ALDER v. DRUDIS (1946)

This action grows out of two agreements that were executed simultaneously and are to be considered as one. The first agreement is between plaintiff McMahon and defendant Drudis and recites that McMahon had an agreement with plaintiffs Alder and wife for the purchase and assignment of United States letters patent on a device referred to in the pleadings as a polyscope, an instrument for producing third dimensional motion pictures, and that a further cash payment of $5,000 was due under said agreement. It was agreed (1) that Drudis would pay said sum of Alder for the assignment of said letters patent; (2) that McMahon would take said assignment from Alder and his wife and hold the same in trust and would cooperate with Drudis in forming a corporation; (3) that McMahon would transfer the letters patent to the corporation together with all other things received by him from Alder; (4) that Alder and wife would receive one tenth of the capital stock of said corporation, Drudis 25 per cent, defendant Roberts 12 1/212 per cent, and John H. Morton 12 1/212 per cent; (5) that Drudis would advance funds for the incorporation of said corporation and would pay to or make available for said corporation's use the total sum of $20,000, which would include said sum of $5,000 paid to Alder and $2,000 to organize said corporation.

The second agreement recites that Alder had obtained letters patent for said device, dated June 6, 1939, and that he and his wife were the sole owners thereof; that McMahon was desirous of acquiring the entire interest in said letters patent as trustee for himself, Drudis, Alder and wife, and others, for the purpose of forming a corporation and transferring said letters patent to it in exchange for stock therein. Alder and wife, in consideration of the sum of $5,000 paid by Drudis, sold, assigned and transferred said letters patent to McMahon as trustee, subject to the obligation of McMahon to assign and transfer the same to said corporation when formed, and agreed to deliver to McMahon as trustee all existing apparatuses manufactured under and in accordance with said letters patent and all drawings and dies for their manufacture.

In the negotiations leading to the execution of said agreements and throughout all proceedings relating thereto, including the rescission of the agreements and the trial of this action, Roberts was acting as attorney and agent of Drudis.

Drudis paid said sum of $5,000 to Alder and wife upon the signing of said agreements. Two of the polyscope devices and the letters patent were delivered to Roberts for storage and safekeeping.

Disagreements having arisen among the parties, Drudis, by his attorney Roberts, served upon Alder and wife and McMahon an adequate notice of rescission of the agreement and offer to restore.

Thereafter Alder and wife and McMahon commenced this action to recover possession of said polyscopes and letters patent, or the reasonable value thereof which was alleged to be $5,000, and for damages for the alleged wrongful withholding of said property in the sum of $36,000 to date of filing the complaint, and at the rate of $2,000 per month thereafter.

As a second cause of action of the complaint plaintiffs alleged the execution of said agreements, the payment of said sum of $5,000 by Drudis to Alder, and the failure of Drudis to perform the other terms of the agreement, and prayed for a declaration of their respective rights and duties under said agreements, including a determination as to whether said contracts had been terminated by defendants.

Defendants Drudis and Roberts answered with appropriate denials of the material allegations of the complaint and filed a cross-complaint against plaintiffs, bringing in Frederick G. Stoehr and John H. Morton as additional cross-defendants upon allegations that they had an interest in the polyscopes. By their cross-complaint defendants pleaded fraud and misrepresentation in the inducement of said contracts and demanded restoration of the amount paid to Drudis and of their expenses incurred in making tests with the polyscope. From an adverse judgment defendants have appealed.

All issues arising under the cause of action in the complaint for recovery of possession of the letters patent and the polyscopes and for damages for their detention were tried by a jury and determined against appellants. The issues raised by the cause of action for declaratory relief and those arising under appellants' cross-complaint were submitted to the jury for advisory verdicts. Upon those matters the jury advised adversely to appellants, the verdicts were adopted by the court and judgment was rendered accordingly.

