WILKE v. CROFTON

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

WILKE v. CROFTON.

Civ. 16489.

Decided: March 04, 1949

Wood, Crump, Rogers, Arndt & Evans and Guy Richards Crump, all of Los Angeles, for defendant and appellant. David L. Sefman and Clifford Thoms, both of Los Angeles, and Robert P. Dockeray, of Burbank, for plaintiff and cross-appellant.

The action herein was for breach of contract, an accounting, and “A declaration that plaintiff is entitled to receive his agreed proportionate interest in the future profits of said Tijuana Hippodrome Company”. The second amended complaint alleged that in 1940 plaintiff Wilke was requested “to devise ways and means of securing for said (Arguello) heirs physical possession” of the Mexican property known as “Gijuana Ranch” on which were located a horse race track, bull fighting ring and other concessions; that plaintiff conferred with defendant Crofton in reference to securing and operating said property at a profit.

On August 22, 1942, a “Preliminary Option and Lease Contract” was executed by plaintiff and the Arguello heirs, which contract was then assigned to defendant Crofton, named as “Financier”. By letter Crofton then agreed “to cause to be issued and delivered to you (Wilke) fifteen per cent (15%) of all the authorized, issued and outstanding capital stock of any corporation or company that is organized for the purpose of operating the property”. This agreement also provided that should Crofton “operate said properties prior to the time of the incorporation of the operating company that I (Crofton) will pay you (Wilke) monthly a sum equal to fifteen per cent (15%) of the net operating profit after the deduction of the rentals of twenty-five per cent (25%) specified in said lease contract”. Wilke was also to be elected an officer of the corporation or company. A written “Ratification of and Supplement to Lease Contract” was signed by Wilke, Crofton and the Arguello heirs on October 9, 1942.

The complaint alleges that Crofton “did contact certain persons of influence” in Mexico, ultimately secured delivery of possession of the race track property to the Arguello heirs, and made plans to operate the same. It is then charged that Crofton fraudulently set about to deprive Wilke of any interest in the profits, and to this end secured a new lease from the heirs eliminating the plaintiff therefrom; that Crofton caused a trusted employee named Silveyra to organize a Mexican corporation known as “Tijuana Hippodrome Company”, from which company plaintiff was likewise eliminated, and that Silveyra then proceeded to operate the race track as a dummy in Crofton's behalf. The name of Crofton does not appear as a stockholder nor was any stock issued to plaintiff Wilke. Silveyra, however, is alleged to have held a large block of capital stock for Crofton's sole benefit. For the purpose of defeating Wilke's 15% contract interest, according to the complaint, it was made to appear that “the said Crofton, had lost all rights and interests in and to the properties”. The Hippodrome Company is alleged to have earned net profits of $1,500,000.00 per year, and would earn such an amount per annum for the balance of the ten-year lease term. Plaintiff received nothing, and the present action resulted.

The answer denied all material allegations except the execution of the various documents; alleged that Crofton had acquired no stock in the corporation, owned no interest therein and had been completely eliminated from participation in the profits; that defendant had expended “time, effort, and the sum of $70,557.09 in cash in an endeavor to obtain for the Arguello heirs a decision from the Supreme Court of Mexico” etc., which decision had finally been obtained. A counterclaim by Crofton charged fraud on the part of the plaintiff Wilke in inducing execution of the various contracts.

A trial of the issues resulted in findings of fact in favor of the plaintiff on all material issues, and judgment was rendered against the defendant James N. Crofton in the sum of $9,750.00. The defendant has appealed from the judgment, and there is a cross-appeal by the plaintiff from the alleged inadequate award of damages.

The defendant's brief is largely devoted to a resume of the evidence which it is contended does not support the findings; defendant argues that “There is, in fact, nothing but surmise and suspicion” to support the judgment in plaintiff's favor. Crofton's brief also avers that performance of the contract with Wilke was excused on the theory of impossibility of performance, non-existence of the subject matter, and “frustration”; that “Fortuitous destruction of the value of performance wholly outside the contemplation of the parties may excuse a promisor”, and should so operate in this case.

As noted in plaintiff Wilke's brief, “At no point in appellant's (Crofton's) brief has he raised any question of the improper introduction of evidence, or any question of law other than that of sufficiency of the evidence to support the findings”. This being so, plaintiff argues that since the record discloses competent evidence to support the findings, the appellate court is bound to uphold the judgment. However, as cross-appellant, plaintiff insists that the damages awarded by the trial court are grossly inadequate, and that the appellate court should increase the amount without ordering a new trial.

