RADER v. THRASHER

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District Court of Appeal, Third District, California.

Richard E. RADER, Plaintiff and Respondent, v. E. W. THRASHER, Defendant and Appellant.*

Civ. 10052.

Decided: June 27, 1961

John R. Stokes, Arcata, and Lange & Rockwell, San Francisco, for appellant. Rader & Truitt, Arcata, for respondent.

E. W. Thrasher has appealed from a judgment in favor of Richard E. Rader in an action for declaratory relief brought by Rader to determine the validity of a contingent fee contract entered into between the parties.

Thrasher is engaged in the lumber business. Rader is an attorney at law. Beginning in 1954 Rader acted as the attorney for a lumber corporation of which Thrasher was the president. In June 1955 Rader was asked by Thrasher to prepare an option for some timberland referred to as the Svensson timber which Thrasher was interested in purchasing. The cost of these services was paid by the corporation.

The option was exercised but there were some clouds on the title and a dispute arose over these clouds. Demand was made on the sellers that they comply with their covenant to convey clear title. The sellers then sold the timberland to third parties.

After this sale an action was brought to compel specific performance of the option agreement. An injunction was obtained to prevent the timber on the property from being logged. The action finally went to trial in March 1958. A few days before the trial Thrasher asked Rader what the fee would be and he was told that if the suit were successful the fee would be $25,000. Thrasher protested and after some negotiation it was agreed that the fee would be 30 per cent of the net profit.

On August 8, 1958, the trial court filed its memorandum of decision granting specific performance. On August 20th Thrasher visited Rader's office, and on this visit a written agreement as to the fee was prepared, which read as follows:

‘August 20, 1958

‘Mr. E. W. Thrasher

‘19541 Red Berry Drive

‘Los Gatos, California

‘Re: Thrasher vs. Svensson and Crosswhite

‘Dear Mr. Thrasher:

‘In confirmation of our previous conversations regarding the fee arrangement in the above captioned matter, I agree to accept as my full and total fee for services rendered to you in that proceeding a sum equal to thrity [sic] percent (30%) of the net profit, if any, made upon a re-sale of the property, (including any services in the Re-sale.)

R.E.R.

‘In the event that you should decide to keep and log the property and then sell the logged-over land, my fee would be equal to thirty percent (30%) of the over-all net profit.

‘If the foregoing statement conforms to your understanding of our arrangement please sign and return the enclosed copy of this letter.

‘Very truly yours,

‘/s/ Richard E. Rader

‘R.E.R.: mm

Richard E. Rader.

‘Approved.

‘/s/ E. W. Thrasher

‘E. W. Thrasher’

In February 1959 Thrasher attempted to renegotiate the question of the fee but no agreement was reached. Rader continued to act as Thrasher's attorney in the matter until May 1959 when Thrasher obtained other counsel.

In June 1959 Rader commenced this action for a determination of his rights under the fee agreement. Thrasher filed an answer setting up the defense that there was a confidential relationship between plaintiff and defendant and that the agreement ‘was executed by defendant at a crucial stage in litigation in which plaintiff was representing defendant and that the aforesaid agreement was executed by defendant as a direct result of duress and undue influence by plaintiff against and upon defendant.’

The trial court found that ‘Said agreement was executed by defendant of his own free will and volition and not as a result of any duress or undue influence by plaintiff, nor did defendant repose trust and confidence in plaintiff when said agreement was made.’ Judgment was rendered that the written agreement was a ‘valid, binding and subsisting agreement.’

Appellant makes a vigorous attack upon the judgment, his major contention being that ‘The agreement for fees was presumptively invalid and the plaintiff failed to overcome the presumption.’

Appellant relies heavily on section 2235 of the Civil Code which reads: ‘All transactions between a trustee and his beneficiary during the existence of the trust, or while the influence acquired by the trustee remains, by which he obtains any advantage from his beneficiary, are presumed to be entered into by the latter without sufficient consideration, and under undue influence.’

Appellant argues correctly that an agreement for fees between an attorney and his client, made while the attorneyclient relationship exists, under which the attorney obtains any advantage is presumptively invalid under the provisions of the above-quoted section. As stated in Bradner v. Vasquez, 43 Cal.2d 147, at page 152, 272 P.2d 11, at page 14: ‘When a fiduciary enters into a transaction with a beneficiary whereby the fiduciary's position is improved, or he obtains a favorable opportunity, or where he otherwise gains, benefits, or profits, it may fairly be said that an advantage has been obtained. To declare that the advantage obtained must be shown to be unfair, unjust, or inequitable before the presumptions arise would result in the imposition of a condition which is not required by section 2235 [Civil Code].’

