Opinion
Rehearing Denied May 29, 1937.
Hearing Granted by Supreme Court June 28, 1937.
Appeal from Superior Court, Los Angeles County; Clement L. Shinn, Judge.
Action by the Mary Pickford Company and another against Bayly Bros., Inc., and others. From a judgment for plaintiffs, named defendant and certain other defendants appeal, and from adverse orders, plaintiffs and defendants Harold Bayly and Roy D. Bayly appeal.
Judgment reversed as to defendant California Trust Company; judgment otherwise affirmed, and orders affirmed. COUNSEL
Mott, Vallee & Grant, of Los Angeles, for appellants and respondents Mary Pickford Co. and Mary Pickford Fairbanks.
Swanwick, Donnelly & Proudfit and Finlayson, Bennett & Morrow, all of Los Angeles, for appellants and respondents California Trust Co.
Chapman & Chapman, Joseph K. Horton, and John S. Frazer, all of Los Angeles, for appellants and respondents Bayly Bros, Harold Bayly, Roy D. Bayly, Suburban Estates, Inc., and Edwards & Wildey Co.
OPINION
BISHOP, Justice pro tem.
Without distinguishing between the plaintiff corporation and those individuals comprising an antecedent copartnership of the same name, one of whom was the plaintiff Mary Pickford Fairbanks, because to do so would be to add to the complexity of the complicated statement of facts in unessential particulars, it suffices for all our purposes to state that on October 31, 1925, the plaintiff corporation subscribed for a 25/530 beneficial interest in a real estate subdivision project, paying $2,500 down and the balance, $22,500, on December 12. Relying on the fact that no permit had been granted by the corporation commissioner for the issuance of the security thus purchased, the plaintiff filed its complaint August 2, 1933, asking judgment for $25,000 and interest from the dates of the two payments. From the judgment for $25,000 and interest from January 7, 1933, which was entered against them, these defendants have appealed: Bayly Bros., Inc., Harold Bayly, Roy D. Bayly, Suburban Estates, Inc., Edwards & Wildey Company (together with Walter C. Durst, trustee in bankruptcy of the company), and California Trust Company. Both the plaintiff and the defendants Harold and Roy D. Bayly made motions to have the judgment vacated and different judgment entered, and they have appealed from the orders denying their respective motions. We have reached these conclusions: The subject-matter of plaintiff’s purchase was a security issued by the defendants Bayly Bros., Inc., and Edwards & Wildey Company; that the sale and issuance of the security was illegal and constituted a tort in the perpetration of which the defendants Harold and Roy D. Bayly participated and for the results of which they are liable; that the action was commenced before the statute of limitations had erected a bar; that interest was properly awarded; and finally, that the defendant California Trust Company was not a party to the commission of the tort.
The plaintiff, we are informed by the findings, was approached by Bayly Bros., Inc., with a written proposition from Edwards & Wildey Company reciting (as the proposition was later amended) that Edwards & Wildey Company was forming a syndicate in the sum of $530,000 to complete the financing of the purchase, operation and subdivision of the 4,000-acre "Sunshine Ranch"; that out of the project each subscriber would be paid back the amount of his subscription and interest at 7 per cent. before any profits were distributed; that thereafter profits would be divided equally between the syndicate and Edwards & Wildey Company and its associates; that each subscriber’s interest in the syndicate would be 1/530 for each thousand dollars subscribed and the syndicate would have a half interest in the trust; that "upon the close of the Syndicate, you shall receive a beneficial trust certificate setting forth your interest therein"; and that a 25/530 interest in the syndicate had been reserved for the plaintiff. This offer the plaintiff accepted October 31, 1925, and Bayly Bros., Inc., were paid $2,500 on account. A little later, December 19, 1925, a further payment of $22,500 was placed in the hands of Bayly Bros., Inc., in the form of a check drawn to the order of the California Trust Company and delivered to the trust company in escrow.
In the proposition presented to the plaintiff, the statement was made that it might be deemed advisable to have the Sunshine Ranch acquired by the Suburban Estates, Inc., a corporation being formed for the purpose. Evidently it appeared advisable, for we find the commissioner of corporations granting a permit December 8, 1925, authorizing the Suburban Estates, Inc., to issue 98,000 shares of its capital stock to Bayly Bros., Inc., and Edwards & Wildey Company, in consideration of an assignment of a contract to purchase real property, and subsequently, we discover, the Suburban Estates, Inc., conveyed the ranch and transferred the stock to the California Trust Company. The conveyance and transfer were made in trust, evidenced by a declaration of trust executed by the California Trust Company under date of December 24, 1925. We need not note all of the provisions of this declaration of trust; only those provisions which will help us to answer the questions, Were there securities illegally issued? Which of the defendants is liable for the illegal issue? need be regarded. From the declaration of trust it appears that the development, subdivision, and sale of Sunshine Ranch was to be undertaken; that from the proceeds received, an $800,000 obligation of the trustor. Suburban Estates, Inc., to the California Bank was to be met; that the trustor had made Edwards & Wildey Company its exclusive sales agent in the project and it was to receive certain designated sums as commissions; and that Bayly Bros., Inc., and Edwards & Wildey Company, termed the beneficiaries, had contributed a total of $490,000 in "money, property and/or services," which was to be repaid them with interest. This sum of $490,000, it is evident, took the place of the sum of $530,000 first stated to be the goal of the syndicate; plaintiff’s fractional interest, 25/490, was larger by the corresponding reduction in its denominator. By a further recital we are informed that capital stock of the trustor to the total amount of $490,000 par value had been transferred to the trustee.
