Court Opinion

ID: 5651343
Source: CourtListenerOpinion
Date Created: 2022-01-11 23:07:38.214348+00
Date Added: 2024-06-11T08:38:36.003027
License: Public Domain

MARKS, J., Concurring and Dissenting.
I concur in the order affirming that part of the judgment from which the appeal is taken by the Municipal Bond Company. I also concur in the order denying the motion of the City of Riverside to dismiss the appeal of the plaintiff.
For brevity I will hereafter refer to the Municipal Bond Company as the plaintiff, the City of Riverside as the City, H. N. Dunbar as the treasurer, and the Maryland Casualty Company as the surety.
My reasons for concurring in the order of affirmance of that portion of the judgment from which the plaintiff has appealed are not fully set forth in the foregoing opinion. To make my position clear I must add the following: The first charter of the city was adopted in 1907. (Stats. 1907, p. 1277.) This charter remained in effect until July 1, 1929, when the present charter became operative. (Stats. 1929, p. 2102.) Under the first charter the city did not take advantage of the provisions of section 6, article XI, of the Constitution, to govern its own municipal affairs which were, therefore, controlled by the provisions of the general laws of the state.  Therefore, I am of the opinion that the plaintiff might have had the right to recover those moneys the treasurer misappropriated from the 1911 improvement bond redemption fund between the effective date of the amendment to section 961 of the Political Code (Stats. 1925, p. 17), and July 1, 1929.  But the plaintiff saw fit to appeal on the judgment-roll alone. The evidence is not before us. The findings do not disclose the dates of the collections or embezzlements by the treasurer. We are required to presume that the evidence supports the judgment in all particulars. We must therefore presume that collections, or at least the embezzlements, took place after July 1, 1929. The bonds were in small amounts and the payments of the assessments must have been proportionately small. It seems to me a violent assumption to have to conclude that the treasurer embezzled a total of $5,607.08 from these small payments during the short time between July 1, 1929, and his removal from office, and none before July 1st. In view of the application of the imperative presumption that the evidence supports the judgment, I find no escape from this conclusion, and, *283therefore, find it necessary to concur in that portion of the judgment refusing any relief to the plaintiff.
I dissent from that portion of the order which denies the Municipal Bond Company’s motion to vacate and set aside the order dismissing the appeal of the City of Riverside from that portion of the judgment which denied the relief prayed for in its cross-complaint.
The city filed its cross-complaint to recover $5,607.08 from the treasurer and the surety, which sum it alleged the treasurer had collected as assessments under the Improvement Act of 1911, and appropriated to his own use. The trial court found this to be true. The cross-complaint was filed upon the theory that the city acted in the capacity of trustee for the benefit of all the bond owners and could require the treasurer and the surety to return the money to the 1911 improvement bond redemption fund so that it could pay the bond owners, including plaintiff, the money due them. The trial court found that of the money misappropriated, $2,758.93 was due the plaintiff, leaving a balance of $2,848.15 due the other bondholders not parties to this action.
Section 60 of the Improvement Act of 1911 makes it an official duty of the treasurer to collect, keep and disburse the assessments collected under that act. The city charter of 1929 contained a provision imposing like duties upon him. The bond of the treasurer indemnified the city against loss occasioned by a breach of official duty by that officer.
In the case of City of Oakland v. De Guarda, 95 Cal. App. 270, pp. 284, 285 [272 Pac. 779, 784, 273 Pac. 819], the City of Oakland brought suit as trustee for property owners upon faithful performance bonds given in a contract awarded under the Improvement Act of 1911. In holding that the city could recover as trustee under a bond made payable to it for the benefit of the owners for loss occasioned them by a breach of the contract, the court said: “By the explicit language of the bonds both defendants are liable to someone if the contract is not performed, and by fair and equitable implication they are liable to those interested in the contract. In substance the only contention of the defendant National Surety Company here is, not that the surety company is not liable under the bond, but that the surety company is not liable to the plaintiff herein, suing as trustee for *284the benefit of the property holders. But equity will not permit the execution of a trust to fail for want of a sufficient trustee, for equity looks to the intent rather than to the form, and regards that as done which ought to be done and goes beneath the mere external form to the substance of things for the purpose of making its remedies more complete, thereby awarding and securing to the person beneficially interested the remedy to which he is entitled by the principles and doctrines of equity. . . .