Because of the relationship of attorney and client which existed at the time the contract was entered into appellant Thrasher was entitled to the benefit of the presumption of undue influence. ‘* * * All dealings between an attorney and his client for the benefit of the former are not only closely scrutinized, but are presumptively invalid, on the ground of constructive fraud, and such presumption can be overcome only be the clearest and most satisfactory evidence. Not only must the attorney offer clear and satisfactory evidence that the transaction between himself and his client was fair and equitable, and no advantage was taken by him, but he must also offer proof that the client was fully informed of all matters relative to the transaction, and was so placed as to be able to act understandingly and to deal with the attorney at arm's-length * * *.’ Estate of Witt, 198 Cal. 407, 419, 245 P. 197, 202.

As stated in Estate of De Barry, 43 Cal.App.2d 715, at page 728, 111 P.2d 728, at page 735: ‘* * * The contract of employment between an attorney and his client, where an advantage is obtained, is presumptively invalid. Magee v. Brenneman, 188 Cal. 562, 571, 206 P. 37; Brydonjack v. Rieck, 5 Cal.App.2d 219, 42 P.2d 336. Undue influence is presumed and the burden is immediately cast upon the attorney to prove that his transaction with his client was fair. Coyne did not make such proof. Neither did he show that the charges which he made were reasonable. He neither made proof that the transaction between himself and the executrix was fair and equitable and that no advantage was taken by him, but also he failed to establish that his client was fully informed of all matters relative to the transaction or that she fully comprehended her rights or her duties to the estate so that she could act understandingly and deal with the attorney at arm's length. Brydonjack v. Rieck, supra; Estate of Witt, 198 Cal. 407, 245 P. 197; Moore v. Hoar, 27 Cal.App.2d 269, 81 P.2d 226. So failing, he had no enforcible rights as against Lucille Barry and none as against the estate on account of the drainage suits. * * *’

In the case of Lady v. Worthingham, 57 Cal.App.2d 557, at page 560, 135 P.2d 205, at page 207, the court said:

‘(1) The relation of attorney and client is one of special trust and confidence and where, after the relationship has been established, an attorney and client enter into an agreement with reference to the attorney's compensation, the burden is on the attorney to show that the agreement was fair and openly made with full knowledge upon the part of the client of the facts and of his legal rights with relation thereto. The attorney in such case is bound to act in uberrima fides, that is, with the most scrupulous good faith toward his client (Stieglitz v. Settle, 50 Cal.App. 581, 585, 195 P. 705).

‘(2) When an attorney attempts to enforce a contract entered into with his client after the relationship of attorney and client has arisen, the presumption arises that the contract was without sufficient consideration (Shahabian v. Najarian, 14 Cal.App.2d 435, 443, 58 P.2d 396).

‘(3) The burden of proof rests with the attorney to overcome the presumption referred to in the foregoing rule, to wit, that there was no consideration for the transaction (Shahabian v. Najarian, supra; Brydonjack v. Rieck, 5 Cal.App.2d 219, 223, 42 P.2d 336; Thornley v. Jones, 96 Cal.App. 219, 227, 229, 274 P. 93).’

Appellant contends further that the court committed prejudicial error in making no finding on whether the agreement as to fees was fair and equitable or that the appellant received either adequate advice from respondent or independent advice respecting the agreement between appellant and respondent. There is merit in this contention. There was no finding that the contract was fair and equitable.

The court did find, as hereinbefore stated, that appellant did not repose trust and confidence in respondent at the time the agreement was made, and respondent argues that this was a finding that there was no confidential relationship. However such a finding could not overcome the fact that because of the relationship of attorney and client a confidential relationship did exist as a matter of law and that a rebuttable presumption of undue influence arose. This presumption could only be overcome by evidence and findings that the contract was fair and equitable, and in the instant case the court did not make such a finding. In this we think the court erred.

In the case of Gold v. Velkov, 133 Cal.App.2d 622, at page 629, 284 P.2d 890, at page 895, the court said:

‘The court made no finding as to the value of plaintiffs' services, * * *. For the same reason the court made no finding whether defendant had received independent advice respecting the settlement and no finding whether it was just and fair as to defendant. There was no evidence as to the value of the royalties received by defendant from Guiberson, which would have been a factor in evaluating the services of plaintiffs. * * *

‘* * * The primary question was whether plaintiffs had earned all or any part of the $14,000 they paid defendant. The failure of the court to try and determine the question of the fairness of the settlement was due entirely to the avoidance of that issue by the plaintiffs. It is an issue which every attorney must meet when he seeks to enforce a contract for his fees and it is one from which he should not shrink. The judgment must be reversed * * *.’

The foregoing rules are applicable to the instant case. Before it can be determined if the contract is valid and enforceable, it must be ascertained whether the contract was fair. In the absence of a finding on the question this court may not say that an enforceable contract existed between the parties. It is only after a determination that a contract entered into while a confidential relationship existed between an attorney and his client is fair that it may be enforced.

The judgment is reversed.

SCHOTTKY, Justice.

VAN DYKE, P. J., and PEEK, J., concur.