1. Appellants' claim of misrepresentation and fraud. The evidence concerning the alleged false representations with reference to the polyscope and that concerning the character of the motion pictures taken with the machine was conflicting. Appellants assert that the polyscope was represented by plaintiffs to be fully covered by letters patent and was the first instrument designed that wuld produce third dimensional motion pictures, and that theylater discovered that two patents had been issued which purportedly produced the same kind of pictures, one having been obtained by a person named Cervenka and referred to in the record as the ‘Cervenka patent,’ and one known as the ‘cinegraph.’ On the other hand there was evidence that the Cervanka patent was defective and that a machine made according to the description and specifications contained in the letters patent would be wholly unworkable; also that the cinegraph was commercially of no value and could not possibly be used. Besides, there is evidence that Drudis and Roberts made an investigation of the polyscope patent before the contracts were signed and before Drudis paid his money to Alder, and that upon their first meeting with Alder, Roberts announced that they had investigated and were satisfied. Roberts testified that he had seen tests of the film made with the polyscope, saw the actual taking of the pictures, and their reproduction on the screen after the film had been developed. The Cervenka and cingegraph patents were public records and open to inspection and comparison by appellants before they entered into the transaction.

Upon the occasion when Drudis and Roberts were first introduced to Alder at the latter's home near Santa Cruz, and before any discussion had taken place, Roberts stated that they were ready to give Alder a check for $5,000. Alder said that he thought they should hear the history of the difficulties which he had encountered in producing commercial stereoscopic or third dimensional motion pictures. Roberts replied that ‘I have made a thorough investigation and am quite satisfied and we needn't waste time.’ Alder, however, insisted on relating the details of his efforts, which had extended over a period of many years, to produce the polyscope. Ten pages of the transcript are consumed in his description of his experimental work and the methods he had tested, beginning in 1911 and continuing practically without interruption until the patent on the polyscope was obtained in 1939. Roberts finally interrupted Alder's chronological history and reiterated that he, Roberts, had made a personal investigation and was thoroughly satisfied and because the hour was late he wished to have the contract signed so that he could return to his home in Los Angeles. He produced a cashier's check for $5,000 payable to Drudis which was endorsed by the latter and delivered to Alder and the contracts were signed.

Appellants claim to have relied, among other things, upon a treatise given to them by McMahon which had been written by Professor Curtis R. Haupt, who is referred to by all parties as one of the outstanding optical physicists of the country, asserting that plaintiffs intended them to believe that the document referred to the machine constructed by Alder. Respondents deny that they so represented. Furthermore, the title page of the pamphlet shows that it was published in May, 1933, six years before the polyscope was constructed and patented. Clearly appellants could not have been led to believe that Professor Haupt had described a machine that had not been produced.

There is much other evidence in the record supporting and controverting the allegations of fraud. Since the findings of the trial court were based upon conflicting evidence they will nto be disturbed on appeal. Buckhantz v. R. G. Hamilton & Co., 71 Cal.App.2d 777, 779, 163 P.2d 756, and cases cited.

The finding against appellants' allegation in their cross-complaint that it is a physical impossibility for Alder to have produced a sesation of depth in motion pictures by bodily weaving the camera back and forth is a finding upon an immaterial matter. The manner in which he originally conceived the though of constructing a third dimensional motion picture machine is of no consequence. The point in issue is not how the idea first reached his mind but whether it resulted in a mchine that would do what eh represented.

Appellants' cross-complaint charged further misrepresentation in that it was alleged to have been untrue, as affirmatively stated by plaintiffs to appellants, that McMahon had an agreement with Alder whereby the former had an interest in the polyscope and that a further cash payment of $5,000 was due to the latter. The court found that said allegation in the cross-complaint was not true and the finding is sustained by Alder's testimony that McMahon had such interest and that said sum was due from him. But whether the statement was true or false is immaterial because appellants were buying an interest in the machine and were not purchasing McMahon's interest, if any, in a contract.

2. May plaintiffs maintain the action to recover possession of the personal property? Appellants deny the right of plaintiffs to maintain the action to recover possession of the letters patent and the polyscopes. It is conceded that Alder and his wife had owned both the letters patent and the machines. Alder testified concerning a contract which he had made with McMahon whereby the latter had an interest therein. The Alders as owners and McMahon as holder of a contractual interest in the property were entitled to join in an action to recover it.

