Court Opinion

ID: 9794270
Source: CourtListenerOpinion
Date Created: 2023-08-31 03:02:27.930127+00
Date Added: 2024-06-11T08:13:33.633000
License: Public Domain

CARTER, J.
I concur in the conclusion reached in the majority opinion, but I do not agree with the reasons on which it is based.
From the facts as disclosed by the record it appears that we have what is, in effect, a third party donee beneficiary contract. There are, in the case, two Exhibits, “A” and “B.” Exhibit “A” which was signed only by Simmons, the plaintiff, bears the date of February 21, 1940, and is entitled “Agreement.” It appears that this instrument was prepared by counsel for The Baldwin Locomotive Works, and it recites that Simmons will not grant any licenses to make, use or sell his invention unless approval therefor is given by the Institute. It also recites that any royalties received for the use of such license to use, etc., shall be paid to the Institute, unless, he at his option, requests in writing a certain percentage thereof. Exhibit “B” is dated March 13, 1940, and purports to be an agreement between plaintiff and the Baldwin Company and is signed by both of them. This agreement reads, in part, as follows: This Agreement made as of March 13, 1940, between Edward E. Simmons, Jr., of Pasadena, California, and The Baldwin Locomotive Works of Philadelphia Pennsylvania, a corporation organized and existing under the laws of the State of Pennsylvania hereinafter respectively referred to as ‘Simmons' and ‘Baldwin’. This agreement is subject to the approval of the California Institute of Technology, or Committees or Other Agencies or Bodies Which the California Institute of Technology May Designate, hereinafter referred to as‘Institute’.” Clause (8) provides: “Any part of this agreement may be altered without effect on the remaining portions thereof by mutual agreement between Baldwin, Simmons and the Institute.” Clause (11) *278provides that: “The terms and conditions herein set forth are not subject to change without the approval of the California Institute of Technology.”
This is the situation with which we are confronted: Simmons, due to the representations of agents of the Institute, agreed that the royalties were to be paid to the Institute to be used by it for Impact Research. The funds were not so used. Under the rule set forth in the majority opinion, that even an innocent principal is bound by the unauthorized misrepresentations of his agent, we have the principal—the Institute—bound by the misrepresentations of its employees. We find a promise on the part of Simmons to grant a license to Baldwin to use his invention, and a promise on the part of Baldwin to pay the royalties to the Institute. The Institute, having given no consideration for this promised benefit is in the position of a donee beneficiary. Not only that, but it achieved this benefit through the fraud of its agents, even though that fraud may not have been authorized by it.
“There are two quite distinct types of cases which pass current under the name of promises for the benefit of a third person. To the first class belong promises where the promisee has no pecuniary interest in the performance of the contract, his object in entering into it being the benefit of a third person. To the second class belong promises where the promisee seeks indirectly to discharge an obligation of his own to a third person by securing from the promisor a promise to pay his creditor.
‘ ‘ The first class is properly called a contract for the benefit of a third person, and the phrase ‘sole beneficiary’ should be reserved for this class. As the promisee has no pecuniary interest in the performance of the promise, he can have, generally speaking, no other intention than to benefit the third person, to give him a right.” (Samuel Williston, Contracts for the Benefit of a Third Person, 15 Harv.L.Rev. 767.)
It was proved at the trial that the words “in consideration of employment” found in Exhibit “A” were intended by both Simmons and Dr. Clark to mean Simmons’ past employment by the Institute. In plaintiff’s first amended complaint, as his first cause of action, he alleges that both Exhibit “A” and Exhibit “B” are without consideration and therefore null and void as to the Institute. In its findings of fact, the trial court found these allegations to be true. In plaintiff’s second cause of action, the plaintiff alleges that he was induced to enter into the two agreements because of promises *279made by the Institute that he would be employed on a permanent basis and that the monies received by the Institute from Baldwin would be applied to Impact Research. He also alleged that the Institute never intended to perform these promises. These allegations the trial court, in its findings of fact, found to be true. The trial court, in its conclusions of law, found that both instruments, as to the Institute, were null and void, and that the Institute had no right, title or interest in or to the royalties accrued or to accrue from Baldwin.
