Opinion
Rehearing Granted Sept. 29, 1930.
Appeal from Superior Court, San Diego County; S.M. Marsh, Judge.
Action by Arline Ruth Winstanley against Morris Ackerman. Defendant by supplemental answer pleaded a release, and, from a judgment for plaintiff, avoiding the release on the ground of fraud, defendant appeals.
Reversed.
COUNSEL
George L. Greer, of Los Angeles, and Titus & Macomber, of San Diego, for appellant.
Edward J. Kelly, of San Diego, for respondent.
OPINION
AMES, Justice pro tem.
The plaintiff in this action is the surviving wife of Joseph Vincent Alexander Winstanley, deceased. She instituted this action for the recovery of damages for his death, alleged to have been caused by the negligent and careless driving of an automobile by defendant. In his answer the defendant denied negligence and pleaded contributory negligence on the part of the plaintiff. After the case was at issue, the defendant, by leave of the court, filed a supplemental answer in which it was alleged that, since the filing of the original answer, plaintiff and defendant had made and entered into an accord and satisfaction, fully and finally settling and satisfying any and all claims of the plaintiff against defendant. A copy of this release is attached to the supplemental answer as an exhibit thereto. In said release it is recited that, in consideration of the sum of $1,250, plaintiff released and discharged defendant of, and from, any and all claims on account of, and arising out of, the accident on which the claim for damage is based. The case was tried before the court without a jury, and, on the issues of negligence and contributory negligence, the court found in favor of the plaintiff and against the defendant. On the issue tendered by the allegations in the supplemental answer, the court found that said release had been executed, and that defendant had paid to the plaintiff the said sum of $1,250, but that said accord and satisfaction was null and void and of no effect, for the reason that the same was procured by the defendant by fraud and deceit and undue influence practiced upon the plaintiff by the representatives of the defendant.
The court further found that, at a time prior to the accident which resulted in the death of plaintiff’s husband, an agent of the Pacific Indemnity Company had written a policy of insurance for the protection of the defendant against financial loss in any accident occurring through his negligent driving of an automobile; that on the 10th day of February, 1928, and after the filing of the original answer in said action, an agent of the Pacific Indemnity Company took the plaintiff to the office of the attorney for the defendant; that she was then and there importuned to settle her claim against the defendant for $1,000; that plaintiff and said agent of the Pacific Indemnity Company were directed by said attorney to the office of an agent and representative of said company, where plaintiff was again importuned and urged to settle her claim for $1,000; this she declined to do; that thereafter, and on or about the 14th day of February, 1928, the agent of the indemnity company again called upon the plaintiff, and, by means of false and fraudulent representations made to her, induced her to accept the sum of $1,250 as a final settlement of her claim.
The court further found that the plaintiff had explained to the agents’ servants, representatives, and attorneys of the defendant that she was poor and destitute; that they were well aware of said facts; that the plaintiff was nervous and neurasthenic, and that they then and there practiced undue influence upon her, in this, that they took an unfair advantage of her weakness of mind, and in that they took a grossly oppressive and unfair advantage of her necessities and distress; that, in her reliance upon the truth of these representations, plaintiff accepted the sum of $1,250 and executed the accord and satisfaction as aforesaid.
The court further found that by reason of the death of her husband plaintiff had been damaged in the sum of $7,500, and, crediting that amount with the sum of $1,250 which had been paid her on said settlement, entered its judgment for the balance of $6,250. From this judgment defendant appeals upon the judgment roll alone.
The principal point relied upon by the appellant, and which we think is controlling, is that there is no finding of any offer of payment, or tender of a return of the said sum of $1,250 to the defendant, or any finding of a rescission of said accord and satisfaction. It is true that there is no such finding in the record, nor does the record disclose any offer of rescission or tender of benefits of said contract at the trial of said action. After the filing of the supplemental answer, the plaintiff did not file an affidavit denying the execution of the said agreement as provided in section 448 of the Code of Civil Procedure. And, having failed to deny its execution, it was open to plaintiff, without further pleading, to introduce evidence to sustain any legitimate defense thereto except want of genuineness or due execution. Code Civ.Proc. § 462; Baird v. Pacific Electric Co., 39 Cal.App. 512, 179 P. 449, 451; Garcia v. California Truck Co., 183 Cal. 767, 192 P. 708, 710. "An obligation is extinguished by a release therefrom given to the debtor by the creditor, upon a new consideration, or in writing, with or without a new consideration." Civ.Code, § 1541. But any rights asserted under such release are subject to the equitable defense of fraud, misrepresentation, or undue influence. Section 1566 of the Civil Code is as follows: "A consent which is not free is nevertheless not absolutely void, but may be rescinded by the parties, in the manner prescribed by the chapter on rescission."
Section 1691 of the Civil Code prescribes that the rescission of a contract when not affected by consent can be accomplished only by the use, on the part of the party rescinding, of reasonable diligence to comply with certain specified rules, one of which is that "he must restore to the other party everything of value which he has received from him under the contract; or must offer to restore the same," etc. Admittedly, no such tender or offer was made in this case.
