COLLINS v. COLLINS (1956)

Plaintiff appeals from an adverse judgment in an action to set aside a property settlement agreement. The gravamen of the action is that plaintiff's consent to the agreement was procured by the exercise of undue influence by the defendant and breach of fiduciary duty to disclose to plaintiff the amount, character and value of the community property. The grounds of the appeal are that the findings are not supported by the evidence, they do not support the conclusions of law and that the court failed to make findings upon material issues.

The complaint contains several causes of action for rescission, declaration of a constructive trust, declaratory relief and to quiet title. They are but variations of the claim of plaintiff that she was overreached in entering into the property settlement agreement and that defendant received in the settlement property of many times the value of what she received.

The parties, residents of California, intermarried March 23, 1940; they have three sons born, respectively, in 1941, 1945 and 1947 and a daughter born in 1944. At the time the agreement was entered into the parties were separated. Plaintiff had gone to Las Vegas for the purpose of obtaining a divorce. She employed the firm of Ralli, Rudiak and Horsey. Mr. D. Francis Horsey wrote defendant a letter date July 10, 1953, advising him that plaintiff intended to sue for divorce upon the ground of mental cruelty and that the evidence would not involve anything that was derogatory or detrimental to defendant. Mr. Horsey was under the impression that a property settlement agreement had been executed and requested a copy of it for presentation to the court at the time of trial. Also enclosed was a power of attorney which defendant executed and which authorized a Nevada attorney to appear in the action for him. Defendant mailed to plaintiff a draft of an agreement. It provided that the home of the parties in Sherman Oaks, Los Angeles County, would remain in the names of the parties as tenants in common until the youngest child became of age, when it would be conveyed to the children. All other property was to be owned by defendant as his separate property. Plaintiff would have the right to live in the home as long as she kept the children with her. She would have physical custody of the children during the school terms and defendant reasonable rights of visitation and also custody during holidays and vacation periods. Defendant was to pay plaintiff $3,000 for her support and $100 per month for the support of each child, and pay an indebtedness of some $13,000 on the home property, keep up fire and liability insurance and pay all taxes. Plaintiff waived the right to receive support from defendant in addition to the $3,000 and there were the usual releases of rights to after-acquired property, to administer upon the estate of the other and to inherit property. Plaintiff waived the right to have the property of the parties listed in the agreement or disclosed to her by defendant. Shortly after the agreement was mailed to plaintiff, Mr. Rudiak wrote to defendant stating that plaintiff had consulted his firm relative to the proposed agreement. He requested for Mrs. Collins title to the home, a written disclosure of the community property, an appraisal of the property and an equitable division of it and a statement of defendant's income. Other requests were made.¹ Defendant did not answer the letter. Mr. Rudiak also called defendant by telephone and was referred to defendant's attorney but did not contact the attorney. At defendant's telephone request plaintiff returned to California. Defendant had another agreement prepared which the parties executed August 13, 1953, and pursuant thereto plaintiff executed and acknowledged on that date conveyances to defendant of her interest in 20 parcels of real property, title to which had stood in joint tenancy. On September 4th she executed assignments of 3 trust deeds which stood in the name of defendant. The real property was in joint tenancy. The parties treated it as community property and the court so considered it. It is apparent that the vesting in joint tenancy was merely for the purpose of convenience. The agreement that was executed recited that the home stood in joint tenancy and would be transferred to plaintiff as her separate property. This was done. The provision that plaintiff would receive $3,000 in lieu of support, as stated in the first draft, was omitted from the second. Plaintiff waived the right to support. Otherwise, the two agreements were substantially the same.

Immediately after August 13th plaintiff returned to Nevada and exhibited the executed agreement to her attorneys. She filed an action for divorce and on August 27th obtained a decree of divorce which approved the property settlement. She promptly married Major Blankenship. Within a few days defendant was married to his secretary. In September 1954 plaintiff divorced Major Blankenship. She gave notice of rescission of the agreement and promptly instituted this action.

Plaintiff alleged that defendant refused to disclose, and that she did not know, the nature, extent or value of the property which she and defendant owned; she did not receive advice from her attorney respecting the settlement and did not read the property settlement agreement or the deeds or assignments which she signed. Her testimony was specific that she did not know what was in the agreement or the purport of the deeds and assignments which she executed and did not know what properties were owned or their value.

The primary factual questions were: 1, what community property was owned by the parties; 2, the value of the property; 3, did plaintiff know what property was owned, and 4, did she know its value. It was necessary that these questions be answered in order that the court would be prepared to try the further questions whether plaintiff entered into the settlement voluntarily, in the exercise of her own free judgment, or as a result of undue influence of the defendant.

