FULLER v. WHITE

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District Court of Appeal, First District, Division 1, California.

FULLER v. WHITE.*

Civ. 13564.

Decided: May 10, 1948

Gregory, Hunt, Melvin & Faulkner and Melvin, Faulkner, Sheehan & Wiseman, all of San Francisco, for appellant. John K. Hagopian, of San Francisco, for respondent.

Lloyd M. Fuller, deceased, and the plaintiff J. L. Fuller were brothers. Lloyd died September 26, 1945. On March 25, 1946, plaintiff commenced the present action against the estate of Lloyd M. Fuller, alleging that on October 1, 1931, decedent made, executed and delivered to plaintiff a promissory note in the sum of $1,500; that said note provided for interest at 6% per annum payable monthly; that no part of the interest or principal has been paid; that a claim was presented to the administratrix in the amount of $2,775 and rejected by her. The administratrix generally denied the allegations of the complaint, and, in addition, as affirmative defenses, pleaded the statute of limitations and payment. The trial court found in accord with the two affirmative defenses, and, in addition, in its opinion, but not in its findings, called attention to the fact that plaintiff had failed to plead or prove that decedent ever had the ability to pay the note. From this judgment for defendant the plaintiff appeals.

The promissory note involved reads as follows:

‘$1,500.00

October 1 1931

‘Any time after date I promise to pay to the order of my brother, J. L. Fuller or his beneficiary Fifteen Hundred Dollars.

‘Payable at any time my financial condition permits

‘Value received with interest at 6% per cent per annum—monthly

‘Lloyd M. Fuller

‘No. First Due to run in accordance with our understanding.

‘J. L. Fuller

‘Witness'

On the back of the note appears the following:

‘In the event of my death this promissory note is to be paid out of my estate with procedence over any other claims.

‘Lloyd M. Fuller’

The execution of the note is conceded. The note is, of course, subject to the familiar rule of contract law that each and every provision must be scanned for the purpose of ascertaining the intent of the parties. Neale v. Morrow, 150 Cal. 414, 88 P. 815; Goodwin v. Nickerson, 51 Cal. 166. It is equally clear that, inasmuch as there was no parol evidence as to intent, the determination of such intent is a question of law and not of fact. In re Estate of Platt, 21 Cal.2d 343, 131 P.2d 825; Moffatt v. Tight, 44 Cal.App.2d 643, 112 P.2d 910. When these rules are applied to this note it is readily ascertainable that the decedent made three distinct promises to the promisee: First, he agreed to pay to him $1,500 any time after date when and if his financial position was such that he was able to do so. In the second place, regardless of ability to pay, decedent promised, unconditionally, to pay the interest monthly. In the third place, he promised, unconditionally, that the note would be paid from his estate, with priority over other claims, if it were not paid prior to his death. Thus, if the third and first promises be read together, as they must, the agreement amounted to this—a promise to pay when able during the promsor's lifetime, but in any event a promise to pay upon death.

In order to recover upon the first promise, that is, the promise to pay when able, it was necessary for the plaintiff to plead and prove that during his lifetime the promissor was able to pay. Van Buskirk v. Kuhns, 164 Cal. 472, 129 P. 587, 44 L.R.A.,N.S., 710 Ann.Cas.1914B, 932; Gause v. Pacific Gas & Electric Co., 60 Cal.App. 360, 212 P. 922; Cantwell v. Gage, 111 Cal.App. 209, 295 P. 375; Maurer v. Bernardo, 118 Cal.App. 290, 5 P.2d 36; Goodfellow v. Goodfellow, 219 Cal. 548, 27 P.2d 898. The plaintiff neither pleaded nor proved that decedent was able to pay during his lifetime. Therefore, so far as this first promise is concerned, the complaint failed to state a cause of action, and the evidence produced by plaintiff failed to cure that defect. Since this defect goes to the sufficiency of the complaint to state a cause of action, and to the sufficiency of the proof to cure that defect, it was not waived by the failure of defendant to demur and may be raised for the first time on appeal. See cases collected 21 Cal.Jur. p. 128, § 83; 9 Cal.Jur. (10 Yr.Supp.) p. 222, § 83; see, also, § 434, Code of Civ.Proc.

