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

KING v. MORTIMER, Building & Loan Com'r, et al.

No. 14229.

Decided: November 22, 1950

Morse Erskine, Alden Ames, Erskine, Erskine & Tulley, Erskine, Pillsbury & Tulley, San Francisco, for appellant. Sullivan, Roche, Johnson & Farraher, San Francisco, for respondents.

In an action to recover the difference between the face value and the amount paid plaintiff's assignors by defendants for the investment certificates of defendant corporation, on the ground that the purchase was illegal and procured by fraud, a demurrer to the first amended complaint was sustained without leaver to amend. Plaintiff appeals from the judgment thereon.


The history of the difficulties of defendant corporation and its various holding companies has been before this court on many occasions. Plaintiff is the assignee of various certificate holders who sold their certificates to defendants (through Pacific States Auxiliary and brokers and agents) at less than face value in the period from 1937 to 1938 while Pacific States was insolvent. Plaintiff brought an action against Pacific States on the certificates assigned to him by thirty-eight assignors included in the present action. (There are more than 250 assignors represented here.) While that action was being tried in 1939 the Building and Loan Commissioner seized the business and assets of the corporation. This seizure was contested and finally affirmed by the Supreme Court in 1945. Pacific States Sav. & L. Co. v. Hise, 25 Cal.2d 822, 155 P.2d 809, 158 A.L.R. 955. The action involving the thirty-eight assignors was brought for money had and received to recover the difference between the amount paid and the face value of the certificates, on the ground of fraud. The Superior Court gave judgment for defendant, which judgment was affirmed. King v. Pacific States S. & L. Co., 26 Cal.2d 333, 158 P.2d 561. Thereafter this suit was filed. A demurrer to the original complaint was sustained without leave to amend. On appeal the action of the trial court was reversed. King v. Mortimer, 83 Cal.App.2d 153, 188 P.2d 502. Thereafter plaintiff filed an amended complaint, apparently to meet the suggestions contained in the opinion in that case, particularly: ‘Unless the plaintiff can amend his complaint to show affirmatively wherein the contracts involved were void and not merely voidable, we must assume that if the plaintiff can recover at all it must be on the theory that the transactions complained of were voidable because of the fraudulent misrepresentations which brought them about. On this theory it would become necessary for him to rescind the transactions and restore everything of value which he had received, or to plead facts showing that plaintiff's assignors were entitled in any event to retain what they had received.’ 83 Cal.App.2d at pages 158–159, 188 P.2d at page 506. Defendants demurred and the demurrer was sustained without leave to amend. Plaintiff appealed from the judgment.

Allegations of First Count.

The amended complaint is in seven counts. The first count sets forth the history of Pacific States prior to the time in 1939 when it was taken over by the Building and Loan Commissioner, and alleges that Pacific States engaged in a course of conduct, the purpose of which was to acquire its outstanding investment certificates at less than their face amount and thus increase the value of its outstanding guaranteed stock at the expense of the certificate holders; that Robert S. Odell controlled Pacific States and used certain corporations as the alter egos and agents of Pacific States to carry out said course of conduct; that from 1931 to March 4, 1939, there was a market for the investment certificates of Pacific States; that Pacific States controlled that market and fixed the price at which the certificates could not bought and sold, although it could not fix the prices so low that holders could not be induced to accept them. Pacific States fixed the prices at substantially less than the face value of the certificates, sometimes at more than fifty per cent less than their face value. Pacific States employed brokers and agents and furnished them with lists of the holders so that the brokers and agents by false representations could solicit the holders to sell their certificates at the prices being fixed by Pacific States. Pursuant to this course of action, Pacific States sold or collected assets owned by it aggregating approximately eighteen million dollars and used these amounts to purchases its investment certificates, and did purchase certificates, the face amount of which aggregated approximately $26,500,000, for approximately $17,500,000. Among these certificates were the certificates of the assignors of plaintiff, lists of whom are attached. These lists show the difference in amount between the face value of the certificates and the amounts paid plaintiff's assignors by Pacific States for them, totaling $690,646.78. The complaint then alleges facts upon which plaintiff bases his claim that the purchase of these certificates by Pacific States was void for the following reasons: (1) Pacific States had no ‘free money’ as defined by the Building and Loan Association Act, Gen.Laws, Act 986, from which it could or did purchase these certificates; (2) that, if it had free money, it was ‘on notice’ or on a ‘pro rata basis' and could not make loans and investments except certain ones which did not include investing in its own certificates; (3) if it had free money and was not on such a basis, sections 9.01 and 9.02 of the building and loan act prohibited it from purchasing these certificates; and (4) if it had free money and was not on such a basis such money legally could be used only to pay withdrawals. As the purchases were illegal and void, plaintiff is entitled to recover the difference between the face value of the certificates and the amount paid for them by Pacific States. Plaintiff filed a claim for this amount with the Building and Loan Commissioner, which the latter rejected by filing certain schedules in the superior court.

