IBANEZ v. FARMERS UNDERWRITERS ASSOCIATION

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Court of Appeal, Second District, Division 2, California.

Richard A. IBANEZ, as Executor of the Will of Glenn H. Fildes, Deceased, and Roy Clifford Fildes, Plaintiffs and Appellants, v. FARMERS UNDERWRITERS ASSOCIATION et al., Defendants and Respondents.

Civ. 42588.

Decided: November 04, 1974

Janet Vincent and Henry N. Cowan, Los Angeles, for plaintiffs and appellants. Lorin H. Albeck, Hollywood, Anderson, McPharlin & Conners by G. Wayne Murphy, and Sheppard, Mullin, Richter & Hampton by Richard L. Lotts, Los Angeles, for defendants and respondents.

Plaintiffs appeal from judgment in favor of defendants in an action brought to obtain replacement of securities allegedly wrongfully transferred by defendants.

PARTIES AND CAPACITIES:

Appellants brought suit as the owners of securities: Richard A. Ibanez (Ibanez) as executor of the will of Glenn H. Fildes (Glenn), deceased; and Roy Clifford Fildes (Roy), individually. Respondents are the issuers: Farmers Underwriters Association and Truck Underwriters Association (Underwriters); General Telephone Company of California (General Telephone); and Coca Cola Bottling Company of Los Angeles (Coca Cola), and their respective transfer agents: United California Bank (United), Crocker Citizens National Bank (Crocker), and Security Pacific National Bank (Security).

Action was brought on the theory of negligence and on the theory of statutory, strict liability of the issuers claimed under division 8 of the California Commercial Code, relating to investment securities. Appellants dismissed the causes of action based on negligence.

STATEMENT OF FACTS:

Mayme, the mother of Glenn and Roy, died on August 21, 1966. Glenn died on September 21, 1968. Ibanez was appointed executor of Glenn's will on October 17, 1968.

At the time of her death, Mayme owned corporate stock, some of which was held in the names of Mayme and Glenn, as joint tenants, and some in the names of Mayme and Roy, as joint tenants.

Although the certificates could not be found after Glenn's death, Ibanez's attorney, Janet Vincent, was able to and did make a list of the securities. There was no dispute with the correctness of the list.

Shortly after the death of Mayme, Roy and Glenn agreed that Glenn would work on the transfer of the stock for both of them. Glenn told Roy from time to time that he was ‘working on the transfers.’ There was no evidence of Glenn's having accomplished any such transfers of the securities. After the death of Glenn, Roy and his cousin (Thompson) spoke with Ibanez and his attorney, Janet Vincent. Roy, Thompson, Ibanez and Vincent made several searches of the home, automobile and office of Glenn to try to locate the stock certificates. Search was made from September 23 to some time early in November 1968. Vincent's list of the securities was finally prepared by October 4, 1968. Although some annuities and some uncashed dividend checks had been found, no certificate of the securities were found. On November 15, 1968, Vincent sent a letter to each of the transfer agents. The letters were essentially similar (except for the name of the company and serial numbers of the certificates). The letter to each explained Vincent's capacity, that Mayme and Glenn had died, that Mayme owned certain securities with Glenn and with Roy, and gave the serial numbers. The letter contained also the following language:

‘Unfortunately we have not been able as yet to find the stock certificates which were in the possession of Glenn H. Fildes at the time of his death. . . . We have started proceedings to . . . be able to obtain Consents to Transfer. Please let me know what you will require in order to have this stock transferred . . . I think at this time we shall have to assume that we are dealing with lost stock certificates.’

By the time the letter was received, all Underwriters and General Telephone and some of Coca Cola securities had been transferred. In addition, some Coca Cola certificates had been presented for transfer, but not yet cancelled by Security.1 After further communication with Security, Vincent sent a stop notice dated January 7, 1969 to Security. By that time all of the Coca Cola securities had been transferred (with the exception of those presented thereafter and now being held). The certificates by unknown means had come into the possession of other persons not parties to this action. It was later learned that these securities were among the securities in the possession of certain defendants (not parties here) convicted in a criminal action for transporting stolen and forged securities. How and when the criminal defendants obtained the securities is unanswered in the record before us.

