VELLA v. HUDGINS

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Court of Appeal, Second District, Division 4, California.

Nancy C. VELLA, Plaintiff, Appellant and Cross-Respondent, v. Everett R. HUDGINS, Defendant, Respondent and Cross-Appellant.

Civ. 49334.

Decided: March 04, 1977

Joseph L. Shalant, Law Corp., Los Angeles, for plaintiff, appellant and cross-respondent. Milton Zerin and L. Dean Petty, Beverly Hills, for defendant, respondent, and cross-appellant.

Plaintiff appeals from the portions of a judgment denying her the full relief sought; defendant appeals from the judgment. We reverse the judgment and, necessarily, dismiss the plaintiff's appeal.

It is the theory of plaintiff's case that defendant had fraudulently induced her to default on a second trust deed held by him on her home. Her version of the events involved, which the trial court accepted, was, in essence, as follows: Plaintiff and defendant had, for some time, been intimate. When plaintiff was in financial difficulties, defendant loaned her money, taking as security the trust deed herein involved. He told her, at that time, that although the transaction was in the form of a secured loan, she need not be concerned over repayment. Relying on that representation, she used her resources to discharge other, and pressing, obligations. Thereafter, plaintiff and defendant quarreled and he then, in violation of his original promise, instituted foreclosure proceedings resulting in the loss of her home. The briefs discuss, extensively, whether the trial court's findings in favor of plaintiff are supported by the evidence, as well as contentions over the admissibility of evidence and procedural problems. We need not, and do not, consider the matters so raised because we conclude that the trial court erred in rejecting one matter of defense that controls the case at bench.

After plaintiff had defaulted on the second deed of trust, defendant purchased the property at a foreclosure sale and, thereafter, instituted an unlawful detainer action in municipal court. Plaintiff appeared in that action and affirmatively pled, as a defense, the same fraud on which she relies in the present action. Her allegations, in that case, were as follows:

‘IX

As a separate and affirmative defense, defendant alleges:

‘I

‘That plaintiff herein, EVERETT HUDGINS, at all times herein material, was the true beneficial owner of the deed of trust, referred to in the complaint in paragraphs III and IV, at all times herein material.

‘II

‘That said plaintiff upon acquisition of such beneficial interest, and continuously thereafter, advised the defendant herein that no payments need be made on, or in favor of, as on account of, said deed of trust.

‘III

‘That defendant was induced to, and did, rely on such representations of the plaintiff and as a result of such statements did not pay any amount to plaintiff for, or on account of, said deed of trust.

‘IV

‘That plaintiff reasonably intended to, and did induce such reliance by defendant.

‘V

‘That as a result of such representations and reliance defendant has suffered detriment.

‘VI

‘That to allow plaintiff to repudiate such statement would result in further and great damage to defendant.’

That case was tried, resulting in a minute order reading as follows:

‘After Submission:

‘The Court finds that the Plaintiff has proved his acquisition of the title of the subject premises by purchase at the trustee's sale in compliance with the statute and deed of trust and acquired the right to possession on September 18, 1969 by virtue of a trustee's deed upon sale, that the Defendant has failed to sustain her burden of proof with respect to the affirmative defenses of waiver and estoppel and tender.

‘Accordingly the Court grants judgment as follows:

‘1. Possession of the premises.

‘2. Damages for the reasonable rental value of the premises from October 20, 1969 at the rate of $10.00 per day until such time as possession is obtained.

‘3. Costs of suit.

‘Plaintiff to submit judgment.’

A judgment pursuant to that minute order was duly entered.1

For many years, it was felt that such an affirmative defense was not available in an unlawful detainer action and that a holding in such an action did not bar a subsequent plenary action. However, in Wood v. Herson (1974) 39 Cal.App.3d 737, 114 Cal.Rptr. 365, Division Five of this district reviewed all the earlier cases and, on facts substantially the same as those herein involved, held that where such an affirmative defense had been fully tried in the unlawful detainer action, the judgment there was res judicata in any subsequent plenary action raising the same contentions. We follow that decision.