Allegations of Second Count.

This incorporates all the allegations of the first count, and then alleges that as to assignors who had made deposits with Pacific States prior to March 10, 1933, the 1933 emergency form of section 6.02 was unconstitutional as impairing the obligation of their contracts in that it purported to allow Pacific Sates to use free money for purposes other than payment of matured withdrawal claims. As to assignors who had made deposits with Pacific States prior to September 15, 1935, section 6.01 was unconstitutional as impairing the obligation of their contracts in that it purported to allow Pacific States to pay such depositors in installments rather than in the manner prescribed in their contracts. As to assignors who had made deposits prior to August 14, 1931, section 14.07 was unconstitutional as impairing the obligation of their contracts because under the contract any agreement which they might enter into which violated the act would have been illegal and void, whereas under section 14.07 any agreement which might violate the act would not make the contract void.

Allegations of Third Count.

This count incorporates certain of the allegations of count one and then alleges that the Pacific States controlled the market for its certificates and fixed prices within limits ‘because it could fix within a wide range the bid prices being offered for its investment certificates, but it could not fix such prices so low that holders of its investment certificates could not be induced to accept them’ and did fix them at substantially less than their face value; that Pacific States through its brokers and agents made false representations that the holders would not be able to obtain as much as was then offered them thereafter either by selling on the market or by making withdrawals of their deposits, and by false representations of the financial condition and prospects of the company. Pacific States also suppressed the fact that the certificates were being bought for Pacific States. Plaintiff, on certain dates, notified Pacific States of the assignment to him of the claims of plaintiff's assignors (except those listed in exhibit ‘F’) and demanded payment thereof, and such notices constituted a rescission of the transactions of purchase. As to the claimants in exhibit ‘F’ it would have been futile to make such demand as Pacific States had already refused the demands on behalf of the other assignors. Plaintiff made no offer to restore the consideration received by the assignors for their certificates as the assignors would have received on account of said certificates in the course of liquidation of the company substantially more than the amounts paid them, and therefore they were entitled in any event to retain such amounts.

Allegations of Fourth Count.

Plaintiff incorporates all the fraud and most of the other allegations of the first and third counts and then alleges that when the assignors made their deposits with Pacific States a relationship of debtor and creditor was created, but that there was also a fiduciary relationship created.

Fifth Count.

This is a common count for money had and received. Unless plaintiff is entitled to recover under one or more of the other counts, this count falls. Rose v. Ames, 53 Cal.App.2d 583, 128 P.2d 65.

Allegations of Sixth Count.

This count incorporates all the allegations of fraud and some other allegations from the first and third counts, and then alleges that if the assignors had not been induced by said fraud to transfer their certificates to Pacific States, but had retained them, they would have received during liquidation their full face amount, and hence they had been damaged in the difference between the face amount and the amounts they received.

Allegations of Seventh Count.

This count is identical with the sixth count except that it adds, by incorporation, the paragraph from the fourth cause of action alleging fiduciary relationship.

Does First Count State a Cause of Action?

