FRIGARD v. William S. Curtis, as Receiver, etc., Lien Claimant and Respondent.

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

Louis T. FRIGARD, Plaintiff, v. John WINSTON, Jr., Individually and as a Professional Corporation, Defendants; Security National Bank, Intervener and Appellant, William S. Curtis, as Receiver, etc., Lien Claimant and Respondent.

Civ. 46376.

Decided: May 13, 1981

Kornfield & Koller, Lynn Anderson Koller, Irving J. Kornfield, Oakland, for intervener and appellant. Fitzgerald, Abbott & Beardsley, James R. Lambden, Oakland, for lien claimant and respondent.

Security National Bank, describing itself as “real party in interest,” appeals from an order of the superior court dated November 22, 1976, directing it to return sums of money previously paid to it by one of the receivers appointed in the action from which its appeal emanates.

In order to resolve the involved and confusing factual context of the appeal we have augmented the incomplete record furnished us by Security National Bank by bringing up the many (11), and voluminous, superior court files of the action. Where there is factual dispute we follow the rule of Green Trees Enterprises, Inc. v. Palm Springs Alpine Estates, Inc., 66 Cal.2d 782, 784-785, 59 Cal.Rptr. 141, 427 P.2d 805, that where the trial judge's factual determination is “attacked on the ground that there is no substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether there is any substantial evidence, contradicted or uncontradicted, which will support the finding of fact (P) When two or more inferences can reasonably be deduced from the facts, a reviewing court is without power to substitute its deductions for those of the trial court.”

So construing the record we narrate the relevant evidence upon which the questioned order was based.

Louis T. Frigard and John Winston, Jr., chiropractors, had practiced their profession together as Winston-Frigard, a professional corporation, which corporation later changed its name to John Winston, Jr., a professional chiropractic corporation. (For convenience and clarity we shall hereafter refer to those parties, respectively, as Frigard, Winston, and the Corporation.) On or about March 1, 1974, Frigard sold and transferred to Winston his one-half interest in the Corporation's shares on deferred payments totaling $50,000. The Corporation was heavily indebted. Among its debts were obligations to Security National Bank and Bank of America, of approximately $50,000, which obligations Frigard had personally guaranteed. The agreement of sale had provided: “All obligations of the corporation that have been personally guaranteed by Louis T. Frigard shall be guaranteed further by the present and future assets of the corporation, and personally guaranteed by John Winston, Jr.”

On November 12, 1974, Frigard commenced the instant action against Winston and the Corporation. Its complaint alleged that Winston, having assumed sole ownership and management of the Corporation, had been diverting the corporate assets “to his own personal use and benefit,” rendering impossible liquidation of the Corporation's obligations to Security National Bank and Bank of America. It was further alleged that Winston was in default under the agreement of sale and that he was insolvent and unable to respond in damages. The relief sought, among other things, was appointment of a receiver to manage and control the Corporation and its assets, consisting mostly of accounts receivable, until a judicial accounting and adjustment of the parties' rights might be obtained.

The requested receiver was appointed by the superior court. (He was the first of five, including the instant receiver who is the respondent of this appeal. The first four, for varying reasons here irrelevant, have resigned or been dismissed.)

Thereafter Winston was declared a voluntary bankrupt in the United States District Court, and a trustee in bankruptcy was appointed, or elected by his creditors.

On March 18, 1975, Security National Bank was permitted to intervene in the superior court action.

On April 21, 1975, Winston's trustee in bankruptcy was also permitted to intervene in the action. As is well known, he had become the owner in trust, for the benefit of creditors, of Winston's property not exempt from execution. His proceedings and complaint in intervention were on notice to, and well known to, all other parties of the action including Security National Bank and its attorneys.

The trustee in bankruptcy's complaint in intervention alleged, among other things and in effect, that the Corporation was, and was treated by Winston as, his alter ego, that the accounts receivable collected by the Corporation's receiver had resulted from services rendered by Winston personally and not by the Corporation, and that by operation of the bankruptcy law he, as trustee, was the owner of and entitled to such income for the benefit of Winston's creditors generally.

On May 14, 1975, the Corporation had assets of an amount upwards of $100,000. They consisted, as noted, mainly of accounts receivable from chiropractic patients and others. It also had creditors in addition to Security National Bank and Bank of America. Among many others, they included about 30 unpaid wage claimants having about $12,000 due them, the Director of Internal Revenue with a claim of $4,000, and the Corporation's lessor claiming many thousands of dollars of unpaid rent. And the superior court had determined that a justiciable controversy existed whether such assets and liabilities were, in whole or in part, and in fact or in law, those of Winston, and thus subject to administration of the bankruptcy court, and trustee.

