Doane v. California Land Co.

243 F. 67, 155 C.C.A. 597, 1917 U.S. App. LEXIS 2086

• Court: Court of Appeals for the Ninth Circuit
• Decided: May 28, 1917
• Docket: No. 2854
• Status: Published

Opinion

MORROW, Circuit Judge

(after stating the facts as above). [1] 1. The first assignment of error relates to the action of the trial court in overruling appellant’s motion to dismiss upon the ground that there was pending in the state court an action by the appellant against the predecessors in interest of the appellee, and upon the further ground that the appellee corporation was formed and the lands conveyed to it for the purpose of ousting the state court of jurisdiction to try the issues involved in this case and of creating a case cognizable in the United States District Court.

So far as is shown by the record in the present case, the proceeding in the state court was never carried further than the filing of the complaint and service of summons upon the Los Angeles Trust & Savings Bank, one of the defendants therein. No judgment had been entered therein, and it does not appear that the cause had ever gone to trial, at the time the present suit was instituted.

“The rule is well recognized that the pendency of an action in the state court is no bar to proceedings concerning the same matter in the federal court having jurisdiction, for both the state and federal courts have certain, concurrent jurisdiction over such controversies, and when they arise between citizens of different states tbe federal jurisdiction may be invoked, and the cause carried to judgment, notwithstanding a state court may also have taken jurisdiction of the same ease.” McClellan v. Garland, 217 U. S. 268, 282, 30 Sup. Ct 501, 505 [54 L. Ed. 762]; Falls City Const. Co. v. Monroe County (D. C.) 208 Fed. 482, 483; Wolf v. District Court, 235 Fed. 09, 74, 148 C. C. A. 563.

[2] 2. It is contended by the appellant that the appellee corporation was formed and the lands conveyed to it for the purpose of ousting the state court of jurisdiction and of creating a case cognizable in the federal courts.

The parties have stipulated as to the various objects and benefits sought to be attained by such incorporation, among others:

“If it became necessary or desirable they could in that event, having the necessary diversity of citizenship, invoke the jurisdiction of the United States court in any litigation ccm'menced by them or by any other persons against said corporation.”

But it does not appear that the incorporation was a mere subterfuge for the purpose of obtaining that benefit, or that the benefit so obtained furnished the sole or controlling reason for such incorporation. Upon the contrary, it appears that the incorporation was bona fide and for the purpose of affording a, means to expeditiously handle and sell the lauds in suit and avoid the inconvenience incident to an ownership and control by numerous co-owners.

Nor does it appear that the conveyance from Messrs. Coffin, McMillan, and Parsons was other than bona fide; they held the lands as trustees for the 10 co-owners, and their conveyance to the corporation was nothing more than an execution of the trust in accordance with its terms; title was unconditionally vested in the corporation, and no right in the property reserved by the trustees. As said by the Supreme Court of the United States in Lehigh Mining & Manufacturing Co. v. Felly, 160 U. S. 327, 336, 16 Sup. Ct 307, 311 [40 L. Ed. 444]:

“Tlie privilege of a grantee or purcliapor of property, being a citizen of one of the states, to invoke the juristic;ion of a Circuit Court of the United Mates for the protection of Ms rights as against a citizen of another state— die value of tlie matter in dispute being sufficient for the purpose—cannot bo affected or impaired merely because of the motive that induced his grantor to convey, or Ms vendee (vendor) to sell and deliver, tlie property, provided such conveyance or such sale and delivery was a real transaction by which the title passed without the grantor or vendor reserving or having any right or pou:er to compel or require a reconveyance or return to him of the property In question.”

[3] 3. It is next assigned as error that the trial court held the conveyance to the Eos Angeles Trust & Savings Bank to be a trust deed and not a mortgage; which, it is urged, is inconsistent with the provisions of the instrument relied upon by appellee as a declaration of trust, wherein appellant is treated as the owner of the property and invested with the right of possession and the right to create liens and mortgages thereon, and the vendors as mortgagees and their interest designated and defined as a lien.

