Opinion
Rehearing Denied Aug. 15, 1930
Hearing Granted by Supreme Court Sept. 25, 1930
Appeal from Superior Court, San Diego County; Charles C. Haines, Judge.
On rehearing.
Former opinion and judgment below reversed, with instructions.
For former opinion, see 286 P. 463. COUNSEL
Wright & McKee and C.M. Monroe, all of San Diego, for appellants.
H.V. Richardson and Stickney & Stickney, all of San Diego, for respondents.
OPINION
BARNARD, J.
This is an action for rescission. Briefly stated, the facts are as follows: One R.M. Fowlks was the owner of two separate pairs of lots in the city of San Diego. He gave to one Earl Taylor, a licensed real estate broker, a written exclusive right to sell said lots at a net price to the owner of $3,000 for each pair, or $6,000 for the whole thereof. On May 27, 1926, said Taylor gave a written option to C.E. Hamilton, of the real estate copartnership of Hilton & Hamilton, to buy both pairs of lots for $7,000. Hamilton negotiated a sale of one pair of the lots to Roscoe Porter and Johnston O. Miller, the plaintiffs herein, for $7,000, making certain representations as to the lots. Said plaintiffs paid $500 down and agreed to pay the balance of the purchase price in certain installments. Hamilton then discovered that Taylor did not own the lots but was representing Fowlks as agent. Thereafter Taylor, presumably at the request of Hamilton, went to Fowlks and told him that he had made an agreement to sell all the lots to Hilton & Hamilton for $7,000 upon certain terms, and that Hamilton was selling one pair of the lots to Porter and Miller for the same total consideration of $7,000, upon somewhat different terms. Taylor proposed that Fowlks accept the $500 which had been paid by plaintiffs; that he execute his deed for one pair of lots to Porter and Miller, and accept their three notes for the balance of $6,500 secured by a trust deed on that pair of lots; that without further consideration he deed the other pair of lots direct to Hilton & Hamilton. Fowlks being unwilling to consummate the deal without keeping his security on both pairs of lots,, made a counter proposition that he would deed one pair of the lots to Porter and Miller, taking $500 in cash and a trust deed on this pair of lots securing three notes, one for $1,000 and two for $2,750 each; that he would deed the other two lots direct to Hilton & Hamilton, they to give him a note for $2,750 secured by a trust deed upon this pair of lots; and that he in turn would assign and deliver to Hilton & Hamilton one of the notes for $2,750 executed by the plaintiffs. Thus, if Miller and Porter paid all of their notes, the result would be the same, Hilton & Hamilton getting the other pair of lots without expense to them. The deal was carried out in this manner, without the plaintiffs knowing anything about the other part of the transaction. Later the plaintiffs learned that fraudulent representations had been made by Hamilton in selling them the lots, and also learned of the other part of the deal, by which one pair of the lots had been conveyed to Hilton & Hamilton. Thereupon the plaintiffs brought this action to rescind the transaction, to cancel their outstanding notes, and to recover back the cash paid. The court found that the sale to the plaintiffs had been induced by fraud on the part of Hamilton, and that the plaintiffs were entitled to relief, but also found that the defendant Fowlks did not know of the false and fraudulent representations made by Hamilton, that Hamilton was not and never had been acting for him as agent in the transaction, that he was an innocent party, and that his acts did not amount to a ratification of the acts of Hamilton or Hilton & Hamilton. The court therefore denied rescission to the plaintiffs, but, in lieu thereof, gave them a judgment for $2,000 against Hilton & Hamilton; that amount being the difference between the agreed price for the lots and their actual value, which was found by the court to be $5,000. It was decreed that the $2,000 be offset against the $2,750 note signed by plaintiffs, and held by Hilton & Hamilton. The plaintiffs have appealed upon the judgment roll alone, and it must be assumed that all of the findings are supported by the evidence.
Upon a former hearing of this case this court held that it does not appear from the findings that Hamilton was the agent of Fowlks, nor that Fowlks had any knowledge of any fraud in this transaction, or of any circumstance to put him upon inquiry as to its regularity and fairness, and that he only received for both pairs of lots the price he had originally demanded net to him. It was also held that the plaintiffs had been amply compensated by recovering the difference between the actual value of the property and the price they paid.
