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District Court of Appeal, First District, Division 2, California.


Civ. 10023.

Decided: January 27, 1937

Fitzgerald, Abbott & Beardsley, of Oakland, for appellants. Pillsbury, Madison & Sutro, of San Francisco, and Donahue, Hynes & Hamlin, of Oakland (Alfred Sutro, Eugene M. Prince, and Eugene D. Bennett, all of San Francisco, and O. D. Hamlin, Jr., of Oakland, of counsel), for respondent.

A rehearing was granted for the purpose of giving further consideration to the application of the doctrine of the law of the case, and the attention of respective counsel was specially directed to that purpose. They were asked to make clear the variations in the matter of proof occurring in the second trial and the changes in issues, if any, tendered to the jury at the second trial. Additional time was given for oral argument and new briefs were filed after the argument. The respondent has not met the suggestion of the court but has debated new issues and new theories not presented to or tried by the jury. We are confined on this appeal to a determination of the issues tried by the jury and to a consideration of the points of law stated in accordance with rule VIII, section 2, of the Rules for Supreme Court and District Courts of Appeal. In compliance with this rule the appellant stated five questions: (1) Upon proof of the resolution of the executive committee can respondent recover in absence of proof of fraud? (2) Must respondent prove that he was dismissed “with an entirely satisfactory record” in accordance with section 6 of the bonus plan? (3) Is the legal effect of this section the same as if it contained no limitation? (4) Can respondent avoid the effect of his accord and satisfaction merely by his testimony that he failed to read the document? and (5) The questions of errors in admission of evidence and in instructions to the jury. The respondent did not expressly disagree with this statement of questions, but did frame and state as the single question involved the claimed error in the instructions to the jury since the doctrine of the law of the case was controlling. We will confine our examination to the questions thus stated, first directing our discussion to the application of the doctrine of the law of the case.

There is an apparent but no real controversy between the parties as to the application of this doctrine when the question arises in cases involving the sufficiency of the evidence. In the early case of Klauber v. San Diego Street Car Co., 98 Cal. 105, 107, 32 P. 876, the court said: “The ‘law of the case’ is a phrase which has been formulated in this state to give expression to the rule that the final judgment of the highest court upon a question of law arising between the parties to an action on a given state of facts establishes the rights of the parties to that controversy, and is a final determination thereof, and, like a final judgment in any other case, estops the parties thereto from afterwards questioning its correctness. * * * As this rule is, however, applicable only to matters which have been determined by the court, it is only when the same matters that were determined on the first appeal are brought before it on the second appeal that the rule can be invoked; and, being a rule which tends to prevent a judicial consideration of the case, it is not to be extended beyond the exigencies which demand its application, and it is therefore held that whenever, upon the second hearing, the record presents a different state of facts, the former determination ceases to be an estoppel.” In Mattingly v. Pennie, 105 Cal. 514, 517, 39 P. 200, 201, 45 Am.St.Rep. 87, it is said: “It is settled beyond controversy that a decision of this court on appeal, as to a question of fact, does not become the law of the case.”

The language of these cases has been modified from time to time by adding the words “materially different” or “substantially the same,” and these cases, with many others, were reviewed in Estate of Baird, 193 Cal. 225, on page 236, 223 P. 974, 978, where the court said: “The evidence may be different, and yet unless it is substantially different in a material respect, the doctrine of the law of the case applies.” In Hoffman v. Southern Pacific Co., 215 Cal. 454, 457, 11 P.(2d) 387, 388, the court said: “Where there is a substantial difference in the evidence to which the principle of law is applied, or the weight or sufficiency of the evidence is involved, the rule may not be invoked. Allen v. Bryant, 155 Cal. 256, 100 P. 704.” The latest expression of the Supreme Court is found in Erlin v. National Union Fire Ins. Co. (Cal.Sup.) 61 P.(2d) 756, 757, where the precise language herein quoted from Mattingly v. Pennie, supra, is approved and where it was held that, notwithstanding a prior decision on appeal reversing a former judgment and holding that “on the merits, the plaintiff is not entitled to recover,” the parties were entitled to a new trial the same “as if the case had never been tried,” but that the doctrine of the law of the case “must be applied by the trial court to the evidence presented upon the second trial.”

