Marlene MICHAELS et al., Plaintiffs and Respondents, v. Phyllis MORRIS et al., Defendants and Appellants.
Plaintiffs Marlene Michaels and Buttons Swerloff filed this complaint for breach of an interior decorating contract, alleging the breach of certain warranties and fraud. Named as defendants were interior decorator Phyllis Morris, doing business as Phyllis Morris Originals, and various Does.1 Plaintiffs sought both compensatory and punitive damages and rescission. Defendant cross-complained for recovery on a promissory note, alleged breach of contract and common counts. The matter was consolidated for purpose of trial, a trial conducted before the court sitting without a jury. Trial proceeded on plaintiffs' subsequent amended complaint setting forth ten causes of action, including additional causes of action for conspiracy and breach of fiduciary duty. Plaintiffs also sought attorney fees.
The trial court awarded plaintiffs a judgment rescinding the contract entered into by the parties on grounds of failure of consideration and fraud. Defendants were ordered to return to plaintiffs the sum of $59,490 paid to defendants, plus interest from August 28, 1980, “upon the condition that plaintiffs restore to defendants all furniture and furnishings delivered to and in the possession of plaintiffs.” The trial court further ordered cancellation of a promissory note executed by plaintiffs in the amount of $185,700, as well as an assignment by plaintiffs of a certain land contract used as collateral for repayment of the note. Punitive damages of $25,000 were awarded, as well as attorney fees of $25,000. Defendants took nothing on the cross-complaint. Defendants' motion for new trial was denied; a notice of appeal from the judgment was filed in timely fashion. A second notice of appeal was also filed by defendants after judgment concerning certain post-judgment proceedings, and was ordered to be consolidated with the first appeal so that all matters could be resolved at the same time. We do so now; we affirm the judgment, as well as certain post-judgment orders, and remand to the trial court with directions.
STANDARD OF REVIEW
“A judgment or order of the lower court is presumed correct. All intendments and presumptions are indulged to support it on matters as to which the record is silent, and error must be affirmatively shown. This is not only a general principle of appellate practice but an ingredient of the constitutional doctrine of reversible error. [Citations.]” (6 Witkin, Cal. Procedure (2d ed. 1971) § 235, p. 4225; emphasis in original.)
Since the presumption favors the judgment as rendered below, an appellate court considers the judgment in the light most favorable to the prevailing party, giving that party the benefit of every reasonable inference and resolving evidentiary conflicts in favor of the judgment. (Id., at p. 4236.) The rationale for this posture is, of course, that the trial court has heard the evidence and seen the witnesses, and the resulting judgment, particularly one which resolves credibility issues, is given deference by a reviewing court.
In the case at bench, the dispute involved writings, i.e., the contract for interior decorating services, the note and assignment executed by the plaintiffs, and certain business records of the defendants. Where the meaning of writings is in issue, and there is no extrinsic evidence offered concerning the meaning in the trial court, the appellate court is not bound by the trial court's interpretation of the writings, but undertakes independent inquiry; interpretation is a question of law. When extrinsic evidence is offered below, as it was here, however, “[t]he long established rule ․ is that ․ any reasonable construction by the lower court will be upheld under the general rule of conflicting evidence. [Citations.]” (Id., at pp. 4248–4249.)
STATEMENT OF FACTS
Defendant Phyllis Morris Goller is an interior decorator widely known in the interior design industry where she uses the name Phyllis Morris. Educated at UCLA, she has been a decorator for over 25 years and had, at time of trial, a net worth of at least $2 million. She is married to Nathan Goller, an attorney and member of the State Bar of California, who serves as an officer of the Morris-Goller corporations and was her trial counsel in this litigation. The Morris-Goller corporations are: Phyllis Morris Originals, which provides interior design items to interior decorators through a showroom and also employs so-called “in-house decorators” (in addition to Phyllis Morris herself) to provide interior design service to customers; and Phyllis Morris Manufacturing, a totally owned subsidiary of Originals, which manufactures furniture and furnishings which are sold to Phyllis Morris Originals for resale to decorators. The trial court, pursuant to the parties' stipulation, awarded judgment “jointly and severally” against Morris as an individual and Phyllis Morris Originals.
Plaintiffs Marlene Michaels and Buttons Swerloff spend much time in Las Vegas, Nevada, but have substantial real estate interests in California. In February 1979, plaintiffs jointly owned a newly constructed English Tudor style residence at 19820 Northridge Road, Chatsworth, California, referred to as “Northshire Manor.” The residence, located in an area where a number of Hollywood celebrities live, contained 10,000 square feet and consisted of at least 10 rooms; it was surrounded by such amenities as a swimming pool, stables, and a park situated on land owned in connection with the residence. The residence was valued by plaintiffs at approximately $1 million. It was plaintiffs' intention, as real estate investors, to furnish and decorate the house, and sell it as soon as possible for a quick profit. Until the house was sold, plaintiffs also intended to use it as a showplace to impress prospective affluent real estate investors with whom they wished to do business.
Plaintiffs, however, were not knowledgeable about interior decorating or decorators. They talked to decorators and saw samples of their work, but chose defendant decorator Phyllis Morris after seeing her work in some design magazines and visiting the showroom of Phyllis Morris Originals, located in an area of Los Angeles inhabited by members of the design industry. During preliminary discussions between plaintiffs and Morris, plaintiffs apprised Morris of their plans regarding the residence and Morris advised plaintiffs that generally the interior decorating cost for a million dollar residence would be about 25 percent of the value of the real estate, in this case, $250,000.