The trial court gave judgment in favor of all defendants on all causes of action that appellants had not dismissed.

APPELLANTS' CONTENTIONS:

Appellants contend (1) the judgment is not supported by the findings of fact; (2) the securities were not endorsed by an ‘appropriate person’ and the endorsements were unauthorized (meaning that the signatures were forgeries); (3) appellants notified respondents of the loss of the securities within a reasonable time after appellants had notice of the loss (claiming that Vincent's letter of November 15 was proper notice); (4) appellants are entitled to replacement of the securities which have not yet been transferred and which Security is holding; (5) the evidence does not support the findings.

DEFENDANTS' CONTENTIONS:

In support of the judgment defendants assert: (1) plaintiffs failed to give timely notice; (2) plaintiffs are ‘otherwise precluded’ from recovery; and (3) plaintiffs failed to prove that the signatures were forged or unauthorized.

DISCUSSION:

The evidence was entirely uncontradicted. Even so, we are not necessarily at liberty to draw our own legitimate inferences and decide the case according to our personal view. Where different inferences may reasonably be drawn from undisputed evidence, we must accept the conclusion of the trial court. (Estate of Bristol, 23 Cal.2d 221, 223, 143 P.2d 689; see discussion in 6 Witkin, Cal.Procedure, p. 4245.)

On the other hand, we are not bound by the conclusions of the trial court if the inferences drawn are wholly improper, or which, although seemingly reasonable from certain evidence, are conclusively rebutted by other evidence. We are required to review the evidence and make an independent determination of the meaning. (See Parsons v. Bristol Development Co., 62 Cal.2d 861, 44 Cal.Rptr. 767, 402 P.2d 839.) Guided by these rules, we conclude that the judgment must be reversed.

1. The endorsements.

The rules governing the transfer of securities are largely statutory. There is no California case called to our attention governing the particular problem presented here. The statutes are found within Commercial Code, division 8, sections 8101 to 8406. Appellants' right to recover is based upon section 8311 of the Commercial Code,2 which provides:

‘Unless the owner has ratified an unauthorized indorsement or is otherwise precluded from asserting its ineffectiveness

‘(a) He may assert its ineffectiveness against the issuer . . .; and

‘(b) An issuer who registers the transfer of a security upon the unauthorized indorsement is subject to liability for improper registration (Section 8404).’

Here, appellants claimed that the issuers (through their transfer agents) registered transfers upon the forged endorsements of Mayme, Glenn and Roy. Roy testified that the signatures on these certificates3 were not those of Mayme, Glenn or himself. Mr. Mire, an expert witness, testified that in his opinion the signatures were forged (someone other than the named persons signed the certificates).

The trial court ‘found’ and concluded that the endorsements on all securities were ‘authorized endorsements.’ This is wholly unsupported by any evidence and contradictory to the direct evidence. Mindful that we do not reweigh evidence and that the trial court is in a better position to weigh conflicting evidence, we are nonetheless compelled to our conclusion because the trial court did not have any conflicting evidence to weigh against the evidence of forgery. We can only gather that the trial court assumed that the presumption of the genuineness of the signatures (§ 8105) applied and therefore governed it and limited its discretion. Section 8105 provides in part:

‘(2) In any action on a security . . .

‘(b) When the effectiveness of a signature is put in issue the burden of establishing it is on the party claiming under the signature but the signature is presumed to be genuine or authorized; . . .’