Plaintiff argues that Wood should be distinguished on the ground that the record there (as the Wood opinion recites) showed that the defense in the unlawful detainer action had been extensively tried, over several days and with extensive discovery, whereas the record here does not show any pretrial discovery nor does it show how extensively the defense here was litigated. We do not regard that distinction as material. Plaintiff pled her fraud theory in the unlawful detainer action; some evidence thereon was received without objection by defendant; that trial resulted in a finding adverse to plaintiff. Nothing more is required to make the res judicata defense available to defendant in the case at bench.

Since we reverse the judgment in favor of plaintiff in its entirety, plaintiff's appeal, seeking a greater judgment, is moot and we dismiss it.

The judgment in favor of plaintiff on the cross-appeal is reversed, with directions to enter judgment in favor of defendant; plaintiff's appeal from part of that judgment is dismissed.

I dissent.

The majority reverses the judgment in plaintiff's favor on the ground that the trial court should have upheld defendant's defense of res judicata. I do not interpret the law or construe the record as mandating such a result. In my view, plaintiff's cause of action in the case at bench was not litigated as a defense to defendant's unlawful detainer action in the municipal court action so as to bring the doctrine of estoppel into play.

The doctrine of res judicata is well established. It ‘rests upon the ground that the party to be affected, or some other with whom he is in privity, has litigated, or had an opportunity to litigate the same matter in a former action in a court of competent jurisdiction, and should not be permitted to litigate it again to the harassment and vexation of his opponent. Public policy and the interest of litigants alike require that there be an end to litigation. In applying the doctrine the cases recognize a distinction between the effect of a judgment operating by way of estoppel in a later action upon a different cause of action and one operating by way of bar against a second action upon the same cause of action.’ (Panos v. Great Western Packing Co. (1943) 21 Cal.2d 636, 637–638, 134 P.2d 242, 243.) (Emphasis in original.)

A comparison between the defense pleaded in the unlawful detainer action and the cause of action alleged in the instant case, together with the findings of fact and conclusions of law from the instant case establishes that plaintiff did not have a ‘fair adversary hearing’ in the municipal court—a hearing that resulted in a judgment on the merits of her case to preclude a subsequent suit.

As pointed out by the majority, plaintiff's affirmative defense as a defendant in the unlawful detainer action set forth the following allegations:

‘As a separate and affirmative defense, defendant alleges:

‘I

‘That plaintiff herein, EVERETT HUDGINS, at all times herein material, was the true beneficial owner of the deed of trust, referred to in the complaint in paragraphs III and IV, at all times herein material.

‘II

‘That said plaintiff upon acquisition of such beneficial interest, and continuously thereafter, advised the defendant herein that no payments need be made on, or in favor of, as on account of, said deed of trust.

‘III

‘That defendant was induced to, and did, rely on such representations of the plaintiff and as a result of such statements did not pay any amount to plaintiff for, or on account of, said deed of trust.

‘IV

‘That plaintiff reasonably intended to, and did, induce such reliance by defendant.

‘V

‘That as a result of such representations and reliance defendant has suffered detriment.

‘VI

‘That to allow plaintiff to repudiate such statement would result in further and great damage to defendant.’

The trial judge in the unlawful detainer action characterized this pleading as alleging the ‘affirmative defenses of waiver and estoppel.’ The trial in the municipal court lasted only one day and the court ruled that defendant therein (plaintiff herein) had failed to sustain her burden of proof. The trial was not stenographically reported and there were no findings of fact and conclusions of law.

In the case at bench, plaintiff's cause of action with which we are concerned contained the following allegations:

‘Plaintiff alleges for her Third Amended Complaint against defendants, and each of them.

‘FIRST CAUSE OF ACTION

‘I

‘Plaintiff is a resident of the County of Los Angeles, State of California, and the real property which is the subject of this action is located in the County of Los Angeles, State of California.

‘II

‘That defendants, EVERETT R. HUDGINS and STUART WAYNE McGHAN, are residents of the County of Los Angeles, State of California.

