Full opinion text
McCOMB, J. Plaintiffs brought the present action in a representative capacity for the purpose of impressing a trust upon assets or their derivatives alleged to have been transferred May 23, 1931, by Fidelity Savings and Loan Association (hereinafter referred to as Fidelity) to defendant, Pacific States Savings and Loan Association (hereinafter referred to as Pacific States or defendant). Defendant appeals from the judgment in favor of the plaintiff insofar as it (a) holds that the transfer of property from Fidelity to Pacific States pursuant to the agreement of May 23, 1931, constituted a transfer in trust as distinguished from an absolute sale of the assets of Fidelity to Pacific States, (b) awards judgment on the accounting to holders of Pacific States Issued Fidelity participating certificates in the sum of $1,363,251.40, (c) impresses a lien upon the Fidelity transferred realty or realty derivatives within the State of California as security for the payment of the sum awarded, and (d) orders the appointment of a receiver in aid of the judgment in favor of the participating certificate holders. The main issue raised by the pleadings in the present action was: Did the transfer of assets from Fidelity to Pacific States by the agreement of May 23, 1931, mentioned supra, constitute an outright sale of the assets of Fidelity to Pacific States or a transfer in trust for the benefit of Fidelity, its creditors, and certificate holders? The trial court held in favor of plaintiff’s contention that the agreement constituted a transfer in trust for the benefit of Fidelity, its creditors, and certificate holders. Defendant urges four propositions as reasons for the reversal of the judgment of the trial court. These propositions will be stated and answered hereunder seriatim. First: There was no substantial evidence to sustain the trial court’s finding that the transfer of property from Fidelity to Pacific States pursuant to the agreement of May 23, 1931, constituted a transfer in trust as distinguished from an absolute sale of such property. This proposition is untenable and is governed by the facts hereinafter set forth and these pertinent rules of law: (1) The agreement of the parties to an instrument that it shall constitute a present sale and not be construed as a transfer of property in trust cannot change the true character of the agreement of the parties as disclosed by the instrument which evidences the transaction. (See Mahoney v. San Francisco, 201 Cal. 248, 258 [257 P. 49]; Stockton Savings & Loan Society v. Purvis, 112 Cal. 236, 239 [44 P. 561, 53 Am.St.Rep. 210]; San Joaquin L. & P. Corp. v. Costaloupes, 96 Cal.App. 322, 332 [274 P. 84]; also 1 Scott on Trusts (1939) 37, see. 2.8.) (2) Whenever uncertainty arises concerning the meaning of a written agreement, the trial court will receive evidence as to what the parties themselves understood the agreement to mean and when they have acted upon that understanding and the trial court has made a finding that the agreement should be construed as acted upon by the parties, such finding will not be disturbed upon appeal (Thew v. Thew, 35 Cal.App.2d 691, 695 [96 P.2d 826]). (3) To constitute a sale of property as distinguished from other agreements or transfers relative to property it is essential that in addition to other elements the absolute or general property in the thing sold be transferred from the vendor to the vendee (Christensen v. Cram, 156 Cal. 633, 635 [105 P. 950]; Van Allen v. Francis, 123 Cal. 474, 479 [56 P. 339]; see. 1721 Civ. Code). (4) A trust is any arrangement which exists whereby property is transferred with an intention that it be held and administered by the transferee (trustee) for the benefit of another (Estate of Shaw, 198 Cal. 352, 360 [246 P. 48]; Raffo v. Foltz, 106 Cal.App. 51, 55 [288 P. 884] ; 4 Am.Jur. (1936) 357, sec. 39; 2 R.C.L. (1929) 664, sec. 20). (5) The power of an appellate court in reviewing the evidence on appeal from a judgment on the ground of insufficiency of the evidence to support findings of fact begins and ends with a determination as to whether there is any substantial evidence contradicted or uncontradicted which will support the questioned finding of fact (Raggio v. Mallory, 10 Cal. 2d 723, 725 [76 P.2d 660]; Estate of Winzeler, 42 Cal.App.2d 246, 248 [108 P.2d 720]). The agreement of May 23, 1931, between the parties contained the following relevant provisions: “Fifth: It is the intention of the parties hereto that title to all of said assets referred to the assets of Fidelity shall be, and the same is hereby, transferred to and vested in Pacific States, for and in consideration of the purchase price and other considerations hereinafter mentioned.” “Twelfth: A. Pacific States (subject to the provisions of Paragraph Twentieth hereof) shall have charge of the sale of all Real Property (as hereinafter defined) and all other assets acquired by it from Fidelity and may sell the same at such prices and on such terms and conditions as in its sole discretion it may determine without any approval from Fidelity ; provided, that without the approval as to price and terms of sale of a representative of Fidelity appointed for the purpose, Pacific States will not (a) sell any notes or street improvement bonds acquired from Fidelity for .a period of four (4) years from date hereof, (b) sell any Real Property (as hereinafter defined) for a period of four (4) years from the date hereof unless the annual quota of sales hereinafter set forth shall not be met, or (c) sell any other assets acquired from Fidelity hereunder for a period of two (2) years from the date hereof. ’ ’ "Nineteenth: 1. Pacific States hereby further agrees: "(a) To furnish to Fidelity, at least quarterly, full, true and correct statements showing in detail, and in form satisfactory to Fidelity, the status of all assets transferred to Pacific States hereunder, together with such other statements and/or information as Fidelity may require in order to maintain its books of account, to determine the status of the liquidation of said assets, and generally to inform itself as to matters involving its rights under the terms of this agreement. . . . (Italics added.) "5. The within agreement and conveyance is intended by the parties hereto as a present sale and transfer of the above described properties by Fidelity to Pacific States, in consideration of the payment of the purchase price therefor herein-above mentioned, and neither the Pacific States nor the State Guaranty assumes hereby any trust obligation to the Fidelity or its creditors or any obligations other than those herein expressly assumed. It is, moreover, specifically understood and agreed that neither Pacific States nor State Guaranty assumes hereby any obligation to distribute said purchase price or other funds to or for the benefit of creditors or stockholders of Fidelity or otherwise. ’ ’ It is evident that under rule 1, supra, the statement in paragraph Nineteenth, subdivision 5, was not conclusive upon the parties. It is likewise apparent from an examination of the statement in paragraph Fifth of the agreement that it was the intention of the parties that title to all of the assets of Fidelity should be transferred to and vested in Pacific States. This statement creates an ambiguity in the agreement when read in connection with the statement in paragraph Twelfth to the effect that sales of property of Fidelity for the period of