Source: https://scocal.stanford.edu/opinion/alder-v-drudis-25915
Timestamp: 2020-08-07 12:05:12
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Matched Legal Cases: ['§ 274', '§ 318', '§ 274', '§ 3300', '§ 38', '§ 381', '§ 349', '§ 354', '§ 1460']

Alder v. Drudis - 30 Cal.2d 372 - Thu, 06/26/1947 | California Supreme Court Resources
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Citation 30 Cal.2d 372
Alder v. Drudis , 30 Cal.2d 372
Negotiations followed which led to the simultaneous execution on December 17, 1941, of two written agreements, which are to be considered as forming a single contract. One writing, executed by Alder and his wife and McMahon, recites that the Alders are the sole owners of letters patent dated June 6, 1939, and that McMahon is desirous of acquiring the entire interest in the letters patent as trustee for himself, Drudis, the Alders, and others, for the purpose of forming a corporation and transferring the letters patent to it in exchange for stock as provided in a supplemental agreement, the Alders to receive one-tenth of the nonassessable stock. Following these recitals the writing provides that in consideration of $5,000 paid by Drudis and other considerations received from McMahon, the Alders do sell, assign, and transfer to McMahon as trustee, the whole right, title, and interest in the letters patent, subject to the obligation of McMahon to assign and transfer said letters to the corporation when formed. As a further part of the consideration it is also agreed that McMahon is to receive from the Alders, for the same trust use and purpose, all existing apparatuses of the patent, together [30 Cal.2d 375] with all drawings and dies for manufacturing same, and all renewals, extensions, or reissues of the patent; also any further patents applied for by the Alders, and any improvements of or concerning the apparatus.
In the negotiations leading to the execution of these documents and throughout all proceedings thereafter Roberts was acting as attorney and agent of Drudis. Drudis paid $5,000 to the Alders upon execution of the contract, and the letters patent were handed to Roberts. Subsequently, McMahon telephoned Roberts stating that it was advisable to move the polyscopes from Pasadena to Hollywood, where they would be more accessible, and that he was looking for a place to keep them. Roberts stated that he had plenty of room. He [30 Cal.2d 376] called for the devices about December 27, 1941, and placed them in his home where the parties could examine them and take tests. Later, with acquiescence of all, he took them to the Acme Tool Company to be redesigned. About two and a half months later he got them back and had them until they were produced in court on the trial of the present action.
Meanwhile, and on January 26th, and thereafter, plaintiffs demanded possession of the polyscopes. In June, 1943, they brought the present action in claim and delivery and for declaratory relief against Drudis and Roberts. Count one, in claim and delivery, alleged that plaintiffs were the owners of the polyscopes and letters patent; that since January 26, 1942, defendants had wrongfully withheld and retained possession [30 Cal.2d 377] of them, to plaintiffs' damage to date in the sum of $36,000, and continuing damage in the sum of $2,000 a month; and that the reasonable value of the property was approximately $50,000. The prayer of this count was for possession of the property, or its reasonable value, together with charges for the reasonable value of the use of the property during the time of wrongful withholding.
The court found that after January 20, 1942, defendant Drudis continually failed to perform the written agreement and that it was breached by the two written notices of rescission; that no misrepresentation, deception, or concealment of any material fact was practiced by plaintiffs in their dealings with Drudis and Roberts, and that after January 20th, [30 Cal.2d 378] said defendants were in default under the terms of the agreement. The court further found that about December 27, 1941, defendants, having already taken possession of the letters patent, took possession of the only two polyscopes in existence; that the polyscopes were not delivered to defendants because of the payment by Drudis of $5,000 under the written agreement, but were delivered to defendants for safekeeping and so that they would be conveniently situated for use in carrying out the terms of the agreement; that Drudis and Roberts had the patent and polyscopes in their possession until April, 1943, since which time they have been in the possession of Drudis. Other detailed findings for plaintiffs relate to respective allegations of fraud, the existence of a controversy between the parties relating to their rights and duties under the agreement, and the wrongful termination of the agreement by defendants.