The balance of the money received from the sale of lots, after the trustee’s fees, agent’s commission, and a percentage for the general improvement fund had taken their toll, was to be divided, at first, 7/11 to the bank and 4/11 to the trustor. When the trustor had received $300,000, then all was to go to the bank until its $800,000, and any further advances it might have made, were repaid. Thereafter all the balance was to go to repay the beneficiaries the sum of $490,000 and interest. When this sum was repaid, then the trustor was to receive the balance. By the time the various sums indicated had been paid out and the trustor had become the sole recipient of the portion of sales receipts not allocated to the general improvement fund, commissions, and fees, the $490,000 worth of its capital stock deposited with the trustee, which was evidently 1/2 of that authorized in its organization, was to be surrendered and reissued to the beneficiaries. The ultimate profits of the project, it would thus appear, were to go in some measure to the beneficiaries.
Adopting the terminology of the declaration of trust which named Bayly Bros., Inc., and Edwards & Wildey Company as "beneficiaries," although there were other cestuis que trustent, we find no recognition that any other persons were beneficiaries or had any claim or interest in the proceeds to be derived under the trust. That is to say, although plaintiff had subscribed and paid for its beneficial interest, as had others, before the declaration of trust was executed, the existence of plaintiff’s claim was not recognized in the declaration. The trust did provide, however: "The Beneficiaries herein named, and each of them, shall have the right and privilege of dividing their beneficial interest hereunder and of assigning and transferring portions thereof, subject to all the terms, conditions, obligations and provisions hereof, but no sale or transfer of any interest hereunder shall be valid or binding upon the Trustee until an executed original of such transfer in form satisfactory to the Trustee has been delivered to it, or, if such interest be transferred by decree or order of Court, then only upon the presentation to the Trustee of satisfactory proof of the regularity and validity of such decree or order."
In February, 1926, the plaintiff received the following instrument, executed by Bayly Bros., Inc., and Edwards & Wildey Company:
"February 2, 1926.
"Know All Men By These Presents:
"That for value received Bayly Brothers, Inc., and Edwards & Wildey Company do hereby assign, transfer and set over unto Mary Pickford Company an undivided 25/490 beneficial interest of the Beneficiaries in, to and under that certain Declaration of Trust executed by California Trust Company, of Los Angeles, California, dated December 24, 1925, and bearing its number PT-337, together with a like interest in and to the Beneficiaries’ net proceeds and avails arising or growing out of the said Trust; and said Trustee is hereby authorized to pay, turn over and deliver unto said Mary Pickford Company all moneys, stock and benefits accruing out of the said interest hereby assigned, and to consider said assignee Beneficiary under said Trust to the extent of such interest.
"This assignment is made, however, subject to all of the terms and conditions of said Declaration of Trust.
"In Witness Whereof, Bayly Brothers, Inc., and Edwards & Wildey Company have each caused this instrument to be executed by its proper officers thereunto duly authorized."
Addressed to California Trust Company, the plaintiff wrote acknowledging receipt and acceptance of the assignment of beneficial interest to which the trust company replied: "California Trust Company acknowledges receipt of a duplicate of the Assignment above referred to and of this Acceptance this 20th day of May, 1926."
We have no hesitancy in holding that the instrument delivered to the plaintiff was a security within the meaning of the Corporate Securities Act (Stats. 1917, p. 673; Deering’s General Laws 1923, Act 3814). As amended in 1925 (St. 1925, p. 962) and effective during the period which is engaging our attention, the statute defined "security" as follows in section 2, subsection 7: "The word ‘security’ includes: * * * (d) Any instrument offered for sale, or sold, or issued, to the public by any company, evidencing or representing any right to participate or share in the profits, earnings or income, gross or net, derived from the assets, or any thereof, of any business carried on for profit or in the distribution of such assets."
In subsection 3 of section 2 the statute had already defined "company" in this fashion: "3. The word ‘company’ includes all domestic and foreign private corporations * * * (with certain exceptions not of interest to us)."