four years should not be made without obtaining first the approval of Fidelity as to the price and terms of the proposed sale. This ambiguity is further emphasized by the reference in paragraph Nineteenth to the transaction as “the liquidation of said assets.” To resolve this ambiguity the trial court under rule 2, sivpra, properly received evidence as to what the parties themselves understood the agreement to mean. A portion of such evidence was as follows: Mr. Robert S. Odell, President of Pacific States, testified in part thus: “Nothing was said in that conversation (referring to negotiations preliminary to the agreement) about what Pacific States would get for making this liquidation, other than what I said, that we would be entitled to at least $500,000 a year gross profit, plus a reasonable allowance for additional operating costs. I don’t recall that when the contract was finally written we were to get far beyond that. Eventually the auditors prepared what has been termed a formula, but that was to produce the 7.2% guaranteed yield. There was provided in that formula $500,000, as a gross differential. There was $100,000 for additional expense on license fees and taxes and all those things. As I recall it there was $500,000 going to be the gross with an allowance of $100,000 additional expenses that we would entail by bringing all those assets into Pacific States.” Further, on September 15, 1934, Mr. Odell sent a letter to the investors of Pacific States reading in part as follows: “Fidelity Liquidation: Under the contract whereby this institution took over for liquidation the assets of Fidelity Savings & Loan Association in the year 1931, there were reissued in exchange for Fidelity certificates two new certificates, the first being an Investment Certificate of Pacific States Savings Guaranteeing 75% of the face value of the investment, and the other a certificate for 25% of the face value and which calls for a participation in whatever is yielded through the liquidation over and above the 75% guaranteed. “Accordingly, a reserve equivalent to the capital liability plus 25% of the Fidelity Investment certificate liability at the time of the take-over was set up on our books and it is against this reserve that losses are being written down as we liquidate Fidelity assets.” Mr. Earl M. Leafe, a director and vice-president of Fidelity, testified as follows: “I don’t recall that we discussed the question of sale. We spoke of it as a take-over. I don’t recall that anybody defined what they meant by the word take-over. There was no discussion of the price of any sale. The only discussion that involved amounts of money related to the compensation which Mr. Odell said Pacific States would have to have as a condition of the deal. This was in the very first stages of the negotiations. There wasn’t any definition of the deal. It was simply that Pacific States would take over Fidelity on some sort of terms to be agreed upon. Mr. Odell said that he had reconsidered his previous decision not to try to work out a deal and that he was willing to undertake negotiations to see whether a deal could be worked out. He said that he wanted it clearly understood that as a condition of any deal Pacific States would have to receive as compensation for its services, the sum of $500,000 a year and an additional amount of $100,000 a year to cover the prorata of the general overhead which he felt would be applicable to the administration of Fidelity assets. “I had many conversations with Mr. Grow and Mr. Wilke and other directors of Fidelity about this matter. The purpose of this agreement generally revolved about the orderly liquidation of Fidelity assets, the protection of the Fidelity certificate holders and the making of an arrangement to secure as large an amount- of recovery to the Fidelity certificate holders as would be possible and to avoid liquidation by the Building and Loan Commissioner or by other public agency. “There were discussions of forms of compensation or profit to Pacific States by reason of the take-over other than the payment of fees and charges for liquidation. There was discussion of the payment of the $500,000 item of profit. I suppose you would call that a fee for liquidation. It was a charge that was included in the contract.” Mr. A. E. Grow, executive vice-president and director of Fidelity, testified as follows: “I don’t recall that any reference was made to a sale of the assets of Fidelity in that conversation. No reference was made to the purchase of Fidelity assets by Pacific States. That was the beginning of the negotiations which consummated in the contract of May 23, 1931, between Fidelity and Pacific States. We told Odell that owing to the depression and the failure of the Guarantee Building & Loan we were having very heavy withdrawals in Fidelity and were getting into a rather precarious position and we wanted, if possible, to work out some plan whereby Pacific States would take over the assets of Fidelity and liquidate them, thereby affecting a tremendous saving in the overhead cost of handling the business. Nothing definite was consummated at that conference.” May 23, 1931, Mr. George L. Eastman, then president of Fidelity, sent a circular letter to the certificate holders of Fidelity, which contained this statement: “That the fundamental values behind Fidelity assets are more than sufficient for every investor in this association to receive 100% on his investment plus his interest at 6% at the time of payment. . . . There will be very substantial assets available to the stockholders. . . . This has been accomplished under the present arrangement and at the same time has not taken from Fidelity any of the assets which secured its certificate holders.” From the foregoing evidence it is apparent that responsible executive officers of both Fidelity and Pacific States considered the agreement as evidencing a transaction whereby the Pacific States was to liquidate pursuant to the terms of the agreement of May 23, 1931, the assets of Fidelity for the benefit of those beneficially interested in Fidelity. It is conceded that the assets of Fidelity were assigned on the books of the Pacific States a number with “F” preceding it to distinguish such assets from the other assets owned by Pacific States and that prior to 1936 the earnings from the assets of Fidelity were not taken into account as ordinary earnings of the Pacific States nor returned by Pacific States as part of its federal income tax; also Fidelity’s income tax return for the year 1931 bears the following notation: “The assets of this corporation were sold to Pacific States Savings and Loan Company on a liquidation basis under an agreement dated May 23, 1931, whereby we received the income on the assets and paid various expenses and charges for the handling of the liquidation.” Subsequently the same notation was made on Fidelity’s income tax returns for the year 1937-1938. The foregoing evidence constitutes substantial evidence to sustain the trial court’s finding that it was in fact the intention of the parties that the assets of Fidelity be transferred to Pacific States in trust for the purpose of liquidation. Since, therefore, it was not an absolute transfer of the assets of Fidelity to Pacific States, it was not a sale under rule 3, supra, but the transaction constituted a transfer in trust pursuant to the requirements of rule 4, above. In view of the requirements as set forth in the