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District Court of Appeal, Third District, California.


Civ. 7179. 5725.

Decided: December 01, 1945

Norman A. Eisner, of San Francisco, for appellants. F. M. Brack, of Modesto, for respondent.

The plaintiffs, as members of a copartnership, have appealed from a judgment denying their application under Section 1282 of the Code of Civil Procedure, to enforce an agreement to arbitrate alleged controversies growing out of a written contract between the defendant and Pan American Food Corporation for delivery of canned tomato paste and granting defendant's motion to dismiss said proceeding. The appellants claim to own the contract as successors and assignees of the last-mentioned corporation. The contract specifically provides that it is nonassignable.

The verified petition alleges that petitioners are copartners doing business under the name of Pan American Food Company; that the Pan American Food Corporation was organized as a corporation under the laws of New York; that the defendant, Riverside Canning Company, a corporation, of San Joaquin County, California, on August 20, 1942, executed a written contract with Pan American Food Corporation, a copy of which is attached to the petition, marked Exhibit A, to sell and deliver to the corporation tomato paste at specified prices; that the last-mentioned corporation was voluntarily dissolved December 29, 1942, and it transferred all of its assets and property to ‘Victor Trubowitch and T. Kedros as sole stockholders of said corporation’; that the last-mentioned individuals thereupon organized a copartnership which thereafter carried on the business of the corporation; that the defendant failed to make any delivery of tomato paste under the contract; that since the dissolution of the Pan American Food Corporation the defendant recognized the Pan American Food Company as the assignee and owner of the contract; that the contract provides for a submission by the parties thereto to an arbitration in case of any controversy growing out of the agreement; that a controversy exists over defendant's failure to deliver tomato paste as agreed; that on November 12, 1943, the ‘Pan American Food Company, successor and assignee of Pan American Food Corporation,’ demanded in writing that the defendant comply with the arbitration clause of the contract, which was refused. The petition refers by serial exhibit numbers to numerous letters included in the correspondence which ensued between the parties to this proceeding. The inference may be intended that the correspondence is evidence that the defendant recognized the partnership's ownership of the contract and its right to enforce the arbitration provision, but the petition fails to so state.

The defendant answered the petition admitting the incorporation of the Pan American Food Corporation as alleged; that the defendant made no delivery of tomato paste under the contract; that the contract was executed August 29, 1942, and that the correspondence between the parties to this proceeding included the letters attached to the petition, but it denied that they constitute an acknowledgment or recognition of plaintiffs' ownership of the contract or of their right to maintain this action. All the other material allegations of the petition were denied. The answer affirmatively alleges that the defendant has not, and never had, any contract with or obligation to the petitioners to sell or furnish them tomato paste or any other commodity; that no controversy exists between these parties growing out of the contract with Pan American Food Corporation, or otherwise; that the contract with the last-mentioned corporation contains the specific covenant that ‘this contract is not assignable and goods sold hereunder are not to be shipped or diverted to any destination other than that herein specified, without consent of seller.’ Finally it is asserted the defendant never made or agreed to make any shipment of tomato paste to the plaintiffs, or to either of them, under the contract, or otherwise; that plaintiffs have no right or authority to maintain this proceeding, and that it never recognized, by the correspondence attached to the petition, or otherwise, plaintiffs' alleged ownership of the contract or their right to maintain this action. On information and belief the answer alleges that the Pan American Food Corporation neither assigned nor transferred the contract or any of its property or assets to plaintiffs.

The petition was heard by the court sitting without a jury. At the close of the evidence defendants moved to dismiss the action. The cause was submitted October 18, 1944. Three days later the court filed a written order directing ‘the said petition be and the same is hereby denied and the Defendant's motion for dismissal is granted.’ Subsequently the court adopted findings favorable to the defendant in every essential respect. It was determined that Pan American Food Corporation was duly incorporated and that the defendant entered into the contract attached to the petition, with that corporation, on August 20, 1942; that the contract contains an agreement between the parties thereto to arbitrate their differences in the event of a controversy, but specifically covenants that the contract ‘is not assignable’; that the defendant never made any shipment of tomato paste under the contract, nor recognized an obligation to petitioners, under the contract or otherwise, nor consented to the alleged assignment form Pan American Food Corporation to plaintiffs. It is affirmatively found that no actual controversy has arisen or exists between the defendant and the plaintiffs, and that plaintiffs have no interest in the fulfillment of the contract since it was nonassignable. The court further found: ‘For the purpose of ruling upon the petition, and * * * the motion to dismiss, and for these purposes only, the Court further finds that on or about December 29, 1942, said Pan American Food Corporation was voluntarily dissolved, at which time all of the assets of said corporation were transferred to plaintiffs. That said plaintiffs were the sole stockholders of said corporation; that plaintiffs did thereupon form a copartnership under the name of Pan American Food Company.’

