Carruth v. Fritch

• Decision Date: 12 December 1950
• Citation: 36 Cal.2d 426,224 P.2d 702
• Court: California Supreme Court
• Parties: , 24 A.L.R.2d 1403 CARRUTH v. FRITCH et al. L. A. 20946.

Page 702

224 P.2d 702

36 Cal.2d 426, 24 A.L.R.2d 1403

CARRUTH v. FRITCH et al.

L. A. 20946.

Supreme Court of California.

Dec. 12, 1950.

Rehearing Denied Jan. 11, 1951.

Edward Raiden, Los Angeles, for appellant.

Eugene S. Ives and John Leslie Goddard, Los Angeles, for respondent.

EDMONDS, Presiding Justice.

Betty Jane Carruth is suing for damages assertedly sustained by her on account of personal injuries which she received in a traffic accident. The complaint, filed more than one year after the time of injury, alleges that upon representations of the owner of the automobile in which she was injured, she executed a release of her right to recover damages. Asserting that the representtions were false and made without any intention of performing them, she asks that the release be 'set aside' and damages awarded to her.

A demurrer to this complaint was sustained with leave to amend. The appeal from the judgment entered after refusal to amend, presents for decision the question as to whether the statute of limitation is tolled by fraud in the procurement of a release. Also to be considered in that connection is whether an offer to restore the consideration of such a release is essential to the statement of a cause of action.

In the first count of her complaint, Miss Carruth alleges that, at the time of the accident, she was riding as a guest in an automobile driven by Richard Fritch with the consent of Robert Fritch, the owner of the vehicle. Named with them as a defendant is the Connecticut Indemnity Company. It is charged that, as a result of the willful misconduct of Richard Fritch, the automobile struck a stone wall and she sustained permanent injuries. The cost of medical attention and recurrent hospitalization during a period of two years exceeds $2,000 and her loss of salary is more than $4,000.

About four months after the accident, the complaint continues, while Miss Carruth was suffering from her injuries and under pressure of financial need, she executed a release of her claim for damages in consideration of the payment to her of $2,000 and certain promises. These promises, made by Robert Fritch for himself, Richard Fritch, and the insurance carrier, with the intent to induce her to sign a release, were that '* * * Robert Fritch and Richard Fritch would see that the plaintiff received of * * * Connecticut Indemnity Company and of * * * Robert Fritch and Richard Fritch all further and additional medical expenses and that plaintiff would also be compensated for all loss of salary.' It is also alleged that Robert Fritch, for himself and the other defendants, told her 'as a friend of long standing that she had no claim at law because she was a guest in his car and that if she proceeded to sue she would not be able to recover.'

Upon information and belief, Miss Carruth pleads that the insurance company had knowledge of the negotations for the settlement. The insurer and the other defendants also knew that she owed money for medical and hospital expenses and would immediately expend the money advanced, thereby becoming unable to tender it back as a prerequisite to rescission of the agreement. With such knowledge, the defendants procured the settlement without any intention of paying further medical expenses or compensating Miss Carruth for her loss of salary. By these promises and the representation, falsely and knowingly made, that she had no cause of action, Miss Carruth was induced to exectue the release.

A few months after her initial discharge from the hospital, Miss Carruth alleges, she found it necessary to return for further treatment. Shortly thereafter she requested Robert and Richard Fritch to arrange for the payment of additional medical expenses and loss of wages. Their reply disclaimed any further obligation to her. In closing the first count of her complaint, Miss Carruth declares that she seeks no money judgment but only to have 'set aside the release secured from her by the fraud of the defendants.'

For a second cause of action all of the foregoing facts are repleaded and judgment is asked against Robert and Richard Fritch for general damages, less $2,000 paid to her. Special damages for loss of wages and medical expenses are demanded, with credit for $500 paid by the insurer for medical care under the provisions of its policy.

The demurrer to the complaint asserts that neither count of its states a cause of action. The court for rescission of the release is attacked upon the ground that Miss Carruth has failed to allege an offer to restore the consideration as provided in section 1691 of the Civil Code. The statute of limitation is pleaded as a bar to the claim for damages.