The case of Smellie v. Southern Pacific Co., 128 Cal.App. 567, 18 P.(2d) 97, 19 P. (2d) 982, is more closely in point. On a former appeal the Supreme Court had reversed a judgment of nonsuit, holding that the plaintiff was entitled to invoke the presumption declared by subdivision 4 of section 1963 of the Code of Civil Procedure, viz., “that a person takes ordinary care of his own concerns,” upon the issue of his alleged contributory negligence, and that this presumption could not be treated as having been dispelled by defendant's direct evidence. Smellie v. Southern Pacific Co., 212 Cal. 540, 299 P. 529. On page 552 of 212 Cal., 299 P. 529, 534, of that decision the Supreme Court said: “But, when the rules applicable to nonsuit and directed verdict come into operation, and we have a showing on behalf of the plaintiff of the facts and circumstances of the case and the presumption relied upon, on the one hand, and the evidence offered on behalf of the defendant, the evidence produced by the defendant and favorable to his cause is eliminated from consideration for the purpose of the ruling of the court.” When the case came before the District Court of Appeal after a second trial, the rule of the law of the case was invoked, and that court approved the rule as herein stated, but held that it was not applicable to the issue of contributory negligence because: “We are unable to say that decision was rendered upon substantially the same evidence which was adduced at the second trial.” At page 572 of 128 Cal.App., 18 P. (2d) 97, 98, 19 P.(2d) 982.

Here we find substantial and material evidence which was not heard upon the former trial, and, bearing in mind that the first appeal was from a directed verdict and that, under the rule of the first Smellie Case, “the evidence produced by the defendant and favorable to his cause is eliminated from consideration,” we are compelled to hold that the rule of the law of the case is not applicable here to the main issue of the sufficiency of the evidence to sustain the verdict on the question of the fraud or bad faith of the defendant.

Before analyzing the evidence for this purpose, it is well to advert to the consideration of the character of the evidence upon which the respondent relies. While the plaintiff in the Smellie Cases relied upon the presumption of due care to defeat the direct evidence of his contributory negligence, here the respondent relies upon the inference of fraud and bad faith to defeat the direct evidence to the contrary. Upon the former appeal, the directed verdict was reversed upon this inference alone. It should be noted that there is no presumption available to the respondent. The presumptions are on the side of the appellant, viz., “That a person is innocent of crime or wrong”; “That private transactions have been fair and regular.” Subdivisions 1 and 19 of section 1963 of the Code of Civil Procedure. These presumptions against fraud are equal to the presumption against crime itself. Truett v. Onderdonk, 120 Cal. 581, 53 P. 26. Because of these presumptions, the burden of proving fraud and bad faith was on the respondent, and on the former appeal it was said: “The record contains no direct evidence that in making their finding that plaintiff's discharge was due to dissatisfaction with his services the committee was not acting in good faith. However, plaintiff contends that this might reasonably be inferred, from Sloan's statements and the previously expressed satisfaction with his services by Knudsen and Grant, that there was no dissatisfaction with his work, and that his discharge was the result of his refusal to grant the privileges mentioned to Baldwin.” Coats v. General Motors Corporation, 3 Cal.App.(2d) 340, 349, 39 P.(2d) 838, 842. Following this statement of the contention of respondent on the former appeal, the court found evidence sufficient to justify the inference that respondent's discharge was not due to dissatisfaction with his services, “but to dissatisfaction with his business policy by a member of the committee who sought an advantage for the benefit of his friend. There being evidence tending to show this, the question, other things being equal, would be for the jury.” At page 350 of 3 Cal.App. (2d), 39 P.(2d) 838, 842. This, then is the law of the case so far as this appeal is concerned––that “other things being equal,” and, upon the respondent's evidence alone there was evidence supporting an inference of fraud and bad faith. To meet this issue the appellant on the second trial produced a mass of new evidence, all of which is undisputed and free of any conflict, and all of which demonstrates a state of facts which dissipates any reasonable inference favorable to respondent.

In this connection it is well to refer at this time to the contention of respondent relative to the applicability of such inferences in order that the analysis of the evidence may be more clearly understood. It is argued that fraud and bad faith may be inferred from the second inference that respondent's discharge might have been the result of the Los Angeles situation. Thus respondent grounds his controlling inference upon another inference, and herein we use the term because we are merely stating the argument, but what is called an inference is nothing more than a suspicion or conjecture. The record contains no evidence that the Los Angeles situation entered into the consideration of respondent's discharge. All the competent evidence is to the contrary. Thus the only “fact” upon which these suspicions rest is found in the testimony of respondent that he had had trouble with the Los Angeles dealer and he believed that this might have caused his discharge.

Now an inference is “a deduction which the reason of the jury makes from the facts proved.” Code Civ.Proc. # 1958. Further qualifying the application of an inference, section 1960 provides: “An inference must be founded:

“1. On a fact legally proved; and,

“2. On such a deduction from that fact as is warranted by a consideration of the usual propensities or passions of men, the particular propensities or passions of the person whose act is in question, the course of business, or the course of nature.” There can be no quarrel with this language. A deduction is a conclusion based upon reason and sound judgment. It is not a mere suspicion or conjecture without any foundation. An inference is a deduction which the reason of the jury may make, not a mere guess or an arbitrary dixit without reason and without factual support. But section 1960 declares that it must be founded not only on “a fact legally proved” but also “on such a deduction from that fact as is warranted.” Hence, though the drawing of an inference is always a matter for the jury in the first instance, the question whether that inference is warranted and founded upon “a fact legally proved” is a question of law.

