Opinion
Hearing Granted by Supreme Court May 5, 1927.
Appeal from Superior Court, Los Angeles County; Ralph H. Clock, Judge.
Action by G. E. Noll against Nich. G. Baida. Judgment for plaintiff, and defendant appeals. Reversed. COUNSEL
U. T. Clotfelter and Richard Hartley, both of Los Angeles, for appellant.
Neil S. McCarthy and Earl L. Banta, both of Los Angeles, for respondent.
OPINION
HOUSER, J.
This is an appeal from a judgment in a suit for rescission of a sale of certain Oriental rugs, whereby defendant was ordered to take back the rugs sold by him to plaintiff and to repay to plaintiff the purchase price thereof.
From the evidence it appears that some 5 or 6 months after the rugs were purchased by 625 plaintiff he began to suspect the truth of certain material representations which had been made to him by defendant in inducing the sale and upon which representations plaintiff had implicitly relied. Thereupon he obtained the advice of an expert on Oriental rugs and was by him informed in effect that the suspicions entertained by plaintiff were well founded and that the representations made to him by defendant were false and untrue; which fact plaintiff immediately reported to defendant and requested of him that he take back the rugs and return to plaintiff the consideration paid by him to defendant therefor. After considerable conversation between the parties, plaintiff concluded that, at least temporarily, he would let matters stand as they were. Plaintiff’s testimony on the subject of such conversation was that
"A. I told him that this large rug had faded, was fading, and he assured me it wasn’t, and I told him that it was getting lighter all the time. He told me that wasn’t fading; it was, I think he said it was dirty, or something like that, I don’t just-but he tried to assure me that it was not fading. I told him that I was dissatisfied with the rugs on account of that reason; I wasn’t going to do any more business with him. He told me at that time, he says, rather than have you dissatisfied, we will do what I said and take the rugs back and give you your money back. I said I wished him to do that, particularly with some of them, and then he cajoled me along until he got me believing he was honest about it. I says: ‘I am going to find out about this; I will let it go, but if I find they are wrong, then, I will call on you again, for I believe that I am right about the rugs fading."
So far as may be ascertained, that conversation took place about 7 months before plaintiff commenced the present action. Following such conversation, and up to the date of the trial of the action, plaintiff used the rugs in his home in the same manner as he had done before the conversation occurred. After the expiration of 7 months from the date of the first examination of the rugs, plaintiff had the rugs re-examined by a second rug expert, who also assured plaintiff that he had been deceived and defrauded by defendant in the sale of the rugs. Thereupon plaintiff served on defendant a notice of rescission of the sale and again demanded the return of the purchase price, which being refused, plaintiff commenced the action which resulted in his favor as hereinbefore set forth.
For the purposes of this decision only, it may be assumed that the evidence satisfactorily established the fraud committed by defendant on plaintiff-leaving for the consideration of this court the main contention made by appellant that through the delay of plaintiff in the commencement of the suit he was precluded from obtaining any equitable relief.
The right to rescind a contract for fraud in its procurement depends primarily upon the promptness with which the injured party acts in the essentials of the remedy after having obtained either actual knowledge of the facts from which the fraud will be inferred, or knowledge of facts and circumstances sufficient to put a prudent man on inquiry with reference thereto. Section 1691 of the Civil Code, among other things, provides as follows:
"Rescission, when not effected by consent, can be accomplished only by the use, on the part of the party rescinding, of reasonable diligence to comply with the following rules: (1) He must rescind promptly, upon discovering the facts which entitle him to rescind. ***"
Under the provisions of section 19 of the Civil Code:
"Every person who has had actual notice of circumstances sufficient to put a prudent man upon inquiry as to a particular fact, has constructive notice of the fact itself in all cases in which, by prosecuting such inquiry, he might have learned such fact."
It is therefore apparent that the foundational prerequisite of the law requiring that appropriate action be taken on the part of the party to the contract desiring to rescind it is that he have either personal knowledge of the facts constituting the fraud that has been practiced upon him, or that he have the ready means of obtaining such facts.
With reference to the fraud of defendant, the evidence herein shows that after the suspicions of plaintiff had been aroused he consulted a rug expert, who confirmed plaintiff in his misgivings that the rugs were not as defendant had represented them to be. It is therefore manifest that from his own knowledge of facts with reference to the fading of the color of the rugs to which plaintiff gave testimony, together with the assurance by a man fully qualified in the business, plaintiff had "actual notice of circumstances sufficient to put a prudent man upon inquiry" as to whether he had been defrauded. The time of acquiring such constructive knowledge of the actual facts relating to the quality and manufacture of the rugs was at least 7 months before suit was commenced for the rescission of the contract. The first question, then, is as to whether the suit was commenced with sufficient promptness after discovery of the facts constituting the fraud in order that the requirement of the law in that regard be satisfied.