‘III

‘That all of the hereinafter stated events in this complaint between defendants, HUDGINS, McGHAN and HANCOCK, occurred in the County of Los Angeles, State of California.

‘IV

‘That in and before October of 1969, plaintiff was the owner of the premises known as 8600 Farralone Avenue, Canoga Park, California, more particularly described as follows: Lot 6, Tract 20512, in the City of Los Angeles, State of California, as per map thereof recorded in Book 692, Pages 53 and 54 of Maps, in the office of the County Recorder of Los Angeles County; that the real property was then, ever since has been, and now is worth over $40,000.00.

‘V

‘That on April 23, 1964, plaintiff executed a promissory note secured by a Deed of Trust wherein Caber Corporation was the beneficiary. The maturity date of said note secured by the Deed of Trust was December 1, 1967.

‘VI

‘That on or about November 20, 1967, plaintiff and Caber Corporation orally modified the terms of the obligation by extending the maturity date of said note so that plaintiff would pay $100.00 per month until the principal and interest were paid in full. Plaintiff then began making $100.00 per month payments to Caber Corporation.

‘VII

‘That plaintiff is informed and believes and on such information and belief alleges that defendant EVERETT R. HUDGINS, obtained said note by assignment from the then beneficiary of said Deed of Trust, Penrod Corporation, successor to Caber Corporation, on or about May 1, 1969.

‘VIII

‘That on or about May 1, 1969, defendant, STUART WAYNE McGHAN, caused to be registered a Notice of Assignment of said note with himself as beneficial assignee and Penrod Corporation as the assignor.

‘IX

‘That defendant, EVERETT R. HUDGINS, was the true beneficial assignee of said note.

‘X

‘That by reason of her financial and emotional problems, and her close relationship to defendant, EVERETT R. HUDGINS, plaintiff reposed complete confidence in defendant, EVERETT R. HUDGINS' honesty and integrity, and confided in him her problems.

‘XI

‘That on or about May 1, 1969, defendant, EVERETT R. HUDGINS, contriving to cheat and defraud plaintiff, obtained the assignment to himself of the note held by Penrod Corporation knowing of the oral modification of the terms of said note.

‘XII

‘That on or about May 1, 1969, defendant, EVERETT R. HUDGINS, orally represented to plaintiff that he had purchased said note in order to protect plaintiff from default and that because of his close personal relationship to plaintiff, would not require any payments to be made on said note.

‘XIII

‘That defendant EVERETT R. HUDGINS' aforesaid representations were made in bad faith for the sole purpose of inducing plaintiff to stop making the payments on said note, so that he, defendant EVERETT R. HUDGINS, could fraudulently obtain the aforesaid property, which he did in fact obtain by virtue of his false and fraudulent representations.

‘XIV

‘That plaintiff believed defendant EVERETT R. HUDGINS' representations, and relying thereon, made no further payments on said note.

‘XV

‘That shortly after the aforesaid events, defendant EVERETT R. HUDGINS caused a Notice of Default and Election to Sell Under Deed of Trust to be recorded on May 1, 1969, by virtue of non-payment, and requested defendant, CHARLES HANCOCK, as Trustee, to sell said real property.

‘XVI

‘Thereafter, on or about September 18, 1969, defendant CHARLES HANCOCK, as Trustee, sold said real property to defendant EVERETT R. HUDGINS.

‘XVII

‘On October 17, 1969, defendant EVERETT R. HUDGINS caused a Three Day Notice to Quit to be served upon plaintiff, and on October 23, 1969, defendant EVERETT R. HUDGINS verified a complaint for unlawful detainer and instituted suit against plaintiff in the Municipal Court of Beverly Hills Judicial District, wherein judgment was given to defendant, EVERETT R. HUDGINS, for possession and for $2,520.00 money damages plus costs.

‘XVIII

‘That plaintiff was evicted from the aforesaid real property and forced to incur moving expenses of approximately $1,000.00.