It is also claimed that McMahon was a trustee and could not maintain the action in his personal capacity. He testified that he ‘was the owner in trust’ under an assignment from Alder and that he, McMahon, ‘was one of the trust.’ He apparently assumed that he was trustee under the Drudis contract, but his assumption did not create a trust. It is not necessary to determine whether he was or was not a trustee. Assuming that by reason of the language contained in the contract he was acting in that capacity, he was asserting rights in favor of the trust and as trustee he could maintain the action without joining the beneficiaries. Code Civ.Proc. § 369. The action to recover the property was not between the trustee and the beneficiaries but, if a trust existed, it was by the trustee against persons in possession and claiming adversely to him. If Drudis and Roberts ever were beneficiaries under the agreement hereinbefore mentioned, their objection to the maintenance of the action by McMahon in his personal capacity has several answers: (1) Appellants had rescinded the contract, renounced all rights thereunder and relinquished their claims to the patent and to the machines. (2) If McMahon was trustee for Alder and his wife and for appellants the interests of all parties could be defined by judgment because they were all parties to the action. Alder and wife, by joining as plaintiffs with McMahon, consented that he maintain the action in his personal capacity. If it be conceded that Drudis and Roberts were beneficiaries under the trust, it was necessary that they be made defendants because they asserted the right to hold the property adversely to the claims of the trustee who was entitled to possession. (3) If other persons were beneficiaries under the asserted trust and claimed an interest in the letters patent or in the machines they are privileged to proceed against McMahon to enforce their right, but appellants cannot assert the interests of other persons, if there be any, as a defense in this action. (4) If Morton was a beneficiary he was a party to the action, having been brought in by defendants' cross-complaint, and he is not objecting to the judgment.

Notwithstanding appellants' argument that McMahon was a trustee and could not maintain the action in his personal capacity, they about face and state that McMahon was not a trustee and therefore was not entitled to prosecute the action as such. This point need not be noticed further than to say that it is obvious that if his claim to possession of the property were not made as trustee it was made by him personally, together with the Alders, and the action could be maintained in their individual names.

Entirely without merit is appellants' claim that the corporation referred to in the Drudis agreement was, by virtue of the agreement, the owner of the letters patent and was a necessary party to the action. The articles of incorporation were filed but it does not appear that the corporation ever functioned as such or that any meeting of stockholders or of directors was held. It did not acquire or claim any interest in the letters patent or in the polyscopes. No permit for the issuance of stock on the corporation was issued. McMahon was not required to assign the letters patent or deliver the polyscopes until the shares were issued as provided in the agreement. McMahon testified that he did not know that the articles of incorporation had been filed until the case came to trial and Roberts admitted that he never asked McMahon to assign the letters patent to the corporation.

3. The judgment for possession of the property and for damages. Appellant Roberts complains that the judgment against him in the action to recover possession of the personal property and for damages is erroneous because he had delivered the property in question to Drudis two months prior to the commencement of this action, and, he contends, since it was not in his possession at the time the action was commenced he could not be sued for possession and is not liable for damages sustained by plaintiffs for the detention of the property.

An ordinary action for the recovery of personal property, the common law action of detinue, differs from our statutory action for claim and delivery, or replevin, in that in the former possession of the property is not sought by or given to the plaintiff pending the action, while in the latter the plaintiff may claim and, upon compliance with the statutory provisions, be awarded possession at the commencement of the action. 1 C.J.S., Actions, § 36, subsec. f., p. 1079. The distinction is pointed out in Faulkner v. First National Bank, 130 Cal. 258, 263, 62 P. 463, 464: Sections 509 to 520 of the Code of Civil Procedure relating to ‘claim and delivery of personal property’ merely provide an auxiliary remedy by which a plaintiff in an action to recover personal property may ‘claim’ that the property be immediately delivered to him at the commencement of the action and without awaiting the trial. When a plaintiff avails himself of the provisions of said sections and takes immediate possession of the property at the commencement of the action, certain relations and rights arise between him and the defendant which grow out of the exercise of the auxiliary remedy; but in an ordinary action, such as the instant case, to recover personal property or its value, where the auxiliary remedy is not invoked, said provisions of the code have no application and the action must be governed by the general rules of pleading and practice. It is no defense to such an action to plead that the defendant, before the commencement of the action, had wrongfully disposed of the property and is not in possession of it. A bailee cannot defeat the action by showing that he had wrongfully parted with possession of the property before the suit was commenced; he is liable if he authorizes or permits another to possess and detain the bailed property. Possession by defendant must be proved but it is not necessary that possession continue up to the date of the commencement of the action. Id., 130 Cal. at pages 264, 265, 62 P. 463.

