Court Opinion

ID: 9539750
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:09:33.394918+00
Date Added: 2024-06-11T14:59:18.050126
License: Public Domain

WHITE, J.
This is an appeal by Tranquilla Vai from a judgment for defendant Bank of America as eoexeeutor with Henry Bodkin of the estate of Giovanni Vai, deceased, in a suit brought to rescind a property settlement agreement on the ground of fraud, for recovery of part of the property received by the husband under the agreement, and for damages in the event recovery thereof cannot be had.
Plaintiff and Giovanni (John) Vai were married in Italy in 1907 and emigrated to this country and Los Angeles in 1912. John joined his brother James in operating a winery. He remained in this business and related operations continuously from 1912 until his death in February 1957, and plaintiff actively assisted him until their only child Madeline was born in 1925. Their daughter is mentally arrested and has required constant care and attention. Apparently the relations between plaintiff and her husband had been something less than harmonious for several years before January 1953, *334when she left their home in Alta Loma and moved to another residence they owned in Parkside, where she has since resided. She consulted with counsel, Mr. Hallam Mathews, on January 7, 1953. After plaintiff gave him a list of the property in which she believed John had an interest, Mr. Mathews secured a Dun and Bradstreet report on Padre Vineyard Company, owned jointly by John and his brother, and a combined report on Cucamonga Valley Wine Company and Rancho El Camino, John's individual businesses. Mr. Mathews also secured descriptions of real property in San Bernardino County and a description of the Parkside property, consisting of a 30-year-old residence with 15 apartments.
On February 6, 1953, plaintiff filed a separate maintenance action, and John was served with a ‘ ‘ Subpoena In Re Deposition and Order to Show Cause for Support, etc. Pendente Lite.” John and his attorney represented, and the trial court so found, that John’s health was sueh that adversary proceedings would be highly detrimental; that it would not be necessary for Mr. Mathews to pursue his legal remedies of discovery; that plaintiff would be voluntarily supplied with full and complete information; and that John would negotiate a fair and equitable property settlement agreement. No further independent investigation was made by plaintiff except for an appraisal of the Parkside property which she was to receive in the property settlement agreement. Following execution of this agreement, on March 16, 1953, the action for separate maintenance was abandoned. The present action was instituted shortly after John’s death.
The property settlement agreement provided that plaintiff should have one-half of any property later discovered to have been inadvertently omitted from the list of community assets. Pursuant to this clause, the trial court awarded her a total of $84,000 as her share of the following items of “after-discovered” property: 95 shares of common stock of the Bank of America, together with all dividends paid thereon since March 16, 1953, amounting to $897.75; a promissory note in the principal sum of $33,640 with $1,462.55 interest; an account payable to Giovanni Vai, from Padre Vineyard Company, in the sum of $23,000; the balance owing on a promissory note of Padre Vineyard Company in favor of Giovanni Vai in the sum of $25,630.44; the balance owing on two notes of Padre Vineyard Company to Giovanni Vai, doing business as the Cucamonga Valley Wine Company in the sum of $42,315.38.
*335The trial court found that the net worth of John and Tranquilla Vai at the time of the settlement was $1,270,000, not including one-half the shares of Padre, net book value of which was $800,000. All of the property was conceded by the parties to be community. There were debts for which the community was liable of $85,000. In the settlement, plaintiff received the Parkside property, valued at $150,000, $25,000 in cash, a Dodge automobile, $1,204 balance in an account in the Bank of America, and half of the Italian lire on deposit in Italy (about $1,000). She was released from any obligation to support the daughter, Madeline, and from any possible liability as coguarantor with her husband on a note securing a debt from Padre Vineyards to the Bank of America. Although she waived alimony, she was guaranteed a net income of $500 per month from Parkside, which defendant agreed to keep in repair as long as she owned it. John received the balance of the property which was, it now appears, valued at least at $1,500,000.
The complaint initiating this suit to rescind the property settlement agreement charged that in the negotiation of the property settlement, John Vai was guilty of actual fraud, consisting of allegedly false representations and intentional concealment of material facts, by which the plaintiff was deceived and defrauded. It also charged constructive fraud, consisting of breach of John Vai’s duty as a fiduciary to make a free and full disclosure of all important and relevant facts. The trial court ruled that John was not a fiduciary, that the parties dealt at arm’s length, that there was no issue of constructive fraud and that there was no proof of actual fraud.
Plaintiff contends that although the confidential relationship between herself and her husband, based on her confidence and trust in him, may have been terminated by her filing suit for separate maintenance, her husband remained in a fiduciary position in respect to her interest in the community property. He breached his fiduciary duty, she asserts, by concealing material facts and by falsely representing others.
