California Supreme Court Jul 21, 1893 No. No. 14409Published
Synopsis
Attorney and Client—Action to Becover Money Collected—Pleading—Demand—Denial of Ownership—Evidence.—In an action to recover money alleged to have been collected by an attorney for his client, in which the answer denies that theldefendant received the money sued for as attorney for the plaintiff, and alleges that he received it in his own right and as his own property, and where it was proved at the trial without objection that the plaintiff demanded the money of the defendant before the suit was commenced, a judgment for the plaintiff will not be reversed for failure of the complaint to aver such previous demand.
Id. —Demand before Suit, when Unnecessary.—When the time has come for the doing of an act, which it is the duty of the defendant to do unconditionally, no demand other than the suit itself is necessary; nor is a demand before suit required where it appears that it would have been unavailing, and would not have changed the right and relations of the parties, or where the answer denies the relation on which the action is founded, although a demand and refusal would otherwise be a condition precedent to the right of the plaintiff to maintain the action.
Id__Purchase of Outstanding Interest nr Cause of Action by Attorney fob Benefit of Client—Contract between Them — Consideration—Rescission. — Where an attorney purchased from an administrator of a deceased person an outstanding interest in the cause of action, which his client, previous to the employment of the attorney, had assigned and transferred to the deceased in his lifetime, and also a contingent interest in the same cause of action in favor of a former attorney, who had transferred it to the same person as security for a debt, and subsequently to the purchase of those outstanding interests, the attorney and client executed a written instrument reciting the purchase by the attorney, and that he has by regular sale, assignment, and transfer become invested with and now holds all the rights and interest which said deceased person held, and declaring that it is covenanted and agreed by the parties that appellant is the owner thereof, and that the clien t “ sells, assigns and makes over ” the same to the attorney, and more than four years thereafter, the attorney, upon final settlement and adjustment of the cause of action, collected the amount of the interests so purchased, claiming them as his own, and the client subsequently commenced an action to recover the money so collected less the amount of purchase-money, and the jury found upon trial of the cause that the client commenced negotiations for the purchase, that the attorney agreed to advance the purchase-money for him and to buy the claim for him ; that the client received no consideration from the attorney at the date of the written instrument, that the attorney had not established that the transaction was fair and that no advantage had been taken of the client, and that the money so collected was the property of the client; held, that the instrument executed between the attorney and client was not a contract, founded upon any consideration, and did not require a rescission before the action could be maintained, nor to support a judgment in favor of the client for the amount so collected less the amount of purchase-money paid, with legal interest.
The Court. This is an action to recover a certain sum of money alleged to have been collected by defendant as attorney-[117]at-law of plaintiff. The case was tried with a jury, and judgment was rendered for plaintiff for a little less than the amount sued for; aud defendant appeals from, the judgment and from an order denying a new trial.
The main features of the case are these: Prior to May, 1888, respondent had been engaged continuously for several years in litigating, as plaintiff, in the courts of this state, the suit of Cox v. McLaughlin, which suit had been brought to recover a large amount alleged to be due from McLaughlin to Cox for work done and materials furnished for the construction of a certain railroad. In 1883 appellant herein was employed by respondent as one of his attorneys-at-law in conducting said suit, and was to receive as compensation for his services as such attorney ten per cent of the amount of the judgment that should be recovered against McLaughlin. He continued to be respondent’s attorney in said suit until it was concluded and settled in 1888.
