CARTER, J. I dissent.
I am of the opinion that plaintiff’s amended complaint stated a cause of action for fraud and that the demurrer thereto should not have been sustained.
As I pointed out in my dissent in King v. Pacific States Sav. & L. Co., 26 Cal.2d 333 [158 P.2d 561], the evidence produced in that case was more than sufficient to show fraudulent conduct on the part of Pacific States in buying the certificates held by various investors for less than their face value. I also pointed out that the trial court in the ease of Pacific States Sav. & L. Co. v. Hise 25 Cal.2d 822 [155 P.2d 809, 158 A.L.R. 955] (where the propriety of the seizure of Pacific States by the Building & Loan Commissioner was challenged) had found that misrepresentation and coercion had been resorted to by Pacific States in the acquisition of its outstanding shares. This court, in the Hise ease, did not disapprove those findings but on the contrary found it not necessary to determine the sufficiency of the evidence on which they were based. These three cases have their bases on the same set of facts. In the second case, King v. Pacific States Sav. & L. Co., the majority held that there was no evidence of fraud, either actual or constructive, to support plaintiff’s charge. The majority here, in the third case, holds that plaintiff has stated no cause of action, nor can he do so. And yet the facts are the same. As I read the majority opinion, it appears to be conceded that plaintiff would have stated a cause of action had he or his assignors taken the necessary steps to effect a rescission — namely, an offer to restore the consideration which had [439]been received or facts showing the right to retain that amount. All of the relevant information with respect to the certificates was made part of the amended complaint.
To hold that it would be inequitable at this time to allow plaintiff’s assignors to retain the benefits received and recover the difference between that amount and the face value of the certificates is to hold that form is more important than justice. To my mind Mr. Justice Bray of the District Court of Appeal correctly disposed of this point and I hereby adopt that portion of his opinion which refers to Counts 3 and 4:
“These two counts are based on allegations of fraud and rescission, the only difference between the third and fourth being that plaintiff alleges that a fiduciary relationship existed between his assignors and Pacific States. Plaintiff incorporates by reference in both counts the proof of claim which, pursuant to notice, he filed with the commissioner. This states that ‘the facts in support of Claimant’s demands are set forth by the testimony and exhibits introduced in the case of “Wesley King v. Pacific States Savings & Loan Company,” No. 277,900, in the Superior Court of the State of California, in and for the City and County of San Francisco, and in its case of “Pacific States Savings and Loan Company v. Evans, Commissioner,” in the same Superior Court, to which testimony and exhibits reference is hereby made as though set forth at length and made a part of this demand; . . . ’
“Defendants claim that plaintiff has not alleged a true rescission, because there was no notice of rescission and no offer to restore.
“Notice op Rescission
“The only allegation concerning any notice of rescission is the following: ‘On or about February 3rd, 1938, plaintiff gave Pacific States written notice as follows: that the last mentioned assignors had assigned to him their claims to recover from it said balances of their deposits shown on said Exhibit “C”; that plaintiff was demanding payment of the last mentioned claims from Pacific States; and that if Pacific States did not pay the last mentioned claims, plaintiff would commence suit to enforce their payment. ’
“This allegation is repeated as to other lists of assignors. As said in McNeese v. McNeese, 190 Cal. 402, 405 [213 P. 36]: ‘It is not necessary that the notice to rescind shall be formal and explicit; it is sufficient that notice shall be given to the other party which clearly shows the intention of the person [440]rescinding to consider the contract at an end. It has been held in other states that the mere bringing of an action is a sufficient disaffirmance of a sale. ’
“Applying this test, it is obvious that the notice given clearly shows the intention of plaintiff to consider the contract, that is, the sale of the certificates for the price received, at an end. The notice was sufficient unless plaintiff was required to offer to restore the purchase price.
“Was Offer to Restore Necessary?
" This depends upon what the true measure of damages was at the time of the sale, for if plaintiff was entitled in any event to retain the purchase price, no offer to restore was necessary. ‘It is settled by our decisions that one attempting to rescind a transaction on the ground of fraud is not required to restore that which, in any event, he would be entitled to retain. (See Matteson v. Wagoner, 147 Cal. 739, 743 [82 P. 436], and cases there cited.) This is upon the theory that the defendant could not possibly have been injuriously affected by the failure to restore, and the plaintiff might be, for he might not be able to again collect the amount from the defendant, if it should be so restored to the defendant. ’ (California etc. Co. v. Schiappa-Pietra, 151 Cal. 732, 740 [91 P. 593].)