‘XIX

‘That by reason of the fraudulent acts of defendant EVERETT R. HUDGINS, hereinbefore related, plaintiff has been defrauded of her equity in the aforesaid real property, reasonably worth more than $40,000.00 and subject to the aforementioned indebtedness which at the time of plaintiff's eviction from her own home had an amount owing of about $2,000.00. Plaintiff's property was also subject to an indebtedness of about $27,000.00 owing to United Savings and Loan Association.’

The trial in the superior court required four days and resulted in a reporter's transcript of 487 pages. The superior court judge made the following findings of fact:

‘FINDINGS OF FACT

‘1. On April 23, 1964, plaintiff entered into a written agreement entitled Note Secured By Deed of Trust, with Caber Corporation, wherein plaintiff agreed to make regular payments of principal and interest to said corporation commencing January 1, 1965. Said note and deed pertained to residential real property located at 8600 Faralone Avenue, Canoga Park, California, and otherwise described as follows:

‘Lot 6, of Tract 20512, County of Los Angeles, State of California, as per map recorded in Book 692, page 53–54 of maps in the office of the County Recorder of said county.

‘2. Subsequent to January 1, 1965, defendant Hudgins acquired the promissory note from Stuart Wayne McGhan, who had previously purchased the note from Caber Corporation's successor, Penrod Corporation. Defendant Hudgins then caused to be registered a notice of assignment of said note, with himself named as assignee.

‘3. Defendant Hudgins was a close and trusted friend of plaintiff prior to acquiring ownership of the note. They had first met in 1959, when they lived across the street from each other. Before September 1969, they became close and intimate friends, who would spend much time together both in Los Angeles and on out of town trips.

‘It was defendant Hudgins' personal attorney who had represented the plaintiff when she secured a divorce from Mr. Vella. Not only had Hudgins introduced the plaintiff to his attorney, but he was also present when she would meet with this attorney.

‘Hudgins acted as Vella's agent when she rented the subject residence to her former husband. He also persuaded her to quit working in a florist shop because she was less available to him than she would have been had she not been employed. When the plaintiff settled an accident case in which she had been involved, the defendant accompanied her to the insurance office and witnessed her signature to the release.

‘The defendant once accompanied the plaintiff to Buffalo, New York, to meet her parents. He also took her on other out of state trips, such as to Vancouver, Canada, where they traveled as man and wife. One Thanksgiving, the plaintiff had a festive dinner with the defendant, Mr. Petty, and the latter's two sons.

‘While away from home, Hudgins would frequently write ‘love letters' to the plaintiff. In these letters, he told her how much she meant to him and how very much he missed her. Some phrases from these letters read: ‘My dearest Nancy, the only woman to enter my life with such abundance of charm and sincerity,’ ‘I miss you more than words can say. Come home and surprise me love. I'm looking for you always,’ ‘I miss you so much, so very much,’ and ‘your most sincere friend.’ Hudgins would also include money in many of these missives so as to ‘brighten your day’ etc.

‘All the above incidents, letters, etc., occurred prior to September of 1969.

‘The relationship between Hudgins and Vella was close and intimate, and therefore constituted a confidential relationship.

‘Because of his relationship with the plaintiff, Hudgins learned about her financial and personal situation. He learned about the first mortgage on the subject residence, and about the second deed of trust owned by Penrod Corporation. He also came to know about her divorce from Mr. Vella, the relationships she had with her children and other family members, her health problems—one of which required surgery and hospitalization in 1966—and about how she struggled each month to meet the obligations on the subject residence.

‘4. Defendant Hudgins used such information, trust and confidence to induce plaintiff to cease making payments on the note securing the second deed of trust on her residence. Defendant told plaintiff not to make any payments on this note and that her ownership of the property would not be adversely affected thereby. He assured her that he could easily afford not having the income from said note, that his tax bracket was such that he would lose very little by not having that additional income, and that because he was frequently at the house, where he would have meals and otherwise spend time, he should contribute to its upkeep.

‘When defendant Hudgins told the plaintiff to discontinue paying on the said note, he knew that she had been and in fact was continuing to make regular payments on the first mortgage with United Savings and Loan. Even after Vella stopped paying on the second trust deed, as requested by Hudgins, she continued making monthly payments on the first mortgage. Vella discontinued her payments on the second trust deed because of assurances from Hudgins that the property would not be affected thereby.

