People v. McManus

• Decision Date: 18 April 1960
• Docket Number: Cr. 1421
• Court: California Court of Appeals Court of Appeals
• Parties: PEOPLE of the State of California, Plaintiff and Respondent, v. Phillip Newton McMANUS, also known as Phil McManus, James Floyd Pounds, also known as Jim Pounds, Dick Hause, Ernest W. Freeman, also known as Tom Freeman, Abe Shelley, The Scottie Mortgage and Loan Company, a corporation, and Leroy Ross, Defendants and Appellants.

Page 642

4 Cal.Rptr. 642

180 Cal.App.2d 19

PEOPLE of the State of California, Plaintiff and Respondent, v. Phillip Newton McMANUS, also known as Phil McManus, James Floyd Pounds, also known as Jim Pounds, Dick Hause, Ernest W. Freeman, also known as Tom Freeman, Abe Shelley, The Scottie Mortgage and Loan Company, a corporation, and Leroy Ross, Defendants and Appellants.

Cr. 1421.

District Court of Appeal, Fourth District, California.

April 18, 1960.

Rehearing Denied May 17, 1960.

Hearing Denied June 8, 1960.

Thomas Whelan, San Diego, for appellants McManus and Ross.

Enright, von Kalinowski & Levitt and William B. Enright, San Diego, for appellants Pounds, Hause and Scottie Mortgage and Loan Co.

Stanford & McDonough and Joseph P. McDonough, San Diego, for appellant Freeman.

Reed, Vaughn & Brockaway and Richard L. Vaughn, for appellant Shelley.

Stanley Mosk, Atty. Gen., Elizabeth Miller, Deputy Atty. Gen., James Don Keller, Dist. Atty., San Diego County, John Van Benthem and Jack Lovett, Deputy Dist. Attys., San Diego, for respondent.

SHEPARD, Justice.

This is an appeal from judgments of conviction, orders granting probation, and orders denying motions for a new trial.

Defendants McManus, Pounds, Hause, Freeman, Shelley and Scottie Mortgage and Loan Company, a corporation, hereinafter called 'Company', were charged by an indictment returned by the San Diego County Grand Jury in Count I thereof, with criminal conspiracy to cheat and defraud by criminal means, to obtain money and property by false pretenses and false promises with intent not to perform such promises, and to commit theft, as is set forth in said indictment. Fifteen overt acts were alleged. In Count II thereof, Pounds, McManus, Hause, Freeman and Shelley were charged with grand theft from eleven different victims. In Count III, defendant Ross alone was charged with the crime of receiving stolen property. After a trial commencing September 10, 1958, and lasting until November 22, 1958, the jury found all defendants guilty as charged. The court, on judgment, granted conditional probation to Freeman, Ross, Hause and Shelley, fined the corporate defendant $5,000, sentenced Pounds and McManus to state prison, and imposed fines of $5,000 and $8,500, respectively, on Pounds and McManus. Each defendant appeals.

The huge mass of details produced in more than two months of the trial, recorded in more than five thousand pages of transcript, is such that it is not feasible to recount it except in general effect. In general essence, it is as follows:

In October, 1956, defendants Hause, Freeman and Pounds organized the defendant corporation, Scottie Mortgage and Loan Company, whose principal purpose was to act for investors as a so-called 'builder's control' company. Said defendants caused written information to be disseminated among prospective investors that the investor would receive for his money a note secured by a first trust deed and that his invested money would be kept in a special trust account to be paid out solely for the construction of designated buildings on the particular lot described in the trust deed security. The Company also guaranteed that if the builder failed to complete the particular building involved, Company would do so. Builders were informed that if they would execute notes and deeds of trust on properties where construction was planned, Company would sell such securities, withhold from the sale money a 10% commission and place the balance in a trust account for use solely on construction expenses. Material and service suppliers were informed that their compensation for services and materials was to be paid from the money held in trust.

Substantial amounts were withdrawn from said trust funds by all with the connivance of various defendants at different times, for uses other than those designated in the information thus disseminated to the public. Trust funds were often withdrawn and commingled with the Company funds. Both trust funds and Company funds were on many occasions diverted to the private purposes of some of the defendants. Despite the fact that some funds withdrawn were from time to time replaced, the net and final result of these improper withdrawals was complete exhaustion of both the trust funds and the Company funds, thus many of the building were not completed, with corresponding loss of security to investors, builders and materialmen.

