MacDonald v. Rosenfeld

There appears in the clerk’s record of this action for accounting and an injunction, two notices of appeal filed by plaintiffs W. W. MacDonald and John R. Pom-fret: the first from an interlocutory decree, and the second from the whole of the final judgment. There also appears a notice of appeal by defendant Max Rosenfeld setting forth five designated grounds of appeal.

Plaintiffs’ opening brief states as grounds of appeal that the whole of the judgment is erroneous and in defendant’s brief it is contended that the court ‘1 erred in allowing plaintiffs a credit of $30,734.13.” The latter statement is condensed but sufficiently definite to guide this court in determining the contention of the respective parties and the merit of each appeal.

Defendant’s answer, filed September 29, 1944, not only referred to the allegations of the plaintiffs’ complaint—denying that all indebtedness owing to him had been paid, but set forth the following history of the parties’ business relations; “. . . during the year 1932 defendant Rosenfeld loaned to plaintiffs herein small sums of money; that plaintiffs were then operating under the name of MacDonald Motors, Inc., but failed in business and were adjudged bankrupt in the year 1933. Prior to said bankruptcy plaintiffs had borrowed about $2200.00 from the Advance Company and had given ... a chattel mortgage . . . defendant did buy said mortgage from said Advance Company . . . Thereafter all of the right, title and interest of said MacDonald Motors, Inc. was sold by the Trustee in Bankruptcy thereof and was purchased by one Richard F. Guggenheim . . . said Guggenheim in connection with plaintiffs and Tevis Jacobs, started the business under the name of MacDonald Truck & Manufacturing Co. . . . Plaintiffs and said Guggenheim and Jacobs then stated and represented to defendant Rosenfeld that said Guggenheim and Jacobs could no longer provide any additional money for said business . . . and requested defendant . . . to purchase said machinery and other assets . . . That in

At the trial the agreement dated May 29, 1934, which was referred to in the pleadings heretofore set forth, was admitted. Certain correspondence between the parties which was produced at the trial will be related herein to show the relationship of the parties.

On December 15, 1935, defendant sent the following communication : “Messrs. Richard F. Guggenheim, W. W. MacDonald & John R. Pomfret, The MacDonald Truck & Mfg. Co., San Francisco, Cal. Gentlemen: This will refer to the agreement under which I have been financing this organization and our various talks and my expressions of dissatisfaction. No need to list them all, such as the Dock Truck orders patents, the greater indebtedness, the ownership of the Essex car, etc., as both Messrs. Guggenheim and Mr. Tevis Jacobs have acknowledged to me that I have found matters considerably different from what was represented to me to get me in here, and I have given you notice time and again and do hereby that I would like to sell out, and, while I do not wish to be abrupt, I will give you much more than ten days time in which to pay me or consider that the business has fully reverted to me and that I shall sell it. Here’s the rub with

Subsequently a communication dated January 31, 1936, was directed to defendant and signed by the parties interested in the 1934 agreement. It reads: “Mr. Max L. Rosenfeld . . . Referring to the agreement dated May 29, 1934, signed by Richard F. Guggenheim, W. W .MacDonald, John R. Pomfret and yourself; we fully appreciate and agree that you have done all and more than was expected of you under that agreement. We are appreciative of the fact that you have put in more time and a great deal more money than was anticipated to be necessary, and that but for your help (financial and otherwise) the business . . . would have failed long ago. We have carefully read the financial statement

The following day defendant sent the following communication: “In accepting to continue here under the agreement of January 31, 1936, signed by all four of you gentlemen who got me into this business and who have urged me to remain, I am doing so only with the following understanding : When I first came, it was understood I was only to put in a few hours per day, and you knew I had other interests and had properties to look out for for my family and also that I was (and still am and have been for a number of years) President of the Cirae Automatic Reverse Control Company, for the manufacture of which I paid MacDonald Motors a

