Berk v. Twenty-Nine Palms Ranchos, Inc.

Plaintiff-respondent, David N. M. Berk, an attorney at law, recovered a judgment against defendant-appellant Twentynine Palms Ranchos, Inc., a corporation, for $6,000, upon an account stated for legal work and services performed by him for defendant corporation.

In its answer, defendant denied the existence of any such indebtedness and, by way of counterclaim, sought to recover from plaintiff the sum of $4,000 paid by defendant to plaintiff. In addition, it sought to recover from plaintiff compensatory and punitive damages allegedly suffered by defendant by reason of alleged malperformanee by plaintiff, in the rendition of the legal services which he undertook to do and perform on behalf of defendant. The trial court rendered a judgment in favor of plaintiff for $6,000, and denied any relief to defendant upon its counterclaim and cross-complaint. In its brief, defendant confines itself to an attack upon the judgment in favor of plaintiff upon the complaint and does not question the propriety of that portion of the judgment denying defendant relief on its counterclaim and cross-complaint. The testimony adduced at the trial was highly conflicting upon several issues of fact.

Facts

Prior to 1955, plaintiff had known and had conducted business dealings with one Milton Appleby, who for some years prior thereto had been connected with the real estate business in various capacities. In 1949 or 1950, plaintiff represented one Lucille Steiner in an action for divorce in conjunction with which a property settlement agreement was negotiated. In the early part of 1955, Albert Foley, the father of Mrs. Steiner, died, leaving as a part of his estate 100 acres of land contiguous to the acreage owned by Mrs. Steiner. Mrs. Steiner and her brother were the sole distributees of this estate, the probate of which was handled by plaintiff. In the summer of

Hoffman testified at the trial that plaintiff, at this meeting, agreed to perform other legal services for the three promoters and the proposed corporation, including services in connection with obtaining the approval of said lands for subdivision purposes by the County of San Bernardino. Hoffman’s testimony in this respect was contradicted by plaintiff. As a result of a subsequent meeting between some or all of these same parties, plaintiff’s terms of compensation were altered. It was plaintiff’s testimony that this meeting took place around the first part of December 1955 and that, of the three promoters, only Appleby, and perhaps Kantor, were present. According to Hoffman, this meeting took place in late October or early November 1955 and all three of the promoters were present with plaintiff. In any event, at this meeting it was proposed by one or more of the three preincorporators that plaintiff receive, in lieu of the promised 25 per cent stock interest in the corporation to be formed, the sum of $10,000 as compensation for the legal services to be performed by him for the promoters and corporation to be. According to Hoffman, it was agreed by each of the three promoters that plaintiff would be paid this sum of $10,000 for his services to them and to the then nonexistent corporation after the corporation “had made money and we had recovered our money.” After considering this proposed change in compensation for a few days, plaintiff said he agreed to accept as his fee for services the sum of $10,000 instead of stock in the corporation, and that his acceptance was communicated to the promoters. He stated, however, that the condition of payment was dependent on the time when Mrs. Steiner and Foley “were taken care of, and out of the picture.”

Plaintiff then proceeded to perform the services and accomplished all legal work essential to the creation of the corporation, filing articles and performing legal work necessary for the securing of a permit for the issuance of stock. He performed all legal work required in the acquisition of the Steiner-Foley lands and the transfer of said properties from the sellers to the newly formed corporation. In addition, as secretary of the corporation, he prepared the first and subsequent minutes of that corporation. Plaintiff made no charge

At the outset, Hoffman, Kantor and Jerome Appleby (son of Milton Appleby) were the sole stockholders and directors of the corporation. Kantor served in the capacity of director until his resignation some time in January 19-56. For some time after formation of the corporation, its officers were Hoffman as president, Jeróme Appleby as vice president and plaintiff as secretary-treasurer. Prior to the time of trial, Hoffman purchased the stock interests of both Kantor and Jerome Appleby, and thereby became the sole owner and stockholder of defendant corporation. Before the time of the purchase of the Steiner-Foley properties by defendant corporation, Hoffman had visited the properties on several occasions. By the terms of the purchase and sale arrangement between defendant corporation, Mrs. Steiner and Boyd Foley, Mrs. Steiner was to receive $20,000 for her interest in the properties and Mr. Foley was to receive $10,000 for his interest. Neither received any down payment on the purchase price, and amounts owing them by the corporation were evidenced by unsecured noninterest-bearing promissory notes, one note in the sum of $20,000 made by the corporation in favor of Mrs. Steiner, payable at the rate of $200 per month, and the other note made by the corporation in favor of Mr. Foley in the sum of $10,000, payable at the rate of $100 per month.