The fact that the trustors’ interest is termed a “lien” in the declaration of trust is not conclusive. Section 2872 of the Civil Code of California provides:

“A lien is a charge imposed in some mode other than hy « transfer m trust upon specific property by which it is ufarte security for the performance of an act.”

Nor is the fact that appellant is therein treated as the owner and invested with certain rights incident to ownership so inconsistent with the declaration of trust that we should close our eyes to the various other provisions thereof (particularly the provision that appellant should not be entitled to possession until certain payments had been made), which are inconsistent with the mortgage theory contended for by appellant and which clearly evidence an intention to create a fee in trust for- the purpose of securing to the grantors the payment of the purchase price, while vesting only an equitable title in appellant.

Appellant cites numerous Code sections and decisions of the state courts to the effect that a deed made to one as security for a debt may be enforced as a mortgage and not as a conveyance; that the lien thus created- can only be enforced by means of foreclosure and judicial sale, as prescribed in the Codes; and that any agreement to the contrary, or which is in restraint of the right of redemption incident to such foreclosure sales, is void. But while it is thereby established that, under the state law, a conveyance made as security for another act is to be deemed a mortgage and subject to all its incidents, yet valid conveyances in trust are expressly excepted from the operation of this rule.

Section 2924 of the Civil Code of California provides that:

“Every transfer of an interest in property, other than in trust, made only as a security for the performance of another act, is to be deemed a mortgage.”

' The question, then, to be • determined, is: Does the conveyance in the present case fall within this exception? It was not made as security for any act to be done by the grantors or any one in privity with them, but was made for the purpose of securing the grantors by withholding title-from the buyer until he had fully complied with the conditions of the contract of sale. In this respect the present case is distinguishable from the cases cited by appellant, wherein certain conveyances made as security for acts to be done by the grantors, or by persons for whom they stood in the position of guarantors or sureties, were held to be mortgages.

That a valid trust may be created for tire purpose of securing a debt is established in numerous decisions of the state courts. Sacramento Bank v. Alcorn, 121 Cal. 379, 53 Pac. 813, and cases there cited. But it is urged that the latter case is distinguishable from the one at bar. It is true that in that case, as in tire various cases cited by appellant, the conveyance was for the purpose of securing a debt owing by the grantors; but this distinction only tends, we think, to strengthen the appellee’s position. In other words, if A. may by conveying to X. create a valid trust as security for a debt owing by A. to B., a fortiori he may by such 'a conveyance create a valid trust as security for a debt owing from B-. to himself or another. The further distinction, that there was in the case at bar no provision for a reconveyance to the trustors, also tends rather to strengthen the trust than the mortgage theory.

“A mortgage is essentially a pledge or security, and it is distinguishable from a trust in this only: That the property described in it is to revert to the mortgagor on the discharge of the obligation for the performance of which it is pledged.” Lance’s Appeal, 112 Pa. 456, 4 Atl. 375.

It is also urged that the conveyance in the case at bar differs from that in the Alcorn Case in that it is not absolute. But it appears that the deed executed on February 25, 1913, was absolute in form, and the recital in the declaration of trust that, “Whereas, the said conveyance to the Los Angeles Trust & Savings Bank is absolute in form and purports to convey to said bank the absolute, legal and equitable title to all of said property, * * * nevertheless the said deed and grant was intended to convey said property to said bank for the benefit of those certain persons hereinafter named and designated as beneficiaries, and whose respective interests are hereinafter set up; and * * * said Los Angeles Trust & Savings Bank paid no’ consideration for said property, and has no interest therein, except as hereinafter stated”—does not mean, as contended by appellant, that the bank received only a title in form and did not in fact hold either the legal or equitable title. Upon the contrary, this clause, when read with the other provisions of the instrument, clearly evidences an intention to declare an apparently absolute conveyance of the legal and equitable title to be a conveyance of the legal title only, to be held by the bank subject to certain trusts thereinafter set forth.

