Opinion
Rehearing Denied June 30, 1961.
Hearing Granted Aug. 2, 1961.
Opinion vacated 17 Cal.Rptr. 379, 366 P.2d 651.
Roger Arnebergh, City Atty., Bourke Jones, Asst. City Atty., Spencer L. Halverson, Deputy City Atty., Los Angeles, for appellant City of Los Angeles.
Young & Prenner and James J. Arditto, James J. Arditto and Ronald H. Prenner, Phill Silver, in pro. per.
FOX, Presiding Justice.
In this suit plaintiff, as a taxpayer, sought to have declared void and to set aside an oil and gas lease between the City of Los Angeles, as lessor, and Los Angeles Harbor Oil Development Co., as lessee, covering approximately 6,400 acres of submerged lands in the Los Angeles Outer Harbor. The trial court held the lease to be null and void. Both the City and Development Company have appealed.
Los Angeles Harbor Oil Development Co., will be referred to as the Development Company.
Although counsel have argued a variety of questions in their briefs, the basic question is: Did the City violate a duty imposed upon it by law in the course of the transaction leading up to the execution of the lease with the Development Company? Implicit in this issue are the further inquiries (1) what is the nature of the duty imposed on the City; and (2) does the evidence sustain the finding that such duty was violated?
The briefs total approximately 500 pages.
In 1911, the State of California granted to the City of Los Angeles the tide and submerged lands lying within the City's boundaries in trust for uses and purposes connected with the development of the Los Angeles Harbor (Stats.1911, ch. 656, p. 1256). The terms of the original trust were amended by the legislature in 1917 (Stats.1917, ch. 115, p. 159); in 1929 (Stats.1929, ch. 651, p. 1085); and in 1951 (Stats.1951, ch. 443, p. 1456). By these amendments the purposes of the trust were expanded to encompass the promotion and accommodation of commerce, navigation and fishery. It was also provided that the City might lease said lands, for limited periods, for any purposes which did not interfere with the trusts upon which the lands were held by the State. Thus the City acquired the right to lease these lands for the development of oil and gas. Section 38 of the City Charter places all tide and submerged lands, whether filled or unfilled, situated below the lines of mean high tide northerly and easterly (shoreward) of the United States Government Breakwater under the supervision and control of the Harbor Commission. These lands are generally referred to as the Inner Harbor. Thus any oil leases on that area, none of which is here involved, were required to be made with the Harbor Commission. All tide and submerged lands granted by the State to the City outside (seaward) of the Government Breakwater (generally referred to as the Outer Harbor) are under the jurisdiction and control of the City Council. Consequently, any oil lease covering this area, of which the lands here involved are a part, must be made through the Council.
In May 1948 the Council called upon the Harbor Commission to report to it as to why the City was not receiving its share of revenue from oil drilling operations at the Harbor. The General Manager of the Harbor Department later appeared before the Council and explained the oil drilling situation there.
In July 1952, the Harbor Commission employed W. H. Geis, a geologist and petroleum engineer, to report on the oil prospects of the Los Angeles Harbor District. This report was made under date of March 15, 1953, and filed with the Harbor Commission. It was the opinion of Mr. Geis that the possibility existed of an oil pool under the submerged lands in the Outer Harbor. This report was subsequently filed with the City Clerk in March 1954, and referred to the Industry and Transportation Committee which considered and reported on such matters. In making its report to the Council the Committee called the attention of the members of the Council to the Geis report. It was thereafter filed.
In March, 1956, an agreement was entered into between the Harbor Commission and Stanley & Stoltz, petroleum engineers and geologists, to render advice to the Harbor We come now to the beginning of the incidents leading up to consummation of the lease between the City the Development Company which is here under attack.
Under date of August 8, 1956, General Petroleum forwarded to the Harbor Commission its written application to prospect for oil and gas and to develop Los Angeles Harbor lands lying both within and without the Breakwater on a basis, to be determined, that would be mutually advantageous. General Petroleum mentioned that it was already a mineral lessee of the Harbor Commission and had the ability to prospect and develop the oil resources at the Harbor in ways that would be most advantageous to the City, and requested that before any commitment be made on the unleased lands of the Harbor it be given the opportunity to discuss such a proposal. General Petroleum enclosed its check for $50 to cover the customary application fee. The Harbor Commission made no reply to this application, took no action concerning it, and did not send it to the City Council, nor did it refund the filing fee paid.
On August 31st the Development Company filed with the City Council its application for an oil and gas lease covering submerged lands outside the Breakwater of the Los Angeles Harbor, the lands being of an area of approximately 6,400 acres. This application was publicized by articles in trade magazines and newspapers.