The primary issue involved the ownership and control of the business. The genuineness and due execution of the 1934 agreement was admitted by the pleadings. Whether the parties continued to operate under the 1934 agreement, or whether the conditions and relationship as outlined in the communications exchanged during the latter period of 1935 and the first part of 1936, particularly the letter of January 31, 1936, controlled the operation of the business and the rights of the parties after that date were questions to be determined by the trial court. The evidence is voluminous on these questions. It would serve little if any enlightening purpose to repeat all of the evidence on this appeal. Evidence concerning a meeting of February 27, 1936, of the board of directors of the Cirae Automatic Reverse Control Company was introduced. Three of the directors testified that in MacDonald’s presence, defendant had showed the group the letter of January 31, 1936, as establishing his control of the MacDonald company. MacDonald, however, denied being present at such meeting. This meeting of February 27, 1936, according to evidence introduced by defendant, gave rise to a letter dated March 11, 1936, which was introduced by defendant when his motion to reopen the case was granted. Defendant sought by this letter to answer plaintiffs’ argument to the effect that the letter of January 31, 1936, was wholly without consideration, and that it was uncertain and indefinite. The March 11, 1936, letter reads as follows (Bill and Jack refer to MacDonald and Pomfret respectively) : “Messrs. W. W. MacDonald & John R. Pomfret, The MacDonald Truck & Mfg. Co., San Francisco, Cal., Dear Bill and Jack; I had

Plaintiffs introduced evidence to the effect that defendant did not enforce the terms of the January 31, 1936 letter. They showed that defendant caused no account of plaintiffs’ liability to defendant under said terms to be set up on the company’s books. Evidence was also introduced relative to defendant’s practice of filing fiduciary informative returns allocating 100 per cent of the profits to plaintiffs, with plaintiffs filing returns, respectively, for 50 per cent of the profits each as copartners. On March 2, 1938, defendant wrote the following letter to the bookkeeper: “Happening to pass the Federal Building before 4:00 p. m. I called on Mr. Sutherland and found him a very fine gentleman. His opinion is still the same, but he said there was no objection to my putting it in as MacDonald and Pomfret being partners (with myself as manager & trustee). He said when the accountants come around to check and if they decide the other way the money will be given back to MacDonald and Pomfret and then the only penalty will be interest. I prefer to do it this way because my own statement is already made up and because it is actually, morally, the business of MacDonald and Pomfret, simply hypothecated to me. There was no money paid by me to Messrs. Guggenheim, Pomfret and MacDonald, to justify the word ‘sale’ in that agreement: No money passed from me

In an attempt to show that the plaintiffs knew that they were working under the terms embodied in the letter of January 31, 1936, defendant produced the following communications. On July 14, 1938 defendant wrote plaintiffs: “Much as I dislike to be constantly after you, I must again express my dissatisfaction and repeat to you notice that I may wish to sell out the place. Your efforts have been far from satisfactory and the fact that you both lived on the Peninsula . . . has entailed too much work on me ... I told you when I agreed to continue here under the newer agreement signed in January ’36 by all four of you that unless the company was sold for $80,000 or more I would waive any additional payments than salary and interest and the sixty percent of the Net unless I remained over five years after the signing of that agreement, although at that date, Jan. 31, ’36 I had already served you full time almost two years but actually had been helping you financially since the summer or early fall of ’32. Carrying you has been not only a burden but thus far a great risk. But for me, you would have no lift truck business and but for my financial help this organization as you know would have been sold out long ago ... if I remain and continue to manage and finance this company, I will expect better teamwork and when there is a profit expect to take my payments as per Agreement dated January 31, 1936, which was signed by you two gentlemen as well as Richard P. Guggenheim and Tevis Jacobs, and because of which I have continued here thus far. Because I will require a witness to your signatures to agreement to cooperate more

