PEOPLE v. STANFORD

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District Court of Appeal, Fourth District, California.

PEOPLE v. STANFORD.*

Cr. 450

Decided: March 25, 1940

Bertrand L. Comparet and Clarence Harden, both of San Diego, for appellant. Earl Warren, Atty. Gen., by Eugene M. Elson, Deputy Atty. Gen., and James B. Abbey, Dist. Atty., by Seymour Wurfel, Deputy Dist. Atty., both of San Diego, for respondent.

The appellant was charged in an indictment returned by the grand jury of San Diego county with the crime of grand theft in each of five counts. A jury trial was waived by the appellant and the case was tried by the court sitting without a jury. The court found appellant guilty on the first three counts and not guilty on counts four and five of said indictment. A motion for a new trial was made and denied. Upon appellant's application for probation the imposition of sentence was suspended for two years and he was placed on probation. He appeals from the order denying his motion for a new trial.

The facts are somewhat complicated and a concise statement of the essential details thereof is necessary to afford a proper understanding of the issues involved.

Jennie V. Stevens is the widow of Edwin R. Stevens, deceased, who died June 2, 1935. She had been a friend of Mrs. Edith H. Christy for 40 years. After her husband's death Mrs. Stevens consulted appellant, who is an attorney at law, upon the recommendation of Mrs. Christy, who had known appellant since his childhood. Mrs. Stevens was then about 75 years old and unaccustomed to business dealings. Upon advice of appellant Mrs. Stevens applied for letters testamentary of her deceased husband's estate and was appointed and qualified as executrix, appellant acting as her attorney. Mrs. Stevens testified that she thought appellant afterwards suggested that she resign as executrix and let him act as administrator with the will annexed because she did not understand business matters. The written resignation prepared by appellant and signed by Mrs. Stevens stated that she was resigning because of ill health, although she testified that her health was perfect. However, Mrs. Christy testified that Mrs. Stevens “wasn't very well”. Appellant was appointed and qualified as administrator with the will annexed, administered the estate, and in May, 1936, a decree of distribution was entered distributing the residue of the estate, valued at more than $12,000, to Mrs. Stevens. Sometime previous Mrs. Stevens had lost some money through bad investments and lack of business knowledge, and many discussions were had by appellant, Mrs. Stevens and Mrs. Christy concerning the care of the property, culminating in the creation of a trust. On March 5, 1936, and before the estate was closed, Mrs. Stevens, at the suggestion of appellant, executed trust indentures whereby she conveyed to appellant as trustee, all of her property, including that comprising the estate, in trust for her life, and upon her death to distribute the remainder to designated persons. The evidence indicates that the assets of the estate were not actually delivered to Mrs. Stevens upon distribution of the estate, but appellant held them under the trust. Mrs. Stevens testified that she did not recall having had any conversation with appellant concerning the creation of the trust. She stated that she just glanced over instruments which appellant asked her to sign before signing them and that it did not “sink in very deep”, but that she signed everything appellant gave her to sign; that she had the utmost confidence in him. Mrs. Christy's testimony, however, is to the effect that, prior to the execution of the trust indentures, numerous conferences were held by appellant, Mrs. Stevens and herself about the care of the property and the creation of a trust for that purpose. The evidence further shows that Mrs. Christy also consulted her friends and some of Mrs. Stevens' relatives about the matter. She stated that, just before Mrs. Stevens signed the trust indentures, she (Mrs. Christy) told Mrs. Stevens that she didn't think it was the thing to do and that they ought to think more about it, but that Mrs. Stevens, however, signed the trust indentures in her presence. During one of these discussions Mrs. Christy asked appellant about the possibility of obtaining an annuity for Mrs. Stevens, but he did not advise it because it would use up the principal. Appellant testified that Mrs. Stevens wanted to keep the principal intact. However, in his letter to her dated May 18, 1936, appellant told her that, if she wished to use some of the principal, it would be possible “under circumstances that seem advisable”. Mrs. Christy testified that appellant told Mrs. Stevens and her that he knew where he could make a good loan with the money of the estate; and afterwards took them to look at a residence and grounds on Palm street in San Diego, and spoke of using it as a home for himself and his family; and said that, if it was satisfactory to Mrs. Stevens, he would give her a mortgage on the place; and that Mrs. Stevens expressed satisfaction with the property as security for a loan. A letter or document was later prepared by appellant dated July 18, 1936, purporting to authorize appellant to use $10,560 of the trust funds to purchase this property for himself, the repayment to be secured by a mortgage under which he would pay to Mrs. Stevens $44 per month as the equivalent of 5 per cent interest on $10,560. Mrs. Christy testified that she and Mrs. Stevens read the letter before it was signed by Mrs. Stevens and by herself as a witness; that appellant did not advise Mrs. Stevens to make that investment; but “just left it up to her, asked her if she wanted to do it. * The idea was this, Aunt Jennie (Mrs. Stevens) felt that if he took the place for his own home, she liked the place, she felt that he would stay in it and pay the income steadily and she could depend upon it. She wanted to let him have it”. Mrs. Stevens testified that appellant did not tell her when he would give her the mortgage, nor does the letter specify any time.

