Opinion
L. A. No. 12382.
JUDGES: Tuttle, J., Pro Tem.; Thompson, J., and Pullen, P. J., concurred.
OPINION
Tuttle, Judge.
This action was brought to recover damages arising out of false representations made in respect to piling and timber which were furnished by defendants under contracts, and used by plaintiffs in the construction of an amusement pier. Trial was had before the court, which resulted in findings in favor of plaintiffs upon all the material issues, and a judgment against defendants, cancelling the contracts and allowing damages in the sum of $ 91,961.63. Defendants appeal from the judgment.
During the month of March, 1926, plaintiff Crystal Pier Amusement Company, a corporation, decided to erect an amusement pier at Pacific Beach in San Diego County. The officers of said plaintiff interviewed one of the defendants, who with two others, formed a partnership known as California Creosoting & Timber Company. As a result of these negotiations, an order was sent to defendant partnership for a certain amount of creosoting piling to be creosoted with twelve-pound treatment, to be delivered f.o.b. cars at the plant of defendants, at an agreed price. This order was accepted by defendants by letter dated March 17, 1926. On April 3, 1926, plaintiff Amusement Company entered into a contract with defendants, whereby the latter agreed, at a certain price, to drive, cap and brace said piling for the Crystal Pier at Pacific Beach. Defendants thereafter furnished the piling, and drove, capped and braced the same, all of said acts being completed on or before July 5, 1926.
In the month of March, 1927, plaintiff Crystal Pier Holding Company was incorporated, and proceeded to erect certain structures upon said pier, including a ballroom. Prior to the erection of the ballroom, plaintiff Crystal Pier Amusement Company transferred the pier to plaintiff Holding Company, which held title to all of said property at the time this action was commenced.
The trial of the action extended over four moths, and the record is exceedingly voluminous. Much of the time was taken up with expert testimony bearing upon the treatment of piling to withstand the effect of salt water and marine insects.
The pertinent portions of the first cause of action in the amended complaint read as follows:
" That heretofore, and about the month of March, 1926, plaintiffs were desirous of building an amusement pier of approximately five hundred fifty (550') feet in length, with a maximum width of two hundred forty (240') feet and a minimum width of one hundred (100') feet, at Pacific Beach, in the City of San Diego, County of San Diego, State of California, and at said time, defendants, their agents and employees and Emil F. Cykler, represented and stated to plaintiffs, who at said time were without knowledge concerning the art or science of the building or maintenance of structures or piers for marine purposes, that the said defendants were experts in the building of piers and the preparation of piling and pier timber for such piers, and stated and represented to plaintiffs that the use of piling and lumber for pier construction treated and impregnated with a twelve (12 #) pound treatment of creosote, was the proper material to be used in and about the construction of such a pier as contemplated by plaintiffs herein, and represented to plaintiffs that piling and timber so treated and impregnated would have long life, to-wit, in the excess of twenty-five (25) years, and that said piling so impregnated with a twelve (12 #) pound treatment would have a minimum penetration of three-quarters (3/4" ) of an inch on the piling and timber so treated, and that such piling and timber by virtue of such treatment and impregnation would have a perfect resistance against chemical and other action, including teredos, limnoria and other marine borers of the ocean and of ocean water in which said pier was to be constructed. That plaintiffs believed such representations to be true and relied upon such representations, and in pursuance thereof and on or about the 17th day of March, 1926, executed an order in writing with the defendants herein for the purchase of piling and lumber impregnated with a twelve (12 #) pound treatment of creosote, at a price of seventy (70c) cents per lineal foot for piling and sixty-five ($ 65.00) dollars per thousand feet for lumber, and thereafter, and on or about the 3rd day of April, 1926, entered into a further agreement with the defendants herein for the delivery of such piling and lumber, and for the driving of such piling on a basis of twelve ($ 12.00) dollars per pile, driven, capped and braced, and for the placing on such piling of creosoted lumber and braces, properly bolted and spiked, and thereafter defendants delivered to plaintiffs certain piling and lumber, and set a drove such piling and installed and placed thereon the necessary caps and braces, spiked and bolted as hereinbefore set forth.
" That in said order of material hereinbefore set forth, and in the acceptance and agreement on the part of defendants to drive and place such piling, caps and braces, defendants represented to and agreed with plaintiffs that such piling would be of first-class material, properly treated and impregnated with a twelve (12 #) pound treatment of creosote, and according to the usual custom and standards of the wood preserving trade and industry, and that such piling would have a minimum of a fourteen (14" ) inch butt and an eight (8" ) inch tip. That the total amount of defendants' bill to plaintiffs therefore was the sum of Twenty-six thousand, seven hundred sixty-five and 91/100 ($ 26,765.91) Dollars.