Here there is not in any portion of the record any evidence, direct or indirect, of any fact or circumstance which would support an honest and reasonable inference that the action of Mr. Grant in giving respondent notice of dismissal and the action of the executive committee in approving and affirming that act was predicated on any knowledge of or interest in the Los Angeles situation. There is no competent evidence that any member of the executive committee knew that any difficulty existed in relation to the Los Angeles territory and no competent evidence that Mr. Fisher had any knowledge of any purported controversy between respondent and the Los Angeles dealers, but on the other hand, the only competent evidence touching this situation from any aspect completely disproves and dissipates all the suspicions which respondent has raised in respect to the entire situation. Hence, since there are no facts proved upon which the inference could be based, there is no “reason” supporting the inference and what is therefore called an inference becomes nothing more than a suspicion.

The action is one to recover the value of certain shares of corporate stock claimed to be due the respondent under the terms of a bonus award incident to his employment as Pacific Coast manager of the Chevrolet Motor Company, a subsidiary of the General Motors Corporation. The cause was tried with a jury, and respondent had a verdict for approximately $150,000. The appellant's motions for a new trial and for a directed verdict were both denied, and its appeal from the judgment is based upon a typewritten transcript.

There is very little conflict as to the facts involved. All the competent evidence demanded a verdict and judgment for the appellant. The only conflict is assumed rather than real––a conflict between direct competent evidence and conjectures and suspicions. The verdict rests entirely upon the latter. The respondent was employed in April, 1922, to take charge of Chevrolet sales on the Pacific Coast under the direction of R. H. Grant, the general sales manager for Chevrolet located in the city of Detroit, who in turn was under the direction of W. S. Knudsen, the president and general manager, also located in the city of Detroit. In January, 1927, the respondent was discharged from his employment by Mr. Grant acting under the direction and order of Mr. Knudsen. In February of that year the executive committee of the appellant corporation sitting in New York, eight of the nine members being present, adopted a resolution approving the action of Mr. Knudsen and Mr. Grant in removing the respondent and reciting that this action had been taken because of his unsatisfactory service. The respondent made no protest to this action of the executive committee, but about four years and nine months thereafter commenced this proceeding. On a former trial before a jury the court directed a verdict for the respondent in respect to a portion of the bonus stock referred to therein as “dividend” stock and directed a verdict in favor of the appellant as to the remainder of the stock. Both parties appealed and both orders were reversed. Coats v. General Motors Corp., supra.

The terms of the bonus plan are plain and unambiguous. Paragraph 5 reads in part: “If a beneficiary leaves the service of the Corporation of his own volition, or is dismissed because of unsatisfactory service (of which the Executive Committee shall be the sole judge), that portion of his bonus represented at the time by the debit balance of his account shall revert to the Bonus Fund.” Paragraph 6 reads: “Should a beneficiary be dismissed from the service of the Corporation for no fault of his own with an entirely satisfactory record (of which the Executive Committee shall be the sole judge) he may continue a beneficiary under the Bonus Plan to such an extent as the Executive Committee may determine.” This is the contract of the parties. There can be no quarrel with the language, and no call for “interpretation.” Respondent is suing to recover upon this contract, and to recover he must either prove that he was not dismissed because of unsatisfactory service or he must prove that he was dismissed for no fault of his own “with an entirely satisfactory record.”

The respondent was dismissed by Mr. Grant acting under instructions from his superior on or about January 1, 1927. On February 11th of that year the executive committee, eight of the nine members being present, after a full discussion and after having been fully informed that the respondent had been dismissed because of unsatisfactory service, unanimously adopted the following resolution: “Resolved that in view of the fact that the services of Mr. F. N. Coats were terminated January 1st, 1927, because his work had not been satisfactory to the corporation all bonuses due him be cancelled as of that date.” After the minutes of this meeting, including the quoted resolution, had been written up, all nine members of the committee signed and approved them. At the next meeting of the executive committee, all nine members being present, these minutes were read and unanimously approved by the committee. The authenticity of the resolution and the fact of the termination of respondent's unsatisfactory service therein was established by undisputed proof coming from the secretary, from the testimony of five of the nine members of the committee and by the formal approval evidenced by the signatures of all nine members. There is not a word of evidence casting any doubt on the authenticity of the resolution or the fact of its adoption. In this respect respondent relies entirely upon a suspicion of some kind which he seeks to raise because of the fact that no member of the executive committee phrased the resolution in the exact words in which it appears in the minutes, the secretary having testified that after the discussion and vote of the committee he phrased the resolution in the light of the determination reached by the committee.

