Bank of America Nat. Trust & Savings Ass'n v. Greenbach

• Decision Date: 27 June 1950
• Citation: 219 P.2d 814,98 Cal.App.2d 220
• Court: California Court of Appeals Court of Appeals
• Parties: BANK OF AMERICA NAT. TRUST & SAVINGS ASS'N v. GREENBACH et al. Civ. 14064.

Page 814

219 P.2d 814

98 Cal.App.2d 220

BANK OF AMERICA NAT. TRUST & SAVINGS ASS'N v. GREENBACH et al.

Civ. 14064.

District Court of Appeal, First District, Division 1, California.

June 27, 1950.

Erskine, Pillsbury & Tulley, Ulysses A. Gribble, George D. Schilling, all of San Francisco, for plaintiff and appellant and respondent.

Thos. J. Riordan, Young, Hudson & Rabinowitz, Leon A. Blum, all of San Francisco, for defendants and respondents and appellants.

PETERS, Presiding Justice.

This action was commenced by the Bank against Greenbach and others to set aside the settlement, for a fraction of its face value of a judgment against Greenbach, held by the Bank, on the ground that such settlement had been secured by the fraud and misrepresentations of Greenbach. Over the vigorous objection of defendants that they were entitled to a jury trial, the cause was tried before the court without a jury. Judgment was entered decreeing that the settlement should be set aside because of fraud in its procurement, and awarding to the Bank a money judgment for a portion of its demand. The judgment also ordered the other named defendants to apply the property in their hands belonging to Greenbach in satisfaction of the judgment. From this judgment all the defendants and the Bank appeal.

Facts.

The facts as disclosed from the findings and record are as follows: On November 17, 1939, the Bank obtained a judgment against Greenbach for $88,050.66. On January 2, 1940, Greenbach, who had paid nothing on this judgment, began negotiating with the Bank for a settlement. During these negotiations Greenbach represented that he was unable to pay the judgment, that he owned no properties not exempt from execution, and that unless he could settle the claims of his various creditors, including that of the Bank, he would be forced into bankruptcy. He offered the Bank $5,000 in full settlement of its judgment. In connection with these negotiations, and as part of the settlement agreement, Greenbach signed and delivered to the Bank an affidavit dated February 5, 1940, in which he averred and agreed that:

'With knowledge that said Bank * * * is accepting said settlement of $5,000.00 only because it relies upon my statement that I have no assets, and upon this affidavit, I hereby certify, state and declare under oath, that I have no property or assets of any kind or nature; no money due me from any person; no real property; no stocks; no bonds; no money in bank; no credits due me; no beneficial interest in any property held by any other person for me; no property standing in the name of assignees; trustees or any other persons whatsoever; for me and for my benefit' with the exception of certain designated properties exempt from execution, and an 'Undertermined equity in some shares of stock in the Newbridge Park Realty Co., and Bayshore Realty Co., subject to present negotiations with the record owner thereof.

'I definitely understand and agree that said Bank shall be bound by said settlement and by its acceptance of said $5,000.00 settlement, only upon the condition that the statements herein made by me as to my personal responsibility and as to my assets, are true.

'I further agree that in the event of a rescission of this settlement, the said Bank may retain the sum received hereunder and apply said sum on account of the original obligation, and further waive the right to plead the Statute of Limitations as a defense to said original obligation.'

As to the 'undetermined equity' in the two corporations above referred to, just prior to the execution and delivery of the affidavit, Greenbach represented to the Bank that he owned none of the capital stock of these corporations, that his sister-in-law was the owner of all of such stock, and that he had worked for her and for the two companies for a number of years at a nominal salary. He told the Bank that, after settling with his creditors, he hoped to obtain from his sister-in-law some stock in these two companies.

The trial court found, and the findings are not challenged, that all of these representations were made by Greenbach with the intent of obtaining the settlement of the outstanding judgment by fraud and deceit; that they were false; that the Bank believed that these statements were true and had no notice or knowledge that they were not true; and that if the Bank had not believed the representations it would not have agreed to the settlement.