“In Missouri cases cited and relied upon by counsel (St. Louis v. Wright Contracting Co., 202 Mo. 451 [101 S. W. 6, 119 Am. St. Rep. 810] ; St. Louis v. Wright Contracting Co., 210 Mo. 491 [109 S. W. 6] ; St. Louis v. Anderson, 229 Mo. 181 [138 Am. St. Rep. 414, 129 S. W. 528]; City of St. Joseph v. Rackliffe-Gibson Const. Co. et al., (Mo. App.) 203 S. W. 223), it does not appear that the statute construed by the learned court contained the numerous provisions enacted in our statute above showing the direct and tangible interest taken by the city through its council and street superintendent in the performance of the contract and the doing of the work for the benefit of the property holders, and the direct interest taken by the city for the benefit of the contractor in requiring the property holder to bear the burdens and pay the expenses of the work, all of which should properly vest in the property holder sufficient correlative rights to enable them to avail themselves of the agency and trusteeship of the city in the enforcement of the statutory bond given to the city for the proper protection of the property holders under the contract in question.
“In the case at bar the same reasoning and the same rule is applicable as was announced by our Supreme Court in the case of Los Angeles S. Co. v. National Surety Co., 178 Cal. 247 [173 Pac. 79], where the court used the following language taken from the United States Supreme Court in the case of Equitable Security Co. v. U. S., to Use of McMillan, 234 U. S. 448 [58 L. Ed. 1394, 34 Sup. Ct. Rep. 803] : ‘The surety is charged with notice that he is entering into what is in a very proper sense a public obligation, and one that will be relied upon by persons who can in no manner control the conduct of the nominal obligee, and with respect to whom the latter is a mere trustee. ’
*285“Also in the case of City of Philadelphia (to Use of Rose Brick Mfg. Co.) v. Stewart, 195 Pa. 309 [45 Atl. 1056], it was held that a city may sue in its own name to use of the persons for whose security it was given, on a bond given it by a contractor for city work conditioned that he shall pay for labor and material furnished therefor and shall comply with an ordinance for protection of subcontractors as well as laborers and materialmen. It was held in that case that ‘the city recovers on its legal title, though the money may ultimately go to the use of plaintiffs. ’ ”
It seems to me that the order of dismissal of the appeal of the city should be vacated if it is legally possible to do so. Otherwise the owners of the improvement bonds will be foreclosed of any opportunity to collect any part of the $5,607.08 which the treasurer misappropriated.
We have been cited to no case in which an order dismissing an appeal and recalling a remittitur has been made under the precise facts now before us. Numerous cases are in the reports in which such orders have been vacated when actual fraud has been practiced on the court. (See Trumpler v. Trumpler, 123 Cal. 248 [55 Pac. 1008, 1009].) In that case it was said that the order vacating the order of dismissal was not made “upon the principle of resumption of jurisdiction, but upon the ground that the jurisdiction of the court cannot be divested by an irregular or improvident order.” While this expression, or others of similar import, run through the eases the courts have not been called upon to define their application to cases where actual fraud did not appear. When applied to the facts of the cases in which they were used they appear to be dicta.
In the instant case no actual fraud existed in connection with the dismissal of the appeal by the city and none is even suggested by any part of the record before us. All counsel and the parties, including the officers of the City of Riverside,. very evidently acted in the best of good faith in the dismissal of the city’s appeal. They all believed that the bondholders could protect themselves in direct actions against the treasurer and the surety. This was strongly urged in the opening brief filed by the city. Entertaining this opinion the city accepted payment from the surety of the amount due to its general fund and dismissed its appeal, confidently assuming that it was not further interested in the *286controversy. We have held that the bond owners cannot so recover. This problem was not easy of solution and our conclusions were reached only after extensive study and lengthy consideration.