Upon further consideration, we are of the opinion that we cannot disturb the findings and conclusion of the trial court that defendant Fowlks was not a party to the fraud and is not bound by the acts of Hamilton. While the inference is possible, from some of the facts found, that there were circumstances in the transaction which should have put Fowlks upon inquiry as to its regularity and fairness, and while a suspicion as to his innocence may be possible, on the other hand, the court has found to the contrary. An inference favorable to Fowlks’ innocence may legitimately be drawn. It is possible that he thought the property had been sold to Hilton & Hamilton, and then resold by them. Although Hamilton represented to plaintiffs that he was acting as an agent of the owner of the property, it does not certainly appear that Fowlks adopted and accepted the results of that purported agency. We have been cited to cases holding that, where an owner accepts the benefits of a transaction entered into by his agent through fraudulent representations, or accepts the benefits when he should have known that the agent was pretending to act for him, he may not then retain those benefits without also becoming liable for the fraud. While the court here might have found that there were facts sufficient to put the defendant Fowlks upon inquiry, it has expressly found otherwise, and we cannot set aside such findings and conclusion when they are conflicting inferences that may legitimately be drawn.
While we may not set aside the action of the trial court in denying a rescission, having found that the defendant Fowlks was an innocent party, we feel that the trial court fell into error in attempting to compensate plaintiffs for the loss they suffered through the fraud of Hamilton. In the case of Swan v. Talbot, 152 Cal. 142, 94 P. 238, 239, 17 L.R.A.(N.S.) 1066, the court said: "The action is in form a simple action for a rescission of the bill of sale and the restoration to plaintiff of the property of which defendant took possession under the instrument. As has been said, the court found for a rescission of the instrument, but found also that it was impracticable to decree a restoration and return of the property, and it proceeded thereupon to state and settle an account between the parties. Objection is made to this by the appellant upon the ground that the complaint nowhere asks for such relief. But the proceeding adopted by the court was wholly consonant with the principle that, where equity has acquired jurisdiction for one purpose, it will retain that jurisdiction to the final adjustment of all differences between the parties arising from the cause of action presented. It is, indeed, the duty of a court of equity, when all the parties to the controversy are before it, to adjust the rights of all and leave nothing open for further litigation. Ord v. McKee, 5 Cal. 515; Kraft v. De Forest, 53 Cal. 657; Watson v. Sutro, 86 Cal. 500, 24 P. 172, 25 P. 64. It is no objection to the relief which is thus decreed in an equitable action that the court should finally determine that the necessary and appropriate remedy should take the form of a personal monetary judgment."
The general rule as to such equitable relief is set forth in 9 Corpus Juris, at page 1262, as follows: "Where the court has obtained jurisdiction to cancel an instrument or to rescind a contract, it may, and often does, give complete relief in the premises. And this is so ‘even though in doing this it may be, in part, administering purely legal remedies.’ ‘It is a well-recognized principle of equity jurisprudence that where a court of chancery has acquired jurisdiction of a cause for any purpose, it will proceed to determine the whole cause, although in so doing it may decide questions which, if standing alone, would furnish no basis of equitable jurisdiction.’ In accordance with this principle, it has been held that the court may, in a proper case, award a judgment for money, provided an indebtedness is established."
And on page 1265 as follows: "Where, in a suit by the purchaser to rescind, the property has been changed in such a manner that it is impossible to decree restoration, or rescission would be inequitable, the court may, under a prayer for general relief, award him compensation in money, provided the evidence makes out a case showing that he is entitled to such relief."
In the instant case the court found for the plaintiffs, but, having found that the defendant Fowlks was an innocent party, could not grant a rescission. Having undertaken the determination of the controversy, it was then the duty of the court to adjust the rights of the parties in accordance with the principles of equity. In attempting to do this, we feel that the court erred in fixing the recovery of the plaintiff in accordance with the measure of damages that would have applied had the action been one for damages based on the fraud involved, and also erred in applying that rule, even if the same was applicable.
