WULFJEN v. DOLTON ET AL (1943)

On February 15, 1940, plaintiff herein filed an action in the superior court of Los Angeles County numbered 449081 (hereinafter referred to as the prior action) against O. L. Dolton, Jr., Lindley W. Potts, Helen King and Concrete Homes Corporation, a corporation. By her amended complaint in the just mentioned action, plaintiff alleged that the individual defendants were organizers and promoters of the defendant corporation and that such individual defendants at all times mentioned “held the majority and absolute control of said corporation”. It is then alleged that the corporate defendant was at all times the alter ego of the individual defendants Dolton and Potts. The amended complaint then recited that plaintiff having been induced, through the fraud and misrepresentations of the named individual defendants, to part with and having parted with substantial sums of money to the defendant corporation, which she later learned to be insolvent, “plaintiff has elected to and has rescinded said agreement and each and every transaction relating thereto”. The amended complaint in such prior action contained five causes of action, the first four being each divided into two counts: one for fraud and rescission, the other for money had and received. The fifth cause of action set forth a claim for work, labor and services performed by one Rathbun (who was not a party to that action but who is a party to the action with which we are here concerned), and which claim was assigned to plaintiff prior to the filing of the prior action.

During the trial of the last mentioned action a non–suit was granted as to defendant Helen King on all five causes of action and upon each count thereof. As to defendants Dolton and Potts a non–suit was granted as to the first cause of action of the amended complaint. The trial then proceeded on the remaining causes of action as to defendants Bolton and Potts, at the conclusion of which the court found that the corporation was not the alter ego of the individual defendants or any of them; that all of the money parted with by plaintiff went to the corporation. Judgment was entered in favor of plaintiff and against the defendant corporation only, in the sum of $6,950 on the second, third and fourth causes of action; and for the defendant corporation on the first and fifth causes of action; and in favor of defendants Dolton and Potts on the second, third, fourth and fifth causes of action. From such judgment rendered in the prior action, plaintiff appealed and such appeal was pending at the time she instituted the case at bar, and is still pending.

The instant action was filed March 19, 1941. The complaint therein charges that defendants Dolton, Potts and King formed and entered into a conspiracy with one William Rathbun, allegedly the “trusted friend and adviser of plaintiff”; that the object of such conspiracy was to defraud plaintiff. Said complaint recites that following the formation of the alleged conspiracy, defendant Rathbun “known to said defendants, and all of them, to hold himself out as a trusted friend and business advisor of plaintiff, acting for himself and in accordance with the plan and design of all of the defendants,” made the representations of material and inducing facts which statements and representations were false and fraudulent and known by the defendants, and each of them, to be false and fraudulent at the time they were made; that the plaintiff believed and relied upon the statements, and paid over to the defendants certain sums of money.

Defendants Dolton and Potts answered setting up a general denial and pleaded special defenses (1) the pendency of the former action; (2) that the filing of the former action constituted an election of remedies; and (3) estoppel. The defendant Helen King filed an answer similar to that of her co–defendants and also pleaded the same special defenses. The defendant Rathbun answered by way of general denial, and while he obtained a stipulation that his amended answer might be deemed to be before the trial court, apparently no such pleading was filed, but it can be assumed from statements of counsel made at the time the case was called for trial that defendant Rathbun intended by such amended answer to set up the same special defenses as were advanced by his co–defendants.

When the instant action was called for trial the court, pursuant to the provisions of section 597 of the Code of Civil Procedure, proceeded to the trial of the special defenses interposed, following which the court found “that there is another action pending entitled Edith S. Wulfjen, Plaintiff vs. O. L. Dolton, Jr., Lindley W. Potts, Concrete Homes Corporation, a corporation, and others, defendants, being No. 449081 in the records and files of the above entitled Court and that the allegations contained in the complaint of said action No. 449081 are substantially identical with those in the above entitled action and the cause of action stated in said prior action arose out of the same facts and transactions, and was based on the same subject matter as those in the present action.”

On the defendants' special defense that the filing of the prior action constituted an election of remedies, the court found that on or about February 14, 1940, plaintiff elected to and did rescind each and all of the contracts, agreements or transactions alleged in plaintiff's complaint to have been had between plaintiff and defendants. The court found that by reason of said rescission plaintiff recovered a judgment against said Concrete Homes Corporation, a corporation, defendant therein on account of the matters and things referred to in said notice of rescission attached to and marked “Exhibit A” in the answer of the defendants, Dolton, Potts and King, in the sum of Sixty Nine Hundred and Fifty Dollars ($6,950). The court found that by reason of said rescission and the said judgment against the said Concrete Homes Corporation, plaintiff had elected a remedy inconsistent with the remedy sought in the other action, and was estopped from maintaining this action. Pursuant to such findings judgment was entered in favor of the defendants. It is from such judgment that plaintiff prosecutes this appeal.