Defendants contend that Collins v. Collins, 48 Cal.2d 325 [309 P.2d 420], is directly applicable to the facts at bar as found by the trial court. In Collins, the wife sought recision of a property settlement agreement on the ground that her husband had concealed community property assets from her and thus breached his duty of full disclosure arising out of the confidential relationship. Her attorney in Nevada where she *336had gone to establish residence for divorce, requested the defendant husband to furnish them with a full and accurate list of community property. This request was never complied with. Mrs. Collins returned to California and signed an agreement prepared by defendant’s attorney, and against the advice of her own counsel. Some properties standing in defendant’s name were not listed in the agreement, but no attempt had been made by the defendant to conceal these properties which he claimed to be his separate property, or to hinder in any way an investigation begun by Mrs. Collins and her attorney. Manifestly, Mrs. Collins was fully aware that her husband had not disclosed any information about their community property, and expressly waived any such disclosure in writing when she executed the agreement. She knowingly chose to deal at arm’s length and to rely on her own investigation of community assets. Thus by her own act, Mrs. Collins terminated the fiduciary relationship in respect to her interest in the community property and the attendant duty to disclose.
Plaintiff in the instant case discontinued the adversary proceedings commenced by her at the request of the defendant who offered to supply full and complete information concerning the property all of which was conceded to be community, and who further stated that he was willing to negotiate a fair and equitable property settlement. It would seem that plaintiff chose not to terminate the fiduciary relationship nor to deal at arm’s length,-but instead to take the defendant’s offer at face value. She signed the agreement believing that she was fully and accurately informed as to the Vai community financial position.
Manifestly, therefore, the facts in Collins, supra, are markedly dissimilar from those in the instant case except insofar as both wives were represented by counsel who commenced investigations.
Section 161a (Civ. Code) provides: “The respective interests of the husband and wife in community property during continuance of the marriage relation are present, existing and equal interests under the management and control of the husband as is provided in sections 172 and 172a. . . . This section shall be construed as defining the respective interests and rights of husband and wife in the community property.”1
*337 Because of his management and control over the community property, the husband occupies the position of trustee for his wife in respect to her one-half interest in the community assets. (Fields v. Michael, 91 Cal.App.2d 443, 447-448 [205 P.2d 402].) Recognizing this principle, Justice Traynor, speaking for a unanimous court, stated in Jorgensen v. Jorgensen, 32 Cal.2d 13, 21 [193 P.2d 728], “As the manager of the community property the husband occupies a position of trust (Civ. Code, §§ 172-173, 158), which is not terminated as to assets remaining in his hands when the spouses separate. It is part of his fiduciary duties to account to the wife for the community property when the spouses are negotiating a property settlement agreement.”
“ Even divorce proceedings pending do not, in themselves, interrupt the husband’s powers with respect to the management and control of community property, as the effect of such proceedings is not to take the property into the custody of the court. The husband continues to have control of it and full power to dispose of it.” (Chance v. Kobsted, 66 Cal.App. 434, 437 [226 P. 632].)  “When a divorce is pending the power of a husband over the community property exists until the entry of a final decree. (Lord v. Hough, 43 Cal. 581; Chance v. Kobsted, 66 Cal.App. 434, 437 [226 P. 632] ; In re Cummings, 84 F.Supp. 65, 69.) ” (Harrold v. Harrold, 43 Cal.2d 77, 81 [271 P.2d 489].)
Since the husband’s control of the community property continues until there has been a division of it by agreement or by court decree, it would follow that the husband would continue to remain a fiduciary in respect to his wife’s interest in the community assets until such division was made. Of course, as was the case in Collins v. Collins, 48 Cal.2d 325 [309 P.2d 420], the wife may choose not to rely on her husband and release him from the performance of his fiduciary duties.
This fiduciary relationship arises by virtue of the community property system which gives the husband management and control of such property in order that the assets be more efficiently handled, and exists only as to the community property over which the husband has control. It should be distinguished from the confidential relationship which is presumed to exist between spouses.  “A confidential relation exists between two persons when one has gained the confidence of the other and purports to act or advise with the other’s interest in mind. A confidential relation may exist *338although there is no fiduciary relation; it is particularly likely to exist where there is a family relationship or one of friendship or such a relation of confidence as that which arises between physician and patient or priest and penitent.” (Best., Trusts 2d, § 2, comment b.)