On that day, May 14, 1975, without notice to the intervener trustee in bankruptcy, Frigard, Winston, the Corporation, and Security National Bank, by their respective attorneys, and the then current receiver appeared in the superior court. They presented to the court a signed stipulation that the court might make its order (we quote its significant parts) directing the receiver, from the funds in her hands, to:

“(P)ay forthwith to Security National Bank the sum of $23,000, and to Bank of America the sum of $15,310.90 from the receivership assets, on condition that Security National Bank and Bank of America agree that, if it is subsequently determined by a court of appropriate jurisdiction, the funds currently being held in the receivership, or any part of them, properly are the property of the trustee in bankruptcy (of) Winston, that any payments ordered herein be returned to the receiver in pro tanto proportions.”

The stipulation further provided that its subject order state:

“IT IS ORDERED that a receiver's accounting to the date of this order is waived by the parties.

“IT IS ORDERED THAT All monies collected by the receiver subsequent to the date of this order are to be divided as follows: The receiver is to deduct biweekly the amount of her direct expense in collecting the receivables. The net amount remaining after such deduction of expenses shall be divided into three equal portions. One portion shall be paid forthwith by the receiver without further order of the court to the Security National Bank until the Security National Bank is paid in full on the obligations owed to it by either the plaintiff or the defendants. After Security National Bank receives payment in full of said indebtedness by plaintiffs (sic ) and defendants, said portion shall thereafter be applied to said indebtedness to Bank of America until the same is fully paid and satisfied. A second portion shall be paid forthwith to John Winston, Jr., an individual, without further order of court, for services rendered in connection with collecting the aforesaid receivables. The third portion shall be reserved by the receiver to pay other obligations of the receivership including, among other things, any fees to the receiver of her legal counsel that may be awarded by the court.”

Beneath the signatures of the stipulating parties was the short typed sentence, “It is so ordered.” We reasonably infer that the court was led to believe, or at least believed, that the stipulation was the agreement of all of the action's parties including representatives of affected creditors. In any event the order was signed and filed by the superior court.

Security National Bank explains the lack of notice to the above-noted creditors and trustee in bankruptcy as follows: “The current Receiver boldly asserts that no notice was given to the creditors when the court entered its Order of May 14, 1975. The simple answer to this assertion is that in fact no notice was given and the reason was that none was required.”

For convenience we shall hereafter simply refer to the above order of May 14, 1975, as the Order.

The parties had caused no reporter's record of the oral proceedings on the Order to be made or preserved.

Following entry of the Order, the receiver forthwith made payments to Security National Bank and Bank of America as directed by it. (The payments thus made by the receiver under the Order form the subject matter of the later order of November 22, 1976, from which Security National Bank has appealed.)

Sometime thereafter the intervener trustee in bankruptcy was advised by Security National Bank, or someone on its behalf, of the signing and filing of the Order. Just when, the record does not show.

Upon obtaining such information the trustee in bankruptcy moved the superior court to set aside the Order, and require return to himself of the sums paid under it to Security National Bank and Bank of America. He declared: “Said motion will be made upon the grounds that said Order was made without notice to this moving party, and is contrary to law and equity.” The hearing on the motion was set, or continued, to be heard on July 3, 1975. On the same date hearings were set for other matters in the action including a petition of the then current receiver for approval of her third and final report and account, and her resignation as such receiver. The report and account recited her payments to Security National Bank and Bank of America as required by the Order.

On the July 3, 1975, date of the hearings, the trustee in bankruptcy was somehow persuaded that he should abandon pursuit of his motion. The proceedings were unreported, but they were later explained by Security National Bank in this manner: “And pursuant to stipulation, more or less, the court on July 3, 1975 entered an order approving the accounting of the receiver, which also included the payments to the two banks in question. At that same hearing on July 3, 1975, Mr. Barton (attorney for the trustee in bankruptcy) dropped, orally dropped, his motion to have the prior order vacated because he was satisfied with the provisions. The stipulation specifically provided that the May 14th stipulation specifically provided that the payments would be made. But if it was determined at a subsequent point in time by a court of competent jurisdiction that we weren't entitled to the money that, at least Security National Bank was agreeing to give it back to the trustee in bankruptcy. And under those conditions, Mr. Barton really had no objection to the order, and at that point in time dropped his motion.”

The superior court thereupon ordered the receiver's third and final report and account confirmed.

