Ormerod v. Security-First National Bank

STURTEVANT, J.

On May 17, 1933, Ella F. Ormerod commenced an action against Security-First National Bank of Los Angeles, a national banking association, hereinafter called the defendant, asking for the restoration and recovery of trust funds and for the removal of the trustee. An amendment to the complaint was filed on June 23, 1933. A second amended complaint was filed May 31, 1935, and an amendment to it was filed November 13, 1935. A demurrer on several statutory grounds was filed by the defendant on November 18, 1935. The demurrer was sustained without leave to amend and on November 26, 1935, judgment was entered in favor of the defendant. From that judgment the plaintiffs have appealed.

The plaintiffs’ second amended complaint, as amended, brought in and named as parties, plaintiffs or defendants, all of the remaindermen and among others, contained the following allegations: The defendant is a national banking association having its principal office in the city of Los Angeles. John Ormerod died testate on the 9th day of April, 1922. His will was admitted to probate and on July 24,1923, a final amended decree of distribution was entered. Pursuant to the terms of the will certain properties were distributed to certain individuals and the balance of the estate was distributed to the Security Trust and Savings Bank, Pasadena branch, for the purpose of paying the entire income from said balance to Ella F. Ormerod during her lifetime, and

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then provided for the continuance of the trust for certain other purposes not material to the issues presented by this record. The action is prosecuted on behalf of Ella F. Ormerod and all of the remaindermen, many of whom were joined as plaintiffs and others who were joined as defendants. The Security Trust and Savings Bank was in 1929 consolidated with Security-First National Bank of Los Angeles. On the 24th day of July, 1923, the Security Trust and Savings Bank entered upon its duties as trustee and continued to act until said consolidation and thereafter Security-First National Bank succeeded to said trusteeship and has continued to act as trustee. During the course of the administration of the trust by the Security-First National Bank of Los Angeles the latter was the holder and owner of a number of securities consisting of promissory notes, some of which were secured by deeds of trust and some of which were secured by mortgages, and it issued against said securities a number of so-called participation certificates and sold said certificates to various parties including the above-mentioned trust then being administered by it. As a part of the transaction it paid to itself out of the trust funds moneys held in said trust. Before doing so the defendant did not obtain a permit from the commissioner of corporations of the state of California to issue the participation certificates. From time to time during the administration of said trust the defendant returned to the probate court its verified reports and accounts of its trusteeship. No one of said accounts and reports in any “manner whatever apprised the court of the source from which, the manner in which, or the price at which the same was so acquired by the said trust estate”. In making said reports the defendant recited therein the following facts and no others. The first report made no mention of participation certificates. The second report, among other things, recited: “That the principal of said estate is in income producing securities as shown by Schedule ‘ O ’ hereto annexed. ’ ’ Schedule “C” recited: “Mortgage participation certificate number 5622, Shakespeare Club, date 12/5/27 due 2/5/29, interest 6%% payable quarterly . . . $500.00.” In the third report filed March 24, 1930, it was recited: “All investments made for said trust are in securities authorized by law or by the terms of said trust, have been carefully selected and have been made for the purpose of serving the best interest of this trust