Basically, this count alleges that the purchases of the certificates were void because (1) Pacific States had no ‘free money,’ if free money could be used for this purpose, and (2) if it had free money, nevertheless its use for purchase of its certificates was a violation of sections 9.01, 9.02 and 6.01 of the act. Assuming, but not deciding, that these contentions that the purchases violated the provisions of the building and loan act are correct, it is necessary to determine whether thereby the purchases were void. Section 14.07 provides: ‘Except as otherwise expressly provided in this act, no violation of any of the provisions of this act shall render invalid any agreement, contract, stock, share, investment certificate, note, trust deed, mortgage or other instrument.’ There is no express provision in sections 6.01, 9.01 or 9.02 or elsewhere that the purchase of certificates in violation of the act shall render such purchase void. In Smith v. Bach, 183 Cal. 259, 191 P. 14, the court said that if from a consideration of the entire statute ‘it is manifest that the Legislature had no intention of declaring a contract void, they should be sustained and enforced * * *.’ 183 Cal. at page 262, 191 P. at page 15. There is a provision in section 6.02 to the effect that no association shall make a contract waiving in any manner any of the provisions of this section, and that if any contract be so made it shall be void. Here, there was no contract made between the assignors and Pacific States waiving any provision of the section. Here there were sales by the certificate holders to the company. The holders did not waive further payments; they made an outright sale, just the same as if they had sold their certificates to another individual. They were not forced to sell. They had the option of keeping their certificates, filing notices of withdrawal, and receiving with others who had given notice, such payments as the financial condition of the company from time to time would permit, or of selling their certificates either to the company or on the open market. Moreover, it is not the depositor who is forbidden to waive any of the provisions of section 6.02, but the association. Plaintiff speaks of the depositor waiving his right to further payments on his certificate after the sale to the company. Were this true, it would not be a violation of section 6.02, as the association is making no waiver of any of the provisions of the act. In view of section 14.07, the first count fails to state a cause of action.

Does Second Count State Cause of Action?

Basically, this count claims that sections 6.02 and 14.07 are unconstitutional under the provisions of article I, section 10 of the United States Constitution as impairing the obligation of the contract made between each depositor and Pacific States at the time he made his deposit and received his investment certificates. Just how plaintiff, who claims his right to recover because of alleged violation by Pacific States of sections 6.02 and 6.01 can attack their constitutionality does not appear. ‘* * * ‘Thus a person who has participated in proceedings under a statute, or who has acted under the statute and in pursuant of the authority conferred by it, or who has claimed the benefit of the statute to the detriment of others, or who asserts rights under it, may not question its constitutionality.’' Foster v. Superior Court, 26 Cal.App.2d 230, 234, 79 P.2d 144, quoting from 12 C.J. 769. See also 16 C.J.S., Constitutional Law, § 89.

There was no impairment of contract. Plaintiff contends that at the time of issuance of the certificates the law provided that Pacific States, after paying its carrying charges, was obliged to apply all of its cash resources to the payment of matured withdrawal claims; that by amendment of section 6.02 made in 1933 Pacific States was permitted to use a portion of the free money funds for purposes other than the matured withdrawal claims; that the adoption of section 6.01a permitted the payment to certificate holders in installments, whereas prior thereto they could not be so paid; that prior to the enactment of section 14.07 any violation of the act made the agreement violating it void and that section 14.07 provided that such violation would not make the agreement void. All these changes in the law, says plaintiff, impaired the obligation of the contract between the company and the certificate holders. While it is true that the laws in existence at the time the contract was entered into are a part of that contract, that does not necessarily mean, so far as a building and loan association contract is concerned, that those laws may not be changed without impairing the contract's obligation. Also a part of the contract was article XII, section 1 of the California Constitution: ‘All laws now in force in this State concerning corporations * * * may be altered from time to time or repealed.’ This gave the Legislature the power to change the powers, rights, duties and liabilities of the corporation, its officers, stockholders and members. Plaintiff has cited no cases which hold that a change in the liabilities of a corporation is an impairment of a previous contract between a corporation and its creditors. See De Mello v. Dairyman's Co-op. Creamery, 73 Cal.App.2d 746, 750, 167 P.2d 226, where this argument is applied to dissenting stockholders who contended they lost vested rights during a recognization. A building and loan association is a corporation, § 1.02, and an association having any of the powers or privileges of corporations not possessed by individuals or partnerships is a corporation. Art. XII, § 4, Const. of Cal. Thus under the power reserved in the Constitution of this State, the Legislature could provide for changes in use of funds and manner of payment of depositors and that an illegal contract to purchase its own certificates would no longer be void.

