Court Opinion

ID: 9568786
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:07:32.933589+00
Date Added: 2024-06-11T11:08:26.580888
License: Public Domain

Neill, J.
(dissenting)—There is no need to reiterate the facts which are set forth in the majority opinion. As a result of the complaints of the defendant and defaults in payment, an agent of the plaintiff returned to Seattle in February of 1963 and spent 4 weeks trying to improve defendant’s situation. The difficulties continued.'
Defendant, being pressed for payments, sought the advice of counsel and retained an attorney to represent him in further negotiations with plaintiff. On April 13, 1963, plaintiff’s agent and defendant entered into a compromise agreement.3 This compromise agreement was prepared by defendant’s attorney and executed in his office. It provided for execution of a chattel mortgage by the defendant which was to supersede the original contract. On May 1, 1963, defendant executed the chattel mortgage and note. The cash price under the new agreement was $27,124.90, plus charges of $9,493.70, payable in 60 monthly .installments of $610.31, beginning June 15, 1963. The June, July, August, September and October, 1963 payments were made. In the following year only $800 was paid—$500 in January and $300 in July.
*705In November, 1965, plaintiff commenced this action on the promissory note and to foreclose the chattel mortgage. The defendant raised the affirmative defenses of fraud and usury. The court found that defendant was induced to enter the original sale contract by the fraudulent misrepresentations of the plaintiff’s agents.
The court found $20,000 damages for fraud, and offset an additional $12,409.85 in usurious interest charges. As a result, the chattel mortgage was declared paid in full and defendant was awarded costs. Plaintiff raises two questions by his assignments of error: (1) Did the compromise agreement preclude the defense of fraud? (2) Were the note and chattel mortgage usurious?
Although plaintiff has not challenged the findings of fraud in the inducement of the sale contract, he contends that the defendant, by the compromise agreement, waived any claim of damages for such fraud.
From an early date, we have held that a compromise of a dispute wherein fraud is claimed prevents a later assertion of the same fraud. In Crocker v. Boyd, 88 Wash. 685, 153 P. 1076 (1915), the plaintiff purchased some land. After possession was transferred, the plaintiff discovered that certain misrepresentations had been made. Through her attorney, plaintiff secured a settlement with the sellers. Eight months after the settlement, the plaintiff brought suit based on the same fraud. The court stated at 686:
The settlement did not, to be sure, recite that it was in full, but the defendants alleged that they believed it was. She was then in possession, with ample opportunity, to see what was wrong in the property, yet she reserved no right to.bring up new grievances, and it must be presumed that defendants would not have settled with her then if she had reserved that right.
Whether in deceit cases it is possible to split grievances in partial settlements and retain the fraud basis at all for. subsequent litigation we need, not decide, for we are satisfied that, when plaintiff’s allegations are read with the contract for exchange and the contract of settlement appended to the answer, the settlement must be enforced as final. . -. - , . ■
*706In Keylon v. Inch, 178 Wash. 522, 35 P.2d 73 (1934), the plaintiff purchased a garage and subsequently discovered there had been some misrepresentations made by the seller. Plaintiff sought to secure a cancellation of a note and a mortgage which he had executed as part of the transaction. The parties finally agreed to a settlement, but 3 days later the plaintiff brought suit for damages based on fraud. In affirming the dismissal of plaintiff’s suit by the trial court, we adopted, at 531, the following statement from Burne v. Lee, 156 Cal. 221, 104 P. 438 (1909):
“. . . when a party claiming to have been defrauded, enters, after discovery of the fraud, into new arrangements or engagements concerning the subject-matter of the contract to which the fraud applies, he is deemed to have waived any claim for damages on account of the fraud.”
In Bonded Adjustment Co. v. Anderson, 186 Wash. 226, 231, 57 P.2d 1046, 106 A.L.R. 166 (1936), we said:
It is fairly inferable from the allegations of the amended answer and cross-complaint that the appellants had knowledge of the alleged fraud in August, 1930; but, in any event, it is admitted that they had full knowledge in June and August of 1931. Notwithstanding this, they made a new arrangement for credit in September, 1930, under which they secured an extension of time for payment of part of the first installment of the purchase price. Again, on March 12, 1932, after their default on the final installment, as well as on the note given for part of the first installment, they made another arrangement for further time and the giving of two new notes to cover the whole of the debt due upon the tractor.
The facts bring the case clearly within the principle announced in Keylon v. Inch, 178 Wash. 522, 35 P. (2d) 73, that, when a party claiming to have been defrauded enters, after discovery of the fraud, into new arrangements or engagements concerning the subject matter of the contract to which the fraud applies, he is deemed to have waived any claim for damages on account of the fraud.
Accord, Owen v. Matz, 68 Wn.2d 374, 413 P.2d 368 (1966). See also Kessinger v. Anderson, 31 Wn.2d 157, 196 P.2d *707289 (1948). The general rule is found in 24 Am. Jur. Fraud and Deceit § 214 (1939) at 42:
[I]f one induced by misrepresentations or fraud to deal or acquire, or to enter into a contract for the acquisition or use of, property thereafter, with knowledge of the deception, receives from the party guilty of fraud some substantial concession or enters into a new contract in respect of the transaction, he thereby relinquishes all right to recover or recoup damages because of the misrepresentations.