No mortgage was executed on the Palm street property until September 16, 1937. It was not delivered to Mrs. Stevens and was not recorded until April 21, 1939, which was after a state bar investigation into the matter was begun. Appellant testified that he knew nothing about the investigation until May 3, 1939. The mortgage covered only a little more than one lot upon which the house and garage were situated and omitted practically all of five other lots which were part of the parcel of land sold to appellant in the deal and which were then unimproved. The mortgage was a novel one and contained some unusual provisions. Under its terms the mortgagors (appellant and his wife) agreed to pay to Mrs. Stevens $45 per month “which sum is understood to be the equivalent of interest at the rate of 5 per cent (5%) per annum on the sum of ten thousand eight hundred dollars ($10,800.00), but not actually to be interest on any obligation * said mortgagors are not, * obligated in any way whatsoever either by promissory note, oral promise or any promise at all, to pay to the Mortgagee any sum of money whatsoever”. The sole security of the mortgagee was to be the mortgage. A period of ninety days' grace was allowed on each payment. The mortgagee was given the right of foreclosure ninety days after August 15, 1946. The amount specified in the mortgage included additional monies of Mrs. Stevens not involved in the first three counts of the indictment. No promissory note or other evidence of indebtedness was executed. In appellant's escrow instructions relating to the purchase of the Palm street property by him no mention is made of any mortgage, nor of any interest in the property on the part of Mrs. Stevens, nor about any mortgage clause to be attached to the fire insurance policy.

On July 18, 1936, appellant, as trustee, drew a check on the trust account for $500 and paid it into escrow as the initial payment on the purchase price of the Palm street property. This is the basis of count one of the indictment. On July 26, 1936, appellant, as trustee, drew a check on the trust account for $7,458.80, being the entire balance of said trust account in the bank, and paid it into said escrow, together with $2,041.20 which he borrowed personally from the bank, as the balance of said purchase price of $10,000. The use of said sum of $7,458.80 is the basis of the second count of the indictment. Thereafter, as amounts of trust funds came into appellant's hands, he applied them to his own use up to the amount he had paid in personally to purchase the Palm street property, and the total amount of these items, namely, $2,041.20, form the basis of the third count of the indictment.

