Speck v. Wylie

36 P.2d 618, 1 Cal. 2d 625, 95 A.L.R. 760, 1934 Cal. LEXIS 424

• Court: California Supreme Court
• Decided: October 10, 1934
• Docket: L. A. 13205
• Status: Published

Opinions

PRESTON, J.

This suit is by purchasers of certain real property in Los Angeles County under an installment contract to recover from the sellers thereof the several amounts paid thereon, following timely notice of rescission and offer of restoration. Under the findings it must be taken as proved that the purchase was induced by material misrepresentations fraudulently made by the agent of the sellers who was in charge of the negotiations. Plaintiffs had judgment as prayed and defendants have appealed therefrom.

The contract was in writing and contained the following clause: “It is understood and agreed that this contract contains all the covenants, stipulations and provisions agreed upon by the parties hereto and no agent of either party to this contract has authority to alter or change the terms hereof and neither party is or shall be bound by any statement or representation not in conformity herewith. It is understood and agreed that said property above described has been inspected by said purchaser, or the purchaser’s duly authorized agent; that the same is and has been purchased by the purchaser as a result of said inspection and not upon representations made by the sellers or any selling agent, and that the purchaser hereby expressly waives any and all claims for damages or for cancellation of this contract because of any representation made by any selling agent or person whatsoever other than as contained in this agreement; and the sellers will not be responsible for or liable on account of any inducements, promises, representations, or agreements not set forth herein. ’ ’

The appeal thus presents anew the vexing question as to what rights, if’ any, should be accorded a purchaser who has been defrauded, against a seller who is innocent, where such purchaser knows that the negotiating agent of the seller has been acting in excess of his authority in making the representations complained of.

It is due the learned District Court of Appeal to say that we transferred this cause to this court for decision, not because of any misinterpretation as to the existing rule governing the subject, but rather to give consideration to the question of relaxing to some extent the rule heretofore laid down in the case of Gridley v. Tilson, 202 Cal. 748 [262 Pac. 322], where, after restating the general rule that fraud inducing the execution of a contract may be shown by parol testimony, it was further said: “A well-settled exception, however, is the case where the party seeking to rely on fraudulent representations of an agent had notice of the limitation on the agent’s authority to make representations. Therefore a principal is bound only by the representations embodied in the written contract where a provision in the contract notified the prospective purchaser that the agent’s authority went no further (citing cases).” (Gridley v. Tilson, supra, p. 751.)

We feel warranted in taking this step for at least two reasons. First, the principal, though innocent, should not be allowed to retain a consideration which the purchaser has parted with by reason of the fraud where such defrauded party rescinds promptly and the partiés can be restored without substantial injury to their former status; second, because this subject has had thorough consideration by law collaborators as shown by the recent product of the American Law Institute, styled: “Restatement of the Law — Agency”, where the rule suggested is as follows:

Sec. 259. “A transaction into which one is induced to enter by reliance upon untrue and material representations as to the subject-matter, made by an agent entrusted with its preliminary or final negotiations, is subject to rescission at the election of the person deceived. . . . Comment: b. . . . The rule stated in this section applies although the other party knows or has reason to know that the agent is not authorized to make the statement. By contract with the principal, however, he may agree that the principal is not to be liable because of unauthorized statements of an agent, as stated in section 260. . . . Sec. 260. ... (1) A principal may, by contract with another, relieve himself of liability in deceit for prior or subsequent frauds of an agent to such other. (2) A contract obtained by an agent through fraudulent misrepresentations of facts may be rescinded by the other party although it provides that it shall not be affected by representations not contained therein.”

Without attempting further elaboration we therefore announce that we are in accord with the above statements of the rule which will, all other things being favorable to the complaining party, allow him to rescind and to pursue the principal far enough to secure a return of the consideration paid. But an action for fraud and deceit will not be allowed him under such conditions. The doctrine of Gridley v. Tilson, supra, and such appellate court cases as may have followed it, should be limited in its application by the exception hereinabove set forth.

The judgment is affirmed.

Curtis, J., Waste, C. J., Seawell, J., and Thompson, J., concurred.