It is contended, however, that the transfer to the trustee amounts in effect to a conveyance to appellant and a reconveyance by him to the trustee as security for the purchase money, and that the latter transaction should be construed as a mortgage. Such a construction, we think, would do violence to the plain intent and purpose of the parties as evidenced by tlie unambiguous terms and conditions of the declaration of trust, which was ratified in a certificate thereto attached, subscribed by them, and reading as follows:

“We, the undersigned, do hereby certify and declare that the above and foregoing declaration of trust correctly and accurately states and declares! the trusts under and by which the property described in said declaration of trust is held by the Los Angeles Trust & Savings Bank, as trastee, and that the same correctly sets forth and declares our respective interests therein, and we hereby ratify and confirm the same in all its particulars in accordance with the conditions and stipulations therein expressed.”

The declaration of trust does not provide that appellant should receive the title until after a full compliance with the terms and conditions of the trust. In this respect the case is similar to that of Woodard v. Hennegan, 128 Cal. 293, 60 Pac. 769, wherein plaintiff’s testator advanced money for the purchase of certain lands and took title in his own name as security, executing to the defendant a bond for a deed or agreement to convey the same to' defendant on or before June 1, 1894, provided defendant should have paid the purchase money with interest. Defendant was in possession of the lands at the time of the making of the bond for a deed, and remained in possession, paying the interest on the purchase money until the death of plaintiff’s testator. Plaintiff sued to recover possession and to quiet title as against defendant. Upon appeal from a judgment in favor of defendant, the Supreme Court of California said:

“The contention of defendant in the court below, and the one evidently adopted by the court, was that the deeds made to Woodard were in fact made as security, and that the transactions amounted to and were in effect a mortgage. The title was held by Woodard as security, and in some features the transactions partook of the nature of a mortgage; but we do not think that the effect was simply a mortgage and nothing inore. If defendant had been the owner of the property and had borrowed the fourteen thousand dollars from Woodard, giving deeds to the property as security for the amount, the transaction would in law have been a mortgage. But in this case the legal title never was in defendant. He had no legal title to convey, and did not attempt to convey, any title as security. The legal title was transferred to Woodard, and he held it, not only as security, hut in trust for defendant.”

Referring to section 2924 of the Civil Code of California, the court said:

“The transfer in this ease was not made solely as security for the purchase money. It was made for the purpose of finally having the title go to defendant, but in the meantime such title was held in trust for defendant and for the security of Woodard. The transactions did not simply constitute a mortgage and nothing more”—citing cases.

Concerning the quality of the interest held by the trustee in that case, the court said:

“When defendant desired to purchase the land, the owners, Lowe and Merlreley, might have given him a bond for a deed each for the amount of the purchase price. If this had been done, it does not seem that it could be contended that Lowe and Mcrlteley would hold the title as mere security. Their position is well defined in Pomeroy’s Equity Jurisprudence, vol. 3, § 1260. The author says, in speaking of a bond or agreement to convey from vendor to vendee: ‘In the latter, although possession may have heen delivered to the vendee, and although under the doctrine of conversion, the vendee may have acquired an equitable estate, yet the vendor retains the legal title, and the vendee cannot prejudice that legal title or do anything by which it shall be divested except by performing the very obligation on his part which the retention of such title was intended to secure, namely, by paying the price according to the terms of the contract. To call this complete legal title a lien is certainly a misnomer. In ease of a conveyance, the grantor has a lien, but no title. In case of a contract for sale before conveyance, the vendor has the legal title and has no need of any lien. His title is more efficient security, since the vendee cannot defeat it by any act or transfer even to .or with a bona fide purchaser.’

“We think Woodard possessed the same rights as would have been possessed by Lowe and Merkeley if they had made the agreement to convey to defendant.”

