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YOUNG v. THREE FOR ONE OIL ROYALTIES et al.*
This appeal is from a judgment in favor of the defendants in an action brought to recover the amounts paid for certain certificates of beneficial interests in a common-law trust, it being the theory of the complaint that the sales of the interests were in violation of the Corporate Securities Act (St. 1917, p. 673, as amended), and that defendants had falsely and fraudulently represented that they had secured a permit from the corporation commissioner to sell the certificates and had fully complied with the law respecting the sale of securities. Briefly, the facts are as follows: On January 3, 1923, the respondents R. G. Welch, W. J. Dallas, and E. J. Boland, as lessees, assigned to the Long Beach National Bank as trustee three oil leases and formed a common-law trust for the purpose of apportioning any production arising from the operation of wells to be drilled upon the property to the lessors, to purchasers of beneficial interests, and to themselves as owners of the interests not sold. The respondent Bank of Italy, by reason of a change of ownership of the Long Beach National Bank, became trustee to succeed the latter on May 14, 1924. The complaint was filed May 20, 1929, by appellant as trustee for Ralph R. Martin, Albert H. Bailey, and C. P. Wiand (assignee of E. D. Lindley), who purchased certificates of beneficial interests on the following dates, paying therefor the sums set after their names: February 10, 1923, Ralph R. Martin, one unit, $1,600; March 1, 1923, Albert H. Bailey, one unit, $1,800; and April 12, 1923, E. D. Lindley, two units, $3,200. The money was paid to R. G. Welch as agent for the Long Beach National Bank as trustee and the other defendants, the bank as trustee issuing to the purchasers the certificates of beneficial ownership. In other words, the action was not commenced until more than six years after the sales were made and the money paid in. Unattacked findings of the court reveal that Martin, Bailey, and Lindley each knew at the time of his purchase he was buying an ‘interest or unit in the proceeds and avails arising out of said trust known as the ‘Three for One Oil Royalties”; that during the period when the sales were made the defendants did not have any permit from the corporation commissioner authorizing them, or the trustee, to sell beneficial interests in the trust. Another finding, supported by a stipulation of counsel, is to the effect that inquiry was made of the corporation commissioner concerning whether a permit for the ‘Three for One Oil Royalties' was necessary and the commissioner ruled that it was not necessary. Other findings are in substance that none of the defendants represented that a permit had been issued, or concealed any facts from the purchasers, or practiced any fraud upon any of them. The defendants interposed the plea that the complaint was barred by the statute of limitations and the court concluded that this defense was well grounded.
It is the contention of appellant that he is entitled to a judgment either upon the ground of fraud or of mistake; that he did not discover the facts constituting the fraud or concerning which there was a mistake until about one year before the complaint was filed, i. e., the parties for whom he appears as trustee did not discover the fact that the ‘Three for One Oil Royalties' had no permit until May or June, 1928. Hence it is argued that the action is governed by subdivision 4 of section 338, Code of Civil Procedure, which provides that three years shall be the period of limitation for such an action, and reads as follows: ‘An action for relief on the ground of fraud or mistake. The cause of action in such case not to be deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.’
Assuming the invalidity of the sale of the certificates, it would be interesting to follow the questions thus raised to their logical conclusion; but the view we entertain of this cause would make such a discussion purely academic, because we have concluded that as the law stood in 1923 there was nothing to prevent the issuance of certificates by the trustee, the Long Beach National Bank. If such be true, there was neither fraud nor mistake nor an action for money had and received on the theory of failure of consideration.
Turning to the Corporate Securities Act as it then existed (Stats. 1917, p. 673), we read in subdivision 3, § 2 thereof, as follows:
‘The word ‘company’ includes all domestic and foreign, private corporations, associations, joint stock companies, and partnerships, of every kind, and also trustees, as hereinafter defined; excepting therefrom:
‘(a) All national banking associations and other corporations organized and existing under and by virtue of the acts of the congress of the United States;’ (Four other exceptions not necessary for us to here notice are set forth.)
Subsequently a ‘trustee’ is defined as a person or company executing a voluntary trust expressly created or declared by an instrument in writing with certain exceptions which are also not germane in our present situation. In section 3 of the act we find the inhibition against sale by a company of its securities. It therefore follows that the important word is that of ‘company,’ which by its definition is broad enough to include trustee. The question arises whether, by the exception which immediately follows, a national bank acting as trustee is such a company. The District Court of Appeal had occasion to critically examine the excepting clause in the case of In re Flesher, 81 Cal. App. 128, 252 P. 1057, 1059, an concluded that ‘the Legislature had in mind the advisability of excluding from its definition and from the operation of the act those corporations which, comparable to national banking organizations, are organized in furtherance of some power or authority vested in Congress and with the operation of which it was without power to interfere.’ That court also said that it was ‘the legislative intent to exclude from the definitive words of the section all corporations subject to some other supervisory power of the state.’
It follows from the decision from which we have quoted, as well as from the plain, unequivocal language of the act, that national banks were excepted. It is argued by some of the amici curiae that while the provision excludes from the operation of the law national banks while issuing their own obligations or securities, yet it does not exclude them when acting as trustees. In this contention we cannot agree for the following reason: The word ‘company’ is defined to include trustee, and a ‘trustee’ is defined as one who executes a voluntary trust. Hence a trustee executing a voluntary trust which happens to be a national banking organization is excluded from the operation of the act. And we could not construe the language otherwise without doing violence to the English language.
The Legislature recognized this defect in the law and at the first legislative session following the Flesher Case the exception was stricken out and in its stead it was provided the act should not apply to certain securities, among which we find: ‘Any security issued by and representing an interest in or a direct obligation of a national bank * * *.’
We are compelled to conclude that the certificates of beneficial interests issued by the Long Beach National Bank as trustee were not invalid and void. Consequently plaintiff had no cause of action.
Judgment affirmed.
IRA F. THOMPSON, Justice.
We concur: WASTE, C. J.; PRESTON, J.; CURTIS, J.; SHENK, J.; SEAWELL, J.
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Docket No: L. A. 12648.
Decided: April 05, 1934
Court: Supreme Court of California.
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FindLaw’s Learn About the Law features thousands of informational articles to help you understand your options. And if you’re ready to hire an attorney, find one in your area who can help.
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