In re Rogal

• Citation: 112 F. Supp. 712
• Decision Date: 18 May 1953
• Docket Number: No. 54382.,54382.
• Court: U.S. District Court — Southern District of California
• Parties: In re ROGAL.

112 F. Supp. 712

In re ROGAL.

No. 54382.

United States District Court S. D. California, Central Division.

May 18, 1953.

COPYRIGHT MATERIAL OMITTED

Fendler, Weber & Lerner, by Daniel A. Weber, Beverly Hills, Cal., for Martus Rogal petitioner on review.

Craig, Weller & Laugharn, by Thomas S. Tobin, Los Angeles, Cal., for E. A. Lynch as trustee in Bankruptcy, respondent on review.

YANKWICH, Chief Judge.

On June 9, 1952, Sadie Rogal was adjudicated a bankrupt on a voluntary petition. On the same day, three of her sisters with whom she had been associated in the conduct of a partnership known as Summit Furniture Manufacturing Co., (also adjudicated a bankrupt on a voluntary petition dated April 14, 1952), were adjudicated bankrupts. The petitions and the schedules listed the ownership by each of the four sisters of an undivided one-fourth interest in certain improved business property in the City of Los Angeles, subject to certain encumbrances. The claim of one of the sisters to another residential property (known as the Oakwood Street property), will be referred to later on in the discussion.

In the petition of one of the sisters, Elizabeth Rogal, the following legend is attached to the description of the business property:

"The above described real property was transferred to petitioner and her three sisters, Victoria Rogal, Sadie Rogal and Sara Rogal, by her father, Martus Rogal, under an agreement with said Martus Rogal."

On July 9, 1952, Martus Rogal, the father, filed a petition to impress a trust on both pieces of real property. He alleged that on August 31, 1951, he executed a deed to the four daughters as joint tenants for his own benefit. He amplified that, suffering from what is known as Parkinson's disease, and relying trust and confidence in the daughters, and to relieve him of the cares and problems incident to the management of the property, he and the daughters orally agreed that they would manage, operate, and maintain and assist in the managing of the property, and that he would, at all times, remain the beneficial owner of the property and its income. The trusteeship was terminable at will, and they agreed that, when requested, they would, at any time, reconvey or quit-claim to him on demand any and all rights conveyed to them or the income or proceeds from it. Such net income as they received from the property was to be applied towards the support and maintenance of the petitioner and the payment of his medical bills.

I The Question Involved In The Review

The petition alleged that on March 28, 1952, the bankrupts repudiated and violated the trust and executed and delivered to Pacific Factors Corporation (to be referred to as Pacific) an unacknowledged deed of trust upon the property, naming California Trust Company as trustee and Pacific as beneficiary to secure a pre-existing purported indebtedness from the partnership bankrupt to Pacific in the sum of $25,000.00.

Other allegations dealing with the coercive methods used against the sisters by Pacific to secure the execution of the instrument need not concern us, because the hearing on the petition was confined to the existence of the trust and did not concern itself to any extent with the validity of the encumbrances which the bankrupt sisters placed on the property.

Somewhat similar allegations were made as to a residential property located at 4007 Oakwood Avenue, Los Angeles, California, which the petition alleged was purchased on April 1, 1947, and caused to be placed in the name of Elizabeth Rogal, one of the individual bankrupts, and another daughter, Lee Rogal Copeland, as joint tenants. As to it, it was alleged that the petitioner was to remain the beneficiary, and that the grant was made in trust for his use and benefit. Violation was alleged by Elizabeth Rogal through execution of a deed of trust to Pacific on March 28, 1952. Elizabeth Rogal, in her schedules, listed the one-half interest in the residential property, subject to a deed of trust in favor of the Bank of America and homestead rights claimed by her.

II The Facts Before The Referee

The Referee issued an Order to Show Cause. The trustee appeared. His Answer denied the allegations of the petitioner. A hearing was had before the Referee.

The hearing disclosed that both properties were paid for by the petitioner. In addition to the listing of the properties as assets of the individual bankrupts, there was offered in evidence the fact that the bankrupts, through their manager, Sidney Weiss, in statements to Dun & Bradstreet, made for credit rating purposes which Dun & Bradstreet issued to the trade under dates of October 19, 1951, and February 26, 1952, listed the commercial building at a value of $40,000.00 and encumbered by $12,000.00.