Authorities in this state are not lacking to the effect that too great a time elapsed between the date of the constructive discovery of the facts constituting the fraud and the time when the suit for rescission was commenced. Without narrating the details of the several cases, it may suffice to state that in Bailey v. Fox, 78 Cal. 389, 20 P. 868, a delay of 4 months was held too great; in Marten v. Burns Wine Co., 99 Cal. 355, 33 P. 1107, 3 months’ delay was held too long; in Gamble v. Tripp, 99 Cal. 223, 33 P. 851, in the absence of some excuse therefor, 4½ months’ delay was held fatal. In the case of Schneider v. Henley, 61 Cal.App. 758, 215 P. 1036, the delay was for a period of about 6 months; held too long. In the course of the opinion, it is said:
"From an examination of authorities, it would appear that 30 days is about the utmost length of time which the courts are disposed to allow to the purchaser for rescission unless there are unusual circumstances in the case excusing longer delay."
See, also, Delano v. Jacoby, 96 Cal. 275, 282, 31 P. 290, 31 Am. St. Rep. 201.
In connection with the issue of promptness, the trial court found:
"That promptly on the discovery of the falsity of said representations which, as aforesaid, had induced plaintiff to make the purchase of said eight Oriental rugs, plaintiff rescinded said contract of purchase of the said eight rugs. ***"
It is contended by respondent that such a finding is conclusive on the point, and in support thereof he has cited French v. Freeman, 191 Cal. 579, 589, 217 P. 515, 519, where it is stated by the court that
"Whether or not the defrauded party has rescinded ‘promptly’ will depend upon all the circumstances of the particular case, and is, of course, a question primarily for the trial court."
The Supreme Court, however, thereupon proceeds to discuss the evidence relating to the promptness with which the plaintiff in that case acted on discovery of the alleged fraud, and from such evidence concludes that the trial court was justified in holding that the plaintiff offered to rescind within a reasonable time after the discovery of the facts which entitled him to rescind; from which circumstances it may be inferred that the Supreme Court did not consider itself concluded by the decision reached by the trial court with reference to the matter.
It is clear that the conclusion of promptness may be either one of law or of fact, or of both law and fact. If the facts respecting the determination of whether promptness has been exercised are in dispute-that is to say, that the evidence relating thereto is conflicting-without doubt the decision as to the truth upon which the conclusion of promptness depends is a matter which rests exclusively with the trial court. But if it appear that the facts are not controverted, or that they are covered by stipulation of the parties to the action, under such circumstances the conclusion as to whether they constitute promptness is purely one of law, which, if made by the trial court, cannot be binding upon the appellate tribunal. That such is the case, or at least that the question has been so considered, is made manifest by the numerous decisions (to some of which attention has been directed herein) which hold that the several delays respectively in those cases did not constitute promptness within the law relating thereto. Were the question of promptness always one for the conclusion of the jury or the trial court, it would be difficult, if not impossible, to ever obtain a ruling in an appellate court as to whether promptness had been exercised in any case. In the instant case no controversy exists as to the facts having to do with the determination of whether plaintiff rescinded the contract promptly upon discovering the facts which entitled him to rescind. His own testimony was:
That it occurred "probably in January. *** I am not even sure that it wasn’t the last part of 1921. It was during the winter, during the winter. *** It might be February; I wouldn’t say that it was either one of those two months.
"Q. Not later than February, 1922? A. I don’t think so, but it might have been March, but I don’t think so; I think Mr. Baida could tell you just when it was, because it was at the time when he was negotiating an exchange for a rug that time, and he might know when it is."
And Mr. Baida, who, plaintiff said, could tell "just when it was," fixed the time as not later than the month of November preceding the date about which plaintiff was so uncertain and which date, thus determined, was at least 7 months before the suit was commenced. The trial court found no facts upon which to base its conclusion, its determination being merely, as hereinbefore stated:
"That promptly on the discovery of the falsity of such representations, *** plaintiff rescinded said contract. ***"
In the premises, such finding was more in the nature of a conclusion of law, rather than a determination of an ultimate fact. But even if it may be considered as a finding of fact, in view of the state of the record herein, it may be subjected to the criticism that it is not supported by the evidence.
It is clear that in enforcing either a right or a remedy provided by statute the person seeking such relief should have the burden of showing that he has complied with the terms of such statute. One of the statutory requirements which must be met by one who seeks the rescission of a contract is that he act "promptly upon discovering the facts which entitled him to rescind." Section 1691, Civ. Code. In other words, after a discovery of the facts, promptness on the part of the plaintiff in bringing his action is a condition precedent to his right to maintain it.