provisions of rule 5, supra, further discussion of the evidence would not serve any useful purpose. The following eases presented by defendant are factually distinguishable from the instant ease: In Broderick v. Betco Corp., 149 Mise. 245 [267 N.Y.S. 139], the sole question before the court was whether the superintendent of banks was entitled to maintain an action for an assessment against a stockholder of a trust company which the superintendent of banks had taken over for the purpose of liquidation. The court held that even though the contract was one of sale the superintendent of banks had authority to institute the action. In Bassett v. City Bank & Tr. Co., 116 Conn. 617 [165 A. 557], absolute title to the property in question was transferred without any reservation or right of the transferor to the management or disposition of the transferred property. In First National Bank v. Harris, 27 F.2d 117, there was no provision in the agreement for the return of any of the assets to the transferor. In Sturdivant Bank v. Houck, (Mo.App.) 47 S.W.2d 135, the property transferred was without restriction or any control being reserved in the transferor. A similar situation prevailed in the cases of Gockstetter v. Williams, 9 F.2d 354, and Keiler v. Tutt, 31 Mo. 301. St. Helens Quarry Co. v. F. T. Crowe & Co., 90 Ore. 284 [176 P. 427], is based on the proposition that the parties by their conduct were estopped from treating the contract in question as one other than an outright sale. In re Fidelity Savings & Loan Assn., 53 F.2d 241, which was a proceedings to have Fidelity declared an involuntary bankrupt is not binding upon this court. An examination of that case discloses that the question there presented was whether or not the court should permit the petitioning creditors in bankruptcy to file an amended petition, it being conceded that the one then before the court was defective. The court declined to permit the filing of the amended petition, indicating that in its opinion a better result would be obtained for all parties concerned if Fidelity were not adjudicated a bankrupt. The discussion in the opinion relative to the character of the agreement between Fidelity and Pacific States was obiter dictum and not pertinent to the question there presented for decision. Second: If the agreement of May 23, 1931, between Fidelity and Pacific States be held to be a transfer in trust for the purpose of liquidating■ the assets of Fidelity and not a sale, then, since the State Building a/nd Loan Commissioner approved the agreement, it constituted an unlawful delegation of power ty the State Building and Loan 'Commissioner to Pacific States, and, therefore, the agreement was void. This proposition, is likewise untenable. It is to be noted that the then State Building and Loan Commissioner, Mr. H. L. Carnahan, testified that he did not want to take over Fidelity for the purpose of liquidation but believed that, if someone else with the financial ability, integrity, and reputation took over the Fidelity assets for liquidation, a better result would ensue. The record discloses that in fact the State Building and Loan Commissioner did not exercise his power, assuming he could have done so, to take over the liquidation of Fidelity. Therefore, it is obvious that his assent to the agreement between Fidelity and Pacific States could not have constituted a delegation of his powers and duties to liquidate Fidelity. The contract between Fidelity and Pacific States, whereby the one transferred to the other its assets for the purpose of liquidation was perfectly legal, there being no provision in the Building and Loan Commission Act of 1911 (Stats. 1911, p. 607 as amended, Peering’s Gen. Laws, 1923, 1925-27, 1929, Act 982), which was in effect May 23, 1931, or any other provision of law which made it illegal for one building and loan association to transfer to another for a proper consideration its funds and/or property. Jackson v. McIntosh, 12 F.2d 676, Motley v. Marlin, 166 Ga. 820 [144 S.E. 747], and Stogner v. Brooks, 40 Ga.App. 598 [151 S.E. 48], are not here in point, for the reason that in each of the cases cited the assets of the bank involved in each case had been taken over and were in the actual legal possession and control of the authorized statutory officer for purposes of liquidation. In each instance such officer had attempted to assign his duties of liquidation to another, which attempt was held in each case to be unlawful and nugatory. As heretofore pointed out in the instant case, the Building, and Loan Commissioner had not exercised any power or right for the purpose of liquidating Fidelity. Third: The statute of limitations, sections 318 and 343 of the Code of Civil Procedure, constituted a tar to plaintiffs’ cause of action. This proposition is also untenable. Defendant’s argument and authorities are predicated upon the theory that Pacific States became an involuntary or constructive trustee of the assets of Fidelity. However, the trial court found, supported by substantial evidence, as indicated above, that defendant was not an involuntary or constructive trustee of the assets of Fidelity but was a voluntary trustee of such assets. Therefore, the statute of limitations did not commence to run until the agreement between the parties had been completed and a final account rendered. (See Lezinsky v. Mason Malt etc. Co., 185 Cal. 240, 244 [196 P. 884], and Leviston v. Tonningsen, 212 Cal. 656 [299 P. 724].) It is an undisputed fact in the present case that the agreement had not been completed and no final account had been rendered. Fourth: The trial court’s findings are inconsistent in that upon the same evidence it found that: (1) As of the final payment date of the agreement of May 23,1931, as amended, there were $7,554,251.25 outstanding in nominal face amount of participating certificates, and (2) as of the date of judgment there were $4,899,790.62 in nominal face amount of participating certificates outstanding. This proposition may not be urged by defendant, for the reasons that: (1) its own records disclosed, and it asked the trial court to make the finding that there were $7,554,251.25 outstanding in nominal face amount of participating certificates as of the final payment date of the agreement, and (2) it is not prejudiced by the finding that as of the date of judgment there were $4,899,790.62 in nominal face amount of participating certificates outstanding, because such finding applies only to those who are to participate in the judgment, and by defendant’s express disclaimer at the trial it waived any right to participate in the judgment. Therefore, under the mandate of article VI, section 4% of the Constitution of the State of California, we are bound to disregard any conflict that might exist between the findings, since defendant could not be prejudiced thereby. Contentions of Amicus Curiae After the present action was commenced Ralph W. Evans, then Building and Loan Commissioner for the State of California, intervened in the action. Subsequently he resigned and Harley Hise was duly appointed and qualified in his place and stead as Building and Loan Commissioner, and by appropriate proceedings was substituted as intervener in the present action. However, the intervener did not appeal from the present judgment, but after the appeal had been taken to this court, by stipulation of the parties, was permitted to file a brief as amicus curiae. By this brief he urges various