The portion of section 484 of the Penal Code of California material to this case is as follows: “Every person who shall feloniously steal, take, carry, lead, or drive away the personal property of another, or who shall fraudulently appropriate property which has been entrusted to him, or who shall knowingly and designedly, by any false or fraudulent representation or pretense, defraud any other person of money, labor, or real or personal property * is guilty of theft. *”

And subdivision 1 of section 487 of the Penal Code provides that it is grand theft when the money or other property taken is of a value exceeding $200. Embezzlement is defined as “the fraudulent appropriation of property by a person to whom it has been entrusted”. Pen.Code sec. 503. Under the provisions of this statute grand theft may consist of any one of the following three crimes: larceny, embezzlement, and obtaining money or other property under false pretenses. The undisputed facts of the case excluded the crime of larceny. There was no felonious taking and carrying away of the personal property of another. In larceny the felonious intent exists at the time of the taking. 10 Cal.Jur. p. 240, sec. 4; People v. Jackson, 138 Cal. 462, 464, 71 P. 566. Respondent urges that the acts of appellant fall within the definition of larceny by trick or device. However, it is the essence of larceny by trick or device that the owner of the property shall intend to part with possession only and not to pass title as well. People v. Woolsey, 13 Cal.App.2d 54, 58, 56 P.2d 557. The facts in the instant case disclose without controversy that the appellant already had possession under the trust and Mrs. Stevens intended to approve the investment of the funds and take some form of security from the appellant. Nor is the offense of obtaining money under false pretenses (which is included in grand theft) supported by the evidence, for there were no false representations of any existing or past fact on the part of appellant. People v. Wasservogle, 77 Cal. 173, 175, 19 P. 270.

There remains for consideration the offense of embezzlement, which is also included in the crime of grand theft charged in the indictment; and the main issue on this appeal is whether or not the evidence is sufficient to sustain the judgment of guilty of embezzlement as to each of the first three counts. Section 506 of the Penal Code defines embezzlement as follows: “Every trustee, * attorney, agent, assignee in trust, executor, administrator, or collector, or person otherwise entrusted with or having in his control property for the use of any other person, who fraudulently appropriates it to any use or purpose not in the due and lawful execution of his trust, * is guilty of embezzlement.”

In order to support a charge of embezzlement “it must appear that the intent to misappropriate the property was formed after the defendant obtained possession of the property, for if the intent existed at the time the possession was obtained, the offense would be larceny”. 10 Cal.Jur., p. 264, sec. 23. Appellant came into possession of the property alleged to have been embezzled, when he qualified as administrator with the will annexed of the estate of Edward R. Stevens, deceased, and he continued in possession as trustee after distribution of the estate. He came into possession lawfully. He invested the money by using it in connection with the purchase of a home for himself. The letter of July 18, 1936, purported to give him the consent of the owner. It remains to determine whether or not this was a fraudulent appropriation of the property to a use or purpose not in the due and lawful execution of his trust.

It is the major contention of respondent that such a fraudulent appropriation on the part of appellant may be inferred from the circumstances surrounding the whole transaction, as shown by the evidence, and that such fraudulent intent was formed by appellant immediately after he came into possession of the property as administrator with the will annexed of the estate, and that, by reason thereof, Mrs. Stevens' consent to the agreement of July 18, 1936, purporting to give appellant authority to do the acts with which he is charged in the indictment was vitiated and the contract was thus rendered void ab initio. Such circumstantial evidence is admissible for that purpose. People v. Hill, 2 Cal.App.2d 141, 164, 37 P.2d 849. A similar view was expressed by the trial court in denying appellant's motion for a new trial, namely, that the acts and conduct of the appellant indicated that he entered into the agreement of July 18, 1936, without any intention of performing it and therefore was guilty of actual fraud as defined in subdivision 4 of section 1572 of the Civil Code, in that, at the time he entered into said agreement, he had no intention of executing the mortgage in the immediate future, nor of including the unimproved portion of the Palm street property in such mortgage.