If it is true that plaintiff entered into the contract upon the understanding that he was to be given permanent employment and that the royalties to be paid by Baldwin were to be used by the Institute for Impact Research, then at the time the contract was made, there was consideration. The Restatement of Contracts, section 274, provides: “In promises for an agreed exchange, any material failure of performance by one party not justified by the conduct of the other discharges the latter’s duty to give the agreed exchange even though his promise is not in terms conditional. An immaterial failure does not operate as such a discharge.” Comment b: Consideration, as used in the phrase, failure of consideration, means merely an exchange in fact agreed upon. Failure of consideration, therefore, is failure to receive such an exchange. In the formation of contracts, consideration is the exchange for a promise. In the present connection the consideration in question is the promised performance of one party agreed to be exchanged for that of the other.” If the allegations in plaintiff’s first cause of action are true, this is the situation: Plaintiff promises to grant a license to Baldwin. In consideration of this promise Baldwin promises to pay royalties to the Institute and in exchange for these promises, the Institute promises to employ Simmons on a permanent basis, and to use the money received from Baldwin for Impact Research. Thus, if this situation is the true one, there was consideration present at the time the contract was entered into. Section 473 of the Restatement of Contracts provides: “A contractual promise made with the undisclosed intention of not performing it is fraud. ” [Emphasis added.]
However, the trial court, in its conclusions of law, adjudged that both exhibits were, as to the Institute, null and void, presumably because of lack of consideration. It would seem to me that the findings of fact with respect to the fact that neither Exhibit “A” nor Exhibit “B” were supported by *280consideration so far as the Institute was concerned are consistent with the conclusion of law that the exhibits were null and void. However, if the findings of fact as to the fraud of the Institute mean that plaintiff was induced to enter into the agreement because of promises made without intention of performance, then the conclusions of law are inconsistent, because there was, at the time of the formation of the contract, consideration. And, due to the fraud of the Institute, there has been a failure of consideration in that plaintiff did not receive what he bargained for, and thus he may rescind as to the Institute as to future monies to be paid by Baldwin, and be placed in statu quo as to monies paid to the Institute prior to the commencement of this action.
If, however, the findings of fact as to lack of consideration and the conclusion of law to the same effect are taken into consideration, then there is consistency. Since it was proved at the trial that plaintiff and the Institute were both referring to the past employment of plaintiff by the Institute, we have a finding of fact by the trial court which is not supported by the evidence. Disregarding that finding of fact, because it is inconsistent with the conclusion of law, we have this situation: Plaintiff intended the money paid by Baldwin to the Institute to be used by the Institute for Impact Research. That was his reason for entering into the agreement. The Institute did not so use the money. Plaintiff was under no obligation other than to grant the license to Baldwin. The general rule is that findings are to be harmonized and reconciled if it is possible and can be done reasonably. (Stohr v. Stohr, 148 Cal. 180 [82 P. 777]; Davis v. Martin, 157 Cal. 657 [108 P. 866]; Lasher v. Faw, 209 Cal. 726 [289 P. 821]; Culjac v. Better Built Homes, Inc., 58 Cal.App.2d 720 [137 P.2d 492]; Menghetti v. Dillon, 10 Cal.2d 470 [75 P.2d 596]; Pacific Coast etc. Land Bank v. Jones, 14 Cal.2d 8 [92 P.2d 390, 123 A.L.R. 695]. Also, inferences which necessarily follow from findings may be resorted to. (People v. Ocean Shore R., Inc., 22 Cal.App.2d 657 [72 P.2d 167].) Where the facts found support the conclusions necessary to the judgment, inconsistent conclusions stated in the findings will be disregarded. (Danziger v. Benson, 175 Cal. 565 [166 P. 313].) “In many cases the purpose of the promisee in securing a promise for the benefit of a third party is to confer a gratuitous benefit upon that third party. In such cases this third party will usually be the only person who will be benefited by the promised performance ; he will be the sole beneficiary. Performance will *281not benefit the promisee; he is not to receive it, and such performance will not discharge any duty of the promisee, for he owes none to the beneficiary. (Arthur L. Corbin, Contracts for the Benefit of Third Persons, Selected Readings on the Law of Contracts, Association of American Law Schools (1931 ed.), pp. 648, 663-665.
