Broadway Federal Savings & Loan Ass'n of Los Angeles v. Howard
| Decision Date | 03 June 1955 |
| Citation | 133 Cal.App.2d 382,285 P.2d 61 |
| Court | California Court of Appeals Court of Appeals |
| Parties | BROADWAY FEDERAL SAVINGS and LOAN ASSOCIATION OF LOS ANGELES, a Federal Savings and Loan Association, Plaintiff and Respondent, v. H. A. HOWARD et al., Defendants, H. A. Howard, Appellant. Civ. 20428. |
Eric A. Rose, Long Beach, for appellant.
Sylvester Hoffmann, Los Angeles, for respondent.
Plaintiff recovered judgment for (1) $17.667.46 against H. A. Howard, 1 alone; (2) $1,090.41 against Howard and Avalon Enterprises, Inc., jointly and severally, and (3) $5,581.18 against Avalon Enterprises, Inc., alone. No recovery was awarded against Dorothy B. Howard, wife of Howard. By the judgment the cross-complaint of the Howards was dismissed, plaintiff's demurrer thereto having been sustained without leave to amend. Mrs. Howard has not appealed. The appeal of Avalon Enterprises (hereinafter referred to as Avalon) has been dismissed. This leaves Howard as the only appellant.
By its third amended complaint 2 plaintiff sought to recover asserted secret profits which Howard made in a variety of transactions 3 in which he made use of plaintiff and its assets, fraudulently, however, concealing his identity in these transactions from plaintiff and its board of directors.
In a memorandum ruling the trial judge summarized Howard's relation to plaintiff and his general modus operandi as follows:
'The defendant Howard for more than 25 years has been a real estate broker. His clientele for the most part has been the members of the colored race. Sometime prior to November, 1946, he concluded that a federal savings and loan association would not only be a valuable adjunct to his business, but would serve the needs of his community. With that in mind he applied to the Home Loan Bank Board at Washington for a charter under the name of Broadway Savings and Loan Association. This was granted in November, 1946. The association opened for business in January, 1947, with a board of five directors. The defendant was not only a director but the president and general manager of the association. It is undisputed that he was the dominant figure in the association until he was ousted in September, 1949, at the instance apparently of the national Home Loan Bank Board.
'The defendant Avalon Enterprises, Incorporated, is wholly owned by the defendant Howard and his wife. It was employed by the plaintiff prior to September, 1949, to supervise and disburse some of the loans made by plaintiff to individual borrowers who were constructing their own homes.
'The ability of the defendant Howard to make use of the landing powers of the plaintiff was severely restricted by the charter and the federal laws and regulations pertaining to federal savings and loan associations. He was prohibited, among other things, from borrowing money from the association except for a single loan on a home or combined home and business establishment occupied by him, 4 or from selling loans to the association. 5
'As the defendant was engaged as a real estate broker in buying and selling on his own account notes secured by either first or second trust deeds or mortgages, in providing real estate loans for persons who wished to buy property listed for sale or exchange with or owned by the defendant Howard, he found himself considerably handicapped in dealing with the association. He surmounted that difficulty in large part by operating in the names of third persons, at times with their consent, and sometime without such consent or knowledge. Without disclosing the manner in which he was operating to the board of directors he approved as president and general manager loans or purchases of existing trust deeds or mortgages and as a director voted approval of such purchases or loans in which he had a beneficial interest. These activities on the part of the defendant Howard were directly contrary to the Rules and Regulations issued by the Home Loan Bank Board.
* * *.'
These views of the trial judge were carried into the findings in substantially the foregoing language.
The court further found that in numerous transactions the lending powers of the association and its powers to purchase loans were employed by Howard in making secret profits; that in certain of these transactions defendant caused to be acquired at a substantial discount promissory notes secured by trust deeds with the intent on his part to have such instruments paid for by the association at their face value and to personally receive the profit without the knowledge of the association, and that he was successful in so doing; that Howard concealed his identity and personal interest in these transactions from the plaintiff. In some of these transactions this concealment was effected through the use and identification of F. Marie Shaw, Lillian Marie Russell, and Olivia Mae Daniels. None of these individuals had any personal interest in any of the transactions and acted therein 'as the dummy, agent, nominee or alter ego of Howard.' In handling these purchases, Howard caused the records of plaintiff to show that plaintiff made each such purchase directly from the holder, who endorsed the note and assigned the trust deed securing payment thereof directly to plaintiff. Howard did not appear of record to have any interest therein. In order to further conceal from plaintiff his interest, Howard sometimes caused his profit in such transaction to be paid by plaintiff to Avalon. In other cases he concealed the profit by a check made payable to one of his 'dummies' or caused the check for his profits to be made payable to the seller or to some third person who had no connection with or interest in the transaction without, however, the payee's knowledge or consent. Howard then 'caused such payee's name to be forged as an endorser and received the proceeds' from sucb checks.
Findings IX and X read as follows: IX. 'In none of the transactions could Howard have taken a profit but for his having caused the plaintiff to act within the scope of its corporate powers at some point in the transaction, and in none of those instances could he have so caused it to act but for his position as director, president and general manager.' X.
The court also found that Howard purchased and sold certain real property in the financing of which transactions he made use of the plaintiff and its assets, in that the full purchase price was paid out of the proceeds or loans which he caused the plaintiff to make, each such loan being in an amount in excess of the cost of the property to Howard. He concealed from plaintiff his interest in these transactions by using the names of the persons hereinabove identified and of his real estate company, Avalon, and by means of multiple escrows. Howard never occupied, or intended to occupy, as a home or combination home and business, any of the property, the purchase of which he caused to be financed by plaintiff.
The court further specifically found that 'Howard at no time used any of his own funds or credit in the purchase of such property.' He retained the profit that was made on these transactions.
The court found that Howard, by the same devices as hereinbefore mentioned, procured loans from plaintiff for borrowers and received a fee or commission therefor, but concealed this fact from the association. The court also found that plaintiff did not discover any of the facts relating to its right of recovery from Howard or Avalon, or either of them, until the month of September, 1949, when a summary report of an audit made by the Home Loan Bank Board was presented at a meeting of plaintiff's directors. By reason of concealment, the court found that Howard and Avalon were estopped from urging or asserting the lapse of time as a defense to this action.
Similarly, the court found that Howard and Avalon were indebted to plaintiff for money had and received for its use and benefit in the amounts heretofore stated.
Howard contends, among other things, that there is no evidence of fraud, bad faith, unfair dealings or other acts on his part which support the findings and judgment. It is therefore necessary to briefly summarize the evidence 6 relative to the various transactions:
Count 1: In this transaction one Evans sold a note to plaintiff on which there was an unpaid balance of $1,462.70. He received from plaintiff $1,000, the amount of his demand. After paying the Recorder's fee and escrow expense totaling $62.70 a check for the balance of $400 was made out, on Howard's instructions, to C. R. Ransom, who was a real estate broker. There is no evidence that Mr. Ransom had ever met Evans or that he was entitled to a commission from plaintiff. Although the check bore the endorsement 'C. R. Ransom' it was not, in fact, his signature and he received no funds therefrom. This check was cashed by plaintiff and the proceeds were given to Howard in cash.
Count 2: Amy Gaither listed her property for sale at Howard's real estate office. Howard, acting through Marie Shaw (described in his brief as the 'undisclosed agent of defendant'),...
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