(dissenting).
The situation presented by the third amended complaint is one not unusual in the great depression. The plaintiffs nephew, then insolvent, had equities in a large number of valuable properties in Southern California cities, twenty parcels including eighteen apartment houses and “Professional Building.” He solicited his uncle, east in Pennsylvania, to lend him money enough to tide him over, until the equities’ value should rise above his indebtedness and lift him out of his insolvency. The nephew’s equities, constituting what must have been a “substantial” rent roll, were jo be administered first for his creditors’ benefit and then for him. The trust company defendant was instructed to complete a draft of a trust instrument transferring to it as security the nephew’s interest in twenty real properties, and the furniture in many of the apartment houses, all described in an exhibit attached to the draft, and, when completed, loan the nephew $49,280. It is alleged these instructions were disobeyed in important particulars and the loan made without a valuable part of the instructed security.
By two amendments to his complaint the plaintiff attempted to tender an acceptable issue based on a theory of conversion or misappropriation. Had he been successful in maintaining this concept, the trial would have been greatly shortened, if the case had not been disposed of on the pleadings. That he failed evidences no more than an excess of diligence. Such diligence should not deprive him of his right to prove as damage what he would have recovered if the instructions had not been violated. Hamer v. Ellis, 40 Cal.App. 57, 59, 180 P. 30; Schaake v. Eagle Can Co., 135 Cal. 472, 480, 63 P. 1025, 67 P. 759.
I cannot agree with my associates that the third amended complaint fails to state a cause of action, even applying to it the technical procedural rules invoked. Here two able judges, of wide and practical experience, conclude the plaintiff has no standing in court. They seem constrained by procedural rules. Yet any experienced business administrator with the cultural background of a high school education who read the complaint would know exactly what business relationship was created by the described transaction between the lender and the trustee, that the obligations of that relationship had been violated, and that the lender had been injtired by the trustee’s lending the money without taking the instructed security.
Such a businessman would be astonished to be informed that when in a law court it meant nothing at all that, had the instructed security been taken and properly administered under the instructions of the lender, the loan would have been repaid in full and that, because it was not taken, the whole loan was lost. Yet this is what the majority has held with regard to the two allegations of the complaint:
*914“XVIII. That all of plaintiff’s said money was loaned by defendant, acting as plaintiff’s agent for the loaning thereof, contrary to and in direct contravention of the express instructions of plaintiff to defendant, all as hereinabove set out; that by reason of the violation of said instructions of plaintiff to defendant, as plaintiff’s loan agent, the said $49,280.00 of plaintiff, and all thereof, was totally lost to plaintiff; and that all of said loss was caused solely by the said violations by said defendant of plaintiff’s instructions. That plaintiff' has demanded of defendant that defendant repay said money to plaintiff, together with interest thereon at the rate of 7'per cent per annum from and after October 23, 1930, yet, notwithstanding, said defendant refused and refuses to pay to plaintiff the said sum or any part thereof or any interest thereon.
“XIX. That solely by reason of the violation of plaintiff’s instructions to defendant, as plaintiff’s agent in the loaning of said money, the said defendant took and received security which was then and there utterly valueless, and that said security has been totally and completely lost; that had said defendant, acting as the loan agent of plaintiff, followed plaintiff’s instructions and taken and received the real and personal property hereinabove mentioned, subject only to the liens and inctimbrances as then represented by defendant to plaintiff, and in accordance with plaintiff’s instructions, there would then have been adequate and ample security in the hands of defendant from which, by reason of diligence, defendant could have realized sufficient money to repay plaintiff’s said loan of $49,280.00, together with interest thereon at the rate of 7 pe;r cent per annum from and after October 23, 1930.”
It is my opinion that, even in federal courts, these are sufficient allegations of damage as against general demurrer, and that the rights of the defendant agent, if it desires to be informed of specific values of particular items of security, are amply protected by a special demurrer or a bill of particulars. ’ -
Against general demurrer, the allegation that the described security was of a character and ample value so that from it, “by reason of diligence, defendant could have realized sufficient money to repay plaintiff’s said loan” and “interest,” is a sufficient allegation of “diligence.” It is no defense for the trust company to assert, “True, we deprived you. of your chance of diligence collecting your loan, by violating your instructions respecting the security, but you cannot even file your first complaint on this theory of recovery, because you do not specify all the details of the diligence required in operating 18 apartment houses and an office building.”
It is also my opinion that the first opinion of the majority has fundamentally misconceived the pleading with reference to the incomplete form of the trust instrument under which the trust company was to receive and hold the security. The opinion seems to treat it as if it were an instrument upon which the cause of action was founded and that the absence of a statement therein of the amount of the loan and of the security to be taken makes it, what it obviously is, binding on nobody. It is equally obvious to my mind that the pleader was not so naive.