Plaintiff Marlene Michaels testified that during negotiations prior to execution of the contract, defendant Phyllis Morris promised plaintiffs that she would personally provide the design service for the residence. Plaintiffs were introduced at that time to David Shepard, who was then employed by Morris as an in-house decorator; Morris referred to Shepard as her “legs,” someone who ran errands for her and attended to details under her supervision. At no time was Shepard identified by Morris as the prospective decorator of “Northshire Manor.”
Plaintiff Marlene Michaels testified also that prior to execution of the contract, defendant Phyllis Morris was fully aware that one of the primary objectives of the plaintiffs in securing decorating service was to prepare the subject residence for resale as soon as possible. Defendant Morris represented to plaintiffs that the project would be a “turnkey operation” 2 which would be completed within 90 days.3 Plaintiff Marlene Michaels testified that defendant Phyllis Morris promised an extraordinarily arresting decorating job, one that would enhance the saleability of the residence. Both plaintiffs were persuaded after visiting the PMO showroom and talking with defendant Morris that she had the experience and the capacity to undertake a major decorating project and complete it as promised.
With respect to pricing, plaintiffs both testified that while they had no experience with interior decorators prior to the execution of the contract, both had had “resale cards” either in Nevada or California and access to design showrooms which sell at a wholesale price to decorators but not at all to the general public. Plaintiff Michaels, early in her testimony, declared that defendant Phyllis Morris promised to charge plaintiffs “decorator's cost plus thirty five percent․ [S]he also at that time told us that there were certain things she would be manufacturing herself but would charge us exactly what she would charge any other decorator, tag on thirty-five percent.” Plaintiff Michaels further testified that it was her understanding, after these preliminary conversations with defendant Phyllis Morris, that defendant Morris' only profit from the transaction would be the customary 35 percent charged customers by their interior decorators. The written contract provided for such a design fee of 35 percent. An additional factor which facilitated the execution of this interior decorating contract was defendant Morris' expressed willingness to accept payment of cash and paper in return for the plaintiffs' proposed expenditure of nearly $250,000.
On April 19, 1979, plaintiffs paid Morris a retainer of $5,000. This sum purportedly entitled plaintiffs to “renderings” of the proposed interior design of the residence, but all plaintiffs ever received were some less formal sketches of various design plans for particular rooms in the residence.
On July 10, 1979, attorney Nathan Goller prepared a written letter agreement whereby plaintiffs agreed to pay to Phyllis Morris Originals the sum of $233,500, of which $75,700 was the designer fee and $157,800 was the estimated cost of furniture and furnishings. A down payment of $47,800 was to be paid by July 23, 1979, and the balance of $185,700 was the subject of a promissory note to be executed by plaintiffs, payable at a rate of $1,690 per month; payment of the note was to be secured by collateral, the assignment of a land contract owned by plaintiffs in the amount of $685,000 on real property at 6333 Lexington Avenue, Hollywood, California. Plaintiffs agreed to the inclusion in this agreement of a “60 percent” penalty clause, providing for a design fee of this amount on all items purchased to the date upon which plaintiffs cancelled the agreement. Plaintiffs signed the agreement, and executed the note and assignment on July 12, 1979.4 The cash down payment (which apparently included the $5,000 already paid to Morris) was paid by August 14, 1979. Commencing in September 1979 and through March 1980, plaintiffs also paid the $1,690 per month as provided in the promissory note.
During the period from July 1979 to November 16, 1979, however, only some beds and bathroom furnishings were delivered to plaintiffs. Morris continued to make representations of speedy performance. At the end of October, Morris called plaintiffs in and declared that she would require between $20,000 and $40,000 more to continue with the contract, that there would be no shipment of furniture unless they agreed to this. They agreed; Morris had known that plaintiffs were planning some holiday social events. A shipment of furniture and furnishings was delivered to plaintiffs at “Northshire Manor” on November 16, 1979. There were numerous items included that did not fit where they were supposed to; were of shoddy quality or in a state of disrepair; much of the house remained unfurnished. Plaintiffs made specific complaints to Morris about the November shipment; they received assurances that the defects would be corrected, but they never were. The same situation occurred after the second shipment was received on December 21, 1979; while some of the items were on loan from Morris and were returned on that basis, a substantial amount was again, not appropriate, or shoddy, or damaged. Plaintiffs again complained; nothing was done.5
During the first few months, Morris employee David Shepard made decisions about the decoration of “Northshire Manor.” There is evidence that this circumstance caused confusion. Other Morris employees were also involved, but the project got little personal attention from or participation by Phyllis Morris; it lacked direction. Some of the problems were simply those resulting from mismeasurements, such as drapes in the kitchen which interfered with the use of the sinks, and shades that did not cover the windows properly. One innovation presented to plaintiffs actually created potential hazards, i.e., mirrors on the ceiling of the master bedroom which were not installed properly and appeared ready to fall down at any time.6 Numerous items, from lamps to chairs to tables, were defective, in need of obvious repair at the time of delivery. The last employee-decorator, Steve Reiman, suggested design treatment (including the mirrors and various wall treatments) which caused plaintiffs to expend over $25,000 in addition to the contract price; these amounts were paid directly by plaintiffs to various workers, painters, installers and paperhangers. There was testimony of attempts by defendants, who referred some of these workers to plaintiffs, to collect a 20 percent “design fee” on these charges.
Plaintiffs finally came to the conclusion that, despite continuous assurances from Morris, the project of furnishing and decorating the house was not going to be finished nor were the defects complained of going to be repaired. Instead of making the April 1980 payment on the promissory note, they sent a letter to Morris requesting performance; Morris did not respond in any meaningful way. Plaintiffs consequently withheld the May 1980 and June 1980 payments as well; then, upon advice of counsel, attempted to make all three payments and secure performance. The plaintiffs finally notified defendants on August 28, 1980, that they were rescinding the contract; this litigation ensued.