The respondent testified that, several months before his discharge, he had a conversation with Mr. Baldwin, who was a Chevrolet dealer in the Los Angeles territory; that Mr. Baldwin had asked for more exclusive sales privileges and had intimated to respondent that Mr. Fisher, a member of the executive committee of General Motors, was a friend of his; that some time later Mr. Baldwin and Mr. Fisher took a pleasure trip to Hawaii, and a claim which Mr. Baldwin had against the corporation was compromised by payment to him of $25,000. From this the respondent suspected that Mr. Baldwin might have said something to Mr. Fisher prejudicial to the respondent, and that Mr. Fisher might have said something to Mr. Knudsen, who in turn might have said something to Mr. Grant which had caused the latter to dismiss the respondent from his service. It is also intimated by respondent that this friendship for Mr. Baldwin might have been used by Mr. Fisher to influence the executive committee in its action approving the dismissal. To this suspicion is added the testimony of the respondent that, when Mr. Grant gave him notice of his dismissal, he told him that he had no fault to find with his work, but that he could not withstand the pressure from those higher up.

Upon the second trial new evidence was received which fully explained this situation and left no fact or proof upon which an inference of fraud or bad faith could be based. On the first trial the respondent rested his case upon the theory that Mr. Grant alone had exclusive authority to hire or discharge him. On the second trial it was shown by undisputed evidence that this was not so, but that such power was in Knudsen alone. When asked to state what he did in reference to the discharge of respondent, Mr. Knudsen testified: “During the two years immediately preceding Mr. Coats' dismissal the sales on the Pacific Coast region were below standard, and Mr. Grant and myself made a trip to the Pacific region examining conditions there, and I came to the conclusion that it was essential for the best interests of Chevrolet that there be a change in regional manager, but I left it to Mr. Grant, who was the sales manager of Chevrolet, to determine when this change should be made.” He also testified that neither Mr. Fisher nor Mr. Baldwin said anything to him about a possible dismissal of respondent or communicated with him in reference thereto, but that “the reason for Mr. Coats' dismissal was that we were convinced that the unsatisfactory conditions prevailing in the Pacific Coast region, of which Mr. Coats was regional manager, would not be corrected while Mr. Coats continued as regional manager, and that it was essential for the best interests of Chevrolet to have the change, and I felt that the unsatisfactory conditions prevailing there were primarily the fault of Mr. Coats.” And again that: “Early in 1925 I felt something was wrong in the Pacific Coast region. This was reflected in the sales of Chevrolet products, and from then on Mr. Grant and I discussed this problem at irregular intervals. In a position as important as that of regional manager, the results obtained are the final test of whether the employee's services are satisfactory or not. Generally, though, I felt that Coats did not produce results, could not get dealer cooperation, there was a growing antagonism against him among the dealers and that his method of operation was not in accordance with Chevrolet practices.” The same witness also testified that, before the meeting of the executive committee on February 11, 1927, he notified Mr. Sloan, as president of General Motors, that he had discharged the respondent and gave as the reason unsatisfactory services as stated above.

On the second trial Mr. Grant testified that during the year of 1926 he frequently discussed the possibility of the dismissal of respondent with Mr. Knudsen and with Mr. Sloan; that during that time he sent his assistant, Mr. Klinger, to the Pacific Coast to investigate the record of respondent “particularly in connection with the subject of dealer relationship”; that he later sent Mr. Leach, the field representative of Mr. Sloan, to make a similar investigation; that he and Mr. Knudsen made a similar trip to the coast for the same purpose. This witness further testified to a very friendly feeling and interest toward the respondent and to his efforts to help him adjust his claim for the bonus and to aid him in securing other employment. He denied having any communication with Mr. Fisher in reference to the dismissal, or any knowledge of any friendly relations between Mr. Fisher and Mr. Baldwin, or of any unfriendly relations between Mr. Baldwin and the respondent. He had been told by his superiors that the respondent must be dismissed, but it was left to him to make the determination as to when this would be effected. He explained that the “pressure” to which respondent referred was “pressure” from Mr. Sloan and Mr. Knudsen, his immediate superiors.

There was also received in evidence a letter dated November 26, 1926, from John J. Raskob addressed to Mr. Sloan which reads as follows:

“A. P. Sloan, Jr., President

“The enclosed statement of Pacific Coast Registrations would indicate that Chevrolet is not occupying a proper position with respect to Ford and Buick.

“Why is it that Grant insists on keeping F. N. Coats in his employ when it is the judgment of some of our best executives that this man is thoroughly incompetent for such an important General Motors position?

“While I thoroughly believe in the rule of interfering to the least extent possible in interorganization matters, we must appreciate that they are exceptions to all rules, and I think here is an instance where a majority of the members of the Executive Committee would be willing to take full responsibility for letting this man go.

“I should like to talk with you about this.

“J. J. Raskob.”

To this Mr. Sloan replied on December 8, 1926, as follows:

“To Mr. J. J. Raskob

“From Mr. A. P. Sloan, Jr.

“Your memorandum regarding Pacific Coast Registration of the Chevrolet Division, has been received. I have not said anything to you about this matter because I did not think of it when I talked with you, but I have been following the matter up. Mr. Grant and Mr. Knudsen have been watching the situation very closely––Mr. Grant, of course, particularly.