Appellant Crofton's briefs do not question the established rule that “where there is substantial evidence to sustain a finding, conflicting evidence will not be considered”. Indeed, this appellant states: “We do not quote extensively from the testimony of other witnesses, * because to the extent that their testimony corroborates the testimony of the plaintiff, the testimony of the plaintiff is sufficient, in and of itself, to support a finding of fact; and where witnesses for the defendant have contradicted plaintiff, we must likewise, for the purposes of this appeal, assume that the (trial) Court believed the testimony, if any, which tends to support the findings”. It is contended, however, that in twenty-two instances “there is NO evidence to support a given finding”.

As a matter of fact, as respondent states, “Crofton in his opening brief has set forth sufficient evidence to support these Findings”. There is, for example, testimony to the effect that between October, 1942 and May, 1943, Crofton had some ten or twelve conferences with Wilke, reporting progress in the Mexican transactions and contacts with various important personages such as General Quebado, Rafael Comacho, a brother of the President of Mexico, and Secretary Alaman who at the time of the trial had become the Mexican President.

In May of 1943, plaintiff Wilke went to Florida, remaining there for one year. On July 5, 1943, Crofton wrote Wilke stating that “the contract we received was illegal”, that Crofton “had nothing. Therefore I had my lawyer write a new contract”. This letter further states: “I have had to go another route to protect myself”, and that “I have talked to my pardners about you * They are willing that you be recognized but it will be a little different from what we first started”. Crofton therein claims that “They are taking 50% of the deal so if you take 15% and man in Mexico 5% more I will end with 30% for myself which is not fair to me, * They are so strong we must do as they say or else.” and reiterates that Wilke must accept less than the 15% interest specified in the contract.

During 1944 it appears that Crofton continued to press Wilke to reduce the latter's contract interest. According to Wilke's testimony as summarized in appellant's brief, during a conversation in July, 1944, “Defendant (Crofton) further said he had waited long enough for plaintiff to take a reduction and that ‘they’ didn't propose letting him have the 15% * plaintiff had to take the reduction whether he liked it or not”. Plaintiff testified that Crofton telephoned “he had obtained a lease from the Arguello heirs made directly to him and that plaintiff was eliminated; that unless plaintiff agreed to the reduction he was out, going to be out”. There were other similar conversations.

When Wilke suggested being present at the time possession of the race track was delivered, Crofton said: “No, we don't want anybody there * but Silveyra, who has been named as custodian and trustee for these heirs, and Mr. Maldonado who has the order for the physical delivery.” In regard to Silveyra, Crofton said: “He is my boy”; and “he represents me when I am not there as my employee”. Somewhat later Crofton “revealed to us why he would like Mr. Silveyra to take over possession for him because he didn't want his (Crofton's) name to appear”.

Plaintiff testified that in December, 1944, Crofton offered “me my last chance and opportunity to agree to a reduction *. He said, ‘I now have possession of the race track. * It is all in our hands, and unless you agree to it right now * Why, you are out, you are through’ ”. Complaining that “This is pretty rough treatment” but that “I don't think I have any alternative”, plaintiff then signed an agreement to reduce the percentage from 15% to 5%.

The race track and concessions opened on January 1, 1945, and according to plaintiff's testimony, Crofton informed Wilke that the temporary racing permit had been issued in Silveyra's name, and that Ernie Crofton, defendant's brother, was keeping defendant posted on the operation of the track and was looking out for defendant's interest. In Wilke's presence, defendant said to Silveyra and Ernie Crofton: “I have got an expense account here and I want to turn it in to you for you to get me a check and don't make me wait too long for it”. Defendant and Silveyra had adjoining boxes at the race track, and according to defendant's brief, “Silveyra (was) going from place to place, supervising”, and “brother Ernie (was) doing what he could to help”.

At other conversations, defendant Crofton informed Wilke that there had been some “difficulty” with Silveyra about the issuance of stock, that the latter “was kind of running him around a little bit”, but that Wilke need not worry as Crofton would “straighten that out”. When Wilke told Silveyra that “he wanted his interests recognized”, Silveyra replied: “Your dealings are with Mr. Crofton, not with me.” The final conversation between plaintiff and defendant ended in a brawl; Wilke never received any stock or other interest, and Crofton disclaimed any liability. There is other evidence which corroborates plaintiff's contention.

That there is substantial evidence in the record to support findings in favor of the plaintiff Wilke cannot well be doubted. This is true in respect to the matter of Silveyra's agency and representation of Crofton in the operation of the race track, and likewise in respect to Crofton's efforts to exclude Wilke from participation in the profits of the venture. The trial court did not accept appellant's version of the transaction, and in the state of the record, it would be manifestly improper for an appellate tribunal to interfere with the decision. Appellant's argument that performance of the contract is excused on the theory of impossibility, non-existence of the subject matter, “frustration”, and the like, is not persuasive. Appellant's other contentions are likewise without merit.