The Development Company, by its application dated August 30th, offered the City the following, should it grant the lease:
This corporation had been recently organized and had not obtained a permit from the Commissioner of Corporations to issue or sell any of its capital stock; it had no capital; it had no oil well drilling cquipment, and was not actually engaged in any active business. The Development Company's application was referred to the Industry and Transportation Committee of the Council on the day it was filed, August 31st. The Council also requested at that time that: (1) the applicant furnish a list of its officers and directors and a financial statement; (2) the City Attorney report to the Council as to the City's mineral interests in the property described in the application of the Development Company; and (3) the Harbor Commission be requested to furnish to the Council the report and recommendations of Stanley & Stoltz, petroleum engineers, as soon as the same was received by the Harbor Commission.
Thereafter, on October 29th, the Development Company addressed a letter to the Chairman of the Industry and Transportation Committee, giving the names of the officers and directors of the company, and a short resume of the background of said officers and directors. No financial statement, as requested by the City Council, was furnished, but it was stated that the individuals referred to as officers and directors 'state without reservation to your committee and to the City Council that they are in a position to furnish at least $2,000,000.00 to this corporation to further On October 5th the City Attorney rendered his previously requested opinion on this matter advising, inter alia, that the City was the owner of the lands in fee, but that it held the same in trust for the purposes and uses specified in the grants from the State, and that jurisdiction over all tide and submerged lands granted by the State to the City outside the Government Breakwater was under the jurisdiction and control of the City Council, and that any oil leases should be made through the Council.
On October 29th the Stanley & Stoltz report, referred to in the Council's action of August 31st, and by resolution of the Council requested to be furnished to it as soon as received, was delivered to the Harbor Commission.
In the interest of obtaining the most favorable proposals for oil and gas exploration and development of the unleased lands within the Los Angeles Harbor District, Stanley & Stoltz Recommended Harbor District, Stanley & Stoltz recommended
Under date of November 14, 1956, the Union Oil Company addressed a letter to the Council reading:
'Union Oil Company of California, as Operator for itself, Continental Oil Company, Shell Oil Company and The Superior Oil Company hereby requests the following:
'(a) Information concerning and a description of all lands and minerals under the jurisdiction of the City of Los Angeles lying without the Los Angeles Harbor proper, being that portion outside that Breakwater as it now exists.
'(b) That negotiations be entered into for an oil and gas lease embracing all or a portion of the lands discussed in item (a) above. All terms of the lease and all operations to be conducted thereunder will be subject to such negotiations.
'In view of the local, national and international situation, we urgently request that negotiations be commenced as quickly as possible.'
On November 27, the Chairman wrote Union, in part, as follows:
'Neither my committee nor the Council, as such, has any information concerning, or a description of, the lands and minerals under the jurisdiction of the City of Los Angeles lying without the Los Angeles Harbor proper.
'In reference to your suggestion that negotiations be entered into for a lease embracing the lands, be advised that we would be most happy to receive a specific offer from your group covering the specific lands you have in mind and the specific considerations you propose to offer for the same.
'The City has been considering this matter for several months and we, like yourself, are anxious to conclude a lease on all or a portion of said lands as soon as possible. Under these circumstances, may we request that you submit such a specific offer to the undersigned At the time the Chairman replied to Union's letter requesting information relative to minerals under the jurisdiction of the City lying without the Breakwater, the Committee had knowledge of the Geis report filed with the Harbor Commission in March 1953, which came into the hands of the Committee in March 1954; the report of the City Attorney of October 5, 1956; and that the Stanley & Stoltz report (requested of the Harbor Department when received, by Council resolution of August 31, 1956) was likely to be completed soon, if not already completed. Actually, this report had been filed with the Harbor Commission on Cotober 29, 1956. No reference, however, was made to any of this material in the Chairman's reply to the Union Oil group. It will be noted that the Chairman only gave the Union Oil group a period of five working days within which to make their formal proposal. On November 29th Union advised the Chairman of the Committee that it could not submit any plan by December 4th. It was then suggested to Union that it submit its plan as soon as possible.
Under date of November 28, 1956, the Harbor Commission forwarded the Stanley & Stoltz report to the Committee, which received it on December 5, 1956.
On December 6th, General Petroleum, not having received any reply to its application of August 8th to the Harbor Commission, addressed a letter to the Mayor and City Council reading as follows:
'General Petroleum Corporation under date of August 8, 1956 made application to the Board of Harbor Commissioners for the right to prospect for oil and gas and to develop Los Angeles Harbor lands lying both within and without the breakwater. It is our understanding that jurisdiction of the tidelands belonging to the City of Los Angeles outside of the breakwater is vested in the City Council. We therefore wish to supplement our application to the Board of Harbor Commissioners by hereby making application to your Honorable Body for the right to develop City lands lying beyond the breakwater and coming within the nurisdiction of the City Council.
'General Petroleum Corporation is and has for many years been the oil and gas lessee on certain of the Harbor lands and has enjoyed a most agreeable relationship with the City in connection with its drilling and producing activities, and under existing lease will continue to do so for some time to come.
'Please therefore consider us as an applicant under such terms and conditions as we may agree upon which will be mutually advantageous.'