“Defendants contend that the measure was that set forth in section 3343 of the Civil Code, namely, the difference between the actual value of the certificates and the amount paid. Plaintiff contends that it is the measure set forth in Campbell v. Birch, 19 Cal.2d 778 [122 P.2d 902], and Bank of America v. Greenbach, 98 Cal.App.2d 220 [219 P.2d 814], namely, the difference between the face value of the certificates and the amount paid. Ordinarily, the measure of damages for fraud is that set forth in section 3343 of the Civil Code. But there is an exception to that rule. Campbell v. Birch, supra (19 Cal.2d 778) sets forth that where the claims compromised through fraud are not disputed as to their amount, or as to their existence, the one defrauded is entitled to their face value. In that case, due to fraudulent representations as to his lack of financial responsibility, Birch induced Campbell to compromise an indebtedness of $9,412.59 including over $6,000 of judgments, and to agree to a reduction in the rental payments of a five-year lease from $1,000 to $500 per month, all for a payment of $6,000. Later, discovering the fraud, Campbell sued in fraud and deceit to recover the indebtedness including the face value of the judgments, and the accrued [441]rental. The court held that where there is an undisputed claim the defrauded party does not have to prove collectibility, distinguishing the facts of its case from Westerfeld v. New York Life Ins. Co., 129 Cal. 68 [58 P. 92, 61 P. 667], which held that where the compromised claim was a disputed claim, there must be proof of collectibility. The court then said, referring to the compromised claims: ‘In effect, the cause of action is one where the damage suffered by the de- ' frauded party is fixed and certain — just as fixed and certain as if the defrauded party had technically rescinded. Obviously, if no compromise had been made, plaintiff would have been entitled to a judgment or judgments for the unpaid rent. The judgment in the present case is exactly in the amount the plaintiff would have been entitled to if no compromise induced by defendants’ fraud, had been negotiated. What other measure of damages would compensate the defrauded party under such circumstances ? The only way the defrauded party can be made whole is to return to him the amount to which he admittedly would be entitled had the fraudulent compromise not been secured. To urge that the defrauded party must show that the undisputed liability was in fact collectible in the sense that the defendants were financially responsible is to bring in a false issue. Courts in rendering judgments are not interested in whether the plaintiff can collect the same — they are concerned with the amount of the damage suffered. The collectibility of the compromised judgments and claims and the collectibility of the present judgment, are matters which are entirely beyond the issues in this case. When the plaintiff proved the claims were fixed, definite and admitted as to their existence and amount he proved they were “collectible” as that term is used in such cases.’ (P. 793.)
“Defendants contend that on rescission all plaintiff would be entitled to was a return of the certificates. If this were true, then in the Campbell case, all the plaintiff would have been entitled to was the compromised claims rather than what the court held he was entitled to, their face value. Likewise, on such a basis, plaintiff in the Bank of America case would have been given back his judgment only, and not damages in its face value. Here, the claim (the face value of the certificates), and its existence could not be disputed. True, the question of whether it would be collectible was uncertain, but so were the judgments in the Campbell case. Here, the relation between the certificate holders and defendants was [442]that , of creditors and debtors. The amount of the debt was the face value of the certificates, and their value, as said in the Campbell case, is ‘prima facie the difference between the amount paid on the compromise and the face amount of the fixed and certain claim. ’ (P. 793.)
“In Bank of America v. Greenbach, supra (98 Cal.App.2d 220), we held that where a creditor had been induced by fraud to settle a judgment for less than its full amount, the creditor was entitled to restoration of the full judgment (less the amount paid) rather than a judgment for the creditor’s pro rata share of the debtor’s assets at the time of the fraud. ‘ There is no authority cited, and no logical argument made, that support the conclusion that a creditor, fraudulently induced to enter into a settlement of his claim upon material misrepresentations as to assets, can or should be limited, in a rescission action, to a judgment for the pro rata share of the assets of the debtor as they existed on the date of settlement. The cancellation of an agreement of settlement necessarily has the effect of placing the parties where they were before the settlement was made. It is as if the settlement had never been made. Authorities are legion and uniform to the effect that the legal effect of a rescission is to restore both parties to their former position as far as possible. (3 Pomeroy, Equity Jur. (5th ed.) 578; 3 Black on Rescission and Cancellation, p. 1660, §700; 15 C.J.S. p. 767, §43.) The authorities also agree that, concurrent with the award of rescission, the trial court may award money damages or order such other relief as justice may require. (4 Cal.Jur. p. 797, § 29.) In the present case the court canceled the settlement agreement. It should then have reinstated the original judgment. The amount of that judgment is fixed and certain. ’ (P. 238.) To hold otherwise in this case would put a premium on fraud.
