Bank of America National Trust & Savings Ass'n v. Vannini

Plaintiff brought this action against defendants for $40,000 balance alleged to be due on a contract to purchase certain mining properties. Defendants answered and cross-complained, negatively and affirmatively pleading fraud on the part of plaintiff. The trial court sustained a demurrer without leave to amend to the third amended answer and cross-complaint. Plaintiff moved for judgment on the pleadings. The motion was granted. Defendants appeal from the judgment thus secured.

The controversy involves the purchase and sale of an abandoned gold mine in Tuolumne County. The pleadings show the following: This mine was owned by the estate of Anna Bluett. In 1939 Ben F. Woolner was executor of that estate. On March 27, 1939, Woolner, as executor, acting under court authorization, entered into a written contract with defendant A. Vannini for the purchase and sale of the mine for $50,000

Within these periods, totaling a possible 17 months, Vannini was given the option to buy the mine by notifying the executor and by paying the first $5,000 on the purchase price, or within the enumerated periods he could elect not to proceed by executing a quitclaim deed back to the executor. If Vannini elected to proceed, he was required to make the $5,000 payment above referred to, and within five years thereafter the balance of the purchase price became due and payable.

The pleading, without stating when, then avers that sometime thereafter Vannini elected to operate and purchase the mine, but by agreement with the executor and with the approval of the court the time for the payment of the original $5,000 was extended to July 1, 1946. On that date Vannini paid the $5,000, which made the balance of $45,000 due on July 1, 1951. Sometime after Vannini exercised the option to buy the mine, the exact time not being pleaded, he assigned his interest in the project to Providence Tuolumne Gold Mines, Inc., the other defendant.

On July 1, 1951, the balance of the purchase price was not paid. On November 2, 1951, Woolner, as executor, entered into an agreement with the two defendants to the effect that, with the approval of the probate court, defendants could pay $5,000, and thereafter $5,000 annually, or could pay a 15 per cent royalty from the gross revenues, whichever was greater, until the full purchase price was paid. Under this extension agreement if any annual payment on the purchase price was not paid within 90 days of its due date, the executor was given the election to declare the entire balance due, or to cancel the agreement and retain all sums paid as liquidated damages. On December 3, 1951, the probate court approved the extension, and a $5,000 payment was made by defendant mining company.

Defendants answered and cross-complained. By stipulation a demurrer to these pleadings was sustained and an Irene Van de Carr brought in as a cross-defendant. Thereafter, defendants filed their first and later their second amended answer and cross-complaint. Plaintiff demurred. So far as the record shows, no hearings were had or orders made in reference to these demurrers. Defendants then filed their third amended answer and cross-complaint, and plaintiff again demurred. These demurrers to both the answer and cross-complaint were sustained without leave to amend. The order so providing contains a reference to “Par. Five (5),” apparently referring to paragraph 5 of the demurrer which raised the statute of limitations. Thereafter, plaintiff moved for judgment on the pleadings. The motion was granted, judgment was entered accordingly, and defendants have appealed.

The question presented on this appeal is whether the third amended answer and cross-complaint alleges a valid defense and/or cause of action, good against a general demurrer. The answer and cross-complaint involved are predicated on the theory that defendants signed the agreements involved as a result of the fraud of Woolner, Irene Van de Carr and one John Chapman. In this connection paragraph II of the answer alleges, in part:

‘ ‘ On or before the 27th day of March, 1939, the defendants discussed with Woolner, Van de Carr and Chapman, the possibility of purchasing the mining property described in Exhibit ‘A’ which is attached to and made a part of the complaint herein, During the course of the aforesaid various conversations and discussions, Woolner, Van de Carr and Chapman, and each of them, asserted to defendants that the property described in Exhibit ‘A’ had been an active gold mine, from which large amounts of commercial gold ore had been extracted in years past; they further stated that the mining property described in Exhibit ‘A,’ prior to the date thereof, and the Agreement marked Exhibit ‘B,’ also attached to and made part of the complaint herein, had been shut down and unworked for many years. Woolner, Van de Carr and Chap

man, and each of them further asserted that the mining operations on the aforesaid property had ceased, owing to differences between the former owners of the aforesaid property and their manager, while the mine located on aforesaid property was in the midst of active and profitable operation. Woolner, Van de Carr and Chapman, and each of them, further asserted that the property described in Exhibit ‘A’ contained extensive gold ore already blocked out. They further represented that said blocked out ore was commercial ore and that in order to prevent it from being removed after it had been determined to close the mine, the shaft and timbering therein was destroyed but that said commercial ore would be found intact when the mine was dewatered, cleared and retimbered. That said statements were false, that the falsity of these statements was known, or that the statements were not warranted by the information of Woolner, Van de Carr and Chapman, and each of them, even though they may have believed the statements to be true. That such representations of fact were made in an effort to bring about the sale of said properties and did bring about the sale of said properties, ...