A party claiming fraud waives his right to damages for that fraud when he enters into a compromise of the dispute, unless he clearly and objectively manifests his intent not to waive his claim for damages due to the fraud. There is no evidence in this record to justify finding that the defendant intended to reserve his claim for damages due to the fraud. We are not here dealing with a “babe in the woods.” Defendant had engaged in several businesses, had had experience in buying and selling businesses, and was represented by counsel who drafted the compromise agreement.
The trial court seemed to rely on the doctrine of business compulsion to negate the effect of the compromise agreement. Business compulsion is a modem species of duress which will, like common law duress, vitiate a contract induced thereby. See Marrazzo v. Orino, 194 Wash. 364, 78 P.2d 181 (1938); 25 Am. Jur. 2d Duress and Undue Influence § 7 (1966). However, a threat of litigation made in a good faith belief that a cause of action exists will not constitute duress even though no cause of action exists. Doernbecher v. Mutual Life Ins. Co., 16 Wn.2d 64, 132 P.2d 751 (1943). In order for such a threat to constitute duress it must threaten an abuse of process. Also the mere fact that one enters into a compromise agreement or contract as a result of the pressure of business circumstances or pecuniary necessity does not constitute duress or business compulsion. In order to constitute duress, some unlawful or unconscionable pressure must be applied. See Starks v. Field, 198 Wash. 593, 89 P.2d 513 (1939); Kohen *708v. H. S. Crocker Co., 260 F.2d 790 (5th Cir. 1958). Any pressures placed upon defendant do not fall within those categories.
Moreover, it is a fundamental rule that a person who seeks to disaffirm a contract made under business compulsion must act promptly upon removal of the duress. Walla Walla Fire Ins. Co. v. Spencer, 52 Wash. 369, 100 P. 741 (1909). In the instant case, the defendant made five installment payments of principal and interest upon the second agreement and three partial payments. The facts of this case fail to establish business compulsion.
The first contract entered into by the plaintiff and defendant was a conditional sale. Such a transaction is not subject to the usury statute. Hafer v. Spaeth, 22 Wn.2d 378, 156 P.2d 408 (1945).
The compromise and settlement agreement specifically provided that the “said chattel mortgage shall supercede [sic] a conditional sales contract entered into prior to March 28th, 1962.” The use of the word supersede indicates that the parties were entering into a new and different transaction. The compromise agreement was made after complaints of fraud by the defendant and threats of litigation by the plaintiff were made; It was agreed that the balance outstanding on the sale would be compromised down to $27,124.90. The carrying charges to be added were in the amount of $9,493.70, or a total sum of $36,618.60. The payments per month were-reduced to $610.31, and the time extended to 60 months, beginning June 15, 1963.
The compromise agreement' was not merely an extension of the orginal sale transaction as plaintiff urges in his attempt to extricate it from the scope of the usury statute. It was a forbearance of an outstanding debt. The sale had already taken place and the defendant was in possession of the merchandise. If the defendant had paid the sum of $27,124.90 at the time the compromise agreement was reached, the indebtedness would have been discharged. Instead, it was forborne, the payments were reduced and extended, and the' sum of $9,493.70 was *709charged to the defendant for this forbearance. Hafer v. Spaeth, supra; Deitch v. Kessler, 13 Misc. 2d 421, 177 N.Y.S.2d 792 (1958). In Knight v. American Inv. & Imp. Co., 73 Wash. 380, 132 P. 219 (1913), we held a contract to pay $5,000 for an extension of the time for payment of some mortgage notes usurious.
This case presents the convérse of those cases holding that a usurious instrument remains usurious unless it is replaced by a new, different, and clean instrument. Celian v. Coast Fin. Corp., 189 Wash. 676, 66 P.2d 363 (1937); Clausing v. Virginia Lee Homes, Inc., 62 Wn.2d 771, 384 P.2d 644 (1963). The parties began with a clean (insofar as usury is concerned) conditional sale contract. Searching for the real transaction between the parties and disregarding evasions and subterfuges of all kinds, I find a compromise agreement that is new and different, but unclean. The sum of $9,493.70 was found by the trial court to be interest and in excess of 12 per cent, and usurious. This finding is correct. RCW 19.52.020.
Even though the original conditional sale contract was not usurious at its inception, the compromise agreement is subject to the application of the usury statute. 55 Am. Jur. Usury § 23 (1946); 6 Williston, Contracts § 1686 (1938); Annot., 143 A.L.R. 238, 265 (1943).
A usurer is entitled to recover only the principal less the penalty for usury. RCW 19.52.030. Installment payments are applied first to interest and the remainder, if any, to principal. Western Loan & Bldg. Co. v. Larsen, 110 Wash. 213, 188 P. 390 (1920); Clausing v. Virginia Lee Homes, Inc., supra.
The defendant is entitled to the following credits on his original obligation of $27,124.90:
(1) The sum of $3,916.46, being double the interest actually paid;
(2) The sum of $7,535.47, being the interest accrued but unpaid;
(3) The sum of $1,892.94, being payments allocated to principal.
*710I would remand with directions to enter judgment for plaintiff in the sum of $13,780.03.
Hill, Finley, and Hamilton, JJ., concur with Neill, J.

The agreement is set forth in full in the majority opinion.