Prior to said employment of appellant by respondent, the latter had recovered a judgment in the trial court against McLaughlin, which was afterwards reversed in the appellate court; and some creditors of respondent to the extent of $3,000 or $4,000 had levied an' execution upon said judgment and upon said cause of action, and the same had been sold to Michael Eeese, since deceased, for about the amount of the claims of said creditors. Afterwards respondent had assigned to said Eeese $25,000 of his said claim against McLaughlin, for the purpose—as averred by respondent — of securing Eeese for the money advanced for his said purchase of said judgment and right of action. One Cobb had also been formerly in the employ of respondent as attorney in said suit, and was to receive ten per cent of the judgment, and Cobb had assigned his claim to said Eeese as security for a certain promissory note. These claims, founded upon said two assignments, were, in February, 1884, assets in the hands of the executors of said Eeese, then deceased
Early in February, 1884, respondent began negotiating with Joseph Eosenberg, one of the executors of the Eeese estate, for the purchase of said $25,000 claims. That estate was then nearly settled, and the executors were desirous of closing it up, [118]
Id. —Fiduciary Relation—Duty of Attorney to Client.—The relation between attorney and client is a fiduciary relation of the very highest character, and hinds the attorney to most conscientious fidelity.
Id.—Advice to Client—Burden of Proof. — If an attorney on his own account has a transaction with his client about the subject of litigation, he must give to the client all that reasonable advice against himself that he would have given him against a third person, and must show affirmatively that he gave full and proper advice in the premises, and acted with entire fairness in the transaction, and took no advantage of his client.
Id. — Good Faith of Attorney — Suebort of Verdict,—Although the attnrmy may without doubt consider that the transaction with the client was entirely proper, and one which he had a perfect right to enter into, yet where the findings of the jury are against him, and the appellate court cannot say that the verdict had no support in substantial evidence, the verdict and judgment in favor of the client cannot he disturbed.
Id. — Sbeoial Findings—General Verdict. — Where the special findings of a jury are inconsistent with a general verdict, the special findings must control, and the court must give judgment accordingly.
Id. — Oombromise Verdict—Consistency of Findings—Control of Judgment. —Where the jury have specially found that the whole amount of money collected by the attorney upon the claims purchased by him, less the amount of purchase-money paid therefor, with legal interest, was the property of the client, and have also specially found that plaintiff is entitled to ten thousand dollars less than said sum allowed by the jury by way of compromise, and have rendered a general verdict for the compromise sum specially found, the special findings are not inconsistent with each other, and the first special finding must control the judgment.
and Eosenberg agreed to sell said claims to respondent at private sale for $1,500, or thereabouts. Thereupon respondent informed appellant of the existence of said claims, and that he (respondent) had an opportunity to purchase them for about $1,500. As to what then occurred touching the purchase of said claims, respondent and appellant disagree in their pleadings and testimony. Bespondent says that he asked appellant’s advice in the premises; that appellant offered to purchase said claims for respondent; that respondent assented thereto; that he brought about a meeting between appellant and Eosenberg in order to have the details of the purchase arranged; that thereupon appellant advanced the money and purchased the claim for respondent; and that, at appellant’s instance and request, the purchase was made in the name of his clerk, Franklin T. Bull. On the other hand, appellant denies that he advanced money to buy said Eeese claims for respondent; and maintains that he bought said claims on- his own account, and as his own business speculation, and that respondent has no interest whatever therein.
It appears that when Eosenberg reported the sale to the probate court, the attorney of the heirs of McLaughlin (then deceased) made a higher bid for said claims, and appellant was compelled to raise his bid, so that he finally paid for said claims about $2,425; and that amount was paid by him on February, 11, 1884, and an assignment of the claims was made by the executors to said Bull.
On the 12th of February respondent signed a certain written instrument, a copy of which, marked “Exhibit A,” is attached to the answer, which appellant handed to him already prepared, with a request that he sign it. Bespondent avers and testifies that appellant informed him that it was necessary for him to sign this instrument in order to make the sale of said claims legal; that he feared that if the sale was not legal, the claims might be resold and fall into the hands of the McLaughlin estate, which would greatly embarrass him; and that relying on the advice and good faith of appellant, he executed it without communicating with other counsel, and without receiving any consideration therefor. Appellant, however, contends that respondent well knew the contents of said instrument and executed it for the. [119]purpose which its language imports. (With respect to said instrument it is sufficient to say, at this time, that in terms it acknowledges that appellant owns said Reese claims, and is entitled to recover the amount of the same out of any judgment that might be recovered by respondent in the said case of Cox v. McLaughlin.)
