Weingand v. Atlantic Sav. & Loan Assn.

• Decision Date: 30 January 1970
• Citation: 464 P.2d 106,1 Cal.3d 806,83 Cal.Rptr. 650
• Court: California Supreme Court
• Parties: , 464 P.2d 106 Alvin C. WEINGAND et al., Plaintiffs and Respondents, v. ATLANTIC SAVINGS AND LOAN ASSOCIATION et al., Defendants and Appellants. L.A. 29644.

Page 650

83 Cal.Rptr. 650

1 Cal.3d 806, 464 P.2d 106

Alvin C. WEINGAND et al., Plaintiffs and Respondents, v. ATLANTIC SAVINGS AND LOAN ASSOCIATION et al., Defendants and Appellants.

L.A. 29644.

Supreme Court of California In Bank.

Jan. 30, 1970.

Fitzpatrick & Wiley, Chester M. Oksner, Los Angeles, Griffith & Thornburgh, Santa Barbara, for defendants and appellants.

Price, Postel & Barma, H. Clarke Gaines, Charles W. Willey, Lillian M. Fish and Timothy A. Whitehouse, Santa Barbara, for plaintiffs and respondents.

McCOMB, Justice.

This is an appeal from an order dated June 20, 1967, granting a preliminary injunction restraining defendant Atlantic Savings and Loan Association from foreclosing a deed of trust on San Ysidro Ranch in Santa Barbara County. The only issue on appeal is whether the trial court abused its discretion in granting the preliminary injunction. This is the fourth time that this order has been before an appellate court. Trial on the main action has not yet been held.

The injunction hearing was held on the pleadings, affidavits and oral argument. The main thrust of the complaint was that certain defendants conspired to defraud, and defrauded, plaintiffs and that the gross negligence of defendant Atlantic Savings and Loan Association made the perpetration of this fraud possible, thus depriving plaintiffs of their security. The prayer sought alternative forms of relief, including a declaration that Atlantic's deed of trust was void from the inception; that it was a cloud on title; that it should be delivered up for cancellation and the property reconveyed; that plaintiffs be declared and determined to receive the assets of defendant San Ysidro Ranch Corporation free and clear of Atlantic's deed of trust; and for 'such other and further relief as the court may deem just, equitable and proper.' At the hearing the contention was made that if Atlantic's deed of trust not be declared void, that it be declared junior in interest to plaintiffs' interest.

Plaintiffs, husband and wife, had for many years been the owners of all of the outstanding capital stock of San Ysidro Ranch Corporation and associated with the management of its principal asset, a 500-acre guest ranch and resort hotel. In July 1965 defendants Preston Kerr and Fleming Brokerage Co., a corporation, offered to buy all of plaintiffs' stock. Plaintiffs' counteroffer was accepted. It was conditioned upon a warranty that the financial statement furnished by Fleming Brokerage was accurate, and called for a purchase price of $583,000. The terms were the payment of $150,000 cash on consummation of the transaction; the execution of two promissory notes each in the principal sum of $190,989.18, each payable at the rate of $1700 per month; the payment of plaintiffs' indebtedness to San Ysidro of $75,000; security for payment of the notes was a pledge of the stock of San Ysidro and, secondarily, a second deed of trust on other property. (The first deed of trust on that property was subsequently foreclosed, making plaintiffs' second deed of trust thereon valueless.) The Pledge Agreement provided that so long as any part of the in- debtedness secured by it remained unpaid the corporation would not sell or lease its property or any substantial part thereof other than in the ordinary course of trade to pledgors or either of them; that the corporation would pay no dividends, except cash dividends which would be applied to the payment of the indebtedness to plaintiffs; that it would not pay salaries or other compensation to either pledgor or to any officer, etc. of Fleming Brokerage (with exceptions not here pertinent); and that pledgors would 'not do or suffer any manner or thing whatsoever whereby the liens of this Agreement might or could be impaired until the obligation hereby secured together with all interest accrued thereon and all other claims hereunder shall be fully paid, satisfied and discharged.' Plaintiffs did not request a security interest in the ranch property, relying on the pledge agreement and its limitations on the activities of San Ysidro. ¹ The agreement was signed by defendant Carl Long as president of Fleming Brokerage, and by defendant Preston Kerr, secretary of Fleming Brokerage, as an individual. A policy of title insurance was recorded at 7:30 a.m. on September 23, 1965, which showed title to the ranch in San Ysidro. The next afternoon the stock transaction was completed, plaintiffs received some $140,000 cash and they delivered to these defendants the stock, corporate seal and records. Net worth of the stock at that time was $582,829.74. The land was appraised at $700,000.