“The party in question has been very much on the defensive in the minds of the Chevrolet Division for some time past. Last summer Mr. Grant and Mr. Knudsen went over the whole situation when they were out there and investigated the case from beginning to end. Two or three months ago Mr. Grant sent his most capable assistant––a man in whom he has the utmost confidence, out there to study the situation. That man was there for two months and recently returned. He traveled the territory intimately from San Diego to Seattle; talked with dealers and got the best kind of picture he possibly could. Mr. Grant told him to consider the matter with an open mind and believes that he did so.

“In addition to this, Mr. Grant has put under the party in question in Oakland, one of the best men he has dealing with car distribution which was a weakness which was found to exist. He has also put a man in Southern California to deal particularly with the Los Angeles situation. He feels that the head man has certain qualifications that are very valuable and others that are somewhat negative, but that is always the case. He appears to be extremely anxious to do the right thing by all concerned and is in touch with all the details and watching it very closely. He states that the Coast is the most highly developed and intensively competitive situation that exists and that it must be considered somewhat differently from the rest of the country for that reason.

“To sum up the situation, while I know we all agree in general, it is a question whether we would feel that we knew the details enough to over–rule Mr. Knudsen's and Mr. Grant's judgment, especially after we are advised that they are giving the matter a great deal of study and thought and are watching the picture most intimately and have done many things in the past four or five months that should change the picture and, as a matter of fact, Mr. Grant says the recent figures have materially improved and shown additional strength that they have thrown into the territory.

“I am inclined to think we should ride along with it and follow it up from time to time and not do anything drastic which I feel sure will be disquieting to Mr. Grant and Mr. Knudsen and hardly fair in view of what they are accomplishing in the picture as a whole.

“Alfred P. Sloan, Jr. B”

Upon receipt of this letter Mr. Raskob noted in lead pencil writing, addressed to the last paragraph of the letter the following: “In view of this investigation & its results, I think you are absolutely right and I agree. J. J. Raskob.”

These communications were written before the discharge of respondent and nearly five years before this suit was commenced. Their weight as evidence of some “dissatisfaction” cannot be discounted. To say that the jury did not have to believe them when they are not controverted by a single word of testimony is to take from the jury its power as “trier” of the facts and give to it a power not known to the law.

Five of the eight members of the executive committee who participated in the meeting of February 11, 1927, testified on the second trial that the matter of a controversy between respondent and Mr. Baldwin was unknown to them when they voted for the resolution; that the interest of Mr. Fisher in Mr. Baldwin was not known to the others or discussed by them; and that they voted for the resolution solely because it was then reported to them in open meeting that the respondent had been dismissed because his services were unsatisfactory.

This evidence brought out on the second trial is materially different from that before the appellate court on the former hearing. At that time the motives of the executive committee were the issue and the court treated the case as one in which that committee had the power to dismiss and that the good faith of the members of the committee alone was the determining factor. On the second trial it was shown that this power laid with Knudsen and that the committee could determine the question of whether the employee should or should not receive further bonus payments. All the evidence now before us shows that the executive committee did not pass on the question of the fitness or unfitness of respondent in the first instance, but that, having been notified that respondent had been discharged for unsatisfactory services by the executives of the Chevrolet Company, the committee merely approved this action and thereupon cancelled the bonus.

For this reason, the issue is radically different from that heard on the former appeal. If the executive committee had the power to hire and discharge, its motives, or good faith, might have made the issue to be determined. But, since the committee merely determined the fact in accordance with the established truth that respondent had been discharged for unsatisfactory services, the motives, or good faith, of the committee in canceling the bonus upon that ground is the issue. To determine this issue the jury had nothing but the undisputed evidence herein recited of the expressed dissatisfaction of Mr. Sloan, Mr. Raskob, and Mr. Knudsen, the report to the committee that respondent had been discharged because his services were unsatisfactory, and the testimony of the members of the executive committee that that was the only reason given or considered in reference to its action. In the face of this undisputed testimony, there is no room for an inference that the committee acted fraudulently or in bad faith.

But it is argued that Mr. Fisher might have had some motive other than an honest dissatisfaction with respondent's service. But, if Mr. Fisher believed that an exclusive agency in the Los Angeles territory would be beneficial to the corporation, the fact that he might have favored a personal friend for that agency does not justify the inference that he acted fraudulently or in bad faith. On the other hand, this fact so much stressed by the respondent does show that Mr. Fisher was not satisfied with the respondent's “business policy,” and if this is not a dissatisfaction with his services we fail to understand the term. Mr. Fisher may have been dissatisfied with respondent's conduct in so far as it related to the affairs in the Los Angeles territory, and may have believed that his dismissal was for the best interest of the corporation, but, if he had persuaded all the other members of the committee to vote his way (the undisputed evidence is to the contrary), there is still nothing left even for an inference that they did so fraudulently or in bad faith. On the first trial respondent relied alone upon his testimony that he had had trouble with Mr. Baldwin because the latter asked for an exclusive dealership in the Los Angeles territory, or that the number of dealers be decreased, and upon the testimony that Mr. Baldwin was a personal friend of Mr. Fisher. It was shown at the second trial that, following respondent's discharge, no additional privileges were given to Mr. Baldwin, that no request was made of Mr. Knudsen or Mr. Grant to give Mr. Baldwin exclusive or any additional privileges before or after the discharge, and that during the period of more than four years during which respondent made no protest over his discharge, the number of Chevrolet dealers in the Los Angeles territory was subtantially increased. It is incredible that if Mr. Fisher had the ulterior motive of seeking an advantage for his friend, as was charged by the respondent, he would not have made some effort in that direction after the dismissal, and that some one in the organization would not have learned of that purpose.

