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GODDARD v. SECURITY TITLE INSURANCE GUARANTY CO

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District Court of Appeal, Second District, Division 2, California.

GODDARD v. SECURITY TITLE INSURANCE & GUARANTY CO. et al.†

Civ. 11618.

Decided: January 24, 1938

Mitchell, Silberberg, Roth & Knupp (by Guy Knupp), of Los Angeles, for appellants. H. A. Savage, of Fresno, for respondent.

The defendant corporations appeal from a judgment in plaintiff's favor in the sum of $38,965.19. Defendants are stockholders of Metropolitan Trust Company and the judgment is upon their liability as stockholders incurred, as alleged, before the repeal of the stockholders' liability law.

In the summer of the year 1930 plaintiff's nephew, Earle C. Dingwell, was the owner of some twenty parcels of real estate in Southern California and considerable personal property, which was considered to be of the value of approximately $1,600,000. A number of the parcels of real estate were improved with furnished apartment houses and nearly all the properties were subject to mortgages, trust deeds, attachments and other encumbrances. There were also a number of unsecured creditors who were pressing Dingwell for payment. The total amount of the various claims was approximately $1,000,000. In an effort to save his properties, which were producing a substantial income, Dingwell arranged to have Metropolitan Trust Company act as trustee in accordance with a plan whereby the trustee should hold the various properties, a certain amount of cash should be paid to the creditors, and their forbearance obtained. Plaintiff and one Pokress were each to advance the sum of $50,000. On September 24, 1930, the sum of $49,280 was forwarded by plaintiff to a Los Angeles bank, where it was held in the name of the trust company. On October 17, 1930, plaintiff sent the following telegraphic authorization to the trust company: “Deliver to Earl C. Dingwell funds on deposit to my credit if all conditions of trust are satisfactorily arranged.” This sum was expended by the trust company. The trust continued in operation for almost two years. In the summer of 1932 the rentals had fallen off so that they were no longer sufficient to pay operating expenses and the amounts falling due on the encumbrances. Foreclosure proceedings were instituted, and in the course of the next few months all of the properties were lost. Plaintiff charges that his money was paid over to Dingwell in violation of his instructions, resulting in its loss. Defendants attack the findings of the trial court on this point. As additional and affirmative defenses they allege the bar of a prior judgment and that the action is barred by the statute of limitations.

Plaintiff commenced an action in the United States District Court against Metropolitan Trust Company, which went to final judgment before the decision in the present litigation. In the federal court the allegations of the complaint were almost identical with the allegations of the complaint upon which plaintiff went to trial in the present litigation. In the federal court the defendant presented both general and special demurrers. From the judgment roll in the federal action it appears that the following minute order was made:

“It appearing from the second amended complaint that such liability as may attach against the defendant for the breach alleged in said complaint is limited to only such damages as are specifically alleged and proved to have resulted proximately from such breach, and it further appearing that the property alleged to have been conveyed to the defendant in trust was to be held as security for the repayment of the amount advanced by plaintiff, and that said property so conveyed was at the time of such conveyance subject to various encumbrances having priority over plaintiff's claim,

“And it further appearing that if such security was sufficient, irrespective of defendant's alleged breach, and that likewise if such security became inadequate or was lost because of conditions in no way caused by defendant's alleged breach, then such breach cannot be held to have been the proximate cause of plaintiff's alleged damage,

“And it further appearing that said amended complaint fails to allege any proximate or causal connection between defendant's alleged breach and plaintiff's alleged damage, and that said complaint is uncertain in each and all of the particulars specified in items numbered VII to XVI of the demurrer to said second amended complaint, It is Ordered, that said demurrer is sustained.”

Permission to file a third amended complaint was denied and a judgment of dismissal was entered of which the following language is a part: “It Is Ordered, Adjudged and Decreed that the above entitled action be, and the same is hereby, dismissed with prejudice.” An appeal was taken to the Circuit Court of Appeals and the judgment of the District Court was affirmed. Goddard v. Metropolitan Trust Co., 9 Cir., 82 F.2d 902.

Plaintiff contends that “the question of res adjudicata * * * was entirely eliminated from this action by the amendment of the pleadings to conform to proof, * * *” and that “the defective allegations with reference to causal connection between the damage suffered by plaintiff and the disobedience of instructions as set forth in the ruling of the Federal District judge.” were supplied. In the original complaint it is alleged that plaintiff's money was disbursed by the trustee contrary to his instructions, that the security taken by the trustee was valueless, and that the money “has been entirely lost to plaintiff.” In the amendment it is alleged that “solely by reason of the violation of plaintiff's said instructions * * * all of the trust estate * * * was valueless as security * * * and was lost and taken away from said trust company * * * and all of plaintiff's money was lost. * * That had said trust company complied with plaintiff's said instructions * * * there would have been adequate and ample security, by means of * * * which security plaintiff could have been * * * repaid in full his said $49,280, and that thereby plaintiff was damaged * * * all of which damage was proximately caused by the violation of plaintiff's said instructions.”