The words "to the public" as used in the definition are neither defined in the statute, nor has their scope been judicially limited. In the case of In re Leach (1932) 215 Cal. 536, 12 P.2d 3, 7, the difficulty of discerning the dividing line between securities issued to sell to the public and those not, was recognized, but, it was said, the meaning of the words was reasonably plain and free from any serious ambiguity and "Each case must be decided upon its own particular set of facts." In the record before us we find that the evidence supports the trial court’s finding that beneficial interests, including that purchased by the plaintiff, "were offered for sale and were issued, sold, transferred and delivered * * * to the public." The evidence to which we refer does not include and it is not necessary that it should include any invitation extended to the general public to buy, either by public advertisement or a house to house canvas. We do find that the officers of Bayly Bros., Inc., solicited subscriptions from their friends. One of them solicited the plaintiff; how the contact was made does not appear, but there is nothing to indicate it was because the plaintiff was one of an exclusive group. One of the reasons why Edwards & Wildey Company was taken into the project was that they had "a large following of syndicate subscribers, and that when (they) offered them this deal, they would be glad to get it." Edwards & Wildey Company represented that they had had some seventy such syndicate deals and the scheme discussed and adopted for the Sunshine Ranch project was to "form a syndicate according to his usual plan and invite people in." An offering of securities is "to the public" even though the effort to sell be limited to that portion of the public proven by experience to be particularly susceptible to such offers.
A surface similarity exists between the circumstances of this case and those involved in Bernesen v. Fish (1933) 135 Cal.App. 588, 28 P.2d 67, and Faires v. Title Ins. & Trust Co. (1936) 15 Cal.App. (2d) 350, 59 P.2d 428, which causes the appellants to contend on the authority of those cases, that that which plaintiff purchased was not a security for which a permit was a prerequisite. In the case first cited the plaintiffs were endeavoring to recover money they had paid on the purchase of land of which they had received neither possession nor title. The defendants disavowed liability on the ground that, although possessed of certificates of beneficial interests in the trust which sold the land to the plaintiffs, they (the defendants) were not legally members in the trust because the certificates had been issued to them without a permit. The facts were that two of the defendants, having an option to purchase a large acreage, had formed with some eighty others a syndicate to make the purchase. The conveyance had been taken in the names of those who held the option, and subsequently they had conveyed it to a trust company which executed a declaration of trust in many particulars quite similar to that before us. Before the plaintiffs purchased the land they never acquired, certificates of beneficial interests had been given the defendants. This statement of facts, it was held by the appellate court, failed to reveal the necessity of a permit. For one thing the court pointed out [at page 603 of 135 Cal.App., 28 P.2d 67, 74]: "There is no evidence that any beneficial interest was ever offered for sale to the public." Furthermore, property acquired as the result of money contributed by others is held under a resulting trust for those others, whose "position of owners of beneficial interests under the resulting trust would not be changed by the conveyance of the legal title" to a new and express trustee. "Assuming these circumstances to be true, the certificates issued * * * to them created no new interest in the trust estate, but were merely evidences of interests created by operation of law when the resulting trust first came into being. Under such circumstances no permit might be necessary for the issuance of certificates if they were not to be sold or offered for sale."
In Faires v. Title Ins. & Trust Co., supra, 15 Cal.App.(2d) 350, 59 P.2d 428, the same conclusion was reached by the same court under circumstances strikingly similar. The plaintiff was a member of a syndicate buying land, which was taken in the name of the defendant trust company. Plaintiff’s beneficial interest was acknowledged by the trust company in a declaration of trust executed by it. The resulting trust, following the acceptance of title of land purchased by others, it was held, created the beneficial interests which the declaration of trust recognized. No certificates were issued; none was sold or offered for sale.
The difference between these cases and ours is both apparent and vital. That which plaintiff was offered, as one of the public, and that which it purchased, was not land, nor an interest in land, but a certificate of beneficial interest in a project. No doubt a resulting trust arose in favor of the beneficiaries named in the trust, when, without giving any consideration, the California Trust Company received title to Sunshine Acres, but the certificate of beneficial interest which the plaintiff subsequently received was not simply a new expression of the interest which the plaintiff already had in the real property known as Sunshine Acres, but was the evidence of its interest in the enterprise which had been undertaken to improve, subdivide, and sell that property. One who subscribes to stock in a company about to be formed to deal in land, may know that his money, together with that of others, is going to buy the land and carry on the sales campaign, as was the case in Walker v. Harbor Realty & Development Company (1931) 214 Cal. 46, 3 P.2d 557. The fact which he knows does not alter the character of that which he has purchased; it is stock and not land. So with plaintiff. It was a beneficial interest and not land which was offered it and which it intended to and did purchase. Neither Bayly Bros., Inc., nor Edwards & Wildey Company had a legal right to offer to sell such a beneficial interest to the plaintiff without a permit from the commissioner of corporations.
