163 P. 898 | Cal. | 1917
Plaintiff appeals from the judgment on the judgment-roll alone.
James Ainsa sued in his own right and as trustee for other persons owning bonds issued by the Mexican Anthracite Coal Mining Company. The basis of plaintiff's claim is an alleged breach of trust on the part of the defendant, a trustee under a deed of trust executed by the Mexican Anthracite Coal Mining Company in support of its bonds. The face value of the bonds held by appellant according to the allegations in the complaint was seven hundred thousand dollars, and judgment for that amount with interest compounded yearly at the rate of seven per cent per annum from the first day of January, 1901, was demanded. It was the theory of the plaintiff that the conduct of the defendant as trustee, and as a corporation which had placed its certificate on the bonds of the said Mining Company, had made the Mercantile Trust Company of San Francisco responsible for and liable for the payment of the losses of the bondholders due to the causes which will be more fully discussed in this opinion.
The superior court found that the Mexican Anthracite Coal Mining Company (which we shall call the "Mexican Company") was at all times after July 25, 1901, a corporation organized under the laws of Arizona and doing business in the state of Sonora, Mexico; that the defendant was at all times mentioned in the complaint a Californian corporation doing business in San Francisco; that the "Compania Explotadora de Carboniferos en Sonora" (which we shall for brevity term the "Sonora Corporation"), was at all times indicated in the amended complaint a corporation organized and existing under and by virtue of the laws of the state of Sonora, Republic of Mexico; that Ainsa and his associates were the owners and holders of six hundred and three thousand two hundred dollars of the bonds of the Mexican Company; that on July 2, 1901, the Sonora Corporation owned and possessed certain coal mains, mines or zones, named in the amended complaint; that said title depended upon and was held by virtue of a concession and contract with the state of Sonora (which agreement is set out in the findings); and that on or about July 2, 1901, General C.P. Eagan, with the consent of the state of Sonora, entered into a contract for the purchase of the said coal lands from the Sonora Corporation. With reference to the last-mentioned transaction the court *507 found "that neither the contents of said contract and deed nor the facts set forth therein were known to the defendant except in so far as its terms and conditions were set forth in the deed of trust hereinafter mentioned until long after the execution of said contract." The finding contains a quotation of the contractual portion of this agreement for the purchase of the said coal lands. In substance it provided for the payment by General Eagan of twenty-five thousand dollars American gold; that the Mexican Company, for which it was specified he was making the purchase, should pay seven hundred thousand dollars in bonds on January 1, 1902; that the bonds should be guaranteed by a first mortgage on the real and personal property of General Eagan and the Mexican Company; that the bonds should be issued "with all the requirements and formalities required for their validity by the laws of the state of Sonora and the Federal Government of the United States of Mexico"; that the Mexican Company, or on its default General Eagan himself, would perform all the obligations contained in the concession to the Sonora Corporation; and that upon default of any of the stipulated payments, Eagan or the Mexican Company would forfeit all sums previously paid. On its part the Sonora Corporation guaranteed the validity of its contract with the government of Sonora.
There were also findings that under the laws of Sonora the contract between General C.P. Eagan and the Sonora Corporation was a good, valid, and absolute conveyance of that corporation's right, title, and interest in and to the coal lands; that the seven hundred thousand dollars of the bonds to be paid and delivered by General Eagan to the Sonora Corporation in consideration for said conveyance was the amount agreed upon by the parties to the contract as being equivalent to the indebtedness of the Sonora Corporation to its creditors and those having claims upon the said coal lands including plaintiff, James Ainsa, and those represented by him; that on September 13, 1901, General Eagan deeded said coal lands to the Mexican Company, but that his wife did not join in the conveyance; that the deed was not stamped nor recorded as required by Mexican law; but that these defects in the execution and authentication of the deed were not known to defendant when a certain deed of trust was executed and a certificate was attached by defendant to the bonds issued by the Mexican Company. Then follow findings regarding the making, execution, *508 and delivery to the defendant by the Mexican Company on November 12, 1901, of a trust deed in and to the coal lands described in the conveyance by the Sonora Corporation to General Eagan and in the deed by him to the Mexican Company; and it is specifically found that the only representations ever made by the defendant with reference to said coal lands were contained in this trust deed, in the bonds issued by the Mexican Company and secured by said trust deed, and in the coupons attached to said bonds. The deed of trust is set out at length in the findings, as are a copy of one of the bonds and a copy of the trustee's certificate. This certificate is in the following words and figures:
"This is to certify that the within bond is one of a series of nineteen hundred (1900) bonds issued by the Mexican Anthracite Coal Mining Company, and described in the mortgage therein referred to, and that said bond and the coupons attached thereto are genuine.
"MERCANTILE TRUST COMPANY OF SAN FRANCISCO, "Trustee.
"By FRED'K W. ZEILE, "President."
The findings recite the delivery to the Sonora Corporation and to the plaintiff and other creditors of seven hundred thousand dollars in bonds in accordance with the agreement among the various parties to the transaction; and that defendant's representations were made with the purpose of inducing the creditors to accept the bonds.
