Dabney v. Philleo

These are consolidated appeals, by plaintiffs Clifford R. Dabney and his wife, in four eases affecting plaintiffs’ asserted interest in certain properties which are inventoried in the estate of Louise E. Dabney, deceased. The trial court sustained demurrers to the various complaints without leave to amend, made orders of dismissal in three cases, and rendered judgment that plaintiffs take nothing in the fourth. The main action (L.A. No. 21893) is against Milton H. Philleo, individually and as executor of the estate of Louise, and others. The amended complaint in that action, according to its title, is for “Declaratory Relief, Constructive Trust, Resulting Trust, Accounting, Quiet Title, Appointment of Receiver and Injunction”; it sets forth plaintiffs’ claims, adverse to the estate, based on the alleged fraud of Joseph B. Dabney, predeceased husband of Louise and uncle of Clifford. Actions L.A. Nos. 21890, 21891 and 21892 are against persons to whom Clifford assigned fractional shares of his interest in all property which he “is, or will be, entitled to have distributed or otherwise paid to him from the . . . estate”; in these three actions plaintiffs seek declaratory relief and reformation of the assignments to limit the interest assigned to that of Clifford as heir of Louise. The trial court permitted the assignees to intervene in the main action, and plaintiffs filed cross-complaints against them which are identical with the complaints in actions L.A. Nos. 21890, 21891 and 21892.

We have concluded that the complaint in the main action states a cause of action; that the complaints and cross-complaints against the assignees show a justiciable controversy as to the effect of the assignments; that this controversy should be disposed of by judgments on the merits rather than by mere orders of dismissal; and that the controversy appears

In substance the pertinent allegations of the amended complaint in the main action are as follows: In 1920 Clifford and Joseph made “an oral arrangement” under which Clifford was to expend time and effort in locating and toward procuring “valuable oil lands or valuable oil interests” in the vicinity of the Signal Hill oil field, to send prospective transferors of such properties to Joseph in order that the properties might be acquired, and to contribute one-half the cost of acquisition; because of Joseph’s vast resources and knowledge of the oil business, record title to the properties and their proceeds was to be vested in him and he was to finance their development; plaintiffs were to have an undivided one-half interest and Joseph an undivided one-half interest in the properties and their proceeds. Joseph did not intend to perform his undertakings and did intend to defraud plaintiffs. Clifford diligently performed until June, 1927; Joseph charged Clifford’s account with about $40,000 which was “expended by . . . Joseph ... in the purchase ... of said oil lands, . . . interests . . ., and in the exploitation of the oil . . . from the same”; Joseph took legal title to and developed the properties, rendered written accountings to Clifford and regularly paid plaintiff “purportedly one-half of the amount accounted for.” In June, 1927, Joseph falsely told Clifford that the properties were worthless, in some instances because of fatal clouds on title thereto and in other instances because they had become nonproductive, and that Joseph was quitclaiming or abandoning the interests. Plaintiffs believed Joseph’s misrepresentations. As Joseph knew, Clifford at all times concerned had implicit faith and complete confidence in him as a relative, friend and skilled business advisor, and in all their relations and transactions relied unqualifiedly on him; such absolute faith and confidence continued until on or about October 15, 1949, and “plaintiffs had not any information to the contrary prior to said time.” ' Joseph ostensibly quitclaimed or abandoned the interests but kept control of and developed them for his own benefit. . He operated through companies and agents controlled by him and there were many dealings with the properties which were not of public record. Plaintiffs were not experienced in business practices of the types allegedly resorted to by Joseph in the handling of the properties and for the concealment of plaintiffs’ interests and Joseph’s

The alleged circumstances of plaintiff’s discovery of the fraud are as follows: In October, 1949, Clifford was in Philleo’s office and heard Philleo, in a telephone conversation with a person unknown, state that he, as executor of the estate of Louise, would join as lessor in execution of an oil lease covering property called the Weber leasehold. Clifford recalled that an interest in the Weber leasehold had been one of the properties acquired under the oral arrangement with Joseph. Philleo observed Clifford’s interest “at the mentioning of such joining as lessor, and forthwith became red of face and neck, and became confused, and . . . proceeded to terminate said telephone conversation abruptly.” Philleo’s manner and conduct at that time aroused Clifford’s suspicions and as a result of his subsequent investigations of public records he learned of the fraud.

