On October 10, 1960, plaintiffs, cross-defendants, and appellants, Gus D. Corey and Helen P. Corey, brought an action for fraud and damages against defendants, cross-complainants, and respondents, Eberhard F. Weerts and his wife, Adeline, et al. The action involved an agreement of sale, dated November 26, 1958, of a going restaurant business, wherein the Coreys agreed to purchase it from defendants on certain specified terms, including a promissory note for $25,475.29, which was secured by a chattel mortgage on the fixtures. Plaintiffs took possession. Payments due on the note were not paid, but were withheld on advice of plaintiffs' counsel. Subsequently, the business was voluntarily closed by the Coreys.
On October 10, 1960, the Coreys filed this action for fraud and immediately served defendants. On October 13, 1960, request was made by Mr. Horton to Mr. Whelan for an open extension of time to plead and it was granted. On October 18, 1960, such extension was confirmed in writing and on that date attorney Whelan visited attorneys Oakes and Horton to discuss a proposition of settlement. Attorney Whelan had just returned from the hospital and was recuperating from an operation, and he stated that his clients had been bothering him, and to satisfy them he had filed this action, but that he did not want to go to trial and hoped the matters would be settled. Attorney Horton stated that he believed that he and attorney Whelan would work together to seek a settlement of the whole matter, including creditors' claims, etc. On October 27, 1960, Mr. Horton talked with Mr. Whelan and it was decided to hold a meeting with Mr. Lawrence Holzman of the Wholesale Credit Men's Association, and on November 1, 1960, such a meeting was held and their mutual problems were discussed. Mr.
Mr. Whelan produced a copy of a letter written by attorneys Oakes and Horton and directed to him, dated October 27, 1959, reciting that they wrote him one month before about the Coreys' obligation to their client and recalled that Mr. Whelan said that they would look into the matter, but that they had heard nothing from them, and to consider the letter a 10-day notice to the Coreys, as a demand for all sums due under the promissory note. Mr. Whelan requested that no action be taken thereon at that time. No action was ever commenced on the promissory note.
Mr. Whelan states in his affidavit that about November 2, 1960, his clients demanded action on their claim against defendants Weerts; that his clients had accused him of bad faith in not requiring defendants to answer, and that on November 3, 1960, he dictated a letter, in his clients' presence, to attorney Horton reciting that he presented, in good faith, to the Coreys some suggested settlement, including reconveyance of some Las Vegas property and that they were not interested. The letter related that all discussions of settlement were off and he expected an answer to be filed in the instant action not later than November 7, 1960. This was followed by a statement that if Mr. Weerts was in a position to make a concrete offer of settlement, "well and good." He then proposed some terms on which he might be willing to settle. Then follows the recital: "In the event that you look with disfavor upon this proposition of settlement please get your answer on file so that we can bring the case on for trial at the earliest possible time."
Mr. Corey signed the letter with Mr. Whelan and delivered it in person to Mr. Horton on November 4, 1960. Mr. Horton claimed that he telephoned Mr. Whelan on that same date, according to his best recollection, and discussed further propositions of settlement and that the next day he saw Mr. Whelan on the golf course and told him, jokingly, that he noticed where he (Whelan) had been busy writing letters to impress his clients and said that Mr. Whelan only laughed in reply.
It appears that on November 14, 1960, the Coreys, through their attorney, had entered a default against the Weertses and on June 13, 1961, had entered a default judgment, unbeknownst to the Weertses or their attorney. Mr. Horton averred that the fact was discovered by Mr. Holzman in his efforts to establish the claims in reference to the final proposal to reach an agreement with all parties concerned and that he notified Mr. Horton of his findings. On gaining this knowledge about the default and the default judgment, defendants' attorney asked Mr. Whelan to stipulate that the default could be set aside, but after conferring with his clients Mr. Whelan said they refused.
On June 27, 1961, counsel for defendants immediately moved to set aside the default and default judgment, which the trial court granted and allowed defendants to answer and file a cross-complaint against plaintiffs on the note and to foreclose the chattel mortgage. Plaintiffs filed an answer to the cross-complaint.
Attorney Whelan testified that the Coreys did assign all their property including the fixtures and liquor stock, over to the San Diego Wholesalers Credit Men's Association during this period, except the possible benefits of the instant action. Mr. Whelan presented a bill for attorney's fees along with the assignment. He also prepared a homestead executed by Mrs. Corey on certain property. Mr. Whelan was advised by Mr. Holzman that an arrangement had been worked out whereby Mr. Weerts was to be released from keeping up payments under the lease; that Weerts was to release the chattel mortgage and the bulk of the property covered by the chattel mortgage was to be sold to help satisfy the creditors and that he said he discussed these matters with the Coreys. This well indicates that plaintiffs knew further negotiations were being carried on in an endeavor to effect a satisfactory agreement with plaintiffs and defendants to resolve their respective claims and that these negotiations
Had the default been taken within the six-months period, under the circumstances related, no serious question would here be presented. (Code Civ. Proc., § 473.) The principal question is whether the facts, viewed in the most favorable light in support of the trial court's order, support a conclusion that there was an extrinsic mistake, extrinsic accident or extrinsic fraud.
In Olivera v. Grace, 19 Cal.2d 570 [122 P.2d 564, 140
The motion for relief from default recites that the motion is based upon the "equitable doctrine of relief from forfeitures caused by extrinsic accident or mistake." No mention is made of Code of Civil Procedure, section 473, in said notice. Phillips v. Trusheim, 25 Cal.2d 913 [156 P.2d 25], relied upon by plaintiffs, is not here applicable. The trial court made no specific findings on the question but did, upon such noted motion, enter its order setting aside the default and default judgment. In addition to the affidavits filed, considerable testimony was taken in respect to the entire transaction. In his oral summation of the evidence, the judge concluded with the statement:
"Now, whether you call the acts on the part of counsel for plaintiff fraud, or whether you call the conduct on the part of the defendant excusable neglect, or without regard to the label that we want to put on this thing, I don't think it can be said that there was anything here but perhaps actions on the part of one person in good faith, which were completely misinterpreted and acted upon — perhaps that is
Apparently, the trial court concluded that there was sufficient extrinsic mistake shown and that defendants were free from fault contributing to the unjust judgment, and that defendants made a satisfactory showing of excuse for not having filed their answer in the action.
Order setting aside default and default judgment affirmed.
Coughlin, J., and Brown (G.), J., concurred.
A petition for a rehearing was denied April 16, 1963, and appellants' petition for a hearing by the Supreme Court was denied May 22, 1963. Peters, J. was of the opinion that the petition should be granted.