“. . . immediately after the execution of the Agreement marked Exhibit ‘A,’ operations were commenced to rehabilitate the mining property described therein. It was first necessary to repair the road and bridge leading to the mine so that the heavy equipment which was necessary for mining operations could be brought in; an adit was then commenced which was to be driven nearly a mile into the side of the mountain in order to tap the old workings of the mine and to drain off the 11 million gallons of water which inundated the old mining operations. When 900 ft. of this tunnel had been completed, all work on the mine had to be shut down due to Order No. L 208 of the United States Government, which banned mining operations for the duration of World War II. At the close of World War II, with the lifting of Order L 208, work was again begun, but it was then found that most of the equipment had to be replaced and that some of the work which had been done immediately prior to the war had to be redone, for the reason that part of the tunnel had caved, necessitating the replacing of timbers. By January of 1948 the tunnel had progressed into the side of the mountain some 2,000 feet, but because the operation had led to a badly faulted area, the State Safety Mining Engi

ner ordered the abandonment of this tunnel stating that it would be too dangerous to attempt to drain the 11 million gallons of water from the shaft through this means. A new tunnel was commenced and carried through to the old workings, through which the water was drained above said level, thereby making it possible to begin pumping the water which remained below that level. After all the water was removed, it then became necessary to extract approximately 50,000 tons of debris that clogged the old shaft and it was necessary to tram this debris a distance of nearly a mile. After the debris was removed, the old shaft was found to be badly caved necessitating its retimbering. In addition thereto, it was necessary, because of the request of the State Safety Mining Engineer, to replace the emergency raise in order to protect the workers who would be working in the old shaft. It was not until February 24, 1952, that the mine shaft was cleared and ready for actual mining operations. It was not until this time that it became possible for defendants to ascertain the falsity of the statements hereinbefore alleged to have been made by Woolner, Van de Carr and Chapman, and each of them, and to ascertain that there was no blocked out ore of commercial value or any value whatsoever, as had been represented by aforesaid parties, and each of them.”

The cross-complaint is based on substantially the same allegations, and prayed for the return of the $10,000 already paid on the purchase price, and for $387,000 expended by defendants in developing the mining property involved.

The rules applicable to such an appeal are well settled. As against a general demurrer the pleadings must be liberally construed. (Buxbom v. Smith, 23 Cal.2d 535 [ 145 P.2d 305 ].) All of the allegations of the third amended answer and cross-complaint must, of course, be accepted as being true. If the answer puts in issue a material allegation of the complaint, or sets up affirmative matter constituting a defense, the motion for judgment on the pleadings should not have been granted. (MacIsaac v. Pozzo, 26 Cal.2d 809 [ 161 P.2d 449 ]; Cass v. Rochester, 174 Cal. 358 [ 163 P. 212 ].)

In addition to these well settled rules appellants erroneously contend that this court on this appeal is limited to considering the sole ground given by the trial court in sustaining the demurrers, and contend that, since the minute order sustaining the demurrers apparently refers to the statute of limitations, the sole question presented is whether the

The quoted rule is important because, as stated in 1 Within, California Procedure, page 601, it is settled that the statute of limitations “runs only against a cause of action. If the answer pleads purely defensive matter, i.e., something which constitutes a defense to plaintiff’s claim without calling for any affirmative relief, this defensive relief will not be barred by limitations. This is so even though the defensive matter could have been used as the basis of a cause of action for affirmative relief, and the statute has run on any such cause of action; it may still be used defensively. This principle is chiefly applied where the plaintiff sues on a contract, and the defendant denies any liability on the obligation on grounds of fraud. ...”

In Estate of Cover, 188 Cal. 133 , at page 140 [ 204 P. 583 ], this rule is stated as follows :

“In such a case, neither the limitation of the statute nor the doctrine of laches will operate to bar the defense of the invalidity of the agreement upon the ground of fraud, for so long as the plaintiff is permitted to come into court seeking to enforce the agreement, the defendant may allege and prove fraud as a defense. In short, it is not incumbent upon one who has thus been defrauded to go into court and ask relief, but he may abide his time, and when enforcement is sought against him excuse himself from performance by proof of the fraud.” (See also Sanders v. Sanders, 117 Cal.App. 231 [ 3 P.2d 599 ].)

Although the statute of limitations is inapplicable to the defense of fraud, it will, of course, run against a cross-complaint seeking damages for such fraud by way of affirmative relief. (See Jones v. Mortimer, 28 Cal.2d 627 [ 170 P.2d 893 ]; Sanders v. Sanders, 117 Cal.App. 231 [ 3 P.2d 599 ]; Strong v. Strong, 22 Cal.2d 540 [ 140 P.2d 386 ]; Hermosa Beach etc. Co. v. Law Credit Co., 175 Cal. 493 [ 166 P. 22 ] ; Bradbury v. Higginson, 167 Cal. 553 [ 140 P. 254 ].)