The case at bar is an ordinary action to recover personal property or its value and is not the statutory proceeding in claim and delivery covered by section 509 et seq. of the Code of Civil Procedure. All of the cases cited by appellants (Runge v. Wilson, 7 Cal.App. 577, 95 P. 178; Home Payment Jewelry Co. v. Smith, 24 Cal.App. 486, 141 P. 933; Teater v. Good Hope Dev. Corp., 55 Cal.App.2d 459, 130 P.2d 812, see prior decision in same case, 14 Cal.2d 196, 208, 93 P.2d 112; California Packing Corp. v. Stone, 64 Cal.App. 488, 222 P. 193) are of the latter class and are not in point. Some of the decisions cited by appellants refer to Riciotto v. Clement, 94 Cal. 105, 29 P. 414, and Richards v. Morey, 133 Cal. 437, 65 P. 886, as authority for the statement that an action to recover personal property will not lie against a person who is not in possession at the time of the commencement of the action. It is pointed out in Teter v. Thompson, 57 Cal.App. 329, 331, 207 P. 260, that the Riciotto and Richards cases had their origin in the wrongful taking or tortious seizure of the property and were not applicable in a case in which the defendant had come into possession of the property lawfully and peaceably, as in Faulkner v. First National Bank, supra, and as is true in the instant case.

The property in question was delivered by Alder and McMahon to Roberts for convenience. He had possession of it until approximately two months before the complaint was filed, when he delivered the letters patent and the polyscopes to Drudis without the authority, knowledge or consent of plaintiffs, and therefore a judgment against Roberts for possession and for damages will not be distrubed. Transfer of possession of personal property does not relieve a bailee of liability in an action for possession. Teter v. Thompson, supra, 57 Cal.App. at page 332, 207 P. 260; New Liverpool Salt Co. v. Western Salt Co., 151 Cal. 479, 483, 91 P. 152.

4. Was the judgment for damages excessive? McMahon, who had had many years' experience in the motion picture business and at the time of the trial had been an assistant director for several years in one of the largest studios in Hollywood, testified that a conservative rental value was $100 per day for each of the two machines. Alder, who had been a cameraman and employed in many branches of the business for 20 years or longer, testified that he had made a limited license agreement for the use of one polyscope in 15 pictures for a rental of $200 per day and considered that to be a reasonable amount. An independent producer presented a contract which he had negotiated with a Mexican organization for the use of one instrument at $50 per day. There was no contradictory evidence as to rental value. The machines were in the possession of appellants from January 26, 1942, until the termination of the trial on June 14, 1944. The jury awarded a verdict for $20,000 damages for the wrongful withholding of possession of the property. Omitting Saturdays, Sundays and holidays from the computation of the time of withholding possession, the evidence would have sustained a verdict for from $50,000 to $100,000. Plaintiffs were entitled to recover as damages for the detention of the property the value of its use for the period during which they were wrongfully deprived thereof. Drinkhouse v. Van Ness, 202 Cal. 359, 379, 260 P. 869; Ferris v. Cooper, 125 Cal.App. 234, 237, 13 P.2d 536; Tucker v. Hagerty, 37 Cal.App. 789, 792, 174 P. 908. Compensation for the use of property need not be limited to the value of the property. Stanley W. Smith, Inc., v. Pilgrim, 117 Cal.App. 244, 246, 3 P.2d 573; Tucker v. Hagerty, supra, 37 Cal.App. at page 793, 174 P. 908. Since there was no evidence as to depreciation, cost of maintenance and repairs, or natural wear and tear, which appellants say should be deducted from the rental value, no allowance can be made therefor. The court did not err in failing to instruct the jury upon those items.

5. Appellants' breach of the contract. The court found that since January 21, 1942, defendants without cause had failed and refused to perform any of the terms of the agreement. This finding is sustained by the evidence that Drudis failed to pay the remainder of the sum of $20,000 required by his agreement and that he served a notice of rescission of the agreement. Roberts was acting as his attorney and under the terms of the contract was to receive 12 1/212 per cent of the stock in the corporation which was to be organized. It is admitted that Roberts prepared and served the notice of rescission, signing it as attorney for Drudis. The latter never retracted the notice and never offered to perform the agreement, nor did Roberts. These facts justified the finding that both defendants had breached the contract and were in default under its terms.