This decision was followed in Lamberson v. Bashore, 167 Cal. 387, 390, 139 Pac. 817, 818, wherein the court said:

“While it is true that an instrument purporting to convey the title to real property m'ay be shown to have heen intended as a mortgage, clear and convincing proof of that fact must be shown to justify a court in so finding, and appellate courts are slow to disturb a finding either against or in favor of the theory that a mortgage has been shown to exist”—citing Beckman v. Waters, 161 Cal. 584, 119 Pac. 922.

Under the foregoing- authorities, we must hold that the legal title was never in the appellant. He could not, therefore, convey the same as security for his payment of the purchase money for the property. On the contrary, the title was conveyed by the vendors directly to the trustee, who, we think, possessed the same rights as they would have possessed under the contract of sale had they retained the title. In view of these facts, we must hold the transaction to be something more than a mortgage; it was made for the purpose of finally liaving the title go to appellant, but in the meantime such title was held in trust for appellant and for the security of the vendors.

[4] 4. It is contended further, on behalf of the appellant, that he at no time contracted away his right of redemption, and he now claims that right under the deed of trust construed as a mortgage. The deed of trust provides for a sale of the property by the trustee to- accomplish the objects of the trust, and the method of procedure is provided in detail. The certificate at the end of the deed of trust declares that it correctly and accurately states the trust and confirms it in all particulars in accordance with the conditions and stipulations therein expressed. The certificate is signed by the appellant, and is therefore a part of his contract. The sale of the property by the trustee appears to have been made in accordance with the terms specified in the deed of trust.

In Bell Mining Co. v. First Nat. Bank, 156 U. S. 470, 477, 15 Sup. Ct. 440, 443 [39 L. Ed. 49], the Supreme Court of the United States had before it this question under the laws of Montana. In that case the court said:

“There is nothing in the law of mortgages, nor in the law that covers what are sometimes designated as trust deeds in the nature of mortgages, which prevents the conferring by the grantor or mortgagor in such instrument of the 2>ower to sell the premisos described therein upon default in payment of the debt secured by it, and, if the sale is conducted in accordance with the terms of the power, the title to the premises granted by way of security passes to tile purchaser upon its consummation by a conveyance. Grant v. Burr, 54 Cal. 298; Bateman v. Burr, 57 Cal. 480.

“The power of sale in the indenture, whether we call it a deed of trust or a mortgage, does not change its character as an instrument; for the security of the indebtedness designated, but it is an additional authority to the grantee or mortgagee, and, if he does not choose to foreclose the mortgage by any of the ordinary methods provided by law, he can proceed, under the power added for the sale of the property, to obtain payment of the indebtedness. The insertion of a power of sale does not affect the mortgagor’s right to redeem so long as the power remains unexecuted, and the mortgage is not, as it may be, foreclosed in the ordinary manner; but, when a sale is made of the interest of the mortgagor, his right is wholly divested, eon-bracing his equity of redemption.”

[5] 5. With respect to the further contention that the power of sale contained in the declaration of trust was revoked by the notices of rescission served by appellant upon the trustee and vendors oil February 26 and 27, 1915, it may be said that thereafter appellant, being unable to make the payment of principal and interest falling due on March 1, 1915, in accordance with the terms and conditions of the declaration of trust, entered into an agreement for additional time within which to pay the various installments of principal and interest remaining unpaid. It was expressly understood and agreed in this renewal contract “that each and every of the conditions or agreements mentioned in said declaration of trust shall remain in full force and effect except as the same is expressly changed or modified by this agreement,” and the instrument was signed by appellant. Even were we to concede that the power of sale was revoked by the notices of rescission, the effect of the latter agreement would be to revive such power in the trustee; and, as no further attempts to effect a revocation have apparently been made, this power was valid and subsisting at the time of the trustee’s sale. This brings the case within the rule established by the authorities heretofore cited.

The decree of the District Court is affirmed.