Colby v. Title Insurance & Trust Co.

This action was brought to enjoin the defendant corporation from proceeding to sell a certain lot of land in the city of Los Angeles, to quiet the title of plaintiff thereto and to have canceled certain written instruments executed by plaintiff to the defendant corporation, and between her and the copartnership of Lercari, Pera & Co.

Various grounds are urged by appellant for a reversal of the judgment and order, but the main point insisted on is that the decision is against law in this, that the court failed to find on material issues raised by the pleadings.

Before proceeding to set forth particularly the facts alleged in the pleadings, and the findings made, it may be stated, towards a clearer understanding of the issues, that for several years prior to November 19, 1904, Fannie M. Colby, a daughter of plaintiff, was the bookkeeper of the firm of Lercari, Pera & Co., doing business in the city and county of San Francisco; that shortly prior to the above date the firm, claiming that Miss Colby had embezzled a large, but not then definitely ascertained amount of money from it, consulted the Morse Detective Agency of San Francisco in the matter. On the evening of November 18,1904, accompanied by a detective connected with the Morse agency, and a member of the firm of Lercari, Pera & Co., Miss Colby left San Francisco for Los Angeles where the plaintiff, her mother, resided, and where the written instruments, the validity of which are questioned in this action, were executed on November 19, 1904.

These consisted of an agreement, a deed, and a trust declaration. The agreement, which was signed by Fannie M. Colby, and by the plaintiff, her mother, and the firm of Lercari, Pera & Co., contained an admission and an acknowledgment by Fannie M. Colby of an indebtedness to the firm in an unascertained and undetermined amount and an agreement on the part of plaintiff to pay the same to the firm as soon as the indebtedness was fixed and determined; the agreement also provided that the most practicable means should forthwith be adopted to ascertain as nearly as practicable the amount of the indebtedness, and that the conclusion of an expert, or experts, employed for that purpose should be conclusive evidence of the correctness of the amount, and that within thirty days after the indebtedness was so determined the plaintiff agreed to pay the amount thereof to Lercari, Pera & Co. together with the expense of ascertaining it. The agreement further provided that as security for the performance of its terms and the provisions of a declaration of trust accompanying the

In this latter regard it is particularly alleged in the complaint, after setting forth in extensó all the said written instruments and admitting their execution by her on November 19, 1904, that on said date and long prior thereto, and since, plaintiff and her family, consisting of three children, other than Fannie M. Colby, resided on said premises described in said written instruments; that plaintiff is a widow, over the age of fifty-two years and in very poor health, and said premises were used and maintained as a home for the family, hér only income being derived from the rental of rooms in the house on said premises; that- long prior to November 19, 1904, said Fannie M. Colby was employed as a bookkeeper by defendant Lercari, Pera & Co.; that on said last stated date plaintiff read in the daily papers published in the city of Los Angeles that said Lercari, Pera & Co. charged said Fannie M. Colby with the commission of a felony, to wit, the embezzle

It is then further alleged that the fears entertained by her for the safety of her daughter and the charges made humiliated and prostrated plaintiff, and under the belief that her daughter would be prosecuted and sent to jail if plaintiff re

Then follow allegations of service of written notice on plaintiff March 14, 1905, by the defendant Title Insurance and Trust Company of the ascertainment by "an expert that the indebtedness of Fannie M. Colby to the firm of Lereari, Pera & Co. was the sum of $9,886.69 and the expenses of ascertaining it $769, accompanied by a further notice that said Title Insurance and Trust Company would proceed to sell the premises described in the deed from plaintiff to defendant unless payment of these amounts was made within thirty days; these allegations are accompanied by an averment on the part of plaintiff that no conclusion was in fact reached by such expert, but that said indebtedness was wholly undetermined and that said Fannie M. Colby is not indebted to said firm of Lereari, Pera & Co. in the sum claimed to have been ascertained or in any sum at all.

Under these facts alleged, and the further allegation that the defendant Title Insurance and Trust Company had given public notice that it would sell the premises described in the deed to it and unless restrained would proceed to do so, plaintiff prayed that said agreements and deed be decreed null and void, for a temporary injunction restraining the sale of the property described in the deed to be made permanent by the final judgment, and that the title of plaintiff to said property be quieted.