The confidential relationship and obligations arising out of it are, therefore, dependent upon the existence of confidence and trust, but the husband’s fiduciary duties in respect to his wife’s interest in the community property continue as long as his control of that property continues, notwithstanding the complete absence of confidence and trust, and the consequent termination of the confidential relationship.  The prerequisite of a confidential relationship is the reposing of trust and confidence by one person in another who is cognizant of this fact. The key factor in the existence of a fiduciary relationship lies in control by a person over the property of another.  It is evident that while these two relationships may exist simultaneously, they do not necessarily do so. For example, in Estate of Cover, 188 Cal. 133 [204 P. 583], where all of the property under the husband’s control was his separate property, only a confidential relation existed. As this court there pointed out at page 144, the husband in contracting with his wife concerning his separate property, may choose either to advise his wife with her welfare in mind or to “deal with her at arm’s length and as he would with a stranger, all the while giving her the opportunity of independent advice as to her rights in the premises.”
The simultaneous existence of a confidential relationship based on trust and confidence and a fiduciary relationship arising out of control of property of another is readily apparent in many common associations—principal and agent, attorney and client, business partners, to name a few.  It is evident that although the confidential relationship may be terminated by either party, if an individual continues to control property of the other he is held to the duties of a fiduciary as long as he retains such control, notwithstanding the termination of the confidential relationship.
As noted in Fields v. Michael, supra (91 Cal.App.2d 443, 447), “The position of the husband, in whom the management and control of the entire community estate is vested by statute (Civ. Code, §§ 161a, 172, 172a), has been frequently analogized to that of a partner, agent or fiduciary. (Estate of McNutt, 36 Cal.App.2d 542, 552 [98 P.2d 253] ; Grolemund v. Cafferata, 17 Cal.2d 679, 684 [111 P.2d 641]; Lynam v. *339Vorwerk, 13 Cal.App. 507, 509 [110 P. 355]; 1 de Funiak, Principles of Community Property, § 95, p. 263.) ”
The dissolution of a partnership and attendant agreements respecting partnership property appear to be remarkably similar to the dissolution of the conjugal relation and property settlement agreements.  Briefly, “in all proceedings connected with the conduct of the partnership every partner is bound to act in the highest good faith to his copartner and may not obtain any advantage over him in the partnership affairs by the slightest misrepresentation, concealment, threat or adverse pressure of any kind (Civ. Code, §§2410, 2411).” (Llewelyn v. Levi, 157 Cal. 31, 37 [106 P. 219], quoted in Yeomans v. Lysfjord, 162 Cal.App.2d 357, 361-362 [327 P.2d 957], and Prince v. Harting, 177 Cal.App.2d 720, 727 [2 Cal.Rptr. 545].)  In view of the nature of the relation, the necessity of exercising the highest good faith in it is especially marked between a managing partner and his copartners, and proof that one has waived his rights against the other must be clear. (Laffan v. Naglee, 9 Cal. 662, 679 [70 Am.Dec. 678], Burrow v. Carley, 210 Cal. 95, 105 [290 P.577].)  In the course of negotiations for dissolution, each partner must deal fairly with his copartners and not conceal from them important matters within his own knowledge touching the business and property of the partnership. (Arnold v. Arnold, 137 Cal. 291, 296 [70 P. 23].)  Thus, one partner, in negotiating for the purchase of his copartner’s interest in the partnership owes the latter the duty of fair play and full disclosure, but once the sale is consummated, the relationship between them immediately ceases and the purchaser is justified in dealing thereafter with the other at arm’s length. (Wise Realty Co. v. Stewart, 169 Cal. 176 [146 P. 534] ; 120 A.L.R. 724.)
Manifestly, the fiduciary duties and rules governing their performance by a husband should be no fewer or less rigorous than those imposed upon business partners.  To hold, as defendant urges, that if a wife employs able counsel upon whom she relies in negotiating a property settlement agreement in conjunction with her action for separate maintenance, that her husband is thereby released from any fiduciary duties in respect to her interest in the community property, would put a wife in a far less protected position than a partner whose partnership is being dissolved. It would “permit the authority of the husband in controlling the com*340munity property, given him in the interest of greater freedom in its use and for its transfer for the benefit of both himself and his wife, to become a weapon to be used by him to rob her of every vestige of interest in the community property with which the law has expressly invested her. Such a conclusion would violate every sense of justice, and outrage every principle of fair dealing known to the law. ’ ’ (Provost v. Provost, 102 Cal.App. 775, 781 [283 P. 842].)
Plaintiff alleges that due to • misrepresentations and concealments by the defendant, she was not informed as to the actual value of the community property and that she would not have executed the property settlement agreement in question had she been accurately and fully informed.
