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Docket Number

L.A. No. 3570.

Attorney(S)

B.F. Thomas, for Appellant. Canfield Starbuck, for Respondent.

Judges

M. C. Sloss

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Smart Summary

Case Summary: Bradbury v. Higginson, Supreme Court of California (March 30, 1914)

Factual and Procedural Background

The plaintiff (Louise S. Bradbury) sued to recover $600 alleged to be unpaid rent under a written lease of a house at Montecito, Santa Barbara County. The lease—set out in the complaint—covered five years from January 1, 1905, at $100 monthly; the amount sued for represented rent for the last six months of the term (July–December 1909). The complaint alleged nonpayment after July 1, 1909, and was filed June 18, 1912.

A prior action commenced in August 1909 for the same sum resulted in a judgment for plaintiff that was reversed on the ground that a suit for rent was premature (see Bradbury v. Higginson, 162 Cal. 602, 123 P. 797). In the present action the defendant answered, denying performance of conditions precedent and alleging affirmatively that the plaintiff had an obligation (allegedly omitted from the written lease by mistake) to furnish water from her water-plant, that she failed to do so, and that the defendant had rescinded the lease and surrendered possession on August 17, 1909. The plaintiff demurred to that answer on the ground, among others, that the equitable defense was barred by the statute of limitations (Code Civ. Proc., § 338(4) and § 339(1)). The trial court sustained the demurrer; defendant declined to amend; judgment was entered for plaintiff. Defendant appealed.

Legal Issues Presented

Whether the affirmative allegations in defendant's answer (that an oral covenant to furnish water was omitted from the written lease by mistake and that plaintiff failed to perform it) constituted a legally sufficient defense to a demurrer.
Whether an equitable remedy of reformation (to correct the written lease to include the omitted covenant) was essential before asserting rescission or other relief based on the alleged omitted agreement.
Whether the equitable right to reformation alleged in the answer was barred by the statute of limitations applicable to actions "for relief on the ground of fraud or mistake" (Code Civ. Proc., § 338, subd. 4) or by related limitation provisions (Code Civ. Proc., § 339, subd. 1).
Whether Civil Code section 1640 authorizes enforcement of an omitted oral agreement as part of a written contract without a showing entitling the party to reformation.

Arguments of the Parties

Appellant's (Defendant's) Arguments

The written lease omitted—by mutual mistake—an oral agreement under which the plaintiff at her own cost would keep the premises supplied with necessary water from her water-plant; without that agreement the defendant would not have accepted the lease.
Because the premises had no other water supply, and became uninhabitable for want of water from about June 29, 1909 until August 18, 1909, and because plaintiff refused or neglected to furnish water after demand, the defendant rescinded the lease and surrendered the premises on August 17, 1909.
The defendant asserted a right to rescind and to avoid rent liabilities for the period after July 1, 1909, based on the failure to perform the omitted covenant.
The defendant relied on Civil Code section 1640, arguing that when a written contract fails to express the real intention of the parties through mistake, the true intention is to be regarded and the erroneous parts disregarded—implying that oral testimony should be allowed to show the omitted covenant as part of the contract.