The suggestion that in determining to grant permits to Suburban Estates, Inc., first that it might issue 5 shares to its incorporators, then authorizing it to deliver the 98,000 shares already referred to, the commissioner of corporations became cognizant of the scheme to sell and issue such certificates as the plaintiff bought and received, and that he must, therefore, be deemed to have approved of the offering and sale, even if true, avails the defendants nothing. At most, it but proves that the commissioner would have issued a permit had applications been made for one. What the terms and conditions of the permit would have been, no one can say. The fact remains that no permit was granted to anybody to do anything respecting the securities in question. We have presented before us, therefore, a violation of the provisions of section 3 of the Corporate Securities Act (St.1917, p. 675), reading: "No company shall sell * * * or offer for sale, negotiate for sale of, or take subscriptions for any security of its own issue until it shall have first applied for and secured from the commissioner a permit authorizing it so to do."
We are thus brought face to face with four questions, each requiring an understanding of the nature of the cause of action upon which the plaintiff has recovered judgment. Is the action barred by the statute of limitations? What should be the measure of damages? From what date should interest be allowed? Against what defendants may the cause be pressed? While "There is in this state but one form of civil actions for the enforcement or protection of private rights and the redress or prevention of private wrongs" (section 307, Code Civ.Proc.), within that single form may be brought many actions with differing periods of limitations (section 335 et seq., Code Civ.Proc.), and with differing measures of damage (sections 3281-3360, Civ.Code), which may include an allowance of interest (sections 3287-3290, Civ.Code).
We have concluded that, so far as the questions presented are concerned, the cause of action established by plaintiff must be considered one for damages for fraud. Persuasive as may be appellants’ arguments that some of the elements usually regarded as essential to a fraud action are lacking, and some elements present are inconsistent with the theory that the action is one for fraud, the time comes when an appellate court should, for the orderly administration of justice, consider that previous decisions close the door to further discussion. The door may be considered not only closed to us, but sealed, for the question is one which has been answered by our Supreme Court. In Gillis v. Pan American Western Pet. Co. (1935) 3 Cal.(2d) 249, 44 P.2d 311, the question presented was the sufficiency of a second amended complaint in which the plaintiffs sought damages in the sum of $63,357.50, the amount paid for stock issued without a permit. The defendants, directors of the corporation, argued "that the complaint is not grounded in fraud, but upon contract," and further "plaintiffs have pleaded no actionable fraud." The reviewing court summed up the complaint in these words [at page 255 of 3 Cal.(2d), 44 P.2d 311, 314]: "In substance, as already observed, the plaintiffs alleged that these respondents ordered the stock to be issued and sold in California; that the defendant corporation had no permit; and that plaintiffs were unaware of this noncompliance with the law when they purchased the stock so ordered to be issued; that plaintiffs relied upon the genuineness of the stock; that all of respondents knowingly aided and assisted in the issuance of the stock; and that the plan of organization was designed by respondents to evade the laws of California." The Supreme Court then observed: "We think respondents misconceive the purpose of these allegations. In Green v. Caribou Oil Min. Co., 179 Cal. 787, 178 P. 950, 952, involving a certificate of stock illegally issued, this court in referring to fraud said: ‘It comes from the false issue itself, which is the act of the corporation officers within the apparent scope of their authority, which, in effect, is a representation by the corporation itself to the purchaser from the original holder that the false stock is genuine.’ So, here, when respondents valued the stock issued and took all the necessary preliminary steps, and had the corporation issue the stock to appellants, they, in effect, represented that they had complied with the Corporate Securities Act and had obtained a permit without which the stock could not be issued or sold. Such is the effect of Boss v. Silent Drama Syndicate, 82 Cal.App. 109, 255 P. 225, where the court said that the purchaser had the right to rely upon a similar representation. And in MacDonald v. Reich & Lievre, Inc., 100 Cal.App. 736-742, 281 P. 106, 108, we read: ‘When a corporation issues to the public certificates of stock, regular on their face, it amounts substantially to a representation that the certificates are regular and valid. Certificates of stock so issued by a corporation, but which were irregular or void for reasons not participated in by the stockholder, have been held to amount to a misrepresentation and fraud upon the part of the corporation officials for which the corporation is answerable.’ (Citing cases.) To the same effect reference may be had to Walker v. Harbor Realty, etc., Corp., 214 Cal. 46, 3 P.2d 557; Randall v. California L. B. Syndicate, 217 Cal. 594, 20 P.2d 331; Mannion v. Baldwin, 217 Cal. 600, 20 P.2d 678, and Holmquist v. Kent, 219 Cal. 231, 25 P.2d 977. The allegations of the present case bring it within the rule announced; and we are not called upon to consider an assumed situation where the information of the purchasers is sufficient to remove it from the operations of the rule." The judgment dismissing the action as to the directors was accordingly reversed.
