Allin v. Williams

California Supreme Court Feb 25, 1893 No. No. 19076Published

Before: Harrison

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Holding. The court held that the defendant was liable as an indorser on a note he transferred to the plaintiff, as the indorsement was supported by consideration and intended to provide security for the defendant's unauthorized use of trust funds. The court further found that the defendant breached his fiduciary duties by lending trust money without authorization and in bad faith.

Issues

Whether the defendant is liable as an indorser on a note transferred to the plaintiff.
Whether the defendant's unauthorized loan of trust funds and subsequent indorsement of the resulting note constituted a breach of fiduciary duty and a valid obligation.
Whether the prior dismissal of the defendant from a foreclosure action against the maker of the note bars the current action.

Disposition. affirmed

Synopsis

Promissory Notes — Action against Indorser — Foreclosure of Mortgage — Liability for Deficiency. — An action may be maintained against an indorser of a note, payment of which has been secured by a mortgage given by the maker, to recover any deficiency resulting after a sale of the mortgaged premises under a judgment of foreclosure against the mortgagor.

Id.—Assignment of Deficiency Judgment — Pleading — Judgment against Indorser. — In such action .it is not necessary for the plaintiff to allege or prove an offer to assign to the indorser the deficiency judgment, or that the judgment in the action against the indorser should direct such assignment to be made.

Id. —Rights of Indorser — Assignment upon Payment — Condition of Recovery. —An indorser is entitled, upon payment of a note which he has indorsed, or of a judgment against the maker rendered thereon, to an assignment thereof; yet such assignment is not. a condition of the payee’s right of recovery, but is a right accruing to the indorser by reason of his payment.

Id. — Indorsement by Agent — Waiver of Protest — Ratification.— The indorsement upon a note of waiver of payment, presentment for payment, protest, and notice of protest, by one whose name has been signed as an indorser by another person, operates as an affirmance and ratification of the prior indorsement.

Id. — Defense to Liability of Indorser — Burden of Proof. —The burden of proof rests upon the indorser of a note to prove, as a defense to his apparent liability upon the indorsement, as between himself and his immediate indorsee, that the indorsement was made merely for the purpose of transferring the note from a nominal holder to the true owner, or that the circumstances under which the indorsement was made were such as would render it inequitable to enforce au indorser’s liability against him.

Trusts —Money Deposited to Pay Note — Duty of Trustee — Power of Loan. •— A trustee of moneys, placed in his hands for the sole purpose of paying a note, which he cannot pay until it matures, is in duty bound merely to hold the money until those for whose benefit it is held give him definite directions, and he has no power or right to lend the money.

Id. — Dealing in Trust Property by Trustee — Loan in Bad Faith. — Where a trustee, holding moneys, as a depositary thereof, to pay a note which had not matured, loaned them to one from whom he took land as security, which he had previously contracted to sell to a third party, who had, in turn, contracted to sell the same to the party to whom the loan was made, and it appeared that the land was declining in value, such third party being willing to deduct a large sum from the amount due him from the party to whom the loan was made, in order to have the latter substituted for himself as the debtor to the lender, a finding by the court that the trustee dealt with the trust property for his own profit, and did not act in good faith in making the loan, is sustained by the evidence.

Harrison, J. In February, 1888, ten individuals, including the plaintiff and the defendant herein, borrowed upon their individual credit the sum of ten thousand dollars, for the use and benefit of- the Pasadena Lake Vineyard, Land, and Water Company, a corporation in which they were interested (five thousand dollars thereof from the San Gabriel Valley Bank, and five thousand dollars from a Mrs. Banta), for which they gave their joint and several notes. About a month afterwards, the corporation paid to the defendant a sufficient sum of money therefor, for the purpose of taking up the notes and repaying the sums thus advanced, and the defendant deposited the same with the San Gabriel Valley Bank, to the credit of “B. Williams et al.” He immediately paid the loan that had been made by the bank, but Mrs. Banta refused to accept the money on her note, for the reason that it would not mature for nearly a year, and thereupon the money for its payment, viz., $5,221.98, was left in the bank to the aforesaid credit. Prior to this time, the defendant had contracted to sell to one Webster certain real property in Pasadena, and Webster had contracted to sell a portion of the same property to one Wilson. Webster was owing defendant five thousand dollars on his contract of purchase, and Wilson was owing to Webster a little more than this amount on his contract with him; and on April 18, 1888, in pursuance of an arrangement between them for the purpose of liquidating these several obligations, the defendant made a conveyance of the land to Wilson, Webster uniting therein; Wilson executed to the defendant his note for five thousand dollars, payable February 10, 1889, and secured the same by a mortgage upon the land, made to the defendant, as trustee [406]for the ten individuals who had signed the Banta note; and on April 21st the defendant transferred the aforesaid sum of $5,221.98 from the account of “R. Williams et al.” to his own personal account in the same bank. In September of that year, several of these individuals expressed a dissatisfaction with his acts relating to the money, and thereupon the defendant, acting through his attorney, Wright, who was one of the ten, surrendered to Wilson the aforesaid note and mortgage, and took from him a new note for five thousand dollars, maturing February 10, 1889, payable to “R. Williams or order,” together with a mortgage on the same property, securing its payment, and on the same day indorsed the note to the order of "“John Allin, as trustee,” the plaintiff herein, and assigned the mortgage to him, “in trust for the benefit” of the ten contributors, naming them. After the Wilson note had matured, the plaintiff brought an action thereon, making Wilson and the defendant herein defendants in the action. Wilson suffered default, and the plaintiff, having dismissed the defendant herein from the action, took judgment against Wilson for the amount of the note, and for a sale of the mortgaged property. Upon the sale under that judgment, the property was bid in by the plaintiff for the sum of $2,400, and the sheriff returned a deficiency judgment of $3,737. Thereupon the plaintiff, as trustee for the benefit of the ten contributors, brought this action to recover from the defendant the amount of this deficiency.

Allin v. Williams

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