‘ ‘ The mere fact that the debt of Pacific States to the certificate holder as evidenced by the certificate, was not immediately due or payable, does not make the amount of that debt any less fixed, definite or admitted. There is no logical distinction between the indebtedness in the Campbell case and the judgment in the Bank of America case, and the certificates in this case. Here there were no disputed claims as there were in Westerfeld v. New York Life Ins. Co., supra (129 Cal. 68). On demurrer we must accept the allegations of the complaint as true. It is alleged, among other things, that the Pacific States fraudulently depressed the market so that it might in-' duce holders to sell their certificates. If the measure of dam[443]ages was the difference between the amount received and the then actual value of the certificates (the depressed market value) the defendants would be in the position of saying, in effect, True, we fraudulently induced you to sell your certificates, but, as we had succeeded in holding their value down to the amount we paid you, there is nothing you can do about it.’ They would be profiting by their own fraud, and the courts would be standing helplessly by, permitting them to reap the harvest. The same would be true as to the actual value, as distinguished from the market value.
“Thus, the measure of damages being the difference between the face value of the certificates and the amount paid, and the former being greater than the latter, plaintiff was entitled to retain the latter and therefore was not required to offer to restore. While the testimony and exhibits in Pacific States Savings and Loan Company v. Evans, Commissioner, referred to in plaintiff’s proof of claim (this case on appeal is entitled Pacific States Sav. & L. Co. v. Hise, supra [25 Cal.2d 822]), indicate that the company was insolvent at the time of the alleged fraud and that the investment certificates were not worth their face value, the situation is no different from that in the Bank of America case, supra, where the court found that if at the time of the fraud all the debtor’s assets had been liquidated, the $88,050.66 'judgment would have brought only $29,300. Nevertheless, it was held that the measure of damages was the face value of the judgment. In our case, whether the certificates ever would be worth their face value was problematical, depending on the manner in which the company operated its affairs, and later, on the manner in which the building and loan commissioner operated them. However, if at that time, plaintiff proved the fraud, he would be entitled to a judgment for their face value. Nor would such judgment have placed him in substantially a better position than the certificate holders who kept their certificates. He would have been a creditor on a par with them. These certificates are ‘a type of unsecured note or debenture’ (In re Pacific Coast Bldg.-Loan Assn., 15 Cal.2d 134, 141 [99 P.2d 251]), and hence the relationship between the holder and the company is that of creditor and debtor. (See Bureau of Welfare, etc. Assn. v. Drapeau, 21 Cal.App.2d 138 [68 P.2d 998].) If the company was actually insolvent, "his attempt to collect the judgment would have forced the commissioner to take the company over, and he would be paid only a pro rata of [444]the assets together with the other creditors, including the other certificate holders. True, there would have been one difference between the judgment holder and the certificate holders. His judgment would be due and payable immediately. If the company were a going concern, the certificate holders would have to file the necessary notices to enable them to withdraw their deposits, and wait the statutory period for payment. If the company were insolvent, this delay would mean nothing as the judgment could not be paid. If the company were not insolvent, there would be sufficient funds to pay both the judgment and the deposits, so that the short period which the certificate holders would have to wait would be only a minor distinction from the position of the judgment creditor. Practically speaking, the latter would have no advantage over the former. The fact that there was a market value for the certificates at the time of the sale does not affect the measure’ of damages. Particularly is this so where as alleged here defendants had fraudulently depressed that value. To hold that a building and loan company can by manipulation as charged depress the market, frighten the depositors, to whom there must necessarily be owed the duty of not misrepresenting the status of their deposits, into disposing of their certificates at the depressed market value, where, had they held on to them, they, like the others who did hold, would have received their full face value, and then for the courts to refuse to give relief because the holder had been paid that market value, would be making a mockery of justice.
“As to one of the lists of assignors plaintiff alleges that the assignments of their certificates were obtained after plaintiff had given notice of rescission concerning all the other assignors and after said notices had been ignored and impliedly refused, and that it would have been futile to give notice on behalf of the later assignors. Under the circumstances of the case, the giving of such notice would have been futile and therefore unnecessary.” (Cal.App.) 224 P.2d 733, 743.
Prom the foregoing it is obvious that Counts 3 and 4 of the amended complaint allege sufficient facts to state causes of action based upon fraud and rescission and the majority opinion departs from settled principles of law in arriving at a contrary conclusion. Considering the background of this case, the result reached by the majority is indeed unfortunate since the records of this court disclose an orgy of fraudulent conduct on the part of the defendant unparalleled in the his[445]tory of California as a result of which thousands of thrifty investors were mulcted out of their life savings. While justice to these certificate holders has long been delayed it is a grievous and regrettable travesty that it should now he denied. I cannot stultify my conscience as well as my concept of justice by concurring in such a result.
I would therefore reverse the judgment.
Appellant’s petition for a rehearing was denied July 26, . 1951. Carter, J., voted for a rehearing.