With the war, the business profited. By August 31, 1944, defendant had received approximately $36,000 as his salary from 1934 to that date. Since that date, however, he received no salary. Prior to that date, plaintiffs’ salaries were raised, Pomfret getting $85 a week and MacDonald getting $95 a week. According to a statement issued bearing the date August 31,1944, plaintiffs had paid up all amounts due defendant on the books of the business. This statement supports plaintiffs’ allegation that defendant had been repaid. However, this statement did not consider such factors as lack of interest

A report dated September 30, 1944, showed that $3,319.72 was due defendant from plaintiffs. At about that date defendant deposited $5,000 to the company’s account to cover outstanding expenses. Defendant also made advances to plaintiffs for taxes.

In the interlocutory decree the following appears: “The Court finds that, as of August 31, 1944, the profits of said business were $72,255.23, no portion of which have been received by said Rosenfeld.

“The Court further finds that, as of August 31,1944, (after deducting said sum of $15,000.00, in accordance with said stipulation of said Rosenfeld) plaintiffs were and still are indebted to defendant in the sum of $48,541.04. . . .

“That August 31, 1944, was the last accounting date between plaintiffs and defendant and since that time plaintiffs have been operating said business of MacDonald Truck & Manufacturing Co. by permission of the temporary injunction which was issued herein, and defendant is entitled to an accounting of all profits received on account of said business and not shown upon said August 31, 1944 account, and said defendant is entitled to a judgment herein for a salary at the rate of $300.00 per month from August 31, 1944, until he is reinstated in possession and control of all of the assets and property of said business, which salary shall continue hereafter as long as he shall act as Manager of said business, and he is also entitled to a Judgment herein, against plaintiffs, for his interest in the profits of said business since August 31,1944, at the rates specified in said agreement of January 31, 1936, and said defendant is entitled to be reinstated as Manager of said business and placed in possession of all the assets and property thereof.” The conclusions of law attached to the interlocutory decree recite that “plaintiffs paid Federal and State Income Taxes on all of said profits.” The court directed the referee “to report to the Court the amount of profits which have accrued to said business for the years 1944 and 1945 and on which plaintiffs have paid Federal and State income taxes, and to recommend to this Court the proper apportionment of taxes on all of said profits.”

The findings upon which the final judgment was based, referring to the 1934 and the 1936 contracts, set forth that “both

It is appropriate that it should be noted that it is not necessary that this court consider the mathematical computations involved in the preceding findings and conclusions and judgment. It was stipulated at the oral argument that, without waiving plaintiffs’ contentions as to the interpretation to be placed upon the documents introduced in evidence or the claimed inferences that should be drawn therefrom or from the testimony offered, if the findings of fact and the conclusions of law are otherwise correct, the amount found to be due defendant is correct. In the interlocutory decree a referee was appointed to report the amounts accrued to the business for the years 1944 and 1945, and to recommend a proper apportionment of taxes on all profits for the years 1937 and 1941 to 1945 inclusive. This duty was performed by the referee, and, based thereon, a report made and $30,734.13 deducted from the amount decreed to be due, namely $73,443.70. Defendant argues that the action of the trial court in this respect was unjust to him. There may be considerable apprehension by both sides as to future action by income tax authorities. No control thereof is vested in this court in the present proceedings to determine income tax obligations, including interest and penalties that may be decided to have been due by the company or its members at the

The validity of the 1934 contract is admitted. The documentary evidence introduced, previously referred to, is sufficient to support the finding that during the latter part of 1935 and in 1936, plaintiffs induced defendant Rosenfeld for a good and valuable consideration to continue to make further and additional advances of money to operate the business, and that he continued to operate such business until he was enjoined by an order of the superior court from exercising any control thereof. Having found that under the contracts the defendant was entitled to the exclusive management of the business, the court also correctly found that defendant was entitled to an accounting of all profits during the period the temporary injunction was enforced.