The superior court's order approving the receiver's third and final report and account necessarily embraced her payments to the banks under the Order upon the clearly implied condition (which we emphasize) i. e., “if it was determined at a subsequent point in time by a court of competent jurisdiction that (the banks) weren't entitled to the money that, at least, Security National Bank was agreeing to give it back to the trustee in bankruptcy,” or his successor in interest for the benefit of creditors generally.

(The trustee in bankruptcy had no personal interest in the litigation; he represented Winston's third-party creditors for whose benefit the above-noted condition was made (see Civ.Code, s 1559; Sutter v. Gamel, 210 Cal.App.2d 529, 532, 26 Cal.Rptr. 880; Sherwood & Sherwood v. Gill & Lutz, 36 Cal.App. 707, 711-712, 173 P. 171). His rights, as such trustee, were subject to equitable assignment, by operation of law, to any legally appointed state successor for the benefit of creditors (Sisk v. California National Bk., 1 Cal.2d 681, 684-685, 36 P.2d 1073; Gintel v. Green, 165 Cal.App.2d 723, 725, 332 P.2d 298; McKay v. Security-First Nat. Bank, 35 Cal.App.2d 349, 353-354, 96 P.2d 376; Gomes v. Warn, 33 Cal.App.2d 313, 314), 91 P.2d 214.)

Around that time (the date is uncertain) the Corporation also was declared a bankrupt.

The receiver, before her successor was appointed, had been “served with an order of the bankruptcy court to turn such records and monies that she had had in her possession after the accounting over to the bankruptcy trustee, which she did.” (Emphasis added.)

The trustee in bankruptcy thereupon moved the superior court to terminate the receivership for the reason, perhaps among others, that its duties had ended. The motion was continued from time to time; the reasons do not appear.

While the trustee in bankruptcy's last above mentioned motion was pending and undecided, Winston and the Corporation appeared before the bankruptcy court, urging that the claims of their creditors would best be protected, and paid, in the state judicial proceedings. On their motions the bankruptcy proceedings were terminated, as a result of which the bankruptcy court and trustee in bankruptcy lost jurisdiction over the case and no longer participated in it. His trusteeship, for the benefit of Winston's and the Corporation's creditors, had by operation of law passed back to the receiver.

Frigard soon thereafter appeared in the superior court and moved that the condition of the Order (q. v., p. 761 ante ), that the banks return any sums paid them under it to the trustee in bankruptcy upon order of the court so to do, be “expunged.” The apparent reason therefor was the termination of Winston's and the Corporation's bankruptcy proceedings and the authority of the trustee in bankruptcy. The motion was ex parte, and without notice to the newly appointed successor receiver or any of Winston's creditors, some of whom had by that time personally appeared in the action. The hearing, as with the Order, was unreported.

Frigard had thus achieved (at least purportedly) the objective of his action, i. e., the preferential payment to the banks of Winston's and the Corporation's obligation to them, and his corresponding release from liability under his personal guaranty of those obligations.

In the meantime the receiver, or receivers, of the action had paid Winston tens of thousands of dollars (the precise amount is unclear), at least partly under the Order's above quoted “second portion” of its “three equal portions” clause (q. v., p. 761 ante ). And as will be seen, “not one other creditor (including the 30 wage claimants had) been paid.”

Soon after those proceedings Security National Bank, having been paid in full and relieved of the Order's conditional obligation to repay, requested dismissal without prejudice of its complaint in intervention. It was dismissed as requested.

On October 5, 1976, the fifth successive and now acting receiver, who is the respondent herein, moved the superior court to vacate the Order on the ground that it was “null and void on the face of the record for want of jurisdiction and notice to adverse claimants ” The motion was made upon notice to all of the then parties of the action, and to Security National Bank and Bank of America.

At the hearing on the successor receiver's motion Security National Bank, whose complaint in intervention had as noted been dismissed, appeared by counsel and resisted the motion. The appearance was a general one, and Security National Bank was treated, and afforded the same full and untrammeled rights and privileges, as would be a party to the action.

The respective contentions at the hearing may reasonably be reduced as follows. The successor receiver pointed out that “these banks were paid $50,000 or $60,000, and not one other creditor of Dr. Winston has been paid,” and that “we feel it is wrong (and contrary to ”equity“) to prejudice all the other creditors by paying the banks.” It was further stated: We “just feel that one should analogize in a situation like this to a federal bankruptcy, and bring about a situation where at the end of the receivership you have all the funds that you have collected, and then and only then should you decide who is to get paid.” Security National Bank responded: “We are going to be deeply prejudiced if we have to turn back these funds into this court and then we are going to have to go out and sue Dr. Frigard and take the position that his guarantees are still viable.”