propositions for the modification of the judgment which are not presented by either plaintiffs (respondents) or defendant (appellant). These questions will not be considered by us for the reason that the rule is universally recognized that an appellate court will consider only those questions properly raised by the appealing parties. Amicus curiae must accept the issues made and propositions urged by tin appealing parties, and any additional questions presented in a brief filed by an amicus curiae will not be considered (Davis v. McCasland, 182 Okla. 49 [75 P.2d 1118, 1119]; Samuel Hertzig Corp. v. Gibbs, 295 Mass. 229 [3 N.E.2d 831, 833] ; Dinet v. Orleans Dredging Co., (La.App.) 149 So. 126, 129; Corning v. Patton, 236 Ala. 354 [182 So. 39, 42]; City of Phoenix v. Drinkwater, 46 Ariz. 470 [52 P.2d 1175, 1176]; 3 C.J.S. (1936) 1052, Amicus Curiae, see. 3(9)aa; see, also, In re Pina, 112 Cal. 14, 16 [44 P. 332]). For the foregoing reasons the judgment is affirmed. Moore, P. J., and Wood (W. J.), J., concurred. Appellant’s petition for a hearing by the Supreme Court was denied April 22, 1943. The following is the agreement referred to on page 241: SUPPLEMENT. AGREEMENT FOB TRANSFER OF ASSETS FROM FIDELITY SAVINGS AND LOAN ASSOCIATION TO PACIFIC STATES SAVINGS AND LOAN COMPANY Dated May 23, 1931 AGREEMENT FOB TRANSFER OF ASSETS FROM FIDELITY SAVINGS AND LOAN ASSOCIATION TO PACIFIC STATES SAVINGS AND LOAN COMPANY THIS AGREEMENT AND CONVEYANCE, made and executed this 23rd day of May, 1931, by and between FIDELITY SAVINGS AND LOAN ASSOCIATION, a building and loan association organized under the laws of the State of California, party of the first part (hereinafter called “Fidelity”), PACIFIC STATES SAVINGS AND LOAN COMPANY, a building and loan association organized under the laws of the State of California, party of the second part (hereinafter called “Pacific States’’), and STATE GUARANTY CORPORATION, a Delaware corporation which is the owner of all of the outstanding Guarantee Capital Stock (except Directors’ qualifying shares) of the Pacific States Savings and Loan Company, party of the third part (hereinafter called “State Guaranty”), WITNESSETH: First: Fidelity, for and in consideration of the sum of Ten Dollars ($10.00) and other valuable considerations hereinafter mentioned, hereby grants, sells, transfers and conveys to Pacific States all of the lands, promissory notes, mortgages, deeds of trust, contracts, leases, securities, bonds, stocks, choses in action, cash on hand and in banks, accounts receivable, furniture, fixtures, equipment, business, good will, and all other property and interests in property, both real .and personal, owned by Fidelity at the date hereof (all of said property being sometimes hereinafter referred to as the “assets”). Second: Fidelity hereby covenants, represents and warrants that it is the owner free and clear, except as shown on the Memorandum dated March 31, 1931, signed by Fidelity and on file in the office of the Building and Loan Commissioner of California (hereinafter referred to as the “Memorandum”), of all liens and encumbrances, except current taxes not delinquent and liens and encumbrances securing liabilities expressly assumed by Pacific States hereunder, of all of the assets shown on said “Memorandum,” and that it is duly authorized and empowered to transfer the same as herein provided, and also that from said date to and including the date hereof, it has not done any of the following things, viz.: (a) Disposed of any of said assets shown in said “Memorandum,” excepting only cash in the payment of its debts and normal operating expenses and in the payment of dividends and of principal and interest and on its investment certificates and also that it has not paid, since the close of business on May 14, 1931, any amounts to any one holder of investment certificates of Fidelity in excess of $500.00; (b) Paid any extra salaries, bonuses or other distributions to any of its officers or employees other than normal salaries in accordance with the past salary scale; (c) Entered into any contracts or leases except contracts for the sale of real property made prior to May 15, 1931; or (d) Created any lien on any of its properties without the consent of Pacific States, except liens to secure payment of liabilities expressly assumed by Pacific States hereunder. Third: Fidelity hereby further covenants, represents and warrants that said “Memorandum” contains a full, true and correct statement of all its liabilities of every kind and nature, contingent or otherwise, as of the 31st day of March, 1931, and that all of the schedules numbered one (1) to twelve (12) in said “Memorandum” are full, true and correct, and fully, truly and correctly show all of the facts and items they purport to show. That from said date to and including the date hereof it has not incurred any liabilities in addition to those shown in said “Memorandum,” except in the normal course of business, and has in no event entered into any contracts except contracts for the sale of real property made prior to May 15, 1931. Fourth: Fidelity hereby further covenants, represents and warrants that prior to the date hereof it has caused to be cancelled and set aside all contracts of sale of real property wherein it is the seller and Fidelity Auxiliary, Ltd., is the purchaser. Fidelity further covenants, represents and warrants that in the case of all property covered by any such contracts of sale which shall have been heretofore re-sold by Fidelity Auxiliary, Ltd., Fidelity Auxiliary, Ltd., has heretofore assigned to Fidelity such contract or contracts of resale. Fidelity further covenants, represents and warrants that no consideration has been paid by Fidelity to Fidelity Auxiliary, Ltd., for the cancellation or assignment of any such contracts, other than the release by Fidelity of its rights and claims against said Fidelity Auxiliary, Ltd., under such contracts. Fidelity further covenants, represents and warrants that Schedule 12 in said “Memorandum” set forth is a full, true and correct list showing all outstanding contracts of sale of real property from Fidelity Auxiliary, Ltd., to third persons. Firth: It is the intention of the parties hereto that title to all of said assets shall be, and the same is hereby, transferred to and vested in Pacific States, for and in consideration of the purchase price and other considerations hereinafter mentioned. Fidelity further agrees to execute and deliver to Pacific States all such further deeds and other instruments of transfer and conveyance of the property hereinabove referred to (all of which shall be satisfactory in form to Pacific States) as Pacific States may from time to time request Fidelity to execute and deliver to it. Fidelity further agrees forthwith to duly execute and deliver or cause to be duly executed and delivered, to Pacific States all such consents, authorizations, endorsements, resolutions and other instruments, as may be deemed necessary by counsel for Pacific States to the legal and effective assignment and transfer to Pacific States of all of said funds and property. Fidelity further agrees forthwith to endorse (without recourse) to Pacific States, all of the notes receivable of Fidelity (it being understood that the forms of such endorsements shall not limit or affect the warranties or other terms of this agreement). Sixth: Fidelity agrees that after the date hereof it will not: (a) Engage in the