The record shows, the trial court found, and such findings are not challenged, that the representations as to assets were false and known by Greenbach to be false, when made by him. In this connection the trial court found that at the time the settlement was entered into, there was owing to Greenbach from the Bayshore Realty Company the sum of $3,272.07; that this amount was on the corporation's books as a credit to him; that, in addition, at that time Greenbach was the owner of one-half of the capital stock of the Mutual Hotel Operating Company, Ltd.; and was the real and beneficial owner of all of the capital stock of the Bayshore Realty Company and the Newbridge Park Realty Company; that on December 2, 1939, all of the shares in these latter two companies (except two shares in each held by other directors) were issued in the name of his sister-in-law, Katherine de Salas; that, after the certificates had been issued to her, they were endorsed by her to Greenbach who kept them under his control; that on December 2, 1939, Greenbach had these certificates canceled and new certificates issued by these corporations to his wife; that at the time of the negotiations and settlement the shares stood in her name; that she held them for Greenbach and he was the real owner of them; that the statement made by Greenbach in his affidavit that he had an undetermined equity in these shares subject to present negotiations with the record owners, was untrue and false, for he was the real and beneficial owner of all these shares; that on December 2, 1939, Greenbach had de Salas removed as the president and director of these corporations and had his wife appointed in her place; that had the Bank known of these holdings of Greenbach, it would not have made the settlement; that Greenbach had the certificates representing these shares of stock placed in the names of his sister-in-law and wife for the purpose of concealing his assets from his creditors and to avoid paying them; that for many years prior to the settlement these corporations owned real and personal properties of substantial value, and during this period Greenbach owned all of the capital stock, was the managing officer, and completely controlled the corporations for his own benefit, causing valuable properties of his own to be transferred to them; that on January 10, 1940, Greenbach had created the Belle Haven Realty Company, and on February 28, 1940, he had the Bayshore and Newbridge companies transfer a substantial part of their assets (including the Californian Hotel in Sacramento, and other hotels and bars in California) to Belle Haven; that the certificate showing stock ownership in Belle Haven was issued to William Greenbach (Greenbach's son) for the purpose of concealing Greenbach's ownership from his creditors; that Greenbach has always been and is the real and beneficial owner of Belle Haven.

The record shows, the trial court found, and such findings are not attacked, that the falsity of the representations was discovered by the Bank under the following circumstances: That on December 19, 1944, Greenbach filed an action in Sacramento against one Casey and the Mutual Hotel Operating Company (which conducted the Californian Hotel) in which he alleged that he had at all times owned one-half of all Mutual's capital stock; that this complaint came to the attention of Clayton, an employee of the Bank and the employee who had carried on the settlement negotiations with Greenbach; that subsequent investigations by the Bank eventually led to the uncovering of the concealed assets; that, among other things, the Bank discovered that in 1930, Greenbach had transferred certain of his hotel properties to his sister-in-law in exchange for property which she claimed to own in Guatemala; that the investigation revealed that his sister-in-law was never the record owner of this Guatemala property, and that no transfer of the property to Greenbach was indicated by the Guatemalan records; that further investigation revealed information which indicated the concealments set forth above.

After making these investigations the Bank commenced the instant action on November 9, 1945.

The court further found that the Bank had the right to rely and did rely upon Greenbach's representations; that it was not required, after the settlement, to make any investigation as to the truth of the representations; that the Bank acted with reasonable diligence and promptness in investigating the truth of the representations after discovering the complaint in the action against Casey; that in the time which elapsed between the discovery and the commencement of the action, Greenbach did not change his position in any way to his detriment; that the Bank was not barred from bringing this action by laches nor by section 338, subd. 4, or section 343, of the Code of Civil Procedure.

The court also found that the Bank did not request information from Greenbach to substantiate his representations as to his assets, because it relied on their truth, as it had the right to do; that the papers and records of Greenbach were not available to the Bank at the time of the settlement or thereafter, and none of the public records relating to Greenbach's assets, or the assets of the corporations, would have revealed the true ownership of the properties controlled by Greenbach; that each of the defendants named in the complaint was a party to the fraud and knew that Greenbach was attempting to conceal his assets; that the net worth of...