Respondent's (Plaintiff's) Arguments

Plaintiff demurred to the answer, asserting that the defense based on reformation or mistake is barred by the statute of limitations—specifically Code of Civil Procedure section 338, subdivision 4 (three-year limitation for relief on the ground of fraud or mistake) and subdivision 1 of section 339.
Under the written lease there was no affirmative obligation to supply water; the plaintiff had not breached any covenant included in the written instrument, and prior appellate decision had rejected a similar interpretation of the lease.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Bradbury v. Higginson, 162 Cal. 602, 123 P. 797	Earlier appellate decision establishing that an action for rent was premature and that the written lease did not impose an affirmative obligation to supply water (interpretation of "appurtenances").	The court relied on that decision to show that under the written lease the failure to supply water did not justify abandoning the premises and that the lease, as written, did not contain a covenant to keep the water system in repair.
Bruck v. Tucker, 42 Cal. 352	Equitable defenses must contain all averments essential to state an equitable cause of action when interposed in an answer.	Used to support the proposition that equitable relief (reformation) asserted in an answer must include averments sufficient to state a cause of action for equitable relief.
Swasey v. Adair, 88 Cal. 179, 25 P. 1119	Same general principle as Bruck v. Tucker regarding the requirements for pleading equitable defenses.	Cited along with Bruck v. Tucker to show that the answer must contain averments necessary for an equitable cause of action seeking reformation.
Lyon v. Petty, 65 Cal. 322, 4 P. 103	The statute of limitations applies to claims asserted in an answer by way of setoff or counterclaim.	Analogized to support applying the statute of limitations to equitable defenses asserted by answer; the court extended the reasoning to equitable causes pleaded defensively.
Moore v. Gould, 151 Cal. 723, 91 P. 616	Statute of limitations is applicable to claims asserted in answer (cited for the same proposition as Lyon v. Petty).	Used to reinforce the point that limitation periods apply to matters raised in an answer as setoffs, counterclaims, or equitable defenses.
Tarke v. Bingham, 123 Cal. 163, 55 P. 759	Code Civ. Proc., § 338, subd. 4 (three-year limitation for relief on ground of fraud or mistake) is the statute applicable to reformation on the ground of mistake.	Cited to identify the proper statutory limitation period governing the defendant's asserted right to reformation based on mistake.
Eureka v. Gates, 137 Cal. 89, 69 P. 850	Same statutory rule as Tarke v. Bingham regarding § 338(4) applicability to relief for mistake or fraud.	Again cited as authority that § 338(4) governs reformation claims like the one set up in the answer.
Hecht v. Slaney, 72 Cal. 363, 14 P. 88	A mere averment of ignorance of facts which could have been discovered with reasonable diligence does not postpone the running of the statute.	Relied upon to hold that the defendant's bare assertion that he did not discover the omission until August 1909 was insufficient to avoid the bar of the statute of limitations; he should have discovered the omission when he signed the lease.
Burling v. Newlands, 112 Cal. 476, 44 P. 810	Same proposition that mere ignorance averred is insufficient to delay the statute; diligence must be alleged.	Used with other cases to require affirmative pleading of facts excusing failure to discover the mistake earlier.
Lady Washington Co. v. Wood, 113 Cal. 482, 25 P. 809	Same rule on discovery and the statute of limitations (citation appears twice in the opinion in slightly different citation forms).	Applied to support the position that the defendant must allege facts excusing prompt discovery; mere statement that the lease was prepared by plaintiff's attorney was insufficient.
Tracy v. Muir, 151 Cal. 363, 90 P. 832	Authority on diligence and discovery for purposes of statute of limitations.	Among cases cited to show that the cause of action for reformation accrues upon discovery and that affirmative facts excusing delayed discovery must be pleaded.
Dennis v. Bint, 122 Cal. 39, 54 P. 378	Pleading requirement: party seeking to avoid the bar must affirmatively plead facts excusing failure to make earlier discovery.	Cited to support the requirement that the defendant must plead facts justifying the delay in discovering the mistake.
Harrington v. Patterson, 124 Cal. 542, 57 P. 476	Same principle that excuse for delay must be pleaded.	Used to underscore the necessity of pleading reasons excusing failure to discover the mistake within the statutory period.
Gardner v. California Guar. etc. Co., 137 Cal. 71, 69 P. 844	Interpreted by appellant as giving § 1640 broader effect—suggesting court can enforce as part of a written contract provisions proved by parol evidence reflecting the parties' real intention.	The court stated that if Gardner gives § 1640 the effect claimed by defendant (permitting enforcement of omitted oral terms without reformation), that decision "goes too far" and should not be followed on that point.

Court's Reasoning and Analysis

The court began by construing the answer as a whole and concluded that the denial of performance of conditions precedent referred to the affirmative allegation that the plaintiff had failed to furnish water pursuant to an oral agreement omitted from the written lease by mistake. The written lease, as interpreted in the earlier appeal, contained no covenant requiring the lessor to supply water; therefore any right asserted by defendant depended upon showing that the written lease should be reformed to include the omitted covenant.