This supplemental application of General Petroleum was received by the Mayor's office on December 10th. On December 14th it was sent by the Mayor's office to the Council, and filed with that body on December 19th, and was referred to the Committee on the 21st.
On December 10th the Committee filed with the Council its report on the application of the Development Company, and attached thereto a draft of a proposed lease. The report recommended that the City enter into a lease with the Development Company substantially in accordance with said draft. The report of the Committee was set for hearing on December 18th, and was approved on that date. The Council directed the City Attorney to prepare an oil and gas lease with the Development Company covering the property in question.
General Petroleum first learned of the Committee's report and the Council's action thereon from the minutes of the Council on December 20th. As a result thereof, General Petroleum on that date delivered a letter to the Mayor and City Council reading in material part as follows:
'General Petroleum Corporation has heretofore filed with your Honorable Body and with the Board of Harbor 'We represent that we are at present a lessor of Harbor lands in the City of Los Angeles, that we are financially established and thoroughly experienced in the development of oil and gas on tidelands. We therefore represent that if we are permitted to negotiate with the City we are in a position to offer higher royalties and substantial advantageous conditions to the City.
'We therefore petition your Honorable Body to defer adoption of the proposed lease to the Los Angeles Harbor Oil Development Company until such time as General Petroleum Corporation has had an opportunity to confer with the properly authorized officials of the City regarding the right to develop these City lands.'
The Chairman of the Industry and Transportation Committee replied to this letter on the following day, the material portion thereof reading as follows:
'I have made a thorough search of the records and fail to find any record of any communication from you, making application for a lease of these same lands. As you have been doing business with the city for many years, you are fully aware that any communication addressed to the City of Los Angeles is automatically referred to the City Clerk and is then referred to the department or branch of government having the jursidiction thereof. If you had written such a letter it would have been automatically referred to the committee of which I am chairman.
'In connection with your remarks regarding the lack of the city soliciting information from you concerning your experience, I might state that I did not solicit information either from your company or the many other oil companies in California or thoroughout the United States who might be capable of exploring the lands in question for oil. However, when the formal application of the Los Angeles Harbor Oil Development Company was made, on August 30, 1956, it was given considerable publicity in all of the metropolitan newspapers and in a great many of the local papers and as a result a number of the largest oil companies did contact my office and their representatives scrutinized the proposal that was submitted to the Council. I have an exact record of all persons who did appear during the period that this has been under consideration. To my knowledge, no representative of your company has shown any interest whatsoever.
'As this matter was given very earnest consideration by our Committee for almost four months before the recommendation was made to the Council as a whole, and this is the first time that we have heard of any interest on your part, if you have any further comments in connection with the statements made above, I urge that you submit them immediately.'
This letter was received by General Petroleum on December 24th. On the same day, General Petroleum replied thereto, and enclosed a copy of its letter of application of December 6th. The material portion of General Petroleum's letter of December 24th reads:
'We do wish to confirm the statement in our letter of December 20th, that we feel, on the basis of the information contained in the Committee report, the we are in a position to discuss an arrangement that will offer substantial advantages to the City. This letter was delivered to the Chairman on the 24th.
Under date of December 26th, the City Attorney transmitted the proposed formal lease to the City Council pursuant to the Council's instructions of December 18th. On the 27th the City Council passed a resolution approving the lease and directing the Mayor to execute it on behalf of the City, and the City Attorney was instructed to prepare an ordinance approving said lease after its execution by the parties.
As a consequence, General Petroleum, on December 28th, addressed the following letter to the Mayor and City Council:
'General Petroleum Corporation under date of December 6th petitioned your Honorable Body for the right to prospect for oil and gas on the City lands lying seaward of the Harbor Breakwater.
'Again on December 20th, 1956, General Petroleum Corporation petitioned for deferment of the adoption of the proposed lease to the Los Angeles Harbor Oil Development Company and for an opportunity to further negotiate with the City.
'General Petroleum Corporation now wishes to withdraw its application of December 6th and its supplemental application of December 20th and respectfully requests that its previous application on this subject be filed.'
General Petroleum indicated it would not have executed a lease in the form of that executed by the Development Company, but was prepared to negotiate objectionable provisions.
The Mayor signed the lease on behalf of the City on December 28th. On January 14, 1957, the City Council passed the ordinance approving the lease, which became effective on February 24th.
It should be noted that the parties, at the beginning of the trial, stipulated that there was no actual fraud, actual bad faith, corruption or collusion involved in the execution of the lease in question.
The court's basic conclusion was that the City, as the trustee of an express trust, failed to perform duties enjoined and imposed on it by law in the transaction leading up to the execution of the lease with the Development Company; that such failure, constituting an abuse of its powers as such trustee, vitiated the transaction. The court therefore concluded that the lease was null and void and ordered judgment accordingly.