No service would be rendered by our quoting from or discussing other decisions. That one who has been sold a security contrary to the Corporate Securities Act may recover the amount paid as damages for fraud, is recognized by the cases cited in Gillis v. Pan American Western Pet. Co., supra, 3 Cal.2d 249, 44 P.2d 311, and also in McClory v. Dodge (1931) 117 Cal.App. 148, 4 P.2d 223; O’Connell v. Union Drilling, etc., Co. (1932) 121 Cal.App. 302, 8 P.2d 867. In these two cases, it is true, mention was also made of the right of recovery on the theory of money had and received, but recovery was allowed, in the case last cited, against those who had participated in, but had not become unjustly enriched by the transaction, a result only possible in the tort action of fraud, not in an action for money had and received. Pollak v. Staunton (1930) 210 Cal. 656, 665, 293 P. 26; and see Randall v. California L. B. Syndicate (1933) 217 Cal. 594, 599, 20 P.2d 331.
It is not essential to make out a case of fraud, under the facts of a case such as ours, that it should appear that those whose duty it is to secure a permit should apprehend the necessity of having a permit. The ignorance of those responsible of the fact that a permit is lacking does not relieve them from liability. People v. McCalla (1923) 63 Cal.App. 783, 220 P. 436; Boss v. Silent Drama Syndicate (1927) 82 Cal.App. 109, 255 P. 225; El Claro Oil, etc., Co. v. Daugherty (1936) 11 Cal.App.(2d) 274, 286, 53 P.2d 1028, 55 P.2d 488
With respect to the plea that the action was barred by the statute of limitations, therefore, we find that the provision which controls is found in subsection 4 of section 338 of the Code of Civil Procedure, prescribing three years as the period within which may be commenced. "4. An action for relief on the ground of fraud or mistake. The cause of action in such case not to be deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.’ Castle v. Acme Ice Cream Co. (1929) 101 Cal.App. 94, 281 P. 396; Klombies v. Weeks Poultry Community (1932) 121 Cal.App. 175, 8 P.2d 940 Indeed, there is authority that the statute of limitations would be the same had the form of the action been for money had and received. MacDonald v. Reich & Lievre, Inc. (1929) 100 Cal.App. 736, 281 P. 106
The further argument is made by appellants that even though the statute of limitations be that which we have stated it is, that the lack of a permit was a matter which could have been easily ascertained, and that it must, therefore, be deemed to have been discovered more than three years before the commencement of this action. It is impossible to reconcile all that has been said in the many cases upon this question. We feel justified in relying upon the provisions of the Code section itself (section 338, supra) read in the light of section 19 of the Civil Code, which provides: "Every person who has actual notice of circumstances sufficient to put a prudent man upon inquiry as to a particular fact, has constructive notice of the fact itself in all cases in which, by prosecuting such inquiry, he might have learned such fact." The principle that diligence in making the discovery must be shown, which is applied with varying degrees of strictness throughout the cases, is "but the declaration of the equitable rule enunciated in section 19 of the Civil Code," according to Lillis v. Silver Creek, etc., Water Co. (1913) 21 Cal.App. 234, 131 P. 344, 347. In Prewitt v. Sunnymead Orchard Co. (1922) 189 Cal. 723, 209 P. 995, 998, the court referring to this section, quoted from the earlier case of Tarke v. Bingham (1898) 123 Cal. 163, 166, 55 P. 759, where it had been stated: "‘But the converse of the proposition is equally true. Where no duty is imposed by law upon a person to make inquiry, and where under the circumstances "a prudent man" would not be put upon inquiry, the mere fact that means of knowledge are open to a plaintiff, and he has not availed himself of them, does not debar him from relief when thereafter he shall make actual discovery. The circumstances must be such that the inquiry becomes a duty, and the failure to make it a negligent omission."’ This quotation from Victor Oil Co. v. Drum (1920) 184 Cal. 226, 193 P. 243, appears in Denson v. Pressey (1936) 13 Cal.App.(2d) 472, 478, 57 P.2d 522, 526: "It is only where the party defrauded should plainly have discovered the fraud except for his own inexcusable inattention that he will be charged with a discovery in advance of actual knowledge on his part."
The evidence in the record before us warranted the trial court in concluding that the plaintiff did not discover the lack of a permit until in January, 1932, nor was it shown to have been possessed of any information which should have aroused its suspicion. An investigation conducted by others when an assessment was threatened led to the discovery, reported to the plaintiff, that no permit had ever been given. But the presumption was that the law had been obeyed and any necessary permit obtained; there was no duty on the part of the plaintiff to make inquiry. Hemmeon v. Amalgamated C. Mines Co. (1928) 95 Cal.App. 400, 273 P. 74; MacDonald v. Reich & Lievre, Inc., supra, 100 Cal.App. 736, 740, 281 P. 106. As we start with the premise that this is an action based on fraud, we conclude that it was commenced in time.