Considerable time was spent at trial on plaintiffs' claim that while they had been promised furniture and furnishings at “decorator's cost,” that promise had not been kept either. This issue emerged after pretrial discovery by plaintiffs and resulted in amendment of the original complaint. With the exception of invoices sent to plaintiffs, the evidence concerning overcharging was derived from defendants' own records, as well as the testimony of defendant Phyllis Morris herself.
Morris conceded at trial that she had promised plaintiffs they would be charged “decorator's cost.” She initially testified that that term had a customary meaning in the interior design business of “list less forty,” i.e., the showroom's stated retail price less 40 percent, a wholesale figure charged to outside decorators who purchased items for their clients from the showroom. (It is customary also for decorators to then either charge the decorator's client the retail, or list price of these items, or the actual cost of acquisition, i.e., the wholesale price, plus 35 percent, which is the usual design fee and the decorator's profit.)
The trial court on a number of occasions attempted to determine just how prices charged to customers like plaintiffs, personal clients of defendant Morris, were arrived at, without success; no discernible basis for the charges could be established. Morris professed to be unable to explain the internal system employed in her business for determining costs and prices; at one point she explained that it was “a mystery.” Further testimony by Morris, often in reference to her own invoices, did demonstrate that the prices charged plaintiffs were not based on Morris' recorded cost of manufacture, nor her cost of acquisition of the item elsewhere in the industry, nor the showroom's retail price list less 40 percent (i.e., decorator's cost); they were, instead, prices unilaterally selected by Morris or her decorators to which the 35 percent design fee was added.
With respect to custom-made furniture produced by defendant Morris' manufacturing corporation, it was elicited from defense witnesses that the price paid by PMO, the showroom—through which all the transactions flowed—was cost of production (as recorded) plus 15 percent. Plaintiffs were charged much more than that on occasion. For example, ten dining room chairs were assembled by the manufacturing arm at a recorded cost of $300 per unit, a total of $3,000. The recorded cost plus 15 percent would net the manufacturer $450. PMO, however, charged plaintiffs $5,000 for the chairs, at $500 per unit, and defendant Morris took the 35 percent design fee on top of that. In this manner, each entity, the manufacturer, the showroom and Morris, showed a profit from the transaction—described as “triple-dipping” by plaintiffs.
The $5,000 figure was a retail price, an arbitrarily selected price reflecting judgment about what the competition was charging, or Morris' experienced appraisal of what the market would bear, or what the customer would pay; with respect to plaintiffs, the arbitrarily selected price would often include a percentage to be paid to one of the in-house decorators as a commission. In her own testimony, Morris identified herself as the principle individual responsible for price selection; and it was clear that it was almost never actual cost of acquisition by a decorator, or “decorator's cost.”
With respect to items acquired from other sources, the results were the same: PMO would acquire an item elsewhere using the discount it was allowed by others in the industry, and instead of passing it on to plaintiffs, in most instances they would sell it to plaintiffs at a substantially higher price. An example of the profits obtained by this practice was the purchase by PMO at a sizable discount of an over-drop table for plaintiffs from Cal-Mode for $590.40. Only after extensive questioning would defendant Morris concede that the item could be acquired by a decorator (i.e., at “decorator's cost”) for $750, but that she had charged plaintiffs $1,000 plus 35 percent. Morris defended this practice by explaining that the design house needed to make a profit, too. Review of item after item showed an overall extra profit to defendants apart from the design fee charged to plaintiffs. There appeared to be no fixed standard employed in the overcharging, but just a continuous process of raising the price of the furniture and furnishings delivered to plaintiffs to provide an extra percentage of profit to PMO.
FINDINGS OF THE TRIAL COURT
As indicated previously, the trial court granted plaintiffs rescission of the contract on the grounds of fraud and failure of consideration. With respect to the fraud, the trial court specifically found that plaintiffs had been fraudulently induced to make the contract with the defendants based on a material misrepresentation concerning the price of the furniture and furnishings to be paid by plaintiffs pursuant to the contract. It was stated that “Defendants' use of the term ‘decorator's costs' led Plaintiffs to reasonably believe that ‘decorator's costs' represented Defendants' actual cost of purchase of the furniture and that the additional THIRTY-FIVE PERCENT (35%) was Defendants' only profit. At the time the representations were made to Plaintiffs, Morris failed to reveal to Plaintiffs that so far as she was concerned, ‘decorator's costs' had no relation to the actual cost paid by Originals for each item of furniture.” The findings also declare that in almost every instance the item price charged plaintiffs was in excess of the cost of acquisition.
The trial court further found that defendants' failure to complete the project and the delivery of defective goods constituted failure of consideration.
CONTENTIONS ON APPEAL
I. That there was insufficient evidence to support the finding of fraud and failure of consideration;
II. that restitution was not the proper remedy;
III. that neither punitive damages nor attorney fees nor interest should have been awarded plaintiffs by the trial court;
IV. that certain post-judgment orders were erroneous.
Plaintiffs ask this court to award additional attorney fees to cover the litigation expenses incurred by plaintiffs' post-judgment and to defend the trial court judgment on appeal.
Defendants contend most vehemently that at no time did defendants intend to defraud plaintiffs, nor did they do so. In support of their arguments in this regard, they selectively refer to the record, ignoring the evidence adduced which sustains the judgment. While their position shifts from time to time, in essence they appear to be saying that with respect to pricing, plaintiffs were charged a retail price plus 35 percent for furniture and furnishings, that plaintiffs understood this when they executed the contract and should not now complain. Defendants' position is then “buttressed” with a prolix explanation of how retail prices are determined in defendants' interior decorating business, along with assertions about their entitlement to operate at a profit rather than a loss. It is also declared that there is nothing unlawful or fraudulent about the corporate structure utilized by defendants, nor is there any wrongdoing inherent in an entrepreneur in private business, such as defendant Phyllis Morris, performing several distinct functions, including setting retail prices.