‘5. After plaintiff discontinued payments on the second deed of trust, Hudgins, contrary to his specific assurances, commenced foreclosure proceedings against the said property. The property then went into foreclosure and was sold at a trustee's sale on September 18, 1969.

‘6. Hudgins' conduct before the trustee's sale under the power of sale attached to the second trust deed was improper, and constituted misconduct, in that, through his assurances, he had caused plaintiff to act accordingly, and to place herself in such a position that her property could be taken away from her at a foreclosure proceeding. Hudgins thereby acquired the said residence through his deception upon the plaintiff.

‘7. The trustee's sale, because of said misconduct by Hudgins, was null and void, and must be set aside.

‘8. There was a judgment entered in the Beverly Hills Municipal Court of Los Angeles Judicial District, Case No. 69638, involving the subject real property, wherein Everett R. Hudgins was the plaintiff and Nancy C. Vella was the defendant, said lawsuit being one for unlawful detainer and money owed. This lawsuit stemmed from Hudgins having become the owner of said residence and Vella having become a tenant in unlawful possession of said residence, all because of the change in ownership which resulted after the foreclosure sale of said premises. A money judgment was rendered in this action for Hudgins and against Vella.’

A comparison between the proceedings in the case at bench and the proceedings in the municipal court relied upon to establish the defense of res judicata leads unquestionably to the conclusion that plaintiff's cause of action for fraud tried in the case at bench was not the defense of waiver or estoppel tried in the unlawful detainer action.

The majority considers that Wood v. Herson (1974) 39 Cal.App.3d 737, 114 Cal.Rptr. 365, is dispositive of the issue before us. But Wood makes a distinction between an unlawful-detainer action that is summary in nature and one that provides a full-scale trial on affirmative defenses. The Wood court emphasized the following factors as making an unlawful detainer defense res judicata in a subsequent action brought by the unlawful detainer defendant: ‘It was Woods who pleaded the affirmative defense in the unlawful detainer action that raised the same issues pleaded in the subsequent specific performance action. Herson was obviously willing to have the unlawful detainer action tried on all of the issues raised by Woods. As mentioned earlier it was a lengthy, detailed trial, including complete pretrial discovery.’ (Wood, supra, 39 Cal.App.3d 737, at p. 745, 114 Cal.Rptr. 365, at p. 369.) (Emphasis added.)

The case at bench is governed by the principles set forth in Gonzales v. Gem Properties, Inc. (1974) 37 Cal.App.3d 1029, 112 Cal.Rptr. 884, rather than by those set forth in Wood. In Wood, the plaintiffs, Woods, relied upon Gonzales in support of their position that the doctrine of res judicata was not applicable. In holding that the Woods' reliance upon Gonzales was misplaced, the Wood court quothed from Gonzales as follows: “The crucial issue in the case before us is whether plaintiff did have a ‘fair adversary hearing’ in the municipal court, one that resulted in a judgment on the merits of his case, precluding his subsequent suit.” (Wood, supra, 39 Cal.App.3d 737, at p. 745, 114 Cal.Rptr. 365, at p. 369.) The Wood court then added, in distinguishing Gonzales from the situation presented in Wood: ‘The court then concluded that the record before it did not establish that plaintiff received a full adversary hearing on all the issues involved in his subsequent suit.’ (Wood, supra, 39 Cal.App.3d 737, at p. 745, 114 Cal.Rptr. 365, at p. 369.)

In my opinion the case at bench falls within the principle that a judgment cannot operate by way of estoppel in a later action upon a different cause of action. It is not within the res judicata principle that a judgment can operate by way of a bar against a second action upon the same cause of action.

I would affirm the judgment.

FOOTNOTES

1.  In the case at bench, the superior trial court took judicial notice of the municipal court file in the unlawful detainer case and ordered it introduced ‘by reference.’ We have augmented the record in this case by an examination of that file.

KINGSLEY, Acting Presiding Justice.

DUNN, J., concurs.