Building and Loan business -within the County of Los Angeles (which is the principal place of business of Fidelity), State of California, so long as Pacific States, its successors or assigns, shall carry on a building and loan business within said County; or (b) Engage in the Building and Loan business in the County of San Bernardino or the County of Orange, in which counties Fidelity has places _ of business, or in any other County in the State of California in which Fidelity has heretofore or is now transacting a building and loan business, so long as Pacific States, its successors or assigns, shall transact a building and loan business therein. Fidelity further agrees that it will not at any time hereafter sell or transfer to any person, firm or corporation other than Pacific States and/or State Guaranty, its name or the right to use its name or any other name so similar thereto as to be likely to deceive, and also that it will not hereafter use such name except for the purpose of winding up and liquidating its affairs. Fidelity further agrees that if it shall desire hereafter to sell or transfer its name it shall offer the same to Pacific States, and Pacific States agrees in such case to pay Fidelity therefor the sum of One Thousand Dollars ($1000.00) in cash. Seventh : The purchase price to be paid to Fidelity in consideration of said sale, transfer and conveyance shall be: (a) The assumption (subject to the provisions of Paragraph Seventeenth hereof) by Pacific States as of the date hereof, of all of the liabilities of Fidelity shown on said “Memorandum” (it being understood that the items or accounts designated as “Capital” and “Surplus” shall not be deemed to be liabilities within the meaning of this agreement), including all liabilities of Fidelity under the contracts and leases shown in said “Memorandum,” and also all other liabilities incurred by Fidelity between March 31, 1931, and the date hereof in the normal course of business; except that Pacific States does not, and shall not, assume (aa) Any of the outstanding investment certificates of Fidelity (as hereinafter defined) or any of its membership shares or any liabilities of Fidelity whatsoever under or in connection with said investment certificates or membership shares; nor (bb) Any liabilities of Fidelity which have arisen since March 31, 1931, which Fidelity has herein covenanted that it has not incurred; (b) The issuance (subject to the provisions of said Paragraph Seventeenth) by Pacific States on October 2, 1931, of its Investment Certificates af 1 Fidelity Participating Certificates referred to in Paragraph Fourteenth hereof; and (c) The payment (subject to the provisions of said Paragraph Seventeenth) by State Guaranty to Fidelity at the “final payment date” (as hereinafter defined) of an amount in cash and/or property as hereinafter set forth, equal to the excess, if any of the amounts credited to “net proceeds” (as hereinafter defined) over and above the amounts debited to said “net proceeds,” pursuant to the provisions of this agreement. Eighth: There shall be credited to “net proceeds” the following: (a) An amount equal to the fact amount of all cash transferred by Fidelity to Pacific States, which credit shall be made as of the date hereof; (b) Amounts equal to all “valuation payments,” (as hereinafter defined) received by Pacific States on any of said assets acquired by it from Fidelity, said credits to be made as and when said “valuation payments” are received; (c) The amount at which any note acquired from Fidelity, on which no foreclosure or other legal action to collect the same shall be commenced by Pacific States prior to the expiration of four (4) years from' the date hereof, shall be “valued” as provided in subdivision (b) of Paragraph Tenth hereof, such credit to be made at the expiration of four (4) years from the date hereof; (d) The amount at which any parcel of Real Property (as hereinafter defined) which shall be sold on time payments, the sales price of which shall not have been received in full, shall be deemed to be “valued” pursuant to the provisions of subdivision (c) of Paragraph Tenth hereof, such credit to be made if, as and when such parcel shall be deemed to be “valued” pursuant to the provisions of said subdivision (c) of Paragraph Tenth; (e) The amount at which any furniture, fixtures and equipment acquired from Fidelity, which shall be used by Pacific States, shall, with the approval of Fidelity, be deemed to be “valued,” pursuant to the provisions of subdivision (f) of Paragraph Tenth hereof, such credit to be made if, as and when such approval shall be received from Fidelity; (f) All interest, rentals and dividends actually received in cash by Pacific States from any asset acquired from Fidelity up to and including the date on which said asset shall be “valued,” said credits to be made as and when the said interest, rentals and dividends shall be received by Pacific States; (g) All amounts received by Pacific States as the proceeds of any insurance policies on any Beal Property or Personal Property (as hereinafter defined) prior to the time such Beal or Personal Property shall he “valued,” said credits to be made as and when said insurance shall be received; (h) Seventy-five per cent (75%) of any commissions received by Pacific States Auxiliary Corporation and/or by any other of its affiliated corporations on insurance Pacific States may cause to be written on any Beal or Personal Property (as hereinafter defined), or on any property which is security for any note receivable transferred hereunder, prior to the time such Real or Personal Property or such note shall be “valued,” said credits to be made as and when said commissions are received by Pacific States; and (i) Any other amounts provided to be credited to “net proceeds” under any of the provisions of this agreement. Ninth; There shall be debited to “net proceeds” the following: (a) The aggregate amount of all liabilities of Fidelity (other than undetermined liabilities which are dealt with in subdivision (b) of this Paragraph Ninth) assumed by Pacific States under any of the provisions of this agreement, including the aggregate amount of liabilities to become payable in the future under all contracts, loan commitments, and leases of Fidelity. The debits provided by this subdivision (a) shall be made as of the date hereof. If after any amount shall be debited to “net proceeds” representing a liability to become payable in the future under any lease running to Fidelity as lessee or under any loan commitment made by Fidelity or under any contract, said liability shall be cancelled in whole or in part, there shall be credited to “net proceeds” an amount equal to the portion of any such liability so cancelled. If the liability of Pacific States on any lease running to Fidelity shall not have been cancelled prior to a date which is thirty days before the “final payment date,” there shall be credited to net proceeds an amount equal to the rental value of the premises for the unexpired term of said lease, which shall be determined by arbitration pursuant to the provisions of paragraph XXII hereof, if the parties hereto are unable to agree thereon. (b) When any liability which is now undetermined shall become fixed the amount thereof shall be debited to “net proceeds,” provided, however, that at the expiration of three (3) years, and eleven (11) months from the date hereof, Pacific States may debit to “net