Where an executory contract has not been fully performed on either side, the repudiation of the contract by one party or his refusal of further performance will justify the other party in treating the contract as at an end and give him a right of action for damages for its breach. Flinn & Treacy v. Mowry, 131 Cal. 481, 486, 63 P. 724, 1006; Gold Mining & Water Co. v. Swinerton, 23 Cal.2d 19, 29, 142 P.2d 22; Atkinson v. District Bond Co., 5 Cal.App.2d 738, 743, 43 P.2d 867. Rescission and offer to restore is a complete repudiation of a contract. Cobb v. Pacific Mutual Life Ins. Co., 4 Cal.2d 565, 568, 51 P.2d 84.

6. Asserted errors in giving and refusing to give instructions to the jury. (a) Defendants requested an instruction directing the jury to hold as true certain matters alleged in appellants' cross-complaint and not denied by cross-defendants' answers. Though it is proper to give such an instruction, failure to give it in this case is not reversible error. The requested instruction followed in general language an allegation that motion pictures had been taken with the cinegraph and had been exhibited to the operator of a theater who was experienced in the motion picture business and that he gave an opinion commending the possibilities of the machine. It is admitted that Alder had had an interest in the cinegraph, but there is also evidence that it was unworkable and that pictures taken with it were of little, if any, value. The opinion of the motion picture exhibitor was of no importance.

(b) The court instructed the jury as follows: ‘You are instructed that cross-complainants cannot recover if they had the means of investigating the facts with reference to the polyscope and did not do so, or if the circumstances attending the transaction were such as put plaintiffs upon inquiry and they did not make any inquiry, unless you further find that cross-complainants were induced to refrain from investigation by acts and statements of the cross-defendants.’ The instruction was defective in that it omitted to qualify the rule therein stated by adding that the parties must have stood upon equal footing and must have had equal means of knowing the truth. Palladine v. Imperial, etc., Ass'n, 65 Cal.App. 727, 755, 225 P. 291. The omission of this condition, however, was not prejudicial since the evidence established the fact that appellants made an independent investigation of the patent, were present when pictures were taken with the polyscope, saw the same pictures reproduced on the screen, and were satisfied with the machine and with the results produced. Appellants had also consulted with mechanics for the purpose of redesigning and ‘streamlining’ the instrument; Roberts guaranteed payment of the cost of the work. McMahon testified that Roberts informed him that appellants were contemplating the construction of a similar machine that would accomplish the same result as the polyscope without using the Alder patent, in which event they intended to abandon the contract with Alder; but that if the new machine infringed Alder's patent they would continue under the contract. McMahon refused to be a party to such a transaction, whereupon Roberts handed him the notice of rescission. This evidence renders harmless the omission of the qualifying condition from the instruction.

(c) Appellants requested, but the court did not give, an instruction to the effect that a party to a contract may rescind it if his consent had been obtained through fraud, but he must rescind promptly and must offer to restore everything that he had received upon the condition that the other party would do likewise. Said instruction was in reference to an equitable issue upon which the verdict of the jury was merely advisory; in making its findings the court was at liberty to accept or reject the theory adopted by the jury. The findings were against appellants on all issues, including the question of fraud and misrepresentation. Neither the giving nor the failure to give the instruction would have resulted in a different finding by the trial judge, whatever may have been the verdict of the jury.

(d) Likewise, the failure of the court to instruct the jury that unusefulness of the Cervenka and cinegraph patents was not sustained by proof that the devices were commercially unsuccessful was not error, since (1) the findings of the court against appellants upon the question of fraud were fully sustained by the evidence; (2) the evidence that a machine made under either the Cervenka or the cinegraph patent was unworkable and could not used showed the unusefulness of both.

7. Alleged errors occurring at the trial. (a) Appellants' counsel expressed a desire to read their cross-complaint to the jury. The court had already decline to allow the reading of plaintiffs' complaint and stated that it would be much better if counsel would summarize his cross-complaint. Whether a pleading is to be read in full to the jury or summarized by either counsel or the court is a matter that is within the discretion of the trial judge. It was not an abuse of discretion to refuse the request that the pleading be read, since the record shows that it was summarized to the jury and there is no claim that appellants were prevented from discussing all of the facts in evidence and all of their theories in defense of plaintiffs' causes of action and in support of their cross-complaint.