Do Third and Fourth Counts State Cause Of Action?

These two counts are based on allegations of fraud and rescission, the only difference between the third and fourth being that plaintiff alleges that a fiduciary relationship existed between his assignors and Pacific States. Plaintiff incorporates by reference in both counts the proof of claim which, pursuant to notice, he filed with the commissioner. This states that ‘the facts in support of Claimant's demands are set forth by the testimony and exhibits introduced in the case of ‘Wesley King v. Pacific States Savings & Loan Company,’ No. 277,900, in the Superior Court of the State of California, in and for the City and County of San Francisco, and in its case of ‘Pacific States Savings and Loan Company v. Evans, Commissioner,’ in the same Superior Court, to which testimony and exhibits reference is hereby made as though set forth at length and made a part of this demand; * * *'

Defendants claim that plaintiff has not alleged a true rescission, because there was no notice of rescission and no offer to restore.

Notice of Rescission.

The only allegation concerning any notice of rescission is the following: ‘On or about February 3rd, 1938, plaintiff gave Pacific States written notice as follows: that the last mentioned assignors had assigned to him their claims to recover from it said balances of their deposits shown on said Exhibit ‘C’; that plaintiff was demanding payment of the last mentioned claims from Pacific States; and that if Pacific States did not pay the last mentioned claims, plaintiff would commence suit to enforce their payment.'

This allegation is repeated as to other lists of assignors. As said in McNeese v. McNeese, 190 Cal. 402, 405, 213 P. 36, 38: ‘It is not necessary that the notice to rescind shall be formal and explicit; it is sufficient that notice shall be given to the other party which clearly shows the intention of the person rescinding to consider the contract at an end. It has been held in order states that the mere bringing of an action is a sufficient disaffirmance of a sale.’

Applying this test, it is obvious that the notice given clearly shows the intention of plaintiff to consider the contract, that is, the sale of the certificates for the price received, at an end. The notice was sufficient unless plaintiff was required to offer to restore the purchase price.

Was Offer to Restore Necessary?

This depends upon what the true measure of damages was at the time of the sale, for if plaintiff was entitled in any event to retain the purchase price, no offer to restore was necessary. ‘It is settled by our decisions that one attempting to rescind a transaction on the ground of fraud is not required to restore that which, in any event, he would be entitled to retain. See Matteson v. Wagoner, 147 Cal. 739, 743, 82 P. 436, and cases there cited. This is upon the theory that the defendant could not possibly have been injuriously affected by the failure to restore, and the plaintiff might be, for he might not be able to again collect the amount from the defendant, if it should be so restored to the defendant.’ California, etc., Co. v. Schiappa-Pietra, 151 Cal. 732, 740, 91 P. 593.

Defendants contend that the measure was that set forth in section 3343 of the Civil Code, namely, the difference between the actual value of the certificates and the amount paid. Plaintiff contends that it is the measure set forth in Campbell v. Birch, 19 Cal.2d 778, 122 P.2d 902, and Bank of America v. Greenbach, 98 Cal.App.2d 220, 219 P.2d 814, namely, the difference between the face value of the certificates and the amount paid. Ordinarily, the measure of damages for fraud is that set forth in section 3343 of the Civil Code. But there is an exception to that rule. Campbell v. Birch, supra, 19 Cal.2d 778, 122 P.2d 902, sets forth that where the claims compromised through the fraud are not disputed as to their amount, or as to their existence, the one defrauded is entitled to their face value. In that case, due to fraudulent representations as to his lack of financial responsibility, Birch induced Campbell to compromise an indebtedness of $9,412.59 including over $6000 of judgments, and to agree to a reduction in the rental payments of a five year lease from $1000 to $500 per month, all for a payment of $6000. Later, discovering the fraud, Campbell sued in fraud and deceit to recover the indebtedness including the face value of the judgments, and the accrued rental. The court held that where there is an undisputed claim the defrauded party does not have to prove collectibility, distinguishing the facts of its case from Westerfeld v. New York Life Ins. Co., 129 Cal. 68, 58 P. 92, 61 P. 667, which held that where the compromise claim was a disputed claim, there must be proof of collectibility. The court then said, referring to the compromised claims: ‘In effect, the cause of action is one where the damage suffered by the defrauded party is fixed and certain—just as fixed and certain as if the defrauded party had technically rescinded. Obviously, if no compromise had been made, plaintiff would have been entitled to a judgment or judgments for the unpaid rent. The judgment in the present case is exactly in the amount the plaintiff would have been entitled to if no compromise, induced by defendants' fraud, had been negotiated. What other measure of damages would compensate the defrauded party under such circumstances? The only way the defrauded party can be made whole is to return to him the amount to which he admittedly would be entitled had the fraudulent compromise not been secured. To urge that the defrauded party must show that the undisputed liability was in fact collectible in the sense that the defendants were financially responsible is to bring in a false issue. Courts in rendering judgments are not interested in whether the plaintiff can collect the same—they are concerned with the amount of the damage suffered. The collectibility of the compromised judgments and claims and the collectibility of the present judgment, are matters which are entirely beyond the issues in this case. When the plaintiff proved the claims were fixed, definite and admitted as to their existence and amount he proved they were ‘collectible’ as that term is used in such cases.' 19 Cal.2d at page 793, 122 P.2d at page 910.