Upon those findings, the court rendered judgment January 10, 1945, denying plaintiffs' petition for arbitration and granting defendant's motion to dismiss the proceeding. From that judgment the plaintiffs have appealed.

The respondent contends that the appeal is ineffectual since it was not perfected within sixty days (Sec. 939, C.C.P.) from the rendering of the written decision on October 21, 1944, denying the petition and dismissing the proceeding. The notice of appeal from the judgment, based on subsequent adopted findings, was filed within sixty days from January 10, 1945, upon which date that judgment was rendered. The respondent asserts that since the proceeding presents a mere question of law, findings are not required, Wheeler v. Board of Medical Examiners, 98 Cal.App. 267, 276 P. 1119; lynch v. Watson, 69 Cal.App.2d 51, 158 P.2d 250, and that the first order constitutes the real judgment in this case. We assume that a petition to enforce arbitration under an agreement therefor contained in a contract is a special proceeding and trial of facts which require the adoption of findings. Sec. 1282, C.C.P. Indeed the section last cited contemplates the privilege of the trial of such issues by a jury. We assume the order dated October 21, 1944, may be considered as a mere memorandum of the judge declaring what his decision on the issues would be, and that findings and judgment in accordance therewith were properly thereafter adopted and rendered. We conclude that the appeal from the judgment in this proceeding was taken within the time alleged by law.

The Pan American Food Company, a copartnership, is without authority to maintain this proceeding under Section 1282 of the Code of civil Procedure to enforce an agreement for arbitration between the defendant and Pan American Food Corporation, since the copartnership is an entirely different party and entity from the corporation with which the contract was made, and there is no showing of privity of contract with the copartnership. The contract for purchase of tomato paste was made by the corporaton August 20, 1942. It remained in force only about six months. It contains the specific provision that ‘This contract ends February 28, 1943.’ There was no controversy between the parties to that contract during that six months' period of time. Moreover, the corporation voluntarily dissolved and abandoned its business December 29, 1942, four months after the execution of the contract. During that four-month period, before dissolution of the contract, no shipment of tomato paste was made. The corporation did not complain of that failure to ship tomato paste. Evidently it contemplated abandoning its business. The defendant had a right to assume, after its dissolution, that it did not desire shipments of canned tomato paste, for it did not intend to continue its business.

The right to continue he business of the corporation after its dissolution was limited to ‘the purpose of winding up its affairs.’ Sec. 399, Civil Code. The authority to wind up the business of a corporation is confined to ‘directors or other persons as trustees.’ Sec. 399a. Civil Code. This must be done by resolution of the directors, or by written consent of fifty per cent of the shareholders, and evidenced by the filing of a certificate to that effect with the Secretary of State, and by filing a copy thereof with the clerk of the county in which the office of the corporation is located. Sec. 400, Civil Code. No such procedure was followed in this case. The petitioners in this proceeding do not pretend to be acting as directors or trustees of the corporation. They orgnized a partnership to which, it is alleged, the property of the corporation was assigned. That copartnership is an entirely different entity from that of the corporation, which was the party to the contract. There was no privity of contract extending to the copartnership.

An action for breach of a contract with a corporation, to which a copartnership is not a party, may not ordinarily be maintained by the copartnership or its members, in the absence of a showing that there is a privity of contract between the plaintiff and the defendant. Werlin v. Equitable Surety Co., 227 Mass. 157, 116 N.E. 484; Houston Nat. Exch. Bank v. Osceola Irr. Co., Tex.Civ.App., 261 S.W. 561; Gause v. Pacific Gas & Elec. Co., 60 Cal.App. 360, 212 P. 922; New York Bank Note Co. v. Hamilton Bank Note Eng. and Pr. Co., 180 N.Y. 280, 73 N.E. 48, 52; Dos Pueblos Ranch & Imp. Co. v. Ellis, 8 Cal.2d 617, 67 P.2d 340.

