Opinion
Rehearing Denied April 27, 1973.
Opinion on pages 462-472 omitted.
HEARING GRANTED
For Opinion on Hearing see 112 Cal.Rptr. 401, 519 P.2d 161.
[107 Cal.Rptr. 354]Paul A. Mason, Encino and Enright, Elliott & Betz, Norman Elliott, Los Angeles, for plaintiff and appellant.
Hutchinson & Irwin, Paul R. Hutchinson, James A. Irwin, Richard H. Hicks, Los Angeles, for defendants and respondents.
COMPTON, Associate Justice.
Beatrice and Elmer Boeseke were married in 1925. Their one daughter Gertrude was born in 1926. They separated in December 1942. During the separation period they remained on friendly terms and Elmer provided approximately $400 per month toward support of Beatrice and Gertrude.
On October 8, 1945, Elmer and Beatrice entered into a property settlement agreement and on november 16, 1945, Beatrice obtained a default interlocutory decree of divorce, which decree approved the property settlement agreement. Elmer later remarried, Beatrice never did.
Elmer died in October 1963, and his then wife Helen Boeseke and Neil S. McCarthy, attorney at law, were appointed executors of Elmer's estate.
On March 24, 1964, Beatrice filed this action against the executors to rescind the October 1945 property settlement agreement and to require an accounting and determination of her right to certain property held by Elmer. She claims that as a result of a fraud practiced on her by Elmer in connection with the property settlement [107 Cal.Rptr. 355] agreement she had been deprived of her proper share of the community property.
The trial court sustained a demurrer without leave to amend to the third amended complaint. The basis for the demurrer was the statute of limitations. Under Code of Civil Procedure section 338(4), the time limit is three years which period commences to run upon discovery of the facts constituting the fraud. Beatrice appealed and in Boeseke v. Boeseke, 255 Cal.App.2d 848, 63 Cal.Rptr. 651 (hrg. den. 1-11-68) this court reversed and remanded for a trial on the merits. We concluded at the time that Beatrice's pleadings were adequate to avoid the bar of the Statute of Limitations.
The trial has now concluded and from a judgment in favor of defendant, Beatrice has again appealed.
In rendering its judgment the court below filed a memorandum opinion and voluminous findings of fact and conclusions of law which, when narrowed to their basic thrust, demonstrate that the judgment is based on the bar of the Statute of Limitations.
Our task at this juncture is to determine whether the findings are supported by substantial evidence and if so whether under general legal principles and the law of the case (Boeseke, supra) the findings support the judgment.
As a prelude to consideration of the key findings relating to the Statute of Limitations issue we here set out the factual background as gleaned from the record and the findings.
Beatrice's attorney, Mr. Schaefer first contacted Elmer concerning a divorce in 1943, but no action was taken until January 1945, when negotiations concerning a property settlement began. Elmer consulted respondent Neil McCarthy, an attorney who was a close social friend of the Boesekes. Although McCarthy testified he did not represent Elmer as an attorney but merely advised the couple as a friend, the trial court found with ample reason that he had in fact acted as Elmer's attorney.
McCarthy and Beatrice's attorney negotiated from January until September of 1945. Meanwhile Beatrice and Elmer on numerous occasions communicated with each other on the subject without the assistance of their respective attorneys.
By the terms of the property settlement ultimately executed Elmer obtained all of the community property. In exchange he agreed to pay for the support of Beatrice and Gertrude the sum of $350 per month for four years. He further agreed that upon the expiration of the four year period or sooner, he would pay $70,000 into a trust fund for Beatrice, or in lieu thereof, one-half of all of the community property less a credit of $100 for each of the monthly payments already made.
Neither Beatrice nor her attorney made any investigation concerning the kind, extent or value of the property which Elmer had conceded to be all community in nature. This property consisted generally of real property in Santa Barbara and Huntington Beach, California, royalties from oil leases in Illinois and New Mexico, oil leases in Texas, Illinois, Wyoming and Canada, capital stock in a gas and oil corporation and various items of personal property. All of the property was listed with accompanying legal description in an appendix to the agreement.
