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District Court of Appeal, Third District, California.


Civ. 5045.

Decided: February 05, 1934

Gibson, Dunn & Crutcher, of Los Angeles (H. F. Prince and Robert F. Schwarz, both of Los Angeles, of counsel), for appellants. Bernard Potter, of Los Angeles, for respondents.

By this action plaintiffs sought to rescind a written contract alleged to have been procured through fraud and misrepresentation, and to recover moneys paid thereunder. The judgment and decree in the court below went in favor of plaintiffs and against defendants. Defendants appeal.

The appeal is presented under the alternative method, and but little of the record is presented in the briefs of appellants, and but scant reference to the testimony is made.

In answer to a motion of respondent, herein made, to dismiss or affirm, by reason of this allegedly meagre showing, appellants urge that the questions presented are mainly questions of law, and that general statements of admitted facts and findings will suffice the needs of a complete review. Accepting, then, appellants' view of the case, we may dispense with any factual detail other than may be necessary to illustrate each contention as it is discussed.

The first claim of the appellants is that the evidence does not support the judgment for the reason that the claimed and found fraud is predicated upon representations made by an agent, where it was made clear to the plaintiffs that such agents had no power to bind the principal by any representation of fact other than contained in the written agreement.

Putting the point in a different way, it is urged that the trial court erred, to the prejudice of appellants, in overruling objection to the admission in evidence against appellants of representations made by its salesmen to plaintiffs. For the purposes of review, it is admitted that the representations found to be false and fraudulent and the inducing feature of the contract were made by the salesmen, and that all of the elements were present to support a decree of rescission.

The argument of appellants is that in cases in which the fraud inducing a buyer to enter a contract was practiced, not by the seller himself, but by his agent, and where the contract contains a provision that no representations or agreements not contained therein are binding on the seller, then any representations made by the agent and not contained in the contract are not binding on the seller, and cannot be admitted in evidence in an action against the seller for fraud or rescission.

Respondent, though disputing the rule as claimed by appellants, does, however, for the purpose of argument, concede such to be the law; but even with this concession, contends respondent, the contract in the instant case contains no such provision. The provision in the contract sought to be rescinded reads as follows: “The buyer is urged to read the terms of this contract before signing it, as no statement, settlement, agreement, understanding or representation orally made, or written and not contained herein, will be binding on the seller.” It is argued that this provision puts the buyer on notice of the agent's restricted authority and absolves the seller from any claim of fraud resting upon the representations of the agent.

The rule is announced in the case of Gridley v. Tilson, in 202 Cal. page 751, 262 P. 322. It is said in this case that, while the Civil Code provides that a written instrument supersedes all negotiations and stipulations concerning the matter between the parties, it has always been the law that fraud in the inducement of a contract may be shown. It is then expressly noted that a well–settled exception is the case where the party seeking to rely on fraudulent representations of an agent had notice of the limitation on the agent's authority to make such representations. The rule then announced is that a principal is bound only by the representations embodied in the written contract where a provision in the contract notified the prospective purchaser that the agent's authority went no further. As will be readily apparent, the rule thus announced is declared to be, and is, an exception to the general rule. Like all other exceptions, it serves to strengthen the rule, and, to bring any case without the general rule, such case must come clearly within the class embraced within the exception. An intendment or presumption would be in support of the rule rather than the exception. At the outset it will be conceded, as indeed it is, that the quoted provision would not have the effect of absolving the seller from any fraud or fraudulent representations proved against it. No citation of authority is necessary to support this statement. As the principal is bound, under the general rule, by representations made by his agent, it follows that there is nothing in the provision of the contract that will excuse the principal from liability on account of any representations the agent might make.

Here, then, comes into action the exception, and we scan the quoted provision to glean therefrom anything that would advise the buyer of the agent's limited authority. Paraphrasing the provision, it may be construed as saying: “Read carefully the contract; any representations that may have been made to you and not contained herein are not binding.”