In the Case of Werlin, supra, the plaintiff, Werlin, who was doing business in the name of New Boston Biscuit Company, a corporation, brought suit on a $2,000 bond, executed by the defendant, Equitable Surety Company. The bond was given as security for performance under a contract between the corporation and the Equitable Company, to sell and deliver ice cream cones. The court held that the action on the bond could not be maintained by Werlin as an individual since the contract was made with the corporation, New Boston Biscuit Company. The court said:

‘Plainly this plaintiff could not sue as obligee if the corporation was an existing one. [Citing authorities] * * * In these circumstances it does not appear that there was any contract between the individual plaintiff and the defendant. * * * Indeed it is difficult to see why the plaintiff is not estopped as against this defendant from now claiming that the New Boston Biscuit Company was not an existing corporation. * * *

‘The defendant was liable only to the obligee therein named and not to this individual plaintiff.’

In the Gause case, supra, a judgment in favor of the defendant was affirmed on appeal. That was a suit for damages for breach of contract instituted by W. S. Gause, sublessee of a man by the name of Levisee, who had a written contract with the Pacific Gas & Electric Company to sell and deliver to him water for irrigation of rice land. The contract provided that it was not assignable, except by consent of the company. The court said [60 Cal.App. 360, 212 P. 924]:

‘The obligation undertaken by respondent was to furnish water under certain conditions to said levisee. Plaintiff was not a party to said contract and was not referred to in any manner. * * * We must be guided, therefore, by the intention of the parties as expressed in said written instrument and conclude that said obligation was created in favor of Levisee and him alone, or one in privity with said contract. * * * It is plain that at least his [appellant's] first count reveals no cause of action for the reason that Levisee is the only person who could demand the performance of any duty under said contract. * * *

‘It is not necessary to consider any further the proposition that the duty and obligation arising out of a contract are due only to those with whom or for whom it is made, and that the application of this rule makes it plain that the covenants of respondent were in favor of Levisee and not of plaintiff.’ (Italics added.)

In that case appellant contended that the agreement to furnish water to Levisee was a covenant running with the land, and that the obligation, therefore, extended to his lessee. The court determined otherwise. One of the reasons stated for that conclusion was that the contract prohibited an assignment or a sublease without consent of the company. The land was sublet to the appellant without the consent of the company, contrary to the terms of the contract.

The plaintiff copartnership in this case is an entirely different entity from that of the corporation which executed the contract involved in this proceeding. California Linoleum and Shades Supplies, Inc. v. Schultz, 105 Cal.App. 471, 287 P. 980; Triest & Co. v. Coldstone, 173 Cal. 240, 159 P. 715. There was no privity of contract between the defendant and the copartnership. The copartnership may not be held to be the alter ego of the corporation under the circumstances of this case. No facts are alleged in the petition and no proof was adduced to justify the court in disregarding the undisputed change of identity from a corporation to that of a copartnership. To warrant the assumption that the copartnership is the alter ego of the corporation, it must appear, not only that the copartnership holds all of the stock of the corporation, but also that circumstances exist which require the assumption, in accordance with the general rule, that the recognition of separate entities would result in the sanctioning of fraud or the promotion of injustice. Marr v. Postal Union Life Ins. Co., 40 Cal.App.2d 673, 681, 105 P.2d 649; Erkenbrecher v. Grant, 187 Cal. 7, 11, 200 P. 641, 642. No fraud was alleged or proved. In the Erkenbrecher case, last cited, it is said in that regard: ‘In order to cast aside the legal fiction of distinct corporate existence as distinguished from those who own its capital stock, it is not enough that it is so organized and controlled and its affairs so managed as to make it ‘merely an instrumentality, conduit or adjunct’ of its stockholders, but it must further appear that they are the ‘business conduits and alter ego of one another,’ and that to recognize their separate entities would aid the consummation of a wrong. Divested of the essentials which we have enumerated, the mere circumstance that all the capital stock of a corporation is owned and controlled by one or more persons does not, and should not, destroy its separate existence; were it otherwise, few private corporations could preserve their distinct identity, which would mean the complete destruction of the primary object of their organization.' (Italics added).