We turn to the court's findings and conclusions and we again meet a set of findings and conclusions which are eloquent of the author's unfamiliarity with the purpose served by findings, namely, the determination of the material ultimate factual issues in the case. Altogether the findings and conclusions consist of 10 closely typed pages, 7 under the head of findings and 3 under the head of conclusions. They consist of a conglomeration of evidentiary facts and conclusions. They add up to no more than a rambling and incomplete news story of plaintiff's confession of her love for Major Blankenship, the break-up of the marriage, the circumstances under which the property settlement agreement was entered into, including the subsequent marital venture of plaintiff, but omitting reference to that of the defendant.

The court made no finding as to what community property was owned by the parties, no finding as to the value of the property, no finding whether plaintiff knew what property was owned and no finding whether she knew its value. The court did find that plaintiff knew the purport of the property settlement agreement and that the parties owned the property that was described in the deeds, but in the light of the evidence and the findings as a whole, this finding means only that plaintiff knew from the fact that defendant requested her to execute the deeds that they conveyed property in which she had an interest. As we shall see, the property was not described in the agreement and the deeds were prepared and executed after the terms of the agreement had been substantially agreed upon.

The failure of the court to make a determination as to the extent and value of the property and with respect to plaintiff's knowledge of the same was due to the course of the trial as directed by the court. There was in evidence a chart prepared by defendant which listed the parcels of real property which were divided, with their cost, existing encumbrances and defendant's estimates of their values. With certain explanatory testimony the cost of the properties was shown on the chart to have been about $350,000. Defendant's estimates of the values at the time of the property settlement were substantially the same as the total cost. The balance unpaid on the trust deed notes which defendant held was something over $14,000. The chart lists the encumbrances on the real property at about $190,000. Plaintiff claimed the interest of the defendant in the home which she received was worth only $20,000. Defendant estimated it to be worth $32,500.

Counsel for plaintiff stated in the beginning of the trial that plaintiff proposed to prove that defendant received in the settlement property eight times the value of that received by plaintiff. At that time, and later in the trial, the court directed that there should first be tried the question of the validity of the agreement and later, if it should be necessary, the question of the value of what plaintiff received and what defendant received in the settlement. When plaintiff sought to prove by expert testimony that the property defendant retained was worth eight times as much as what plaintiff received, the court ruled in accordance with earlier rulings that it was trying only the issue of the validity of the agreement, and rejected the offered evidence.

We do not see how it would have been possible for the court to arrive at a just decision without knowing whether the division of the property was just and equitable. Defendant was a fiduciary; plaintiff, as we shall see, was a credulous and complacent party to the property settlement. The questions whether defendant was guilty of breach of fiduciary duty and whether plaintiff entered into the agreement voluntarily and solely in the exercise of her own judgment could not be determined in entire disregard of the question of the fairness of the agreement.

We have concluded that evidence offered by plaintiff was erroneously denied admission and that there was a failure to determine issues indispensable to a decision of the cause on the merits, which necessitate a reversal of the judgment.

We do not find it necessary to go to any great length in reciting the evidence or to do more than give a general outline of the situation of the parties. When we refer to the testimony, as well as to the admitted facts, it is only for the purpose of showing the entire inadequacy of the findings on the material issues and the necessity for a new trial in which all material and relevant evidence will be received.

Defendant is a physician with a gross income in excess of $80,000 a year. For a number of years he had been speculating in unimproved real estate. He made many purchases and in one instance put on a residential subdivision which he sold out. He and the plaintiff gave many purchase money trust deeds. Plaintiff was a housewife with the care of four children. She occasionally signed escrow instructions and had signed numerous notes secured by trust deeds. Aside from this she had nothing to do with defendant's real estate operations or his business. So far as disclosed by the evidence she never questioned defendant about his business ventures.

In the latter part of 1952, the parties had discussed a divorce. Defendant testified that at that time he was opposed to it. However, when the matter was discussed again in about June 1953, defendant was agreeable to a divorce. He gave plaintiff $300 to pay for her divorce in Las Vegas. Plaintiff testified and defendant did not deny, that he told her at that time to tell her attorneys that a property settlement had been made and that she wanted a simple divorce, as otherwise, if property was involved, the cost of a divorce would be greater. There had been discussions of a property settlement. Both parties testified to that fact and the further fact that plaintiff had asked for some of the properties and had suggested that defendant sell some of them. Plaintiff had asked for title to the home and $600 per month and this was agreed to by defendant. In plaintiff's telephone conversation with defendant and upon other occasions and at the time she signed the agreement, she asked for and was assured that she was getting the home. Instead of $600 per month, which had apparently been agreed upon, both agreements drafted by defendant provided for only $400 per month. Defendant's explaintion at the trial of the terms of the first drafted agreement was that if the title to the home had been placed in the name of plaintiff he could not have received credit on his income tax liability for taxes paid. The first draft was more favorable to plaintiff than the second one, since it provided that plaintiff would receive $3,000 in lieu of support, which she was not to receive under the second agreement.

