Hurley v. Southern California Edison Co., 12278.

• Decision Date: 09 August 1950
• Docket Number: No. 12278.,12278.
• Citation: 183 F.2d 125
• Parties: HURLEY v. SOUTHERN CALIFORNIA EDISON CO., Limited.
• Court: U.S. Court of Appeals — Ninth Circuit

183 F.2d 125 (1950)

HURLEY v. SOUTHERN CALIFORNIA EDISON CO., Limited.

No. 12278.

United States Court of Appeals Ninth Circuit.

May 25, 1950.

Rehearing Denied August 9, 1950.

COPYRIGHT MATERIAL OMITTED

Thurman L. McCormick, Kansas City, Mo., and Harold Easton, Los Angeles, Cal., for appellant.

Chas. E. R. Fulcher, Carol G. Wynn, Fulcher & Wynn, Los Angeles, Cal., for appellee.

Before STEPHENS, ORR and POPE, Circuit Judges.

POPE, Circuit Judge.

This was an action brought by the appellant, Lester W. Hurley, against the appellee, Southern California Edison Company, Limited, here called the Company, to require it to account for dividends on its stock, and certain stock rights, which Hurley asserts the Company paid out and delivered to the wrong person.

On November 20, 1928, Hurley was a minor of the age of 20 years. He resided, and still resides, in the State of Missouri. His mother had died previous to that date. Elizabeth J. Price, wife of William Price, and then a resident of California, was his grandmother. Hurley's mother, and his uncle, George E. Burton, were children of Elizabeth J. Price by a former marriage.

On the date mentioned William Price, theretofore the owner of the shares of stock here described, caused the appellee Southern California Edison Company to issue in the name of Elizabeth J. Price, George E. Burton, and the appellant, Lester Hurley, as joint tenants with full right of survivorship, certificates evidencing ownership of shares of the common and of the preferred stock of the Company. The certificates so issued were delivered to the grandmother, Elizabeth J. Price. Hurley knew nothing of these certificates, or that he was listed as a part owner of these shares until after his grandmother's death, some 15 years later.

Prior to the issuance of these certificates, Elizabeth J. Price requested Hurley to sign two dividend orders in blank on forms provided by the Company. Hurley had no knowledge of their purpose, and signed them gratuitously. They were delivered to the Company on December 11, 1928, and as delivered bore the signatures of the three joint owners, Elizabeth J. Price, George E. Burton, and Hurley. They requested payment of all dividends to Elizabeth J. Price.¹ One was dated November 19, 1928 and listed 575 shares of common stock. The other was dated November 22, 1928, and listed 88 shares of common and 191 shares of series B preferred stock.

Less than a month later William Price died. Two weeks later, and on January 19, 1929, Elizabeth J. Price caused a bank at Kansas City, Kansas, where she was following her attendance at her husband's burial in Missouri, to forward the certificates for the 575 shares of common stock to the Company with assignments attached purporting to be signed by the three joint owners, including Hurley, and purporting to assign the 575 shares to "Mrs. Elizabeth J. Price or George E. Burton". The Company returned the papers to the bank with the request that the signatures be guaranteed. They were again forwarded to the Company with the bank's guarantee of the signatures of Mrs. Price and Burton. The Company sent them back again with suggestion that the transferee designation be changed to joint tenancy form and that Hurley's signature be guaranteed. The bank then altered the designation to read: "Elizabeth J. Price and George E. Burton, as joint tenants, with full rights of survivorship", and added its guarantee of the signature of Hurley. Upon receipt of the altered assignment the Company transferred on its books the 575 shares to Mrs. Price and Burton as joint tenants.

Elizabeth J. Price died on December 27, 1943. It was after her death that Hurley first learned about the stock. He demanded of the Company one-third of the stock and one-third of all dividends and stock rights. Burton then brought in the United States District Court for the District of Kansas an action to determine the ownership of the 575 shares. Hurley filed a cross-petition upon which he was adjudged owner of an undivided half interest in the 575 shares. An attempt by Burton to make the Company a defendant also did not succeed, and it was not a party. That court determined both that Hurley was a minor at the time of the purported assignments and that his signatures on the assignments had been forged.