In the present case the petition merely alleges that when the corporation was voluntarily dissolved on December 29, 1942, ‘all of the assets of said corporation were transferred and succeeded to by Victor Trubowitch and T. Kedros as sole stockholders,’ and that said stockholders thereafter formed a copartnership and continued ‘to carry on the business theretofore conducted by said corporation.’ The petition does not alleged that the two individuals in fact were the only stockholders of the corporation. Authorization by the directors for them to carry on the business, as required by law, was neither alleged nor proved. Neither the individual stockholders nor the copartnership was authorized to carry on the business in the manner required by statute, or at all. Under such circumstances, according to the authorities last cited, the court would not have been justified in assuming that the copartnership was the alter ego of the corporation or that the plaintiffs were authorized as sole stockholders or otherwise, to carry on the business. In effect, the court determined just the contrary. Certainly plaintiffs were not entitled to maintain this proceeding, based on an alleged breach of contract occurring before the dissolution of the corporation, of which alleged breach the corporation failed to complain during the term of the contract, or during the existence of the corporation, or at all. We conclude that plaintiffs were without legal authority to maintain this proceeding to enforce the agreement for arbitration.

Moreover, the executory provisions of the contract may not be enforced by the petitioners, as assignees of the Pan American Food Corporation, either as individuals or as a copartnership, for the further conclusive reason that the written agreement specifically declares ‘This contract is not assignable.’ The defendant did not consent to the alleged assignment. It is conceded no tomato paste was delivered. This is not a mere suit to recover a debt due to a corporation. It is a proceeding based on alleged unliquidated damages for breach of an unperformed covenant of a contract after its termination. Clearly the intention of the parties to the contract was to prohibit its assignment, at least without the consent of the seller.

Where the contract expressly covenants that it shall be nonassignable, that provision will be enforced by the courts. La Rue v. Groezinger, 84 Cal. 281, 24 P. 42, 43, 18 Am.St.Rep. 179; 3 Cal.Jur. 239, sec. 4; 6 C.J.S., Assignments, § 24b p. 1073; 4 Am.Jur. 238, sec. 12; 76 A.L.R. 1307, note. In the La Rue case, supra, it is said: ‘If the contract itself provides in terms that it is not transferable, it certainly cannot be transferred, although it otherwise might be so.’

In the text of 4 American Jurisprudence, at page 238, supported by numerous authorities, it is said: ‘As a general rule, the parties to a contract may expressly prohibit its assignment, and such stipulation will be recognized and enforced by the courts.’

The seller of canned products has the right to determine, by the provisions of its written contract, the party to whom it is willing to extend its credit.

The questions to be decided upon this petition to enforce the agreement for arbitration under the contract with Pan American Food Corporation involve the ascertainment of the intention of the parties to the contract with relation to the right of assignment, and whether the defendant waived the stipulation against assignment by recognizing the partnership's alleged ownership and right to enforce the terms of the contract, by means of the correspondence or otherswise. Those are problems for the determination of the trial judge, with whose conclusions we may not interfere on appeal since there is substantial evidence to support the findings in that regard. The court determined that the contract was not assignable; that plaintiffs are not and never were owners of the contract or entitled to enforce its terms; that the defendant did not recognize plaintiffs' right to enforce the provisions of that contract since they were not parties thereto, and that no controversy exists between them and the defendant with relation thereto.

From the letters attached to the petition, it appears that plaintiffs, as a copartnership, demanded of the defendant on June 2, 1943, for the first time, long after the termination of the contract and after dissolution of the corporation, the submission of alleged controversies to arbitration. The contract ended February 28, 1943, as specifically provided therein. The corporation had been dissolved more than five months before the demand was made. It is reasonable to assume, as the court found, from the defendant's reply letters, that it did not acknowledge plaintiffs' alleged ownership of the contract or their right to enforce the arbitration provision. Defendant's first letter in reply to plaintiffs' attorney stated that it had not been able to ‘assemble all the facts surrounding this matter.’ It did suggest defendant might be willing to make some ‘allotments' to ‘Pan American Food Corporation.’ Later the defendant stated that after investigation of the facts and consultation with its attorney it had concluded plaintiffs had no standing to complain of an alleged breach of contract with the corporation. That letter reads in part: ‘After a discussion of the facts, we are forced to the conclusion that your client has no cause of action.’ As a matter of compromise of their dispute the defendant even suggested the making of a ‘new contract’ with plaintiffs, which they finally agreed to do. That new contract was, however, not made. It is true that the defendant made certain tentative proposals to ship to the plaintiffs some tomato paste. But we may assume, in support of the findings, that such offers were made with the sole object of avoiding threatened litigation. As evidence that the defendant did not recognize any legal obligation to supply plaintiffs with tomato paste, the defendant wired plaintiffs: ‘We have been trying to ship you tomato paste as per friendly settlement but the government is taking every can of paste we can pack. * * *’ (Italics added.)

