California Court of Appeal Apr 14, 1910 No. Civ. No. 662.Published
Before: Burnett
Synopsis
APPEAL from a judgment of the Superior Court of Contra Costa County. Wm. S. Wells, Judge.
The facts are stated in the opinion of the court.
BURNETT, J.
Several diverse and somewhat uncorrelated acts alleged to be fraudulent are made apparently the basis of appellant’s claim for relief and much evidentiary matter is pleaded in the second amended complaint, but it is con-' tended by him that “There is only one cause of action set forth therein, and that is to have plaintiff’s lease and option to purchase declared valid and superior to the claims of all the other defendants, and for damages for depriving plaintiff of the possession of said land so leased and covered by his option to purchase and the valuable improvements thereon including his hotel, pickle factory, machinery, stock and supplies. ’ ’
Adopting this theory of the complaint, the essential facts may be somewhat briefly presented. The initial transaction was with a corporation known as the Jersey Island Packing Company. It is alleged that three of the directors of said corporation who were the principal stockholders and are defendants herein, on and prior to the eleventh day of June, 1903, made certain false and fraudulent representations to plaintiff as to the financial condition of said corporation and thereby induced plaintiff to purchase three thousand and sixty shares of the capital stock thereof for the sum of $91,800 and to make valuable improvements upon the real estate belonging to said corporation known as the Jersey Island Tract “and which was the same land that was thereafter leased to plaintiff for the term of seven and one-half years, on the 16th day of December, 1903, and which on the same day the said corporation agreed to sell to plaintiff at any time during the aforesaid period of seven and one-half years, as fully appears in said lease and agreement to sell, a copy of which is hereto attached and marked 1 Exhibit A.’ That thereafter on or about the-day of December, 1903,
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the said corporation . . . agreed to cancel the agreement whereby plaintiff purchased said stock and made said improvements upon said realty, and to return to plaintiff the purchase price thereof, save and except the sum of three thousand dollars, and the cost price of said improvements, amounting to twenty-six thousand dollars more, which the directors claimed said corporation was unable tó pay and in consideration thereof the said corporation then and there agreed to and with plaintiff that it would lease to him said one hundred acres of the aforesaid realty upon which said improvements were located for a period of seven and one-half years, and give him an option and agreement whereby he might purchase said land and improvements at any time within said period for the sum of twenty thousand dollars; and that the plaintiff agreed to said proposition on the part of said corporation, and further agreed that upon the execution and delivery to him of said lease and agreement of sale he would return his stock which had been theretofore sold to him as aforesaid, to the officers of said corporation, and resign his position as director of said company; and that after such agreement had been duly made as aforesaid, the said manipulators, W. H. Wright, Frank V. Wright and H. Bendel, acting for and on behalf of said corporation, refused to make, execute or deliver said lease to plaintiff, according to said agreement, for the reason that it would interfere with and take precedence of the fraudulent trust deed which said manipulators and wreckers had fraudulently designed to have executed, as hereinbefore set forth.
“That after the manipulators refused, as aforesaid, to carry out and execute said option to buy and agreement to lease, said fraudulent deed of trust was gotten up, as hereinafter set forth, and the same was placed on record on said 19th day of September, 1903, in order that the same might take precedence of said option and lease, without plaintiff’s knowledge of its existence or recordation, and that thereafter on the 16th day of December, 1903, the said corporation in pursuance of said agreement so previously made by and through its proper officers and in pursuance of the resolution of its said board of directors, made, executed and delivered to plaintiff in consideration of the facts and premises hereinbefore stated, the lease and agreement to sell said real
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property as the same is fully set forth and described in said Exhibit A hereunto attached; that said agreement of sale and lease is still'in full force and effect, and binding upon said corporation and all the parties hereto, and superior to said fraudulent- deed of trust, all claims of the creditors of said bankrupt corporation, and the rights of said trustees to sell said Jersey Island Tract for any purpose whatsoever. ’ ’
Certain difficulties arise from a consideration of these averments and of the said exhibit “A” attached to the complaint. It is averred, for instance, that the corporation agreed, in December, 1903, to execute this lease and option to buy for a period of seven and one-half years, and that thereafter the directors
refused
to make, execute or deliver said lease to plaintiff. In the very next paragraph it is positively alleged that the corporation, “in pursuance of said agreement so previously made by and through its proper officers and in pursuance of the resolution of its said board of directors, made, executed and delivered to plaintiff” the lease and agreement to sell said real property.
It further appears by express allegation that on the sixteenth day of December, 1903, this land was leased to plaintiff for the term of seven and one-half years, and when we turn to the said exhibit we find it recited therein that “the owner of the land shall and will upon the premises and conditions herein stated suffer and permit the occupier (John Loeffler) to enter on and occupy from the date hereof until the 31st day of December, A. D. 1904,” the said land. The lessee was granted the privilege, however, of renewing the lease “for a further period of ten years at the expiration of this lease.”