In the thirteenth paragraph of the amended complaint it had been alleged that after the sale of the bonds, the Mercantile Trust Company of San Francisco, desiring to cheat the purchasers of said bonds, united with the Mexican Company and abandoned all work on the coal mains, mines, and zones and destroyed all mortgaged estate of every kind; that defendant refused to demand of said mortgagor other estate in lieu of that destroyed by the abandonment of all work; that defendant declined to provide money to protect the mortgaged estate; that it also refused as trustee to have cured the defect in title arising from the infirmities in the deed from Eagan; and that defendant assented to the abandonment by the Mexican Company of work on the coal mains and zones. The court found against all of these allegations and found also that no demand was ever made upon defendant to do any of *509 the things which plaintiff alleged in the said thirteenth paragraph of the amended complaint that defendant refused to do. There was also a finding negativing an allegation that defendant had acted in collusion with its legal advisers in purposely having the bonds so drawn as to be of no value. It was also found by the court that the Mexican Company abandoned entirely all control and possession of the coal lands in February, 1903, and that said lands, according to the contract between the Republic of Mexico and the other parties thereto, reverted to said Republic. There were specific findings in which certain of the statutes of Mexico were fully set forth.
Appellant's principal contentions are that respondent, as trustee under the ordinary form of trust deed, is liable for the representations made by the mortgagor, and that having attached its certificate to the bonds the said trustee became liable to the bondholders for the defects in the mortgagor's title discovered after the issuance of the bonds.
The deed of trust contained a representation by the Mexican Company that it was the owner of the property to be mortgaged; that the payment of the bonds was secured by a mortgage on the coal lands described; that the lands were mortgaged to respondent as trustee; and that said trustee should hold the property to secure the payment of the bonds. These representations were made by the Mexican Company andnot by the respondent. The trustee's certificate heretofore quoted, merely guaranteed that the attached bond was one of a series of one thousand nine hundred "described in the mortgage therein referred to," and that the bond and coupons were genuine. In that part of the deed whereby the respondent accepted the trust on behalf of the holders of the bonds it was expressly provided that the Mercantile Trust Company of San Francisco should not be liable or accountable for the acts, defaults, or neglect of any agent to be appointed in good faith for any of the purposes expressed in the mortgage, and the instrument also contained the following language referring to the trustee: "That no other liability or responsibility shall under any circumstances be borne by or attach to it than for the exercise of reasonable diligence only in the performance of the trust when action on its part for that purpose shall become necessary, and that it shall not be required to take any affirmative action on behalf of the holders of said bonds unless indemnified, nor be compelled *510 to pay any taxes which may be assessed or imposed upon any of the property herein described, unless the moneys necessary to pay such taxes shall be furnished by the Mexican Anthracite Coal Mining Company or the holders of said bonds, and further that no liability or accountability shall attach to it, if it shall fail to proceed to foreclose this mortgage, but in that case a new trustee shall be appointed as hereinabove provided."
It is very evident that by becoming a trustee under such a deed, and by issuing such a certificate, the respondent did not assume any of the obligations which appellant seeks to place upon it. Ordinarily trustees are bound to a fair exercise of their judgments and to the unselfish exercise of good faith. "Very supine negligence or willful default will render them liable," but not mere errors of judgment. (Ellig v. Naglee,
Appellant cites authorities to the effect that a trustee owes a duty to the bondholder of preservation and protection of the security. This is undoubtedly true if the means of defense are known to the trustee or may with diligence be discovered. (Cuthbert v. Chauvet,
Examining the certificate to the bonds we find that it merelycertifies that each bond to which it is attached is one of a *512
series of one thousand nine hundred bonds and that the coupons are "genuine." The word "certify" is well understood. It means "to testify in writing; to give a certificate; or to make a declaration about a writing." (New Standard Dictionary.) The word "genuine" means "not spurious, counterfeit, or false." (Webster's Dictionary.) As was said in Moore v. Copp,
"The limited and guarded terms of a trustee's certificate cannot be lawfully held to embrace a representation or guaranty of the truthfulness of the description of the obligation as made by the obligor. Trustees act for a comparatively trifling consideration, limiting their liability to their own acts of negligence and misconduct, and it would be unfair to put so serious a burden as a guaranty upon them. So far as appears, there is not a single adjudication extending their liability to even an implied guaranty of the securities whose mere identity they have authenticated." (Jones on Corporate Bonds and Mortgages, 3d ed., sec. 287a.) This declaration of the law is supported by Tschetinian v. City Trust Co.,
Appellant contends that the provision in the deed of trust purporting to limit respondent's liability is ineffectual and void. In support of this contention Mullen v. Eastern Trust andBanking Co.,
No other alleged errors merit analysis.
It follows from the foregoing discussion that no material error was committed by the superior court. The judgment is affirmed.
Henshaw, J., and Lorigan, J., concurred.
Hearing in Bank denied.