Defendants contend that on rescission all plaintiff would be entitled to was a return of the certificates. If this were true, then in the Campbell case, all the plaintiff would have been entitled to was the compromised claims rather than what the court held he was entitled to, their face value. Likewise, on such a basis, plaintiff in the Bank of America case would have been given back his judgment only, and not damages in its face value. Here, the claim (the face value of the certificates), and its existence could not be disputed. True, the question of whether it would be collectible was uncertain, but so were the judgments in the Campbell case. Here, the relation between the certificate holders and defendants was that of creditors and debtors. The amount of the debt was the face value of the certificates, and their value, as said in the Campbell case, is ‘prima facie the difference between the amount paid on the compromise and the face amount of the fixed and certain claim.’ 19 Cal.2d at page 793, 122 P.2d at page 910.

In Bank of America v. Greenbach, supra, 98 Cal.App.2d 220, 219 P.2d 814, we held that where a creditor had been induced by fraud to settle a judgment for less than its full amount, the creditor was entitled to restoration of the full judgment (less the amount paid) rather than a judgment for the creditor's pro rata share of the debtor's assets at the time of the fraud. ‘There is no authority cited, and no logical argument made, that support the conclusion that a creditor, fraudulently induced to enter into a settlement of his claim upon material misrepresentations as to assets, can or should be limited, in a rescission action, to a judgment for the pro rata share of the assets of the debtor as they existed on the date of settlement. The cancellation of an agreement of settlement necessarily has the effect of placing the parties where they were before the settlement was made. It is as if the settlement had never been made. Authorities are legion and uniform to the effect that the legal effect of a rescission is to restore both parties to their former position as far as possible. 3 Pomeroy, Equity Juris, 5th Ed., 578; 3 Black on Rescission and Cancellation, p. 1660, § 700; 15 Cor.Jur.Sec. [Compromise and Settlement] p. 767, § 43. The authorities also agree that, concurrent with the award of rescission, the trial court may award money damages or order such other relief as justice may require. 4 Cal.Jur. p. 797, § 27. In the present case the court cancelled the settlement agreement. It should then have reinstated the original judgment. The amount of that judgment is fixed and certain.’ 98 Cal.App.2d at page 238, 219 P.2d at page 827. To hold otherwise in this case would put a premium on fraud.

The mere fact that the debt of Pacific States to the certificate holder as evidenced by the certificate, was not immediately due or payable, does not make the amount of that debt any less fixed, definite or admitted. There is no logical distinction between the indebtedness in the Campbell case and the judgment in the Bank of America case, and the certificates in this case. Here there were no disputed claims as there were in Westerfeld v. New York Life Ins. Co., supra, 129 Cal. 68, 58 P. 92, 61 P. 667. On demurrer we must accept the allegations of the complaint as true. It is alleged, among other things, that the Pacific States fraudulently depressed the market so that it might induce holders to sell their certificates. If the measure of damages was the difference between the amount received and the then actual value of the certificates (the depressed market value) the defendants would be in the position of saying, in effect, ‘True, we fraudulently induced you to sell your certificates, but, as we had succeeded in holding their value down to the amount we paid you, there is nothing you can do about it.’ They would be profiting by their own fraud, and the courts would be standing helplessly by, permitting them to reap the harvest. The same would be true as to the actual value, as distinguished from the market value.