It is true that acts or conduct constituting actual civil fraud within the meaning of said section, when accompanied by the necessary criminal intent, may become embezzlement. 18 Am.Jur., p. 583, sec. 24; People v. Wilson, 130 Cal.App. 760, 765, 20 P.2d 748. But neither the statutes nor the courts have obliterated the distinction between fraud which affords only a civil remedy and fraud which constitutes a crime. Embezzlement is a breach of trust, but not every breach of trust is embezzlement. “The statutes were not intended to cover every breach of trust, nor every fraudulent breach of trust, and render it a criminal offense.” 20 Cor.Jur., p. 423, sec. 12; 18 Am.Jur., p. 580, sec. 19. As pointed out in People v. Ranney, 213 Cal. 70, 77, 1 P.2d 423, 426: “ ‘Countless decisions might be cited to show that an act may be unlawful and not be penal. * 39 Cyc. 829. The word unlawful in connection with a contract for the use of a machine, does not mean a criminal use, but any use in violation of the contract. * Unlawful in relation to the acts of a corporation may mean acts only ultra vires. * Unlawful is not synonymous with criminal, “To speak of an act as unlawful is not equivalent to saying it has been denounced as a crime.” * “Many things are unlawfully done which are not crimes because the criminal intent is wanting.” ’ ”

Let us apply these principles of law to the evidence in this case. The arrangements which Mrs. Stevens made with appellant had two main purposes, one, to prevent ill-advised business dealings on her part, as she was inexperienced in the way of business and had lost some money in unbusinesslike transactions; and second, to invest her money in some mortgage or other obligation which would provide for her a fixed, steady, monthly income at a higher rate of interest than government bonds or other similar safe but low-yield investments, on which she could live without depleting the principal of her assets. These objects were greatly desired by Mrs. Stevens and her friend and adviser, Mrs. Christy. Appellant, as administrator, with unusual diligence, had brought into the estate considerable sums of money from assets of doubtful value, some of which were already barred by the statute of limitations, and others were about to be outlawed, and placed in good standing obligations owing to the estate, as well as obligations owing to Mrs. Stevens not included in the estate. The evidence indicates that appellant suggested the creation of the trust under which he, as trustee, was given complete charge of Mrs. Stevens' property, and that he was the first to mention a loan to himself, but it also discloses that Mrs. Stevens had independent advice. On most occasions when business affairs were transacted with appellant, she was accompanied by her intimate friend and adviser, Mrs. Christy, and Mrs. Stevens and Mrs. Christy often talked with friends and with Mrs. Stevens' relatives about her financial affairs before the transactions were closed. Apparently there was no attempt on the part of appellant to conceal facts from Mrs. Stevens or her relatives or friends and appellant occasionally rendered an accounting to his beneficiary of all assets, receipts and disbursements.

While it is an elemental principle of law of trusts that a trustee may not lawfully use the trust property for his own private or individual purposes (25 Cal.Jur., p. 342, sec. 190), still a trustee may, by express agreement with his beneficiary, in good faith, buy or borrow the trust property (65 Cor.Jur., p. 888, n. 71c; Gregg v. Gabbert, 62 Ark. 602, 37 S.W. 232; Heath v. Tucker, 153 Mo.App. 356, 134 S.W. 572, 576), and an appropriation of property to a use authorized by the owner cannot constitute embezzlement. Carroll v. Pacific Coast Automobile Assn., 123 Cal.App. 568, 571, 11 P.2d 660; People v. Deyot, 86 Cal.App. 53, 54, 260 P. 301. The matter of the loan to appellant was talked over a number of times by appellant and Mrs. Stevens together with Mrs. Christy and they inspected the Palm street property a number of times before the agreement of July 18, 1936, was entered into. By the terms of this agreement or letter appellant was authorized to use $10,560 of the trust funds to purchase the Palm street property. Mrs. Stevens was to have a first mortgage on the property. Appellant was not to be personally liable for any part of that sum and her only security was to be the mortgage on the house, but appellant would occupy the premises and pay Mrs. Stevens $44 per month, being equivalent to five per cent per year on said sum of $10,560. The evidence shows that appellant told Mrs. Stevens that he was preparing to terminate the trust as authorized in her letter of July 8, 1936, but the record discloses that the trust never was terminated. At the time appellant purchased the Palm street property there was only $7,958.80 of the trust funds available. This amount was used to apply on the purchase price and appellant made up the balance out of his own funds. He began to pay interest on the full amount of $10,560 immediately and continued to do so throughout the period of time involved in this case.