proceeds” an amount equal to the maximum liability, as estimated by Pacific States, which may accrue in the future under any litigation then pending, of the nature of the litigation described in subdivision (i) of this Paragraph Ninth, and the maximum amount as estimated by Pacific States of the liability which may accrue in the future under any guarantees given by Fidelity, or other contingent liabilities of Fidelity, and when the actual amount payable by reason of any such litigation, or payable under any such guarantees, or other contingent liabilities, shall be determined, and adjustment shall be made by the appropriate debit or credit to “net proceeds.” (c) Any interest paid by Pacific States on any liability of Fidelity paid or assumed by Pacific States, such debit to be made as and when such interest is paid; and also all other liabilities of Fidelity paid by Pacific States, whether or not expressly assumed under the terms of this agreement (it being understood that Pacific States may, at its option, pay any liabilities of Fidelity not expressly assumed under this agreement which may come to the knowledge of Pacific States), said debits to be made as and when said liabilities are paid. (d) An amount equal to the aggregate principal amount of Fidelity investment certificates and membership shares outstanding at the close of business on the date hereof, it being understood that for all the purposes of this agreement the stock shown on said Financial Statement in the “Memorandum” as Guarantee Capital Stock shall in no event be treated as membership shares regardless of the fact that said stock may actually be membership shares; the debits referred to in this subdivision (d) to be made as of the date hereof. Fidelity warrants and represents that it has not issued any Investment Certificates or membership shares or any stock since the close of business on May 14, 1931. The principal amount of any investment certificate or membership shares of Fidelity shall, for all the purposes of this agreement, be deemed to be the amount which Fidelity would have to pay on the principal thereof upon withdrawal thereof. (e) Interest and dividends accrued and unpaid up. to the date hereof on the principal amount of Fidelity Investment Certificates and membership shares, respectively, outstanding as of the close of business on the date hereof; the debits referred to in this subdivision (e) to be made as of the date hereof. (f) All amounts paid by Pacific States, or its affiliated corporation, Pacific States Auxiliary Corporation, or any other affiliated or subsidiary corporation of Pacific States (any and all said affiliated or subsidiary companies being hereinafter sometimes for convenience referred to as “affiliated real estate companies”), representing taxes, assessments and insurance premiums, and for the maintenance and/or improvement of Real Property (as hereinafter defined), and all other similar expenses of Pacific States, or any of said affiliated real estate companies in connection with said Real Property. Neither Pacific States nor any of said affiliated real estate companies shall have any authority to make any expenditures for the maintenance or improvement of said Real Property, or any parcel thereof, or similar expenses in connection therewith, for a period of four (4) years from the date hereof without the "written approval of the representative who may be designated from time to time by Fidelity to approve such expenditures (g) A monthly charge until the “final payment date” hereinabove mentioned, equal to one-eighth of one per cent (% of 1%) of the “book value” (as hereinafter defined) of unsold “Real Property” (excluding the property situate at the corner of Ninth and Hill Streets, and the so-called “Cecil Hotel” property in Los Angeles, California), held by Pacific States or any affiliated real estate company at the beginning of each month, said charge being estimated to be the approximate cost to said affiliated real estate companies of keeping accounts and inspecting and superintending the management of real estate, which services Pacific States agrees that one or more of said affiliated real estate companies will perform with respect to said Real Property. In lieu of the charge mentioned in this paragraph (g), the charge shall, at the option of Fidelity (which option may be exercised each month), be a pro rata of the actual expenses (including rent, light, heat, water, salaries and all overhead expenses) incurred and paid each month by said affiliated real estate companies, in connection with keeping accounts, inspecting, and superintending the management of all real estate held and administered by them, including all real estate acquired by Pacific States and any of said affiliated real estate companies from a source or sources other than Fidelity, such pro rata being the proportionate amount of such expenses, based upon the aggregate “book value” of said Real Property (as hereinafter defined), at the beginning of each month as compared with the total aggregate book value of all real estate held by said affiliated real estate companies at the beginning of said month. The debits provided by this subdivision (g) shall be made monthly as of the end of each month. (h) All expenses of sale of any Real Property (as hereinafter defined), including advertising and brokers’ commissions, and in addition thereto an amount equal to two per cent (2%) of the sales price of each parcel of said Real Property which may be sold, representing the charge of said affiliated real estate companies (except that no such charge shall be paid on the sale of property situated at Ninth and Hill Streets, or on the sale of the so-called “Cecil Hotel” property in Los Angeles), for preparing documents, listing the property and handling the closing of the sale; provided that for a period of four (4) years from the date hereof, the amount of all brokers’ commissions and expenses for specific advertising shall first be approved by a representative of Fidelity designated for that purpose, except that no such approval shall be required with respect to brokers’ commissions or advertising in connection with sales of Real Property by Pacific States or any of said affiliated real estate companies to make up the annual quota of sales hereinafter mentioned, the prices and terms of which sales need not be approved by Fidelity. The debits for the two per cent (2%) charge mentioned in this subparagraph (h) shall be entered as and when the sales for which such charges are made shall be completed. The other debits provided by this subparagraph (h) shall be made as and when the expenses herein mentioned are j>aid or incurred. (i) All expenses of any litigation involving any Real Property (as hereinafter defined) and any other assets acquired by Pacific States from Fidelity and/or the title of Pacific States to said assets, and all expenses of any litigation involving this agreement (provided that if Pacific States shall initiate any such litigation and the same shall be finally determined adversely to it, its attorneys’ fees therein shall not be chargeable as a debit to “net proceeds”), including all amounts paid in satisfaction of any judgment in any such litigation, and all reasonable attorneys’ fees therein, and all costs, expenses and reasonable attorneys’ fees involved in the foreclosure of any mortgage or deed of trust acquired by Pacific States from Fidelity or any mortgage or deed of trust