The authorities are strangely silent on this state of affairs—• where the fraud is that of a donee. The usual situation is where fraud on the part of either the promisor or the promisee has brought about the contract for the benefit of a third person. The problem is analogous to that of the fraud of a third person. The Restatement of the Law of Contracts, section 477, states the rule thus: “Fraud or material misrepresentation by a third person renders a transaction voidable by a party induced thereby to enter into it if the other party thereto (a) has reason to know of the fraud or misrepresentation before he has given or promised in good faith something of value in the transaction or changed his position materially by reason of the transaction, or (b) is affected by the fraud or misrepresentation under the law of Agency or Trusts.” This is commented on as follows: “As between the original parties to a transaction induced by the fraud or material misrepresentations of a third person, the injured party has power of avoidance, unless the other party is not only ignorant of the fraud or misrepresentation when he enters into the transaction, but has either parted with value or has changed his position materially in reliance on the transaction. A donee cannot conscientiously retain an advantage obtained from another because of a third person’s misconduct, even if the donee neither knew nor had reason to know of it.”
It would seem that under this rule the plaintiff could not rescind the contract as to Baldwin. Baldwin did not know of the fraud and was in no way concerned with it. The only fraud is that of the Institute who is the recipient of the royalties paid by Baldwin. If the case is viewed as one where a gift was made because of fraudulent representations, we find that such a gift may be avoided by the donor. “A gift obtained from the donor by fraud or by the pressure of undue influence upon his mind and will may be set aside in equity and the property recovered. . . .
“But it is to be remembered that an executed gift, even though procured through fraud, mistake, or undue influence, or made by one lacking in mental capacity, is voidable only. *282... It passes title to the property to the donee, where it remains until a disaffirmance by the donor, or perhaps by his executor after his death;. ...” (Black, on Rescission and Cancellation (2d ed.), pp. 1257-1258.)
Or the situation may be considered as analogous to that of a contract of insurance. Let us assume that A induces B through fraudulent representations to make him the beneficiary of a contract of insurance between B and the X Company. B reserves no power to change the beneficiary. The contract between B and the X Company is perfectly valid, and yet had it not been for A’s fraud, B would not have named him as beneficiary, but would have named his own estate.
The Restatement of the Law of Restitution, section 26, provides (1) a person is entitled to restitution from another to whom gratuitously and induced thereto by a mistake of fact he has given money or the mistake (a) was caused by fraud or material misrepresentation,. . . . The comment is as follows: “Fraud and misrepresentation: If the donor has been induced to make the gift because of the fraud or innocent misrepresentation of the donee although it would riot have affected the conduct of a reasonable man, the transaction can be rescinded.”
Although the general rule undoubtedly is that one must rescind all of his contract and may not retain rights under it which he deems desirable to have and repudiate the remainder of its provisions, there are certain exceptions where the circumstances justify a rescission only as to particular matters or particular parties involved in an entire transaction. (Hoffman v. Kirby, 136 Cal. 26 [68 P. 321]; 12 C.J.S. § 78b, p. 1080; Civ. Code, § 3414.) In the present case, if the donee Institute were allowed to retain the fruits of its own fraud, it would be unjustly enriched at the expense of the plaintiff.
Plaintiff should, therefore, be entitled to restitution of the benefits previously received by defendant Institute as well as receive any which may accrue in the future.