The court further found, upon evidence from which a reasonable inference could be drawn, that it was true that “prior to September 2, 1944, plaintiffs did suggest to defendant that he do certain things in connection with the management of said business, and which suggestions, after being examined by said Rosenfeld, were disapproved by him, but that all of his acts in so disapproving the suggestions of plaintiffs, were in accordance with his best judgment for the successful operation of said business.” There is also evidence “that defendant has not drawn or received the $15,000 profit provided by the agreement of January 31, 1936 ... On December 20, 1945, in open Court, defendant Rosenfeld voluntarily stipulated that the sum of $15,000.00 should be deducted from the sums due to him by plaintiffs, but reserved the right to said sixty (60%) per cent of the profits of said business until such time as he shall have been paid all sums due to him for money loaned to said business, for salary at $200.00 per month from and including September 1, 1944, and for interest at the rate of six (6%) per cent per annum on both said unpaid loans and salary. After all said sums are paid to said Rosenfeld, he shall be entitled to continue to manage said business and receive said salary of $300.00 per month and shall be entitled to receive thirty (30%) per cent bf the profits of said business.”

The findings and the judgment should be construed in a manner that will tend to uphold the evident intention of the fact finder. In this ease it must be assumed that the findings were served and that that phase of the proceedings was disposed of in accordance with the provisions of Code of Civil Procedure, section 634. On the motion for new trial the court could have changed the findings or modified the judgment and if necessary could have reopened the case to settle a claimed inadequate finding. (Code Civ. Proc., § 662.) This court could have invoked the provisions of section 956a of the same code and made an additional finding if that appeared necessary.

When the findings and conclusions of law are read as a whole it must be determined that defendant or his heirs and assigns may retain possession and control the management of the business under the designated salary “so long as he [defendant or his heirs or assigns] shall see fit,” meaning until the terms of the contract are fulfilled. It must be admitted that whether the duties of the parties as outlined in the contracts are in truth and in fact performed, may lead to litigation. The trial court fixed the present legal responsibilities of the parties—future disputes based upon factual conditions that may or may not arise are beyond the realm of present determination.

Plaintiffs correctly state the rule that a trustee is bound to act in the highest good faith toward his beneficiary .and may not obtain any advantage over him by adverse pressure of any kind. (Civ. Code, §§ 2228, 2229, 2231, 2234, .2235.) The evidence supports the view that defendant was granted “a power coupled with an interest” in that he-was given the management of the business as security for the loans he had made. (See Lane Mortgage Co. v. Crenshaw,

Plaintiffs argue that the 1936 agreement is wholly without consideration as there is no promise to forbear selling the business; that if it is a valid agreement it rather enlarges defendant’s right to foreclose as outlined in the 1934 agreement. Consideration is a promise which is bargained for and culminates in an agreement. (Restatement of the Law, Contracts, § 75.) Reliance must be based upon the promise. (Bard v. Kent, 19 Cal.2d 449 [ 122 P.2d 8 , 139 A.L.R. 1032 ].) “The cases in this state, as elsewhere ( 74 A.L.R. 301 ), hold that the promise to forbear may be implied.” (Wine Packing Corp. of Cal. v. Voss, 37 Cal.App.2d 528 , 538 [ 100 P.2d 325 ].) As noted before, all of the evidence pertaining to a disputed subject, including documents and testimony, must be weighed and determined. The trial court found that the 1936 contract was a valid and binding obligation on each party and was “supported by good, valuable and sufficient consideration.” There is evidence to uphold this finding.