The court reasoned that reformation of a written contract is an equitable remedy. Although equitable defenses may be interposed in the answer to a legal action under the current procedure, an equitable cause of action set up defensively must include in the answer the averments essential to such a cause of action—i.e., the substance of a suit for reformation must appear in the answer. The court cited authorities (Bruck v. Tucker; Swasey v. Adair) for that proposition.

Because the claimed right (reformation of the lease) was equitable in nature, the court held the applicable limitation was Code of Civil Procedure section 338, subdivision 4 (three years for relief on the ground of fraud or mistake). The cause of action to reform accrues upon discovery of the facts constituting the mistake. Although the answer averred that the defendant did not discover the omission until August 1909 (within three years of filing the present answer), the court explained that a bare assertion of ignorance is inadequate where the circumstances show the defendant could have discovered the omission with reasonable diligence. The defendant had signed the lease in December 1904; the only excuse pleaded was that the lease was prepared by the plaintiff's attorney. The court found this an insufficient excuse; the defendant must be deemed to have known the terms when he signed. Thus the right to reformation accrued at the signing, and the statutory period ran from that time.

The court further addressed the defendant's reliance on Civil Code section 1640 (that a written contract failing to express the real intention through fraud, mistake, or accident should be disregarded as to its erroneous parts). The court held that § 1640 could not be read to authorize a court, in the absence of a showing entitling the party to reformation, to find and enforce omitted provisions by parol evidence; doing so would alter a written contract contrary to fundamental principles. The court explicitly said that if Gardner v. California Guaranty Co. gives § 1640 the broader effect claimed by defendant, that decision "goes too far" on this point and should not be followed.

Because reformation was essential to the defendant's asserted rescission (the omitted covenant was the foundation of the defense) and because the right to reformation was barred by the statute of limitations (or at least not sufficiently pleaded so as to avoid the bar), the court concluded the demurrer to the answer was properly sustained.

Holding and Implications

Holding: The Court affirmed the judgment—i.e., the demurrer to the defendant's answer was rightly sustained and the trial court's judgment for the plaintiff was affirmed.

Implications:

The defendant's equitable defense premised on a mistakenly omitted oral covenant to furnish water required a properly pleaded and timely claim for reformation; without such reformation the defendant had no contractual basis for rescission.
The court applied the three-year limitation of Code of Civil Procedure section 338, subdivision 4 to the equitable claim for reformation, and held that mere assertions of ignorance were insufficient to avoid the statute; the defendant's allegation that the lease was prepared by plaintiff's attorney was not an adequate excuse for failure to discover the omission sooner.
The court refused to allow Civil Code section 1640 to be used as a substitute for reformation—stating that, absent a showing justifying reformation, the court would not alter a written contract by proof of an omitted parol agreement. The court suggested that Gardner v. California Guaranty Co., insofar as it suggests otherwise, should not be followed on that point.
Direct effect: the plaintiff's judgment for $600 was sustained; the defendant's defense based on the alleged omitted covenant and rescission was rejected as insufficiently pleaded and barred by limitations as applied.

Concurring: Shaw, J.; Angellotti, J.; Melvin, J.; Henshaw, J.; and Lorigan, J.

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LOUISE S. BRADBURY, Respondent, v. AUGUSTUS B. HIGGINSON, Appellant.

SLOSS, J.

The plaintiff brought this action to recover six hundred dollars, rent claimed to be due under a lease of a house at Montecito, Santa Barbara County. The lease, which is set out in full in the complaint, was for five years from the first day of January, 1905, at a monthly rental of one hundred dollars, and the amount here sued for is the rent for the last six months of the terms, i.e., July to December, 1909. The complaint, which alleges nonpayment of rent after July 1, 1909, was filed on June 18, 1912. In a former action for the recovery of the same sum, commenced in August, 1909, a judgment in favor of plaintiff had been reversed on the ground that the action, viewed as one for rent, was premature, such action not being maintainable in advance of the time when rent was payable under the lease. (Bradbury v. Higginson, 162 Cal. 602, [ 123 P. 797].)

In the present action, the defendant filed an answer, in which he denied the plaintiff's general allegation of performance of all conditions precedent, and set up affirmatively the failure of plaintiff to comply with an alleged obligation to furnish water to the premises, by reason of which failure the defendant had rescinded the contract of lease. A demurrer to the answer was sustained, and defendant declining to amend, the plaintiff had judgment for the amount claimed. The defendant appeals from such judgment.