covering any Real Property (as hereinafter defined), provided that if the Trustee under any such deed of trust shall not require any attorney or shall include its attorneys’ fee in its Trustee’s fee, there shall not be an additional charge for attorneys’ fee; and all such expenses involved in the cancellation of any contracts of salo acquired by Pacific States from Fidelity and in the cancellation of any contracts hereafter made by Pacific States for the sale of Real Property. (j) Expenses of appraising any Real Property (as hereinafter defined) and of the audit provided for in Paragraph Fifteenth hereof, and of securing title and tax reports and policies, it being understood that, in addition to the appraisals herein, provided for, Pacific States may, upon the acquisition of any Real Property by foreclosure, cause the same to be appraised at a cost of not to exceed Fifteen Dollars ($15.00) per day for appraiser’s fee (unless a higher per diem shall be approved in writing by the representative of Fidelity), plus travelling expenses of the appraiser. (k) A monthly charge equal to five hundred • ninety-nine one thousandths (599/1000) of one per cent (1%) of an amount to be determined at the beginning of each month until the “final payment date” by taking the sum of $37,549,000.00 (which is approximately equal to the aggregate “book value” as hereinafter defined, at the date hereof, of all assets of Fidelity on accrual basis), and adding thereto a sum equal to all amounts hereafter advanced by Pacific States on loan commitments made by Fidelity which, at the date hereof, are not carried on Fidelity’s balance sheet as a liability, and subtracting therefrom an amount equal to all amounts credited to “net proceeds” pursuant to the provisions of subdivisions (a), (b), (c), (d), (e) and (g) of Paragraph Eighth hereof prior to the first day of such month. The debits ¡provided for by this subdivision (k) shall be made monthly as of the beginning of each month. (l) An amount sufficient to cover the actual and reasonable operating expenses, including salaries and other expenses of Fidelity until November 1, 1931; thereafter and until the “final payment date,” an amount not to exceed Twenty-five Hundred Dollars ($2500.00) per month to cover the necessary and reasonable current operating expenses of Fidelity, including employees’ salaries, and in addition thereto any and all cost, expenses and reasonable attorneys’ fees incurred by Fidelity in any suit, proceeding or litigation arising under, involving or growing out of this agreement or the transfer of assets from Fidelity to Pacific {States pursuant hereto, provided that any attorneys’ fees so incurred by Fidelity shall be approved as to the amount thereof by the Building and Loan Commissioner of the State of California, all of which amounts will be paid by Pacific States to Fidelity monthly on receipt of a statement of such expenses. The debits provided to be made by this subdivision (1) shall be made monthly as of the end of each month. (m) All expenses or amounts which Pacific States may pay to prove or quiet its title to any of the assets transferred to it by Fidelity and/or to remove any liens or encumbrances therefrom; it being understood that Pacific States may purchase any bonds or notes secured by a lien on any Real Property (as hereinafter defined) or secured by a lien which is prior to the lien of any mortgage or deed of trust acquired from Fidelity, and debit the cost of the purchase of such bonds or notes to “net proceeds.” (n) Commissions paid to brokers and expenses of sale of any asset (other than the Real Property which is covered in Section “f”) acquired from Fidelity; provided that for a period of two (2) years from the date hereof all such commissions shall first be approved by a representative of Fidelity designated for that purpose. (o) Any amount paid by Pacific States to obtain the cancellation of any leases under which Fidelity is the lessee which may be transferred to Pacific States hereunder. After two (2) years from the date hereof Pacific States may pay such amounts as in its sole discretion it may determine in order to procure the cancellation of any of such leases. (p) Anye expenses and brokers’ commissions paid by Pacific States for the leasing of any Real Property (as hereinafter defined) or for the subleasing of any property which is now covered by a lease under which Fidelity is the lessee, provided that for a period of two (2) years from the date hereof all such commissions shall first be approved by a representative of Fidelity designated for that purpose. (q) Any amount paid by Pacific States to cancel any contracts and contingent or other liabilities of Fidelity and/or claims against Fidelity, it being understood that Pacific States is authorized to pay such amounts as in its sole discretion it may determine in order to procure the cancellation of any such contracts, liabilities and/or claims. (r) The cost of all examinations conducted by the Building and Loan Commissioner of the State of California relative to the sale, disposal and management of said assets acquired by Pacific States from Fidelity. (s) Any other amounts provided to be debited to “net proceeds” under any of the provisions of this agreement. (t) Any other deductions and expenses of Pacific States in connection with the assets acquired from the Fidelity and/or the management thereof which may be approved by a representative of Fidelity designated for the purpose of giving such approval. The debits provided for by subdivision (f), (i), (j) n.nfl (m) to (t), (both inclusive), shall be made as and when the amounts referred to in said subdivisions are paid by Pacific States or, at the option of Pacific States, when the liability to pay the same shall be incurred. Tenth:' For the purposes of .this agreement said assets transferred by Fidelity to Pacific States hereunder shall be deemed to be “valued” at the following times, upon the following conditions and at the following amounts, viz.: (a) Cash shall be deemed to be “valued” at its face amount at the date hereof; (b) In the case of a Note, payments of principal thereon received by Pacific States after the date hereof shall be deemed to be “valuation” payments thereon and the same shall be deemed to be “valued,” if and when the principal and all accrued interest thereon shall have been paid in full, provided that if no foreclosure or other legal action to collect any such note shall be commenced by Pacific States prior to the expiration of four (4) years from the date hereof, the same shall be deemed to be “valued” at the expiration of four (4) years from the date hereof, at the then unpaid principal amount thereof, plus accrued and unpaid interest thereon. If any such note not previously “valued” shall be sold by Pacific States, the same shall be deemed “valued” at the time of such sale and the amount of the consideration received by Pacific States for the unpaid principal of said note shall be deemed to be a “valuation payment” thereon. (c) In the case of each parcel of Real Property (as hereinafter defined), payments on the principal of the sales price thereof received by Pacific States after the date hereof shall be deemed to be “valuation payments” on such parcel and the same shall be deemed to be “valued” if and when the sales price and all accrued interest thereon shall be paid in full; provided, that if such parcel shall be sold on time payments, it shall be deemed