The trial court concluded that the plaintiffs had the burden of proof to overcome this presumption and that they failed to do so. Accepting for the moment the trial court's view that plaintiffs did have the burden to prove that the signatures were not genuine, the plaintiffs did meet such burden and they did produce such evidence. There was no evidence to the contrary, but only the presumption of section 8105(2)(b), supra. This presumption was not sufficient to prevent plaintiffs from recovering. The effect of the presumption was only to require the trier of fact ‘. . . to assume the existence of the presumed fact unless and until evidence is introduced which would support a finding of its nonexistence, in which case the trier of fact shall determine the existence or nonexistence of the presumed fact from the evidence and without regard to the presumption . . .’ (Evid.Code, § 604.) Although this same Evidence Code section also states ‘. . . nothing in this section shall be construed to prevent the drawing of any inference that may be appropriate,’ there is no contrary inference that the trial court could appropriately make. It would be sheer speculation to infer that possibly somehow Mayme, Glenn or Roy sold or delivered the certificates on some sort of securities ‘black market,’ or sold them unendorsed to some ‘fence’ with permission to sign them or that Glenn alone sold all and pocketed the money. This latter conclusion is suggested by respondents in argument. This is unfounded and inappropriate. There was no evidence upon which any such inferences could be made.

Directing our attention for a moment to Roy and the securities belonging to him assists in explaining why at least as to him the judgment is manifestly erroneous. Roy entrusted his certificates to his brother, but nonetheless his agent, Glenn. Glenn was thus charged with a fiduciary obligation of faithfully carrying out the trust. Glenn was ‘to do whatever was necessary’ to complete the transfer of the securities which Roy owned (as surviving joint tenant to Mayme). Glenn was not authorized to sell and did not need to sell the securities. It was not necessary for Glenn to surrender the certificates to the securities or to exchange them for new certificates.

Upon the death of Mayme, Roy acquired the certificates as surviving joint tenant. Glenn was to ‘do whatever necessary.’ This did not require any sale of the securities and therefore authority to do so cannot be implied by law. Assuming for the moment that for some reason Glenn did sell all of the securities,4 including Roy's, Glenn had no authority, express, implied or ostensible, to sell Roy's securities.

‘It is the general rule that equity regards and treats the relation of principal and agent in the same manner and with nearly the same strictness as that of trustee and beneficiary. [Citations.] The law requires perfect good faith on the part of agents, not only in form, but in substance, and not only from agents receiving compensation but also from gratuitous agents . . .’ (Webb v. Saunders, 89 Cal.App.2d 732, at pp. 735–736, 201 P.2d 816, at p. 819.)

‘He [the gratuitous agent] is bound, not only to exercise good faith, but also to obey the instructions of his principal . . .’ (Brand v. Mantor, 6 Cal.App.2d 126, 131, 44 P.2d 390, 392.)

Ernst v. Searle, 218 Cal. 233, 22 P.2d 715, expresses the same principle. The court there held that a real estate agent, who secured a deed for the purpose of effecting an exchange of properties, and who was instructed to effect an exchange and not a sale of the grantor's property, had neither actual nor ostensible authority to deliver the deed to the grantee except as a part of an exchange. This limitation of an agent's authority is again illustrated in a case cited by appellants, Krick v. First National Bank of Blue Island, 290 N.E.2d 661, Illinois Appellate Court, Division 1, 1972, where, at page 664, the court said:

‘The fact that Irving Krick had access to his sister's deposit box and was thereby able to obtain possession of her securities does not give rise to a cloak of apparent authority. Possession of personal property by an agent does not confer upon him ostensible authority to sell.’

Roy categorically and without contradiction testified that he did not sign his own name and that he did not authorize Glenn to sign his name. There was no written general or special power of attorney executed by Roy to Glenn. No written authorization to sign Roy's name was given by Roy. A written authorization would have been required. (Civ.Code, § 2309.) None accompanied any signature guarantee. Thus, the signature guarantee of Roy's name on the securities would have been based only upon a forgery. The mere possession by an agent of a document ‘in blank’ does not confer authority on the agent to sign, nor is it evidence of apparent authority. (Civ.Code, § 2309; see Monte Carlo Motors, Inc. v. Volkswagenwerk, 177 Cal.App.2d 107, 1 Cal.Rptr. 920.) Respondents argue that the trial court was justified in finding that Glenn was Roy's agent and that Roy's signature on the certificates was authorized (implying that Glenn had signed Roy's name to the certificates). However, there is no such ‘finding’ by the trial court and there is no evidence which would support such a finding.

