Navrides v. Zurich Ins. Co.

• Citation: 488 P.2d 637,97 Cal.Rptr. 309,5 Cal.3d 698
• Court: United States State Supreme Court (California)
• Decision Date: 14 September 1971
• Parties: , 488 P.2d 637, 49 A.L.R.3d 828 Audrey R. NAVRIDES, Plaintiff and Respondent, v. ZURICH INSURANCE COMPANY, Defendant and Appellant. L.A. 29835. In Bank

Page 309

97 Cal.Rptr. 309

5 Cal.3d 698, 488 P.2d 637, 49 A.L.R.3d 828

Audrey R. NAVRIDES, Plaintiff and Respondent, v. ZURICH INSURANCE COMPANY, Defendant and Appellant.

L.A. 29835.

Supreme Court of California,

In Bank.

Sept. 14, 1971.

Rehearing Denied Oct. 14, 1971.

Haight, Lyon & Smith and William M. Fitzhugh, Los Angeles, for defendant and appellant.

Orloff & Wilner and Robert D. Wilner, Los Angeles, for plaintiff and respondent.

SULLIVAN, Justice.

In this action against defendant insurance company arising out of the compromise of a personal injury claim made with the company by plaintiff's attorney without her consent, we must decide whether defendant was discharged from liability where its settlement draft after delivery to the attorney was cashed on plaintiff's forged endorsement and the proceeds of the draft appropriated.

Our resolution of the problem is fashioned from basic principles of agency. For the reasons discussed below we conclude, first, that by bringing the present action, plaintiff ratified the unauthorized compromise of her claim, including her attorney's receipt of payment by means of the settlement draft; and, secondly, that by delivering the draft to the attorney, defendant under the circumstances was discharged of all liability, even though the draft was paid on plaintiff's forged endorsement. We, therefore, reverse the judgment.

The facts are undisputed. On February 19, 1962, plaintiff Audrey Navrides was injured on the premises of one Crancer who was insured by defendant Zurich Insurance Company (Zurich). She employed an attorney, Robert S. Forsyth, who filed an action for damages on her behalf. Forsyth negotiated with Zurich a compromise settlement of plaintiff's claim for $9,000. Plaintiff rejected the compromise but Forsyth represented to Zurich that she had approved it. Zurich then delivered to Forsyth for signature a release of all claims, a request for the dismissal of the pending action and a draft dated September 22, 1964 in the sum of $9,000 payable to 'Audrey R. Navrides and Robert S. Forsyth, her attorney.' Forsyth retained the draft and returned to Zurich the release purportedly signed by plaintiff, together with the request for dismissal. The latter document was thereupon filed and the action dismissed.

On September 25, 1964, the settlement draft, bearing the purported endorsements of plaintiff and Forsyth, was cashed at the Bank of America and eventually charged to Zurich's account with the Continental Illinois National Bank and Trust Company of Chicago (Continental Bank). Plaintiff's signature on the release and her endorsement on the draft were forgeries. She received no money from the settlement. About a year later, plaintiff discovered that her personal injury action had been dismissed and that the above settlement draft had been delivered to her attorney. She was unable to effect any recovery from the latter.

On December 14, 1965 plaintiff commenced this action against Zurich and the Bank of America; ¹ her complaint set forth two separately stated causes of action, the first against Zurich and the second against the bank. Plaintiff's second stated cause of action alleged in substance that the Bank of America paid the Zurich draft, on plaintiff's forged endorsement, collected the amount of the draft from Continental Bank, the drawee, but did not pay any of the proceeds to plaintiff. ²

The Bank of America's demurrer was sustained with leave to amend and upon plaintiff's failure to do so, the second stated cause of action was dismissed. Plaintiff did not appeal from the dismissal. We are, of course, not concerned with this cause of action on the appeal now before us.

Plaintiff's first stated cause of action against Zurich alleged in substance that the latter for a valuable consideration drew, executed and delivered the draft to plaintiff, that the draft was wrongfully paid by the Bank of America on a forged endorsement, that Zurich 'has not paid said check, nor any part thereof to plaintiff, and by reason of said fact, there has been a failure of consideration' and that defendant owed plaintiff the sum of $9,000. The trial court essentially found that all of the material allegations of the first cause of action were true, that plaintiff did not affix, or authorize anyone to affix, her signature to the draft, and that she was not estopped from asserting that she neither signed nor authorized an endorsement of the draft. From these facts the court concluded simply that (1) plaintiff's signature was a forgery and (2) that Zurich owed plaintiff $9,000 plus interest. Judgment was entered accordingly. This appeal followed.

The trial court's conclusion that plaintiff's signature on the draft was a forgery is amply supported by the findings and the evidence. Unfortunately, however, the court nowhere indicates any legal theory explaining its leap from its findings and first conclusion of law to its second conclusion that Zurich owed plaintiff $9,000 plus interest. It is a fair assumption that the trial judge, relying on former Civil Code section 3104, ³ concluded that the forged endorsement was wholly inoperative and that as a consequence Zurich still owed plaintiff $9,000.