The quoted section, however, does not state all of the law on the subject. As stated in Johnson v. Ehrgott, 1 Cal.2d 136 , 137 [ 34 P.2d 144 ] : “The action for fraud and deceit must be commenced within three years after the discovery of the fraud, and if the plaintiff does not discover it when it is perpetrated, he must set forth the circumstances to excuse the late discovery. The court must determine from the allegations whether the delay was excusable or was caused by lack of diligence on the part of the plaintiffs.” (See also Hobart v. Hobart Estate Co., 26 Cal.2d 412 [ 159 P.2d 958 ]; Consolidated R. & P. Co. v. Scarborough, 216 Cal. 698 [ 16 P.2d 268 ]; Lady Washington Consol. Co. v. Wood, 113 Cal. 482 [ 45 P. 809 ]; Twining v. Thompson, 68 Cal.App.2d 104 [ 156 P.2d 29 ].)

Here the pertinent dates are March 27, 1939, when the original option contract was entered into giving appellants 17 months to decide whether to purchase; July 1, 1946, when Vannini paid $5,000, and agreed to pay balance on July 1, 1951; November 2,1951, the date of the agreement by respondents to accept $5,000, and this sum was paid on December 3, 1951; December 3, 1952, when the next installment became due and was not paid; March 9, 1953, when this suit was filed.

Respondent points out that three years from the date of the contract was March 27, 1942, and contends that no sufficient facts are alleged as an excuse for failing to discover the alleged fraud prior to that date. Respondent concedes that from October 8, 1942, until 1946 there was a government order prohibiting all mining operations, so that appellants could not have discovered the alleged fraud during that time, but points out that from 1946 to 1952 there was no prohibition, and contends no sufficient facts are alleged to excuse the failure to discover the alleged fraud during this period.

The facts alleged that are relied upon to excuse the delay are these: That extensive road repairs were necessary before work could be done in the mine; that it was necessary to

We agree with respondent that, as a matter of law, these facts do not constitute a legal excuse for failing to discover the alleged fraud until 1952. The contract required the appellants to clear and dewater the mine within 17 months from March 27, 1939, the date of the original agreement. During these 17 months appellants were under no obligation to purchase. They were given that period of time to make their own investigation and to determine whether they desired to exercise their option to buy. Thus, the contract placed, upon appellants the duty of making their own investigation, within a period of 17 months, to determine whether they wanted to buy. In other words, the contract necessarily contemplated that appellants were to rely on their own investigations and not on representations made by respondent before they were obligated to pay one cent on the purchase price, and they were given 17 months to make this investigation. The fact that it became difficult for them to make these investigations, as long as it was not impossible to make them, is no legal excuse for failing to make them. Here, the only period of impossibility alleged is from 1942-1946, during the war. But from 1939 to nearly the end of 1942, and from 1947 to 1952 there is no impossibility alleged. The fact that respondent waived the time limits on the requirement of performing the exploration work did not excuse appellants from discovering the facts they should have discovered had they performed their part of the contract. The rule is well settled that where “there is a duty to investigate, the plaintiff may be charged with knowledge of the facts which would have been disclosed by an investigation.” (Hobart v. Hobart Estate Co., 26 Cal.2d 412 , 442 [ 159 P.2d 958 ]; see also Johnson v. Ehrgott, 1 Cal.2d 136 [ 34 P.2d 144 ].) That is this case.

Appellants attack this conclusion, contending that whether or not they exercised due diligence in discovering the fraud is a question of fact, citing Neet v. Holmes, 25 Cal.2d 447 [ 154 P.2d 854 ]; Uchida Inv. Co. v. Inagaki, 108 Cal.App.2d 647 [ 239 P.2d 644 ]; Victor Oil Co. v. Drum, 184 Cal.

Appellants also argue that the signing of the extension agreement implies a repetition of the fraudulent representations made in 1939. Actual repetition is not alleged. The only case authority cited by appellants on this point is Kalkruth v. Resort Properties, Ltd., 57 Cal.App.2d 146 [ 134 P.2d 513 ], but in that case there was an express repetition of the misrepresentations. Here that is not alleged. Such repetition cannot be implied.

For these reasons it must be held that the third amended cross-complaint asking for affirmative relief shows on its face that it is barred by the statute of limitations.

This same defect in the pleadings of appellant also appears in the defensive matter pleaded in the answer. While the statute of limitations, as already pointed out, is not applicable to a defense predicated on fraud, even as to a defense based on fraud, the pleader is required to set forth all of the elements of fraud. What are these elements ? In Nathanson v. Murphy, 132 Cal.App.2d 363 , at page 367 [ 282 P.2d 174 ], this court summarized them as follows: “The elements required [of fraud] are succinctly set forth in Hobart v. Hobart Estate Co., 26 Cal.2d 412 , 422 [ 159 P.2d 958 ] . . . ‘In general, to establish a cause of action for fraud or deceit plaintiff must prove that a material representation was made; that it was false; that defendants knew it to be untrue or did not have sufficient knowledge to warrant a belief that it was true; that it was made with an intent to induce plaintiff to act in reliance thereon; that plaintiff reasonably believed it to be true; that it was relied on by plaintiff; and that plaintiff suffered damage thereby. ’ ”

The judgment appealed from is affirmed.

Bray, J., and Wood (Fred B.), J., concurred.

A petition for a rehearing was denied April 20, 1956.