The well settled general rule prevailing in California that the pendency of a prior action, based on the same cause, contested by the same parties, and considered in the same jurisdiction, is ground for the abatement of a second action, is stated in 1 Cal.Jur. 23. The principle upon which the plea for abatement is sustained is that the law will not permit a defendant to be harassed and oppressed by two or more actions for the same cause where the plaintiff has a complete remedy by one action. Only when the plaintiffs are the same; when the cause of action is the same in each suit; and when the same evidence would support the judgment in each case, will the plea of another suit pending be upheld. Fresno Investment Co. v. Russell, 55 Cal.App. 496, 497, 203 P. 815. In the case at bar it is true that as to plaintiff and defendants Dolton, Potts and King, the prior action was identical insofar as the parties thereto were concerned, but the causes of action cannot be said to be the same. The prior action was one based on rescission of a contract and for money had and received. It was pleaded and tried upon the theory that the corporate defendant was the alter ego of the individual defendants, but the finding of the court therein that the corporation was in fact a separate entity precluded judgment against the individual defendants, and amounted to a finding that as to such individual defendants there was no contract; that the agreement was with the corporation. Consequently as to the individual defendants, there being no contract, there was nothing to rescind as against them. William Rathbun is a defendant in the instant proceeding but, not having been a party to the prior action, he could not, of course, have been affected by it. As we view the record herein, it discloses that plaintiff brought an action based on rescission of a contract made with the corporation, which contract it was claimed was induced by the fraudulent representations of certain individuals, resulting in plaintiff parting with certain sums of money to such corporation. After exhausting her fruitless remedies against the corporation, following rescission of her contract with it, she now brings this action, not arising ex contractu but ex delicto, to recover damages for the fraud allegedly perpetrated upon her by the individuals named as defendants in the instant action. To us it is manifest that the same evidence would not support a judgment in both cases because in the prior one she was required, in order to recover, to show that the corporate defendant was the alter ego of the individual defendants whereas in the second action such proof is not required. In other words, one is an action arising out of contract while the other sounds in tort. The plea of a former pending action that would abate the instant one ought not to have been sustained.

We come now to a consideration of the finding by the trial court in the instant action that by the prior action, plaintiff resorted to a conclusive election of remedies and is now barred from relying upon the present cause of action. It is fundamental in the doctrine of estoppel that the rule of election of remedies will be applied by the courts only when the disadvantage caused to the other party by a change of remedies amounts to a real injury, such as would, in the contemplation of law, amount to an estoppel. We fail to perceive wherein respondents have suffered any disadvantage, to say nothing of any real injury, by reason of the prior action based upon rescission and the subsequent pursuit by plaintiff of the remedy of damages against the defendants herein. To constitute a bar the two remedies open to a party must be inconsistent on the same set of facts. Here we are confronted with a situation wherein the court in the prior action determined that the corporate defendant was not the alter ego of defendants Dolton, Potts and King, named herein, while defendant Rathbun was not even a party to the prior litigation. By its finding in the prior action the court determined that as to the therein named individual defendants the plaintiff had no contract whatever––that her contract was solely with the corporate defendant. Manifestly plaintiff had no contract to rescind insofar as these defendants are concerned. And having no contractual relationship with defendants herein plaintiff's only remedy against them was an action ex delicto. The existence of alternative remedies is required as a condition precedent for the application of the rule of election of remedies. Here, the most that can be said is that plaintiff misconceived her remedy against the individual defendants. In fact, the remedy upon which she expected to rely when she instituted the initial action, the court determined, had never been available to her. She now resorts to a remedy to which, under the facts pleaded in her complaint herein, she is entitled. Before a person can exercise an option or preference between two courses both of such courses must have an actuality of existence. The findings of the court in the prior action clearly determine that appellant at no time had a contract with respondents. Therefore, as to them, she never had a choice of remedies but was limited to an action ex delicto to recover damages for a fraud allegedly practised upon her by them. Never having been parties to a contract with appellant, the respondents could not breach the covenants thereof. The corporate defendant in the prior action, which the court held was the only party to the contract with appellant, is not a party in the case at bar. Furthermore, under the facts here present, we are not impressed that by filing both the prior and the instant action appellant has inflicted upon respondents any unconscionable, unfair and unjust detriment which would justify recourse to the doctrine of estoppel, upon which the rule of election of remedies is founded. In 9 R.C.L. 963, it is said: “Even where a party has pursued a remedy which would have entitled him to some relief, and later discovered facts which disclose a better remedy, he may follow the better remedy if no such conditions of injury amounting to an estoppel have resulted to the other party.” We, therefore, hold that appellant did not elect her remedy by the prior action.

For the foregoing reasons the judgment is reversed.

WHITE, Justice.

YORK, P. J., and DORAN, J., concur.