Federal Land Value Ins. Co. v. Taylor

• Decision Date: 23 February 1932
• Docket Number: No. 6515.,6515.
• Parties: FEDERAL LAND VALUE INS. CO. v. TAYLOR.
• Court: U.S. Court of Appeals — Ninth Circuit

56 F.2d 351 (1932)

FEDERAL LAND VALUE INS. CO. v. TAYLOR.

No. 6515.

Circuit Court of Appeals, Ninth Circuit.

February 23, 1932.

Corbet & Selby and Simeon E. Sheffey, all of San Francisco, Cal., for appellant.

Sullivan, Roche, Johnson & Barry, James F. Brennan, and T. G. Negrich, all of San Francisco, Cal., for appellee.

Before WILBUR and SAWTELLE, Circuit Judges, and McCORMICK, District Judge.

WILBUR, Circuit Judge.

Agnes E. Taylor, appellee, brought this action to recover from the Federal Land Value Insurance Company certain mortgages and notes which she alleged were conveyed to it by her in accordance with the terms of an express trust for the purpose of deposit with the treasurers of the states of Nevada and California, as required by the insurance laws of these states, as a condition precedent to the doing of the insurance business. The appellant claims that the transfers were made to it in consideration of stock issued by the corporation to the appellee. This contention constitutes the principal issue in the case. The arrangements with the appellee were made by W. P. Netherton, who organized the appellant corporation, and appellant contends that, notwithstanding that the court may determine that as a matter of fact there was an express trust with reference to the property as between appellee and Netherton, Netherton transferred the property to the corporation on an entirely different arrangement, namely, an exchange of the property which had been assigned to him in the first instance, for stock of the corporation, and that by this breach of trust on the part of Netherton a constructive trust arose in favor of appellee, but that her right to enforce this constructive trust has been barred by the three-year statute of limitations. Appellant further contends that appellee, having intrusted her property to Netherton with the indicia of ownership, is estopped from recovering the property from the corporation to which she transferred it by reason of the subsequent sale by the corporation of its corporate stock to other stockholders who purchased in the faith of the apparent ownership of the property by the corporation, and also that, the property having been deposited with the treasurer of the state of California in pursuance of the original agreement entered into between the appellee and Netherton, the judgment of the trial court requiring the appellant to turn over the property to the appellee is erroneous, for the reason that the property cannot be turned over without prejudicing the rights of policyholders who have contracted for policies of land value insurance upon the faith of such deposit. Before further considering these contentions, a more detailed statement of the facts is necessary.

Agnes E. Taylor is a widow, who at the time of the trial was 74 years of age. Her husband died August 20, 1923, leaving her property of the value of about $200,000. Up to the time of her husband's death, she had transacted no business of any consequence. She had lived with her husband for forty years upon a ranch near Byron, Contra Costa county, Cal. She had known W. P. Netherton from the time he was 16 years of age. She and her husband had financed his education. He became an attorney, and thereafter acted for the husband, and, after his death, for the widow. He probated the estate of the husband and continued to act as Mrs. Taylor's attorney until November 20, 1929, about thirty days before this suit was instituted. During all this time Mrs. Taylor had implicit confidence in W. P. Netherton. She neither had nor sought any independent advice in any of the transactions involved in this matter until shortly before the bringing of this suit. Her only son lived in New York; her brother-in-law, considerably older than herself, was mortgagor in two of the mortgages which were transferred by appellee to Netherton and are part of the subject-matter of this suit. This brother-in-law was not consulted by appellee. Mrs. Taylor's testimony is undisputed, except in so far as written documents signed by her and the records of the appellant corporation tend to contradict her testimony, although such testimony does not in fact contradict anything testified to by Mrs. Taylor, for the reason that she disclaimed all knowledge of the contents of the various documents signed by her, although freely admitting that she did in fact make the signatures appended thereto; her statement being that Netherton told her that it was all right for her to sign the documents, that they would not affect her right to the return of her securities and to the receipt of the income derived therefrom during the possession of these securities by him for and on behalf of the corporation, in accordance with his original statement and agreement made by him at the time he secured her consent to the use of the mortgages and property already in his possession as her attorney, for the purpose of utilizing the same as security for the proposed corporation which was subsequently organized, and is the appellant.