" That plaintiffs, relying upon the representations and statements of defendants as hereinbefore set forth, and believing them to be true, proceeded with the completion of such pier after the completion of the work by the defendants, as hereinbefore described, and built therein a large ball room or pavilion and other structures, all of which were contemplated to be built at the time of the execution of the agreements hereinbefore described, so that the total cost of such contemplated pier and improvements thereon to plaintiffs was and is a sum in excess of One hundred eighty-seven thousand, two hundred three and 30/100 ($ 187,203.30) Dollars.
" That defendants did not furnish, drive and install the piling, timber, braces and caps as hereinbefore provided, impregnated with a twelve (12 #) pound treatment of creosote, but furnished, delivered and installed piling and timbers painted, covered or treated with a dark substance, which plaintiffs are informed and believe and upon such information and belief allege, to have been cresoil, a combined preparation of petroleum oil and cresylic acid, or a similar substance thereto; that such piling, timber and lumber was not impregnated with a twelve (12 #) pound treatment of creosote or any treatment of creosote, and that such piling, timber and lumber is not the material contemplated to be used in the erection of such pier under the agreements of plaintiffs and defendants, and that such piling was not of a first-class quality and material, and was not treated and impregnated in a good and workmanlike manner or with creosote, or according to the customs, methods, uses and practices of the wood preserving industry and that such methods, uses and practices of the wood preserving industry and that such piling and the majority thereof was less in size than fourteen (14" ) inch butt and eight (8" ) inch tip, and that such piling was defectively treated with a material used thereon as a substitute for creosote, in that said piling was not properly prepared for treatment and that such piling so treated was not treated or impregnated with creosote of a minimum penetration of three-fourths (3/4" ) of an inch, and that the same was known to the defendants not to be the material contemplated or agreed to be used in the construction and erection of such pier, but was a cheap and inferior grade of material, and that such piling, lumber and timber did not and will not withstand the effects and action of the ocean and ocean water and animal life therein, and that such was or should have been known to the defendants and each of them at all times herein; and as well it was or should have been known to the defendants that in furnishing and placing the materials they did furnish and place, that the structure pier or foundation was not an could not be a structure pier or foundation of long life, as hereinbefore set forth, but that the same would and did in a short time become unsafe and of no use for an amusement pier, the purpose for which it was originally intended and designed.
" That the defendants in continuance of their false and fraudulent representations, and as plaintiffs are informed and believe and therefore allege the fact to be, for the purpose of covering up and concealing from plaintiffs the fact that they, the defendants herein, were not treating said piling, timbers, braces and caps with a twelve (12 #) pound treatment of creosote, but painting, covering or treating the same with a dark substance as a substitute therefore, continued in their false and fraudulent acts and representations by ordering cut-offs of the tops of the piling after the same were driven, to be painted with a dark substance so that the plaintiffs would not or could not ascertain that said material was not creosoted or impregnated with creosote and was not treated with a twelve (12 #) pound treatment of creosote, all for the purpose of deceiving plaintiffs, and further and on or about the 24th day of April, 1926, after the commencement of the work of driving the piling and installing thereon the caps and braces, again stated and represented to the plaintiffs, their officers and agents, that the piling, timbers, braces and caps were treated and being treated and impregnated with a twelve (12 #) pound treatment of creosote and that the creosote used in such treatment was imported from foreign countries and was a high priced and expensive material, and that the minimum penetration of the creosote in the said piling, timber, braces and caps would be not less than three-fourths (3/4" ) of an inch, and that such treatment would act as a perfect and absolute preservative of said piling, timber, braces and caps against the effects and action of the ocean and ocean water and animal life therein, and that the life of the pier would be long, to-wit, in the excess of twenty-five (25) years, and that the same as constructed by the defendants herein would be one of the best piers built in Southern California, and that the defendants were experts in the construction thereof and that plaintiffs could rely upon the defendants for the construction of such pier in such good and workmanlike manner, and that it would be unnecessary for the plaintiffs herein to have and obtain the services of an architect or supervisor in the construction of such pier, for the reason that the defendants herein were experts in such matters, and would use their expert knowledge and ability in and about the construction of such pier in a good and workmanlike manner, all of which statements were false and fraudulent and made for the purpose of deceiving the plaintiffs and said statements were relied upon to be true, and that the plaintiffs herein were misled and deceived by said defendant.