[1] The first contention made by defendants on their appeal from the judgment is that of insufficiency of the evidence to support the advisory verdicts and findings against them on the issues of misrepresentation, fraud and deceit. On these issues the evidence was conflicting. Defendants claimed that plaintiffs represented that the idea for the polyscope was basically and fully covered by the letters patent here in question and that the polyscope was the original instrument designed to produce third dimensional motion pictures by the means employed. Later defendants purportedly discovered that two prior patents had been issued for similar devices--that is, devices which also employed a moving picture camera, two mirrors with one mirror moving toward and away from another mirror in the course of the operation of the camera, and a picture taken by having the camera look into one of these mirrors and by varying the relative distance between the stationary mirror and the movable mirror, in an effort to [30 Cal.2d 379] produce a stereoscopic effect. The first prior, or original patent was obtained by a man named Cervenka in 1915, and it expired in 1932. The second prior patent was obtained about 1935, by Mr. Alder and one Merritt to whom he had made a one-half interest assignment as trustee, their device being known as the cinegraph. The polyscope patent here involved was obtained by Mr. Alder in 1939, and covered eleven claims for patentable refinements, improvements, or additions not found in the earlier devices. Defendants asserted that because of the prior patenting of the basic idea and concealment of that fact from them, and because of the necessity for redesigning the polyscope, they stood to receive nothing in return for their investment; that is, the basic idea passed into the public domain with expiration of the Cervenka patent and the claims for refinements and improvements granted by the polyscope patent could all be avoided in the redesigning of the device, so that the patent would not be infringed.
There was testimony that when defendants were first introduced to Alder at Alder's home near Santa Cruz, and before any discussion had taken place, Roberts in substance said, "Well, Mr. Alder, we have come a long way to make this deal and I have a check for you for $5,000"; that at the same time he started to reach for his pocket, whereupon Mr. Alder [30 Cal.2d 380] remarked, "Well, Mr. Roberts, I think there are a number of things that we should go into," thinking that Roberts "should hear all the trials and tribulations that I had undergone in producing commercial stereoscopy, since 1911 practically continuous effort on my part, that I felt that he should hear all of that"; but that Mr. Roberts said, "Never mind about that Mr. Alder, we have made our investigation, I have made a thorough investigation and I am quite satisfied and we needn't waste time because this has been a long trip and I am tired and I have got to go back to Hollywood tomorrow and I think we can waive all of that and get right down to the business of the evening; I have some papers here ... that I have prepared myself and I want you to read them and sign them and then I will give you your check for the $5,000. ..."
The charge of misrepresentation by plaintiffs of the terms of Alder's agreement with McMahon is immaterial so far as defendants are concerned, since they purported to buy an interest in the polyscope and not the interest, if any, which McMahon was acquiring or had acquired from Alder. Likewise immaterial is the claim that it would have been a physical impossibility for Alder to have produced a sensation of depth [30 Cal.2d 381] in motion pictures by bodily weaving the camera back and forth. The material point was not how Alder originally conceived the thought of constructing a third dimensional motion picture machine by whether his idea resulted in a machine which would carry out his conception.
Plaintiffs, in their election of the several remedies open to them, had the choice of accepting defendants' offer to rescission of the contract (which would have given them an immediate return of their property upon their repayment to defendants of the $5,000 received), or of treating the offer and the accompanying conduct as an anticipatory breach or repudiation of the contract (Gold Min. & Water Co. v. Swinerton, 23 Cal.2d 19, 28-30 [142 P.2d 22]; Cobb v. Pacific Mutual Life Ins. Co., 4 Cal.2d 565 [51 P.2d 84]; 4 Cal.Jur. 10-Yr.Supp. (1943 Rev.) 196-9, § 274; Rest., Contracts, § 318). They took the latter course.
