Stone v. Superior Court , 214 Cal. 272 ( 1931 )

I dissent. The effect of the majority opinion is to disregard settled principles of law and to overrule many well-considered cases. It has been held on numerous occasions by this court, as well as by the District Court of Appeal, that rescission is complete upon the giving of notice and the offer to restore the consideration received. The decisions are reviewed in McNeese v. McNeese, 190 Cal. 402 [213 P. 36, 37], where Mr. Justice Lennon says (p. 404): "The interposition of a court of equity to set the contract aside was not necessary to rescission. A contract may be rescinded by the act of the party entitled and desiring to rescind. It is well recognized that sections 1688,1689 and 1691 of the Civil Code provide for rescission effected by the act of the parties." To the same effect, see Ito v.Watanabe, 213 Cal. 487 [2 P.2d 799]; Hull v. Ray,211 Cal. 164 [294 P. 700]; Hogberg v. Landfield, 99 Cal.App. 360 [278 P. 907]; House v. Piercy, 181 Cal. 247, 251 [283 P. 807]; Prewitt v. Sunnymead Orchard Co., 189 Cal. 723, 732 [209 P. 995]; Swanston v. Clark, 153 Cal. 300, 303 [95 P. 1117]; Lemle v. Barry, 181 Cal. 1, 5 [183 P. 150];American Type Founders' Co. v. Packer, 130 Cal. 459 [62 P. 744]; Winkler v. Jerrue, 20 Cal.App. 555, 561 [129 P. 804]; Loaiza v. Superior Court, 85 Cal. 11, 31 [20 Am. St. Rep. 197, 9 L.R.A. 316, 24 P. 707]. It is likewise well settled that upon such rescission, there is an obligation implied by law to return the money paid. See, in addition to the above cases,Fitzhugh v. University Realty Co., 46 Cal.App. 198 [188 P. 1023]; Hammond v. Ocean Shore Development Co., 22 Cal.App. 167, 172 [133 P. 978]; Orton v. Privett, 202 Cal. 754 [262 P. 713]; Macowsky v. Irvine, 71 Cal.App. 77 [234 P. 839]. The majority opinion apparently holds that the mere pleading of facts showing fraud in the inducement of the agreement avoids the effect of these doctrines, and in so holding it directly contradicts express language in those cases as well as in the cases chiefly relied upon in the opinion, namely, San Francisco Iron Metal Co. v. Abraham, 211 Cal. 552 [296 P. 82], and Powers v. Freeland, 114 Cal.App. 146 [299 P. 736]. Furthermore, it repudiates the principles set forth in the leading case of Willett Burr v. Alpert,181 Cal. 652 [185 P. 976].

There is no uncertainty in the principles which apply to the situation presented by this case. The complaint alleges that plaintiff entered into a contract with defendant, for the transfer of certain property. It also alleges two distinct grounds for rescission: Fraudulent misrepresentations and total failure of consideration. (Cal. Civ. Code, sec. 1689) Plaintiff might have elected to sue for damages for the deceit, but instead contented herself with rescission, and suit for recovery of the money paid. These alternative remedies have always been recognized by the courts of this state. (See Paolini v.Sulprizio, 201 Cal. 683 [258 P. 380]; Fitzhugh v.University Realty Co., 46 Cal.App. 198 [188 P. 1023].) Our statutes, indeed, make specific provision for them. Fraud which induces the execution of a contract gives rise to an action in tort for deceit in which damages are recoverable (Cal. Civ. Code, sec. 1709), but it also prevents the necessary mutual assent and is ground for rescission. (Cal. Civ. Code, sec. 1689) The complaint in the instant case leaves no doubt as to which remedy was chosen. Plaintiff alleges facts showing that the foundation was laid for rescission by notice and offer to restore the stock; and she seeks the return of the money she paid. It is impossible to construe this as anything but an action to recover money paid under a contract, based upon a rescission of the contract. It is not, as the majority opinion states, an action for "equitable relief", nor is it an action "sounding in fraud and deceit". Regardless of which count is viewed, it is an action on implied contract.