Statute of Limitations and Laches in the Main Action

Defendants rely on the doctrine of laches, and also contend that the statute of limitations (three years; Code Civ. Proc., § 338, subd. 4) had run because plaintiffs should have discovered the fraud many years before they filed the main action (on February 1, 1950). The statute began to run when plaintiffs became “aware of facts which would make a reasonably prudent person suspicious”; and in a case such as this, which involves a fiduciary relationship, “facts which would ordinarily require investigation may not excite suspicion, and . . . the same degree of diligence is not required. ’ ’ (Hobart v. Hobart Estate Co. (1945), 26 Cal.2d 412 , 438, 440 [ 159 P.2d 958 ] ; Wilkerson v. Seib (1942), 20 Cal.2d 556 , 561 [ 127 P.2d 904 ].) Defendants argue that no reasonable man would accept .without inquiry Joseph’s statement in 1927 that all the properties had become worthless or had fatal defects in title and that all the interests were being released or abandoned, when examination of the properties would have disclosed »,roducing wells thereon and examination of public

Defendants also rely upon matters which appear in the proceedings for probate of the estates of Joseph and Louise. These matters, they say, conclusively show that Clifford was put on notice at least by December, 1946, that some of the properties in question were listed as assets in the estate of Louise and were not valueless. Defendants ask that we take judicial notice of these matters (see Hammell v. Britton (1941), 19 Cal.2d 72 , 75 [ 119 P.2d 333 ]; Willson v. Security-First Nat. Bk. (1943), 21 Cal.2d 705 , 712 [ 134 P.2d 806 ]) to support a determination that the statute of limitations has run. The facts on which defendants rely are the following: Clifford was an heir of Joseph and received a small inheritance when his estate was distributed. He was an heir of Louise, requested special notices in the probate of her estate, and appeared in person and by counsel in opposition to the executor’s administration of the estate. In December, 1946, the inventory and appraisement in the estate of Louise were filed, and Philleo caused copies thereof to be mailed to the heirs, including Clifford. Properties which plaintiffs claim adversely to the estate, with their appraised values, are there listed as assets of the estate. These facts do not, as a matter of law, show that a reasonable person, in the circumstances alleged by plaintiffs, who was interested in the estate as an heir should have read the inventory and appraisement and discovered that he had an interest adverse to the estate in properties claimed by it. The mere passage of time and the deaths of his uncle and aunt and the scheduling of the assets claimed by the estate were not circumstances which would necessarily have caused a reasonable man, who 19 years previously had accepted the misrepresentations of the trusted uncle and who had continued to believe in him implicitly, to probe into the administration of the estate of the trusted aunt in an investigation of the truth of the "particular misrepresentations which are alleged to have been made.

Since we cannot as a matter of law reject plaintiffs’ explanation of their delay in discovering the factJ we con-

The so-called “Second Cause of Action” is entitled “Resulting Trust.” No such cause of action is stated. A resulting trust arises to enforce the inferred intent of the parties. Here, plaintiffs have alleged that defendants at no time had an intent to hold the properties for plaintiffs’ benefit but, rather, have claimed adversely to them; therefore, defendants hold as constructive rather than resulting trustees. (Johnson v. Clark (1936), 7 Cal.2d 529 , 533 [ 61 P.2d 767 ]; Bainbridge v. Stoner (1940), 16 Cal.2d 423 , 428 [ 106 P.2d 423 ].)

The so-called “Third Cause of Action” and “Fourth Cause of Action” are entitled, respectively, “Declaratory Relief” and “Quiet Title.” Each incorporates by reference thé allegations of the “First and Second Causes of Action” and neither adds any new allegations of significant facts. Only one cause of action is stated in the amended complaint (see Ephraim v. Metropolitan Trust Co. (1946), 28 Cal.2d 824 , 833 [ 172 P.2d 501 ] ; Jackson v. Lacy (1940), 37 Cal.App.2d 551 , 561 [ 100 P.2d 313 ], and, if plaintiffs can establish that cause of action, enforcement of the constructive trust remedy, with such incidental relief as may be necessary, will, effect what plaintiffs desire.