to be “valued” at an amount equal to the unpaid principal of the sales price thereof plus accrued and unpaid interest on said sales prices if and when the balance of the principal of the sales price is not greater than seventy per cent (70%) of the amount at which such property shall be appraised as of the date of sale thereof by an appraiser employed by Pacific States. (d) In the case of bonds, investment certificates issued by other Building and Loan Associations, judgments in favor of Fidelity, and accounts receivable, payments on the face value or principal amount thereof shall be deemed to be “valuation payments” on such bonds, investment certificates, judgments, or accounts receivable, as the case may be, and the same shall be deemed to have been “valued” if and when paid in full; provided that if any of said bonds, investment certificates, judgments, or accounts receivable shall be sold by Pacific States, the same shall be deemed “valued” at the time of sale and the amount of the principal of the sale price thereof shall be deemed to be a “valuation payment” thereon. (e) In the case of stock now owned by Fidelity in other corporations, payments on the principal of the sales price thereof or liquidating dividends on such stock shall be deemed to be “valuation payments” on such stock, and the same shall be deemed to have been “valued” when the sales price . thereof or final liquidating dividend thereon shall have been paid in full. (f) In the case of furniture, fixtures, equipment and any other tangible assets acquired by Pacific States from Fidelity, the same shall be deemed to be “valued” when the sales price thereof shall have been received by Pacific States in cash and any payments on said sales price shall be deemed to be “valuation payments” thereon. Pacific States shall not use any of said furniture, fixtures or equipment unless it shall fix an amount with the approval of Fidelity at which the same shall be deemed to be “valued.” (g) For all the purposes of this agreement, and regardless of any actual value thereof, good will, business and other similar intangible assets and all assets which are or shall be unsaleable or shall be lost, stolen or destroyed, are and shall be deemed to be “valued” at nothing. (h) For the purpose of subdivisions (b), (c) and (d) of this Paragraph Tenth, if Pacific States shall accept any amount less than the unpaid principal of any note, contract of sale, bond, investment certificate, judgment or account receivable, as payment in full thereof, the same shall be deemed to be “valued” at the time of the acceptance of such amount by Pacific States. Eleventh ; Pacific States shall have the right to defend any litigation now or hereafter pending against Fidelity and to debit its costs (including reasonable attorney’s fees) of defending such litigation to “net proceeds” and (subject to the provisions of Paragraph Twentieth hereof) shall have absolute, unrestricted control of the collections of all contracts of sale of Real Property (as hereinafter defined) and ofe all notes, mortgages, trust deeds, securities, accounts receivable, insurance claims and other claims transferred to it hereunder by Fidelity or otherwise owing to it, with the right to cancel, compromise, compound or foreclose the same and/or take such action, if any, in respect thereto as in its sole discretion it^ may determine, when and as in its judgment it considers it to be for its best interest so to do; provided that for a period of four (4) years from the date hereof, no such compromise shall be made without the approval of the representative of Fidelity appointed for that purpose. If any of the notes transferred by Fidelity to Pacific States hereunder shall be secured by one or more Fidelity investment certificates, Pacific States may, upon any default in payment of the principal or interest on said note, exercise all rights of Fidelity to enforce payments and in addition do either of the following, viz.: (a) Sell said Fidelity investment certificate or certificates and apply the cash proceeds of sale upon said note, or (b) Charge to “net proceeds,” immediately prior to the “final payment date,” the excess, if any, of the unpaid principal amount of said note, over the amount which Pacific States estimates will be payable on the Definite Term Investment Certificates and Fidelity Participating Certificates which the holder of the Fidelity investment certificates or certificates securing said note will be entitled to receive in exchange for said Fidelity investment certificate or certificates under the provisions of Paragraph Fourteenth hereof. Twelfth: A. Pacific States (subject to the provisions of Paragraph Twentieth hereof) shall have charge of the sale of all Real Property (as hereinafter defined) and all other assets acquired by it from Fidelity and may sell the same at such prices and on such terms and conditions as in its sole discretion it may determine without any approval from Fidelity; provided, that without the approval as to price and terms of sale of a representative of Fidelity appointed for the purpose, Pacific States will not (a) sell any notes or street improvement bonds acquired from Fidelity for a period of four (4) years from date hereof, (b) sell any Real Property (as hereinafter defined) for a period of four (4) years from the date hereof unless the annual quota of sales hereinafter set forth shall not be met, or (c) sell any other assets acquired from Fidelity hereunder for a period of two (2) years from the date hereof. Fidelity covenants that such approval will not be unreasonably delayed or withheld in any case. Pacific States covenants that it will not unreasonably withhold from sale any parcel of Real Property (as hereinafter defined) a purchaser for which is produced by Fidelity, if such purchaser is willing to buy such parcel at a price not less than ninety per cent (90%) of the “book value” (as hereinafter defined) of such parcel on terms at least as favorable to Pacific States as the terms set forth in subdivision (D) of this Paragraph Twelfth, and if the monthly payments on principal offered to be made by such purchaser are sufficient so that at the expiration of five (5) years from the date hereof, the unpaid balance of the principal of the sales price of such parcel will not be greater than seventy per cent (70%) of the value of such parcel as appraised as of the date of sale thereof by an appraiser appointed by Pacific States, provided that Pacific States will in no event require interest at a rate greater than seven per cent (7%) per annum on the unpaid balance of the purchase price of any such Real Property without the approval of said Building and Loan Commissioner or of Fidelity. B. The annual quota of sales of Real Property hereinabove referred to is as follows: (a) During the first year after the date hereof, an amount aggregating not less than ten per cent (10%) of the aggregate book value of said Real Property held by Pacific States at the beginning of said year; (b) During the second year after the date hereof, an amount aggregating not less than twenty per cent (20%) of the aggregate book value of said Real Property held by Pacific States at the beginning of said year; (c) During the third year after the date hereof, an amount aggregating not less than fifty per cent (50%) of the aggregate book value of said Real Property held by Pacific States at the beginning of said year; and (d) During the fourth year aft