Court Opinion

ID: 9611108
Source: CourtListenerOpinion
Date Created: 2023-08-22 03:52:11.971503+00
Date Added: 2024-06-11T08:49:55.236850
License: Public Domain

PETERS, P. J.
I dissent.
The recent cases of Wennerholm v. Stanford Univ. Sch. of Med., 20 Cal.2d 713 [128 P.2d 522, 141 A.L.R. 1358]; Kimball *572v. Pacific Gas & Electric Co., 220 Cal. 203 [30 P.2d 39]; Pashley v. Pacific Elec. Ry. Co., 25 Cal.2d 226 [153 P.2d 325], and Hobart v. Hobart Estate Co., 26 Cal.2d 412 [159 P.2d 958], have liberalized the old rules of pleading and freed the law from the strait jacket of long out-moded and technical authorities under which slight omissions in a pleading were held sufficient to justify a trial court in sustaining a demurrer without leave to amend or in granting a judgment on the pleadings. The majority opinion in the present case, while giving lip service to some of these authorities, in fact reverts to the old rules, and, in my opinion, is contrary to the fundamental spirit of those authorities. Under the old rules the courts scrutinized pleadings carefully and attempted to find defects that could be held to be fatal to the statement of a cause of action. That is exactly what is done by the majority in the present case. Under the rules announced in the above cited cases, however, the courts now attempt, if possible, to spell out a cause of action where the facts stated disclose that justice so requires, even though details are lacking. The fundamental thought behind the modern rules is that a lawsuit is not a game, where the spoils of victory go to the clever and technical regardless of the merits, but a method devised by society to settle peaceably and justly disputes between litigants. The rules of the contest are not an end in themselves. Unless the rules tend to accomplish justice the rules should be discarded. It must not be forgotten that behind each lawyer is a client, and that it is the client’s rights that are involved, not those of the lawyer. For that reason the modern rule is and should be that if a complaint substantially hints at a cause of action it is reversible error to sustain a demurrer without leave to amend or to grant a judgment on the pleadings. If the modern rule be followed in the instant case there is no doubt at all in my mind that the trial court committed error in granting judgment on the pleadings.
Although the complaint is inartfully drawn, and is incomplete in some details, a cause of action has in fact been substantially disclosed. This was an original complaint. General and special demurrers were interposed by the defendants. These demurrers were overruled. The majority opinion now holds that the trial judge who overruled these demurrers committed error, even as to the overruling of the special demurrer, and this in a case where the defendants are not appeal*573ing and cannot, of course, complain of any ruling adverse to them.
After answers were filed and at the commencement of the trial the defendants moved for judgment on the pleadings. It must not be forgotten that up to this point plaintiffs’ counsel was entitled to believe that the complaint was sufficient. Over two years before the commencement of the trial another department of the same court had so ruled. (See comments in MacIsaac v. Pozzo, 26 Cal.2d 809, at p. 815 [161 P.2d 449].) After defendants’ counsel had challenged the sufficiency of the complaint, and after the trial court had indicated that it thought the complaint insufficient, plaintiffs’ counsel asked leave to amend. He was somewhat vague as to what further facts could be alleged but it is quite obvious that many, if not all, of the deficiencies of the pleading that are pointed out at length in the majority opinion could have been remedied by amendment. The trial court suggested that the amendments be prepared during a ten-minute recess. Counsel requested further time, and suggested a week’s continuance, and, when this was denied, asked for a two-day continuance. The court granted a fifteen-minute continuance, and several amendments were then drafted. It is quite clear that this time was totally inadequate to have permitted counsel to have considered sufficiently the many objections raised by defendants, and discussed at great length in the majority opinion. A mere reading of that opinion demonstrates how complex the problem is. While it is true that a jury had been then impanelled, there were no legal or practical reasons why the trial court could not have granted a reasonable continuance to plaintiffs to permit their counsel to maturely study the problems involved. This it did not do.
The majority opinion holds that no cause of action for fraud is pleaded. With this conclusion I disagree. The pleading is entitled: “Complaint for Damages for Fraud.” The complaint alleges that plaintiffs in 1928 conveyed certain parcels of real property owned by them to the Goldsteins pursuant to a plan whereby the Goldsteins were to erect certain apartments thereon, to be financed by loans from the defendant Western Loan and Building Company secured by first mortgages, and that plaintiffs were to have second mortgages. It is alleged that this plan was carried out, and that the Goldsteins executed and delivered to Western Loan and Building Company *574two notes and first mortgages, one for $45,000, and one for $35,000; that the Goldsteins started construction of the buildings; that Western Loan and Building Company advanced some of the moneys; that prior to completion the Goldsteins abandoned the project and defaulted on the various loans made by them; that defendants then requested of plaintiffs $12,000 “to be applied on account of certain work, labor and material required for the completion of the aforesaid buildings” said sum to be used by defendants “for the cost of the completion of such structures”; that that sum was deposited with defendants and the buildings were completed under the supervision of defendants.