If the same rules apply in such a case as this as apply in an action for damages for fraudulent representations, those rules were not fully applied here. Ordinarily, where one is defrauded in purchasing real property, the measure of damages to the vendee is the difference between the actual value of the property purchased and the value which it would have had if the representations had been true. Wood v. Niemeyer, 185 Cal. 526, 197 P. 795; Macdonald v. Roeth, 179 Cal. 194, 176 P. 38. But the measure of plaintiffs’ recovery is not affected by the price paid. Hines v. Brode, 168 Cal. 507, 143 P. 729, 730; Bechtel v. Chase, 156 Cal. 707, 106 P. 81. In Hines v. Brode, the court said: "Therefore in a proper case a wronged plaintiff may assert, as here, and, if possible, show, that the actual value of the property was only $100, and that its value, if the property had been as represented, was $4,000." If this rule applies in this case, there is no finding to sustain the judgment; there being no finding as to what the property would have been worth had it been as represented. The court took the difference between the actual value as found and the price paid. The price paid is only evidence as to the value and cannot affect the result; and, being paid as the result of fraud, it is not very valuable evidence of anything. If the lots had been as represented, they might have been worth more, and plaintiffs were entitled to their bargain. Hines v. Brode, supra.
That the correct rule was not applied by the trial court seems apparent, both from the fact that the result secured was unfair to the plaintiffs and at the same time left the defendant Hamilton, who was found to have been guilty of fraud, keeping a large part of the profits of his own wrong. In an action for rescission, where rescission is impossible, and where in consequence thereof the court must enter a money judgment in order to do equity and adjust the rights of the parties, we feel that the court should not be confined to the usual measure of damage applying to an action where the plaintiff has elected to sue for damages for the fraud from which he has suffered. In such a case, having undertaken to do equity, the court should do justice between the parties, and is limited only by general equitable principles. In view of the fraud found here, what would be justice? The court being unable to give the rescission to which plaintiff would otherwise have been entitled, because that affected Fowlks, who was found to have been an innocent party, has, according to the principles of equity, turned to relief in terms of money. If it were not for the fact that Fowlks was an innocent party, the court could have put the parties in statu quo. The court should still approximate that result as closely as possible. To do this it is necessary to do something that comes nearer to adjusting the account between the respective parties, than it does to measuring the damage according to the rules applied when the plaintiff has elected to pursue that remedy. This is apparent here, where the court has found upon conflicting evidence that the property was worth $5,000, whereas the owner was well satisfied to take $3,500, including $500 to go to Taylor, as shown by his strenuous efforts to sustain the judgment. Under the rule followed by the court, the plaintiff is still compelled through the fraud to pay $5,000 for property he could have bought for $3,500. But the plaintiff, having through this fraud been induced to pay $7,000 for the lots which were sold by their owner for $3,500, was actually defrauded of $3,500 through the misrepresentations of Hamilton. Justice and equity would indicate that this $3,500 should be returned to him by Hamilton. And while the plaintiffs lost $3,500 through this same fraud, Hamilton and his partner gained a $3,500 lot for which they paid nothing. The most equitable thing to do is to say that they get nothing for their fraud, and that the plaintiff get back his $3,500. This can be accomplished by giving the plaintiff a judgment against Hilton & Hamilton for $3,500 and providing that $2,750 thereof shall be offset against the note now held by them. In that way Hilton & Hamilton will have to pay $2,750 to the supposedly innocent Fowlks and $750 direct to their victims. Even at that they would appear to be still making a profit, as they would have a lot for which they paid $3,500 but which the court has found to be worth $5,000, and which the respondents earnestly insist is worth that amount. This would put the plaintiffs in as near their original position as possible under the circumstances, would place the burden of their fraud upon defendants Hilton & Hamilton, and would come as near justice and equity as the unfortunate conditions will permit.
The judgment is reversed, with instructions to the trial court to enter a judgment in accordance with the principles herein set forth.
We concur: CARY, P.J.; MARKS, J.