(b) A patent attorney was a witness on behalf of plaintiffs. On cross-examination he was interrogated concerning test pictures which he had seen in 1935, four years before the issuance of Alder's patent. He could not recall the type of machine with which the pictures were made. He was shown a memorandum purportedly written by him at the time the test pictures were made which had been obtained from the files of the firm of attorneys by whom he had been employed at that time. The witness said it was a confidential memorandum of the legal firm and of their client Alder which he had made while he and his firm were engaged in the performance of legal services for Alder; for that reason he declined to use it to refresh his memory. The court agreed with the witness's theory and sustained plaintiffs' objections to the use of the document. Appellants offered to prove that the test pictures referred to were made by the use of the polyscope and that they were ‘jumpy’ and otherwise unsatisfactory. The offer of proof was rejected by the court on the ground that neither an attorney nor his employee may, without the consent of the client, be examined concerning any communication by the client or advice given to him or knowledge acquired in the course of professional employment. Code Civ.Proc. § 1881. There was no error in the court's ruling: (1) The memorandum was made in the course of the performance of legal services by the witness and his associates for Alder. If it contained unfavorable comments on the construction of the machine or on the pictures which it produced it will be assumed that the criticism was for the benefit of the witness's client and was for the purpose of assisting him in making improvements in his device. In such event the memorandum was privileged. (2) While it was a part of the offer of proof that the pictures made in 1935 were taken with a polyscope, that fact is not shown by the evidence to be rue. The ruling of the court rejecting the use of the memorandum did not preclude appellants from proving by other witnesses, possibly Alder himself, the source of the test pictures. (3) Even though they were taken by means of a polyscope and were not satisfactory, the evidence does not inform us whether the machines in question here are the same as the one used in 1935 or whether such improvements have since been made as to remove all objections that may have been found in the early instrument. Without evidence that the machine used in 1935 was the same as or comparable in construction to those now in use, or at least that no improvements had been made, the evidence of the witness would have been immaterial. (4) Roberts, as already noted, participated in the taking and reproducing of pictures with the identical machine in question here and expressed his satisfaction with the result.

(c) The trial court did not err in permitting cross-defendants to amend their answers to the cross-complaints to conform to the proof. Section 475 of the Code of Civil Procedure provides that the court must, in every stage of an action, disregard any error or defect in the pleadings and proceedings that does not affect the substantial rights of the parties; that no judgment shall be reversed by reason of any error, ruling, or defect unless the same is prejudicial, and also that by reason thereof the appellants sustained and suffered substantial injury, and that a different result would have been probable if such error, ruling, or defect had not occurred. The allowance of amendments to conform to the proof rests in the sound discretion of the court, and great latitude is accorded in the matter of allowing amendments for that purpose. Woods v. Cook, 14 Cal.App.2d 560, 564, 58 P.2d 965; Big Boy Drilling Corp. v. Rankin, 213 Cal. 646, 649, 3 P.2d 13. The amendments complained of by appellants did not raise issues that were not included in the original pleadings, they were not based on incompetent evidence, and they did not state a new cause of action or a new defense. It does not appear from the record that appellants suffered any injury or prejudice by the allowance of the amendments, or that a different judgment would have resulted if the amendments had not been allowed.

(d) Several rulings of the court on the admission and rejection of evidence are cited as error. Some of the questions related to the patent and objections were properly sustained on the ground that the patent itself was the best evidence. Other questions were addressed to the attorney who procured the Alder patent relating to statements and arguments made by him to the United States patent office with reference to the Cervenka device in so far as it was cited against the application for the polyscope patent. We fail to see the materiality of the argument addressed to the patent office in attempting to show that the polyscope upon which the patent was sought was different from a device previously patented, and the reading of the attorney's differentiation between the two devices does not appear to have been prejudicial.

From an examination of the record and of the objections presented by appellants it does not appear that any error, if there be such, in the rulings of the court in relation to the admission or rejection of evidence, the giving or refusing of instructions to the jury, or in any matter of procedure, resulted in a miscarriage of justice. Const., Art. VI, sec. 4 1/212.

Judgment affirmed.

WILSON, Justice.

MOORE, P. J., and McCOMB, J., concur.