But respondent refers to another piece of evidence that was referred to in the former opinion, but not held to be sufficient to support this inference, and that is the so–called “personal” letters commending his work. Near the close of the years 1923, 1924, 1925 and 1926, respondent received from the president of General Motors and also from the president of General Motors and also from the president of Chervolet a letter notifying him of his bonus award and congratulating him on his good fortune in being able to participate in the success of the company as a whole. To Mr. Sloan's letter of December 7, 1926, Mr. Knudsen, as president of the Chevrolet Company, added his appreciation and wishes for a Merry Christmas. On the former trial these letters were offered and referred to as “personal” and “commendatory” and, when counsel for appellant suggested that they might be “form” letters, counsel for respondent assigned the statement as misconduct and “highly prejudicial.” On the second trial undisputed evidence was given that they were all “form” letters which were sent in exactly the same form and substance (except as to name, address, and number of shares) to each of the bonus beneficiaries at the Christmas season, and that these letters varied in number from 550 to 1513 annually over this period of years. On the former appeal the resondent laid great stress upon these “commendatory” and “appreciative” letters which he had put in evidence, and argued that from them alone the jury might have drawn the inference that the executive committee had acted fraudulently and in bad faith. The proof on the second trial that these were mere “form” letters makes a different case. Since each beneficiary was entitled to his bonus until the executive committee by resolution canceled the award, there was no power in the president of either company to suspend or withhold the award no matter what his personal views might have been as to the merits of any particular beneficiary. The letters do not show “satisfaction” with his services, but they are more in the nature of a plea for full co–operation with the organization to secure better results.

The second point raised by appellant relates to the absence of proof that respondent was not dismissed “for no fault of his own with an entirely satisfactory record” as required by section 6 of the bonus plan. This is the contract of the parties, and the burden of proof is on respondent. Since the employer is made the sole judge by the terms of the contract, it is not sufficient to prove that he acted unreasonably, and the reasonableness of his decision is not a question for the jury. This burden is not met by proof that at some prior time some superior officer was satisfied with respondent's services, that at some prior time his services were in part satisfactory, or that some executive became dissatisfied because of personal reasons. The letter of Mr. Raskob addressed to Mr. Sloan on November 26, 1926, discloses that respondent's services were not satisfactory to the writer at least, and that others shared that opinion. He said in part, “The enclosed statement of Pacific Coast Registrations would indicate that Chevrolet is not occupying a proper position with respect to Ford and Buick. Why is it that Grant insists on keeping F. N. Coats in his employ when it is the judgment of some of our best executives that this man is thoroughly incompetent for such an important General Motors position?” Mr. Sloan's reply of December 8, 1926, states: “The party in question (respondent) has been very much on the defensive in the minds of the Chevrolet Division for some time past. * * * To sum up the situation, while I know we all agree in general, it is a question whether we would feel that we knew the details enough to over–rule Mr. Knudsen's and Mr. Grant's judgment” pending the investigation which they had been making during the past four or five months. The respondent testified that he knew of these investigations, and that he knew of some dissatisfaction, particularly in reference to Mr. Fisher and the Los Angeles situation. It was thus shown without the slightest conflict that, in the minds of three members of the executive committee at least, respondent had not left with “an entirely satisfactory record.” If any other member of the committee believed otherwise, it was for respondent to prove it, not for the appellant to prove the negative. Upon this ground, irrespective of any other raised, the judgment must be reversed.

Upon these two issues we hold that the evidence is insufficient to sustain the verdict and, if the case depended upon them alone, we would be inclined to order a new trial. But we pass to a consideration of the “settlement receipt.”

On the former appeal it was held that the question of the effect of the settlement receipt was one for the jury under the evidence introduced at the former trial. Though we may not agree with this conclusion, it is nevertheless the law of the case upon the evidence then heard. To meet this situation, the appellant points to new and substantial evidence heard on the second trial which it contends removes the question from the rule of the law of the case. The settlement receipt executed by respondent on March 30, 1927, reads in part: receipts acknowledged “settlement of bonus credits accrued to December 31 ––,” the last receipt acknowledged “full settlement of bonus awards”. Hence, though the former receipts were in settlement of “bonus credits” accrued to a fixed date, the last was a “full” settlement of “bonus awards.”