In the case of Cox v. McLaughlin judgment was rendered for plaintiff October 21, 1886, for $98,228.80, with legal interest from June, 1886; but on appeal this court on May 1, 1888, affirmed the judgment, with the modification that interest should be allowed only from the date of the judgment in' the lower court — October 21, 1886. This made a great deduction of the amount of the judgment, and respondent was desirous of filing a petition for a rehearing; but upon the advice of appellant the intention of applying for a rehearing was abandoned. On May 21, 1888, the judgment, which then amounted (in round numbers) to $110,000, was paid in the office of appellant. Of this amount respondent received (in round numbers) $83,000, and appellant retained $17,000. This amount retained by appellant included his own fee of ten per cent of the judgment, and also the $25,000 and the Cobb fee of ten per cent which had been assigned to Reese as aforesaid. By the judgment of the superior court, appellant was allowed his fee of ten per cent and the amount which he had expended for the purchase of the Reese claims, with interest thereon until date of settlement; and judgment was rendered for plaintiff for the balance of said $17,000.
The case seems to have been fairly tried upon its merits, and the jury by its special verdict found all the material issues of fact against appellant, and in favor of respondent. They found, with respect to the Reese claims, that respondent commenced negotiations with Rosenberg for their purchase, that appellant agreed to advance for respondent the necessary money to effect the purchase, and to buy them for respondent; and that the purchase was made in the name of Bull at appellant’s suggestion. They also found that appellant had not established the fact that the transaction was fair and that no advantage had been taken of respondent. They also found that at the time of the payment of the judgment in the case of Cox v. Mc[120]Laughlin the money in contest in the case at bar was paid to appellant as attorney for respondent.
Appellant contends for a reversal of the judgment upon-grounds most of which, whether tenable or not, may be fairly called technical. The force of the very able briefs of his counsel is directed mainly to the point that the judgment should be reversed because the complaint does not state facts sufficient to constitute a cause of action, and that its defects are such as could not be cured by the verdict, or by anything that appeared at the trial.
The main points made against the general sufficiency of the complaint are that it contains no averment of a demand made upon appellant for the money in contest before the commencement of the action, and that it shows a contract between the parties by which appellant was to have said money, and does not show a rescission of that contract.
There is a great deal of learning and a great conflict of authorities on the subject of the necessity of a demand before suit. It is clear that when a demand is an integral part of the cause of action, as when the duty to pay, or to deliver property, or to do some act, does not arise until after demand, then, as a general rule, a demand must be averred; but that when the time had come for doing the act, and it was the duty of the defendant to do it unconditionally, then no demand other than the suit itself is necessary. Of course, the difficulty lies in applying the rule to particular cases; but the reason of the rule requiring a demand is that it would be unjust and inequitable to subject a defendant to litigation without first notifying him of plaintiff’s claim so that he might have an opportunity of compliance with it without the annoyance and expense of a suit.
There are authorities which hold that it is the duty of an attorney-at-law to pay money collected for a client as soon as he receives it, and that want of previous demand is no defense to an action brought by the client for such money; and there are others which hold that it is a defense only as to the matter of costs; but it is unnecessary to pursue the subject further because it is well settled that previous demand is not required when, as in the case at bar, it fully appears that it would have been • [121]unavailing, when it would not have changed the rights and relations of the parties, and would have been a mere useless aud idle ceremony. This rule was well expressed in the opinion of this court in Parrott v. Byers, 40 Cal. 622, where the court say: “ It is a familiar rule that when the relations between the parties are such that a demand and a refusal is a condition precedent to the right of the plaintiff to maintain the action, a denial in the answer of the relation on which the action is founded will dispense with the necessity of an averment in the complaint of a previous demand and refusal ”; and “ the law does not require a useless act to be performed, and when it is plain from the answer that if a demand had been made it would have been refused, it does not lie in the mouth of the defendant to object that no demand was made.” In the case at bar the appellant, in his answer, denied that he received the money herein sued for as attorney for respondent, and alleged that he received it in his own right, and as his own property, and that respondent had no interest therein. Moreover, it was proved at the trial, without objection, that respondent had demanded said money of appellant before the suit was commenced, and that appellant had promptly and absolutely denied that respondent had any right whatever therein. Under these circumstances the position that the judgment should be reversed for the failure of the complaint to contain an averment of a previous demand cannot be maintained.