The lower court held that the judgment of the district court for the district of Kansas was res judicata here and conclusive of the fact that the signature to these assignments had been forged. The court below also found that Hurley remained ignorant of his ownership of any interest in the stock of the Company until March 18, 1944, when he first learned of what his grandmother had been doing with the stock. It was then that he promptly disaffirmed the dividend orders, and the purported transfers.

But in the period from November 20, 1928, when the stock was first issued in the names of the three joint tenants, until the date of Mrs. Price's death, all dividends paid upon the stock, and also all stock rights declared and set aside to the owners of the stock, had been paid and delivered to Mrs. Price. After the purported assignment of the 575 shares to Mrs. Price and Burton (upon which the court held Hurley's signature was forged), Burton had executed a dividend order directing payment of dividends to Mrs. Price. The aggregate value of the dividends and stock rights received by Mrs. Price on the 575 shares was $20,458.50, and on the other stock, common and preferred, $3,175.04. In this action Hurley has sued the appellee Company to recover one-third of these amounts, which he asserts was wrongfully and unlawfully paid or delivered to Elizabeth J. Price.

The facts thus summarized were set forth at length in the district court's findings. The court found that the Company had no actual knowledge of the fraud perpetrated on Hurley by his grandmother and that it "had no reason to believe that any fraud was being, or had been, so perpetrated". The court concluded that on these facts Hurley would be entitled to recover "if Section 1475 of the California Civil Code were not applicable in this case", but that "pursuant to the provisions of Section 1475² . . . defendant discharged its obligations to the plaintiff as an owner in joint tenancy of stock in the defendant corporation by its payment of dividends to and delivery of stock rights to, or upon the order of, Elizabeth J. Price, joint tenant and joint obligee".

In support of the court's conclusion the Company points out that if we assume, as the court held, that at all the times when dividend payments were made, and stock rights delivered, Hurley was one of three joint owners of the stock, the payments made to Elizabeth J. Price, one of the joint owners were within the exact terms of the statute, — it was a "performance rendered to one of them," and the obligation to pay dividends or assign stock rights was thereby extinguished.

Hurley says that the statute has no such application; that as enacted it is subject to the qualifications and exceptions which were recognized in such cases by the common law, of which the statute was intended to be declaratory,³ and that the facts here are such that under the common law rule, and the rule applied by the California courts, the statute on which the court relied is not applicable. It is pointed out that in the case of Cober v. Connolly, 20 Cal.2d 741, 128 P.2d 519, 521, 142 A.L.R. 367, in applying this section, the Supreme Court of California recognized that there were exceptions to be read into the statute, for the court there stated the rule in the language of sections 130 and 131 of the Restatement of the Law of Contracts, as follows: "Section 130 of the Restatement of the Law of Contracts provides: `Except as the rules of this Section are qualified by section 131 * * * a discharge by a joint obligee of his individual right operates as a discharge of the joint right of all.' Section 131 reads: `* * * A discharge of the promisor by an obligee in fraud of a co-obligee is inoperative to discharge the promisor's duty to the extent of the co-obligee's interest in the performance, if the promisor gives no value or knows, or has reason to know of the fraud.'"

The California court also referred to Williston's statement of the same rule which is expressed in the statute.⁴ Williston states the exception as follows: "But even though a release of a joint right by one obligee is made in the exercise of a clear legal power, it would seem that if the release were intended and known to be intended as a fraud on the rights of other obligees, the obligor could not be allowed to set up his legal defense as a bar to an action by the defrauded obligee."

It seems clear from what was said of the statutes in Cober v. Connolly, supra, that the statute would not be held to furnish a defense in every case where the obligor rendered performance to one of several joint owners of an obligation. When the receipt of performance by the one joint owner alone is intended to be, and known by the obligor to constitute "a fraud on the rights of other obligees", the obligor is not discharged under the code rule. As stated in section 131(2) of the Restatement, this is the result if the promisor "has reason to know of the fraud".

There is authority to support the view that "fraud", as here expressed, may consist merely of the intended retention of the benefits of performance by the one joint obligee, and exclusion of the others therefrom. Thus, the Restatement supplies the following illustration of the rule stated in section 131: "A, B and C are severally, jointly, or jointly and severally entitled to have D pay them $1000. The money when received by them is by their arrangement with one another, to be shared equally. D knows of this arrangement. A gives D either a release which purports to discharge A's individual right, or a release which purports to discharge the rights of A, B and C. The consideration in either case is a...