The undersigned beneficiary, having examined the above statement, hereby acknowledges the receipt from the bonus custodian of General Motors Corporation of the following securities or cash (or both) in full settlement of bonus awards:

(sign here) Fred N. Coats

It should be noted that the portion of the receipt quoted above (as well as that which we have omitted) discloses that it was intended as a full statement of account covering the awards earned and the deliveries made from 1919 to December 31, 1926. Though the respondent testified that he did not read this receipt before signing it because it was exactly the same as many others he had signed in former years, photostatic copies of these former receipts which were received in evidence, and which were acknowledged to be correct by respondent and to have been signed by him, show that not one was like the receipt of March 17, 1927. It also appeared that where these former receipts acknowledged “settlement of bonus credits accrued to December 31 –––,” the last receipt acknowledged “full settlement of bonus awards.” Hence, though the former receipts were in settlement of “bonus credits” accrued to a fixed date, the last was a “full” settlement of “bonus awards.”

These former receipts read, in black–face capital letters, “Bonus Stock Delivery Receipt” or “Delivery Receipt––Bonus Beneficiary,” and in smaller type, “covering accrued part of bonus awards for the year –––.” That of March 17, 1927, read, in black–face capital letters, “Settlement Receipt––Bonus Beneficiary.” In all cases this printing appeared at the top of the paper in bold and clearly readable type. This receipt was sent to a bank in Oakland, Cal., with a check for $41.88 drawn in respondent's favor. It was preceded by a personal letter to respondent from an officer of the corporation notifying him that the documents were mailed and asking him to call at the bank. It was preceded by a personalletter from Mr. Knudsen to respondent notifying him that his bonus account “will be closed * * * as of January 1, 1927, and bonus adjustment made accordingly.” It was preceded by a letter from Mr. Grant notifying respondent that he would not be able to secure an adjustment of his bonus claim beyond the date of his discharge. It was also shown that the respondent had been in correspondence with Mr. Grant and other officials seeking employment in a new position.

The appellant thus states its position in reference to this settlement receipt: “This document was signed and delivered by the respondent three months after his dismissal, and four years and nine months before he began this action. And a triplicate original, containing an itemized bonus account and showing the final closing out of that account upon the payment to him of $41.88, was delivered to and retained by him throughout that period of four years and nine months without objection.”

“There is no claim made that there was any fraud connected with this final settlement, or that anyone imposed upon or took advantage of the respondent, or that he was illiterate, or unversed in business. It is admitted that he was a trained and experienced executive, who had been drawing $21,000 per year (besides liberal bonuses) for services as the executive head of a large business organization operating extensively throughout a half dozen or more states, and that he was fully familiar with such business transactions as that evidenced by this final settlement.”

To avoid the legal effect of this document the respondent merely says that he did not read it––not that he misunderstood it, or that any one prevented him from reading it or suggested that he should not read it. His evidence is that he called at the bank, was identified, was handed the receipt and the check, signed the receipt, and took with him the check and a triplicate copy of the receipt which he kept in his possession for four years and nine months without reading.

On the former appeal the question was held to be one for the jury upon respondent's testimony that he “thought” that the document was merely a receipt for the check of $41.88, that he “intended” it for that purpose, and that he did not “understand” it to be anything more. At that trial this testimony was received without objection. On the second trial objection to its competency was made and overruled. The competency of this testimony has not heretofore been determined––the court on the former appeal merely said that evidence was admissible “in explanation or qualification of the writing.” But the court meant competent evidence.

The incompetency of this particular testimony cannot be disputed in view of the recent case of Brant v. California Dairies, 4 Cal.(2d) 128, 133, 48 P.(2d) 13. When that case first went to the District Court of Appeal, that court affirmed the judgment on the ground that since each party to the contract adopted different possible constructions thereof, there was a conflict of evidence upon which the finding of the trial court was conclusive. After transfer to the Supreme Court, the latter reversed the judgment holding that plaintiff's testimony of his undisclosed intention and interpretation of the contract was inadmissible and hence, there was no conflict. On page 133 of 4 Cal.(2d), 48 P.(2d) 13, 16, in the latter opinion the Supreme Court said: “But it is now a settled principle of the law of contract that the undisclosed intentions of the parties are, in the absence of mistake, fraud, etc., immaterial; and that the outward manifestation or expression of assent is controlling. This is the ‘objective’ standard, established by the modern decisions and approved by authoritative writers. See Zurich Gen. Acc., etc., Co. v. Industrial Acc. Com., 132 Cal.App. 101, 22 P.(2d) 572; McConnell v. Lamontagne, 82 N.H. 423, 134 A. 718; 1 Williston, Contracts, § 21, p. 21; 4 Wigmore, Evidence (2d Ed.) p. 191; Restatement, Contracts, § 71. * * * As the court said in Payne v. Commercial National Bank, 177 Cal. 68, 72, 169 P. 1007, 1008, L.R.A.1918C, 328: ‘No authority sustains the proposition that under the guise of construction or explanation a meaning can be given to the instrument which is not to be found in the instrument itself, but is based entirely upon direct evidence of intention independent of the instrument.’ See, also, to the same effect, Barnhart Aircraft, Inc. v. Preston, 212 Cal. 19, 297 P.20; Fraters G. & P. Co. v. Southwestern Construction Co., 200 Cal. 688, 254 P. 1097.”

