FEDERAL FARM MORTGAGE CORPORATION v. SANDBERG

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District Court of Appeal, Second District, Division 1, California.

FEDERAL FARM MORTGAGE CORPORATION v. SANDBERG et al.

Civ. 17002.

Decided: August 25, 1949

Richard W. Young, Morton G. Hoffmann, both of Berkeley, Daniel Schnabel, of Beverly Hills, for appellant. W. T. Stockman, Los Angeles, for respondents Piontkowskis. Arch H. Vernon, Earl E. Johnson and Albert B. Harris, Los Angeles, for respondents Tejon Ranch Co., Dwight G. Vedder Co. and D. G. Vedder Company.

January 1, 1934 Harold Sandberg and Marion Grant Sandberg, husband and wife, executed and delivered to the predecessor in interest of plaintiff their promissory note for $5,000.00. The note was secured by a trust deed, pledging real property described therein. This real property will be referred to as the Los Angeles county property. And this loan will be referred to as Loan A–5894.

At the time of these transactions the Los Angeles county property was subject to a first and prior trust deed. October 10, 1938, a sale of the property was made in accordance with the provisions of the first trust deed. This, in effect, made Loan A–5894 an unsecured loan, the security having been eliminated through foreclosure of the first trust deed.

In addition to the note above mentioned, Mr. and Mrs. Sandberg, together with other parties, executed two other notes secured by trust deeds. The property pledged as security for these two notes will be referred to as the Kern county property. Ownership in the Kern county property, pledged as a unit, was in several interests: in Mr. and Mrs. Sandberg and these other parties. For purposes of this opinion further reference to the other parties is not necessary. These two loans will be referred to as Loan 30136 and Loan A–17745.

July 9, 1939, Harold Sandberg died, testate. His estate was probated in Los Angeles county. Letters testamentary were issued to Mrs. Sandberg, and she was appointed and qualified as executrix. During the course of administration of the estate, and in 1939, claims were presented for the three loans: Loans A–5894 and A–17745 by plaintiff and Loan 30136 by The Federal Land Bank of Berkeley.

In November, 1940, Mrs. Sandberg, as the sole legatee and devisee of her deceased husband, assigned all of her right, title, and interest in the estate to the defendants, Marie von Piontkowski and her husband, E. S. von Piontkowski. Mrs. von Piontkowski is a sister of Mrs. Sandberg. This assignment was approved by the court.

It was testified: (a) That the assignment was in full payment and cancellation of a note signed by Marion G. Sandberg in favor of the von Piontkowskis, upon which was due including interest, $25,000.00. (b) That further consideration for the assignment was the making by the von Piontkowskis of certain payments due to plaintiff on Mrs. Sandberg's obligation to plaintiff. These payments were upon a note and trust deed held by plaintiff; they were made by the von Piontkowskis upon condition that they would become owners of the Kern county property; and plaintiff knew of them and the condition upon which they were made.

Then, July 29, 1944, Mrs. Sandberg filed a waiver of account, report, and petition for distribution. The waiver stated: ‘* * * that there are no claims presented or allowed in the within entitled Estate that remain unpaid or unsecured at the present time,’ and prayed that a decree be made for the distribution of the entire estate to Marie von Piontkowski and E. S. von Piontkowski, husband and wife, as joint tenants. In truth, however, none of plaintiff's claims had been paid.

And then, August 24, 1944, the probate court ordered distribution of the estate to the assignees above named. The decree was without limitation, and included the Kern county property; in other words, no lien was declared in favor of plaintiff upon the Kern county property, or any other property of the estate. Property may be distributed in probate subject to liens. Title Ins. and Trust Co. v. Miller & Lux, Inc., 183 Cal. 71, 190 P. 433.

This mistake may have occurred honestly. The petition for distribution recited that all three of the loans were secured by the Kern county property, which was the only asset in the estate. Quite likely counsel for the executrix thought the property would be distributed accordingly, subject to a lien. And, quite likely, the probate court, in drawing the decree of distribution proceeded upon the assumption that there were no unpaid claims.

The decree of distribution has long since become final, no appeal having been taken therefrom, nor any proceeding instituted to set it aside. Benning v. Superior Court, 34 Cal.App. 296, 167 P. 291.

The von Piontkowskis by deed granted the Kern county property to D. G. Vedder; Vedder granted by deeds from himself, and by deeds from limited co-partnerships of which he was a member, to the defendant, Tejon Ranch Co. The late deed was delivered in accordance with an escrow agreement entered into in March, 1946.

In the course of the escrow The Federal Land Bank, on its own behalf, and on behalf of plaintiff, filed with the escrow holder its demand for payment of the balance due on the three loans. One of the witnesses for plaintiff testified that at that time plaintiff was under the impression the sale was being made in the probate proceeding.

Two of the loans were paid by the escrow holder: those secured by trust deeds, loans 30136 and A–17745. Undoubtedly these two loans were a lien upon the Kern county property, and to acquire clear title for Tejon Ranch Company, it was necessary for the escrow holder to pay them. In re Estate of Lyon, 163 Cal. 803, 127 P. 75.

The escrow holder also started at least to pay the balance due on the first loan, Loan A–5894. A check was mailed for payment of the three loans, but upon objection by one of the parties to the escrow payment thereon was stopped. Later, as stated, two of the loans were paid out of the escrow.

The escrow was completed by delivery of the deed to Tejon Ranch Co., without paying anything to plaintiff upon Loan A–5894. This is the junior loan secured by trust deed of the Los Angeles property, which property was sold to satisfy the senior trust deed. Insofar as the Estate of Sandberg and this case are concerned, this loan was nothing more than an unsecured indebtedness represented by a claim filed and allowed in the estate.