With reference again to all of the purported endorsements, we consider section 8308. It reads:

‘An indorsement of a security in registered form is made when an appropriate person signs on it . . .. ‘An appropriate person’ in subdivision (1) means (a) The person specified by the security . . . or . . . (e) Where the security . . . specifies more than one person as tenants . . . with right of survivorship and by reason of death all cannot sign—the survivor or . . . his authorized agent.'

An appropriate signature under this section which would have been needed in the present case would be made by Glenn or Roy as survivors and not as representatives of Mayme. No signature of Mayme could or should have been made because she was deceased. Furthermore, no personal representative would sign Mayme's name but would sign his own name as personal representative. Here there was no personal representative of Mayme. As to Mayme's death, there were only ‘survivors' in two separate joint tenancies. There was no evidence that Mayme in fact signed any certificates before her death. Such act would be idle if she intended to make no sale or transfer during her life. Any presumption of the signatures of Mayme as genuine is almost valueless in view of the fact that her ‘signature’ appears on securities issued before and after her death.

In addition to the testimony of Roy and the handwriting expert described above, there was evidence furnished through written admissions of all defendants prior to trial that the specifically listed securities were among those which certain other defendants in the federal criminal trial were convicted of transporting in interstate commerce as stolen and forged. It was admitted that some of the securities had been in Chicago just a few days after Glenn's death. When seen there the securities had no endorsements upon them.

The evidence which we have reviewed above was more than enough to meet any burden of proof required of plaintiffs and certainly rebutted and did away with the effect of any presumption of genuineness described in section 8105. The defendants did not present any evidence to rebut this evidence of plaintiffs. The preponderance of the evidence thus most clearly favored plaintiffs' side. Appellants and respondents argue concerning whether the presumption of genuineness of signature of section 8105 should apply in cases where the purported endorser is dead. Appellants make an arguable point that the presumption does not apply in such cases. They refer and make analogy to section 3307(1)(b) applicable to negotiable instruments.5 We do not decide that section 8105 does or does not apply in cases where the alleged endorser is deceased. We have treated the issue before us as though it does apply, but we conclude that plaintiffs well met the burden of proof to remove the effect of such presumption.

As to the particular fact of forgery, plaintiffs produced evidence which was unrebutted and uncontradicted. Such required a finding in their favor on such fact. It then became incumbent upon defendants to produce evidence to so contradict or rebut, and failing to do this the court was required to find against defendants on the issue of the genuineness of the endorsements. (Evid.Code, § 550.)

2. The findings of the court concerning the genuineness of the endorsement.

The so-called ‘findings of fact’ of the trial court are fatally defective on this issue. ‘Findings of Fact’ on this issue are:

‘18. The evidence at trial failed to show whether or not the securities mentioned herein were indorsed by MAYME FILDES PETERSON at the time of her death or by GLENN HARDING FILDES at the time of his death, or whether said securities had been indorsed by GLENN HARDING FILDES on behalf of ROY CLIFFORD FILDES.

‘19. The signatures of GLENN HARDING FILDES, ROY CLIFFORD FILDES and MAYME FILDES PETERSON are presumed to be genuine or authorized.

‘20. Plaintiffs failed to establish by a preponderance of the evidence that the signatures of GLENN HARDING FILDES, ROY CLIFFORD FILDES and MAYME FILDES PETERSON were not genuine or were unauthorized.

‘21. The securities mentioned herein were transferred over authorized indorsements.’

Numbers 18, 19 and 20 are not findings at all. ‘Finding’ No. 21 is more of an unsupported and actually contradicted conclusion than a finding of fact. If the court had more adequately disclosed the other facts it found, No. 21 may then have passed muster as an ultimate fact. Under the present circumstances it is insufficient and incorrect.