It is strenuously contended by appellant that the complaint is fatally defective because it shows a contract between the parties by which appellant was to have the money sued for, and contains no averment of a rescission of such contract; and that if respondent had any rights in the premises his remedy was a bill in equity to rescind the contract. We do not think that this position is tenable.
The complaint does not give in hceo verba the document, “Exhibit A,” a copy of which is in the answer. The complaint, after averring the sale of said Reese claims and their purchase by appéllant for respondent as aforesaid, merely states that “after said sale and within a.few days,” appellant handed to respondent “a paper” aud requested him to sign it, saying that it was necessary in order to make said sale legal, and that [122]having no fear that appellant “ would not deal fairly with him in regard to the purchase of said claims,” and, relying on his advice and good faith, he “ executed said paper at once without communicating with other counsel, and without receiving any consideration therefor.” And as to the character of said “paper” it is merely stated that it contained a stipulation that appellant was the owner of said Reese claims, and entitled to collect, receive, and receipt for the same. It is further averred that prior to the production of said paper there had been no agreement between appellant and respondent “ the same as or similar to what was therein stated.” Therefore, what the paper states on this subject is merely that respondent, without consideration, made a certain written declaration, acknowledgment, or admission, that a certain condition of things existed; but such averments do not state any contract at all—and certainly not a contract of such dignity as to require rescission.
The foregoing are the main assaults made upon the complaint; the others do not require special notice. We think it clear that the complaint states facts sufficient' to constitute a cause of action; but if we go beyond the complaint and consider “Exhibit A” independently of any mere question of pleading, we do not think that it comes within the class of contracts which must be formally rescinded in order to avoid their force or effect. The rule which makes technical rescission necessary applies to a contract by which the party seeking to ignore it has received something of value, or obtained some advantage; and, in such a case, he is not allowed to retain the thing received or the advantage obtained, and at the same time ignore the rights of the other party. He must give notice of rescission and return, or offer to return what he has received under the contract, and thus restore each party to his original status; but in the case at bar “ Exhibit A” is not such a contract. In fact, it cannot properly be called a contract at all; it is not “an agreement to do or not to do a certain thing,” and was founded upon no consideration. It was signed, according to the complaint, several days after the conclusion of the purchase of the Reese claims; and the jury found that it was signed the next day after such purchase. The exact time is immaterial because the instrument itself shows that it was signed after said pur[123]chase; it recites that “whereas, said party of the second part (appellant) has, by regular sale, assignment, and transfer, become invested with and now holds all the rights and interest which said Michael Reese held as hereinbefore stated.” The instrument then declares that it is covenanted and agreed by the parties that appellant is the owner of said claims. It is nothing more than a written admission of the existence of a condition caused by prior acts. It has all the formalities of a contract, but has no contract in it. If respondent had simply written upon a paper “ I acknowledge that appellant bought the Reese claims for himself,” such paper would have had as much legal value as “Exhibit A.” Of course, in either form the paper would be admissible in evidence for what it was worth, as an admission óf a party; but there was no more necessity to rescind it than there would be to rescind a receipt. There was nothing for respondent to rescind. It is true that in one part of “ Exhibit A” respondent is made to say that he “ sells, assigns, and makes over” a certain part of the Reese claims; but those words do not change the character of the instrument, for he had nothing to assign. The paper itself set out that Reese was the legal owner of said claims, and appellant says that he fully examined into their validity before the purchase, and satisfied himself that they were good, and that the title to them was in the Reese estate; therefore, after he had obtained an assignment of the claims from their owners, the Reese executors, the words “sells, assigns, and makes over” in “Exhibit A” had no significance.