Plaintiff brought its action for declaratory relief against all of the persons named, asserting that the transactions above narrated constituted a ‘probate lien’ against the Kern county property. It is plaintiff's position, as stated in its brief, that the Kern county property ‘is subject to a lien or charge in favor of appellant; otherwise, that the von Piontkowskis have been unjustly enriched and hold certain funds in trust for appellant.’

The trial court found against the plaintiff and in favor of all the defendants, and judgment followed. In effect the judgment quieted title to the Kern county land in the defendant, Tejon Ranch Co., and adjudged that none of the other defendants were indebted to the plaintiff.

The allowance of a claim in probate puts it among the acknowledged debts of the estate. Allowance is not equivalent in effect to a judgment. Hotel Park Central v. Security-First Bank, 15 Cal.App.2d 293, 297, 59 P.2d 606; In re Estate of Naegely, 31 Cal.App.2d 470, 474, 88 P.2d 715; Haub v. Leggett, 160 Cal. 491, 494, 117 P. 556.

A decree of distribution in probate in most respects has the same force and effect as a judgment in a civil action. It is not subject to collateral attack. Benning v. Superior Court, 34 Cal.App. 296, 299, 167 P. 291; Bacon v. Bacon, 150 Cal. 477, 89 P. 317.

Section 1021 of the Probate Code states that when it becomes final the decree of distribution ‘is conclusive as to the rights of heirs, devisees and legatees.’ Rights of persons coming within these three categories have been held conclusively adjudicated even though the decree violates the terms of the will of the decedent. Kauffman v. Foster, 3 Cal.App. 741, 86 P. 1108; and see In re Estate of Van Deusen, 30 Cal.2d 285, 182 P.2d 565, and cases collected in In re Greeneway, 236 Wis. 503, 295 P. 761, 136 A.L.R. 1180.

A somewhat extended examination of California authorities discloses no case determining the rights of one whose claim has not been paid during administration of an estate in probate, and has not been made a lien upon property distributed by the decree of distribution.

Such claimant is, however, a person interested in the estate. The decree is a judgment in rem, in a proceeding in the nature of one in rem. Nicholson v. Leatham, 28 Cal.App. 597, 153 P. 965; Warren v. Ellis, 39 Cal.App. 542, 179 P. 544; 11b Cal.Jur. § 1292, p. 791. When the notice directed by the statute has been given, such interested persons are before the court and are bound by the decree rendered.

No question is raised here as to jurisdiction of the probate court to make the decree. In these circumstances it is a muniment of title of the highest value. Its purpose is to give peace and security to title to property. Vested rights thereunder will be protected. Blair v. Hazzard, 158 Cal. 721, 112 P. 298.

For the foregoing reasons the decree of distribution is conclusive, and the judgment in favor of Tejon Ranch Co. should be affirmed; and also the judgment in favor of the other defendants who conveyed the Kern county land to Tejon Ranch Co.

This, then, brings us to plaintiff's contention that the von Piontkowskis ought not to be enriched at the expense of the plaintiff. The testimony heretofore stated supports the finding of the trial court that there was consideration for the assignment to the von Piontkowskis. Under the substantial evidence rule, this court is bound by the finding.

In this connection there is one other matter to be dealt with: May equitable relief be extended to plaintiff because of fraud or mistake, in view of the representation to the probate court that all claims had been paid in the estate of Sandberg? Obviously this representation was either fraud or mistake; else the court would not have made the decree.

In this respect, as we understand it, it is the position of plaintiff that no attack is made upon the decree of distribution; that the von Piontkowskis are holding property under the decree to which they are not lawfully entitled; and that equity should do justice, not by overthrowing the decree, but by declaring the von Piontkowskis involuntary trustees of the money received by them from the Kern county property, at least to the extent of plaintiff's claim. This legal principle finds support. Lilienkamp v. Superior Court, 14 Cal.2d 293, 93 P.2d 1008; In re Estate of Walker, 160 Cal. 547, 117 P. 510, 36 L.R.A., N.S., 89. On the other hand a trust may not be imposed upon property in the hands of distributees merely because of mistake in the decree of distribution, within the meaning of section 2224 of the Civil Code. Thayer v. Fish, 49 Cal.App.2d 618, 122 P.2d 358; Hewett v. Linstead, 49 Cal.App.2d 607, 122 P.2d 352.

The true rule is that in order to secure relief in equity for fraud or mistake in the making of a decree of distribution, the claimant or the purported distributee must have been kept in ignorance of his rights by some act of the person to whom distribution was made. Bacon v. Bacon, 150 Cal. 477, 89 P. 317; Hewett v. Linstead, supra.

We cannot agree with defendants' suggestion that in this action for declaratory relief an involuntary trust may not, as a matter of law, be imposed upon the proceeds of the sale of the Kern county property.

In declaratory relief the court has the broad and comprehensive powers of a court of equity. City of Los Angeles v. City of Glendale, 23 Cal.2d 68, 142 P.2d 289; Adams v. Cook, 15 Cal.2d 352, 101 P.2d 484.

On this issue the findings and judgment are against the plaintiff and in favor of the defendants von Piontkowskis. The record contains substantial evidence to support these findings. There was no evidence of anything done by the von Piontkowskis which would support an inference of fraud as to them. The only thing which would warrant an equitable finding of constructive trust as to them is the mistake in making the decree of distribution and there is no evidence that the Piontkowskis had anything to do with that. Therefore, again under the substantial evidence rule, we may not set these findings aside.

The judgment is affirmed.

DRAPEAU, Justice.

WHITE, P. J., and DORAN, J., concur.

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