The superior court determined that the Order “exceeded the jurisdiction of the court and that said order was, and is, void and a nullity.” An order was filed, November 22, 1976, vacating the Order and requiring Security National Bank and Bank of America to repay to the successor receiver such sums as had earlier been paid them under it.

It is the order of November 22, 1976, from which Security National Bank has appealed. An appeal taken by Frigard has, at his request, been dismissed. Bank of America is not a party to the appeal.

We have read and considered the entire relevant record and the briefs and arguments of the parties. We find the appeal devoid of merit and frivolous, for the reasons which follow.

It is first observed that the trustee in bankruptcy, while acting as representative of Winston's creditors (Commercial Credit Corporation v. Skutt (8th Cir.) 341 F.2d 177, 181), had the authority and duty to collect, in trust for such creditors, the assets of the bankrupt estate including debts owed the bankrupt and money or property in the hands of third persons (Stutts v. Waldrop (5th Cir.) 377 F.2d 275, 276). The superior court, finding him to have “an interest in the matter in litigation,” had permitted his intervention. (See Code Civ.Proc., s 387.) He was thus a party to Frigard's superior court action, with a right to have adjudicated his and the creditors' interests in Winston's and the Corporation's assets. Such a right is a property right of which one may not be deprived without due process of law. (5th and 14th Amends.)

This “fundamental requirement of due process is ‘the opportunity to be heard.’ It is an opportunity which must be granted at a meaningful time and in a meaningful manner.” (Armstrong v. Manzo, 380 U.S. 545, 552, 85 S.Ct. 1187, 1191, 14 L.Ed.2d 62.) “It is a cardinal principle of our jurisprudence that a party should not be bound or concluded by a judgment unless he has had his day in court. This means that a party must be duly cited to appear and afforded an opportunity to be heard and to offer evidence at such hearing in support of his contentions. (Spector v. Superior Court, 55 Cal.2d 839, 843, 13 Cal.Rptr. 189, 361 P.2d 909.) ”Since the ‘right to a hearing is one of “the rudiments of fair play” assured by the Fourteenth Amendment (t)here can be no compromise on the footing of convenience or expediency when that minimal requirement has been neglected or ignored.’ (Ohio Bell Tel. Co. v. Public Utilities Com. (1937) 301 U.S. 292, 304-305 (57 S.Ct. 724, 730-731, 81 L.Ed. 1093) “ (Endler v. Schutzbank, 68 Cal.2d 162, 180, 65 Cal.Rptr. 297, 436 P.2d 297.) ”Every person directly affected by an action or proceeding is entitled to notice and an opportunity to be heard. “ (County of Alameda v. Clifford, 187 Cal.App.2d 714, 721, 10 Cal.Rptr. 144.)

A judgment or order abridging or disposing of a party's cause of action without notice and an opportunity to be heard is void (Thompson v. Cook, 20 Cal.2d 564, 569-570, 127 P.2d 909; City of Los Angeles v. Morgan, 105 Cal.App.2d 726, 730-731, 234 P.2d 319), and beyond the court's jurisdiction to enter (Thompson v. Cook, supra, 20 Cal.2d p. 569, 127 P.2d 909; Young v. Young, 14 Cal.App.3d 1, 3-4, 92 Cal.Rptr. 148; Kallman v. Henderson, 234 Cal.App.2d 91, 99, 44 Cal.Rptr. 108; 5 Witkin, Cal. Procedure (2d ed. 1971) Attack on Judgment in Trial Court, ss 10-11, pp. 3590-3593). Where, as in the case before us, lack of notice and opportunity to be heard appears from the record, the judgment or order will be set aside at any time the defect becomes known to the court. (Hayashi v. Lorenz, 42 Cal.2d 848, 851, 271 P.2d 818; People v. West Coast Shows, Inc., 10 Cal.App.3d 462, 467, 89 Cal.Rptr. 290; Fidelity Bank v. Kettler, 264 Cal.App.2d 481, 486, 70 Cal.Rptr. 500; City of Los Angeles v. Morgan, supra, 105 Cal.App.2d p. 730, 234 P.2d 319.)

And a judgment or order which “is initially void is ever void and life may not be breathed into it by lapse of time Moreover, if a plaintiff chooses to obtain a judgment that is void , he and his privies may not complain that the law does not subsequently accord to them a so-called ‘right’ which has never existed.” (City of Los Angeles v. Morgan, supra, 105 Cal.App.2d 726, 731, 234 P.2d 319.) The trustee in bankruptcy's forced withdrawal from the action had thus, patently, not given validity to the void Order.