[2] It is well settled in this state that one who has been injured by a breach of contract has an election to pursue any of three remedies, to wit: "He may treat the contract as rescinded and may recover upon a quantum meruit so far as he has performed; or he may keep the contract alive, for the benefit of both parties, being at all times ready and able [30 Cal.2d 382] to perform; or, third, he may treat the repudiation as putting an end to the contract for all purposes of performance, and sue for the profits he would have realized if he had not been prevented from performing." (Sobelman v. Maier, 203 Cal. 1 [262 P. 1087]; McConnell v. Corona City Water Co., 149 Cal. 60, 64-65 [85 P. 929, 8 L.R.A.N.S. 1171]; Lemle v. Barry, 181 Cal. 1 [183 P. 150]; see, also, House v. Piercy, 181 Cal. 247 [183 P. 807]; 4 Cal.Jur. 10-Yr.Supp. (1943 Rev.) 196-199, § 274.)
[3] Damages measured by the prospective profits to be derived from a successful promotion of the enterprise as finally reflected in the amounts which would come to plaintiffs individually as dividends declared in favor of the shareholders of the proposed corporation, were probably too speculative and conjectural for estimation, particularly in view of the evidence of uncertainty as to the commercial possibilities of the polyscope. At any rate they were not satisfactorily proved here. Any award made on this basis, therefore, would have been nominal. (Civ. Code §§ 3300, 3301, 3358, 3359; Continental Car Na-Var. Corp. v. Moseley, 24 Cal.2d 104 [148 P.2d 9]; California Pr. Mfg. Co. v. Stafford P. Co., 192 Cal. 479 [221 P. 345, 32 A.L.R. 114]; Lacy Mfg. Co. v. Gold Crown Mining Co., 52 Cal.App.2d 568, 574 [126 P.2d 644]; 8 Cal.Jur. § 38, p. 777.) Likewise, the value, if any, of the letters patent was undeterminable. The two polyscopes could have been duplicated at a construction cost of $750 to $1,000 each. Damages based upon the proportionate value to each shareholder of the $13,000 which defendants were to advance for financing would have been inadequate, since this would have given plaintiffs but a small sum and would have left [30 Cal.2d 383] them without patent or device. The trial court, therefore, concluded that damages would not afford an adequate remedy, and in lieu thereof it declared plaintiffs' right to a return of the polyscopes and letters patent and ordered delivery thereof to them. In other words, the trial court invoked the remedy of restitution for breach of contract, which in certain circumstances will be granted as an alternative to an award of damages.
[4] Damages and restitution are alternative remedies and an election to pursue one is a bar to invoking the other. (Rest., Contracts, §§ 381, 384, pp. 712, 718.) In 5 Williston on Contracts, revised edition, sections 1455, 1458, pages 4064, 4075, it is said: "The right of rescission and restitution generally exists as an alternative remedy to an action for damages where there has been repudiation or a material breach of a contract, ... This choice of remedies was not allowed by the early English law, and there are still many exceptions and inconsistencies in the application of the rule, ... But where the transfer is of goods or choses in action of unique character, or of exclusive privileges such as patents and copyrights, specific restitution will generally be granted." (See, [30 Cal.2d 384] also, DeMille Co. v. Casey, 121 Misc. 78 [201 N.Y.S. 20]; Hansen v. Hall Mfg. Co., 196 Iowa 1 [193 N.W. 568]; Dow v. Harkin, 67 N.H. 383 [29 A. 846] [patent and tools].)