" That the said pier and improvements thereon as constructed by defendants, as plaintiffs are informed and believe and upon such information and belief allege, will be short lived and not of long life, as hereinbefore set forth, as it would have been, had the piling, lumber and material contemplated to be delivered, driven and placed in said pier by the defendants herein under the terms of their said agreements, and that said pier, and the same been constructed with the materials as provided for in said contracts hereinbefore referred to, would have had a value at the present time of approximately the sum of two hundred fifty thousand ($ 250,000) dollars, but that said pier, constructed with the inferior materials and the materials different from those contracted for, has only a nominal value, and that the cost of replacing said piling, lumber and material as contracted for and placing the same in said pier, would cause said pier to have to be entirely pulled down, dismantled and would cost, to rebuild said pier with the piling, lumber and materials as contracted for, the said sum of one hundred eighty-seven thousand, two hundred three and 30/100 ($ 187,203.30) dollars, plus the cost of dismantling said pier and entirely tearing same down, which plaintiffs are informed and believe, and upon such information and belief allege, would be the sum of approximately fifty thousand ($ 50,000) dollars."
The second cause of action is based upon an express warranty to the effect that pier, piling and timbers used therein were warranted by defendants to be of unlimited life. The findings, however, relate to the first cause of action; hence the second does not require further elaboration.
The findings follow substantially the allegations of the amended complaint, and judgment is rendered against defendants in the sum of $ 91,961.63.
Appellants rely upon no less than fifty grounds for reversal. Some of these can be summarily disposed of. As to the sufficiency of the complaint, we agree with respondents that it states a cause of action based upon fraud and deceit practiced by defendants as an inducement to the entering into and execution of the contracts between the parties. The numerous assaults made upon the findings, except as hereinafter specified, have no substantial merit. There is ample evidence in the record to sustain the finding of fraud. The only meritorious contentions made by appellants are in respect to the right of plaintiff Crystal Pier Holding Company to maintain the action, and the matter of the measure of damages. Both of these points are presented in the findings.
It is contended that the findings do not support the judgment in favor of Crystal Pier Holding Company. The court finds " that the plaintiff and cross-defendant, Crystal Pier Amusement Company, a corporation, is the owner of a large majority of the issued capital stock of the plaintiff and cross-defendant Crystal Pier Holding Company, a corporation, and that the legal title to the property hereinafter referred to is held by and stands in the name of Crystal Pier Holding Company, a corporation". It is also found:
" That at all times herein mentioned, the cross-defendant Neil Nettleship was the president of the plaintiff and cross-defendant Crystal Pier Amusement Company, a corporation. That one B. W. Tye was on and after the 22nd day of April, 1926, the secretary and treasurer of said corporation.
" That the plaintiff and cross-defendant Crystal Pier Holding Company was incorporated under and pursuant to the laws of the state of California on the 11th day of March, 1927 and that during all the times thereafter, the said B. W. Tye was and is the president of said corporation, and the said cross-defendant Neil Nettleship was and is the secretary and treasurer of said corporation, and that thereafter and prior to the commencement of this action the title to the property hereinafter described was transferred to and vested in the name of plaintiff and cross-defendant Crystal Pier Holding Company, a corporation, and that a large majority of the issued capital stock of said plaintiff and cross-defendant Crystal Pier Holding Company was issued to and ever since said time has been held and owned by the plaintiff and cross-defendant, Crystal Pier Amusement Company."
At the time the contracts were entered into plaintiff Holding Company was not in existence, consequently it could not have been a party to oral representations relied upon for recovery. The court expressly finds that such representations were made to plaintiff Amusement Company. There is no evidence or any finding to the effect that these contracts were assigned to plaintiff Holding Company. The only finding connecting the Holding Company directly with the matter is one to the effect that prior to the commencement of the action the property was transferred to the Holding Company.
Several points are relied upon by respondents in an attempt to uphold the right of the Holding Company, under these circumstances, to maintain an action based upon fraudulent representations made to its predecessor. They first state that " in fact there was but one corporation, and that is the Crystal Pier Amusement Company, and that the other corporation that was formed as a matter of convenience, expediency and policy." There is no finding to this effect, nor has our attention been directed to any testimony to support such a theory, except the finding that two parties were officers of both corporations. Certainly the latter fact would not merge the identity of the two corporations. Respondents have not stressed this point by argument or authorities.