The suit is not based on the described trust instrument. It is based on the failure of an agent to create a trust instrument, in which trust the agent is to be trustee, by failing to follow the instructions of the principal. It is necessary to such a suit that the principal allege the instructions he gave to his agent regarding the instrument, in order to show a. violation of such instrument. A part of these instructions was that the pleaded incomplete trust instrument, signed byi the lender and sent to the agent trust company, was to be “completed” by the trust company; that is, the blank space for the amount of the loan was to be filled in by the agent and the items of the security fully described in the pleading as instructed to be taken were to be added by the agent to the instrument. The allegation in this respect is clear:
“There is attached hereto and made a part hereof the form of proposed trust indenture which said defendant trust company prepared and transmitted to plaintiff, being Exhibit T’ hereto. That said trust indenture, which said defendant trust company prepared, at the time plaintiff received it from said defendant, had not been. signed by any of the parties thereto, nor had the exhibits therein referred to been prepared or completed, nor were any of said exhibits attached hereto. That said defendant requested plaintiff herein to execute the copy of said trust indenture forwarded to him, inasmuch as plain*915tiff lived so far from Los Angeles, so that said trust company would not be delayed in securing plaintiff’s signature thereto as one of the beneficiaries thereunder, and in securing the written approval of plaintiff to the form thereof; and that plaintiff thereupon approved the form of said trust indenture (Exhibit T’ hereto) and signed his name to the copy thereof (not the original) and mailed the same to defendant trust company at Los Angeles. That at the time plaintiff returned the said incomplete trust indenture to said Trust Company, he advised it that his signing and approval of said trust indenture was made before it had been completed, and was being sent defendant, as the agent of plaintiff, to be delivered and to become effective only upon the completion of said trust indenture and execution thereof by all parties thereto, and the conveyance and transfer to said defendant of the real and personal property therein referred to.”
Judge WILBUR’S opinion, after describing the real estate security with the stated encumbrances which the trust company was instructed to take, says: “Inasmuch as all these securities subject to these encumbrances were covered by the trust deed which was accepted by the appellee and inasmuch as the appellant has alleged that the security taken ‘was at the time of making said loan and now is utterly valueless; and that the said Earle C. Dingwell was, at the time of making said loan, and ever since has been, and now is insolvent and has no funds,’ it is clear that no further concern need be given in this case to the question of whether or not the appellant was injured by the appellee’s conforming to his directions to take these particular securities.”
The conclusion that, since the allegation that the security “taken” was worthless, “no further concern need be given in this case to the question of whether or not the appellant was injured by the appellee’s conforming to his directions to take these particular securities” seems non sequitur. The whole theory of the third amended complaint is that the security taken was not the security instructed, to be taken; that the security instructed to be taken would adequately secure the loan.
For example, in parcel 20, the Professional building, the nephew’s equity was in a trust of which he was trustor and the American National Bank of San Bernardino was trustee. Of this equity it was alleged “that Parcel 20 of Exhibit ‘2’ hereto, being the Professional Building in San Bernardino, County of San Bernardino, at the time of the loaning of plaintiff’s money as aforesaid, was incumbered by a first deed of trust to Santa Fe Building and Loan Association of San Bernardino in the sum of $125,000, and by a second deed of trust of one Philip M. Savage in the sum of $135,000, all of which said incumbrances were known to defendant herein, but were unknown to plaintiff herein; that said incumbrances exceeded the value of said building and rendered the same of no value whatever as security for the lo.an of plaintiff’s money.”
The two trust encumbrances, aggregating $260,000, were not mentioned in the instructions. Against general demurrer, it is a sufficient allegation of damage that plaintiff’s interest in this property without these $260,000 added encumbrances and their interest drain on the rentals, along with other properties, would have been “adequate and ample security in the hands of defendant from which, by reason of diligence, defendant could have realized sufficient money to repay plaintiff’s said loan of $49,280.00, together with interest thereon at the rate of 7 per cent per annum from and after October 23, 1930.”
I cannot agree with Judge WILBUR’S opinion that we can disregard this acceptance by the trustee of the “Professional Building” equity with $260,000 more encumbrance than the instructions permitted, because the instructions were to accept the equity of another trust. It seems a non sequitur to say:
“Pie also alleges that the Professional building in San Bernardino, which he believed to be clear of encumbrance, was in fact subject to two trust deeds, one for $125,000 and one for $135,000, and that these two amounts exceeded' the value of the building, but the schedule referred to in the complaint shows that this property had been deeded by Earle C. Dingwell to the American National Bank o'f San Bernardino as trustee. It is evident, then, that this building was known by the plaintiff to be encumbered at least by this trust in which the American National Bank of San Bernardino was trustee.”
The “at least” was the limit of the allowed encumbrance. Describing it as such has no relevance in defense of the breach of instructions.