There are no specific findings on the following material fact issues, all of which are probative of the ultimate fact:

1. Were the certificates endorsed by Mayme at the time of her death?

2. Were the certificates endorsed by Glenn at the time of his death?

3. Did Glenn endorse the securities on behalf of Roy?

4. Were the endorsements, or any of them, forgeries?

5. Were the endorsements, or any of them, made by someone else who had been authorized by Mayme, Glenn or Roy to make them?

On which of these did the court affirmatively conclude to reach its ‘finding’ No. 21?

Plaintiffs asked for and were denied findings on these questions. They were entitled to complete findings, directly answering these questions. Such answers and special findings were very necessary to the resolution of this case. (Ball v. American Trial Lawyers Assn., 14 Cal.App.3d 289, 92 Cal.Rptr. 228.)

Where findings are required, they shall fairly disclose the court's determination of all issues of fact in the case. (Code Civ.Proc., § 632.)

Findings should be framed as to enable the vanquished party in the litigation to specify intelligently the particulars in which such findings are not supported by the evidence. (Murphy-Contrell Co., Inc. v. Mulcahy, 72 Cal.App. 426, 432, 237 P. 557.)

3. The meaning of the words ‘otherwise precluded’ in the statute.

The signatures were unauthorized. Section 8311 provides in part applicable here:

‘Unless the owner has ratified an unauthorized indorsement or is otherwise precluded from asserting its ineffectiveness

‘(a) He may assert its ineffectiveness against the issuer . . . and

‘(b) An issuer who registers the transfer of a security upon the unauthorized indorsement is subject to liability for improper registration (Section 8404).’ (Emphasis added.)

There was no evidence of ratification of any forgery or illegal act and no evidence showing that plaintiffs should be estopped from claiming the return of securities or their value. Again, Krick v. First National Bank of Blue Island, supra, 290 N.E.2d 661 Illinois Appellate Court, Division 1, 1972, provides appropriate language. there the bank claimed that plaintiff should be precluded from asserting the ineffectiveness of unauthorized indorsements on securities because plaintiff had given her brother authority to enter her safe deposit box and to sign on her checking account. Her brother feloniously took the certificates from the safe deposit box and pledged them, forging his sister's indorsements. The court said:

‘We do not agree that plaintiff should be estopped from asserting the ineffectiveness of her brother's forgeries. . . . ‘Before a party can asset an estoppel against another, two things must be proven: first, that he acted and relied upon the conduct or representation of the party sought to be estopped; and, second, that he was without knowledge of such facts and had no ready means by which he could have acquired it.’

At bench, there is no evidence that in registering the transfer of the securities on the unauthorized endorsements, respondents, or any of them, acted and relied upon any conduct or representation of appellants or of Mayme or Glenn. The evidence is clear that respondents relied only on the signature guarantees.

There is no evidence that plaintiffs or their predecessors in interest, Mayme and Glenn, did anything to cause the loss, and thereby make applicable in some vague manner the ‘otherwise precluded’ language of the statute. Further, the inadequacy of the findings is again demonstrated. We do not know for what reason or fact the court concluded that plaintiffs are ‘otherwise precluded.’ Is it because Glenn had the securities for two years? Is it because Roy failed to hire his own lawyer? Is it because some personal representative did not search earlier? Is it because some act of plaintiffs misled any or all defendants to their detriment? We are not adequately informed by the findings.

4. The notice.

The trial court ‘found’ and concluded that plaintiffs failed to give defendants reasonable notice of the loss or theft of the securities and were precluded from recovering replacement securities. This was error and unsupported by the evidence.

A forged endorsement passes no title. This rule results in strict liability upon the issuer. To prevent harsh results by application of strict liability in all cases, the rules of notice exist. The particular rule pertinent here and upon which defendants rely is section 8405. It reads:

‘(1) Where a security has been lost, apparently destroyed or wrongfully taken and owner fails to notify the issuer of that fact within a reasonable time after he has notice of it and the issuer registers a transfer of the security before receiving such a notification, the owner is precluded from asserting against the issuer any claim for registering the transfer under the preceding section or any claim to a new security under this section.’