The answer, read as a whole, clearly shows that the denial of performance of conditions precedent, above referred to, was intended to be qualified by and to refer to the affirmative allegations relative to the failure to furnish water. Indeed, it is not suggested that there was any other condition to be performed by the plaintiff. The implied covenant to protect defendant's possession (Civ. Code, sec. 1927) was not broken, as appears from the uncontroverted facts alleged in the pleadings. The real question, therefore, is whether these affirmative allegations set up a defense good against the demurrer interposed.

The matter thus pleaded was in substance as follows: At the time of the execution of the lease, it was mutually agreed that, in consideration of the payment of the rent, the plaintiff at all times during the terms of the lease would, at her own cost, keep the house and premises supplied with necessary water from plaintiff's water-plant. Without said agreement the defendant would not have accepted the lease. In reducing the lease to writing, the agreement to furnish water was by mutual mistake omitted. The premises had no other water supply. About June 29, 1909, the premises became uninhabitable for want of water, and continued to be without water until the eighteenth day of August, 1909. As soon as defendant ascertained that the premises were without water, he demanded of plaintiff that she furnish water, which she neglected and refused to do. Such neglect and refusal continued until August 17, 1909, when defendant elected to rescind said contract of hiring and to vacate the premises on account of plaintiff's neglect to furnish water, and on said date he served on plaintiff a written notice that he surrendered the premises and rescinded the lease. On the same day he did vacate the house and premises. The house and premises could not be used or occupied without water, and by reason of plaintiff's failure to furnish water, the consideration for defendant's agreement to pay rent from July 1, 1909, to August 17, 1909, absolutely failed. The contract of lease was prepared by plaintiff and her attorney, and defendant did not discover until August, 1909, that the written lease did not contain the term and condition orally agreed upon, to wit, that plaintiff should at her own cost furnish the premises with water from her plant.

One of the grounds of demurrer to the foregoing defense was that it is barred by the provisions of Subdivision 4 of section 338 and subdivision 1 of section 339 of the Code of Civil Procedure.

Under the lease as written, the failure to supply water did not justify the defendant in abandoning the premises or refusing to pay rent. The writing did not impose upon the lessor any affirmative obligation in this regard. This was definitely established in the former action ( 162 Cal. 602, [ 123 P. 797]), where the defendant sought to interpret the word "appurtenances" in the lease as including an agreement to keep the water system in repair. The decision was against him on this point. The defense is, then, based upon the failure of the plaintiff to comply with an obligation which was not included in the written agreement, but was, as the answer alleges, omitted therefrom by mistake. For this failure, materially affecting the consideration, the defendant has asserted a right to rescind.

It seems entirely clear that, before any rescission or other defense can be based upon an agreement which should have been, but was not, made a part of the written lease, the writing must be reformed by the decree of a court of equity, or, if there be no formal decree of reformation, there must be a showing justifying such a decree. The defense really consists of two parts, i.e.: 1. A demand that the writing be reformed so as to express the true intention of the parties; and 2. A plea that the agreement has been rescinded for the failure of the plaintiff to perform it, as thus reformed. But since the agreement claimed to be rescinded is not the agreement contained in the writing executed by the parties, it was essential to the defense that a right of reformation be established. The reformation of contracts is a branch of the equity jurisdiction. Under the old system, where legal and equitable rights were administered in different tribunals, the equitable remedy would have had to be sought and obtained in a court of chancery in a suit instituted for that purpose. Under our procedure, however, equitable defenses may be interposed to legal causes of action, and a right to equitable relief, affecting the legal right asserted in the complaint, may be set up by way of answer. But if the matter set up be an equitable cause of action, the answer must contain all the averments essential to the statement of a cause of action as such. (Bruck v. Tucker, 42 Cal. 352; Swasey v. Adair, 88 Cal. 179, [25 P. 1119].) If the defendant's right to obtain the equitable relief sought is barred by limitation, the plea of the statute may be interposed to the attempted defense just as it might have been in case the relief had been sought by an independent action. This court has held that the statute of limitations is applicable to claims asserted in an answer by way of setoff or counterclaim (Lyon v. Petty, 65 Cal. 322, [4 P. 103]; Moore v. Gould, 151 Cal. 723, 732, [ 91 P. 616]), and the same reason exists for making the statute apply to defenses based upon an equitable cause of action asserted by the defendant against the plaintiff.