Elmer who had always controlled their community property did not inform Beatrice of the value of any of the individual items of property mentioned but stated in substance that the property was worth in the aggregate approximately $200,000 and was heavily encumbered. He told her that he was unable to pay more than $350 a month for support of her and the daughter. Beatrice had no experience in business and was unfamiliar with the oil leases referred to in the agreement.
In fact the property had a net value of in excess of $300,000 and Elmer's gross earnings in 1945 were approximately $115,000. His net income as found by the court was $44,076.85 before depletion allowance [107 Cal.Rptr. 356] and he had an additional net income of $7,243.14.
Beatrice's attorney advised her not to sign the agreement. He was apparently not satisfied with the representation as to value of the property in the agreement and particularly objected to a draft provision proposed by Elmer disclaiming any representations as to value and declaring that each party was relying on his own individual investigation and judgment as to all matters contained in the agreement.
With matters at impasse during August 1945, Elmer warned Beatrice at the time of making his monthly payment that 'this will be the last payment that I will make until some definite future arrangement can be made with you and your attorney.'
Beatrice testified that she discharged her attorney because of Elmer's antipathy toward him and while the trial court found that actual discharge did not take place, nevertheless Beatrice on October 8, 1945, apparently against the advice of her attorney, went alone to McCarthy's office where she signed the agreement in the form prepared by her husband. The agreement contained the above mentioned disclaimer. At the time of the signing McCarthy stated to her that the proposed settlement was a 'just settlement if Elmer did not remarry.'
On November 5, 1945, Beatrice again went alone to McCarthy's office and signed all necessary deeds conveying to Elmer the property allocated to him under the agreement. At this time she unknowingly signed a quitclaim deed to two lots in Huntington Beach which had not been included in the agreement. These lots had a value of approximately $2,500. Mr. Schaefer was never thereafter shown the signed documents nor was he consulted as to their effect.
After four years Elmer requested and received a year's extension in depositing the money to the trust. By the following year only $17,361.46 had been credited to the trust and another extension was granted. Each such extension was given in response to Elmer's plea that he was financially unable to pay the money.
In 1951, when Elmer again pleaded inability to pay, Beatrice retained an attorney to enforce the terms of the trust whereupon Elmer promptly paid the sum of $50,000. Elmer who had remarried by this time told Beatrice that he had borrowed the money from his new wife.
Following Elmer's death in 1963, his daughter Gertrude made an examination of the probate file and ascertained that the estate was substantial and so informed Beatrice. An additional bit of information came to Beatrice's attention after Elmer's death when his former secretary advised her that as of the time of the execution of the property settlement agreement Elmer's income was $8,000 a month.
The trial court made the following very significant findings of fact. '. . . During the negotiations leading up to the execution of the property settlement, the parties were not dealing at arm's length. . . . The community property of the parties had always been under the control and management of decedent. Plaintiff had had no experience in business and was unfamiliar with the nature, extent or value of decedent's interest in the oil leases referred to in the agreement. . . . Decedent did not, at any time make a full and complete disclosure to plaintiff or her attorney of the nature, extent and value of the parties' community property, the encumbrances thereon or the amount of earnings therefrom or the amount of his earnings. . . . [D]ecedent obtained an advantage over plaintiff by virtue of the property settlement agreement. . . .'
In further findings of fact although denoted as conclusions of law the court found that 'The failure of decedent in the instant case to disclose fully and fairly the facts relating to the value, nature, and extent of the community assets, the earnings therefrom and the amount of his earnings, by virtue of which decedent gained an advantage over plaintiff, constituted a concealment of material facts and the breach [107 Cal.Rptr. 357] of a fiduciary duty, and is actual fraud. . . . The court finds that the fraud perpetrated by decedent in failing to fully disclose the nature, extent and value of the parties' community assets and the extent of his earnings was extrinsic rather than intrinsic and that plaintiff's clam is therefore, not barred by the doctrine of res judicata.'
With these findings, all of which are supported by substantial evidence, the trial court structured a case entitling plaintiff to relief but then, with another group of findings, cut the ground from under the structure. These latter findings consisted, in the main, of matters, knowledge of which, the trial court concluded, would have put Beatrice on inquiry to discover the fraud and start the Statute of Limitations running against her on the date she signed the agreement.