Thus, the measure of damages being the difference between the face value of the certificates and the amount paid, and the former being greater than the latter, plaintiff was entitled to retain the latter and therefore was not required to offer to restore. While the testimony and exhibits in Pacific States Savings & Loan Company v. Evans, Commissioner, referred to in plaintiff's proof of claim (this case on appeal is entitled Pacific States Sav. & L. Co. v. Hise, supra, 25 Cal.2d 822, 155 P.2d 809, 158 A.L.R. 955, indicate that the company was insolvent at the time of the alleged fraud and that the investment certificates were not worth their face value, the situation is no different from that in the Bank of America case, supra, where the court found that if at the time of the fraud all the debtor's assets had been liquidated, the $88,050.66 judgment would have brought only $29,300. Nevertheless, it was held that the measure of damages was the face value of the judgment. In our case, whether the certificates ever would be worth their face value was problematical, depending on the manner in which the company operated its affairs, and later, on the manner in which the building and loan commissioner operated them. However, if at that time, plaintiff proved the fraud, he would be entitled to a judgment for their face value. Nor would such judgment have placed him in substantially a better position than the certificate holders who kept their certificates. He would have been a creditor on a par with them. These certificates are ‘a type of unsecured note or debenture’, In Re Pacific Coast Bldg.-Loan Ass'n, 15 Cal.2d 134, 141, 99 P.2d 251, 254, and hence the relationship between the holder and the company is that of creditor and debtor. See Bureau of Welfare, etc., v. Drapeau, 21 Cal.App.2d 138, 68 P.2d 998. If the company was actually insolvent, his attempt to collect the judgment would have forced the commissioner to take the company over, and he would be paid only a pro rata of the assets together with the other creditors, including the other certificate holders. True, there would have been one difference between the judgment holder and the certificate holders. His judgment would be due and payable immediately. If the company were a going concern, the certificate holders would have to file the necessary notices to enable them to withdraw their deposits, and wait the statutory period for payment. If the company were insolvent, this delay would mean nothing as the judgment could not be paid. If the company were not involvent, there would be sufficient funds to pay both the judgment and the deposits, so that the short period which the certificate holders would have to wait would be only a minor distinction from the position of the judgment creditor. Practically speaking, the latter would have no advantage over the former. The fact that there was a market value for the certificates at the time of the sale does not affect the measure of damages. Particularly is this so where as alleged here defendants had fraudulently depressed that value. To hold that a building and loan company can by manipulation as charged depress the market, frighten the depositors, to whom there must necessarily be owed the duty of not misrepresenting the status of their deposits, into disposing of their certificates at the depressed market value, where, had they held on to them, they, like the others who did hold, would have received their full face value, and then for the courts to refuse to give relief because the holder had been paid that market value, would be making a mockery of justice.

As to one of the lists of assignors plaintiff alleges that the assignments of their certificates were obtained after plaintiff had given notice of rescission concerning all the other assignors and after said notices had been ignored and impliedly, refused, and that it would have been futile to give notice on behalf of the later assignors. Under the circumstances of the case, the giving of such notice would have been futile and therefore unnecessary.

Do Counts 6 and 7 State Causes of Action?

These count in damages for fraud and deceit. Even though the causes of action for rescission fall, plaintiff may include causes of action of this type. See Bancroft v. Woodward, 183 Cal. 99, 190 P. 445; MacIsaac v. Pozzo, 26 Cal.2d 809, 161, P.2d 449. The basic question here is whether any damage is alleged. There is no allegation that the purchase price was less than the market value of the certificates, nor less than their actual value. The whole theory of the complaint is that because of the alleged fraud the assignors were entitled to the difference between the purchase price and the face value of the certificates.

As we have shown in the discussion of counts 3 and 4, plaintiff's theory sets forth the correct rule of damages in this type of case. Therefore, it was unnecessary to plead either the actual or market value of the certificates at the time of the fraud. Each of these counts states a cause of action.