We have no quarrel with some of the defendants arguments concerning corporate structure or the profit motive which underpins our time-honored free market economy. However, those broad arguments are irrelevant to our determination of the issue[s] presented by the case at bench. The broad issue before us is whether or not there is substantial evidence to support the trial court's conclusion that plaintiffs were fraudulently induced to execute an interior decorating contract for nearly a quarter of a million dollars by defendant Phyllis Morris' intentional misrepresentation of material facts, including how pricing was to be effectuated pursuant to her agreement with the plaintiffs. Accordingly, we focus on the trial court's judgment and the evidence concerning this specific contract, not industry practice at large nor defendant Morris' customary procedure in the interior decorating business.
It is well established that fraud must be pleaded and proved in civil litigation with some specificity. “The elements of actual fraud, whether as the basis of the remedy in contract or tort, may be stated as follows: There must be (1) a false representation or concealment of a material fact (or, in some cases, an opinion) susceptible of knowledge, (2) made with knowledge of its falsity or without sufficient knowledge on the subject to warrant a representation, (3) with the intent to induce the person to whom it is made to act upon it; and such person must (4) act in reliance upon the representation (5) to his damage. [Citations.]” (1 Witkin, Summary of Cal. Law (8th ed. 1973) § 315, p. 265; emphasis in original; see also, Civ. Code, §§ 1572 and 1574.)
As was explained in Wells v. Zenz (1927) 83 Cal.App. 137, 140, 256 p. 484, “Fraud is a generic term which embraces all the multifarious means which human ingenuity can devise and are resorted to by one individual to get an advantage over another. No definite and invariable rule can be laid down as a general proposition defining fraud, and it includes all surprise, trick, cunning, dissembling, and unfair ways by which another is deceived. [Citation.]”
The foundation for a fraud judgment is intentional misrepresentation of a material fact. In Prosser and Keeton on Torts (5th ed. 1984) section 106, page 736, it is said that “The representation which will serve as a basis for an action of deceit, as well as other forms of relief, usually consists, of course, of oral or written words; but it is not necessarily so limited. The exhibition of a document, turning back the odometer of an automobile offered for sale, drawing a check without funds, or a wide variety of other conduct calculated to convey a misleading impression under the circumstances of the case, may be sufficient.” (Fns. omitted.) The same authorities observe, with respect to fraudulent intent, that “[T]he intent which underlies an intentional misrepresentation is a more complex matter than the relatively simple intention in the case of assault and battery. It involves the intent that a representation shall be made, that it shall be directed to a particular person or class of persons, that it shall convey a certain meaning, that it shall be believed, and that it shall be acted upon in a certain way․ The state of the speaker's mind, notwithstanding its elusiveness as a matter of psychology and its difficulty of proof, must be looked to in determining whether the action of deceit can be maintained. [¶ ] There is of course no difficulty in finding the required intent to mislead where it appears that the speaker believes his statement to be false. Likewise there is general agreement that it is present when the representation is made without any belief as to its truth, or with reckless disregard whether it be true or false.” (Id., § 107, pp. 741–742; fns. omitted.)
We examine the “totality of circumstances” revealed by the record. It shows that plaintiffs, while they had some experience in real estate investments and newly acquired capital to spend, were not knowledgeable about interior decorators who undertake very substantial projects. Plaintiff Michaels testified that it was her understanding that she was retaining defendant Phyllis Morris to provide personal design service at “Northshire Manor.” Nothing adduced below controverts her testimony on this point and there is much that substantiates it; it was a reasonable understanding, deduced from plaintiffs' contacts with defendant Morris prior to execution of the contract—it is also reasonable to infer that defendant Morris fully intended plaintiffs to arrive at such an understanding. It was, in fact, not true; the testimony of defendant Morris herself dispels any notion that she intended to act as plaintiffs' decorator during the performance of this contract nor did she do so. This primary material misrepresentation led, in turn, to the misrepresentation about pricing found actionable by the court; the misrepresentation as to her function as plaintiffs' decorator was inextricably interwoven with the other promises made and not kept. Her real intention—unexpressed to plaintiffs—was that in-house decorator David Shepard and other employees would function as plaintiffs' decorators. Indeed, David Shepard did commence that function immediately. In keeping with the primary misrepresentation, defendant Morris promised plaintiffs she would charge them prices by a formula referred to as “decorator's cost.” There was testimony that plaintiffs had had some experience in buying furniture from the design houses at wholesale prices (i.e., list less forty); it is reasonable to infer that “decorator's cost” meant—to them—a wholesale rather than retail price. There was testimony from plaintiff Michaels that she understood that the design fee of 35 percent, set forth in the contract, was the only profit defendant Morris would make on the project. This was also a reasonable assumption on plaintiffs' part since they believed defendant Morris was to act as their decorator. “Decorator's cost” meant to plaintiffs the cost of acquisition by defendant Morris as their decorator, acquiring decorative items at a wholesale price similar to that PMO charged their decorator customers.