The cases cited, supra, also establish another rule and that is that where, as here, the defendant failed to prove, in support of her statute of limitations defense, that decedent during his lifetime was able to pay, then the statute of limitations could not begin to run upon such a promise until the promisor was able to pay, because no action can accrue on such a promise until the condition of the promise—i. e., the promisor's ability to pay—has been proven to exist.

The defenant does not challenge these rules but, in support of the finding that the statute of limitations had run, urges that she proved that at a time prior to four years before the commencement of the action the promisor was able to pay, and therefore contends the statute had run on this promise prior to suit. In this connection defendant relies on some very general testimony given by the divorced wife of decedent, a witness called by plaintiff, that she believed her then husband should have paid the note ‘in-as much as he was making quite a lot of money since the war started. I know that because he had told me about many large contracts.’ This general testimony did not prove that he was able to pay the note. In the first place, the witness gave no dates. This country declared war in December, 1941. Just what was meant by ‘since the war started,’ does not appear. The action was filed in March, 1946, and if ‘since the war’ referred to any time after March of 1942 the four-year statute, Code Civ.Proc. § 337, had not run when the action was filed. Moreover, proof that a promisor is ‘making quite a lot of money’ without any knowledge at all of his then obligations is certainly no proof of ability to pay a particular obligation.

However, it is not vital on this appeal whether the trial court was correct or incorrect insofar as it found that the statute of limitations barred the first promise here involved. As already pointed out, the complaint did not plead a good cause of action on the first promise, and the judgment denying relief on this promise may be supported on that ground. But these rules do not apply to the third promise. This last-mentioned promise was to the effect that upon the death of the promisor the note was to be paid out of the assets of the estate with priority over other claims. This constituted an absolute unconditional promise to pay upon death of the promisor. It did not mature until the death of the maker which occurred in September, 1945. This action was commenced in March of 1946. It is quite clear, therefore, that this promise, which did not mature until the death of the promisor, was not barred by the statute of limitations.

The trial court, however, also found that the note had been paid. The evidence on this issue was most unsatisfactory. The plaintiff was not present at the trial. The former wife of decedent, who had divorced him in 1943, testified that while she was living with decedent no payments were made on the note. The mother of decedent testified that shortly before his death decedent told her that he still owed the note. There is no evidence at all that prior to his death decedent ever made a payment of principal or interest on the note, except some testimony of Charles Lercari, a roommate of decedent prior to his death, who testified that decedent had told him about making some payments on the note, but, upon motion, all of the testimony of this witness on this issue was properly stricken.

The evidence upon which defendant mainly relies to support the finding of payment relates to a certain insurance policy on the life of decedent. Admittedly he had a $2,000 life policy with the Penn Mutual Insurance Company dated June 12, 1932 (the note was executed October 1, 1931), and admittedly the plaintiff was named beneficiary of that policy. Apparently plaintiff paid the premiums on that policy. Admittedly the then wife of decedent joined in designating plaintiff as beneficiary, and admittedly, after the death of decedent, plaintiff collected the proceeds of that policy amounting to $2,066.88. If that policy was given as security for the note, then the principal of the note and most, if not all, of the delinquent interest, were paid from the proceeds of that policy. Most of the evidence on this issue was quite indefinite. In spite of persistent cross examination on the issue the divorced wife of decedent could not remember whether the policy was given as security, The only real evidence on this issue consisted of a letter from the home office of the insurance company dated October 25, 1945, signed by the supervisor of claims of the company and addressed to Forrest J. Curry, the insurance company's general agent in San Francisco. This letter was admitted, subject to a motion to strike, over the vigorous objections of plaintiff. Subsequently the motion to strike was denied. It is primarily, if not solely, upon this letter that the finding of payment is based.

The letter was offered by defendant and admitted by the court on the theory that it was admissible under the ‘Uniform Business Rocords as Evidence Act,’ sections 1953e to 1953h of the Code of Civil Procedure, enacted in this state in 1941. The letter was produced and identified by the cashier of the San Francisco office of the insurance company who testified that it was ‘part of the record’ which was ‘kept’ in the ‘ordinary course’ of business of the company. This employee also testified that it was an ‘official record’ pertaining to the policy in question. The pertinent portions of the letter are as follows, the portions particularly relevant being italicized: ‘I received your letter of October 12th with further reference to the above claim. Since we have received no adverse claim up to the time of this writing, I feel that it may be possible for us to make payment of the claim under policy No. 1692531 without requiring a community property release. Under this policy, I find that the insured when applying for the contract, requested it to be made payable to Jo L. Fuller, brother, if living, otherwise to the brother's wife, and no power was to be reserved to the insured. Premium notices were to be mailed to the brother and when forwarding the application, your office stated that the applicant had borrowed some money from his brother, Jo, who would pay the premiums on the contract, that the loan was for business purposes and the interest on the loan would be used in payment of the premiums under the contract. The Underwriting Department decided to issue the policy payable to the insured's estate, but sent along a designation of beneficiary to bring about the settlement requested in the application. I find that that designation was executed in San Francisco on August 11, 1932 and signed by the insured and consented to and joined in by a Mrs. Georgia A. Fuller, whom I presume was the insured's wife.’