Without question, the principal has power in himself to make any representations he may choose, whether true or false, and, as far as this cautionary provision goes, the agent has the same power conferred on him. We agree with the court below that there is nothing in the claimed provision that gives notice to the buyer of the agents' restricted authority. Many of the most salutary rules of law have yielded, little by little, to the claimed exigencies of modern business. We do not feel, however, that rules such as we have cited, and designed to prevent fraud and unfair dealing, should be completely wiped out through a process of making the exception swallow the rule. We have no notion of unduly criticizing the real estate business as a whole. However, through practices apparently sanctioned by those engaged therein, it did become necessary that the state classify the business as one demanding careful supervision and regulation. It is generally known that in hardly any branch of business is there required more skill, diplomacy, and finesse. Salesmen are employed who, for the most part, work on a commission basis where the slogan necessarily must be “no sale, no pay.” In many instances huge and attractive commissions dangle before the eyes of the salesman, and temptation is great. And, incidentally, adopting the old figures of Barnum on the birthrate, the field is fertile. The courts have not been too hard upon the business. Many principles of law have been announced that give the work of the salesman wide territory in which to expand and flourish. For instance, more or less extravagant claims have been softened down to mere “puffing”; pseudo–fraud has been given a clean bill of health under the guise of matters of opinion. And finally, to a greater extent, the intending purchaser has been charged with some degree of independent knowledge. But, notwithstanding the leniency thus shown, the law still clings to the old theory that, once actionable fraud is shown, the whole transaction is vitiated. Realty dealers know the law regarding their own business, and it would appear that the efforts of many are directed, not to any strict adherence thereto, but to a studied effort of evasion. The principle of law announced is that the seller is not liable for the representations of an agent where the authority of the latter is restricted and such restriction made known to the buyer. This seems simple enough. If the seller desires to make known to the purchaser this restricted authority, it is readily apparent that this can be done by a few simple words or phrases. By way of illustration, a simple statement in a contract that no agent or representative has authority to make any representations other than those expressly contained in the contract could be placed in conspicuous type on the contract, and would be less expansive than the paragraph or provision now before us, and would serve to give to the buyer notice of the agent's limitation. Instead of doing this, it seems preferable to adopt a position of equivocation; one which is intended to shield the seller, but yet conceal from the buyer the real dangers.

In Berning v. Colodny & Colodny, 103 Cal. App. at page 194, 284 P. 496, 499, we find a contract containing almost exactly the same provision as the one herein discussed; if anything, a little more specific. The appellate court gave little heed to the claim of appellants there, saying: “The contract in the case at bar had its inception in fraud, and no doubt the clause quoted was placed there by the perpetrators of the fraud for the very purpose of preventing inquiry.” And so here, even conceding the honesty and good purpose of the seller, it is obvious that the clause was inserted to prevent any future claim of fraud, rather than for the purpose of fully advising any buyer of the agents' restricted authority.

We have given consideration to the cases cited by appellants, the three most strongly relied on being Gridley v. Tillson, supra; Warner v. Taft Land & Dev. Co., 113 Cal. App. 71, 297 P. 969; Campbell v. Title G. & T. Co., 121 Cal. App. 374, 9 P.(2d) 264. The contracts discussed in the several cited cases were much different than the contract before us, with respect to the cautionary clause. It will suffice to say that, aside from announcing the rule and the exception, the cases are of little aid to the appellants. Further, it is to be noted, strange as it may seem, that the decision in each of the cited cases was amply supported without reference to the rule. In other words, reference to the rule of law in each case was gratuitous and not necessary to the conclusion reached.

Concluding this branch of the appeal, we cite section 1668, Civil Code, which reads: “All contracts which have for their object, directly or indirectly, to exempt any one from responsibility for his own fraud * * * are against the policy of the law.” The policy of the law being thus declared, as a matter of substantive law, we repeat that it should be the attitude of the courts to preserve and maintain that policy rather than to hold it at naught by too refined construction.

The next ground of appeal requires some little detail of fact. It seems that, after the plaintiffs had been convinced of the benefits to be derived from an investment, there was still one small obstacle in the way. They were short of funds sufficient to meet the obligations required in the purchase of so much property. It was then explained to them that this need not stand in the way, inasmuch as the seller had another party who was mindful of the great chance presented, and who would put up a sum of money sufficient to carry the investment along until the end of the rainbow was reached. As was to be expected, this other party would demand, and would be given, an interest in the property. It turned out that this party was named Miss Saidee Benson. The plaintiffs did not know Miss Benson and had never seen her, nor had they had previous business relations with her. As a matter of fact, Miss Benson's connection with the deal was simply to advance a sum of money, which she thought was more in the nature of a loan to the enterprise. Miss Benson herself knew little of the transaction, she being represented throughout by a friend. However, when the contract was drawn, the plaintiffs were the buyers of 68.5 per cent. of the property, and Miss Benson the purchaser of the remaining 31.5 per cent. Miss Benson refused or declined to join as a party plaintiff, and for that reason was made a party defendant in the present suit. Appellants claim that plaintiffs cannot rescind without the joinder of Miss Benson as a party plaintiff. The claim is that a contract cannot be rescinded in part and affirmed in part, and that therefore, before the joint contract of plaintiffs and Miss Benson can be rescinded, all parties thereto as buyers must join. Much authority is cited in support of this claim, but we regard it as beside the point. The principle underlying the contention of appellants and supported by the cited authorities goes to the point of a restoration of the status quo.

Much argument is presented as to the possibilities that might follow from plaintiffs' rescission and the fact of Miss Benson still affirming the contract. However, we fail to see how appellants will be greatly injured, if at all. We are not going to follow through all the reasoning advanced by appellants. It seems sufficient to say that, in whatever predicament appellants might find themselves, there will be no difficulty in finding the one to blame.

In Ruling Case Law, vol. 6, at page 942, we find this apt language: “If the defrauding party has so entangled himself in the meshes of his own plot, that the party defrauded cannot unloose him, the fault is his own. The law only requires the injured party to restore what he has received, and, so far as he can, undo what had been done in the execution of the contract. This is all that the party defrauded can do, and all that honesty and fair dealing require of him. If these fail to extricate the wrongdoer from the position he has assumed in the execution of the contract, it is in no sense the fault of his intended victim, and whatever consequences may follow should rest on the head of the offender alone.”