The answer of defendants denied that said instruments were executed for the considerations set forth in the complaint, or

In addition, defendants affirmatively plead facts under which they asserted estoppel and laches against plaintiff. Briefly stated, estoppel was predicated on the following alleged facts: that plaintiff voluntarily proposed and offered to pay to Lercari, Pera & Co. the indebtedness of Fannie M. Colby when ascertained as provided in the instruments executed by her; that Fannie M. Colby admitted prior to, and when said instruments were executed, that she was indebted to Lercari, Pera & Co. in a sum stated by her to be between twenty-five hundred and five thousand dollars, but claimed by Lercari, Pera & Co. to be from seven thousand to ten thousand dollars; that plaintiff also admitted said indebtedness; that at said time, as defendants and Lercari, Pera & Co. are informed and believe, Fannie M. Colby was the owner of and possessed of certain property of the value of about two thousand dollars; that by reason of the execution by plaintiff of said agreement defendant Lercari, Pera & Co. refrained at said time and has since refrained from searching for or attempting in any way to attach said property or to collect the amount of said indebtedness from said Fannie M. Colby, except pursuant to the terms of the agreement executed by plaintiff; that at no time has plaintiff in any way repudiated the admission of indebtedness contained in the written instruments or the oral admissions thereof made by Fannie M. Colby at the time of their execution except until and by the filing of this action, and that said Lercari, Pera & Co. are without any other security for the recovery of said indebtedness. Laches is predicated on the same allegation. This action was commenced about July 6, 1905.

It is to be observed that under the facts alleged in her complaint plaintiff based her right to have all these instruments declared void upon several independent grounds. There were allegations that the execution of said instruments were based upon an illegal consideration, namely,—the compounding of a felony charge against her daughter, which, if sustained by evidence, made the agreement absolutely void under the general rule applying to such contracts, and under section 1668 of the Civil Code. Aside from this, and independent of the

On the appeal from the judgment appellant insists that the findings do not support the judgment on account of the failure of the court to find on these issues, and as the omission to find thereon was also urged as one of the grounds for a new trial in her motion therefor, it is likewise up for consideration here on the appeal from the order denying said motion.' (Kaiser v. Dalto, 140 Cal. 167 , [ 73 Pac. 828 ]; Lyden v. Spohn-Patrick Co., 155 Cal. 177 , [ 100 Pac. 236 ].)

Respondents, while conceding that, as a general rule, no judgment can be properly rendered unless there are findings upon all material issues presented, take the position that the court having found in their favor on their plea of estoppel and laches, it was not necessary to find on the other issues; that the finding so made necessarily defeated the right of plaintiff to recover, even if all the issues upon which the court omitted to find had been found in her favor. (Brison v. Brison, 90 Cal. 328 , [ 27 Pac. 186 ]; Windhaus v. Bootz, 92 Cal. 622 , [ 28 Pac. 557 ]; Smith v. Dubost, 148 Cal. 624 , [ 84 Pac. 38 ].)

The theory of respondents, as we understand it, is that, whether the execution by plaintiff of the agreements and deed was procured through an illegal consideration and therefore void, or whether procured through duress, menace, or undue influence and voidable on that account at her election, it was unnecessary to find on any of these issues because, even if they

In the same connection it is claimed that, as far as the issue as to the illegality of the consideration for the execution of the agreements and deed is concerned, it was immaterial to find on it, because respondents assert that it appears from the complaint that as the consideration for the execution of the instruments was the compounding of a felony, and therefore an illegal consideration, all the parties, including plaintiff, were in pari delicto, and under such circumstances equity will not permit its aid to be invoked by any of the parties to such an illegal transaction, either to enforce it if it remains executory, or to set it aside or to restore the title which has been parted with under it.

We do not deem it necessary to discuss what would be the effect of the findings of the court as to estoppel and laches in favor of defendants, if the issues in the case were simply as to the procurement of the agreements and deed by duress, menace, or undue influence, and the court omitted to make findings on these issues, for certainly as to the issue of illegality of consideration such findings of estoppel and laches could not obviate the necessity of the court finding on that issue.

It is true that, as a general rule, equity will not aid one party or another to an illegal transaction where they stand in pari delicto, but will leave them just where it finds them, to settle these questions without the aid of the court. This rule is universally recognized, and a few of the many authorities announcing it, are Pomeroy’s Equity Jurisprudence, 3d ed., pp. 659, 667, 1703; Atwood v. Fisk, 101 Mass. 363 , [ 100 Am. Dec. 124 ]; Ager v. Duncan, 50 Cal. 325 ; Hays v. Windsor, 130 Cal. 230 , [ 62 Pac. 395 ]; Chateau v. Singla, 114 Cal. 91 , [ 55 Am. St. Rep. 63 , 33 L. R. A. 750 , 45 Pac. 1015 ], cited by respondent.