Following a request for additional credit by Tropical and Western Lumber Company, (to be referred to as Tropical), through their credit manager, John C. Walsh, the four sisters signed a letter dated February 22, 1952, which listed the business property as owned by the four partners and its value at the time of purchase as $30,000.00, with a mortgage in the sum of $15,293.66. The Oakwood Street property was listed as owned by Elizabeth Rogal and Lee Rogal Copeland, who is not involved in the bankruptcy. Its value at the time of purchase was given as $17,500.00, with a mortgage on which there was due as of February 4, 1952, the sum of $7,553.46. The credit manager stated that, as a result of this investigation and this representation, he extended the credit to an amount of $7,337.99, which is an unpaid claim in the estate.

The petitioner testified at the hearing and stated, in substance, that he had purchased the properties and, because of his ill health, put them in the name of his daughters in trust for his benefit.

It was stipulated that, before extending credit, Tropical did not search the title to the property. Walsh testified that he had no knowledge of the deeds, but that he relied on the written representation contained in the Dun & Bradstreet reports, which he had seen, and in the letter signed by the four daughters.

This, in substance, is all the evidence the Referee allowed. The petitioner offered to prove that he did not, at any time, know that the sisters had claimed the property as their own, or that they had obtained credit on that basis. To the offers to prove these and other allegations of trust relationship, which have been summarized above, objection was sustained by the Referee upon the ground that the creditors had the right to rely on the public record. He stated, in sustaining the objection:

"People have an absolute right to rely upon the authenticity of public records. That is what they are for."

In the Memorandum Opinion filed in the case on November 17th, 1952, he placed his decision on the representation made in the letter. The brief memorandum, omitting the direction for findings at the end, reads:

"In this matter it appears that the Rogal sisters wrote a letter to a creditor, a lumber company, stating unequivocally, and without any limitation whatsoever, that they were the owners of the property in question, and in view of this positive statement to a creditor, I cannot hold that the property was held in trust for their father Marcus Rogal, but on the contrary, hold that this property is an asset in the bankrupt estate."

On November 26, 1952, the Referee signed a formal Order denying the petition. The Findings recite that the property was purchased by the petitioner. But they declare that the representation made by the sisters to Tropical, to Dun & Bradstreet by their manager, and the later representation by the sisters in the letter to Walsh, and their reliance on them caused them to act to their detriment, and that the petitioner, having recorded the deeds, without a declaration of the existence of a trust in them, and having permitted his daughters to hold out the real property as their own, is estopped from asserting a trust in either property as against Tropical and the trustee in bankruptcy. Elizabeth Rogal's homestead rights to the residence were recognized.

III

Resulting Trusts In California

This extensive outline presents a simple question:

Was the Referee right in denying to the petitioner the right to prove the existence of the trust and that the trust was recognized through continuous use of the income from it and payment by the petitioner of taxes and cost of upkeep, and that he did not authorize the daughters to claim and did not know, at any time, that they claimed the property and secured credit on the basis of such claim?

We dispose at the outset of the question whether, assuming the Findings to be correct, the property should be held for the benefit of all the creditors, or impressed with a lien in favor of Tropical only.

Ever since Moore v. Bay, 1931, 284 U.S. 4, 52 S.Ct. 3, 76 L.Ed. 133, was decided, the recognized rule in bankruptcy has been that, if a conveyance of property is declared invalid in a suit of the trustee at the behest of one creditor, the benefit inures to all. The meaning of Moore v. Bay, supra, was summed up by Mr. Justice Cardozo in a later case, Buffum v. Peter Barceloux Co., 1933, 289 U.S. 227, 234, 53 S.Ct. 539, 542, 77 L.Ed. 1140, in one sentence:

"What the trustee recovers will be for the benefit of all."

Commentators agree that this is a correct and logical application of the principle that the trustee, when he brings or retains in the estate property at the behest of one of the creditors, the other unpaid creditors share in the event that the property exceeds the claim of the particular creditor. Collier on Bankruptcy, 14th Ed., Vol. 4, Sec. 70.95. In this respect, the Referee was right in holding that the trustee could retain the property for the benefit of other creditors than Tropical. But the Referee was wrong in his premise in holding that the placing of title in the name of the daughters and their representation of it as their own...