By its various grants to the City under the statutes to which we have earlier referred, the State conveyed the lands here involved to the City in fee simple (City of Long Beach v. Marshall, 11 Cal.2d 609, 613, 82 P.2d 362), subject to an express trust that they be devoted exclusively to certain specific uses and purposes. Ibid.; Mallon v. City of Long Beach, 44 Cal.2d 199, 205, 282 P.2d 481; Atwood v. Hammond, 4 Cal.2d 31, 37-38, 48 P.2d 20. The lands granted included the minerals therein, which are also subject to the trust. City of Long Beach v. Morse, 31 Cal.2d 254, 257-258, 188 P.2d 17; Trickey v. City of Long Beach, 101 Cal.App.2d 871, 879, 226 P.2d 694. It is apparent from the statutes referred to above and from the cases interpreting similar statutes (see Mallon v. City of Long Beach, supra) that the grant by the State to the City created an express trust. It is also apparent that by accepting the grant in trust the City became a voluntary trustee. Thus the City is a voluntary trustee of an express trust. As such it 'assumes the same burdens and is subject to the same regulations that appertain to other trustees of such trusts.' City of Long Beach v. Morse, supra, 31 Cal.2d at page 257, 188 McKevitt v. City of Sacramento,
The question now is: What is the duty imposed on a trustee in the administration of such a trust? Preliminarily, it should be pointed out that the charter of the City contains no provisions dealing with the problem at hand. Also, that the trial court here held that sections 6827, 6829.1, 6834 and 6836 of the Public Resources Code, which provide the procedure for leasing tide and submerged lands still owned by the State, were not applicable to the City. This ruling is not challenged on this appeal. Thus there were, at the time the lease was executed, no specific statutory or charter provisions that provided a blueprint for the City, acting as a voluntary trustee, in the administration of the trust herein. We must then look to the general law for the answer to our question.
In 1959 the California legislature enacted specific legislation governing the procedures by which oil and gas leases are to be granted by municipalities. It requires advance publication of a resolution which specifies the minimum royalty, the term of the lease, its form, and one variable, biddable factor on which sealed bids are to be received. The lease must go to the highest responsible bidder. This legislation applies to cities operating under the general laws with respect to all oil and gas leases and to charter cities only with respect to tide and submerged lands granted in trust to them by the state. Public Resources Code, §§ 7058.5, 7059, 7060-7061.
Restatement of Trusts, 2d, section 174, page 379, states the rule thus: 'The trustee is under a duty to the beneficiary in administering the trust to exercise such care and skill as a man of ordinary prudence would exercise in dealing with his own property.' Professor Scott states the rule in the same language (2 Scott on Trusts, (2d ed.) § 174, p. 1295), as does the court in Estate of Whitney, 78 Cal.App. 638, 645, 248 P. 754. To the same effect, see Pomeroy's Equity Jurisprudence, Fifth Ed., § 1070. See also Civ.Code, § 2259. This duty, as are all other trust duties evoled by chancery, is imposed on the trustee by reason of the relationship that has been created. No statute is necessary for its creation or imposition. See Bogert, Trusts and Trustees, Second Ed., § 541, pp. 447, 448, 457; cf. Blum v. Fleishhacker, D.C., 21 F.Supp. 527, 532. It is enjoined upon all who act as trustee of an express trust, absent a statutory provision otherwise defining the duty.
As applied to the case at bench, it means that the City was under the duty to exercise such care and skill, in attempting to negotiate the best oil and gas lease possible, that a man of ordinary prudence would exercise if the land were his. We shall now apply this standard to the acts and conduct of the City in the transaction at hand. We shall first examine the situation as reflected by the Union Oil Company letter of November 14, 1956, and the reply thereto on November 27th. It will be recalled that Union sought information on behalf of itself and Continental, Shell and Superior Oil Companies 'concerning and a description of all lands and minerals under the jurisdiction of the City lying outside the Breakwater.' Union also requested, on behalf of the group, that negotiations be entered into for an oil and gas lease embracing all or a portion of these lands and 'urgently' requested that such negotiations be 'commenced as quickly as possible.' At that time there existed the Geis report, that was filed with the Harbor Commission in March 1953 and came into the hands of the Committee in March, 1954, in which the author indicated the possibility that there was an oil pool under the submerged lands of the Outer Harbor, and the Stanley & Stoltz report which supported the opinion in the Geis report. The Stanley & Stoltz report had been delivered to the Harbor Commission on October 29th, almost a month before the reply of the Chairman to Union's letter. In the face of this available, expert information, the Chairman Another aspect of the Chairman's reply of November 27th to Union's request that negotiations be entered into for a lease deserves comment. It is the request that the Union group submit 'a specific offer * * * no later than December 4, 1956.' This gave the Union group of four companies only five working days in which to develop and agree upon and submit 'a specific offer' for a lease on the submerged lands in question. The obvious magnitude and importance of this undertaking would seem to make it impossible to meet such an early deadline, especially without of information requested. The giving of such a brief period within which to agree among themselves on a proposal and to prepare 'a specific offer' was entirely out of harmony with what might be expected of a man of ordinary prudence who was anxious to get the best lease possible on his own land. Union did find the time insufficient and so advised a field deputy in the Chairman's office by telephone on November 29th. The deputy, with the authority of the Chairman, told Union to submit its plan as soon as possible. Union, however, did not submit any proposal. Defendants place considerable emphasis on the fact that the Union group did not submit a proposal, and seem to draw the inference that the Union group was not particularly interested. This, however, does not necessarily follow. It will be recalled that the Committee filed its report with the Council on December 10 recommending approval of a lease with the Development Company. This information would normally come to the attention of Union the next day as it received the daily digest of the proceedings in the Council. In view of the shortness of time initially given the Union group in which to submit a specific proposal, and the action of the Committee in submitting a report recommending that the City accept the Development Company's proposition, it may well be that Union and its associates concluded that circumstances were not conducive to a favorable consideration of a proposition from them. The reasonableness of such a conclusion appears to be borne out by the inability of General Petroleum (which pursued this matter until the Council approved the Development Company's lease and directed the Mayor to sign it on December 27, 1956) to get action deferred on the Development Company's lease until its own application could be presented and considered.