For the refusal of the directors to execute said lease the reason is assigned that it would take precedence of the said fraudulent trust deed. It appears that said refusal occurred in December, 1903, and it is alleged that afterward said fraudulent deed of trust was gotten up without plaintiff’s knowledge of its existence, whereas the fact is, and it is shown by the complaint, that said deed was signed and acknowledged by plaintiff as the secretary of said corporation on the eleventh day of September, 1903, and recorded on the nineteenth day of the same month.
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Again, plaintiff claims the said lease was in full force and effect when the second amended complaint was filed in 1908, hut by its terms it expired on December 31, 1904. There is no allegation that the lease was renewed or that plaintiff exercised his option to continue the term or notified the lessor or defendants that he desired to exercise the privilege "of extending the lease. There is no allegation that he paid or tendered the rent that was due under the. terms of said lease.. The complaint is silent as to any offer to purchase said property on the part of plaintiff as he was authorized to do by said lease.
Notwithstanding these omissions plaintiff seeks to recover damages for the conduct of defendants in withholding the said property from plaintiff for the period of three years from the “21st day of March, 1904, up to and about . . . day of May, 1905, when the said corporation was adjudged a bankrupt” and from the latter date till the beginning of this action.
It is clear that since the right to the possession of said property is grounded in said lease, plaintiff by appropriate allegations must bring himself within its terms. The action is essentially to recover damages for a failure specifically to perform an agreement to lease for a period of years, and it is elementary that one seeking such relief must show that he placed himself in such a position as to exact performance from the other party.
In
Shamp
v.
White,
106 Cal. 220, [39 Pac. 537], it is said that “where the contract between the parties is for a renewal as distinguished from an extension of the lease, it is incumbent upon the lessee desiring to exercise his option for renewal to give notice of his election before the expiration of the original term.”
So, if we regard that feature of the complaint relating to the option to purchase the land, the same condition is presented. There is no allegation of an offer to pay the consideration or the willingness to do so or that the contract was just and equitable.
Again, it appears that the corporation, in May, 1905, was adjudged an insolvent, and that the claims of plaintiff “against said corporation have been duly adjudicated and
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filed with the clerk of the United States District Court in and for the Northern District of California.”
It has been held that “The acts of Congress relating to bankruptcy, so far as are concerned matters within their purview, are paramount, and the jurisdiction of the federal courts in bankruptcy, when properly invoked in the administration of the affairs of an insolvent person or corporation, is .essentially exclusive.”
(In re Watts,
190 U. S. 1, [23 Sup. Ct. Rep. 718].)
The filing of a petition in bankruptcy is a
caveat
to all the world and in effect an attachment and injunction, and upon adjudication and qualification of the trustee, the bankrupt’s property is placed in the custody of the bankruptcy court, and title becomes vested in the trustee.
(Miller
v.
Nugent,
184 U. S. 1, [22 Sup. Ct. Rep. 269].)
It would seem from the foregoing postulates, as urged by respondents, that when said corporation was adjudged a.bankrupt the said United States district court immediately acquired full, complete, and exclusive jurisdiction of the corporation’s property and to determiné all controversies between that company and third parties affecting the assets in its custody. It is true, though, that it further appears that after the adjudication of insolvency a composition was confirmed by said district court and the proceedings there closed. The effect of this was to revest in the bankrupt title to .all the property, and it would seem to follow that plaintiff was at liberty to pursue his remedy against the company and its assets, unless its assets had been formally transferred, which is not alleged. Plaintiff pleads, indeed, the irregularity of said composition, but it is not contended that this irregularity appeared on the face of the proceedings. Respondents’ position, therefore, appears sound that this order of composition cannot be successfully assailed in this collateral way in a state court. ,
Desiring to have the order of composition set aside, appellant should have proceeded in said district court under the bankrupt act providing for the annulment of a composition once confirmed upon the ground of fraud where the fraud has come to the knowledge of a party since the confirmation, and where he moves within six months.
(In re Jersey Island Packing Co.,
152 Fed. 839, 18 Am. Bankr. Rep. 412.) As
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appears in the last-cited case, this was in fact the course pursued by appellant, but his application to have the composition in question set aside was denied by the said district court. In either aspect of the situation, therefore, whether the composition be valid or a nullity, it would seem that plaintiff cannot prevail in this proceeding.
But regarding only the transaction preceding the adjudication of insolvency and directing our attention to the allegations as to the disturbance by defendants of plaintiff’s possession before the expiration of the year, for which the land was leased, we are involved in difficulty in determining what damage was suffered by plaintiff for the balance of the year, for the reason that this is not segregated from the whole loss alleged to have been incurred up to. the time of said adjudication of insolvency, to wit, May, 1905. But if we could make the division there is an insuperable obstacle to recovery in the fact that prior to the execution of the lease, as we have already seen, á deed of'trust was executed by said corporation of said property to certain of the defendants. If the property was conveye'd to these grantees, according to the terms of said deed, in September, 1903, it would take precedence, of course, over the said lease executed by the grantor in December, 1903. It is true that plaintiff seeks to avoid said deed on the ground of fraud, but the action should have been brought within three years. (Code Civ. Proc., sec. 338.) Plaintiff seeks to avoid the bar of the statute by alleging that he did not discover the fraud of which he complains till some time in January, 1905, but the fraud consisted in the misrepresentation as to the contents of said deed. He must be deemed to have had actual notice of this, as the deed was signed by him, and, in addition, by the recordation of the deed he would have constructive notice thereof. The date of the filing of the original complaint does not, indeed, appear, but the intendments being in favor of the ruling of the court below, we must assume that the action was brought after the expiration of three years from the execution of said deed.