The present rule appears to be that the final construction of a contract, where there is no substantial conflict in the evidence, may be resolved by a reviewing court in accordance with the applicable principles of law. (Estate of Platt, 21 Cal.2d 343 [ 131 P.2d 825 ].) In this case there is no conflict as to the existence of the letters except the letter of March 11, 1936, which plaintiffs claim is a fraud, but which the trial court determined to be genuine. There is a dispute relative to the inferences that may be drawn from the contents of the letter of January 31, 1936, and from the actions of the parties in the succeeding years. Civil Code, section 1584, provides: “Performance of the conditions of a proposal, or the acceptance of the consideration offered with a

It has been determined that the letter of January 31, 1936, is a valid contract. Nevertheless plaintiffs contend that it is unjust, inequitable, indefinite, uncertain and cannot be specifically enforced. Plaintiffs attempt to treat defendant merely as a creditor. However, the evidence shows that he was the manager of the business and as such entitled to the benefits that might accrue under the security contracts. Plaintiffs understood the meaning of the word “profits” as exemplified by the use of the word in their tax reports. Prior to the commencement of this action in equity by plaintiffs, defendant was in possession, and the 1936 agreement authorizes him to stay in possession—he has not asked for specific performance, but asks to remain in possession. As to the sufficiency of the contract, the parties have operated under its provisions for many years and found no difficulty in understanding them. “The fact that the contract, although valid, is not susceptible of being made the subject of a decree of specific performance in equity does not leave the parties without remedy or deprive the trial court of its power to proceed with a disposition of the entire controversy.” (Lyon v. Goss, 19 Cal.2d 659 , 675 [ 123 P.2d 11 ].)

It is also urged that defendant is estopped from asserting any rights under the 1936 agreement upon the theory that he had abandoned all rights under the terms of the 1936

The trial court deducted from the determined amount of plaintiffs’ indebtedness to defendant Rosenfeld $30,734.13, representing income taxes paid by plaintiffs in excess of the amount they would have paid if they had acknowledged that defendant had an interest in the business profits. It is plaintiffs’ theory that this deduction directed by the court is an attempt to avoid the application of the doctrine of estoppel. The facts indicate that defendant could not consistently assert the terms of the letter of January 31, 1936, and have plaintiffs pay taxes on profits based on their ownership of the entire business. Defendant’s acquiescence in this method of payment of taxes may have been based upon a desire to decrease the total tax paid and not as an act on his part of deliberately misleading plaintiffs. The trier of the facts would be justified in concluding that defendant Rosenfeld is not estopped from asserting any rights under the 1936 agreement.

Defendant cross-appealed “From that portion of said Judgment which determines and decides that the Income Taxes paid by the plaintiffs to the Federal and State Governments on the percentage of the profits of said MacDonald Truck & Manufacturing Co., to which defendant is entitled, be deducted from the sums due plaintiffs to defendant.” Other grounds of appeal are set forth which have not been specifically referred to in defendant’s brief on the cross appeal or disposed of on the main appeal by plaintiffs. The idea of charging defendant Rosenfeld with the income taxes which plaintiffs paid on the share of the profits found to be defendant’s originated with the trial court. The idea did not meet with

The gist of defendant’s cross-appeal is that if $30,734.13 is deducted from the amounts owing him, he will be in effect paying taxes twice for the same years. This conclusion is based upon the fact that as a result of the judgment awarding him a portion of the profits as per the 1936 agreement, he will have to pay additional taxes for past years. On the other hand, plaintiffs not only will in effect be receiving a refund from defendant for the taxes they paid, but will be entitled to a refund from the government. The trial court was not interested in the “form” used by the respective parties in making returns, or in giving “information” to the taxing agencies. It was simply a matter of an allowable deduction. The penalties, if any, that may be involved, or the failure of the respective parties to claim refunds of all or a portion of the taxes, or the filing of false returns, if such occurred, are matters with which this court is not concerned. Such matters may be left to the federal or state taxing agencies to be adjusted and corrected if necessary in a proper tribunal.

The judgment is affirmed in its entirety, each party to bear 50 per cent of the costs of each appeal.

Peters, P. J., and Bray, J., concurred.

A petition for a rehearing was denied February 11, 1948, and plaintiffs’ and appellants’ petition for a hearing by the Supreme Court was denied March 11, 1948.