By its terms the statute would not bar plaintiffs' right to recover unless (1) they knew of the loss, apparent destruction or wrongful taking, and (2) the notice from attorney Janet Vincent (described earlier in our statement of facts) was not within a reasonable time.

The evidence conclusively proves that at the time of Vincent's letter, the plaintiffs actually did not know that the securities were in fact stolen (which eventually turned out to be the case), or had been apparently destroyed or had been lost. The only person who could actually have known if they were missing from the place of keeping was Gienn. He was dead. None of the plaintiffs were persons who put the securities in a particular location of keeping, and by which their absence therefrom would be immediate notice of their being possibly stolen, destroyed or lost. The plaintiffs here made honest, conscientious search, not knowing where exactly to look. Glenn kept such valuables in many hiding places. By the time of Vincent's letter of November 15, the plaintiffs were still doing the best they could to find and failing to fine, they did the next proper thing. still without actual knowledge of the existence or location of the securities. Concerned with the lack of success and assuming that they were lost, plaintiffs imparted all of their then knowledge of what Glenn had possessed at his death, their failure to find or locate the securities, and the identifying data to defendants by the November 15 letter of Vincent. These facts (including the act of Vincent's writing the letter) do not make actual notice nor create a constructive notice chargeable to plaintiffs. The statute does not say ‘after he has facts which would put a reasonable man on notice.’ It says ‘after he has notice.’ Thus, there can be no duty to notify the issuer until there is actual notice on the part of the owner.

Assuming for discussion a duty of plaintiffs to have sent the information contained in Vincent's letter of November 15, 1968, we hold that the notice was reasonable. Gienn died on September 21, 1968. Roy had no legal right and no duty to take or hold any of Glenn's property. Ibanez was the executor of Glenn's will. Roy had to deal with Ibanez. Ibanez moved promptly to be appointed executor. Ibanez had no legal authority to search through Glenn's possessions or act as personal representative until court approval. Such order was made on October 17, 1968. Ibanez, Roy and Vincent met as early as September 23, 1968, and began searching. There were many places to look, Glenn's house, office at work, garage, and a great mass of material to be sorted through. It was a good practical act by Ibanez (Glenn's attorney for twenty years) to utilize the time while waiting for formal appointment by the court. This early search could only be informal and limited. Only after appointment could Ibanez properly ask employers, business associates, banks, and other offices for entry or examination of matters and documents pertaining to Glenn in order to complete the search. The plaintiffs used less than one month of time from Ibanez's appointment until sending the letter. Even considering the time from the date of death, under all the circumstances this was not unreasonable notice. (Schneider v. Union Oil Co., 6 Cal.App.3d 987, 86 Cal.Rptr. 315; Scovenna v. American Tel. & Tel., 54 Misc.2d 74, 281 N.Y.S.2d 854; Weller v. American Tel. & Tel., Delaware Court of Chancery, 1972, 290 A.2d 842).

The judgment is reversed.

FOOTNOTES

1.  There are also certificates being held by Security presented for transfer by other transferees but not yet transferred.

2.  Unless otherwise noted, all references to ‘section’ or ‘code section’ are to the Commercial Code.

3.  At the time of trial, photocopies of the securities became available and were used in trial.

4.  We explain below that this was not proven and that the evidence contradicts and prohibits such an inference.

5.  Section 3307(1)(b) reads in part: ‘The signature is presumed to be genuine or authorized except where the action is to enforce the obligation of a purported signer who has died. . . .’ But see section 8102(b) which expressly states that securities are governed by the division of the statute on securities (division 8), which has no such provision as section 3307(1)(b), and not by the division of the statute on commercial paper (division 3) which contains section 3307(1)(b).

BEACH, Associate Justice.

FLEMING, Acting P. J., and COMPTON, J., concur.