The precise question under the exact facts here presented has not been decided in this state. Counsel might easily and with honesty disagree upon the law applicable as the question has not been settled in California, and respectable authority from other jurisdictions is found upholding the right of the bond owners to recover from the surety. The good faith of the city attorney of the city is shown in the following quotation from a letter filed in reply to the motion for an order vacating the order of dismissal: “If the first motion made by the city to dismiss the appeal against it, be granted, the city has no interest (except general) in the questions raised in this brief of amici curiae, but if the motion should be denied, the city will urge the court to grant the motion of the bond company setting aside the dismissal heretofore entered on the cross complaint and give the city an opportunity to answer the brief of amici curiae. In other words, if the question of the direct liability of the city to the bond company is to be seriously considered by the court, counsel for the city wishes it to be in the position where it may protect itself by urging the liability of the casualty company to the city. ’ ’
It is easy to say that at the time the appeal of the city was dismissed “this court was in possession of all the facts in connection with the appeal and was fully advised in the premises.” While this is legally true, as we are presumed to have knowledge of all of our records, it is factually incorrect. The case had not been calendared nor otherwise called to our attention until the presentatiop of the stipulation to dismiss, which was regular in form, and the order followed. None of the members of this court actually knew anything of the facts of the case, the issues to be presented, nor the result of the dismissal in its effect on the chance to recover for the bond owners. To that extent the order of dismissal may be termed an “improvident order”. (Trumpler v. Trumpler, supra.) However, I am willing to concede that a mistake of law on the part of counsel, or the members of this court, no matter how honestly made, does not of itself, and standing alone, furnish sufficient ground for the *287granting of plaintiff’s motion to vacate the order dismissing the city’s appeal.
We have before ns a somewhat novel and unusual situation.  The city had a claim against the surety for the money belonging to the general fund which the treasurer had misappropriated. It also seemingly had another and distinct claim against the surety for the money which the treasurer had abstracted from the 1911 improvement bond redemption fund. This second claim was equitable in its nature. The bond owners were the beneficiaries of the trust. Many of them are not parties to this action. The city accepted payment from the surety of the amount due it by reason of the misappropriation of funds by the treasurer from its general fund and proceeded to dismiss its appeal. The money taken from the general fund belonged to the city. The money taken from the 1911 improvement bond redemption fund did not belong to the city when we use the expression in the sense that it possessed the complete ownership. It held the money as trustee for the benefit of the bond owners. The results of the entire transaction may be summarized as follows: The two claims of the city against the surety were separate and distinct, one from the other, though both arose under the same undertaking. The city compromised and settled its own claim against the surety and received payment. It did attempt to enforce its claim as trustee, but dismissed its appeal, thereby defeating any chance of recovery by or for the bond owners who received no benefits but lost their rights of a possible recovery from the surety by the procedure followed.
In my opinion a trustee cannot be permitted such freedom of action with the trust estate when the party with whom it is dealing is charged with notice of the facts. The trustee cannot directly or indirectly deal with the trust estate to its own benefit and the detriment of the beneficiaries. (25 Cal. Jur. 136, and cases cited.) The surety had knowledge of all these facts, and, possessing such knowledge, it cannot act in conjunction with the trustee to deprive the beneficiaries of any rights they might possess, for under such circumstances the court will not "enter into any examination of the honesty of the transaction” (Western States Life Ins. Co. v. Lockwood, 166 Cal. 185 [135 Pac. 496]), but will regard it as void. In 25 California Jurisprudence, page 223, it is said:
*288“If the transferee had knowledge of the trust, it is of no importance that he acted in good faith or without intention of perpetrating a wrong; his motive or intention cannot affect the rights of the equitable owner. ’ ’
Freely conceding that both the city and the surety and all their officers and agents acted honestly and with the best of good faith in making the settlement, and dismissing the appeal, I am of the strong conviction that their act of procuring the dismissal was just as void as though actual fraud had been proven. The same results were accomplished. Having reached this conclusion it necessarily follows that the order should be vacated under the rule laid down in Trumpler v. Trumpler, supra. I must regard the order of dismissal as improvidently made and as a nullity, and the order vacating the order of dismissal, not as a resumption of jurisdiction, but as the assertion of a jurisdiction of which this court has never been divested.
The motion of the City of Riverside to dismiss the appeal of the Municipal Bond Company is denied.
That portion of the judgment from which the appeal of the Municipal Bond Company is taken is affirmed.
The motion to vacate the order which dismissed the appeal of the City of Riverside is granted, and that order is vacated, and the remittitur issued on August 9, 1933, is recalled.
Barnard, P. J., concurred.
A petition for a rehearing of this cause was denied by the District Court of Appeal on May 21, 1934, and an application by respondents to have the cause heard in the Supreme Court, after judgment in the District Court of Appeal, was denied by the Supreme Court on June 22, 1934.
Shenk, J., dissented.