The reasonableness of plaintiffs' understanding about the contract has evidentiary support; what plaintiffs received was quite different. Defendant Morris not only offered very little personal service, but when selecting the price to be charged plaintiffs pursuant to the contract her primary concern was the amount of profit that would be shown by the manufacturing subsidiary and the showroom. Defendant Morris was not in a similar situation to other decorators that plaintiffs might have employed; she could more effectively control the price of any item provided to plaintiffs by PMO because of the corporate structure within which she operated. It is clear that plaintiffs did not understand this when they signed the letter agreement. Morris' testimony produced the reasonable conclusion that as far as she was concerned, the term “decorator's cost” had no fixed meaning but could be and was determined by her without any contractual restraint. The written contract governing this entire transaction was barren of any reference to a method for determining price; it was a document barren of any standards whatsoever relating to performance by the defendants. Plaintiffs were not represented by counsel when this agreement was made. The written contract was drafted by an attorney who had a personal and financial interest in the subject matter of the contract, an interest adverse to plaintiffs' interest.
Defendants contend that the 35 percent design fee provided in the written contract had no relation to the contractual provision promising delivery of furniture and furnishings. This is in keeping with their argument that plaintiffs knew they were to pay retail prices for the furniture as well as the design fee for decorating services. This argument is made despite defendant Phyllis Morris' own testimony that she promised plaintiffs she would charge them “decorator's cost,” a wholesale price. The 35 percent design fee was not only intended by the parties to be the profit on the transaction but reasonably so; it was the equivalent to the profit made by any other decorators buying at a wholesale price and then taking the profit from the customer. The 35 percent figure was arrived at in reference to the total budget figure, which included the cost of the furniture. As such, it cannot be considered as a separate and distinct provision of the bargain.
The intent to mislead may be deduced from the totality of the circumstances surrounding a transaction. The trial court concluded that the false promises to plaintiffs concerning performance by defendants were intentionally made, and specifically that defendant Morris, very experienced and thoroughly knowledgeable about the internal workings of her business, knew that the term “decorator's cost” meant one thing to the plaintiffs and nothing to her. A promise made concerning the prices to be charged pursuant to a contract, a promise known by the promisor to be illusory, constitutes an intentional, affirmative misrepresentation of a material fact. It is reasonable to infer that plaintiffs did rely on this misrepresentation, and that had plaintiffs known they would be paying retail prices, prices unilaterally determined by defendants, they would not have executed the agreement. Since there was sufficient evidence to support every element of the cause of action for fraud, we uphold the trial court's judgment in this regard.
Defendants also claim there was insufficient evidence of failure of consideration. This claim is made in the face of a record showing dismal recital in the trial court, hour after hour, of the defects in the goods provided to plaintiffs. Whether it was tables, chairs, lamps, shades, beds, or sectionals, a substantial number of the items either did not fit, did not work properly, or were in need of obvious repairs upon delivery. The taste of the items was not the issue; the goods were simply not in acceptable condition upon arrival at the residence, and that was the fact in at least 35 instances. No good faith attempt was ever made to repair defective items delivered. Plaintiffs presented the expert testimony of a licensed architect, Richard J. Hunter, who was also qualified to express his opinion on the materials used in and the manner of construction of the custom-made furniture provided to plaintiffs. Hunter examined some of the furniture and described the materials and construction as shoddy, involving the inappropriate use, on occasion, of tacks and chicken wire as well as the utilization of low quality wood.
Failure of consideration means basically that the complaining party has not gotten the benefits of the bargain. There was ample evidence of failure of consideration with respect to this interior decorating contract.
Defendants contend that the evidence adduced below does not support the trial court's selection of rescission of the contract as the appropriate remedy. We find no error. As the court had found in the inducement of the contract, rescission provided the logical and reasonable manner for restoring plaintiffs to the status quo, by extinguishing the contract. (Civ. Code, § 1688.) Civil Code section 1689 sets forth the grounds for rescission; included are both fraud (subd. (b)(1)) and failure of consideration (subd. (b)(2)). Defendants' argument that monetary damages would have been sufficient suggests that fraudulently inclined sellers need only charge a fair price if detected; the remedy of rescission has its roots, however, in equity, and was appropriately granted in the case at bench. While the court did not do so, it could have awarded compensatory damages as well. (Civ. Code, § 1692.)
Defendants contend that the trial court also erred in awarding punitive damages and attorney fees in this matter, as well as interest from the date of notice of rescission. Defendants argue that if the action by plaintiffs below sounded in contract, no punitive damages could be awarded, and on the other hand, if the action was based on tort principles, the attorney fee award was improper. Plaintiffs pleaded ten causes of action, encompassing various theories based on both contract and tort for recovery from defendants. An action for fraud in the inducement of a contract is one of those actions which is properly termed a hybrid action as it is based, or can be based, on both the breach of contractual obligations and upon obligations imposed by the law with respect to torts. (Walker v. Signal Companies, Inc. (1978) 84 Cal.App.3d 982, 996, 149 Cal.Rptr. 119; Glendale Fed. Sav. & Loan Assn. v. Marina View Heights Dev. Co. (1977) 66 Cal.App.3d 101, 135 Cal.Rptr. 802.) Under these circumstances, both the award of punitive damages and attorney fees were proper.
With respect to the punitive damages awarded, Civil Code section 3294, subdivision (a), provides that such an award may be made when “the defendant has been guilty of oppression, fraud, or malice, ․” Such damages are imposed “for the sake of example and by way of punishing the defendant.” Fraud in the inducement of a contract is included within this section; an award of punitive damages furthers the policies of the statute. (See Walker, supra; Mahon v. Berg (1968) 267 Cal.App.2d 588, 73 Cal.Rptr. 356; Cobian v. Ordonez (1980) 103 Cal.App.3d Supp. 22, 163 Cal.Rptr. 126; and see Ward v. Taggart (1959) 51 Cal.2d 736, 336 P.2d 534.) Defendants do not question the amount of the award, and of course, our review of the award is limited on appeal to a determination as to whether “the award is so grossly disproportionate to the harm suffered as to raise the presumption that it resulted from passion or prejudice. [Citations.]” (Hasson v. Ford Motor Co. (1982) 32 Cal.3d 388, 419, 185 Cal.Rptr. 654, 650 P.2d 1171.) We do not find it grossly disproportionate in the case at bench. The entire tenor of defendant Phyllis Morris' conduct toward the plaintiffs suggests that she was grossly disinterested in the contractual concept long established in California law of good faith and fair dealing. (For a lengthy discussion of the development in California of the relationship between “good faith and fair dealing” and the law of both torts and contracts, see Seaman's Direct Buying Service, Inc. v. Standard Oil Co. (1984) 36 Cal.3d 752, 206 Cal.Rptr. 354, 686 P.2d 1158, which suggests that the standard for assessing business ethics is becoming more refined, rather than less so.)