If appellants considered it a better business deal to join strangers with no privity of interest, and to deal with each separately, it cannot create an indivisible unity of contract between them in order that it may profit through the fraud perpetrated upon either. We have referred throughout to the fraud perpetrated for the one reason that appellants do not seriously question the sufficiency of the evidence to support the findings that fraud was perpetrated upon the plaintiffs. We mention this so that it may be clear that we are not making independent characterization of the conduct of appellants.

It is next urged in support of the appeal that plaintiffs were and are guilty of such laches in rescinding as to deprive them of the right. The found fraud was a promise of resale at the expiration of 18 months. The evidence discloses that some 5 months after the date of the contract plaintiffs were informed by some person that the value of the lots was about 50 per cent. of the purchase price; at the end of the 18 months the resale had not been effected. The rescission was made a little more than a year after the expiration of the 18 months. Upon these facts appellants contend that, the delay and laches being so apparent, the remedy of rescission is lost. On the other hand, the evidence discloses that, from rumors of uncertain worth, plaintiffs, from time to time, sought out the salesmen with whom they had done business, and were reassured of the truth of the earlier representations, and the fulfillment of the promises made to them as an inducement to their entering into the contract.

The question of laches is primarily one for the trial court, and is always to be determined in the light of the circumstances of each case. One of the things to be considered in determining the question is whether or not, through the charged delay, the rights of the parties have been in anywise affected, or if there has been any substantial change in the position of the parties to the contract. It needs no citation of authority to support the proposition that, when one has been induced into a contract by fraud, the delay occasioned by the wrongdoer's assurances of honesty will not operate as a bar to the right of rescission. To hold otherwise would be, in effect, to say that the fraud became virtue as it progressed. A well–hooked fish is easily led, and, where a buyer is induced to lay out some $6,000 through fraudulent representations, it is not so difficult to keep him in an unsuspecting frame of mind. In the instant case appellant has parted with nothing; it still has plaintiffs' money; and likewise it has the property. True, the so–called depression and other things may have combined to lessen the value of the property, but all values are relative, and it may well be that little difficulty will be found in convincing the next series of investors that the economic gyrations of the intervening period enhanced the value of all realty.

The finding of the trial court was that plaintiffs were not guilty of laches, and we conclude that there is no showing sufficient to overcome this finding. There is sufficient evidence to show that the delay in rescission was caused by the constant assurance of appellants that everything was as represented, and that the resale would be effected as promised. Plaintiffs were requested to be patient and for the sake of their original investment to await the further developments promised. The delay was occasioned through the indulgence of plaintiffs, after being lulled into a sense of security through the continuing fraud. That this situation warranted the trial court's finding may be supported by numerous decisions of the Supreme and appellate courts of this state. Barron Estate Co. v. Woodruff Co., 163 Cal. 561, 126 P. 351, 42 L. R. A. (N. S.) 125; Garstang v. Skinner, 165 Cal. 721, 134 P. 329; Noll v. Baida, 202 Cal. 98, 259 P. 433; Hunt v. L. M. Field, Inc., 202 Cal. 701, 262 P. 730; Eade v. Reich, 120 Cal. App. 32, 7 P.(2d) 1043.

The final attack upon the judgment is based upon the ground that at the time of the attempted rescission the plaintiffs were in default, and therefore had no right to rescind. The question of default, in the instant case, presents one of mixed law and fact. It was a part of the fraudulent representation inducing the contract, that plaintiffs would be required to pay no more than the amounts originally provided for and paid. True, the contract itself did provide for continuing payments after the promised date of resale, but the real agreement between the parties was that nothing would be due.

Again, on the matter of payments, plaintiffs were induced to rely upon the original promises, which avoided necessity of further payments, and at no time was payment demanded or suggested. Under the representations made they were to make no more payments, and, upon reassurance of the continuing contract, no default occurred.

But, passing this, the rule is announced in Lubarsky v. Chavis, 99 Cal. App. page 616, 279 P. 205, that, if plaintiff had the right to rescind upon the ground of fraud, he was not obliged to keep up his payments under the contract. The same rule is declared in Eade v. Reich, supra.

Complaint is made as to a conflict in the findings on the issue of default in payments. Under the rule announced, the finding would be somewhat immaterial. However, as we are presented with but a few of the findings, we assume that the findings as a whole did completely reconcile the apparent conflict, and therefore no error would result. It is not the purpose of a reviewing court to make hypercritical analysis of the trial court's findings in the attempt to find some technical or apparent inconsistency. The main purpose of findings (assuming that findings have a purpose other than to form a foundation for appeal) is to apprise the parties of the court's decision.

The judgment is affirmed.

PARKER, Justice pro tem., delivered the opinion of the court.

We concur: PLUMMER, Acting P. J.; R. L. THOMPSON, J.