In the case of Garcia v. California Truck Co., supra, the facts were similar to the case at bar, and the question before the court was as to the necessity of a tender of the amount of money which had been paid to plaintiff in consideration of the execution of a release. In that case the court quoted with approval from Fox v. Hudson, 150 Ky. 115, 150 S.W. 49, Ann.Cas.1914A, 832, as follows: "Where the claim is for unliquidated damages, or when the settlement is made to adjust a matter in dispute, or where there is a controversy as to the amount owing, and the parties agree upon a sum that shall be paid in settlement, the amount so paid must be returned, if the party settled with seeks to avoid the settlement on the ground of fraud. But when there is no dispute as to the sum due, and the creditor is induced by fraud to accept a less amount than his whole debt, he may attack the settlement without returning what he has received."
And further in this case, at page 771 of 183 Cal., 192 P. 708, 710, the court said: "As stated in the case of Kley v. Healy, 127 N.Y. 555, 561, 28 N.E. 593, 595, cited approvingly in Matteson v. Wagoner, supra [147 Cal. 739, 82 P. 436], the rule is as follows: ‘A more satisfactory answer, however, may be found in the principle that one who attempts to rescind a transaction on the ground of fraud is not required to restore that which in any event he would be entitled to retain either by virtue of the contract sought to be set aside, or the original liability.’ "
In the instant case, at the time of the execution of the release, defendant had filed an answer denying his liability, and that issue was wholly undetermined, and the amount of such liability, if any, was necessarily unliquidated. And, while a creditor is not required to restore that which in any event he would be entitled to retain, it cannot be said that the plaintiff in this case had retained only that which, without dispute, belonged to her. The court in the case last cited distinguishes between that case and Meyer v. Haas, 126 Cal. 560, 58 P. 1042, 1043, cited by respondent herein, where the plaintiff was induced to execute, for $25, a release of all claims on account of his injuries, having been induced by fraud to believe that he was discharging only such claim as he might have had for loss of time. But the plaintiff, it was said, was "not attempting to avoid a contract which he has made, but is showing that he did not make the contract which he apparently made." The written contract was held void ab initio, because the release which was actually executed was not the release that the plaintiff intended to execute.
The cases cited by respondent are not in point. In Rued v. Cooper, 119 Cal. 463, 51 P. 704, the plaintiff, as assignee of an insolvent debtor, sued to recover money which had been paid by said debtor under a void contract for the purchase and sale of stock on margin, and judgment for the defendant was reversed for the reason that there was no proof of any agreement to settle a claim for the money illegally paid, or that the illegality of such claim was even known to or considered by the parties in any manner in executing the release involved in that case.
The case of Richards v. Fraser, 122 Cal. 456, 55 P. 246, 247, was an action to recover money fraudulently obtained from plaintiff by defendants, some of whom had been his copartners. The defendants pleaded a release, but it was held that an offer to rescind and restore the consideration for the release was unnecessary because, under the facts, the plaintiff would in any event have been entitled to retain such consideration. Quoting with approval from Gilson, etc., Co. v. Gilson, 47 Cal. 597, the court said: "One who attempts to rescind a transaction on the ground of fraud is not required to restore that which, in any event, he would be entitled to retain."
In Baird v. Pacific Electric Co., supra, a judgment of the superior court was reversed because the court refused to permit the plaintiff to introduce any evidence, for the reason that release from liability had been pleaded by the defendant, the execution and genuineness of which had not been denied. The superior court apparently assumed that plaintiff was relying upon some defense which he could not be permitted to maintain without first tendering back to the defendant the money he had received in consideration of such settlement. But the appellate court could find nothing in the record to justify such assumption. The court said: "If his evidence would have disclosed a total incompetency to enter into a settlement, and a continuing and permanent disability in that respect, these releases became mere ‘scraps of paper’ (Civ.Code, § 38); and it is well settled that no obligation to repay money advanced on the settlement as a condition of controverting the agreements would exist. Or, even if the disability was only partial and temporary, and it should be shown in evidence that the settlement was obtained by fraud and deceit as to the contents of the agreements and their legal effect, or, again, if a state of facts existed where, in his weakened mental state, the plaintiff was induced by fraudulent representations to sign these releases, in the belief that he was being paid so much on account, he could not be required to tender back the payments as a condition of offering evidence to defeat the agreed settlement."
The findings in the case at bar do not disclose the fact that the plaintiff was so devoid of understanding as to render her contract of release a nullity. Section 38 of the Civil Code is as follows: "A person entirely without understanding has no power to make a contract of any kind, but he is liable for the reasonable value of things furnished to him necessary for his support or the support of his family."
It was found by the court that plaintiff had explained to the defendant, his attorneys and representatives, that she was poor and destitute. The court also found that she was nervous and neurasthenic. Obviously, nervousness and neurasthenia do not constitute mental incompetency to such an extent as to render the transaction void ab initio, even though the transaction may be avoided by a timely rescission and tender of benefits received. We think the failure of plaintiff to rescind or to tender the benefits of the contract of release are fatal to her recovery.
However, we feel constrained to say that we have reached the conclusion, herein expressed, with some degree of reluctance, and we do not wish to be understood as placing the stamp of judicial approval upon such practices as are disclosed by the record in this case. The practice of an insurance adjuster, disregarding and ignoring counsel for the plaintiff, and dealing with the plaintiff herself, and importuning her to effect a settlement which may be wholly inadequate, should meet with severe censure from the bench and bar of this state, and an attorney who would countenance such practice is justly chargeable with conduct which is unethical and unprofessional in the extreme.
Judgment is reversed.
We concur: CARY, P.J.; BARNARD, J