The authorities construing the statute are numerous. On the point that the burden is on the plaintiff to establish the fact that he has complied with the terms of the statute, rather than that proof of his failure to do so rests with the defendant, the following authorities appear to be pertinent:
In the case of Bancroft v. Bancroft, 110 Cal. 374, 42 P. 896, the plaintiff sought damages for fraud arising through the undue influence of the defendant in inducing the plaintiff to enter into a certain contract for the sale of stock in a corporation. A demurrer to the complaint in the action was sustained, and, the plaintiff having declined to amend the complaint, judgment was rendered for the defendant and the plaintiff appealed therefrom. It appears that the complaint was filed 19 months after the alleged cause of action accrued. No offer to rescind was ever made by the plaintiff. In affirming the judgment, among other things, the court said:
"But, in addition to this negative [other] authority, it is clear upon principle that this present action should not be maintained, because to maintain it would be to violate the wholesome and fundamental doctrine that in such a case the party claiming to be aggrieved must promptly rescind, or offer to rescind, so as to put the other party in statu quo. ***"
Chief Justice Beatty, in a concurring opinion, said, in part:
"He [the plaintiff] had the choice to affirm it or to rescind it, and it appears that he affirmed it by failing to rescind promptly when freed from the undue influence by which his consent was obtained."
The case of McDougall v. Roberts, 43 Cal.App. 553, 185 P. 483, was one for rescission on the ground that undue influence had been exercised by the defendant in inducing the plaintiff to enter into a contract. The trial court sustained a demurrer and denied plaintiff leave to amend the complaint. The defendant had judgment and the plaintiff appealed. An opinion written by the judge of the superior court (later Chief Justice of the Supreme Court) was adopted by the Court of Appeal as its opinion on the appeal. Having to do with the question of promptness of the plaintiff in rescinding the transaction, the following language appears therein:
"Prompt rescission and offer of restitution are essential to a recovery on the ground of undue influence. Neither is alleged in the complaint, and hence the complaint fails to state a cause of action for undue influence. ***"
In the case of Brown v. Domestic Utilities Mfg. Co., 172 Cal. 733, 737, 159 P. 163, 164, the court quotes with approval from McGue v. Rommel, 148 Cal. 539, 547, 83 P. 1000, 1003, where it is said:
"While it is true that, where a rescission in pais under section 1691 is relied on, the party rescinding need not show that he has restored that which is worthless, yet he must always show that he has complied with the requirement to rescind promptly, and this implies some notice to the other party of such determination to extinguish the contract"-citing cases.
It is a cardinal rule of both pleading and trial that the plaintiff is obliged to plead and prove respectively every allegation necessary to the maintenance of his action. By judicial construction of the statute the element of promptness on the part of the plaintiff is made an essential, not only in the matter of allegation of the complaint, but, as inevitably flowing therefrom, in the evidence adduced by the plaintiff in support of such allegation. Before he has a right to maintain an action for rescission of a contract or ultimately to succeed therein, it must at least affirmatively appear that he has acted with that promptness which is demanded by the statute. No express duty is incumbent upon the defendant in the action in connection with such requirement on the part of the plaintiff. So far as the statutory requirement is concerned, the defendant has no more immediate concern with the proper averment of the plaintiff regarding promptness upon the discovery of the facts than he has with any other essential allegation contained therein. He may either admit it or deny it; and, if he deny it, the burden necessarily devolves upon the plaintiff to prove it.
In the instant case, that plaintiff assumed the burden thus cast upon him is made manifest in his pleading, to wit:
"That promptly on the discovery of the falsity of said representations which, as aforesaid, had induced plaintiff to make the purchase of said eight Oriental rugs, plaintiff rescinded said contract of purchase of the said eight rugs and notified the defendant that plaintiff had rescinded the same. ***"
And that defendant recognized the true position of the plaintiff in the matter is shown by his allegation in the answer in which he denied "that plaintiff, promptly or otherwise, on the alleged discovery of the alleged falsity of said alleged representations, rescinded said contract. ***"
The issue of "promptness" on the part of plaintiff was thus clearly drawn, and the finding (or conclusion of law) by the trial court thereon, as hereinbefore set forth, was in the exact language of plaintiff’s allegation with reference thereto.
Based upon the decisions of the courts of this state, to which reference has been had, we conclude that it is competent and proper that this court pass upon the question of what constitutes "promptness," and whether the finding thereon is supported by the evidence. From what has heretofore appeared herein it is apparent that the proof failed: that the finding in effect that plaintiff had rescinded promptly on discovering the facts was not supported by the evidence; and that no sufficient excuse was shown for the delay in bringing the action.
Several other questions of importance are presented in the briefs filed herein by respective counsel for the appellant or respondent; but, as the question which has been discussed herein is determinative of the rights of the parties to the litigation, it becomes unnecessary to devote further attention to the appeal.
It is the order of this court that the judgment be and it is reversed.
We concur: CONREY, P. J.; YORK, J.