GOLD v. SALEM LUTHERAN HOME ASSOCIATION OF THE BAY CITIES (1959)

Defendant is a non-profit corporation which maintains a licensed home for the aged. Applicants are admitted for a trial period of two months. At the end of this period, or earlier if defendant's board of directors consents, a contract may be executed under which the home provides care for the applicant for the remainder of his life. For such life care contract the applicant pays a lump sum determined by reference to life expectancy tables.

Plaintiffs are executors of the will of Nicholas Chouvaldjy. Mr. Chouvaldjy applied for admission to the home and was accepted on a trial basis. He entered August 1, 1956. On admission, he paid $130 for his care for the month of August, and on August 31 paid a like amount for the month of September. On September 10 the directors by motion accepted Mr. Chouvaldjy's application for permanent residence and directed that a life care contract be granted upon payment of $8,500. This contract was drawn by defendant and dated October 1. Chouvaldjy signed it September 25 and at the same time delivered to defendant a cashier's check for $8,500. On the same afternoon or the next morning, the authorized officers of defendant signed the contract and Chouvaldjy was notified that a signed copy was available for him in the office. Chouvaldjy suffered a stroke September 27, and died on the afternoon of September 28.

Plaintiff executors brought this action to recover the payment of $8,500, and appeal from adverse judgment entered after nonjury trial.

There can be no doubt that the life care contract was fully executed and delivered no later than September 26, and the court's findings in this particular are fully supported.

The contract requires defendant to furnish food, lodging and care to Mr. Chouvaldjy ‘for the remainder of his life,’ but, save for the date it bears, the agreement contains no language specifying the date of commencement of such performance. It is clear, however, that before the contract was drawn Chouvaldjy had paid in full for his care through the month of September. No refund was given or offered to him, either in cash or by way of reduction of the cost of his life care contract, for the portion of September remaining after the life care agreement was executed. Thus the fact that defendant chose to date the life care contract October 1 assumes significance. The only reasonable conclusion is that the parties intended performance of the life care contract to begin October 1.

The crucial question, then, is the effect of Chouvaldjy's death September 28 upon a contract whose performance was to commence October 1. Strictly, there is no impossibility of performance. Defendant had available the quarters, food and care it had agreed to supply. Similarly, there is no literal failure of consideration. However, the performance of defendant's promise had wholly lost its value before the time for performance arrived. The law has developed the doctrine called ‘frustration’ to excuse performance by a promisor in such situations. (6 Williston on Contracts [rev. ed.] 5419–20; Rest., Contracts, § 288.) Where the object of a contract has been frustrated within the meaning of this rule, one who has fully performed is entitled to restitution from the party whose exchange performance is excused. (Rest., Contracts, § 468, subsec. 2.) The general doctrine of frustration has been recognized in California. Johnson v. Atkins, 53 Cal.App.2d 430, 127 P.2d 1027; see also Lloyd v. Murphy, 25 Cal.2d 48, 153 P.2d 47; Dorn v. Goetz. 85 Cal.App.2d 407, 193 P.2d 121.

We find no decision upon the particular facts before us. Superficially comparable is the problem arising under a life care contract providing that either party may, within a limited time, terminate the contract, when the individual dies before expiration of the period for such election, and before either he or the home has given notice of termination. There is some division of authority in such situation (Dodge v. New Hampshire Centennial Home, 95 N.H. 472, 67 A.2d 10, 10 A.L.R.2d 858; First National Bank of Lawrence v. Methodist Home 181 Kan. 100, 309 P.2d 389), but the prevailing view is that the home may not retain the payment made for the life care contract (see cases cited in 10 A.L.R.2d 874–877). Similarly remote are those cases which turn on the particular language of the contract (Nicolaysen v. Pacific Home, 65 Cal.App.2d 769, 151 P.2d 567), particularly those in which a reasonable construction of the agreement established that one party had assumed the risk of the event claimed to result in frustration (Lloyd v. Murphy, supra; Coyne v. Pacific Mut. Life Ins. Co., 8 Cal.App.2d 104, 47 P.2d 1079). In Coyne, the annuity contract fixed the date for first payment to the purchaser ‘if then living’ (8 Cal.App.2d at page 107, 47 P.2d at page 1080), thus clearly implying that he assumed the risk of his death before commencement of payments. Further, there was evidence that deceased ‘deliberately chose a form of contract which would give him the highest possible monthly return during his lifetime, with no remainder to his heirs' (8 Cal.App.2d at page 110, 47 P.2d at page 1081). Neither of these circumstances is present in our case, and Coyne therefore is inapplicable to the facts before us.

It is clear that unilateral determination cannot terminate a life care contract. Inderkum v. German Old People's Home, 23 Cal.App.2d 733, 74 P.2d 83. Nor is enforceability of a life care contract affected by the fact that the life of the individual to be cared for extends beyond or falls short of the span predicted by life expectancy tables. Each party clearly has assumed the risk of variation of the life span from that so predicted. See discussion in Coyne v. Pacific Mut. Life Ins. Co., supra, 8 Cal.App.2d 104, 47 P.2d 1079.

Here, however, Chouvaldjy died before the date defendant was to begin performance of its agreement for his care. It is difficult to imagine a clearer case of frustration of the object of a contract than that of a life care contract where the life ends before the care is to begin.

Judgment reversed, with directions to the trial court to enter judgment for plaintiffs.

I dissent: Here the decedent entered into a completed binding contract with respondent home for life care commencing a few days after the contract was signed and delivered. Respondent received the agreed price from decedent and was bound to care for decedent for the rest of his natural life. Prior to the commencement of respondent's duty to care for decedent, the decedent passed away.

The rule of law applicable to these facts is well stated in Coyne v. Pacific Mut. Life Ins. Co., 8 Cal.App.2d 104, 47 P.2d 1079, hearing denied by our Supreme Court. In this case on May 9, 1932, ‘the defendant issued to Augustine S. Coyne an annuity policy of insurance by which it agreed to pay to him $90.10 on June 9, 1932, if then living, and a like amount on the ninth day of each and every month thereafter so long as he lived. He was then 66 years of age and the policy was issued in consideration of a single premium of $10,000, which amount he paid in cash. He died by suicide on May 26, 1932, and before the first monthly payment became due under the policy. This action was brought by the administrator of his estate to recover the amount paid for the policy. The court found in all respects in favor of the defendant and from the judgment entered the plaintiff has appealed’ (8 Cal.App.2d at page 107, 47 P.2d at page 1080).

‘The contention that there was no consideration for this contract because the death of the annuitant occurred before any payments to him became due, is entirely without merit. The respondent had agreed to pay $90.10 to him each month so long as he lived and this agreement constituted an ample consideration. The fact that death occurred before any such payments became due does not change the situation and the intestate ran the risk of such an event just as the respondent ran the risk that the contract might turn out to be unprofitable to it in the event the other party thereto outlived his normal expectancy’ (8 Cal.App.2d at page 109, 47 P.2d at page 1081).

I would affirm the judgment of the trial court.

DRAPER, Justice.

DOOLING, J., concurs.