At this point it should be noted that there is sufficiently pleaded a transaction whereby money was deposited with defendants at their request to be used for a specific purpose, and that they represented it would be used for that purpose. Thefe can be no doubt but that when defendants received the $12,000 they were obligated to use the money for that purpose. There can be no doubt at all that the deposit was in the nature of a trust fund, and that a misuse of the fund constituted a breach of trust.
The complaint then alleges the foreclosure of plaintiffs’ liens and the acquisition of title by plaintiffs to the property subject to the defendants’ liens; that from time to time plaintiffs demanded an accounting from defendants and from time to time defendants promised to account but failed to do so; that in June, 1940, plaintiffs commenced an action for an accounting, and defendants on February 1,1941, rendered an accounting purporting to show that the $12,000 had been properly expended; that these statements were false and untrue and known to the defendants to be so, and were furnished by defendants with intent to conceal the fact that the $12,000 had not been expended in the construction of the buildings; that the true fact is that defendants used the money to finance other buildings being constructed for the Goldsteins and charged such advances to plaintiffs’ buildings; that plaintiffs prior to February 1, 1941, believed the money had been used on plaintiffs’ buildings; that the true facts were discovered shortly prior to the filing of the action.
The test that must be applied in determining the sufficiency of this pleading has recently been stated as follows: “In considering whether the judgment on the pleadings was prop*575erly granted, it is bnt necessary to determine the sufficiency of the complaint upon the same principle as though it had been attacked by general demurrer. In other words, it is only where there is an entire absence of some essential allegation that a motion for judgment on the pleadings may be properly granted." (Ronnard v. Lockheed Aircraft Corp., 26 Cal.2d 149, 151 [157 P.2d 1].) It is likewise error to grant a motion for judgment on the pleadings without affording the pleader a reasonable opportunity to amend. As was said in Maclsaac v. Pozzo, 26 Cal.2d 809, 815 [161 P.2d 449]: “. . . when the facts stated indicate that the party probably has a good cause of action or defense, but that it has been pleaded imperfectly or defectively, and the defects have not been called to his attention by demurrer or by a notice of motion for judgment on the pleadings, the court should not grant the motion without first giving the party an opportunity to elect whether he will stand on his pleadings or amend them. The granting of the motion without leave to amend would in many eases be an absolute denial of justice, and is directly opposed to the policy of the law that cases should be tried and decided on the merits." This case also held that the same tests as are applied in determining whether the trial court abused its discretion in sustaining a demurrer without leave to amend should be applied to the granting of a judgment on the pleadings.
Tested by these standards, in my opinion the trial court committed error in granting the judgment on the pleadings without giving the plaintiff an adequate opportunity to amend. Under the rule of the above two cases all of the grounds of special demurrer discussed at such great length by the majority, must be eliminated from consideration. Moreover, even as to essential allegations it is not necessary that they appear clearly and without ambiguity. The true test, to use the words of the Chief Justice in the Maclsaac case, supra (p. 815), is to ascertain if “the facts stated indicate that the party probably has a good cause of action" even though it is pleaded “imperfectly or defectively." Can there by any doubt but that this complaint indicates that plaintiff “probably has a good cause of action" for fraud? Prom the allegations of the complaint it can be ascertained that the $12,000 was originally secured as a result of an express representation that it was needed to finish construction of the buildings. Are the allegations susceptible of any other reasonable inter*576pretation but that the money was secured with intent to violate this express representation? Is that not substantially hinting at a cause of action for fraud ? I think the answers to these questions are obvious.
Had the action been brought within three years of the time the money was advanced there can be but little doubt that under the facts alleged, and those necessarily inferred, a cause of action for fraud would have been stated. A defendant that secures money on the express promise to use it for a specific purpose, and then uses it for other purposes, is guilty of a fraudulent breach of trust. Although silence is not ordinarily the equivalent of a representation, it may amount to a representation where there is a duty to speak. Here, under the facts pleaded, the defendants were under a duty to speak. They had secured the money upon their representation that the money was necessary to complete the buildings. They had charge of the trust fund. Their failure to speak under the circumstances amounted to a representation that the money had been properly expended. Certainly plaintiffs were not required at their peril to assume that they were dealing with rogues. They were entitled to believe that they were dealing with a reputable concern. Under the circumstances, to say the least, the allegations indicate that plaintiffs “probably” have a “good cause of action” for fraud against defendants. This is so even though the complaint fails to use the word “fraud” in its allegations. This failure is several times commented upon in the majority opinion, and apparently some weight given to it. It is too elementary to require citation of authority that the nature of the cause of action is determined by the facts pleaded, not by how they are characterized.