Defendant testified that he never had any intention of giving plaintiff a statement of the property owned. At the same time he claimed that she knew what the properties were and it is contended now that she could have found out what they were by sonsulting the public records and then could have investigated their value. This, of course, would have been true if the parties had been dealing at arm's length, but it is not the rule in dealings between fiduciaries.

The court found: ‘That at the time the said property settlement agreement was signed and prior thereto, plaintiff had legal counsel and was relying upon the advice and opinions of her said legal counsel and did not rely upon any advice, statements or opinions of the defendant with respect to any matter involved in such property settlement agreement. * * *’ This finding is contrary to all the evidence on the subject. Plaintiff's attorneys objected to her entering into the agreement first drafted. The circumstances corroborate plaintiff's testimony, which was not contradicted by defendant, that defendant endeavored to avoid negotiation of a property settlement agreement through plaintiff's attorneys. Knowing the objections which the attorneys had to the proposed settlement, defendant had plaintiff come to Los Angeles where she unhesitatingly signed the agreement, which she had no opportunity to submit to her attorneys. She had been requested not to consult them with respect to the settlement. She had obeyed the instructions until the attorneys called for a copy of the agreement which they understood had been signed. Defendant knew that the attorneys had rejected the first proposed agreement. He knew, so he testified, that plaintiff was in love with Major Blankenship and intended to marry him as soon as possible. She was in haste, and for obvious reasons. There was no evidence that plaintiff knew that defendant also had plans for his own remarriage.

It will be the duty of the trial court to pass upon the fairness of defendant's conduct and the ability of plaintiff to cope with defendant in the matter of the settlement. We hold that when defendant undertook to justify his actions as those of a fiduciary the burden was upon him to establish the fairness of the contract and that he did not in the slightest degree abuse the trust and confidence of the plaintiff or take any advantage of her ignorance and inexperience.

The court was in error when it ruled that the value of what plaintiff received in the settlement and the value of what defendant received was immaterial. It was the most important factual issue in the case. There was no doubt of the existence of a fiduciary relationship which imposed upon defendant the duty to take no advantage of plaintiff in the division of property. But even upon the values as admitted by defendant there was ample reason for plaintiff's contention that defendant received in value far more than the amount plaintiff received.

Knowledge of the values could not have been imputed to plaintiff except upon the theory that she could have learned of the ownership of the real property and the three trust deeds by an examination of the public records, could have had the real properties appraised, and could have ascertained from the makers of the trust deed notes the amounts of the unpaid balances. Plaintiff testified that defendant had assured her many times that he would be eminently fair with her in the settlement of property rights and would also support the children. But even without such assurances plaintiff had no reason to suspect that defendant would deal unfairly with her. She was not required to examine the public records nor make inquiry of the trust deed debtors. She had a right to rely upon the honesty and fairness of the defendant and he could not sit tight and expect her to discover what he refused to disclose to her.

Although the court made no finding whether plaintiff reposed trust and confidence in defendant, the fact that a fiduciary relationship existed was not open to question. In view of the evidence defendant was to be deemed a trustee for plaintiff. Civ.Code §§ 158, 2219, 2228, 2229, 2234, 2235; Fields v. Michael, 91 Cal.App.2d 443, 205 P.2d 402. The court found that defendant knew he was receiving in the settlement more of value than his wife received. The settlement was presumptively fraudulent. Defendant had the burden of showing that the transaction was fair and just and fully understood by plaintiff. In re Estate of Cover, 188 Cal. 133, 204 P. 583; Norris v. Norris, 50 Cal.App.2d 726, 123 P.2d 847; Andrew v. Andrew, 51 Cal.App.2d 451, 125 P.2d 47.

The principles which control the conduct of fiduciaries, as applicable to property settlements, impose upon a husband, situated as defendant was, certain definite duties. Where the husband has had complete control and management of the community property and the wife has had nothing to do with it other than to join with him in executing documents at his request (which is a common, if not the usual situation), the husband has an affirmative duty to see that the wife is fairly and fully informed as to the extent and value of the community property, in order that he may be in a position to negotiate a property settlement agreement with her which effects a division of it. He must inform the wife of all facts of which he has knowledge which would reasonably affect her judgment and which are not also known to her. We do not say there may not be circumstances in which he would be excusable for not making a disclosure, nor do we say that a disclosure is in all cases a prerequisite to a just and fair division of property. But the present case is governed by the general rule we have stated.

Defendant contends that plaintiff and her attorneys undertook to make an investigation and that they, alone, are to blame if they did not finish it. There is no merit whatever in this contention. Defendant did all he could to separate plaintiff from the influence and advice of her attorneys in the matter of the settlement, and he succeeded. Plaintiff supinely did as requested by defendant, although it was contrary to the judgment of her attorneys.