Plaintiff's cross-appeal attacks, as wholly inadequate, the trial court's award of $9,750.00. In this connection it is pointed out that other findings were to the effect that “plaintiff was and is entitled to one-third (1/313) of defendant's twenty-one (21%) percent interest in said corporation Hippodromo de Tijuana and in the assets thereof and the profits therefrom”. The trial court further found, in the language of Crofton's counterclaim, “that the reasonable value of the right, title and interest of defendant in and to said premises, as lessee under the terms of said lease-contract and said assignment, was and still is not less than the sum of Five Hundred Thousand ($500,000.00) Dollars, and in truth and in fact is greatly in excess of” such sum.

Cross-appellant's argument is that if, as found by the trial court, “plaintiff was and is entitled to one-third (1/313) ” of the defendant's interest, which interest was found to be not less than $500,000.00, then a judgment in favor of plaintiff should logically be for a sum not less than one-third of $500,000.00, or $166,666.66. That such argument has merit, cannot be doubted. The record, indeed, furnishes no apparent basis for the trial court's award of $9,750.00 which is obviously inconsistent with the other findings mentioned.

As justifying a judgment in excess of the trial court's finding, cross-appellant's brief has suggested three separate formulae based upon a consideration of the evidence. The first of these, computed upon Wilke's evaluation of the race track leasehold for a period of ten years, would determine plaintiff's interest as amounting to $1,050,000.00. Cross-appellant's second theory, based upon statements by defendant's brother as to the net profit derived from the race track, would make Wilke's one-third interest amount to $2,420,600.00. A third suggested formula, predicated upon certain daily reports for ten racing days, would result in a sum of $925,727.43 as representing the value of plaintiff's interest.

That ordinarily a trial court is better equipped than an appellate court to determine the amount of damages, goes without saying. The power of an appellate court to modify a judgment without ordering a new trial, under the provisions of Article VI, Section 4 3/434 of the California Constitution, and Section 956a of the Code of Civil Procedure, “has been exercised sparingly”, says the court in Tupman v. Haberkern, 208 Cal. 256, 269, 280 P. 970, 975, “and should be exercised only when, upon a full consideration of the record, the party against whom the judgment is for the first time entered in the trial court could not successfully meet the contentions of his adversary upon a retrial”. Regardless of the existence of such power, it must here be said, in the language of Davis v. Chipman, 210 Cal. 609, 623, 293 P. 40, 46, that “the present action is not one in which we should exercise our power to make new findings” which would increase the amount of damages.

The judgment of the trial court is therefore affirmed in respect to the matter of defendant's liability, but reversed in reference only to the amount of such liability, and a new trial granted, with directions that such new trial be limited solely to the ascertainment of the amount of plaintiff's damages. Plaintiff and appellant Wilke to receive costs on the appeal and cross-appeal.

I concur.

The court found on substantial evidence that on January 2, 1945, the certain contracts mentioned in the majority opinion were in full force and effect. That “nevertheless said defendant James N. Crofton, in furtherance of his said scheme and plan, did cheat and defraud plaintiff”. That “plaintiff was and is entitled to one-third (1/313) of defendant's twenty-one (21%) per cent interest in said corporation Hippodromo de Tijuana and in the assets thereof and the profits therefrom.”

The court further found, “that it is true that the reasonable value of the right, title and interest of defendant in and to said premises, as lessee under the terms of said lease-contract and said assignment, was and still is not less than the sum of Five Hundred Thousand ($500,000.00) Dollars, and in truth and in fact is greatly in excess of the sum of Five Hundred Thousand ($500,000.00) Dollars, *.”

The foregoing findings show on their face that the trial court's award of only $9,750.00 in damages was totally inadequate and erroneous.

There was evidence that during a period of ten racing days from April 1 to May 12, 1945 (the race track operated only on Sundays and holidays) the net profits for each of these racing days ranged from a low of $2,776.58 to a high of $50,113.83, totaling $271,727.14 or an average of $27,172.00 per racing day. On the basis of fifty-two racing days in a given year, the total amount of net profits would be $1,412,944.00. For the ten years period of the lease, the total amount of the net profits would amount to $14,129,444.00.

I cite this testimony to indicate the magnitude of the venture in which defendant Crofton had a twenty-one percent interest, and in which interest of Crofton the plaintiff was entitled to a one-third interest.