*916Nor does it seem relevant to stress the fact that all the equities were subject to possible foreclosure or other disposition to the lender’s loss. The plaintiff lender was taking the chance that they would not be lost. This also seems no excuse for tjie breach of instructions.
As against the general demurrer test for -the sufficiency of the complaint, the following allegation of the breach of instructions to take the furniture in the many buildings as security for the loan is sufficient: “That at the time defendant trust company loaned plaintiff’s said money to said Dingwell, to-wit, on or about October 23, 1930, the said trust company had not, and did not secure a transfer to it of the title of said Dingwell in and to any of said personal property referred to in the first paragraph of said trust indenture and hereinabove described, being all of the furniture and furnishings in the apartment houses and buildings described in Exhibit ‘2.’ ”
I cannot agree with the criticism of this allegation in the second opinion. To me it seems clear that the words “had not” refer to the date of the lo'an and the words "did not” after the comma preceding refer to the period thereafter. To deprive a plaintiff of all standing in a federal court because he failed to place the word “thereafter” after the words “did not” seems pressing technicality to the extreme.
As a matter of common sense, we all know that it would be an abuse of a trustee’s obligation to lend plaintiff’s money on the hope that after the loan it would secure from such a heavily embarrassed creditor the transfer of the furniture in all these apartment houses. The technicality of construction seems improperly applied to the words themselves. In view of the facts it seems to have the less justification for casting the injured lender out of court.
Nor can I agree with the following statement of the second opinion: “The court takes judicial notice of the fact that the effect of the. depression which had caused the initial difficulty of the nephew continued unabated and that income from such property as was covered by the trust agreement materially decreased. There is nothing in appellant’s complaint inconsistent with the idea that his loss resulted from the depression rather thán from a violation of his instructions by the appellee.”
The very purpose of the loan was to assist the borrower to survive the depression. It is .an unusual and novel technicality of pleading which requires a lender to allege, first, that his damage arose because the trust company failed to take 'the instructed security and then to follow it up by the further allegation “and this damage was not caused by any depression of which cause and its effect on these specific properties a court may take judicial notice.”
Judge WILBUR’S opinion states that appellant’s brief has made, an admission which precludes his right to claim damages on the basis of the difference between the security instructed and that actually taken. The supposed frustrating admission is as follows: “The defendant should not now be heard to say that the plaintiff would, in any event, have loaned the money, or would, in any event, have lost the money. It appears to be defendants contention that, even though the plaintiff did not get what he thought he was getting, or was entitled to, he at least got something, and that what he received probably had as much value as the thing he would have received if the instructions had been explicitly followed and carried out. That, we submit, is too speculative to be considered in this proceeding.”
Judge WILBUR’S comment is: “The appellant has thus in effect characterized his own allegations in the added paragraph of his third amended complaint as ‘too speculative to be considered in this proceeding.’ ” (Italics inserted.) The appellant plaintiff’s brief is not “characterizing” his own allegations. He is characterizing the defendant’s speculations on the facts as “too speculative.”
Defendant’s assumption that the lesser security received "probably had as much value” as the instructed security is certainly “too speculative to be considered in this proceeding” — the proceeding being the argument of a demurrer. Defendants guess at a “probability” of proof has nothing to do with the tendered issue in a specific complaint in which .plaintiff alleges that the instructed security had value and the security taken had none. It hence seems non sequitur to consider plaintiff’s statement of defendant’s belief of the “probabilities” of the facts of plaintiff’s case, not yet shown, as plaintiff’s admission that his damages are too speculative to give him any standing in court.' It affords no more reason for throwing *917him out of court than the assumed probability that the depression had destroyed the value of the score or more of securities which plaintiffs instructions called for.
As stated, it is my opinion that it is an abuse of discretion to refuse the amendment first presenting the actual damage thesis. As stated in Schaake v. Eagle Can Co., 135 Cal. 472, 480, 63 P. 1025, 1027, 67 P. 759: “If a complaint states a cause of action, the face of the record would ‘show an abuse of discretion’ in sustaining a demurrer upon any ground without leave to amend.” (Italics inserted.) Certainly refusal to file the amendment cannot be sustained on the ground of the court’s assumption of a probable destruction of value by the depression or of plaintiff’s argumentative statement of defendant’s belief of the “probable” identical value of the instructed security and the security taken.
If the last amended complaint is not a good pleading against general demurrer in a District Court in California, candles should be burned at the shrine of the British statesmen who, decades ago, caused the simplification of common-la\y pleading, with the prayer that their spirit may guide the makers of our impending rules of practice and hasten their adoption. In my opinion, there is a good cause of action well pleaded, and the District Court erred in refusing the filing of the amendment, first stating plaintiff’s case on the theory of damage based on what he would have received if the instructions had been obeyed.