As to the legal merits of the case, we see no reason to disturb the judgment. The relation between attorney and client is a fiduciary relation of the very highest character, and binds the attorney to most conscientious fidelity—uberrima pies. If on his own account he has any transaction with his client about the subject of the litigation, he must with respect to such transaction be able to give, and must give, to his client “ all that reasonable advice against himself that he would have given him against a third person.” (Gibson v. Jeyes, 6 Ves. 278.) This is a very hard thing to do; and there are authorities which hold that all such transactions are against public policy, and absolutely void. (See Weeks’ Law of Attorneys, sec. 268 et seq. [124]and cases there cited.) We do not think that the current of authorities goes quite that far; but the utmost view that can be taken of the subject favorable to appellant’s contention is this: that the attorney must show affirmatively that he gave full and proper advice in the premises, acted with entire fairness throughout the transaction, and took no advantage of his client. The latest expression of this rule is to be found in Felton v. Le Breton, 92 Cal. 469, where this court, through Mr. Justice Harrison speaking of this subject, says: “ In any attempt by the attorney to enforce an agreement on the part of the client growing out of such transaction, the burden of proof is always upon the attorney to show that the dealing was fair and just, and that the client was fully advised.” (See also cases cited in opinion in Felton v. Le Breton, 92 Cal. 469.) In the case at bar the appellant, no doubt, considers that the transaction here involved .was entirely proper, and one which he had a perfect right to enter into, and that the jury should have so found. The evidence on the questions of fact touching the conduct of appellant was certainly not all one way; and it can be forcibly contended that the weight of it is on the side of appellant. But we do not weigh evidence here and determine which way it preponderates; and the finding of the jury being against appellant, we cannot say that it has no substantial support in the evidence. The case of McDowell v. Milroy, 69 Ill. 498, was a stronger case in favor of the attorney than the case at bar, for in that case it was admitted that the attorney had bought for himself; but the court says (we quote from the syllabus, which is a correct statement of the decision) that “when the relation of client and attorney actually exists, and the attorney, at the instance of his client, purchases a note which is secured by morlgage on the land of the client, at a considerable discount, the latter will be entitled to the benefit of the purchase although the attorney may have bought for himself.”
We do not think that the court erred in fixing the amount of the judgment according to the special verdict. “When a special finding of facts is inconsistent with the general verdict the former controls the latter, and the court must give judgment accordingly.” (Code Civ. Proc., sec. 625.) Neither do we think that the special findings are contradictory or that [125]appellant was prejudiced by any absence of findings. There are no other points necessary to be noticed.
Tliis case has been ably and exhaustively argued by counsel on both sides, and it would be impossible in an opinion of reasonable length to discuss all the positions taken, or to notice the leading authorities cited. After a full consideration of the whole case, we see no sufficient reason for disturbing the judgment.
The judgment and order appealed from are affirmed.
Fitzgerald, J., and De Haven, J., did not participate in the foregoing decision.
Rehearing denied.
AI Brief
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Holding. The court held that an attorney who purchases claims related to a client's litigation at the client's request must hold those claims for the client's benefit, and that a written admission signed by the client without consideration acknowledging the attorney's ownership does not require formal rescission.
Issues
Whether a complaint is fatally defective for failing to aver a pre-suit demand when the defendant denies the underlying attorney-client relationship.
Whether a written instrument signed by a client acknowledging an attorney's ownership of claims requires formal rescission as a condition precedent to a lawsuit.
Whether an attorney who purchases claims related to a client's litigation at the client's request is entitled to retain those claims for his own benefit.
Disposition. affirmed
Quotations verified verbatim against the opinion
“The rule which makes technical rescission necessary applies to a contract by which the party seeking to ignore it has received something of value, or obtained some advantage; and, in such a case, he is not allowed to retain the thing received”