But this rule only applies where the parties are in pari delicto—where the illegal transaction is entered into voluntarily and the turpitude of the parties is mutual. Where, in the cases cited, the rule has been applied, it will be found that both parties entered into the illegal contract or transaction there under consideration voluntarily, were equally culpable, and relief was refused on that account. Where, however, the party seeking the relief is not a free moral agent, and his con

In Woodham, v. Allen, 130 Cal. 194 , [ 62 Pac. 398 ], plaintiff sued defendant to recover an amount paid him on secured notes and the value of merchandise, the complaint alleging that the money and merchandise had been extorted from her by defendant through fear of threats of a criminal prosecution against her husband. The trial court sustained a demurrer to the complaint. In reversing the judgment it was said: “It is true, as a general rule, that ‘where an illegal contract has been fully executed on both sides the law will aid neither party to recover anything parted with thereunder/ but this rule is subject to the qualification, among others, that the parties to the illegal contract are in pari delicto; and it will be seen, upon examination of the eases cited to support this rule, that they all proceed upon the theory that the parties to the contracts were equally in fault and each had freely joined in the transaction without being induced thereto by the oppression or fraud of the other. We think, therefore, that neither the general rule referred to nor 'the authorities cited in support thereof govern the case made by the complaint herein.”

In 6 American and English Encyclopedia of Law, page 416, after laying down the general rule, it is said: “But when the parties do not stand in pari delicto, and it appears that the contract or deed was obtained by duress, equity will not refuse its aid. Thus, when the inequality in the situation of the parties is such that it is apparent the act was not voluntary, as where one of the parties exacts a security which the other is driven to give in order to save one dear to him from exposure, disgrace and ruin, equity will set aside the contract or deed so obtained.”

In 6 Cyc., page 316, it is said: “Although both parties are chargeable with knowledge that their agreement is contrary to some rule of law, yet, if one of them acts under duress, or what the law regards as undue influence on the part of the other,

In Bryant v. Peck etc. Co., 154 Mass. 461 , [ 28 N. E. 678 ], the plaintiff sued the defendant company to cancel a note and compel a retransfer of stock. A demurrer to the complaint was sustained and plaintiff appealed. In reversing the judgment and directing the overruling of the demurrer, the opinion proceeds: “According to the allegations of the bill the plaintiff became a party to the note from which he prays to be relieved and transferred his stock in consideration that the defendant would not prosecute Ms son for perjury, and under a threat from it that otherwise his son would be prosecuted. The transaction was illegal (Pub. St. C. 205, sec. 27; Gorham v. Keyes, 137 Mass. 583 ) and if the parties stood on an equal footing neither of them would have a remedy against the other. (Atwood v. Fisk, 101 Mass. 363 , [ 100 Am. Dec. 124 ].) But it is well recognized that although both parties are chargeable with knowledge that their agreement is contrary to some rule of law, yet, if one of them acts under duress, or what the law regards as undue influence on the part of the others, they do not stand on an equal footing, and the weaker one may be granted affirmative relief. (Worcester v. Eaton, 11 Mass. 368 , 376; Belding v. Smythe, 138 Mass. 530 , 533.) It is settled that such threats as are alleged to have been addressed to the plaintiff constitute duress. (Harris v. Carmody, 131 Mass. 51 , [ 41 Am. Rep. 188 ]; see Rau v. Von Zedlitz, 132 Mass. 164 .) And accordingly it has been decided in other jurisdictions, in cases like the present, that the plaintiff was entitled to relief in equity. (Foley v. Greene, 14 R. I. 618 , [ 51 Am. Rep. 419 ]; Schooner v. Lissauer, 107 N. Y. 111 , [ 13 N. E. 741 ]; Williams v. Bayley, L. R. 1 H. L. 200; Davies v. Insurance Co., 8 Ch. Div. 469, 477; see Sharon v. Gager, 46 Conn. 189 ; Rau v. Von Zedlitz, 132 Mass. 164 , 167-169.)”

In Bell v. Campbell, 123 Mo. 1 , [ 45 Am. St. Rep. 505 , 25 S. W. 359 ], the son-in-law of plaintiff, Mrs. Bell, was threatened with prosecution for defalcation of public funds. Upon importunities by the sureties on his bond and to save him from prosecution, plaintiff executed notes and a deed of trust of a farrh to the sureties. On failure of plaintiff to pay the notes the farm was advertised and sold under the deed of trust. Pending the proceedings for the sale of the farm and before

Authorities might be multiplied, but we cite only the following as similar in their facts to the allegations in the complaint of plaintiff, and which hold that a party from whom the execution of an illegal contract has been obtained through oppression or undue influence, exercised on him in its procurement, does not stand in pari delicto with the other party to the illegal transaction, and may be granted affirmative relief, or may defeat any attempt to enforce the contract, as the

In the complaint at bar, although it is alleged that the consideration for the execution of these instruments in question was an illegal one—the compounding of a felony—still it is further alleged that such execution for that purpose was procured through the duress, menace, and undue influence of the defendants Lercari, Pera & Company. The allegations set forth a good cause of action to have the instrument set aside for illegality of consideration under the qualification to the general rule above referred to, and entitled plaintiff to relief if established by evidence. Issue was joined on this cause of action, and it was the duty of the court to have made a finding upon it, and a failure to do so necessitates a reversal of both the judgment and order denying a new trial, unless, as claimed by respondents, the findings which the court did make on their plea of estoppel and laches rendered it unnecessary to find on the issue of illegality of consideration.