A fact which is manifestly fatal to the judgment is that the court did not undertake to determine whether the settlement was fair, just and reasonable. No finding or conclusion was made that it was fair and just. No facts were found which would show it to be fair and just. The finding was that defendant knew he was receiving more in the settlement than plaintiff was receiving. Defendant contended, and here contends, that ‘Courts have no power to remake an agreement merely because it turns out to be more beneficial to one party than the other’ and that ‘The law does not weigh the quantum of the consideration. (6 Cal.Jur. p. 169; Brawley v. Crosby Research Foundation, Inc., 73 Cal.App.2d 103, 166 P.2d 392.)’ This argument prevailed in the trial court. In announcing its decision and the reasons for it, the court stated: ‘It further appears at that time for reasons possibly best known to her the plaintiff, particularly wanted a divorce. That appears to have been paramount in her mind. Possibly the agreement which she signed did not constitute an equal or possibly even on the face of things a fair division of the community property. Yet it was what the plaintiff wanted, bargained for and accepted, other factors then possibly being more important to her.’

Throughout the trial and on the appeal defendant has contended that the property settlement should be regarded as one between parties who were dealing at arms' length, and that if plaintiff did not receive a fair share of the property it is her own fault. All his arguments as to the benefits he conferred upon plaintiff do not conceal the skeleton upon which they are draped. It came to view in the testimony of defendant that he never had any intention of informing plaintiff or her attorneys what property was owned or its value. It is shown throughout the briefs of defendant. He says, in substance, that plaintiff was in love with Major Blankenship, she was in a hurry for a divorce so she could remarry, and was less interested in getting a fair share of the property than in acquiring a new husband. This does appear to have been her immediate motive. But defendant had no right to take advantage of the fact that her romantic illusions obscured whatever business judgment she possessed. She was all the more in need of protection against her own impulsive action. The fact that defendant gave plaintiff her freedom does not bear upon the fairness of the division of the property. In that connection he gave no more than he received. He, also, had plans, but was shrewd enough not to divulge them. To say that plaintiff received what she asked for is not an answer to the question whether she would have been given more upon a fair and equitable division.

It may well be that if the court had found how much more was allotted to defendant than to plaintiff, the disparity would have been so great as to render the settlement grossly inequitable. That is an indispensable issue which must be determined by the trial court and it is one as to which the evidence should be complete and the findings explicit.

Although defendant placed in evidence the Nevada decree he did not plead it nor rely upon it as an adjudication that the property settlement agreement was valid. That question is not present.

The judgment is reversed.

FOOTNOTES

1.  ‘3. Mrs. Collins feels furthermore that the dwelling house at 4006 Longridge Avenue, Sherman Oaks, California, should be deeded to her outright, and that an equitable division should be made as to her community interest in the other real estate which you own together. In this connection, an appraisal of the value of her interest in such realty could be made by three disinterested persons and you could either purchase her interest therein upon a monthly basis or agree to pay her the amount of her present interest at the time the property is sold. Either arrangement would be satisfactory. In fairness to Mrs. Collins, however, since she has very little knowledge of your business affairs, we believe that you should make a written disclosure to her of all of your mutual community property interests before a final agreement relative to the disposition of such interests is made. ‘4. Mrs. Collins advises that your original agreement was to pay her the sum of $600.00 per month for the support and maintenance of the children. Support money in that amount would enable Mrs. Collins to assume payment of the encumbrance and maintenance costs upon the dwelling house at 4006 Longridge Avenue, which we suggest be deeded to her, thereby relieving you of that burden. ‘5. By way of security, in the event of your demise, Mrs. Collins also feels that you should agree that you will immediately prepare and keep in force a valid Will whereby the children will be left at least two-thirds of your estate. In the same connection Mrs. Collins is willing to relinquish her community property rights in the policies of life insurance upon your life (provided you will agree to at all times keep said policies in force, unimpaired, and to irrevocably designate the children as the beneficiaries of such policies. Since the amount of your insurance coverage is also not known to Mrs. Collins, we believe a full disclosure should be made of the names of the companies, policy numbers, and principal sum indemnities of your several policies. ‘6. Finally, Mrs. Collins would like to ‘6. Finally, Mrs. Collins would like to tuition in private schools for so long as your income does not drop below a specified level to be agreed upon by the parties. Here, again, Mrs. Collins is at the disadvantage of having no knowledge as to the exact amount of your income or of what sum would be reasonable in this regard, and would theefore welcome your suggestions. ‘We are sure you will agree, after considering these proposed changes, that they are not unreasonable. Mrs. Collins has every confidence that you will want to make fair and adequate provision for the children and that you are equally desirous that she obtain her just share of the community property.’

SHINN, Presiding Justice.

PARKER WOOD and VALLEÉ, JJ., concur.