In the case under consideration the plaintiff, in her demurrer, pleaded subdivision 4 of section 338 of the Code of Civil Procedure, which fixes a limitation of three years for actions "for relief on the ground of fraud or mistake." This is the statute applicable to the relief sought by the answer. (Tarke v. Bingham, 123 Cal. 163, [55 P. 759]; Eureka v. Gates, 137 Cal. 89, [ 69 P. 850].) A reformation of the lease was demanded on the ground of mistake in omitting the covenant binding the plaintiff to furnish water. The cause of action to enforce such reformation accrued, under the statute, upon the discovery of the facts constituting the mistake. (Code Civ. Proc., sec. 338, subd. 4.) It is true that the answer avers that the defendant did not discover the mistake until August, 1909, which was within three years of the filing of the answer. But a mere averment of ignorance of a fact which a party might with reasonable diligence have discovered is not enough to postpone the running of the statute. (Hecht v. Slaney, 72 Cal. 363, [14 P. 88]; Burling v. Newlands, 112 Cal. 476, [44 P. 810]; Lady Washington Co. v. Wood, 113 Cal. 482, [25 P. 809]; Tracy v. Muir, 151 Cal. 363, [121 Am. St. Rep. 117, 90 P. 832].) It is necessary for the party seeking to avoid the bar to affirmatively plead facts excusing the failure to make an earlier discovery of the mistake or fraud relied upon. (Dennis v. Bint, 122 Cal. 39, [68 Am. St. Rep. 17, 54 P. 378]; Harrington v. Patterson, 124 Cal. 542, [57 P. 476]; Lady Washington Co. v. Wood, 113 Cal. 482, [45 P. 809].) Here the defendant signed the lease in December, 1904. The only ground assigned for his failure to discover that the paper did not include the agreement to furnish water is that the lease was prepared by plaintiff's attorney. This is no sufficient excuse for the defendant's alleged ignorance of the terms of a writing executed and accepted by him. No reason appearing to the contrary, he must be deemed to have known the precise terms of the lease when he signed it. If it omitted a provision which it should have contained, his right to compel a reformation accrued at once and should have been asserted within three years. We do not think this case is one in which the reformation is merely incidental to the ultimate relief sought. It is the foundation upon which every other right asserted by the defendant must rest. Without a reformation, there was no contract which the plaintiff had broken, nor was there any right of rescission.

The defendant relies upon section 1640 of the Civil Code, providing that "when through fraud, mistake, or accident, a written contract fails to express the real intention of the parties, such intention is to be regarded, and the erroneous parts of the writing disregarded." This section is found in title III of part II of division third of the code, such title dealing with the subject of "Interpretation of Contracts." Whatever may be the real scope of this enactment, it certainly cannot have the effect of authorizing a court, in the absence of a showing of a right of reformation, to find, upon oral testimony that a written contract includes provisions which do not appear upon its face, and to enforce such provisions as a part of the written contract. This would not be an interpretation of the contract. It would be altering a written contract by proof of the parol agreement of the parties, a procedure which is contrary to the most elementary principles governing the effect of written instruments. If the decision in Gardner v. California Guar. etc. Co., 137 Cal. 71, [ 69 P. 844], gives to section 1640 the effect contended for by defendant, we think that decision goes too far, and should not be followed on this point.

The opinion in the Gardner case contains, further, an expression to the effect that an action for the reformation of a contract is not barred so long as an action on the contract itself might be brought. If this be the correct rule, we do not consider it applicable to a case like the one before us, where the reformation is not merely incidental to the main relief sought, but is an essential prerequisite to the asking of any relief.

For the reasons stated, we conclude that the demurrer to the answer was rightly sustained.

The judgment is affirmed.

Shaw, J., Angellotti, J., Melvin, J., Henshaw, J., and Lorigan, J., concurred.

BRADBURY v. HIGGINSON