Although Forsyth clearly had no authority, express or implied (see fn. 1, Ante), to compromise plaintiff's claim, the record before us establishes as a matter of law that plaintiff, by bringing the instant action against Zurich for the $9,000, ratified the settlement. As we shall explain, by so doing she necessarily approved Zurich's delivery of the draft to Forsyth and the latter's delivery to Zurich of the release (on which her signature had been forged) and the request for the dismissal of her action.

It is well settled that a client may ratify the unauthorized actions of his attorney (Moving Picture etc. Union v. Glasgow Theaters, Inc. (1970) 6 Cal.App.3d 395, 403, 86 Cal.Rptr. 33; Redsted v. Weiss (1945) 71 Cal.App.2d 660, 664, 163 P.2d 105; Fidelity & Cas. Co. v. Abraham (1945) 70 Cal.App.2d 776, 783, 161 P.2d 689); that a principal may ratify the forgery of his signature by his agent (Volandri v. Hlobil (1959) 170 Cal.App.2d 656, 659--660, 339 P.2d 218; Kadota Fig Ass'n v. Case-Swayne Co. (1946)73 Cal.App.2d 815, 167 P.2d 523); and that a principal may ratify the unauthorized act of an agent by bringing suit based thereon (Price v. McConnell (1960) 184 Cal.App.2d 660, 666, 7 Cal.Rptr. 695).

By virtue of such ratification, there then existed between plaintiff and Zurich a Valid compromise agreement which was fully performed on the part of plaintiff by Forsyth's delivery of the release and dismissal to Zurich. The true and indeed only tenable theory of plaintiff's action thus emerges: that Zurich owes her $9,000 under the settlement agreement and that she has not been paid. Indeed at oral argument plaintiff's present counsel conceded that by bringing suit against Zurich she had ratified the settlement and was seeking to enforce it. ⁴ However, inherent in the ratification of the settlement is ratification of Forsyth's authority to settle the claim, which, as we explain, infra, necessarily includes authority to receive and collect the payment of the settlement on behalf of plaintiff.

Unfortunately for plaintiff, she cannot stop at this point. She must reckon with the elementary rule of agency law that a principal is not allowed to ratify the unauthorized acts of an agent to the extent that they are beneficial, and disavow them to the extent that they are damaging. If a principal ratifies part of a transaction, he is deemed to ratify the whole of it. (Civ.Code, § 2311, Price v. McConnell, supra, 184 Cal.App.2d 666, 7 Cal.Rptr. 695; Warshauer v. Bauer Construction Co. (1960) 179 Cal.App.2d 44, 52, 3 Cal.Rptr. 570; Rest.2d Agency, § 96.) The reason for the rule is obvious . Ratification is approval of a transaction that has already taken place. Accordingly the principal has the power to approve the transaction only as it in fact occurred, not to reconstruct it to suit his present needs. As the court said in Warshauer, supra, quoting from Gift v. Ahrnke (1951) 107 Cal.App.2d 614, 623, 237 P.2d 706, 710, 'A principal 'cannot split the agency transaction into separate parts, and take the benefits without the burden. " In the instant case plaintiff, by ratifying Forsyth's settlement of her pending action for damages for personal injuries, necessarily ratified the entire transaction between Forsyth and Zurich, including Forsyth's receipt of the settlement draft. ⁵

We, therefore, turn to consider whether Zurich's delivery of the draft to Forsyth discharged the insurance company from all liability to plaintiff, notwithstanding the fact that the draft was subsequently cashed on plaintiff's forged endorsement and its proceeds converted. We begin by adverting to established principles of agency dealing with the authority of agents to receive payment.

An attorney has authority 'To receive money claimed by his client in an action or proceeding during the pendency thereof * * * and upon payment thereof, and not otherwise, to discharge the claim. * * *' (Code Civ.Proc., § 283, subd. 2.) This statute, enacted in 1872, codifies the well-established proposition of law that an attorney who has authority to settle or collect a claim also has authority to receive payment in money and that such payment to the attorney discharges the claim, even if the attorney absconds with the money. (Weiner v. Luscombe (1937) 19 Cal.App.2d 668, 671, 66 P.2d 151; Ely v. Liscomb (1914) 24 Cal.App. 224, 228, 140 P. 1086; Bailey v. United States (9th Cir. 1926) 13 F.2d 325, 327; Brown v. Grimes (1921) 74 Ind.App. 655, 129 N.E. 483; see also Wherry v. Rambo (1950) 97 Cal.App.2d 569, 571, 218 P.2d 142.)

Since checks and drafts are the usual and ordinary means of transferring money in the transaction of business (Greenzweight v. Title Guar. & Tr. Co. (1934) 1 Cal.2d 577, 581, 36 P.2d 186; Mefford v. Security...