It will be recalled that the Council, by resolution on August 31st, requested the Harbor Commission to furnish it with the Stanley & Stoltz report as soon as it was received.
We shall now examine General Petroleum's efforts in this matter in detail. On August 8, 1956, it forwarded its application to the Harbor Commission for the right to prospect for oil and gas both within and without the Breakwater and requested that before any commitment was made on the unleased lands of the Harbor, General Petroleum be given the opportunity to discuss a lease with the Commission. It will be noted that this letter referred to lands over which the Commission had jurisdiction, i. e., those located within the Breakwater, Having received no reply to its letter of August 8 addressed to the Harbor Commission, General Petroleum, on December 6, addressed a letter to the Mayor and City Council (quoted supra) referring to its letter to the Harbor Commission of August 8 and asking to supplement that application by 'hereby making application' to develop lands lying beyond the Breakwater which are within the jurisdiction of the Council. On December 20, General Petroleum first learned from the Council minutes of December 18 that the Industry and Transportation Committee had reported on the application of the Development Company for the lease in question and that the City Attorney had been directed to prepare such a lease. On the same day General Petroleum delivered to the Council a letter (quoted supra) requesting that action be deferred on the lease with the Development Company until such time as General Petroleum had an opportunity to confer with the proper officials of the City regarding the right to develop these City lands. In this letter General Petroleum stated that 'if we are permitted to negotiate with the City we are in a position to offer higher royalties and substantial advantageous conditions to the City.' This letter, with its representation that General Petroleum was in a position 'to offer higher royalties' did not result in any delay in approving the lease with the Development Company. On December 24 General Petroleum wrote the Chairman of the Committee again asking that action on the Development Company lease be deferred and requesting an opportunity to discuss with the Chairman and his Committee the possibility of leasing the property to General Petroleum. In this letter the Executive Vice-President of General Petroleum stated that 'we are in a position to discuss an arrangement that will offer substantial advantages to the City.' None of these appeals served to give General Petroleum an opportunity to discuss a lease of the subject lands with a representative of the City notwithstanding General Petroleum's statement that it was prepared 'to offer higher royalties' and 'substantial advantages to the City.' As previously noted, the Council approved the lease to the Development Company and directed the Mayor to sign it on December 27th.
It seems unmistakably clear that a man of ordinary prudence, interested in getting the best oil and gas lease on his own land that he could, would have deferred action on the Development Company's proposed lease until he had discussed the matter with General Petroleum, a recognized operator in this locality, and ascertained what proposition that company had to make and compared it with the Development Company's proposal.
The conclusion is inescapable that in the negotiations leading up to the execution of the lease here in question, the City, as a trustee, failed 'to exercise such care and skill as a man of ordinary prudence would exercise in dealing with his own property.' It therefore follows that the City, as trustee of an express trust, failed to perform and carry out the duties imposed and enjoined by law upon it in the transaction here under review.
The failure to defer or delay the approval of the lease with the Development Company is attempted to be excused by the Chairman of the Industry and Transportation Committee on the ground that he feared the company might withdraw its proposal. We find nothing in these proceedings to justify this fear. It appears that the trial judge, in the exercise of his discretion, did not see fit to give much weight to this explanation.
Also, the City, in an apparent attempt to explain its unwillingness to grant General Petroleum's request that action on the proposed lease to the Development Company be
'The withdrawal by General [Petroleum] of said application, supplemental application, and said petition for deferment of action was done by General by reason of its being in contractual relations with the City and its desire for other opportunities of entering into contractual relations with the City, General being of the belief that if it desired to continue to have favorable opportunities to contract with the City through The Committee or any other Committee thereof, it was necessary that it, General Petroleum, avoid any controversy with Council or The Committee, and that its goodwill with the Council and The Committee be maintained.'