In the latter part of December 1955, Milton Appleby informed plaintiff of an $11,000 trust deed available for purchase at a discount from Desert Palm Builders, a corporation in which Appleby was interested. He further informed plaintiff that if the latter were interested in purchasing this trust deed, an arrangement could be worked out whereby there would be applied, as a part payment toward the purchase price of this trust deed, $4,000 of the $10,000 fee payable to plaintiff. Plaintiff verbally agreed to this proposed arrangement and subsequently purchased this trust deed upon those terms. On December 31, 1955, at a meeting held in Desert Hot Springs between plaintiff, Milton Appleby, Hoffman and Kantor, Appleby announced to Hoffman and Kantor this proposed arrangement whereby $4,000 of the $10,000 fee owing plaintiff would be paid. It appears that neither Hoffman nor Kantor voiced any objection to this arrangement. Kantor testified at the trial that both he and Hoffman acquiesced in this method of partial payment of plaintiff’s fee.

On March 1, 1956, plaintiff signed a receipt from the corporation, acknowledging the receipt of $4,000. It specified that the sum was “for services to be performed,” although the services agreed to be performed had been performed. Plaintiff testified that Hoffman wanted the receipt in that form for bookkeeping purposes. Also received in evidence, from the books of account of defendant corporation’s ledger sheets and from the journal and accounts payable ledger containing entries under the date of March 31, 1956, it is reflected that the corporation had an original indebtedness to plaintiff in the sum of $10,000, which indebtedness was reduced by a payment to plaintiff in the sum of $4,000, leaving an unpaid balance owing plaintiff in the sum of $6,000. There is also a written statement of Kantor of August 9, 1957, relating, in effect, that in the early part of December 1955, Hoffman, Appleby and Kantor agreed to pay to plaintiff the sum of $10,000 for his services; that in early January 1956 plaintiff purchased a trust deed from Desert Palm Builders, Inc., towards which purchase he was given a credit of $4,000 to apply on the amount due him on his fee from defendant corporation; and that a balance of $6,000 remained owing plaintiff, which the corporation then agreed to pay. In early 1956, Hoffman told plaintiff that defendant was encountering difficulty in making the monthly payments to Mrs. Steiner and Mr. Foley due under the outstanding promissory notes, and voiced the desire to “get them out of the picture” through some lump-sum settlement of the balance due them on the purchase price of the property. Subsequently, negotiations for this purpose were carried on for the corporation through Mr. Hoffman and by Mrs. Steiner and Mr. Foley, with the result that some time prior to May 1957 Mr. Foley accepted and received from defendant the sum of $3,500 cash in full

Defendant’s evidence indicates that such a meeting was held in October or November 1955, at which time plaintiff, Milton Appleby, Kantor and Hoffman were present, and that they did agree to buy the land for $30,000 through a corporation to be formed; that at that meeting, a map of the property was shown to plaintiff and that plaintiff was informed that the only way the parties would-be interested in the property would be that it be subdivided according to the map; that plaintiff was to organize the corporation and acquire the land for them as indicated and to assist the corporation in connection with obtaining a permit from the planning commission to subdivide the property; that plaintiff, after demand was made upon him, did nothing toward acquiring the approval of the planning commission to subdivide the land; that in December 1955 plaintiff met with Milton Appleby and Appleby suggested that plaintiff accept $10,000 for his services. Hoffman claimed that he was not present and the acceptance of the deed of trust and to give plaintiff a $4,000 credit was a private deal with Appleby; that the corporation never, by any corporate act, orally or in writing, agreed upon plaintiff’s fee or acknowledged an indebtedness of $10,000 or $6,000 or any other sum and no corporation minutes so reflected such a transaction.

Defendant produced evidence that about June 5, 1957, plaintiff prepared a waiver of notice and minutes of the annual meeting of shareholders and a waiver of notice and

The trial court found generally in favor of plaintiff and against defendant, and specifically found an agreement by Milton Appleby, Hoffman and Kantor with plaintiff to form defendant corporation and that plaintiff agreed to do the legal work required in forming the corporation and in connection with acquiring the real property and that he was not required to perform any other legal work. It particularly found that there was no agreement by plaintiff to perform any service in connection with obtaining approval of said property for subdivision purposes; that on behalf of themselves and the corporation to be formed, the parties above named, in consideration of the services performed by plaintiff, both promised to pay plaintiff $10,000, to be paid to plaintiff at such time as defendant corporation either paid in full its indebtedness to Steiner on account of the purchase price of said property or at such time as said defendant corporation entered into arrangements with the said parties whereby any indebtedness owing from defendant corporation to them was secured in a manner satisfactory to said obligees; that it was not true that there was an understanding that plaintiff was to be paid

The chief complaint on this appeal is about the findings, in that the court failed to find on certain facts, such as the fact that plaintiff was representing Steiner and Foley during the period in question. There is no dispute as to this question, either in the pleadings or the evidence. The finding thereon is immaterial to the issues. (Stone v. Ryals, 123 Cal.App.2d 523 , 526 [ 266 P.2d 864 ]; 48 Cal.Jur.2d, sec. 283, p. 286.) A further examination of the record indicates that the court did find generally on material issues raised by the pleadings and presented by the evidence. It is the rule that if findings are made upon issues which determine the cause, other issues become immaterial and failure to find thereon does not constitute prejudicial error. (Virtue v. Flynt, 164 Cal.App.2d 480 , 484 [ 330 P.2d 879 ].)