It will be noted that the letter, insofar as it refers to this policy being security for a loan, is not the record of the company to that effect but what the supervisor of claims, in 1945, says the records show as to a 1932 transaction, without the production of the records of 1932. There is absolutely no way at all from the proffered letter to know what the actual records show as to the 1932 transaction. Is such a ‘record’ admissible under the sections in question?

The pertinent section is § 1953f of the Code of Civil Procedure. It provides: ‘A record of an act, condition or event, shall, in so far as relevant, be competent evidence if the custodian or other qualified witness testifies to its identity and the mode of its preparation, and if it was made in the regular course of business, at or near the time of the act, condition or event, and if, in the opinion of the court, the sources of information, method and time of preparation were such as to justify its admission.’

There is no doubt that this section serves a most salutary purpose and should be liberally construed to accomplish that purpose. As was said in Loper v. Morrison, 23 Cal.2d 600, 608, 145 P.2d 1, 5: ‘The purpose of this act is to enlarge the operation of the business records exception to the hearsay evidence rule. * * * It should of course be liberally interpreted so as to do away with the anachronistic rules which gave rise to its need and at which it was aimed. * * * It is the object of the business records statutes to eliminate the necessity of calling each witness, and to substitute the record of the transaction or event. It is not necessary that the person making the entry have personal knowledge of the transaction.’

We agree with this rule. But that does not mean that every document in the files of a company is admissible simply upon being identified by an official of the company as a document relating to the problem before the court. It must be a record of the transaction in dispute made ‘at or near the time’ of such transaction. It must relate to an ‘act, condition or event.’ The ‘mode of its preparation’ must be made to appear. These foundational facts were not shown in the present case. Quite to the contrary, the letter shows on its face that some thirteen years after the event, the superintendent of claims interpreted something in the files of the company as indicating that the policy was issued to secure a loan. While it is true that where the question as to whether a proper foundation has been laid to warrant the application of § 1953f is debatable, and there is some evidence from which a reasonable deduction can be made that the proper foundation has been laid, the determination of such question is for the trial court (Egan v. Bishop, 8 Cal.App.2d 119, 47 P.2d 500; Ducat v. Goldner, 77 Cal.App.2d 332, 175 P.2d 914), that rule does not apply where, as here, no such reasonable deduction is possible. All that we have here is a letter intimating that the San Francisco office, to which the application for the insurance was probably made, had prepared a record of the transaction in which it apparently appears that decedent had informed the San Francisco office that the policy was to be security for a loan. That document, if it exists, undoubtedly would be a business record and admissible under § 1953f. But that is not the record that was introduced. What was introduced was a letter from an employee of the home office discussing matters supposedly reflected by the records of the company. The probative value of the original business record was not before the trial court. It was not called upon to evaluate the original business record, but to evaluate the home office employee's interpretation of that record. Conceding that § 1953f should be liberally construed, that section is based on the theory that business records kept contemporaneously with and relating to a transaction give, by reason of that very fact, a circumstantial guarantee of trustworthiness. But no such circumstantial guarantee exists as to an account of a record by an employee made many years after the event. On a retrial the real records of the company may be produced, if any exist. We think that it was most serious error to have admitted the letter into evidence, and that such error requires a reversal.

In view of the fact that a retrial must be had, some reference should be made to the second promise—the promise to pay interest monthly. That promise, unlike the first promise, was not conditioned on ability to pay. That being so, the statute of limitations started to run on each installment of interest as it fell due and was unpaid. It follows, therefore, that any installment of interest more than four years overdue at the time the complaint was filed is barred by the statute of limitations.

The judgment appealed from is reversed.

PETERS, Presiding Justice.

WARD and BRAY, JJ., concur.