We also uphold the award for attorney fees. Defendants do not claim that they would not have been entitled an award of such fees had they prevailed on their cross-complaint seeking enforcement of the note executed by plaintiffs, which did include an attorney fees provision. Civil Code section 1717, which provides statutory authority for such an award, has been broadly interpreted in recent case law to do justice to the interests of prevailing parties in civil litigation. Here, plaintiffs were seeking redress in a situation where they had, during the course of contractual dealings, executed a promissory note and assignment of a land contract. They were in essence not only seeking affirmative relief but were defending against enforcement of the note and the assignment. Under such circumstances, the award pursuant to Civil Code section 1717 may be upheld. (Star Pacific Investments, Inc. v. Oro Hills Ranch, Inc. (1981) 121 Cal.App.3d 447, 176 Cal.Rptr. 546.) We note also that while attorney fees may not be awarded when the fraud complained of arose “out of a contract” (Stout v. Turney (1978) 22 Cal.3d 718, 730, 150 Cal.Rptr. 637, 586 P.2d 1228), this case is distinguishable because the fraud was in the inducement. Any allocation was within the discretion of the trial court, and the decision not to allocate was an exercise of that discretion.7 (Walters v. Marler (1978) 83 Cal.App.3d 1, 36, 147 Cal.Rptr. 655, disapproved on other grounds in Gray v. Don Miller & Associates, Inc. (1984) 35 Cal.3d 498, 507, 198 Cal.Rptr. 551, 674 P.2d 253).
Nor does the award of interest constitute error. As provided in Civil Code section 1691, subdivision (a), the plaintiffs gave notice of rescission when this action was initiated, and the trial court could determine, as it did, that interest was due and owed by defendants from that date forward.
Defendants complain that certain post-judgment proceedings and orders were erroneous. Much of the litigation which ensued after the trial court's judgment of rescission on March 17, 1982 resulted from the parties' differing interpretations of the provision in the judgment that $59,490 plus interest was to be returned by defendants to plaintiffs “upon the condition that plaintiffs restore to defendants all furniture and furnishings delivered to and in the possession of plaintiffs.” On November 28, 1983, the trial court, by directing the issuance of the writ of execution on this unbonded sum resolved the interpretation issue in favor of the plaintiffs, the prevailing parties below.
Defendants filed a second notice of appeal from the November 28, 1983 order directing issuance of the writ; they also purported to appeal from an order of October 3, 1983, ordering defendants to pay plaintiffs $300 for attorney fees incurred by plaintiffs in seeking and obtaining a protective order, pursuant to Code of Civil Procedure section 2019.
Code of Civil Procedure section 904.1, subdivision (b) provides that an appeal may be taken “From an order made after a judgment made appealable by subdivision (a).” While this appears to open the door to a great variety of post-judgment orders, some limitations have been placed on appealability by the case law. The order complained of must affect the judgment, involve different issues than those cognizable on appeal from the judgment, and be a final determination of the issue. (See 6 Witkin, Cal. Procedure (2d ed. 1971), §§ 81–82, pp. 4091–4092.) An order directing that a writ of execution issue is an appealable, post-judgment order, as it is one affecting the judgment, i.e., enforcing it, and is a final determination in that regard. In this case, the issues raised post-judgment involved interpretation of the judgment previously rendered, and thus were not the same as those presented in the first appeal. The challenged award of attorney fees was also a separate appealable order, as it required the payment of money (Bauguess v. Paine (1978) 22 Cal.3d 626, 634, fn. 3, 150 Cal.Rptr. 461, 586 P.2d 942; O'Brien v. Cseh (1983) 148 Cal.App.3d 957, 960, 196 Cal.Rptr. 409); defendants have not raised any specific contentions concerning that award, including whether a minute order granting such an award without a written specification of reasons violates due process; however, the appeal was not taken from the October 3, 1983 order in timely fashion, and for that reason, must be dismissed.8 Defendants' challenge to the issuance of the writ, however, is properly before this court and we address it now.
After the March 17, 1982 judgment of rescission, which provided for restoration of consideration to plaintiffs “upon the condition that plaintiffs restore to defendants all furniture and furnishings ․,” motions were made for a statement of decision and findings, and for new trial. New trial was denied. On August 19, 1982, plaintiffs' counsel wrote a letter to defendants' counsel advising that plaintiffs “hereby tender an offer to restore ․ all furniture and furnishings heretofore delivered to and in the possession of [plaintiffs].” The letter asked that defendants notify plaintiffs as to when they would pick up the goods, and also that defendants make arrangements to repair all damages inflicted on “Northshire Manor” as the result of the removal of wall treatments and fixtures.
Defendants replied on August 23, 1982, that the “tender” did not comport with the terms of the judgment; that it was plaintiffs who were to absorb the cost of delivering back to defendants the furniture and furnishings fraudulently sold to them, as well as the costs of repair. Plaintiffs were unsuccessful in obtaining a writ of execution on the judgment because defendants had posted an appeal bond on all items except the $59,490 sum.