The remaining questions involve the sufficiency of the evidence to support the findings, particularly as to the agreements found to have been made and the authority of the makers thereof to bind the corporation, plus the claim of ratification of the oral agreement by the corporation and the application of the statute of frauds to such an agreement. Objection is also taken to the finding that $6,000 was due for services performed, arguing that to hold that such a fee was reasonable under the circumstances would be unconscionable.

As to the findings that an oral agreement had been made to purchase the property and to form a corporation for the purpose of subdividing it, there appears to be little or no dispute. The corporation was formed and the property was purchased by it. Plaintiff was to receive 25 per cent of the shares of stock for his services. The court’s finding that plaintiff’s services had been performed and did not include services

As to the payment of $4,000 on this account, the evidence does indicate that Milton Appleby was, in fact, dealing through Jerome Appleby as one of the incorporators, with a power of attorney, and this fact was well known to the officers of the corporation. Milton Appleby brought about the arrangements whereby plaintiff’s account would be credited with the $4,000 realized out of the transaction. If Hoffman had no knowledge of this arrangement at its inception, there is no doubt that he subsequently learned of it and apparently acquiesced in and approved of this credit to plaintiff’s account on behalf of the corporation. The books of the corporation reflected the credit and Hoffman testified that the entries were made under his direction.

There appears to be sufficient evidence to indicate adequate authority of the organizers of the corporation and its officers to bind the corporation, at least by ratification of the agreement. (Hibernia Sav. & Loan Soc. v. Belcher, 4 Cal.2d 268 [ 48 P.2d 681 ]; California Nat. Supply Co. v. Flack, 183 Cal. 124 [190P. 634].)

The question of the application of the statute of frauds (Civ. Code, § 1624) to this transaction, i.e., that a corporation’s promise to answer for the debt of another must be in writing and the authority of its agent or employee to make a promise to answer for the debt of another must likewise be in writing, is raised for the first time on this appeal. This is not authorized. No claim of violation of the statute

Cases supporting this rule are Layton v. Central States Lead & Zinc Co., 147 Ark. 355 [ 227 S.W. 415 , 417]; Hart-Toole Furniture Co. v. Shahan, (Tex.Civ.App.) 220 S.W. 181 , 182. The California courts seemingly recognize this theory of promoters’ contracts as evidenced by the decision in Scadden Flat G. M. Co. v. Scadden, 121 Cal. 33 , 38 [ 53 P. 440 ], in which the Supreme Court approvingly quotes from the decision in Battelle v. Northwestern etc. Co., 37 Minn. 89 [ 33 N.W. 327 , 328] as follows: “The promoters are not the corporation, and their contracts cannot be its contracts. This is so, though the promoters become at the creation of the corporation its only stockholders, directors, and officers. After it comes into existence and operation it may, by adopting arrangements thus made for it in advance, make them its contract precisely as it might make similar contracts had no previous engagements been entered into. There can be no difference between its making a contract by adopting an agreement originally made for it in advance by its promoters and its making an entirely new contract.”

This is not an action for the value of reasonable services performed. It is an action based on an account stated and the court so found. No point was raised in the pleadings, in the pretrial order or during the trial concerning the claimed excessive compensation and no finding on the subject was made. We should not consider it on appeal. (Johnson v. Hapke, 183 Cal.App.2d 255 [ 6 Cal.Rptr. 603 ]; Swanson v. Hempstead, 64 Cal.App.2d 681 , 683-686 [ 149 P.2d 404 ].) Had plaintiff based his cause of action on the basis of the value of reasonable services performed, there may well have been grounds for a review of the question. Here, all the parties were promoting a venture to purchase property and subdivide it. All were taking chances on the outcome of the venture for a

True, as is cited by defendant, there are eases to the effect that where the contract for compensation is entered into after the relationship of attorney and client has been established, the burden is upon the attorney to show that the agreement for compensation was fair and openly made with full knowledge upon the part of the client of the facts and of his legal rights with relation thereto, such as Lady v. Worthingham, 57 Cal.App.2d 557 [ 135 P.2d 205 ], and Cline v. Zappettini, 131 Cal.App.2d 723 [ 281 P.2d 35 ], The eases are quite clear that this principle of law does not attach to a contract by which the relation of attorney-client is created and the compensation of the attorney therein fixed. In agreeing upon the terms of such a contract, the parties deal at arm’s length. (Bonelli v. Conrad, 1 Cal.App.2d 660 , 667 [ 37 P.2d 137 ]; Cooley v. Miller & Lux, 156 Cal. 510 , 523 [ 105 P. 981 ].) The facts in the instant case would seem to fall within the

Judgment affirmed.

Shepard, J., and Coughlin, J., concurred.