Both the City and the Development Company erroneously contend that this finding is without evidentiary support. General Petroleum's letter of December 6, 1956 (supra) states in its second paragraph that it is, has been for many years, and will continue to be for some time, an oil and gas lessee of certain Harbor lands and has enjoyed a most agreeable relationship with the City in that connection. Against this background we have the testimony of Mr. McGruder, Executive Vice President of General Petroleum, that his company did not desire to enter into any controversy concerning the lease in question, and the testimony of Mr. Collins, also of General Petroleum, that following a discussion with his superiors, he recommended that it would be wise to gracefully withdraw. This testimony, viewed within the framework of the contractual relationship between the City and General Petroleum, amply justifies the inference articulated in the challenged finding.
At the outset, the Development Company challenges the right of plaintiff, as a resident and taxpayer of the City, to maintain this suit. Its position, however, is not well founded.
In Schaefer v. Berinstein, 140 Cal.App.2d 278, at page 289, 295 P.2d 113, 121, the court stated: 'In this state it is thoroughly established tht a taxpayer, under certain circumstances, has the right to sue in a representative capacity. (Citing cases.)' The court then enumerated these 'certain circumstances' as '* * * fraud, collusion, ultra vires, or a failure on the part of a governmental body to perform a duty specifically enjoined.' In Terry v. Bender, 143 Cal.App.2d 198, 212, 300 P.2d 119, 128 this court stated: 'A taxpayer may sue in a representative capacity in cases involving the failure of a governmental body to perform a duty specifically enjoined. (Citations.)' Wine v. City Council of Los Angeles, 177 Cal.App.2d 157, 164, 2 Cal.Rptr. 94, is in accord with the foregoing principle.
Plaintiff alleged in his first and fourth causes of action generally the facts recited The City argues that the trial court invaded the field of political and legislative activity on the part of the City, which is beyond the court's jurisdiction to consider. The City misses the mark in making this argument. The City is not here acting in a legislative capacity. It is acting rather in a proprietary capacity as the voluntary trustee of an express trust in negotiating an oil and gas lease on a portion of the trust property. Ravettino v. City of San Diego, 70 Cal.App.2d 37, 44, 160 P.2d 52; Los Angeles Athletic Club v. Board of Harbor Commissioners, 130 Cal.App. 376, 386, 29 P.2d 130. And when acting in such a capacity its acts must be measured by the same standard as those of any other trustee and they are subject to judicial review. This principle has been recognized in this state for more than a century. It was in 1857, in Holland v. City of San Francisco, 7 Cal. 361, 377, that our Supreme Court declared that 'when acting as a trustee, either for the corporation, or for others, or for both, [a municipal corporation's] acts are subject to judicial control. In the latter case its discretion must be exercised soundly, like the discretion of any other trustee.' The court is not here trying to interfere with the legislative and political activity of the City but rather to determine whether the City, through its authorized representatives (in this case the Council) has properly discharged its duties as trustee in negotiating a lease of the trust property. To hold that the courts cannot inquire into the acts of those representing the City in the discharge of its duties as trustee in a transaction of this character is to insulate the city-trustee from the consequences of neglect and failure on the part of such representatives in performing duties imposed by law of the City as trustee. This obviously would not be in the public interest. There is no reason why a city when acting as a trustee of an express trust, as here, should not be held to the same standard in the administration of the trust as a trustee of a private trust. To accomplish this result the City's acts must be subject to the same judicial scrutiny as are the acts of other trustees of such trusts. It is therefore clear that this action does not invade a forbidden area of municipal activity.
In this connection the Development Company argues that it was error to admit the testimony of the City Councilmen as to what was done by them as the representatives of the City in the discharge of its duties as a trustee in the negotiations leading up to the execution of the lease in question. This argument is predicated upon the theory that the trial court was attempting to review legislative action. As previously pointed out, this is an erroneous view. Actually, as noted above, what the court was seeking to determine was whether the acts of the representatives of the City in this leasing transaction adequately discharged the duty imposed on the City as a trustee. To decide that question it was, of course, necessary to know what action the City, through these representatives, took in the premises and what they failed to do. In view of the basic issue here involved, the challenged evidence was relevant and material and clearly admissible.
The Development Company contends that the questions relating to the existence of a trust duty and its violation were improperly considered by the trial court, in that they constitute a material variance from the pretrial conference order, which is said to supersede the pleadings. It is argued that defendants were prejudiced by this alleged error.
While it is true that one the purposes of the pre-trial conference order is to delineate and delimit the issues, legal and factual, to be raised at the trial, not all 'The defendants contend that said sections of the Public Resources Code are not applicable.'