From the foregoing message and from the correspondence as a whole it may be inferred that the defendant was attempting to make a ‘friendly settlement’ with plaintiffs to avoid threatened litigation, and that it did not intend thereby to acknowledge any legal obligation to them. Certainly that is the inevitable conclusion enforced by the emphatic statement in defendant's last letter that ‘After a discussion of the facts, we are forced to the conclusion that your client has no cause of action.’ The reason given in the last message for failure to deliver tomato paste was that ‘the government is taking every can of paste we can pack.’ It is common knowledge that the government was then securing all available food products for use of the armed forces in time of war. We conclude that there is adequate proof to support the finding of the court that the defendant did not, by means of the correspondence, or otherwise, acknowledge a legal obligation to plaintiffs.

Since the affidavits included in the transcript are not authenticated as received in evidence and there is no certificate of the judge attached thereto, we are unable to determine what evidence was adduced at the hearing under Section 1282 of the Code of Civil Procedure to enforce the provisions of an arbitration agreement. The transcrip on appeal was prepared upon notice under Section 953a of that code. No bill of exceptions was settled or filed. The transcript contains certain affidavits, but fails to indicate by endorsements or otherwise whether they were offered or read in evidence. The notice to the clerk to prepare the transcript in accordance with Rule 5 of Rules on Appeal fails to request the inclusion of such affidavits. It merely requests the inclusion of ‘the testimony offered or taken, evidence offered or received, and all rulings, instructions, acts or statements of the Court,’ etc. No oral evidence is included in the transcript. The clerk's certificate merely recites that the transcript contains a ‘full, true and correct copy of the original: Affidavit, Affidavit of Service by Mail, Affidavit of Victor Trubowitch,’ etc. Numerous letters are included in the transcript. It does not certify that evidence other than the designated documents was adduced. There is no certificate of the trial judge attached to the record.

In the absence of proper authentication we may not presume that affidavits, which may be included in a transcript, were received in evidence. We must assume, upon the record in this case, in support of the findings and order denying the petition for arbitration, that evidence was adduced adequately supporting the findings and judgment.

It has been frequently held that affidavits are no part of the judgment roll. Bonfilio v. Ganger, 58 Cal.App.2d 315, 136 P.2d 632; Sutliff v. Dempsey, 5 Cal.App.2d 246, 42 P.2d 677; Drummond v. Drummond, 39 Cal.Apop.2d 418, 103 P.2d 217; Wynecoop v. Coats, 51 Cal.App.2d 672, 125 P.2d 609; C.C.P., Sec. 670. The judge of the trial court is the only one authorized to authenticate the documents used upon a hearing before him, either in settling a bill of exceptions r in a transcript prepared under Section 953a of the Code of Civil Procedure. Muzzy v. D. H. McEwen Lumber Co., 154 Cal. 685, 98 P. 1062; Drummond v. Drummond, supra. In the Mezzy case the appeal from an order granting a change of venue which was heard upon affidavits was dismissed for a lack of proper authentication. The transcript contained the complaint, notice of motion and affidavits, certified to by the clerk as ‘full and true copies of original papers on file.’ The certificate further asserted that the affidavits ‘were used upon the hearing of the motion.’ But the court said: ‘That this is not a proper method of authentication may not be doubted. The proper method, of course, is by a bill of exceptions, certified to by the judge. Moreover, waiving the question of the power of the clerk, the authentication is incomplete; for while it states that these papers were used upon the hearing of the motion, it is nowhere made to appear that they were all of the papers. * * * We are not advised by any authentication whether other affidavits were or were not before the trial court.’

The transcript in the present case is similarly defective.

The judgment is affirmed.

THOMPSON, Justice.

ADAMS, P. J., and PEEK, J., concur.

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