Again, it is not sufficient for the plaintiff to allege that he did not discover the fraud till a certain date. The rule is that while the cause of action to set aside an instrument on that ground is deemed not to have accrued until the dis
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covery of the facts constituting the fraud, it must also appear as well that the discovery-could not have been made by the exercise of reasonable diligence. And plaintiff is presumed to have known all that reasonable diligence would have disclosed. . (Code Civ. Proc., sec. 338, subd. 4;
Simpson
v.
Dalziel,
135 Cal. 599, [67 Pac. 1080].)
The foregoing defects in the complaint and others which we deem it unnecessary to consider are covered by the demurrer of respondents which we think was properly sustained.
Appellant also complains because the court sustained ths demurrer without leave to amend. This is a matter, however, within the discretion of the lower court and cannot be reviewed except for an abuse of that discretion. Plaintiff had made three attempts to present properly his cause of action. He had failed in each and the court was justified in concluding that any further effort would be equally futile. Indee'd, the inference would be natural and reasonable that his failure arose from the want of facts rather than from lack of skill in stating them. Besides, it does not appear that plaintiff invoked the favor of the court to the end that another amended complaint might be filed.
The following quotations from the decisions of the supreme court are in harmony with this view: In
Martin
v.
Thompson,
62 Cal. 622, it is said: “We cannot say the court abused its discretion in disallowing plaintiff’s motion to file a second amended complaint. It does not appear from the transcript that any proposed amendment was served or presented, or that the notice of motion pointed out the precise amendment which plaintiff would ask leave to make or file.”
In
Dukes
v.
Kellogg,
127 Cal. 563, [60 Pac. 44], it is said: “The power of the court in allowing parties to an action to file amended pleadings is largely a matter of discretion. Here plaintiff had three opportunities to make a good complaint and failed. Three failures to make, a good complaint fairly indicate that a fourth attempt would also be unavailing. The proposed amendment, or proposed amended pleading, was not tendered to the court for inspection, and we see nothing erroneous in the action of the court in refusing to allow further amendments. The failure to make a good
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pleading probably arises in a lack of facts rather than in the fault of the pleader.”
And the later expression, found in
Stewart
v.
Douglass,
148 Cal. 512, [83 Pac. 699], is: “When a demurrer is sustained to a complaint it is within the discretion of the court cither to allow an amended complaint to be filed or to give judgment forthwith in favor of the defendant. The appellate court will in every such case sustain the action of the court below, whatever course it may take, unless it is made to appear by the record that there has been an abuse of discretion. The plaintiff merely asked leave to file an amended complaint, and, so far as the record discloses, did not show that there were any allegations of fact omitted from the complaint to which the demurrer had been sustained which, if inserted therein, would in any respect change its legal effect, nor make any statement whatever of the grounds or reasons for making the application for leave to amend. There was clearly no abuse of discretion shown. (Klein
claus
v.
Dutard,
147 Cal. 245, [81 Pac. 516].)”
In the case at bar there is nothing to show that appellant indicated in the court below any desire to file another amended complaint. We must assume that he made no such application, and hence it is out of the question to say that there was any abuse of discretion in sustaining the demurrer without leave to amend.
The judgment is affirmed.
Hart, J., and Chipman, P. J., concurred.
A petition to have the cause heard in the supreme court, after judgment in the district court of appeal, was denied by the supreme court on June 13, 1910.
AI Brief
AI-generated · verify before citing
Holding. The court held that the plaintiff's complaint failed to state a cause of action due to insufficient allegations regarding the exercise of lease options, the expiration of the statute of limitations for fraud, and the preclusive effect of federal bankruptcy proceedings. Furthermore, the court found no abuse of discretion in denying leave to amend after three failed attempts to state a claim.
Issues
Whether the complaint sufficiently alleged a cause of action for breach of lease and option to purchase.
Whether the plaintiff's claims regarding a fraudulent deed of trust were barred by the statute of limitations.
Whether the state court could collaterally attack a federal bankruptcy court's order of composition.
Whether the trial court abused its discretion in sustaining a demurrer without leave to amend after three failed attempts.
Disposition. affirmed
Quotations verified verbatim against the opinion
“The action is essentially to recover damages for a failure specifically to perform an agreement to lease for a period of years, and it is elementary that one seeking such relief must show that he placed himself in such a position”