While the findings in this regard are couched in language to the effect that Beatrice gained her knowledge of the facts more than four years prior to filing her complaint, a careful analysis reveals that they relate to matters prior to the signing of the agreement.
Here follows a brief paraphrasing of some of the items which the trial court relied on in raising a duty of inquiry, the failure of which according to the trial court constituted a negligent omission.
1. Elmer's refusal to include a representation of value in the agreement and instead insisting on a disclaimer clause;
2. Beatrice's attorney's advice to her not to sign the agreement;
3. Figures contained in income tax returns which Beatrice signed for the years 1943, 1944 and 1945 showing that Elmer had substantial income and that the oil leases were valuable;
4. Beatrice's knowledge that the Federal Government had levied a delinquent assessment on the 1941, 1942 and 1943 income tax returns;
5. Elmer's advice to Beatrice in August 1945 that the Texas oil leases were producing a monthly gross income of $6,875 and that he was paying off a loan on the property at the rate of $5,000 per month.
Beatrice's testimony was to the effect that she signed income tax returns at Elmer's direction without examining them in detail and that she simply relied on his representation as to what the true value of the property was. This is not unreasonable or unusual.
This role of the trusting supplicant was shown in the fact that the parties did not deal at arms length during the negotiations when indeed Beatrice seems to have heeded her husband far more than her own attorney or even her own obvious desires. This attitude persisted during the years following divorce when the parties had frequent communication to the point apparently that Beatrice entertained hopes of reconciliation.
Given the complexities of the financing of speculative oil operations, the history of Elmer's exclusive control and domination of the family's financial affairs coupled with a fiduciary relationship, it cannot be said that Beatrice was unreasonable in her conduct. A delinquent tax bill conjures up a spectre of deficit as well as additional income and could be reasonably interpreted as consistent with Elmer's portrayal of constant fiscal emergency.
A husband is under a high fiduciary duty in dealing with his wife and must make full and fair disclosure of all that she should know for her protection or else should deal with her as a stranger, at arms length while giving her the opportunity of independent advice as to her rights. (Norris v. Norris, 50 Cal.App.2d 726, 123 P 2d 847.) The fiduciary relationship exists, however, even when the wife is represented by separate counsel during the entire negotiation for settlement. (Vai v. Bank of America, 56 Cal.2d 329, 15 Cal.Rprt. 71, 364 P.2d 247; Clark v. Clark, 195 Cal.App.2d 373, 15 Cal.Rptr. 863.)
In the instant case although the trial court found that Beatrice did not discharge her counsel as testified, there are [107 Cal.Rptr. 358] strong indications that the assistance of her counsel was greatly diluted by her husband's dominant role which was displayed in many instances of outright opposition to and dislike of her counsel.
In other words Elmer did not deal at arms length with Beatrice and independent counsel, nor did he make the full and fair disclosure required.
The Statute of Limitations starts to run upon discovery of the fraud and '. . . if it appears that the plaintiff had notice or information of circumstances which would put him on an inquiry which, if followed, would lead to knowledge, or that the facts were presumptively within his knowledge, he will be deemed to have had actual knowledge of these facts.' (Lady Washington C. Co. v. Wood, 113 Cal. 482, at 487, 45 P. 809, at 810.)
On the other hand, 'In a fiduciary relationship such as exists between husband and wife . . . one spouse has the unquestioned right to rely upon the direct representations of the other and there is no duty of inquiry.' (Boeseke v. Boeseke, 255 Cal.App.2d 848, 853-854, 63 Cal.Rptr. 651, 656.)
Where there is no prior duty to investigate, the Statute of Limitations does not run until the party has notice or knowledge of facts sufficient to put a reasonable man on inquiry. (Hobart v. Hobart Estate Co., 26 Cal.2d 412, 442, 159 P.2d 958.)
In Bennett v. Hibernia Bank, 47 Cal.2d 540, 305 P.2d 20, the Hobart rule is applied as follows, at page 563, 305 P.2d at page 35.