Assignees’ Bight to Intervene

Plaintiffs urge that the assignees had no direct interest in the matter in litigation in the main action; that the assignees’ interest was “consequential” and, therefore, they should not have been allowed to intervene. (Jersey Maid Milk Products Co. v. Brock (1939), 13 Cal.2d 661 , 663 [ 91 P.2d 599 ]; Allen v. California Water & Tel. Co. (1947), 31 Cal.2d 104 , 109 [ 187 P.2d 393 ].) In this plaintiffs are mistaken. The controversy in the main action is as to the ownership of certain property; the assignees assert “an interest in the matter in litigation” and were properly allowed to intervene. (Code Civ. Proc., § 387; Goes v. Perry (1941), 18 Cal.2d 373 , 376 [ 115 P.2d 441 ].)

The material allegations of the complaint in action L.A. No. 21890 are as follows: In March, 1949, Clifford, by written assignment which was entitled and numbered in the proceeding for probate of the estate of Louise, transferred to defendant McDonald “one-fourth of his right . . . to all of the property ... to which Seller [Clifford] is, or will be, entitled to have distributed or otherwise paid to him from the . . . estate, including also one-fourth of every other right and benefit of Seller in and to said estate.” McDonald paid $10,000 for the assignment. It contains the following provisions :

“Seller hereby warrants and represents to Buyer that he has not sold, assigned, pledged, mortgaged or encumbered said one-fourth interest in said estate, or any portion thereof; that the same is his sole and separate property, and that his interest therein is free and clear of attachments, executions and other liens.

“Seller is entirely familiar with the value of his interest in said estate; that he has made his own investigation concerning such value, and considers the purchase price herein paid to be the fair and reasonable market value of his interest in said estate. Buyer has also made his own investigation concerning this purchase and Seller has made no representations to Buyer in connection therewith other than those set forth above.”

The complaint further alleges: McDonald claims that by virtue of the assignment he owns not only Clifford’s interest as an heir but also all claims of every kind which Clifford has against the estate of Louise. The agreement of Clifford and McDonald was that McDonald was to buy a fractional share of Clifford’s interest as an heir only, but by mutual mistake the written assignment did not embody this agreement. The “mistake was made in that plaintiffs as of the date of execution of said assignment were ignorant of the fact that the Estate of Louise . . . claimed property or income therefrom or the re-investment proceeds therefrom, which said property belonged to plaintiffs.” Defendant refuses to correct the mistake and threatens to interfere with plaintiffs’ prosecution of their claim against the estate. Plaintiffs ask a declaration of rights under the assignment and reformation thereof to limit the interest transferred to that of Clifford as heir.

The assignments do not precisely define the interest transferred. They repeatedly refer to Clifford’s distributive share as heir, but they transfer his interest in all property distributed “or otherwise paid” from the estate. Whether this includes not only property received by Clifford as an heir but also property received by him as a result of establishing a claim adverse to the estate ‘1 depends upon the intention of the parties [citations], and while that intention is determined primarily from the terms of the instrument, the language of the assignment must be construed in the light of the facts and circumstances of the particular case. [Citations.] ” (Austin v. Hallmark Oil Co. (1943), 21 Cal.2d 718 , 730 [ 134 P.2d 777 ].) If the phrase “otherwise paid” was intended to mean “paid to Clifford because he is an heir,” then the assignees (by virtue of the assignments and the representation and warranty that Clifford’s interest as an heir was free from any lien, which would include the lien of a constructive trust) would be entitled to receive a share of the estate equal to what Clifford as heir would have received from an estate undepleted by plaintiffs’ claim (if it is established) in the main action, but the shares of the heirs other than Clifford would still be subject to reduction by plaintiffs’ successful prosecution of their alleged cause of action (the establishment of a constructive trust effective as against persons other than the assignees) adverse to the estate.

Causes of Action Against the Assignees: Reformation

No cause of action for reformation is stated. The alleged mutual mistake was the ignorance of Clifford and his assignees that there was property claimed by the estate of Louise to which Clifford and his wife had a claim adverse to the estate. Bach assignment contains the representations that Clifford “is entirely familiar with the value of his interest

For the reasons above stated the judgment and orders appealed from are reversed, and the cause is remanded to the trial court with directions to permit plaintiffs to amend to meet the objections raised by special demurrer.

Gibson, C. J., Shenk, J., Carter, J., and Traynor, J., concurred.