With respect to the damages allowed, appellants argue that if the plaintiff’s theory of the case is adopted and this be considered an action for damages resulting from fraud, then it follows that the measure of damages should have been the difference between the value of the certificate as it proved to be and the value it would have had if it had been as represented, that is, validly issued. Pressing their advantage on this principle they argue that in view of such cases as Domestic and Foreign Pet. Co., Ltd. v. Long (1935) 4 Cal.(2d) 547, 51 P.2d 73, it can no longer be held that the Corporate Securities Act meant what it said in section 12. St. 1917, p. 679. "Every security issued by any company, without a permit * * * shall be void," but that a security issued without a permit is voidable, only, and as such has a real market value. It may be that our statement in Black v. Solano Co. (1931) 114 Cal.App. 170, 299 P. 843, that the eyes of the law see a security issued without a requisite permit as a blank piece of paper, will have to be modified to read that the law sees it as a piece of paper blank on one side only. Nevertheless, it may not be doubted that when the blank side is presented by the purchaser in such actions as this, only the blank side is visible. Without attempting to reconcile the cases, if reconciliation be necessary, our conclusion is that for the purposes of measuring damages, the invalidly issued security is deemed valueless. In Boss v. Silent Drama Syndicate, supra, 82 Cal.App. 109, 255 P. 225, Walker v. Harbor Realty, etc., Co., supra, 214 Cal. 46, 3 P.2d 557, and O’Connell v. Union Drilling, etc., Co., supra, 121 Cal.App. 302, 8 P.2d 867, judgments were rendered for the full amounts paid for the "void" securities, and such a result seems forecast in Gillis v. Pan American Western Pet. Co., supra, 3 Cal.(2d) 249, 44 P.2d 311.
The rule expressing the measure of damages upon which the appellants rely is subject to this exception: "One who has, by fraud, been induced to part with property, receiving nothing in return, must be entitled to recover at least the value of what he has thus given. He is certainly damaged to the extent of the consideration thus obtained from him," as was stated by the Supreme Court in denying a hearing in George Cople Co. v. Hindes (1917) 34 Cal.App. 576, 170 P. 155, 156. We conclude that the plaintiff, having paid $25,000 for a certificate of beneficial interest which it has shown to be void and hence valueless, was entitled to judgment for damages in the principal sum of $25,000.
Damages by way of interest were allowed, not from the dates in 1925 when the two payments were made which totaled $25,000, but from January 7, 1933, when the plaintiff made demand upon the California Bank & California Trust Company for the return of the $25,000 it had paid. The plaintiff contends that it was entitled to interest from the dates of payment, relying upon the provision of section 3287 of the Civil Code which was applied in Boss v. Silent Drama Syndicate, supra, 82 Cal.App. 109, 115, 255: "Every person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day." Section 3288 of the Civil Code gives us a clearer understanding of the scope of the preceding section than can be had from reading that section alone. It is apparent to us that the two sections intend to cover separate, not overlapping, fields. Section 3288 provides: "In an action for the breach of an obligation not arising from contract, and in every case of oppression, fraud, or malice, interest may be given, in the discretion of the jury." If citation of authority is necessary, we find the allowance of interest justified under this section in two fraud actions, tried without juries: Desmond v. Standard Bond & Mtg. Co. (1928) 91 Cal.App. 201, 266 P. 1005, and Isaacs v. Frank Meline Co. (1934) 2 Cal.App.(2d) 341, 37 P.2d 1045. Because, in a case such as this, the allowance of interest is by the code confined to the discretion of the trier of facts without direction as to when it should begin, if allowed, it is our opinion that the determination of the day from which the interest shall date is also left to the court’s discretion. In the case before us we find no abuse of that discretion.
From what has been said up to this point, it is apparent that the judgment against the two corporations, Bayly Bros., Inc., and Edwards & Wildey Company, must be affirmed. In stating this conclusion, we are not unmindful of the argument persuasively presented that trust companies were authorized to sell and issue securities without a permit at the time of the events giving rise to our problems. The fault we find with this argument is that it is not appropriate to the facts of this case; the California Trust Company had not been approached to act as trustee when the first payment was made by the plaintiff; it did not sell or issue the security involved in this case. We are not at this moment considering the argument of the plaintiff that the judgment against the trust company must be affirmed because it was a joint tort feasor with the two corporations in their fraud. The position we are stating is that the two corporations are not to escape liability because the security which they sold and issued was a security of the trust company. The subscription was sold before the California Trust Company was a party to the project; the declaration of trust did not recognize the plaintiff or the present existence of its rights; the certificate was issued by the two corporations, not by the California Trust Company.