The type of security given by appellant to Mrs. Stevens was certainly not the kind that would satisfy an experienced business man, nor the kind that an attorney would ordinarily advise his client to accept. But in his testimony appellant stated that his reason for not giving Mrs. Stevens a promissory note was that she would “go right out and dispose of it tomorrow and cancel the whole purpose of the trust”. He testified that he offered to terminate the trust if Mrs. Stevens so desired, but insisted on doing so only by court order. Appellant explained the delay in executing the mortgage by stating that Mrs. Stevens and he agreed that “the mortgage was to be issued when the total $10,560 was secured by me, when it came into my hands. That time did not come until practically a year later.” There was some delay after the full amount had been received, which he explained by stating that it required some time to go over the correspondence and files in regard to the mortgage and he was very busy with other matters. No time was specified orally or in the authorization of July 18, 1936, as to when the mortgage was to be executed. It was therefore implied that the mortgage would be executed within a reasonable time. Appellant gave the following reasons for not recording the mortgage at once: That Mrs. Stevens and he had been talking about terminating the trust because some of her relatives were dissatisfied with the trust arrangement; that Mrs. Stevens had been talking about spending some of the principal and he contemplated closing the trust and paying her all the money, which he anticipated would occur within a very short time. The evidence indicates that he was financially able to do so upon demand. He also testified that the trust was for her benefit, to prevent her from unwisely disposing of her assets, as she was inclined to do; that she gave $1,500 to one of her daughters, $100 to another relative and on another occasion tried to buy a cow for a neighbor; also that, if the mortgage were put on record, “it would give Mrs. Stevens an opportunity to assign to a bona fide purchaser for value her interest in the mortgage and defeat in part the trust.” He gave as an additional reason the fact that he “could see no value, since I had the legal title in trust to all of Mrs. Stevens' assets, of putting a mortgage on record”.

There is a conflict of evidence as to how much of the Palm street land was to be included in the mortgage. Mrs. Stevens and Mrs. Christy testified that appellant did not tell Mrs. Stevens that the mortgage would cover only the buildings and land immediately surrounding them. Appellant testified that Mrs. Stevens consented to that. However, the undisputed evidence shows that the portion not included in the mortgage slopes steeply down into a canyon and was assessed at $200, and the highest appraisement given by appraisers who checked its value was $500. The purchase price for the entire property was $10,000. There is evidence that, within a short time after appellant purchased it, and before he made any improvements on the property, he was offered $13,500 for the portion included in the mortgage. Later, appellant spent $2,000 for improvements on the mortgaged portion. Mrs. Stevens' security was therefore increased in value but reduced in area. Assuming that Mrs. Stevens did not consent to the exclusion of any of the lots, it was a civil breach of contract but, under the circumstances, could it be said to be a criminal fraud? Financially Mrs. Stevens had not been damaged. If appellant had sold or encumbered the property and disposed of the proceeds, or if he had mortgaged the unimproved portion of the property and excluded the improved part, no doubt he would have been guilty of embezzlement. At the time of the indictment appellant still had in his possession and control all of the property purchased with the trust funds. He had never put it beyond his control, and there is evidence to the effect that appellant was at all times ready, able and willing to turn over to his beneficiary the full amount of the trust funds thus appropriated, together with all other assets of the estate, upon a legal termination of the trust, if Mrs. Stevens so desired.