Testimony regarding purchases by investors under these general representations, where the building was either never started at all or remained uncompleted, appears to cover about eighteen buildings, although the improper shuffling of trust funds with the Company funds numbered many more. Involved in some of these transactions were many checks issued without sufficient funds in an apparent attempt to temporarily placate some investors, materialmen or builders.

Testimony was received regarding ten different building materials and services suppliers whose deliveries of building supplies had apparently been made on the representation regarding money held in trust and had received bad checks that were never made good or no move at all was made for payment of balances due.

Testimony was adduced regarding several builders who started construction in reliance on the information that the monies received from the trust deed notes on the lots on which such builders were to construct buildings, would be placed in the trust fund to insure availability of funds to do the construction. In many cases these builders ultimately found that such money had disappeared from the trust fund and that no money was available for construction.

Testimony was received regarding the withdrawal or participation in the proceeds of withdrawal from the trust fund for purposes contrary to the trust promises in various sums. These involved withdrawals of $3,500, $5,000, $5,000 and $1,500 to the Company general account by McManus between February and May of 1957, and a final large sum to Hause when Hause sold out in May. Freeman participated in this transaction, instructing the withdrawal from the trust fund. The Company funds were often overdrawn and trust funds transferred to meet these overdrafts. While some of these transfers were replaced, there was testimony that the trust funds were still short a net of $6,500 at the time Hause left in May of 1957. After Hause left, McManus assumed the presidency and continued the practice to the extent of the withdrawal of fourteen trust fund transfers to the company funds, totaling $46,800 from May, 1957, to January, 1958. January 27, 1958, Pounds caused $600 to be drawn from the trust fund to make a payment on his private airplane. Some of the money transferred during this last eight-month period from May, 1957, to January, 1958, was returned, but testimony was given to the effect that a net deficit of $22,300 remained in trust fund accounts at the time McManus left the presidency in January, 1958. At that time Pounds took over the presidency of the Company and $8,000 was received into the trust fund account from sales of securities and was all used contrary to the trust purpose, going either into Pounds' personal use or to general Company expenses.

Testimony was further received that during 1957 McManus used one H. E. Heineke as a front to buy at tax sale certain lots of questionable value at Elsinore. McManus caused Heineke to deed seven of these lots to the Company; had Heineke endorsed a $28,000 Company check (payment for the lots) back to McManus as an individual. McManus then deposited the check to his own personal account and drew a check to the Company in like amount, depositing it in the Company account and retrieving from the Company his $28,000 note originally given in part payment in buying out Freemn's stock. Neither the Company account nor McManus' personal account had in it sufficient funds to pay this check during any of the time these $28,000 checks were moving around. Several witnesses valued the lots at some $50 each up to possible maximum amounts of $700. However, it appears that McManus bought all nine lots for $815 as against the $28,000 he took from the Company for them.

In August, 1957, Freeman persuaded W. L. Prunty to take title to a lot, signing a first trust deed and mortgage for $7,500 and a second for $4,500 thereon. Prunty was paid $25 for acting as dummy in this transaction. During the same month, Freeman engineered a similar transaction with N. B. Martin. Other similar dummy transactions appear in the testimony in connection with Freeman, McManus or Pounds. Some were sold at a discount and some traded for other property.

Testimony, apparently to show a previous pattern of conduct by McManus and Ross, was received that in 1954 McManus acquired six acres in Riverside County at a tax sale, for the sum of $60. Less than three months later, defendant Ross took title for a purported price of $3,000, giving McManus a deed of trust and note for $2,500 for purported unpaid purchase price. This was traded to a Mrs. Macknicki as a down payment on the purchase of her home by McManus. Ross never made any payments on the deed of trust nor in any way contacted Mrs. Macknicki, nor do the records show that he ever again evidenced any interest in the property. After Mrs. Macknicki foreclosed, she found the property to have little or no saleable value.

In 1954 McManus bought for $25 a sliver of land about 190 feet long, 20 to 26 feet wide at one end and tapering to a point at the other end, at Stockton, California. The previous owner had purchased it for $1. In purchasing from W. V. McStay a house and lot in La Mesa, McManus used Heineke as a dummy buyer, told McStay the lot in Stockton had been sold for $2,500 to an Opal Davidson with a trust deed back for $1,600 as balance of the purchase price, on which $17 had been paid by her. He traded this trust deed to McStay, receiving a credit on the purchase price of McStay's home in the...