With reference to the claim by the appellant that the testimony of Mrs. Taylor is wholly incredible, it is sufficient to say that there is no inherent improbability in her story, if we believe, as she testified, that she had such implicit confidence in Netherton that she accepted his statements without even investigating the contents of the documents which she signed. In short, he said it was all right and she believed him. The transactions, considered as a whole, seem to bear out this contention, as will be disclosed by further amplification of the evidence, which shows that at all times Mrs. Taylor continued to receive the interest on her notes and mortgages collected by Netherton as theretofore; that, in the correspondence concerning overdue interest upon the mortgages theretofore transferred by Mrs. Taylor to Netherton and by him to the appellant, the obligations were referred to by Netherton, who was president of the appellant, as still belonging to Mrs. Taylor, notwithstanding the assignment. After the payment of over $7,000 in interest to Mrs. Taylor, as it accrued upon the notes and mortgages assigned by her to Netherton at the time it was collected by Netherton, Mrs. Taylor was induced to sign a note to the appellant corporation for the exact amount of the interest which had theretofore been collected by Netherton for her. She testifies she did not know she was signing a note; that she had accepted the interest at all times as hers. There is no basis whatever for this situation other than the explanation given by the plaintiff that, notwithstanding the assignment of the notes and mortgages by her to Netherton, they were understood to be hers subject to the right of possession by the treasurers of the states of California and Nevada as security required by law from the appellant corporation. There is no proof and no claim that she ever received any money from the corporation in any other manner nor for any other reason than because of the receipt by Netherton of interest on the obligation which had been transferred by her to the corporation. Netherton was made a defendant in the case, and defaulted, and at the trial he did not testify, presumably because he was too ill to do so. Mrs. Taylor testified that she never made any contract or arrangement with Netherton in regard to the mortgages and notes she turned over other than the agreement that they would be returned to her upon demand, and that she would be paid the interest thereon as it accrued and that in the meantime these securities should be deposited with the state treasurer as required by law to enable the appellant corporation to transact insurance business. She testified that she did not agree to accept stock in the corporation, that she was not asked to do so, had no knowledge of the issuance of stock, never had possession of the certificates, and, although she signed receipts for the certificates, she did not receive them and did not know that the instrument she had signed was a receipt for certificates of stock, because she made no effort to ascertain the fact and relied implicitly upon the statement of Netherton that signing these instruments would not change the situation nor affect her interest in any way.

The trial court was amply justified in concluding that Netherton was the trustee of an express trust by which he received and held the mortgages of the appellee in trust for her, to collect the interest for her and deposit the mortgages with the treasurers of the states of Nevada and California to be returned upon demand. She received no consideration for the transfer of her mortgages and notes and asked none.

We will next address ourselves to the question of the relationship of the appellant corporation to the appellee in so far as it affects the right to the property concerned in this litigation.

Mrs. Taylor transferred three mortgages aggregating $42,533.66 to W. P. Netherton on December 2, 1925, to be used as security for a corporation thereafter to be formed by Mr. Netherton, all as hereinbefore stated. On April 9, 1926, Mr. Netherton went to Reno, Nev., organized the Federal Land Value Insurance Company, of which he was president. Dummy directors were installed to do his bidding, by-laws were adopted in accordance with his desires, and in accordance with his plan 1,000 shares of stock were issued to him ostensibly for a release of his interest in and to the securities intrusted to him by the appellee, in which he had in fact no beneficial interest whatever. At the time of this purported transaction, Netherton was not only in entire command of the situation as president of the corporation, and as its sole prospective stockholder, but also because of the fact that the dummy directors were selected by him for the purpose of formally acting upon and recording the purported transaction. He knew at that time that he had no interest in the mortgages intrusted to him, he...