But the doctrine of estoppel by conduct or by laches or even ratification has no application to a contract or instrument which is void because it violates an express mandate of the law or the dictates of public policy. Such a contract has no existence whatever. It has no legal entity for any purpose and neither action nor inaction of a party to it can validate it, and no conduct of a party to it can be invoked as an estoppel against asserting its invalidity. The authorities are uniformly agreed on this principle, and the following cases, out of a number, are selected on this point, because, they involve contracts which, like the instruments alleged by plaintiff to have been executed for an illegal consideration, were declared void as against public policy, and where it was held that the plea of estoppel as against such contracts could not be, asserted. (Brown v. First Nat. Bank, 137 Ind. 655 , [ 37 N. E. 158 , 24 L. R. A. 206 ]; Langan v. Sankey, 55 Iowa, 52 , [ 7 N. W. 393 ] ; Wheeler v. Wheeler, 5 Lans. (N. Y.) 355; Robinson v. Patterson, 71 Mich. 141 , [ 39 N. W. 21 ]; Hardy v. Smith, 136 Mass.

To quote from a few of these cases:—

In Brown v. First National Bank, 137 Ind. 655 , [ 37 N. E. 158 , 24 L. R. A. 206 ], it is said: “The contention of counsel that the appellee, having received the benefit of the contract, is estopped to defend against it on the principle that a corporation which has such benefit is estopped to assert that it had no power to contract, is unsound, as applied to the case at bar. The rule suggested applies to cases where private rights alone are concerned, while in contracts void as against public policy, the public is interested. The public concern cannot be made a matter of private bargain. A number of maxims apply to interdict the enforcement of such a contract, and many decisions hold that the receipt of benefits and retention of property under such a contract give no right of recovery.....It cannot be rendered valid by invoking the doctrine of estoppel.”

In Langan v. Sankey, 55 Iowa, 52 , [ 7 N. W. 393 ]: “But it is insisted such a contract may be relied on as an estoppel, and a recovery, therefore, had. We do not believe that this is correct, and are unwilling to hold that a contract void as being against public policy has any vitality whatever. It matters not how it may be pleaded, a substantial right cannot be enforced thereunder. That which cannot be recovered in an action on the contract cannot be done by indirection.”

In Wheeler v. Wheeler, 5 Lans. (N. Y.) 355: “The defendant’s counsel contends that, even if the agreement was void as against public policy, still it was competent for the parties to ratify it after the sale and purchase; and that the plaintiff, having received from the defendant his share of the purchase price, or a portion thereof, is estopped from alleging the illegality of the agreement until he refunds or offers to refund the money received. But the principle of estoppel.does not apply to an agreement which the law holds to be void as against public policy. The ratification of such a contract is as nugatory as the contract itself.”

In Stanard v. Sampson, 23 Okla. 13 , [ 99 Pac. 796 ]: “It is settled by the overwhelming weight of authority that where

It is clear, therefore, under the authorities that the necessity for a finding upon the issue of illegality of consideration was not rendered unnecessary or immaterial by the finding of estoppel and laches which the court did make, as the principle of estoppel has no application to agreements which are void as contravening public policy. The dominant issue under the pleadings in this ease was whether the instruments were executed for an illegal consideration. If it was found that they were pláintiíf would have been entitled absolutely to a decree awarding her the full relief prayed for. Other independent issues as to duress, menace, or undue influence and the affirmative plea of estoppel and laches interposed by defendants could only become important if this issue was found against her. As there was no finding at all on it no judgment in the case could be properly rendered.

In addition to the points we have been considering appellant attacks the sufficiency of the evidence to sustain the findings made and their sufficiency as findings to support the judgment.

But as the judgment and order denying a new trial must both be reversed we do not deem it necessary to discuss these points, as such questions will only become of real moment when the trial court has made findings upon all the material issues in the case.

The judgment and order appealed from are reversed.

Henshaw, J., and Melvin, J., concurred.

Hearing in Bank denied.