We find no word spoken particularly on behalf of the defendant Suburban Estates, Inc., so we presume that there is no question but that it was so implicated with the two corporations, Bayly Bros., Inc., and Edwards & Wildey Company, whose instrument it appears to have been, that an affirmance of the judgment against them requires like action respecting the judgment against it. The judgments against the individuals, Bayly brothers, and against the California Trust Company are not to be affirmed by default, however; denial is made that the evidence justifies a judgment against any one of the three. To which the plaintiff responds that all three participated in the fraud committed by the two companies and are equally responsible in damages.
The position taken by the plaintiff is grounded upon several decisions. Boss v. Silent Drama Syndicate, supra, 82 Cal.App. 109, 255 P. 225, 226, dealt with "an unincorporated association operating by virtue of a trust agreement under which defendants Graydon and Brown were its trustees." Without discussing the nature of the participation of Graydon and Brown, the judgment against them was affirmed, the opinion touching on their liability reading (at page 111 of 82 Cal.App., 255 P. 225, 226): "While, as suggested by appellants, much authority is available to the point that in an action for deceit, intentional fraud, rather than constructive fraud, is a necessary element to the maintenance of an action, nevertheless, with reference to the act by a corporation acting in excess of its powers in issuing certificates of stock, it appears to be well-established law that not only the corporation, but as well its officers so issuing such stock, are legally responsible therefor to purchasers in good faith, even though the act by the corporation be done through mistake and without any fraudulent intent."
Five gross overriding royalty interests of one per cent were illegally sold by a corporation for $4,000. A judgment against the five directors of the corporation was sustained in O’Connell v. Union Drilling, etc., Co., supra, 121 Cal.App. 302, at page 308, 8 P.2d 867, 870, the court declaring: "As to officers of a corporation, it has been held generally that they do not incur liability simply by reason of their official character, but that if they commit a tort they are liable therefor; and it matters not what liability may attach to the corporation for the tort. * * * The authorities are uniform in holding non-participants immune from liability, but the directors herein named who were respectively president and secretary of the appellant corporation are shown to have actively participated in the issuance of securities which were void from their inception."
The significance of Randall v. California L. B. Syndicate, supra, 217 Cal. 594, at page 599, 20 P.2d 331, 333, may be gained from this quotation: "* * * the evidence supports the findings that the defendants Fletcher and Haskell had notice and knowledge that the certificates issued to the plaintiffs were so issued in exchange for real property and with their aid and assistance. The evidence on this phase of the case is that the proposition to exchange the real property for stock was placed before said defendants as directors and the direction for the consummation of the transaction was voted by them. Participation on their part in the issuance of the stock amounts in law to a representation that such stock is valid and genuine, upon which the plaintiffs relied to their damage."
In Mannion v. Baldwin, supra, 217 Cal. 600, 20 P.2d 678, the plaintiff was denied recovery of $7,500 paid for stock which had been issued not for cash as the permit authorized. In reversing the judgment our Supreme Court opined (at page 604 of 217 Cal., 20 P.2d 678, 680) "Defendants Baldwin and his wife and Gladys Sykes were all directors who were present at the meeting which voted to issue the stock in violation of the permit. They are active participants, and equally liable. O’Connell et ux. v. Union Drilling & Petroleum Co. et al. [ 121 Cal.App. 302] 8 P.2d 867. It is true that they did not actually participate in the sale to plaintiff, but the uncontradicted evidence shows that at the meeting of December 1st, when the stock was issued, the directors knew that it was going to Mrs. Mannion. * * * It does not appear that defendant Sherman M. Sykes was in any manner connected with the issuing of the stock, and he therefore cannot be compelled to reimburse plaintiff."
We do not have the details of the part played by the defendant directors in the illegal sale of stock in Holmquist v. Kent, supra, 219 Cal. 231, 234, 25 P.2d 977, 978, but a judgment against the two directors, who were also the vice president and secretary of the corporation, was affirmed because, "If the transaction involved in the present case was a violation of the permit, then the manner of its consummation and the acts of the agent Stewart to that end were, under the facts disclosed by the record, attributable to the defendants Fletcher and Haskell."
In Walker v. Harbor Realty, etc., Corp. (1931) 214 Cal. 46, 3 P.2d 557, 558, a judgment against the president of the defendant corporation was affirmed. As to the other individual defendants the judgment was reversed, the opinion reading [at page 49 of 214 Cal., 3 P.2d 557]: "There is, however, no evidence in the record to connect the defendants * * * with the false and fraudulent representation made to the plaintiff." As the opinion itself does not contain any further reference to the record evidence and the original record cannot be located in the clerk’s office, we are not able to evaluate this decision. If the evidence did indicate the active co-operation of all the defendants, as would appear from the briefs in the case, then the case would appear to be out of harmony with those decided both before and after its appearance.