'Where there is no such duty, for example, because of the existence of a fiduciary relationship, a plaintiff need not disprove that an earlier discovery could have been made upon a diligent inquiry but need show only that he made an actual discovery of hitherto unknown information within the statutory period before filing the action.'
Even though Beatrice had no prior duty to make inquiry, the trial court purported to find that at the time she signed the agreement she was aware of facts which should have put her on notice. Yet by its finding that Elmer perpetrated a fraud at the time of the execution of the property settlement agreement, the trial court impliedly and necessarily found that Beatrice was justified in her reliance on Elmer's representations. Since that justifiable reliance existed in spite of the knowledge which the trial court sought by its later findings to impute to Beatrice, such knowledge lost its vitality in creating any duty of inquiry and was subsumed by the court's finding of fraud in the execution of the agreement.
Furthermore, even though a confidential, as opposed to fiduciary relationship, terminates with divorce of the parties, as long as one individual continues to control the property of another he is held to the duties of a fiduciary so long as he retains such control. (Via v. Bank of America, supra, 56 Cal.2d 329, 15 Cal.Rptr. 71, 364 P.2d 247.)
Thus Elmer's fiduciary duty of disclosure continued with his retention, as a constructive trustee, of the community property beyond the execution of the agreement, concomitantly perpetuating the lack of any duty on Beatrice's part to make inquiry. Nothing thereafter occurred to change the situation until Elmer's death and the actual discovery of the fraud.
Perhaps in anticipation of this result, defendants, although they prevailed in the trial court, attempt on this appeal to attack the trial court's finding that the fraud was extrinsic and the doctrine of res judicata inapplicable.
They argue that since Beatrice sought court approval of the agreement which approval was granted in the interlocutory decree of divorce, the property rights were finally and irrevocably adjudicated. Kulchar v. Kulchar, 1 Cal.3d 467, [107 Cal.Rptr. 359] 82 Cal.Rptr. 489, 462 P.2d 17; Jorgensen v. Jorgensen, 32 Cal.2d 13, 193 P.2d 728, are cited in support of defendant's position.
While the principles enunciated in those cases are identical, the facts of Jorgensen bear the closest analogy to the case at bar. There a wife sought to collaterally attack a decree of divorce which adopted and affirmed a property settlement agreement. She claimed that her husband had fraudulently represented as his separate property that which was in fact community. Relief was denied on the basis that the husband had disclosed the existence of all of the property and had simply assumed an adversary posture as to its status. Thus the matter was held to be res judicata.
The Jorgensen court stated, however, at page 21, 193 P.2d at page 733:
'As the manager of the community property the husband occupies a position of trust (Civ.Code, §§ 172-173, 158), which is not terminated as to assets remaining in his hands when the spouses separate. It is part of his fiduciary duties to account to the wife for the community property when the spouses are negotiating a property settlement agreement. The concealment of community property assets by the husband form the wife in connection with such an agreement is therefore a breach of a fiduciary duty of the husband that deprives the wife of an opportunity to protect her rights in the concealed assets and thus warrants equitable relief from a judgment approving such agreement.' (Emphasis added.)
'Whether the case involves intrinsic or extrinsic fraud or mistake is not determined abstractly. 'It is necessary to examine the facts in the light of the policy that a party who failed to assemble all his evidence at the trial should not be privileged to relitigate a case, as well as the policy permitting a party to seek relief from a judgment entered in a proceeding in which he was deprived of a fair opportunity fully to present his case.'' (Kulchar v. Kulchar, 1 Cal.3d 467, at 473, 82 Cal.Rptr. 489, at 492, 462 P.2d 17, at 21, quoting from Jorgensen v. Jorgensen, 32 Cal.2d 13, 193 P.2d 728.)
We see little distinction between the fraudulent concealment of community property assets and the fraudulent concealment of their true value and the status of the encumbrances and thus conclude that Beatrice is entitled to equitable relief.
The findings made in the trial court establish that upon execution of the agreement Elmer became a constructive trustee of Beatrice's share in the community property and continued as such until the time of his death. Since we have concluded that the action is not barred a duty to account devolved upon the executors.
The judgment is reversed and the trial court is directed to proceed with an accounting.
ROTH, P. J., and HERNDON, J., concur.