Even if such conversion of the trust funds was unauthorized by the beneficiary, he was still liable to her under the law for the full amount of the trust fund. People v. Page, 116 Cal. 386, 395–396, 48 P. 326; People v. Royce, 106 Cal. 173, 176, 37 P. 630, 39 P. 524. Although in the letter of July 18, 1936, appellant purported to deal in his individual capacity, and not as trustee, and he was to have no personal responsibility, still the trust had not been terminated and it was still in effect. Irrespective of that agreement he was still trustee of her property and the law required him to account to his beneficiary on demand for all property and funds which came into his hands as such trustee. 65 Cor.Jur. pp. 878, 879, sec. 778; pp. 885, 886, sec. 784; p. 887, sec. 786; Schneider v. Moncur, 30 Cal.App. 734, 740, 159 P. 459. Any advantage or profit received by a trustee through the use of trust property is deemed in law to belong to the beneficiary, and the trustee must account to the cestui for all the benefits which the trustee himself obtains by virtue of the relationship. Purdy v. Johnson, 174 Cal. 521, 529, 163 P. 893; Bone v. Hayes, 154 Cal. 759, 767, 99 P. 172. Mrs. Stevens had as against appellant not only the legal remedies against a borrower, but also the powers of a court of equity to protect her against any violation of the trust and “to prevent any impairment of the trust fund, and in case of diversion or misappropriation of such fund by the trustee, to direct a restitution thereof, and to enforce such direction by some process appropriate to the exercise of its jurisdiction”. 25 Cal.Jur. pp. 137, 138, sec. 14.

Respondent complains that appellant failed to protect Mrs. Stevens by not having her interest appear on the fire insurance policy obtained by him covering the Palm street property, and argues that, if there had been a fire loss, she could not have recovered any sums paid under the policy. But, under such circumstances, the law would have protected her and would have held him accountable to her as trustee for any insurance money so recovered. The investment of the trust funds in the Palm street property merely resulted in a change in the form of the trust property.

We have discussed the evidence somewhat at length because it is respondent's contention that a felonious intent on the part of appellant at the time he used the trust funds involved in the case is established by the circumstantial evidence adduced at the trial. As pointed out in 8 Cal.Jur. page 371, section 405, “When a case is one of circumstantial evidence, and admits of a theory either of guilt or innocence” the rule is that “to justify a conviction, the facts or circumstances must not only be entirely consistent with the theory of guilt, but must be inconsistent with any other rational conclusion”. People v. Raber, 168 Cal. 316, 319, 143 P. 317. The rule is sometimes expressed as follows: “if two opposing conclusions can with equal propriety be drawn from the evidence, one consistent with guilt, and the other consistent with innocence, the latter should be adopted.” 8 Cal.Jur. p. 372, sec. 405; People v. Corey, 8 Cal.App. 720, 727, 97 P. 907. We have come to the conclusion that any inference of criminal intent that could be reasonably drawn from the facts and circumstances of this case is not strong enough to overcome the presumption of innocence, which is one of the strongest presumptions provided by our statutes. There is a reasonable inference of negligence on the part of the appellant and no doubt a reasonable inference could be drawn from the evidence that he took an improper advantage of the fiduciary relationship existing between himself and a trusting client and beneficiary, but not such an inference of a felonious intent as to repel the presumption of innocence. Appellant is charged in each count with a crime of a very serious nature and he should not be convicted on mere suspicion or even a strong probability of guilt, but every element of the crime should be established to a moral certainty and beyond all reasonable doubt. We feel that he cannot stand convicted on the record in this case without doing violence to the presumption of innocence and the doctrine of reasonable doubt. Pen.Code, sec. 1096, and it is our conclusion that the evidence does not sustain the judgment of guilty as to any of the first three counts of the indictment. This conclusion obviates the necessity of reviewing the other contentions urged by the respective parties to the case.

We desire to state unqualifiedly that we do not condone or excuse in the slightest degree any act of an attorney or trustee which constitutes a breach of professional or business ethics, although not a violation of any penal statute. It is his solemn duty to protect the interests of a client or beneficiary with due care, skill and diligence as long as such a fiduciary relationship exists between them; and we believe that, even with the consent of the client or beneficiary, no attorney or trustee should use the property of his client or beneficiary in any manner for his own benefit unless such client or beneficiary previously has the advice of independent counsel concerning the transaction. But in this case the court is not dealing with a problem of professional or business ethics, but only with the question of whether or not the evidence sustains the judgment.

The order appealed from is reversed.

THOMPSON, Justice pro tem.

We concur: BARNARD, P.J.; MARKS, J.

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