The issues set forth in the pretrial order control the conduct of the trial and supersede the pleadings to the extent they are inconsistent therewith. City of Los Angeles v. County of Mono, 51 Cal.2d 843, 847, 337 P.2d 465; Cal-Neva Lodge, Inc., v. Marx, 178 Cal.App.2d 186, 187, 2 Cal.Rptr. 889. But we cannot find any inconsistency where the pleading contains more than one cause of action (including violation of provisions of the Public Resources Code and breach of the duty of a trustee) and the pre-trial order refers to one of those causes of action as being 'among the contentions of the plaintiff.' The pre-trial judge did not attempt to limit the issues to be considered at the trial, but rather merely to set forth clearly the nature of one of the disputes.
Regardless, defendants do not appear to have been prejudiced. Following the pretrial conference a second amended complaint was filed, setting forth again the question of the violation of a trust duty. There was no second pre-trial conference. At the outset of the trial the trial judge referred to the issue complained of three times as being among those to be litigated, without objection from defendants. It thus appears that defendants were sufficiently apprised of the fact that the violation of a trust duty was in issue.
Furthermore, the burden is upon defendants to demonstrate wherein they were prejudiced. This burden has not been met. We are merely cited to cases in which the proof varied from the pleadings to such an extent the the appealing party had no notice of the nature of the case he was to defend. Kirk v. Culley, 202 Cal. 501, 261 p. 994 (contract for legal services at fixed fee and performance thereof were pleaded, while the proof offered was that of a contingent fee contract, wrongful discharge, and the occurrence of the contingency); San Francisco Stevedoring Co., v. Associated Ind. I. Corp.., 137 Cal.App. 117, 29 P.2d 890 (written contract modified by oral agreement pleaded, unexecuted oral contract proven). We are asked to agree that there is error, which we do not, and then we are asked to assume, ipso facto, that the error prejudiced the rights of defendants. Such an assumption is not warranted.
Also cited is Baird v. Hodson, 161 Cla.App.2d 687, 327 P.2d 215, for the proposition that it is necessary for the courts, as well as the parties, to follow the rules with respect to pre-trial conference orders. Since no attempt was made by the pretrial judge to delimit the issues, no rule was violated by the trial court in trying issues not mentioned in the order.
The City contends that the application of the presumption that official duty has been regularly performed (C.C.P. § 1963 subdiv. 15) should lead to a result contrary to that of the trial court. We do not agree. The presumption is a disputable one, which may be controverted by other evidence (C.C.P. § 1963). It is itself a form of evidence which, if uncontradicted will support a judgment (Standard Oil Co. v. Houser, 101 Cal.App.2d 480, 225 P.2d 539; Pulos v. Pulos, 140 Cal.App.2d 913, 295 P.2d 907) but which, McDonald v. Hewlett,
Steward v. Paige,We are cited by the City to the cases of Lavine v. Jessup, 161 Cal.App.2d 59, 67, 326 P.2d 238; Alexander v. Scattergood, 51 Cal.App.2d 127, 131, 124 P.2d 151, and Los Angeles Athletic Club v. Long Beach, 128 Cal.App. 427, 430, 431, 17 P.2d 1061. These cases affirmed judgments which followed the sustaining of demurrers without leave to amend. In all three the complaints were deficient in that they did not allege facts in a sufficiently specific manner which if true would rebut the presumption of regularity of official conduct. They are not here controlling. In People v. Hood, 141 Cal.App.2d 585, 297 P.2d 52, and Housing Authority v. Forbes, 51 Cal.App.2d 1, 124 P.2d 194, also cited by the City, there was no evidence offered to rebut the presumption. Also inapposite is Lockard v. City of Los Angeles, 33 Cal.2d 453, 202 P.2d 38, 7 A.L.R.2d 990, dealing with the presumption accorded municipal action in the enactment of zoning ordinances, a legislative function. 33 Cal.2d at page 460, 202 P.2d 38.
The Development Company argues that the general law relating to trust duties cannot be applied because the actions of the City representatives to which the law must be applied are a 'municipal affair' within Article XI, Section 6 of the California Constitution. For this proposition we are cited to Dynamic Industries Co. v. City of Long Beach, 159 Cal.App.2d 294, 295-299, 323 P.2d 768, 772, which states 'that the mode in which a city chooses to contract is a municipal affair,' even when the contract relates to a grant by the city to another of the right to drill for oil on tide or submerged lands held by the city in trust. In that case plaintiff was suing for a declaratory judgment that an alleged contract between it and defendant city was valid and subsisting. Unfortunately for plaintiff, the city manager had never signed the agreement, and the city charter provided that the city 'shall not be and is not bound by any contract * * * unless the same is * * * signed by the city manager * * *.' The opinion states the rule that where a city charter specifies the mode by which the power to contract may be exercised, the mode is the measure of the power, and a city cannot be bound except by contracts executed in accordance with the charter provisions. The plaintiff advanced the argument that the ownership of tidelands under a trust for the benefit of the people of the state is not a municipal affair, citing Mallon v. City of Long Beach, supra, and concluding that therefore general contract law must be applied. The opinion answers this argument by stating that whatever the subject matter of the contract, the mode in which the city chooses to contract is a municipal affair.