On January 12, 1983 and on February 14, 1983, plaintiffs paid $1,713 to redeliver the furniture and furnishings to defendants. Plaintiffs then renewed their efforts to obtain a writ of execution.
On March 8, 1983, Judge Norman Epstein considered the matter and denied plaintiffs' motion. The minute order stated that “It does not appear that the terms of the judgment have been satisfied. Plaintiffs' money judgment was conditioned on their restoring the furnishings to defendant and the offer recounted in the August 19, 1982 letter fails to do this. In order to determine the condition [of the furnishings], it would be necessary to account for all items furnished, with allowances for items consumed ․ and the use and deterioration, if any, from date of judgment until date of restoration.”
Plaintiffs delivered wallpaper to defendants on March 14, 1983.
Plaintiffs then filed another motion in the courtroom of the judge who had presided over the trial of this matter, seeking an order “determining satisfaction of conditions of judgments and for an order increasing the amount of the undertaking staying the enforcement.” The moving papers set forth the disagreement of the parties as to the meaning of the judgment; the incurrence of moving costs by the plaintiffs; and the assertedly now-complete return by plaintiffs of all Morris-Goller items in their possession.
Defendants' response to the motion was to claim that the returned furniture and furnishings were damaged; that some items had not been returned at all; that defendants were entitled to conduct a “mini-trial” on the condition of the goods, and to receive a setoff for damage and use during the period from the 1982 judgment forward.
Defendants then sought to depose plaintiffs in connection with the scheduled hearing on the second motion. They also sought to depose the individuals who had purchased “Northshire Manor” in January 1983, presumably to gather evidence to be used at the “mini-trial.” It was defendants' insistence on taking the depositions of plaintiffs and these other individuals that occasioned the protective order of October 3, 1983.
The second motion was heard on September 28, 1983; on September 12, 1983, the trial court had informed the parties by minute order that the motion would be decided on the basis of affidavits and points and authorities, rather than after another trial. In its findings in support of the issuance of the writ, the trial court found that plaintiffs had satisfied the condition of the judgment; that defendants were not entitled to any setoff for asserted damage and wear and tear; and that plaintiffs were entitled to issuance of the writ of execution on $59,490 plus interest. It was from this order that defendants filed the second notice of appeal.
Preliminarily, we observe that the remedy of rescission is an equitable remedy which conceptually not only attempts to return the parties to the status quo, but attempts to prevent unjust enrichment of the offending parties—in this case, the defendants. (See Prosser and Keeton, supra, § 105, p. 729.) As this record demonstrates, there can be practical problems in enforcement of such a remedy when the subject of a fraudulently obtained contract is interior decoration of a dwelling. That the judgment as rendered presented some practical difficulties for the parties does not, however, call into question the fairness or appropriateness of the judgment itself.
We also note that due to the imposition on defendants of a judgment based on principles of equity, the situation after judgment had to be approached bearing the equities of the situation in mind, as well as the realities. The principal reality was that the subject of the rescinded contract was essentially perishable in nature, subject to deterioration by the passage of time (rendered inevitable with extended litigation). The passage of time, of course, as well as the extension of litigation, favored the defendants, who were not interested in complying with the judgment for fraud entered against them and resisted its enforcement at every turn. The remaining contentions on appeal must be viewed in light of these considerations.
Defendants first attack the November 28, 1983 order directing issuance of the writ as barred by Judge Epstein's denial of relief to plaintiffs in March 1983. They invoke the doctrine of res judicata, claiming that the issue of “restoration” of the interior decor to defendants was finally determined in the March proceeding, and that plaintiffs had waived their right to rescission by their use of the decor after the March 1982 judgment.
The argument is without merit. The doctrine “gives certain conclusive effect to a former judgment in subsequent litigation involving the same controversy.” Ironically enough, “it seeks to curtail multiple litigation causing vexation and expense to the parties and wasted effort and expense in judicial administration.” (4 Witkin, Cal. Procedure (2d ed. 1971) § 147, p. 3292; emphases in text.) Ordinarily, decisions on motions are not viewed as final in the sense that the doctrine of res judicata requires (see, id., § 27, p. 2695). The minute order of March 8, 1983, stated that it “appears” that plaintiffs had not complied with the order. It is arguable whether this was a square ruling upon which any legal action could be taken, including an appeal.
In any event, due to the nature of the condition in the judgment before us, it would be neither practical nor fair to preclude continued efforts to satisfy the condition—particularly when plaintiffs were the prevailing parties in the litigation and the circumstances surrounding compliance with the judgment were unusual, due to the nature of the case. We hold that plaintiffs had the right to renew their motion for a writ of execution in September 1983. Code of Civil Procedure section 1008 provides for motions for reconsideration, based on an “alleged different state of facts.” The moving papers submitted on behalf of the plaintiffs set forth in detail the events which had transpired after the judgment, including the motion proceedings before Judge Epstein; plaintiffs alleged their continuing efforts to comply with the condition in the judgment, including delivery of more “wall treatment” materials, after the March 1983 hearing. We find no error in permitting a renewed motion for satisfaction of judgment.
As for the “waiver” argument, waiver is commonly understood to be the voluntary relinquishment of a known right. Nothing in this record suggests that plaintiffs voluntarily kept and used defendants' furniture and furnishings. Plaintiffs attempted repeatedly to comply with the condition of the judgment. Defendants resisted vigorously, every step of the way. There was no waiver by plaintiffs.