General Objections to Complaint.

Defendant makes a number of objections to the complaint, among others that the alleged fraudulent misrepresentations are mere expressions of opinion and that the allegations of market control by Pacific States do not show control. The allegations are sufficient. Again, it is claimed there is a variance between the fraud alleged and that pleaded, the one in the claim being based upon constructive fraud and that in the complaint being based upon actual fraud. The claim sufficiently informed the commissioner of the nature and amount of plaintiff's claim of actual fraud, particularly as the claim refers to the testimony and exhibits in the King and Evans cases. It must be remembered that in the Evans case the trial court found Pacific States guilty of actual fraud. Although the Supreme Court did not pass on this phase of the case, he reference to the Evans record sufficiently notified the commissioner that plaintiff's claim was not based on constructive fraud alone.

Defendants further contend that the fraud allegations are insufficient because based on information and belief. The situation here so far as this question is concerned is similar to that in North v. Cecil B. De Mille Productions, Inc., 2 Cal.2d 55, at page 58, 39 P.2d 199, at page 200, where the court said, concerning allegations of value: ‘Nor do we think the complaint was vulnerable to the general demurrer because the value was alleged upon information and belief. It requires no argument to demonstate the propriety of the allegation in so far as the appellants here are concerned. They came into the case long after the transactions were completed, and must of necessity rely upon information furnished to them by others. In so far as the plaintiff corporation is concerned, the complaint was verified by the secretary. It may be that the secretary had no opinion concerning the value of the interests transferred except that which came from others, i. e., information furnished by others. Under such circumstances it would be improper to require a verification of an allegation which could not be made. Section 446 of the Code of Civil Procedure was adopted for the express purpose of permitting an allegation to be verified upon information and belief rather than upon knowledge where the fact was not within the personal knowledge of the person sworn.’

Plaintiff's information here necessarily came from others. Moreover, by incorporating in the complaint the record in the Evans case, there is before the court positive charges of fraud.

Fiduciary Relationship.

Defendants contend that counts 4 and 7 are defective as they are based upon a claimed fiduciary relationship between Pacific States and the certificate holders. In Re Pacific Coast Bldg.-Loan Ass'n, supra, 15 Cal.2d 134, 99 P.2d 251, the rights of certificate holders of an association in liquidation as against the holders of new ownership shares was involved. In Bureau of Welfare, etc., v. Drapeau, supra, 21 Cal.App.2d 139, 68 P.2d 998, there was involved the claim of certain investment certificate holders that they should be preferred in liquidation as against the holders of its other investment certificates and other creditors. In the first case, the court said that the investment certificate was a type of unsecured note or debenture. In the second case the court said that there was no trust relationship between the building and loan association and the certificate holders. Neither of these cases holds that there may not be a fiduciary relationship between the association and its depositors. In Zottarelli v. Pacific States S. & L. Ass'n, 94 Cal.App.2d 480, 502, 211 P.2d 23, we held that there was no fiduciary relationship between the certificate holders and Pacific State's sole stockholder. That, however, was not a holding that as between the association and the certificate holders there was not a fiduciary relationship. The situation is somewhat similar to that between a bank and its depositors. That relationship has been held to be dual in character, the bank being at times the depositor's agent as well as being his debtor. See 9 C.J.S., Banks & Banking, § 267, p. 546. Certainly a fiduciary relationship exists between a principal and agent.

While the relationship is primarily that of debtor and creditor, still it must logically and necessarily follow from the very relationship itself that the association is in a quasi-fiduciary relationship, if not in a full fiduciary one to its depositors. To hold that a building and loan association in its relationship with its depositors holds them at arm's length at all times would make investment in building and loan deposit certificates a hazardous matter. If it was generally known that that was the situation the building and loan associations would have great difficulty in attracting depositors. By the very nature of things, there must be a relation of confidence between the association and the depositors.

The demurrer was properly sustained as to counts 1 and 2, but improperly sustained as to counts 3, 4, 5, 6 and 7. The judgment is affirmed as to counts 1 and 2, and reversed as to counts 3, 4, 5, 6 and 7.

BRAY, Justice.