Goddard v. Metropolitan Trust Co. of California, 7606.

• Decision Date: 31 March 1936
• Docket Number: No. 7606.,7606.
• Citation: 82 F.2d 902
• Parties: GODDARD v. METROPOLITAN TRUST CO. OF CALIFORNIA.
• Court: U.S. Court of Appeals — Ninth Circuit

82 F.2d 902 (1936)

GODDARD v. METROPOLITAN TRUST CO. OF CALIFORNIA.^*

No. 7606.

Circuit Court of Appeals, Ninth Circuit.

March 31, 1936.

H. A. Savage, of Fresno, Cal., for appellant.

Mitchell, Silberberg & Knupp and Ross R. Hastings, all of Los Angeles, Cal., for appellee.

Before WILBUR, DENMAN, and MATHEWS, Circuit Judges.

MATHEWS, Circuit Judge.

Appellant, a citizen of Pennsylvania, hereinafter referred to as plaintiff, brought this action at law to recover of appellee, a California corporation, hereinafter referred to as defendant, the sum of $49,280. The District Court sustained general demurrers and special demurrers for uncertainty to both counts of plaintiff's second amended complaint, hereinafter referred to as the complaint, denied plaintiff's motion for leave to file a third amended complaint, and thereupon entered judgment dismissing the action. This appeal followed.

The first count of the complaint alleges, in substance, that plaintiff constituted defendant his agent for the purpose of making a loan of $49,280 to Earle C. Dingwell; that plaintiff placed said sum of money in defendant's hands and instructed defendant, as plaintiff's agent, to make said loan upon the security of a certain proposed trust indenture, "as, if and when, and only as, if and when," the title to certain property, real and personal, was held by defendant, as trustee, under the proposed indenture, subject only to certain specified incumbrances; that said authorization was also "contingent and conditional upon" all of Dingwell's creditors executing the proposed indenture; that defendant, acting as plaintiff's agent, did thereafter make said loan to Dingwell, but, in doing so, violated plaintiff's instructions, in that (1) defendant, as trustee under the proposed indenture, never acquired any title to said personal property, (2) the title which defendant, as trustee, acquired to said real property, was subject to incumbrances other than those specified in plaintiff's instructions, and (3) the proposed indenture was never completed, was never executed by Dingwell's creditors, and never went into effect; that plaintiff, upon discovering these facts, repudiated defendant's acts, notified defendant of such repudiation, and demanded that defendant return plaintiff's money, which defendant refused to do; that Dingwell was at all times, and is now, wholly insolvent and wholly unable to repay said loan; that no part of said loan has been repaid, but that the whole thereof has been lost to plaintiff; and that, by reason of said acts of defendant, plaintiff has been damaged in the sum of $49,280.

A copy of the proposed trust indenture (a blank form, undated and unsigned) is annexed to the complaint as Exhibit 1, and is, by reference, made a part of each count. It appears therefrom that the proposed indenture was to have been signed by Dingwell as trustor, by defendant as trustee, by plaintiff and Louis N. Pokress as class A beneficiaries, by Dingwell's creditors as class B beneficiaries, and by two other persons as residuary beneficiaries. Whether any of these parties ever signed the proposed indenture cannot be ascertained from the complaint. It does affirmatively appear that some of Dingwell's creditors refused to sign.

The proposed indenture recites that the trustor (Dingwell) has conveyed and transferred to the trustee (defendant) all of Dingwell's right, title, and interest in and to the real and personal property described in a schedule said to be annexed to the indenture, subject only to the incumbrances referred to in said schedule, which property, together with the rents, issues, profits, and proceeds thereof, shall constitute the trust estate. This schedule is not set out in or annexed to the complaint. The complaint states that no such schedule was ever prepared or completed, but that it was understood and intended that it should describe the same property which plaintiff specified in his instructions to defendant, being the personal property described in the complaint and the real property described in Exhibit 2 annexed to and made part of the complaint. What right, title, or interest, if any, Dingwell had in this property is not disclosed.

The proposed indenture does not secure, or purport to secure, nor does it even mention, the loan of $49,280 above referred to. It does recite that plaintiff and Pokress "have advanced the sum of $____ for the account of the trustor" (Dingwell), which amount has been used and applied by the trustee (defendant) for the benefit of the trust estate, but the amount is not specified, and there is nothing to indicate that the advance referred to in the indenture includes the loan referred to in the complaint, or any part of it, or that there is any connection between the two.