The cases cited in the majority opinion are in complete harmony with this view. Hallidie v. Enginger, 175 Cal. 505 [166 P. 1, 3], was, as the court described it (p. 509): "An action exdelicto for fraud. At common law it would have been an action of trespass on the case for damages for deceit. . . . That it is such an action no doubt can be entertained." There was no allegation of a prior rescission of the contract, and the suit was not brought to rescind. Obviously, there could not in such a case be an implied contract to constitute the basis for an attachment. The decisions relied upon in the Hallidie case, and cited in the majority opinion, are likewise inapplicable. In Babcock v. Briggs, 52 Cal. 502, plaintiffs entrusted money to their clerk, and he lost it at cards to the defendants. The court summarily held that no attachment could lie on these facts, apparently because the action was in tort, for conversion. There was no contract, and the attempt to "waive the tort" was not a valid means of securing the benefits of the attachment statute. This principle is reaffirmed in San Francisco Iron Metal Co. v. Abraham,supra, but it has nothing to do with a situation where, as here, the remedy in tort is not waived, but the alternative remedy of rescission and recovery of consideration on implied contract is selected. Walker v. McCusker, 65 Cal. 360 [4 P. 206], held that the liability of a tenant in possession of real estate, to the purchaser at a foreclosure sale, "is a statutory liability merely, and exists without the assent of the person in possession. It is not a liability founded on a contract express or implied. . . ." Plainly, such a liability will not authorize an attachment. But the liability of the defendant to pay money obtained under a contract, after rescission by the plaintiff, has been repeatedly held to be a liability in implied contract.Mudge v. Steinhart, 78 Cal. 34 [12 Am. St. Rep. 17, 20 P. 147], was concerned with an action for damages for fraud and deceit. It was admittedly not based upon a contract, express or implied, and the main question was whether it was sufficient to obtain jurisdiction over a nonresident by attachment of property within this state. In Bechtel v. Chase, 156 Cal. 707 [106 P. 81], the plaintiff's cause of action was based upon fraud. The court pointed out that he had alternative remedies (p. 711); "The plaintiff might proceed in any one of various ways to seek relief for the fraud practiced upon him in inducing him to exchange his notes for worthless stock. He might rescind thetransaction and recover the notes which he had been induced toturn over; he might perhaps, treating the transfer of the notes as void, recover them or their value without rescission. (Wendling Lumber Co. v. Glenwood Lumber Co., 153 Cal. 411 [95 P. 1030].) He might bring an action for the deceit practiced upon him and recover such damage as he could show to have been suffered by him." But the plaintiff did not elect to rescind; his pleading showed an affirmance of the contract. The court therefore held that he had no cause of action in implied contract (p. 712): "No contract will be implied by the law as against an express contract notdisavowed by either party. So long as plaintiff treats thetransfer of the notes to Foster as valid, his only remedy for the fraud alleged by him is by means of an action in tort to recover damages therefor." (Italics ours.)

The same distinction, which is the essential point in the instant case, is made in the case declared by the majority to be precisely in point, namely, San Francisco Iron Metal Co. v.Abraham, supra. The court there said (p. 273): "It nowhere appears that the plaintiff rescinded the partnership contract, offered to rescind it, nor even at this time, offers to place the defendant in statu quo."

In this connection it must be remembered that failure of consideration is one of the statutory grounds for rescission; and we might disregard all of the allegations of fraud and the complaint would still state a cause of action based upon rescission, since it alleges that the stock received was of no value. (Cal. Civ. Code, sec. 1689, subds. 2, 4; Lasher v.Faw, 209 Cal. 726 [289 P. 821]; Brown v. National ElectricWorks, 168 Cal. 336 [143 P. 606]; Field v. Austin,131 Cal. 379 [63 P. 692].)

Finally, it is well settled that even though no attempt to rescind is made, upon total failure of consideration an implied promise arises to return the consideration paid by the aggrieved party. (Santa Clara etc. Fuel Co. v. Tuck, 53 Cal. 304;Rose v. Foord, 96 Cal. 152 [30 P. 1114]; Hayes v. Countyof Los Angeles, 99 Cal. 74 [33 P. 766]; Richter v. UnionLand etc. Co., 129 Cal. 367, 373 [62 P. 39]; Hogberg v.Landfield, 99 Cal.App. 360 [278 P. 907].) That this implied promise furnishes the basis for attachment is obvious, and it was so held in Santa Clara etc. Fuel Co. v. Tuck, supra, where the court said (p. 305): "The authorities appear to be uniform to the effect that where a sum of money has been paid upon a consideration which has entirely failed, the law implies a promise to refund it. On the facts stated in the complaint there was, therefore, an implied contract for the direct payment of money, which brings the case within the very terms of the statute defining the cases in which an attachment may issue." In Powers v.Freeland, supra, upon which the majority opinion places great reliance, the foregoing case was expressly approved, and the "salutary principle" was conceded to be sound, but was deemed inapplicable because the complaint showed on its face that the plaintiff had received something of value, and therefore that the consideration had not wholly failed.

The whole situation is reviewed and the distinctions clearly made in Willett Burr v. Alpert, 181 Cal. 652, 661 [185 P. 976, 979]: "It may be well to point out the distinction between the present and such cases as S.C.V. Peat Co. v. Tuck,53 Cal. 304, cited by appellant, where, upon a failure ofconsideration, or a breach of contract followed by rescission,the plaintiff sues to recover, not damages, but the money he haspaid under the contract. Such an action proceeds upon the theory that the defendant has received money which should be returned by him to the plaintiff and which, therefore, the law implies a promise on his part to return, and the action for its recovery may, therefore, take the form of indebitatus assumpsit. But where, as in the present case, there is neither an entire failure of consideration nor a rescission of the contract so as to entitle the vendee to recover back his money, with the result that he is limited to his remedy of damages, or where there has been an entire failure of consideration and the vendee yet elects not to recover his money, but to recover damages, the action does not proceed upon any theory of the defendant having received money which he should return to plaintiff and which the law can, therefore, imply a promise on his part to return, and soindebitatus assumpsit will not lie." (Italics ours.)

The attachment was proper, and the writ of mandate should not issue.

Seawell, J., and Preston, J., concurred.

Rehearing denied.

Langdon, J., Seawell, J., and Preston, J., dissented.