Unknown to plaintiffs at the time the negotiations were going on and when they were consummated, and not discovered by them until some 17 months later when Kerr and Fleming Brokerage defaulted on their notes to plaintiffs and San Ysidro became insolvent, were the following facts. Long and Kerr had misrepresented to plaintiffs the financial condition and contingent liabilities of Fleming Brokerage Company. Fleming Brokerage was even then in serious financial difficulties and later became involved in much litigation. In early August 1965 Long and Kerr, without the knowledge or consent of plaintiffs, had applied to defendant Atlantic Savings and Loan Association for a sizeable loan on the ranch. They were neither stockholders, directors, or officers of San Ysidro, and had no actual or ostensible authority to act in its behalf. They represented to Atlantic that Long was the president and authorized representative of San Ysidro and that defendant Romanik (their attorney in the stock purchase) was the attorney for the corporation. An undated Certificate of Organization Borrower (Atlantic's printed form) executed by Long only, with no corporate seal or other corporate signature attached, stated that he was the president of San Ysidro and was authorized to make the certificate for and on its behalf, for the purpose of obtaining a loan or loans, that Atlantic was entitled to rely thereon in making the loans applied for; and that 'the substantial stockholders of said applicant, if it is a corporation, or the major owners of said applicant, if it is any other type of business entity, are as follows: Carl Long.' This was executed under penalty of perjury. The borrowers' statement, executed by him, declared that 'I expressly represent that I own or will purchase at the time your loan is completed the premises described (San Ysidro ranch) in the deed of trust.' Plaintiffs alleged, on information and belief, that spurious minutes were prepared by defendants, one purporting to be a stockholders' meeting held in Romanik's office by Fleming Brokerage and Kerr at which Carl Long, his wife Maria, and Gladys Frank were 'elected' directors; and the other purporting to be a directors' meeting at which Long was 'elected' president, Gladys Frank secretary and Romanik treasurer. Preston Kerr was 'employed' as general manager and the corporation was 'authorized' to borrow $825,000 from Atlantic and to give as security therefor a deed of trust, with assignment of rents, on the ranch as security.

On September 16, 1965, Long as 'president' of San Ysidro executed a promissory note to Atlantic in the sum of $825,000 and executed a deed of trust on the ranch as security therefor. Notarial certificate was attached that he was known to the notary to be president of San Ysidro. The papers had been prepared by Atlantic and forwarded to Romanik, as attorney for San Ysidro, for his approval and for due execution by the corporation. The only signature appended was that of Long's. It bore no corporate seal. On September 24 it was redated and reacknowledged and bore a seal purporting to be that of San Ysidro. This transaction was completed and the deed of trust was recorded 8 a.m. on the morning of September 24, 1965. It was not until six hours later that same day that the stock transaction was completed and the corporate seal, stock and books were transferred to Kerr and Long. No disclosure of any of these facts was made to plaintiffs.

The trust deed provided that it was security for the $825,000 loaned to San Ysidro and for future advances. $391,000 of the proceeds were directed to be paid into another escrow. The following month an additional $60,000 was advanced on the security of the trust deed. On November 30, 1965, the trust deed was reacknowledged by Long as president of San Ysidro and rerecorded. At the hearing the validity of the notarial certificate by Gladys Frank (who was apparently an officer of San Ysidro after defendants acquired it), was argued. On its face the certificate appeared to be valid. No evidence was adduced that subsequent stockholders' or directors' meetings had been held purporting to validate or ratify the acts of Long in negotiating for the loan and executing the trust deed. Reliance was apparently placed by Atlantic upon the rerecordation of the deed of trust. Validity of the notarial certificate and of the trust deed itself are of course issues going to the merits and cannot be determined on this appeal.

Subsequently Long and Kerr borrowed over $240,000 secured by trust deeds on the ranch property; some of the property was sold for delinquent taxes; the corporation was unable to pay its creditors, secured or unsecured; default occurred on the obligations to plaintiffs and to Atlantic; and the corporation property ceased to be operated as a guest ranch and resort hotel. Its use for this purpose was an antecedent nonconforming zoning use, and the zoning privilege was subject to being lost and the property restricted by current zoning regulations unless it continued to be operated as a guest ranch. Plaintiffs filed this action, secured a temporary restraining order and temporary appointment of a receiver to operate the ranch.

After a contested hearing on the order to show cause why a preliminary injunction should not issue, the trial court...