedent to plaintiff had not been delivered. The appellate court held that the proffered evidence should have been admitted; that notwithstanding the judgment was final the objectors were not attacking it as such but were only attacking the account by proposing to show the executors had been derelict in their duty to preserve and protect the estate by failing to defend the quiet title suit; that if they could show the estate lost property because of the derelictions of the executors they should be permitted to do so. We cannot agree with the reasoning that the court by receiving the proposed evidence would not have been permitting a collateral attack upon the decree. As we have said, the court in probate should be considered bound by a final judgment regular on its face.
We come now to the specific surcharges of which appellant complains.
Appellant purchased the interests of the eastern heirs as truistee for the western heirs for $25,000. The assignments were so drawn and in that form were approved by order in probate. No claim was made that appellant was not authorized to deal for the western heirs by previous authorization or by subsequent ratification. The result is that only the western heirs are now entitled to distribution. Respondent does not here argue to the contrary. But the funds appellant used were not his own. Those funds had the following origins: Decedent died September 29, 1952. On December 20, 1952, appellant and respondent paid to Elton from estate funds the sum of $10,031.81. This was asserted to be net rentals received by decedent for the 7th and J Street property, and was paid on the assumption that Elton owned the property and that the income therefrom was held in turst for Elton by decedent. In April, 1954, $18,000 was withdrawn from estate funds and paid to Elton. Elton paid over to appellant $25,000 which he used to pay for the assignments. Thereafter, and on May 7, 1954, Elton recovered its judgment on its claims against the estate, including a money judgment for $42,500 net. In its findings the court said: 'The transfer of the sum of Ten Thousand Thirty-one and 81/100 Dollars ($10,031.81) from the account of the Administrators to the account of Elton Investment Company covering rental from the property at 7th and J Streets * * * for the period January 1, 1952 to September 29, 1952, is hereby disallowed, and it is hereby ordered that all debts and credits relating to said transfer are to be cancelled, and said sum replaced in the account of the administrators.' It is obvious that the court rested its disallowance on its holdings that the judgments were void, that Elton was a mere alter ego of decedent and that its assets were to be treated as those of decedent. We have said these holdings cannot support the disallowance. The Elton decree finally adjudged 'THAT THE DECEDENT * * * FROM DATE OF ACQuisItion of said property in his name, and the defendants * * * as Administrators * * *, from and after the date of death of said decedent, have held and possessed, * * * the same as Trustees and in trust for the Plaintiff Elton Investment Company, * * *, and that Plaintiff is forthwith entitled to sole and exclusive possession, control and title to said property, together with the rents and profits therefrom * * *.' What had happened was that the administrators had prepaid a lawful demand without order of court. Although such payments are made at the peril of disallowance, yet, unless third-party interests are prejudiced, a situation not shown here, they ought to be and usually are allowed. In re Estate of Fernandez, 119 Cal. 579, 581, 51 P. 851; In re Estate of Fulmer, 203 Cal. 693, 698, 265 P. 920, 58 A.L.R. 430. In the present state of the record the surcharge cannot be affirmed. Assuming that the court might have surcharged a current account for prepayment the record is clear that such was not the ground of the surcharge.
What has been said applies also to the surcharge of the $25,000. The payment of the $18,000 to Elton preceded by only a few weeks the rendition of the judgment in its favor. What Elton did with the money was of no concern to the probate court if the payment to it was proper. That payment was not preceded by court authorization, but Elton's judgment for money was final when this account was heard. The court once again obviously based its surcharge on its above stated findings and not upon payment without court order. Those findings do not support the surcharge.
Some miscellaneous credits claimed by appellant were disallowed. Appellant sought to hold the estate to reimbursement of a sum of $857.53 expended by him in his travels while negotiating the purchase of the interests of the eastern heirs. The court could properly find, as it impliedly did, that appellant was not about the business of the estate in attempting to buy these interests for himself and the other western heirs. Appellant seeks to justify this charge by arguing that the eastern heirs were threatening litigation and he acted in the estate's interest by removing their incentive. But there was evidence that appellant conceived the corporate actions as a lever to pry from the eastern heirs an advantageous purchase of their interest by creating in them a fear that the western heirs, including appellant and respondent, would use the corporate claims to lessen the value of their distributive rights. It was for the court to determine factually which motive prompted appellant's activities. The surcharge must be affirmed.
Appellant objects because the court surcharged his account with management salaries paid him by the corporations. This action obviously stems from the finding that the corporations and the decedent were one and the same. Since the record will not support that conclusion, the court in probate could not compel appellant to turn over to the estate money paid him by the corporations for services rendered to them.
Respondent administrator herein, and his attorney, each filed an account of expenditures and asked reimbursement against the estate. Appellant objected to each on the ground that they were unsupported by proper vouchers or other proof. In his demand for transcript on appeal from the orders approving the accounts and ordering reimbursement, appellant requested a transcript of the settlement proceedings, including all vouchers submitted and all evidence, oral and documentary, received in proof. He now contends that the orders appealed from are not supported by the proof and that they must therefore be reversed. An examination of the transcript discloses no record of any proof having been made. Respondent points out that the accounts were verified and contained averments that the expenditures were for the benefit of the estate, were reasonable and proper and necessarily made. But, so far as objected to, the burden was his to prove the accounts. 21 Cal.Jur.2d 128. For aught that appears no vouchers or receipts were furnished, no testimony was received from either respondent or his attorney or from any other source. We must therefore reverse the orders allowing the account. This, however, is and ought to be done without prejudice to a further hearing.
The orders surcharging appellant's account with the assets of the corporations and with the sums of $10,031.81, $25,000, $1,200 and $300 are reversed; the orders allowing the supplemental accounts of respondent and his attorney are reversed; and the matters are remanded for further proceedings. Otherwise the orders appealed from are affirmed.
SCHOTTKY, J., concurs. --------------- * Opinion vacated 2 Cal.Rptr. 769, 349 P. 2d 537.