As it was in the Brant Case, so here, there was no evidence of fraud, mistake, oppression, or uncertainty in the terms of the writing. It expressly declares that it is “in full settlement of bonus awards.” There is nothing in the language of the writing which makes it uncertain or ambiguous, and hence nothing calling for an interpretation by the court, or for the application of the rule of section 1654 of the Civil Code requiring a construction most strongly against the party preparing the document. Respondent answers that there might have been some misunderstanding because he was thinking only of the bonus stock due him at the date of the instrument. But, from the filing of his complaint down to the last brief he has contended that the stock sued for was due him at the time of his discharge, though deliveries were to be made thereafter in quarterly instalments. It is the rule that demands subsequently maturing are not discharged “unless expressly embraced therein or falling within the fair import of the terms employed.” 53 Cor.Jur. pp. 1269, 1270. Respondent testified that, before he signed the receipt he had the letter from Mr. Knudsen advising him that his bonus account would be closed as of January 1, 1927, “and bonus adjustments made accordingly”; that, before he signed the receipt, he knew that the executive committee had ordered his account closed, and that appellant intended “to terminate the entire bonus account”; and that, before he signed the receipt, he had a letter from appellant stating that the check for $41.88 was sent “covering final Bonus settlement on behalf of Fred N. Coats.” He thus went to the bank with full knowledge of the intention of appellant and he executed the receipt in contemplation of the purpose and intention of the appellant. This necessitates an interpretation of the document in the manner expressly outlined in section 1649 of the Civil Code: “In the sense in which the promisor believed, at the time of making it, that the promisee understood it.” Here, upon respondent's own testimony, he understood at the time he signed the receipt, and long before that time, that the appellant (promisee) intended to close out his bonus account entirely, and was expressly notified by letter to call at the bank and sign a receipt which would effect a “final bonus settlement”; that he knew that the appellant was “planning to terminate the entire bonus account,” and “regarded the bonus account as * * * subject to be closed forthwith,” and that it understood that his “participation in the bonus award * * * was at an end.” Reverting to the question of the law of the case––the former opinion merely considered the respondent's testimony of his intention; there was no evidence that this was not disclosed to the appellant. The evidence on the second trial that this was not disclosed presents a case so radically different from the former that there is no room for application of the law of the case rule. The controlling rule is that, in the absence of some relation of especial trust or confidence where the means of knowledge are open equally to both parties, one who executes an instrument of this kind cannot avoid it upon the ground that he voluntarily failed to read it. 6 Cal.Jur. p. 84; Hawkins v. Hawkins, 50 Cal.558.

In his petition for rehearing in this court the respondent, for the first time urged that a distinction should be made between the bonus stock and the so–called “dividend stock.” The appellant listed the points involved in this appeal treating the issues as involving a single claim for approximately $150,000, the value, with interest, of “bonus” stock. The respondent did not controvert this statement of the questions involved, but in both brief and oral argument treated the issue as one involving “bonus” stock alone. In his complaint upon which the cause was tried, upon the former appeal, and by a uniform course of conduct, the respondent has made no distinction between the dividend and other bonus stock. No distinction was made in that respect in the former opinion, and the trial court accordingly instructed the jury of the second trial that “there is no distinction between the so–called dividend and bonus stock, but the plaintiff's rights to either are governed by the same rules.” The evidence upon the second trial disclosed that appellant so construed the bonus plan with reference to the dividend stock that it withheld that stock and treated it the same as the bonus stock, and that respondent, with full knowledge of this construction, acquiesced in it. If there were any uncertainty in the contract in respect to this dividend stock, it was the function of the trial court to interpret it in the first instance. The respondent has not shown any error and has not properly raised the point for decision.

Our conclusions on the matter of the settlement receipt require a reversal of the judgment with directions to enter a judgment for the appellant as requested in the motion for a directed verdict. The respondent admitted the execution of this paper free from fraud, mistake, oppression, or influence; that he voluntarily failed to read it, though given full opportunity to do so; and that he had prior knowledge that the appellant intended it to be a full and final settlement of their account. The evidence of his secret intention or interpretation, undisclosed to any representative of the appellant, being incompetent and immaterial evidence, was no evidence “in explanation or qualification” of the writing.

The judgment is reversed with directions to enter a judgment in favor of appellant that respondent take nothing.

NOURSE, Presiding Judge.