The law is well established that damages consisting of the loss of anticipated profits need not be established with absolute certainty. A showing of reasonable probability that the profits would have been earned except for the breach of the contract is sufficient, Hacker Pipe & Supply Co. v. Chapman Valve Mfg. Co., 17 Cal.App.2d 265, 61 P.2d 944.

With reference to plaintiff and cross-appellant's contention that the award of damages is totally inadequate, he suggests three separate formulas based upon a consideration of the evidence, from which the court with certainty could compute the correct amount of damages. In that regard cross-appellant in his opening brief says:

“First, we have the uncontradicted testimony of Wilke that in his opinion the value of the race track leasehold for the period of 10 years is between $15,000,000.00 and $18,000,000.00. Taking the lower figure, to-wit, $15,000,000.00, we find that 21 per cent, which would be Crofton's interest, would amount to $3,150,000.00. One-third of this which, under the findings of the Court, would be Wilke's interest, amounts to $1,050,000.00.

“Second, we have the four instances in which Ernie Crofton told the defendant Jim Crofton that the net profit in February of 1945 for certain individual racing days had been $40,000.00, $55,000.00, $66,000.00 and $110,000.00, making a total of $266,000.00 for four days, or an average net profit per day of $66,500.00. On the basis of 52 racing days per year, this amounts to a total of $3,458,000.00 per year or $30,580,000.00 for the 10–year period of the lease.

“Again, using this figure as a basis for applying the findings of the Trial Court, we find that Crofton's interest of 21 per cent would amount to $7,261,800.00 and that Wilke's one-third of Crofton's interest would amount to $2,420,600.00.

“Third, we have the evidence in Plaintiff's Exhibit 6, consisting of the daily reports from the Tia Juana Race Track for 10 certain racing days in April and May, 1945. We have previously stated that Wilke's interest, computed on the basis of Exhibit 6, would amount to the sum of $925,727.43.”

Even though we concede an element of speculation or uncertainty to the foregoing formulas as establishing a legal basis for measuring cross-appellant's damage, there remains another phase of the evidence and findings to which such a stricture may not be applied. I refer to the court's finding as set forth in the opinion, that defendant and appellant Crofton in his pleadings admitted that the reasonable value of his right, title and interest in and to the premises involved, as lessee under the terms of the lease contract and the assignment thereof, “was and still is not less than the sum of Five Hundred Thousand ($500,000.00) Dollars, and in truth and in fact is greatly in excess of the sum of Five Hundred Thousand ($500,000.00) Dollars”. When this finding is considered in the light of the further finding that defendant and appellant in furtherance of a scheme and plan devised by him, “did cheat and defraud plaintiff”, it becomes immediately manifest that under the testimony and findings the court could not legally or justly have computed plaintiff and cross-appellant's damage in an amount less than $166,666.66. Defendant and appellant owned a twenty-one per cent interest in the foregoing leasehold interest, in which plaintiff and cross-appellant was entitled to a one-third interest.

There is ample authority for plaintiff and cross-appellant's contention that “when defendant by breaching a contract makes it impossible for plaintiff to realize profits, the probable profits must of necessity be estimated,” Hartman v. San Pedro Commercial Co., 66 Cal.App.2d 935, 937, 153 P.2d 212. Where as here, the promissor by his wilful breach of contract has given rise to the difficulty of proving the amount of loss of profits, the promisee is only required to show the amount of damages with reasonable certainty and any uncertainties will be resolved against the promissor, Steelduct Co. v. Henger–Seltzer Co., 26 Cal.2d 634, 651, 160 P.2d 804. The case just cited also furnishes authority for the statement that the promisee may introduce evidence of past profits made by the promissor in violation of the contract, in order to furnish a reasonable basis for estimating the amount of his profits under the contract for the remaining term thereof. In other words, the promisee is entitled to recover as damages such prospective profits the loss of which is the natural and direct consequence of the breach, Caspary, et al. v. Moore, et al., 21 Cal.App.2d 694, 699, 70 P.2d 224.

Because it is difficult to ascertain the amount of damage, a party who breached his contract as found by the court herein, by means of “a scheme to cheat and defraud” cannot escape liability. The law requires only that the best evidence be adduced of which the nature of the case is capable.

In the light of the foregoing rules of law, any award less than the foregoing sum of $166,666.66 was grossly inadequate and erroneous. By no stretch of the imagination and by no method of mathematical calculation based on the evidence herein, can it be said that the award of $9,750.00 constitutes one-third of the twenty-one per cent interest which the court found defendant and appellant Crofton held in the leasehold and profits of the Tiajuana race track.

DORAN, Acting Presiding Justice.

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