Defendants also contend that the trial court erred in refusing to allow defendants discovery prior to the hearing on the renewed motion; defendants wished to depose plaintiffs concerning the condition of the returned merchandise; they also wished to depose the individuals who had purchased “Northshire Manor” from the plaintiffs and had taken possession of the residence in January 1983. They contend that the trial court could not properly dispose of plaintiffs' motion until certain factual matters in dispute had been resolved, and that they were entitled to litigate these matters in the traditional manner, with discovery, oral testimony and cross-examination. It is defendants' position that factual issues cannot be determined by affidavits and counter-affidavits in post-judgment enforcement proceedings, heard by motion.
In our view, the basic issue involved in disposing of the motion was interpretation of the March 1982 judgment—a matter of law, for the court. (Evid. Code, § 310, subd. (a).) To the extent that the determination of the cause depended on controverted factual matters, we perceive no diminution of defendants' due process rights by limiting the controversy to presentation of affidavits and counter-affidavits. We have examined the materials that were so submitted. It is difficult to see how extended in-court litigation would have further illuminated the dilemma which defendants themselves created by their insistence on assigning responsibility for the deterioration of interior decor over a period of approximately 18 months. In addition, it is even more difficult to see how deposing the new residents of “Northshire Manor” would have assisted the court in determining the issues before it; this discovery request, in particular, suggests harassment and lack of good faith; it was properly precluded by the protective order.
We find no error in the trial court's rulings determining in what manner the motion concerning enforcement of the judgment was to be conducted. We note that, as of 1985, rule 323, subdivision (a) of California Rules of Court provides, in pertinent part, that “[e]vidence received at a law and motion hearing shall be by declaration and affidavit and by request for judicial notice without testimony or cross-examination, except as allowed in the court's discretion for good cause shown or as permitted by local rule.” The rule is in keeping with a concern for judicial economy without sacrificing due process, and reflects also the power of the trial court to control proceedings before it and reduce the amount of cumulative materials presented to it.
Finally, defendants complain that the trial court decided incorrectly that plaintiffs had complied with the condition in the judgment. Implicit in the trial court's post-judgment decision directing issuance of the writ was that defendants had interpreted the use of the word “restore” in the judgment too literally. “Restore,” as used in the judgment, simply meant that the plaintiffs could not keep the furniture and furnishings delivered by defendants and obtain repayment from defendants. As the trial court indicated, plaintiffs were not placed under an affirmative duty to redeliver the merchandise, although as it turned out, they were compelled to do so and to bear the cost thereof. Nor were defendants entitled to a setoff relative to the condition of the goods as restored to them. To allow such a setoff would have been inconsistent with the trial court's initial judgment. As the entire record shows, the problems which arose post-judgment were caused by the same kind of bad faith on the part of defendants which resulted in the judgment of rescission in the first place. In view of the nature of the case, the entire record, and the papers submitted on the motion, we uphold the trial court's finding that, to the best of their ability, plaintiffs had complied with the condition of the judgment, in good faith and with considerable additional expense to themselves.
Plaintiffs have requested this court to award attorney fees on appeal. We decline to do so on the ground that the trial court is in a better position to assess the extent of an award to which plaintiffs may be entitled as a result of both post-judgment litigation and the defense of this appeal.
The judgment is affirmed. The appeal taken from the award of attorney fees of $300 on October 3, 1983, is dismissed. The post-judgment order of November 28, 1983, directing the issuance of a writ of execution is affirmed. The matter is remanded to the trial court to consider plaintiffs' request for additional attorney fees for the post-judgment proceedings, including appellate representation. Plaintiffs are hereby awarded costs on this appeal.
1. At the commencement of trial, the Doe defendants were dismissed by plaintiffs. The individually named defendant is actually Phyllis Morris Goller, an interior decorator. Phyllis Morris Originals is a California corporation owned by Mrs. Goller, as is Phyllis Morris Manufacturing. Despite some discussion at trial concerning these corporations as “alter egos” of the individual defendant, there was no stipulation concerning this situation or any finding by the trial court. In our discussion, “Originals” will sometimes be referred to as PMO or the showroom or the design house; the manufacturing arm of the Morris-Goller business establishment will sometimes be referred to as the manufacturer.
2. An operation where a house is completely furnished down to the last cup and saucer; all one needs to do to live there is turn the key to the front door, presumably.
3. It is unclear from the testimony as to when this 90–day period was intended by the parties to commence running; the trial court found that a reasonable starting point was when the contract was executed; in any event, there was not even an effort to complete within 90 days of any reasonable starting point. The contract itself, drafted by defendant Morris' husband, attorney Goller, made no mention of 90 days, but did identify the project as a “turnkey” operation.
4. The letter agreement, a copy of which was attached to plaintiffs' complaint, is devoted almost entirely to details of the financial undertaking of the plaintiffs. At no point does it incorporate any of the promises made by Phyllis Morris to the plaintiffs prior to their execution of the contract. Plaintiff Michaels testified that she mentioned this circumstance to attorney Goller, who told her she needn't worry about that, that Phyllis always did what she said she'd do.
5. While the written contract specified that installation and delivery charges were included in the “budget,” there was testimony that plaintiffs were presented with, and did pay, some substantial delivery charges.
6. Apparently one of the bedrooms was treated by applying paneling and upholstery to every wall; this room had very small windows, and the result was such that this room was referred to in testimony as “the padded cell.”
7. It should be noted that the plaintiffs requested over twice the amount in fees they were actually awarded. It may be that the trial court actually did make an undesignated allocation of fees.
8. The order for fees was actually made by minute order on September 13, 1983, and the parties were notified of the ruling on that date by mail. The trial judge signed an order prepared by counsel on October 3, 1983. (See Cal. Rules of Court, rule 2, subd. (b)(2).)
L. THAXTON HANSON, Associate Justice.
SPENCER, P.J., and LUCAS, J., concur.