The doctrine has not been expressly declared in this state but there are a number of cases in accord. In Howlin v. Castro, 136 Cal. 605 [69 P. 432], the plaintiff placed a deed in escrow to be delivered to the defendant upon performance of his promise to care for and attend the plaintiff during his remaining years. Defendant failed to care for plaintiff, and the court ordered a redelivery of the deed to plaintiff. In land cases it has been held that the vendor is entitled to repossession of the premises where the vendee has abandoned them or has defaulted, and similarly restitution of lands and equipment has been decreed in oil and gas lease cases. These authorities are collected in the California Annotations to the Restatements, Contracts, section 354. (See, for example, Empire Investment Co. v. Mort, 169 Cal. 732 [147 P. 960]; Champion G. Min. Co. v. Champion Mines, 164 Cal. 205 [128 P. 315]; Payne v. Neuval, 155 Cal. 46 [99 P. 476]; Acme Oil & Mining Co. v. Williams, 140 Cal. 681 [74 P. 296]; McAdams v. Felkner, 140 Cal. 354 [73 P. 1064]; Downing v. Rademacher, 133 Cal. 220 [65 P. 385, 85 Am.St.Rep. 160]; Sledge v. Stolz, 41 Cal.App. 209 [182 P. 340]; Coates v. Cleaves, 92 Cal. 427 [28 P. 580]; Covington v. Lewis, 83 Cal.App. 8 [256 P. 277].)
[5] In granting to plaintiffs the remedy of restitution and in ordering the delivery to them of the polyscopes and letters patent, the court should have made its decree for this specific restitution conditional upon the return by plaintiffs to defendants of the $5,000 received. The purpose of restitution as a remedy for breach is the restoration of the status quo ante as far as is practicable, and in the absence of qualifying circumstances, the plaintiff must return any consideration he has received in order to obtain specific restitution. While there is no literal rescission of the contract, the result reached by the restitutionary remedy approximates that reached by rescission. [6] It is not necessary that plaintiff should have made an offer to return the consideration, but the decree for specific restitution may be made conditional upon such return. (Rest., Contracts, § 349, p. 596; § 354, p. 611; 5 Williston on Contracts, rev. ed., § 1460A, pp. 4082 et seq.) California authorities dealing with the rescission of contracts illustrate this rule. See cases collected in California Annotations to the Restatement, [30 Cal.2d 385] section 349, supra; Civil Code, sections 1691(2), 3408.
Plaintiffs' reply is: "Because of the repudiation of the contract by the defendants, the plaintiffs treated it as at an end. A perfectly legal action on their part. ... Under this state of facts the plaintiffs had the following remedies: They could bring an action for damages for breach of contract; they could remain quiet and in the event that the defendants should bring an action against them they could then set up the breach of contract and the resulting damages in defense of such action. They elected to remain passive as to damages for breach of contract. The plaintiffs did avail themselves of the statutory remedy of claim and delivery to recover the polyscopes and, as authorized by the statute, they asked for the possession of their property and damages for its wrongful detention. The plaintiffs, unnecessarily we think, included a second cause of action for a declaration that the contracts were terminated. As we have seen, under the law applied to the acts of the parties, the contracts had been terminated and the court so held. The second cause of action may, therefore, be disregarded. There is no contention the contracts are not at an end." [30 Cal.2d 386]
Although it may be true, as the court found, that the polyscopes were not delivered to the defendants because of their payment of $5,000 under the contract, it is also true, as the court further found, that they were delivered for safekeeping and so that they would be conveniently situated "for use in carrying out the terms" of the contract. The evidence shows beyond dispute that had there been no contract, there would have been no delivery of the polyscopes to defendants. The delivery was made in pursuance of the joint enterprise, and in fact one of the devices was taken by defendant Roberts to a concern for redesigning in furtherance of the objective sought to be accomplished by the contracts. There is no evidence which would support the conclusion that the devices were placed with defendants as a voluntary bailment, for safekeeping, entirely separate and apart from any purpose to be accomplished by the contract or from the existence of the contract. Up to the time of plaintiffs' demand for return of the polyscopes, defendants, as parties to the joint enterprise, [30 Cal.2d 387] had as much right to possession as did plaintiffs. Plaintiffs, in their demand made no offer to return the $5,000, and therefore the demand was ineffective to alter the situation. There is no showing that the defendants did not stand ready to return the machines upon repayment to them of the money advanced under the contract.
Thu, 06/26/1947 30 Cal.2d 372 Review - Civil Appeal Opinion issued
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