The proposed indenture provides that the trustee (defendant) shall hold and administer the trust estate and apply the income therefrom, first, to the payment of the trustee's fees and expenses of administration; second, to the payment of taxes, assessments, insurance, and other expenses; third, to the payment of principal and interest falling due under the deeds of trust comprising the incumbrances on the real property of the estate; fourth, to the payment of the monthly installments falling due on a conditional sales contract covering the personal property of the estate; fifth, to the payment of "the total sum of $____, without interest" to plaintiff and Pokress (class A beneficiaries); and, sixth, to the payment of sums certified to be due to class B beneficiaries; and that the balance, if any, shall be paid to the residuary beneficiaries. Nowhere in the complaint or in the indenture is there any statement or estimate of the amount or probable amount of income accruing to the estate, or of the amount required to pay the fees, expenses, and other items having precedence over the proposed payment to plaintiff and Pokress. It therefore cannot be said that any of this income would have gone to plaintiff.

The proposed indenture empowers, but does not require, the trustee (defendant) to sell and dispose of the property of the trust estate, and provides that the proceeds, if any, shall be applied, first, to the payment of expenses incurred by the trustee in making such sales; second, to the payment of the balance due on the purchase price of the personal property of the estate; third, to the payment of any balance due plaintiff and Pokress (class A beneficiaries) on account of the advance above referred to; and, fourth, to the payment of any balance due the class B beneficiaries, and that the remainder, if any, shall be paid to the residuary beneficiaries. There is nothing to indicate what amount, if any, could or might have been realized from such sales, or what amount would have been required to pay the expenses and indebtedness having precedence over the proposed payment to plaintiff and Pokress. It is therefore impossible to say that plaintiff would have received any part of the proceeds.

Thus the complaint fails to show that the proposed indenture would have afforded plaintiff any security whatever for his loan to Dingwell or that it would have benefited plaintiff in any way. In the absence of such a showing, it cannot be said that defendant's failure to comply with plaintiff's instructions respecting the proposed indenture caused or contributed to the loss complained of. From all that appears or can be inferred from the facts alleged, plaintiff would have suffered the same loss had his instructions to defendant been fully complied with.

Plaintiff's contention that the facts alleged show a conversion of his money by defendant must be rejected. The complaint shows on its face that, in making the loan to Dingwell, defendant was acting as plaintiff's agent, was acting within the scope of its employment as such agent, and was carrying out plaintiff's instructions, and that it violated plaintiff's instructions, not in making the loan, but in neglecting to take the so-called security specified by plaintiff. The complaint shows, not a complete departure from the agent's authority, but a mere violation of the principal's instructions regarding the manner in which the authority should be exercised. This cannot be deemed a conversion. 2 C.J. 719; 65 C.J. 13.

Plaintiff's remedy, if any, is an action on the case for damages. Mechem on Agency (3d Ed.) § 317; 2 C.J. 720. The only damages recoverable in such an action are those proximately resulting from the violation complained of. 2 C.J. 720. Plaintiff in this case claims as damages the entire amount of his loan to Dingwell, which amount, he alleges, has been wholly lost, but; as previously indicated, the complaint fails to show that this loss was the proximate result of defendant's violation of plaintiff's instructions. The causal connection, if any, between the violation and the loss is not shown. The complaint does not allege, nor does it state any fact from which it may be inferred, that compliance with plaintiff's instructions would have prevented the loss complained of. The demurrers to the first count of the complaint were properly sustained.

The first count of the proposed third amended complaint is equally defective. It is, substantially, a repetition of the count above discussed, with the added allegation that, had defendant followed plaintiff's instructions, "there would then have been adequate and ample security in the hands of defendant from which, by reason of diligence, defendant could have realized sufficient money to repay plaintiff's said loan." What this "adequate and ample security" would have consisted of, or what "diligence" would have been required in order to realize therefrom the amount of plaintiff's loan, is not stated. Aside from its uncertainty, the statement that sufficient money could have been realized for the repayment of plaintiff's loan is a conclusion not warranted by the facts alleged in the proposed pleading.

The second count of...