It could not be more obvious that by 'mode' of contracting the opinion means the mechanical procedure by which the city manifests its intent to be bound. It clearly does not relate to the care and skill that the city must exercise as a trustee in carrying out its trust duties.
The Development Company states that it is a good faith purchaser for value and as such should prevail under Section 2243 of the Civil Code. Its argument is apparently based on the assumption that an unperformed promise constitutes valuable consideration under the circumstances of this case. The argument is without merit. Of the two innocent parties, the California rule (Civ.Code § 2243, supra) chooses one who has parted with something of substance over the beneficiary of the trust. But with good reason, the drafters of the Restatement, as indicated above, would not go so far where the transferee of the trust property has parted with no more than a promise from which he will be relieved when the transaction is set aside. The Restatement position is obviously sound.
We are cited to the reporter's transcript pp. 1311-1312, where the trial judge told Mr. Arditto that he didn't find any valuable consideration, but only a contract to pay royalties and rentals to which Arditto replied, 'Rather valuable consideration.'
The Development Company complains that the court failed to make certain findings. The first relates to contacts made by the representatives of various oil companies with the Deputy City Attorney during the period (December 18 to December 26) when he was engaged in preparation of the lease in question; the fact he made the Council file available to them; and that he furnished them with copies of the lease on or after December 26, when it became a public document. Such a finding would neither be material nor relevant as to whether the City properly discharged its duty when Union requested information on November 14 'concerning and a description of all lands and minerals under the jurisdiction of the City' lying outside the breakwater, at which time the City had available reports thereon but which it failed to disclose. Nor would such a finding have any bearing on whether the City provided General Petroleum a reasonable opportunity to present a proposal. It was therefore not error to fail to make the requested finding.
For these same reasons it was not error for the trial court to fail to make certain of the other requested findings. Bearing in mind the trial court's province to evaluate the evidence and to draw reasonable inference therefrom and in light of the totality of the evidence adduced it cannot be said that the trial court was required to find in accordance with still other requests of the Development Company.
(a) The good faith of the Development Company; (b) that it was a good lease for the City; (c) knowledge of the Councilmen of communications between the City and both Union and General Petroleum; (d) that the Attorney General refused to become a party; and (e) that no one appeared before the Committee or Council in opposition.
(a) That Union did not intend to make an offer and would not have signed such a lease; and (b) that no better lease could have been obtained by the City.
Finally, it is of course true that three of the then councilmen and the Chairman of the Committee testified that if the land were their own, they would have handled its leasing in the same manner as it was handled, but this is merely evidence to be considered together with other evidence on the matter, and it is patently not error for the trial court to have failed to find that they so testified.
Both the City and the Development Company argue that numerous findings are without evidentiary support. It is unnecessary to discuss these in detail. The evidence summarized in the earlier part of this opinion and which was found to be true by the trial court amply supports the trial court's determination that the City failed to discharge its trust responsibility. In such a circumstance an appellate court will presume that the judgment was predicated Logan v. Forster,
American Nat. Bank v. Donnellan, Mershon Co. v. Pachmayr,It is unnecessary to discuss other points raised in the briefs. The evidence more than amply supports the essential findings, and no prejudice is disclosed by the record.
The judgment is affirmed.
ASHBURN, J., and McMURRAY, J. pro tem., concur.
'(a) A guaranteed minimum royalty at all times of not less than 18 2/3% on any commercial oil and/or gas discovered in the subject lands;
'(b) A bonus of $25,000.00 per each commercially productive well drilled and completed in the subject lands by us; such bonus to be payable out of 1/16th of the Working Interest of each commercially productive oil and/or gass well [and]
'(c) An additional royalty of 36% of that portion of each well's production which exceeds 207 barrels per day. Such additional royalty to become obligatory and payable only after the payment of the entire bonus payment of $25,000.00 per well scheduled under section (b) immediately above.'
'(1) The payment of a cash bonus at the time the lease is granted.
'(2) A gross royalty on all hydrocarbon products recovered.
'(3) A minimum annual royalty guarantee.
'(4) A percentage of the net revenue after recovery of costs.
* * * [with] fixed amounts to be designated by the Board for the first three requirements at the time bids are requested. The amount of net royalty offered will then furnish the principal basis for evaluating the respective bids.' The report further recommended the best interests of the City and the Harbor Department would be served by proceeding in the following manner:
'(1) Designate the areas that are to be leased and the minimum terms that will be acceptable and
'(2) Request that interested and qualified operators submit proposals or informal bids on the basis [above] outlined.'
'The Stanley & Stoltz report reviewed the earlier Geis report, and indicated the probability that there was oil under the Outer Harbor.