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District Court of Appeal, First District, Division 1, California.


Civ. 10532

Decided: July 29, 1938

Edgar C. Levey, of San Francisco, and Booth B. Goodman, of Oakland, for appellant. Jesse H. Miller, of San Francisco, for respondent.

Limited Mutual Compensation Insurance Company, a corporation, appeals from the judgment, following the verdict, which awarded respondent the sum of $3,055 for legal services. Of the numerous grounds urged by appellant for a reversal, only such as are vital will be considered as the facts are unfolded.

The original complaint, in alternative counts of assumpsit, account stated and open book account, alleged that appellant and another defendant, Mutual Management Corporation, were indebted to respondent in the sum of $5,000 for work, labor and services performed by respondent for both defendants and each of them at the special instance and request of both and each of them. The bill of particulars, furnished by respondent, set forth the items of the indebtedness as follows:

The complaint charged both defendants with a joint and several debt of $5,000 but the bill of particulars, by segregating the items of the indebtedness as to each defendant, stated that appellant was only severally indebted in the sum of $3,055. The bill of particulars amplified the complaint, as if incorporated therein, and limited respondent's recovery to the claims therein stated. Millet v. Bradbury, 109 Cal. 170, 41 P. 865; Treadwell v. Nickel, 194 Cal. 243, 228 P. 25.

During the presentation of his evidence, respondent, by amendment, changed his third cause of action from an open book account to a mutual, open and current account. At the conclusion of his case, respondent, by leave of court, granted over appellant's objection, dismissed the action as to the co-defendant Mutual Management Corporation and filed an amended complaint, which alleged, in alternative counts of assumpsit and a mutual open and current account, that appellant was indebted in the sum of $3,055 for work, labor and services rendered to it at its special instance and request. In an action on a contract, when it appears from the pleadings or the evidence that any defendant is not liable or necessary to a determination of the controversy, he may be dismissed from the action, provided a remaining defendant is not thereby prejudiced. 18 Cal.Jur. 1164. Such dismissal may be allowed at any time before the submission of the case to the jury. Brown v. Harter, 18 Cal. 76. Liberality in the allowance of an amendment to a pleading is the rule rather than the exception; and in a case where such an amendment can be made in furtherance of justice without jeopardizing the rights of an adverse party, it should be allowed. This, of course, assumes that neither the cause of action nor the issues involved therein will be radically changed by the proposed amendment. Mackroth v. Sladky, 27 Cal.App. 112, 148 P. 978. The amended complaint differs from the original only, as previously amended, in the abandonment of the second cause of action upon an account stated, in the elimination of the codefendant as a party and in a decrease in the amount of appellant's indebtedness. In effect it charges appellant with an individual debt instead of a joint and several obligation. The issues tendered are made by the amended complaint to conform to the bill of particulars. Similar amendments have been held not to change the cause of action. United States Farm L. Co. v. Bennett, 55 Cal.App. 299, 203 P. 794; Bryant v. Wellbanks, 88 Cal.App. 144, 263 P. 332.

Appellant argues that the change of the issues by the amendment was prejudicial, because the original complaint compelled it to defend against a joint and several debt of itself and codefendant, whereas the amended complaint forced it to meet its own several obligation. But it could not have been so injured as the bill of particulars gave it advance notice of the true nature of respondent's claim. Ames v. Bell, 5 Cal.App. 1, 89 P. 619. The dismissal and amendment simplified the issues to its benefit. It further argues that respondent, prior to the amendment, so presented his evidence as the rendition of services to both defendants that it was impossible for the jury, in obedience to the court's order striking out the testimony as to the codefendant, to segregate from the whole such portion as affected it alone, and therefore it must have included in its verdict an allowance for services for which it was not liable. The verdict conforms exactly to the total of the first, second, third and seventh items of the bill of particulars, which are charged against appellant. Respondent's testimony as to the first, second and seventh items does not commingle or confuse services rendered to the respective defendants. As to the third item, there is some confusion as to which defendant services included therein were rendered.

The first two items of the bill of particulars amounting to $2,000 are clearly for services rendered prior to appellant's coming into being by incorporation. The undisputed testimony shows that such services were performed at the request of a promoter of the corporation, and upon his promise, with the knowledge and acquiescence of another promoter, that the corporation, as soon as it was financially able so to do, would pay their reasonable value. These promoters, with respondent, subsequently became members of appellant's board of five directors. Appellant is not liable to respondent upon such promoters' contract unless it adopted such contract after its incorporation. Biggart v. Lewis, 183 Cal. 660, 192 P. 437. To prove such adoption, the evidence must show some affirmative act by the corporation from which it may be inferred. Receipt of benefits from the performance of the contract without actual knowledge of its terms is insufficient. Knowledge of a director directly interested in the contract is insufficient to charge the corporation. Rideout v. National Homestead Ass'n, 14 Cal.App. 349, 112 P. 192. Knowledge of a promoter, who subsequently becomes a director, cannot be imputed to the corporation. Kiefhaber Lumber Co. v. Newport Lumber Co., 15 Cal.App. 37, 113 P. 691. Respondent did not seek to prove adoption of the contract by formal corporate action but by knowledge and acquiescence of its directors. The evidence, at most, discloses that at an informal meeting of the five directors respondent broached to the director, who, as promoter had hired him, the matter of his compensation, and such director replied that he would be paid as soon as the corporation's finances permitted. Although the testimony is equivocal as to whether another director, who had also been a promoter, assented, it may be conceded that he, by silence, acquiesced. Whether the other two directors heard the discussion does not appear but it is clear that they did not either actively or passively agree to adopt the contract. Being himself interested, respondent could not bind the corporation. The testimony, therefore, falls far short of showing any action by a majority of the directors by which it could be said that appellant adopted the contract.

Approximately a year after appellant's incorporation the same promoters caused the incorporation of Mutual Management Corporation which, under contract, managed the affairs of the former. Both corporations had the same directors, shared the same offices and employed respondent as attorney. The latter had his offices in the corporation's building. The relation between the corporations necessarily caused their affairs to be inextricably interwoven. Respondent constantly advised each as to legal matters in which each was interested. The third item in the bill of particulars relates to legal services of such nature. Respondent was unable to particularize specific items of such services since it was made up of numerous instances of legal advice as to problems which daily arose in course of the corporations' business. But, more important, he was unable to segregate such services between the two corporations. It is clear that the evidence does not support the verdict as to such third item.

Appellant admits that the evidence establishes that there is due respondent the sum of $30 for unpaid director's fees and the sum of $25 as balance on his monthly retainer, but it argues that, as these obligations arise from express contracts, they cannot be recovered in assumpsit. Since the contracts have been fully performed by respondent and nothing remains but payment of his fee, he need not declare on the contract but may recover in assumpsit. Castagnino v. Balletta, 82 Cal. 250, 23 P. 127.

It is ordered, therefore, that the judgment be modified by reducing the amount thereof $3,000, and as thus reduced it will stand affirmed. Appellant and respondent will bear their own costs.

GRAY, Justice pro tem.

We concur: KNIGHT, Acting P.J.; CASHIN, J.

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