It is next contended that by a transfer of the property the right to maintain the action was assigned to plaintiff Holding Company, It is the rule in this state that an action based upon damages arising out of a tort, where a violation of the right of property is involved, may be assigned. This is expressly authorized by Section 954 of the Civil Code, and the rule was followed by this court in the case of Stapp v. Madera Canal & Irr. Co., 34 Cal.App. 41, 166 P. 823. The representations in the instant case arose out of the violation of a right of property, a tort to personal property, and the cause of action based thereon was therefore assignable. Did the mere transfer of the property operate as an assignment of the cause of action? Respondent relies upon Emmons v. Barton, 109 Cal. 662, 42 P. 303; Rued v. Cooper, 109 Cal. 682, 34 P. 98; Kemp v. Enemark, 194 Cal. 748, 230 P. 441, and Harris v. Miller, 196 Cal. 8, 235 P. 981. In each of these cases there was an actual assignment of the contract or chose in action. No authority has been brought to our attention which holds that a transfer of the property affected by the fraudulent representations carries with it the right to maintain an action based upon such representations.
In 27 C. J. p. 6 it is said:
" A stranger to the transaction who does not claim under the party defrauded has no right of action. Thus, where fraud occurred in the original sale of property, there can be no recovery for such fraud by a subsequent donee, grantee, trustee, or purchaser."
Misrepresentations made by the giver of an option do not give an assignee of the option the right to maintain an action for fraud, although the option is to the assignor and his assigns. (Puffer v. Welch, 144 Wis. 506, 129 N.W. 525, Ann. Cases 1912A, 1121.)
It was held in Ettar Realty Co. v. Cohen, 163 A.D. 409, 148 N.Y.S. 625 :
" The deed was taken by Ettar Realty Company which was not in existence at the time of the contract, and the action is brought by said company. There is no evidence of an assignment to plaintiff of the cause of action for deceit. It therefore cannot recover under Fox v. Hirschfeld, 157 A.D. 364, 142 N.Y.S. 261."
In this state is has been held that a cause of action based upon deceit in respect to real property does not run with the land and pass by a transfer to a grantee of the party defrauded. (Lawrence v. Montgomery, 37 Cal. 183.) We therefore conclude that a mere transfer of the title to the property did not operate as an assignment of a cause of action based upon deceit arising out of its purchase by the transferor.
Respondents seek to invoke the rule that corporate entity will be disregarded when it is necessary to prevent fraud and to protect the rights of third parties. (Clark v. Millsap, 197 Cal. 765, 242 P. 918.) The court does not find the facts which constitute the necessary elements upon which that rule is founded, nor has our attention been called to sufficient evidence to uphold the application of that rule. In the case of Erkenbrecher v. Grant, 187 Cal. 7, 200 P. 641, the court said:
" In order to cast aside the legal fiction of distinct corporate existence as distinguished form those who own its capital stock, it is not enough that it is so organized and controlled and its affairs so managed as to make it 'merely an instrumentality, conduit or adjunct' of its stockholders, but it must further appear that they are the 'business conduits and alter ego of one another,' and that to recognize their separate entities would aid the consummation of a wrong."
In the case of Minifie v. Rowley, 187 Cal. 481, 202 P. 673, the court also held:
" Before the acts and obligations of a corporation can be legally recognized as those of a particular person, and vice versa, the following combination of circumstances must be made to appear: First, that the corporation is not only influenced and governed by that person, but that there is such a unity of interest and ownership that the individuality, or separateness, of the said person and corporation has ceased; second, that the facts are such that an adherence to the fiction of the separate existence of the corporation would, under the particular circumstances, sanction a fraud or promote injustice."
We know of no instance where a corporation, as in the instant case, has been permitted to invoke the rule to enforce any obligation or claim of its own. Invariably the doctrine has been applied to actions where a party, who has dealt with the alter ego, attempts to enforce a liability. In such cases the individual or corporation is, in effect, estopped form setting up a defense based upon corporate entity, provided that the necessary elements are present. Furthermore, the finding that the Amusement Company held a majority of the stock of the Holding Company does not establish the unity of ownership required. The rule has been applied where an individual owns all the capital stock of a corporation, or where one corporation owns all the capital stock of another, except perhaps for qualifying shares of directors. In such cases the courts have held that there is a merger of identity, but we have never been directed to any case where the ownership of a mere majority of stock entitled one to invoke the doctrine. In the instant case the Amusement Company made the contracts and erected the pier before the Holding Company was organized. The latter erected the ballroom upon the pier, and is permitted to recover judgment for the cost of the ballroom-- $ 65,000. Appellant states that it is no concern of defendants as to how the fruits of the judgment are divided, hence the latter are not prejudiced by such judgment. Appellants, in their opening brief, and under the heading, " Summary of Facts", state that: " The evidence is uncontradicted that the plaintiff, Crystal Pier Amusement Company, had nothing to do with the building of the superstructures on the pier. The ballroom and superstructures on the pier were built by an entirely different and separate corporation, which was not incorporated until March, 1927, and which corporation, the Crystal Pier Holding Company, was not a party to any of the agreements involved in this action, and was not created, and did not exist, until long after any alleged representations had been made, and therefore could not have been a party to the same." The foregoing statement is not questioned or challenged by respondents, and we accept the facts as correct. It is true the findings state that " plaintiffs" erected the superstructures, but this is in conflict with the uncontradicted evidence, and hence is without force or effect and cannot be accepted by this court. But whether plaintiff Holding Company furnished all or a part of the funds necessary to erect such structures, is immaterial, as not representations were made to plaintiff Holding Company prior to the execution of the agreements, and hence the latter, as we have indicated, has no cause of action whatever. It follows that defendants are vitally concerned with the matter of who is the proper party to maintain the action. If plaintiff Amusement Company is the sole plaintiff, the judgment for the damages sustained by reason of the erection of the ballroom cannot stand, as plaintiff Holding Company holds the title to the same and constructed it.
