SECURITY-FIRST NAT. BANK OF LOS ANGELES v. BANK OF AMERICA NAT. TRUST & SAVINGS ASS'N et al.*
This is an appeal from a judgment in favor of the defendants after an order sustaining a demurrer to the plaintiff's complaint without leave to amend. Plaintiff, as holder of so-called participation certificates under a trust, brought the action to recover the face value of such certificates on the ground that the certificates were void as having been issued in violation of the Corporate Securities Act (St. 1917, p. 673, as amended). The defendant bank is and was a national bank, acting as the trustee under an express trust, the corpus of which consisted of a note secured by a second trust deed executed by the Arcady Apartment Hotel Company, which lien was junior to a $1,325,000 bond issue on the hotel property. In its capacity as trustee and on order of Arcady or its nominees, the bank between the years 1925 and 1929 executed and delivered so-called participation certificates evidencing fractional interests in the note. These certificates were delivered to materialmen, contractors, architects, and superintendents, including the plaintiff's decedent, to apply on labor and material furnished by them in the construction of the Arcady Hotel, under contracts entered into by them prior to its construction and before the respective certificates were issued, whereby they were to accept said certificates in payment as a part of the program to finance the construction of said building. The certificates so executed and delivered aggregated on their face approximately one-half million dollars, and the plaintiff as executor was the holder of one or more of these certificates. It is alleged in the complaint that no permit from the commissioner of corporations was obtained by the bank for the issuance of these certificates and that the certificates are void for this reason. The lack of such permit is the basis of the suit and if the issuing of a permit by the commissioner of corporations were a necessary requisite to the validity of the certificate, the complaint stated a cause of action; if such permit were not necessary the complaint did not state a cause of action.
The suit is similar in all respects to the case of Fox-Woodson Lumber Co. v. Bank of America, 51 P.(2d) 1149, which was decided by this court on this date, except that judgment went for the defendant instead of the plaintiff, and the reasons for our decision in this case are fully set forth in the opinion filed in that case.
Under our construction of the law it was not necessary for the bank to have obtained a permit in order to issue the securities, and therefore the securities were not void. The plaintiff's complaint fails to state a cause of action and the judgment should be for the defendant.
CRAIL, Presiding Justice.
We concur: WOOD, J.; McCOMB, Justice pro tem.