Commenting upon the United States Supreme Court's exposition of these several rules in Armstrong v. Manzo, supra, 380 U.S. 545, 85 S.Ct. 1187, 14 L.Ed.2d 62, Mr. Witkin has said: “This seems so obvious that one wonders how the case reached the Supreme Court, ” (1 Witkin, Cal. Procedure (2d ed. 1970) Jurisdiction, s 80, p. 604.)

The duty of the superior court to set aside the Order on motion of the successor receiver, charged with the faithful representation of Winston's creditors, is thus manifest.

Although Security National Bank has conceded that the Order was obtained without notice to or opportunity to be heard by the trustee in bankruptcy representing interested creditors generally, which concession, we opine, disposes of the appeal, we have nevertheless considered its several related contentions.

The argument that the superior court was without jurisdiction to make the order of November 22, 1976, setting aside the Order, because Security National Bank, upon being paid in full, had dismissed its complaint in intervention and was no longer a party to Frigard's action, is without substance. In response to the successor receiver's notice of motion Security National Bank, (see Chitwood v. County of Los Angeles, 14 Cal.App.3d 522, 526-527), raising many issues, other than the courts jurisdiction, made a general appearance and was afforded a full and adequate hearing. The well-supported rule is stated by Mr. Witkin:

“A general appearance is not necessarily a formal, technical step or act. The term is applied to various acts which, under established principles of procedure, are deemed to confer jurisdiction of the person. The underlying theory is that a defendant makes a general appearance when he takes any part in the action or proceeding, e. g., by pleading, or participating in the trial, or by taking steps relating to the action after judgment.” (1 Witkin, Cal. Procedure (2d ed. 1970) Jurisdiction, s 118, pp. 646-647.) “A general appearance operates as a consent to jurisdiction of the person, dispensing with the requirement of service of process, and curing defects in such service ‘Process is waived by a general appearance, in person or by attorney, entered in the action, or by some act equivalent thereto, such as recognizing the authority of the court to proceed in the action (I)f he appears generally without making objection, such appearance, being the purpose of the process, confers jurisdiction of the person and the court is empowered to act in the premises.’ ” (Id., s 122, p. 651.)

And the contention that the superior court's order, on Frigard's ex parte motion, expunging the Order's condition that the banks repay upon the court's finding that the trustee in bankruptcy was entitled to the funds, was somehow binding upon the now current receiver is spurious. That order, as with the Order, had been without notice to an interested party of the action. And moreover the court, as pointed out, was under a duty to set aside the void Order, including its condition; it is of no moment that the court's reason therefor may have been formulated by some different explanation on Frigard's unreported ex parte motion.

Likewise, Security National Bank is unaided by the July 3, 1975, proceedings where the trustee in bankruptcy “dropped” his motion to set aside the Order because “if it was determined at a subsequent point in time by a court of competent jurisdiction that we weren't entitled to the money that, at least, Security National Bank was agreeing to give it back to the trustee in bankruptcy.” Those proceedings may not reasonably be construed, as contended, that it had thus been agreed that Security National Bank and Bank of America might, in any event, retain sums improperly paid them upon Winston's and the Corporation's successful removal of the trustee in bankruptcy.

Nor is the contention that the successor receiver's motion was untimely found persuasive. As we have by now repetitiously pointed out, the court was under a duty to set aside the void Order at any time its infirmity became apparent.

Security National Bank's brief contains other miscellaneous points such as that it was proper for the court, or its receiver, to extend a creditor's preference to it and Bank of America to the prejudice of other creditors, which points do not appear to be assigned as error. We believe they also are shown to be meritless by what we have earlier said.

And in any event, we opine that the result we have reached is mandated by transcendent principles of equity. “Courts of equity will relieve a party from an unjust judgment entered against him through fraud, or when, without service of process, either actual or constructive, no opportunity has been given him to be heard in his defense.” (Parsons v. Weis, 144 Cal. 410, 416, 77 P. 1007; and see County of Alameda v. Clifford, supra, 187 Cal.App.2d 714, 721, 10 Cal.Rptr. 144; Estate of Standing, 99 Cal.App.2d 668, 673, 222 P.2d 465, 223 P.2d 255; Sipe v. McKenna, 88 Cal.App.2d 1001, 1005, 200 P.2d 61.)

The order of November 22, 1976, is affirmed. Appellant Security National Bank will be taxed, as additional costs of appeal, a penalty of $5,000 in favor of respondent receiver for taking a frivolous appeal. (See rule 26, Cal.Rules of Court.)

ELKINGTON, Associate Justice.

RACANELLI, P. J., and NEWSOM, J., concur.

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