As grounds for reversal of the judgment, Miss Carruth asserts that whenever fraud enters into the transaction, the cause of action arising thereon is not barred until the fraud is discovered. Because her complaint was filed within three months after the date alleged by her as the time the discovered the fraud, the demurrer should have been overruled. A further contention is that the willful misrepresentation made to her removes the bar of the one year limitation, and where equitable rescission of a release is sought, an offer to restore the consideration is not a requirement of the statement of the cause of action.

The respondents take the position that because the gravamen of Miss Carruth's cause of action is damages for personal injuries, the one year limitation is controlling. They say that restoration, or offer of restoration, of consideration received under a release is an essential element in an action for rescission. Because there was no concealment of the facts upon which that cause of action is based, a fraudulent representation made for the purpose of obtaining the release does not change the action from one for personal injuries to one for relief from fraud. There can be no estoppel from pleading the statute of limitation because of misrepresentation in regard to lack of liability at law. Finally, the respondents argue, the fact that the consideration received for the release has been expended, does not relieve Miss Carruth from her obligation to restore the money before seeking rescission.

As defined by section 1572 of the Civil Code, actual fraud is '* * * 4. A promise made without any intention of performing it; or, 5. Any other act fitted to deceive.' In considering the ruling upon the demurrer, the allegations of the complaint must be accepted as true. The question, therefore, is whether, under the facts pleaded by Miss Carruth, the statute of limitation has been tolled and an action may be maintained to recover for the injuries claimed to have been received.

The sole issue upon the count for rescission is whether restoration of the consideration of the release, or an offer to repay the amount, is a necessary prerequisite to the maintenance of the cause of action. The respondents do not challenge the sufficiency of the allegations as to fraud.

Section 1691 of the Civil Code provides that rescission can be accomplished only by the use of 'reasonable diligence to comply with the following rules: * * * 2. 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, upon condition that such party shall do likewise, unless the latter is unable or positively refuses to do so.'

Although tender or return of consideration usually must be made; Kent v. Clark, 20 Cal.2d 779, 128 P.2d 868, 142 A.L.R. 576; Seeger v. Odell, 18 Cal.2d 409, 115 P.2d 977, 136 A.L.R. 1291; Paxson v. Margulis-Stulman Co., 127 Cal.App. 94, 15 P.2d 191, the rule is not inflexible. The code requirement is only that the party seeking to rescind must use 'reasonable diligence' to restore that of value which he has received under the contract. 'There are exceptional cases where restoration or an offer to restore before suit brought is not necessary as, for instance, * * * where it clearly appears that the defendant could not possibly have been injurisouly affected by a failure to restore, or where, without any fault of plaintiff, there have been peculiar complications which make it impossible for plaintiff to offer full restoration, although the circumstances are such that a court of chancery may by a final decree fully ajust the equities between the parties'. California etc. Co. v. Schiappa-Pietra, 151 Cal. 732, 739, 91 P. 593, 595. This principle has been applied in many cases. See Pacific Greyhound Lines v. Zane, 9 Cir., 160 F.2d 731; Wetzstein v. Thomasson, 34 Cal.App.2d 554, 93 P.2d 1028; Lawrence v. Ducommun, 14 Cal.App.2d 396, 58 P.2d 407.

Miss Carruth alleges that when making the assertedly fraudulent representations to her, the Fritches and their insurer knew her financial circumstances. This knowledge, she pleads, was that she would be obligated immediately to pay out the consideration for medical expenses incurred by reason of the alleged tort. She used the money for the purpose and, the complaint continues, the defendants knew that she then '* * * would be unable to raise the money necessary to tender back the amount which they had advanced. * * * (T)he defendants and each of them had no intention of keeping the agreement and making the further payments for medical expense and loss of salary * * * but * * * were seeking to place the plaintiff in such a position that she could not tender to them the money advanced in the course of their fraud, and relied upon such facts and their fraud to prevent plaintiff from rescinding * * *.' Under such circumstances, there is no legal reason for requiring Miss Carruth to restore the consideration received by her. Having known that the entire amount was to be applied to payment of medical expenses and she was without means to repay it, neither the Fritches nor their insurer is prejudicied by her failure to do so.

A timely action for personal injuries may be maintained notwithstanding a...