It is to be noted that the District Court not only refused to permit a further amendment to the complaint, but it dismissed the action with prejudice. In Freeman on Judgments, 5th Ed., volume 2, page 1582, it is said: “So where a dismissal is expressly declared to be ‘with prejudice’ it is held to be a bar to a second action on the same claims.” In California, express recognition has been given to the rule just quoted. Matteson v. Klump, 100 Cal.App. 64, 279 P. 669; Steffens v. Rowley, 10 Cal.App.2d 628, 52 P.2d 493. In Hargis v. Robinson, 70 Kan. 589, 79 P. 119, 121, it is said: “An order dismissing ‘with prejudice’ is equivalent to an adjudication upon the merits, and will operate as a bar to a future action.” It is manifest that the federal court intended to put an end to the litigation. In view of the matters set forth in the order sustaining the demurrer and the rulings refusing permission to file a third amended complaint and dismissing the action with prejudice, it must be held that the general demurrer was sustained and that the action was determined upon the merits. We are not concerned with the question whether the prior judgment was erroneous, since an erroneous judgment, after it becomes final, is an effectual bar to a second suit upon the same cause of action. Akley v. Bassett, 68 Cal.App. 270, 228 P. 1057. Moreover, it is clear that plaintiff sought in the federal court a determination of his right to relief arising out of the deposit of money with the trust company and the disbursement of that money by the trust company.

It was incumbent upon him to allege such facts, if they existed, as would entitle him to the relief sought. Plaintiff cannot litigate his cause of action by piecemeal and, after an adverse judgment in one action, seek relief in a different action by alleging facts which should have been presented in the prior action. Woolverton v. Baker, 98 Cal. 628, 33 P. 731. Beyond question the cause of action litigated in the federal court was the same as that in the present litigation. Plaintiff cannot meet the defense of res adjudicata by relying upon his amendment to the complaint to conform to proof. By this amendment no different cause of action is set forth, no different right is asserted, and no different wrong on the part of the trustee is alleged.

Plaintiff argues that the plea of res adjudicata may not be asserted by defendants for the reason that in the action in the federal court the party defendant was Metropolitan Trust Company, whereas in the present action the parties defendant are the corporations owning the stock of Metropolitan Trust Company. It is a general rule that a judgment against a corporation is not res adjudicata in a later action against the stockholders on their liability for the reason that neither the parties nor the law imposing the liability are the same in the two actions. A stockholder may defend an action commenced against him to enforce his liability as a stockholder even though a prior judgment had been rendered against the corporation. An exception to the general rule is presented in the case of a judgment in favor of the corporation in the prior action. If the liability of a defendant depends entirely upon the culpability of one who has been exonerated in a prior suit he may rely upon the judgment in the prior suit notwithstanding he was not a party thereto. Duell v. Metro–Goldwyn–Mayer Corporation, 128 Cal.App. 376, 17 P.2d 781; Armas v. City of Oakland, 135 Cal.App. 411, 27 P.2d 666, 28 P.2d 422. The question now before us was decided adversely to the contention of plaintiff in Triano v. F. E. Booth & Co., Inc., 120 Cal.App. 345, 8 P.2d 174, 175. In that case a judgment was entered in a federal court in favor of the corporation, none of the stockholders being made parties defendant. The second suit was commenced in the state court against the corporation and its stockholders. In upholding a judgment in favor of both the corporation and the stockholders upon a plea of former adjudication, the reviewing court said: “The federal court judgment is not only a bar against further action directed against the Booth Company, but it is likewise a bar in favor of the stockholders of such company.” The court pointed out the distinction between actions against stockholders in cases in which prior judgments had been rendered against the corporations, and those cases in which prior judgments had been rendered in favor of the corporations. The court held that a different rule prevails in the case of prior judgments against the corporations “because of the possibility of the stockholders being defrauded through collusion between a plaintiff and the officers of the corporation.” The decision in the case from which quotation has just been made has been cited with approval in Duell v. Metro–Goldwyn–Mayer Corporation, supra, and Armas v. City of Oakland, supra.

The judgment is reversed.

WOOD, Justice.

We concur: CRAIL, P. J.; McCOMB, J.

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