Specifically, plaintiff contends that the value of Rancho El Camino was misrepresented and concealed. The following findings in respect to Rancho El Camino were made by the trial court. Mr. Mathews, plaintiff’s counsel, was shown a financial statement prepared by John showing the book value of the vineyard land at Rancho El Camino to be $200 per acre. Plaintiff's counsel was told of other vineyard land which sold for $400 to $450 an acre but that such land was closer to factories. He was not told of the price received by John ($566 per acre) for vineyard land immediately to the north of Rancho El Camino sold nine months previously. The trial court found that Mr. Mathews (plaintiff’s attorney) was told that Rancho El Camino was of little market value as a vineyard and could hardly be sold when the wine market was depressed. However, on February 21, 1953, 23 days prior to the execution of the property settlement agreement, John Vai executed a sale deposit receipt for $25,000 with Donald Duncan, for the sale of Rancho El Camino, at a price of $525,000, or $814 an acre. Plaintiff was never informed of this fact. Escrow was opened four days after execution of the property settlement agreement with plaiptiff, and the property duly sold to Duncan.
As additional breaches of John’s fiduciary duty, plaintiff draws our attention to representations relating to the financial condition of Padre Vineyard which were made by John to his wife and her attorney. When consideration is given to representations found by the trial court to have been made to plaintiff and comparison is had with other findings as to the verity of such representations, it is readily apparent that many representations were either not true or at least only partially true. For instance, to cite a few: (1) Representation: *341Little would be realized if Padre were liquidated. Finding: Padre’s assets at the time of the execution of the property settlement agreement exceeded its liabilities by approximately one million dollars; it’s net book value was in excess of $800,000. (2) Representation: Padre was in danger of insolvency. Finding: It was not in danger of immediate insolvency, but if its operations continued to lose money as it had in the past, a danger of insolvency existed. (3) Representation: Salaries due to John and his brother as officers of Padre had not been paid. Finding: Salaries of $300 to $500 a month had been and were currently being paid. (4) Representation : Padre owed John $80,000 to $90,000 and could not meet its obligations. Finding: Yarious payments, including $2,500 per month, on indebtedness owing to John had been made by Padre during the months previous to the execution of the property settlement agreement. (5) Representation: A grave danger existed that Mrs. Yai and John would be held liable on a continuing guaranty of Padre’s liabilities up to $300,000 to the Bank of America. Finding: The indebtedness to the Bank was secured by the hypothecation of assets worth $1,320,729 including only a part of the wine inventory which could have been sold on the market for $435,000.
A transaction which took place in September, 1954 is indicative of the actual worth of John’s one-half interest in this (Padre) company which was “in danger of insolvency.” Padre organized a new corporation called Padre Holding Company, and later Alta Loma Development Corporation. John, in a split-off procedure, became the sole owner of this corporation in exchange for his Padre stock. At that time, the holding company had a net worth of $471,500 and no liabilities. By June 30, 1955, over $300,000 of its assets were in cash.
As heretofore stated, the trial court found that the net community worth at the time the agreement was signed was $1,270,000 exclusive of one half of the Padre stock which John and plaintiff owned. The net book value was $800,000. Roma Wine had offered to buy the Padre company for $850,000 cash, assuming the liabilities, and as previously noted, John received stock valued at over $400,000 in the split-off procedure noted above. So, although the trial court felt that the stock in Padre had no determinable fair market value, a valuation of $400,000 on the community interest in Padre as of March 1953 would not be excessive. This brings the net community worth up to $1,670,000, The trial court found that the obliga*342tion undertaken by John in the property settlement agreement to support Madeline for the rest of her life had a value as of March 16, 1953, of between $516,000 to $615,000. Even if this entire sum is deducted from the total community assets, there remained over $1,000,000. It is obvious that the division of the marital property under the instant agreement is an inequitable one, and one to which neither plaintiff nor her attorney would, as they contend, have agreed had they been fully informed by John Vai as to the value of the community assets.
Numerous other contentions relating to the existence of actual fraud are made by plaintiff, many of which appear to have merit. It does not seem necessary to discuss them, however, in view of our holding contrary to that of the trial court that a husband is under a fiduciary duty with respect to his wife’s interest in the community property under his control and management.  The failure of the husband in the instant case to disclose fully and fairly material facts relating to the value of community assets from which John gained an advantage constitutes a concealment of material facts and a breach of this fiduciary duty. This is constructive fraud, whether or not such failure to disclose was accompanied by an actual intent to defraud. (Civ. Code, §§ 2235, 1573, subds. 1 and 2.)