Plaintiffs did not discover the fraud until some twelve years after it was consummated. Have they alleged sufficient facts to excuse their failure to sooner discover the fraud?
This very problem has so recently received the attention of the Supreme Court in Hobart v. Hobart Estate Co., 26 Cal.2d 412 [159 P.2d 958], that it would be needless repetition to do more than quote from that case. At page 437 the court stated:
“Defendants assert that in addition to these requirements plaintiff must show that he made a diligent inquiry to discover whether or not he had been defrauded, and they argue that plaintiff failed to prove that earlier inquiry would not *577have revealed the falsity of the alleged representations. It is not in every case, however, that a person is barred after three years by failure to pursue an available means of discovering possible fraud. The statute commences to run only after one has knowledge of facts sufficient to make a reasonably prudent person suspicious of fraud, thus putting him on inquiry. Section 19 of the Civil Code provides: ‘Every person who has actual notice of circumstances sufficient to put a prudent man upon inquiry as to a particular fact, has constructive notice of the fact itself in all cases in which, by prosecuting such inquiry, he might have learned such fact.’ (Italics added.) Under this section it was held in Tarke v. Bingham, 123 Cal. 163 [55 P. 759], that the plaintiff was not barred by subdivision 4 of section 338 of the Code of Civil Procedure, since nothing had occurred ‘to excite his suspicion, or to put him upon inquiry.’ (123 Cal. at p. 166.) The court said: ‘Where no duty is imposed by law upon a person to make inquiry, and where under the circumstances “a prudent man” would not be put upon inquiry, the mere fact that means of knowledge are open to a plaintiff, and he has not availed himself of them, does not debar him from relief when thereafter he shall make actual discovery. The circumstances must he such that the inquiry becomes a duty, and the failure to make it a negligent omission.’ (Italics added.) Many other decisions have adopted this view. [Citing cases.] In many cases it has been said that means of knowledge are equivalent to knowledge. [Citing cases.] This is true, however, only where there is a duty to inquire, as where plaintiff is aware of facts which would make a reasonably prudent person suspicious. In the Lady Washington case, the court said (113 Cal. at p. 487 [45 P. 809]) that ‘as the means of knowledge are equivalent to knowledge, if it appears that the plaintiff had notice or information of circumstances which would put him on an inquiry which, if followed, would lead to knowledge, or that the facts were presumptively within his knowledge, he will be deemed to have had actual knowledge of these facts.’ (Italics added.)
“The reason for the rule is well stated in Victor Oil Co. v. Drum, supra (184 Cal. at p. 241 [193 P. 243]): ‘The courts will not lightly seize upon some small circumstance to deny relief to a party plainly shown to have been actually defrauded against those who defrauded him on the ground, forsooth, that he did not discover the fact that he had been cheated as *578soon as he might have done. It is only where the party defrauded should plainly have discovered the fraud except for his own inexcusable inattention that he will be charged with a discovery in advance of actual knowledge on his part.’ It follows that plaintiff is not barred because the means of discovery were available at an earlier date provided he has shown that he was not put on inquiry by any circumstances known to him or his agents at any time prior to the commencement of the three-year period ending June, 1941. ’ ’
Certainly plaintiffs have pleaded no facts to show that they were put on inquiry prior to 1941. The plaintiffs have alleged not only a failure on the part of defendants to speak when they were under a duty to speak, but have alleged a fraudulent concealment of the cause of action when they were compelled to spsak by the filing of the accounting suit. They have properly pleaded such fraudulent concealment within the rules laid down in Kimball v. Pacific Gas & Electric Co., 220 Cal. 203 [30 P.2d 39], and Pashley v. Pacific Elec. Ry. Co., 25 Cal.2d 226 [153 P.2d 325].
To further elaborate my views would unduly extend this dissent. It is sufficient to state that, tested by the standards laid down in the Wennerholm v. Stanford Univ. Sch. of Med., 20 Cal.2d 713 [128 P.2d 522, 141 A.L.R. 1358], case, the Kimball, Hobart and Pashley cases, supra, and the cases of Rannard v. Lockheed Aircraft Corp., 26 Cal.2d 149 [157 P.2d 1] and MacIsaac v. Pozzo, 26 Cal.2d 809 [161 P.2d 449], it was error of a most serious and prejudicial nature to have granted the motion for judgment on the pleadings without affording plaintiff a more adequate opportunity to amend. .1. believe the judgment should be reversed.
Appellants' petition for a hearing by the Supreme Court was denied March 14, 1946. Gibson, C. J., Carter, J., and Traynor, J., voted for a hearing.