We therefore conclude that, under the findings here, plaintiff Holding Company was a stranger to the transaction out of which the alleged fraudulent representations arose, and that the findings do not sustain a judgment in its favor.
Upon the matter of damages, the trial court made the following findings:
" That such timber and piling treated with cresoil, as hereinbefore set forth, did not and could not withstand the effects and action of the teredo, limnoria and other marine borers of the ocean and of ocean water, so that the said pier is now unsafe for use as an amusement pier or any other purpose, and three-fourths of said pier will have to be torn out and replaced, and said ballroom and structures thereon will have to be torn down and replaced, to plaintiff's and cross-defendants' damage in the sum of sixty-five thousand dollars, the cost of said ballroom, and the further sum of thirty thousand, seven hundred fifty ($ 30,750) dollars, the cost of three-fourths of the length of the said pier, less the sum of three thousand, seven hundred eighty-eight and 37/100 ($ 3,788.37) dollars, the amount unpaid by plaintiffs and cross-defendants to defendants and cross-complainants herein, as hereinbefore set forth, to plaintiffs' and cross-defendants' total damage in the sum of ninety-one thousand, nine hundred sixty-one and 63/100 ($ 91,961.63) dollars."
It thus appears that the trial court adopted as the sole measure of damages the original cost of constructing the pier and superstructure. The measure of the damages for fraud inducing the purchase of property is the difference between the actual value of what the purchaser received and the value which it would have had if the fraudulent representations had been true. (Perry v. Ayers, 159 Cal. 414, 114 P. 46.) The foregoing rule has been applied to the sale of personal property in Glindemann v. Ehrenpfort, 29 Cal.App. 87, 154 P. 481. Defendants produced evidence to the effect that this property has a present salvage value of $ 13,357.50. The court makes no findings upon that question. Neither does it find that the present structures are valueless. True, it finds that the pier " is now unsafe for use as an amusement pier or any other purpose", but the rule is " that if the vendee retains the property, without any offer of return, he takes upon himself the burden of showing that the property purchased is entirely worthless, not only for the purpose for which it was purchased, but for every purpose." (J. Thompson Mfg. Co. v. Gunderson, Wis., 106 Wis. 449, 82 N.W. 299, 49 L.R.A. 859.) A finding that a structure is unsafe for use for any purpose is not a finding that the property is valueless. (Harron, Rickard & McCone v. Wilson, Lyon & Co., 4 Cal.App. 488, 88 P. 512.) It cannot be presumed that the materials of which the structures were made are without any value whatever, even though they are not suitable for the use intended to be made of them by plaintiffs. The court found the cost of the ballroom to be $ 65,000, but does not find that it was valueless, and yet this sum is allowed in full. Likewise, the court finds the cost of three-fourths of the pier (the portion damaged) to be $ 30,750, and gives judgment for this amount, less $ 3,788.87 still due defendants upon the purchase price. The court does not find that plaintiffs were damaged generally, but definitely and explicitly states that judgment is rendered for the cost of each structure -- the pier and the ballroom. While we are mindful of the salutary rule which makes it incumbent upon us to adopt such a construction of the findings as will uphold the judgment if it can reasonably be done, nevertheless, the trial court has so tied its measure of damages into the cost of the structures that we cannot reasonably say it took other elements into consideration. Respondents make no attempt to answer appellants' contention that the trial court failed to find the value of the structures, assuming that the representations were false. They cite Hines v. Brode, 168 Cal. 507, 143 P. 729, which lays down the precise rule followed in Perry v. Ayers and Glindemann v. Ehrenpfort, supra. And in the Hines case the court holds that the price paid may be considered only as evidence of value in an action for deceit. We therefore hold that the finding upon the question of damages cannot be upheld.
The judgment is reversed.
We concur Thompson, J., Pullen, P.J.