We are persuaded that the trial court misapplied the law and erred in holding that no fiduciary relationship existed during the negotiations leading up to the execution of the property settlement agreement. The facts as found by the trial court show the existence of a fiduciary relationship and constructive fraud as a matter of law.
As to the failure of the now decedent husband to disclose fully and fairly and the concealment on his part of material facts with regard to the value of assets of the community, we are satisfied from a reading of the record that this deception was not only practiced upon the plaintiff wife but upon Mr. Vai’s attorney, Henry G. Bodkin, Sr., as well. At the trial of the instant proceeding, the latter testified that at the time the property settlement agreement was negotiated, his client, Mr. Vai, did not advise Attorney Bodkin, Sr., nor did the latter have any knowledge of the “after-discovered” property hereinbefore referred to, the wife’s share of which amounted to $84,000. Attorney Bodkin, Sr. further testified that at no time during the property settlement negotiations did his client, defendant husband, inform him that 23 days prior to *343the execution of the property settlement agreement, he had executed a sale deposit receipt for $25,000 for the sale of Rancho El Camino, at a price of $525,000, or $814 an acre, instead of $200 per acre which Mr. Vai had represented to plaintiff wife was the book value of the vineyard land at Rancho El Camino.
Defendants contend, however, that plaintiff is barred by laches and estoppel. The complaint in the instant action was not filed until March 18, 1957, although the agreement was signed by the parties on March 16, 1954. The trial court found that the plaintiff was told of the sale of Rancho El Camino by John and by one of his employees in the “Spring” of 1954, and consequently is barred by the equitable doctrine of laches: an unreasonable delay in commencing the action which has prejudiced the defendants.
To determine whether the delay has been an unreasonable one, we are guided by the applicable statute of limitations for an action at law, in this case, Code of Civil Procedure section 338, subdivision 4: “An action for relief on the ground of fraud or mistake [must be commenced within three years]. The cause of action in such case not to be deemed to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.”
There is no evidence in the record that plaintiff actually knew of the fraud before the death of her husband. However, “discovery is different from knowledge, [so] that where a party defrauded has received information of facts which should put him upon inquiry, and the inquiry if made would disclose the fraud, he will be charged with a discovery as of the time the inquiry would have given him knowledge. ’ ’ (Victor Oil Co. v. Drum, 184 Cal. 226, 240 [193 P. 243].)
“The circumstances must be such that the inquiry becomes a duty, and the failure to make it a negligent omission.” (Tarke v. Bingham, 123 Cal. 163, 166 [55 P. 759].) “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.” (MacDonald v. Reich & Lievre, Inc., 100 Cal.App. 736, 740-741 [281 P. 106].)
Assuming that plaintiff could have discovered the fraud had she investigated, defendants have not pointed out *344any circumstances which should have put plaintiff upon inquiry until after John’s death in 1957 when she was told that she had not been treated fairly by her husband.
Defendants argue that plaintiff is estopped and precluded from rescission by the stipulation in the agreement that it was entered into freely and voluntarily without promises or representations not contained therein, and the trial court so found. But, as plaintiff correctly points out, when the agreement itself is procured by fraud, none of its provisions have any legal or binding effect. “This provision of the contract—even if we assume that, if valid, it could redound to the benefit of the Association—was not a waiver of plaintiffs’ right to maintain the action. The fraud which was the inducing cause of the execution of the contract renders the whole instrument vulnerable—the clause in question as well as all the other provisions. (Watson v. Duarte, 62 Cal.App. 52 [215 P. 1039]; American National Bank v. Sommerville, 191 Cal. 364 [216 P. 376].) ... ‘No one can be estopped by anything contained in an instrument which instrument was itself obtained from him by fraud and deceit.’ (Hofflin v. Moss, 67 F. 440, 444 [14 C.C.A. 459].) The chain cannot be stronger than its weakest link. The clause which it is claimed estops plaintiff to complain of the fraud cannot be made to survive the rest of the transaction as a shield and protection to defendants, when false representations were the efficient and inducing cause of the contract. ’ ’ (Palladine v. Imperial Valley Farm Lands Assn., 65 Cal.App. 727, 747 [225 P. 291].)
It is manifest from the foregoing that plaintiff is neither estopped nor barred by laches from seeking to rescind the property settlement agreement, and that she is entitled to the relief sought because of the constructive fraud of her husband.
Por the foregoing reasons the judgment is reversed.
Gibson, C. J., Peters, J., Dooling, J., and Fourt, J. pro tem.,* concurred.

Civil Code, 5172: “The husband has the management and control of the community personal property. . . Civil Code, 5172a: “The husband has the management and control of the community real property. . .

 Assigned by Chairman of Judicial Council.