Measured by the cases, the judgment against the two personal defendants, Harold and Roy D. Bayly, must be affirmed. If there is any injustice in this conclusion, it flows from the premise that the sale and issuance of the certificate of interest without a permit constituted fraud, even though the necessity for a permit was unappreciated, for there is no injustice in holding that those who knowingly participate in the furtherance of a fraud are liable for its consequences. The evidence warranted the trial judge in concluding that, while one Dunham, a vice president of Bayly Bros., Inc., was the one who actually secured the plaintiff’s subscription, his activity in this regard, was but a part of the scheme for securing subscriptions which was known to and approved by Harold Bayly, the president, and Roy D. Bayly, another vice president, of Bayly Bros., Inc., and his activity was in the discharge of the responsibility which had been placed upon and left to him by them. In addition to other evidence, we find this question and answer while vice president Dunham was a witness: "Who determined or decided upon the mechanics that were to be used in forming this syndicate and raising the money? A. I would say the executives of Bayly Brothers and of Edwards & Wildey." The two individual defendants were two of the three executives known to us. Had they determined and decided upon a scheme whereby interests were to be sold on the false representation that Sunshine Ranch was so called because gold was present in great quantities on it, their responsibility for consequent damages in a particular case could not be escaped by the plea that Dunham and not they carried the scheme through to a successful conclusion. In our case, the fraud consisted in selling certificates of interest without a permit, the campaign in which this was done being one known to and approved by the two Baylys, in part actively participated in by them. As we have seen, their ignorance of the fact that a permit was needed or was lacking was no defense. The judgment against them must be affirmed.
Quite generally in its findings the trial court included the California Trust Company as one of the defendants which, it determined, sold the certificates to the public and offered them to the plaintiff, and so forth. All the findings of its participation and activities, however, are qualified by this further provision: "Whenever and wherever in these findings reference is made, to any act or acts of the defendants, it is intended to find and such findings will be construed to mean, that so far as California Trust Company is concerned, its acts, either alone or participated in with other defendants, were those in which it assumed, entered upon and carried out its duties and obligations as trustee under said declaration of trust; provided, however, that this finding does not have reference to any of the acts of California Trust Company as escrow holder. * * *" As we understand the plaintiff’s position and as we view the case, there is no claim nor basis for a claim that the activities of the defendant trust company as escrow holder furnish any basis for the judgment against it. The basis urged is that the "California Trust Company actively participated in, aided, abetted, and assisted in their issuance and sale."
We are of the opinion that the California Trust Company was not shown to be a joint tort-feasor with those who illegally sold and issued a certificate of interest to the plaintiff. We have reached our conclusion in spite of the fact that it does appear that the trust company prepared and had printed the forms used by the other two defendant corporations to evidence the interests the various subscribers had purchased, and knew that the forms were to be used for that purpose. In other ways, the trustee co-operated with its two codefendant corporations in carrying out the project in which it was playing the role first of escrow holder, then of trustee. It did take care to see that its record of the assignments of beneficial interests was correctly kept.
In none of these activities, though, did it fail in any duty that it owed to the plaintiff. To begin with, as heretofore noted, the sale was made to the plaintiff before the defendant trust company had any part in the enterprise. At no time was it contemplated or agreed that it would issue a certificate to the plaintiff; that was to be done, as it was done, by the two corporations. It follows, it seems to us, that the defendant trust company had no more duty to know that a permit had not been applied for than it had to apply for it, and had no more duty to decline to co-operate with the two corporations in their issuance of the certificates than the printer had to decline to print them. The officers of a corporation in charge of its campaign to sell securities are bound at their peril to know that a permit is needed; that duty is not imposed on all who may have a connection with the transaction, but no part in the sale or issuance of the security. Support for this conclusion we find in the concluding paragraph in Faires v. Title Insurance & Trust Co., supra, 15 Cal.App.(2d) 350, 356, 59 P.2d 428.
A rereading of the briefs discloses no point which does not appear either to have been covered explicitly or implicitly in what we have written, or not to be worthy of comment extending this opinion further.
The judgment as to California Trust Company is reversed. The judgment as to the other defendants is affirmed. The orders appealed from are affirmed.
I concur: HOUSER, P. J.
DORAN, Justice.
I concur. With respect to interest, it was properly allowed as of the demand date, January 7, 1933, not only for the reasons given above but as well upon the authority of the following cases: Knight v. Bentel, 39 Cal.App. 502, 510, 511, 179 P. 406; Hayt v. Bentel, 164 Cal. 680, 686, 130 P. 432; McDevitt v. Butte City Ranch, 7 Cal.App.(2d) 252, 256, 46 P.2d 290; Shirreffs v. Alta Canyada Corp., 8 Cal.App.(2d) 742, 756, 48 P.2d 55; Wilson v. Rigali & Veselich, 138 Cal.App. 760, 768, 33 P.2d 455.