KESSLOFF v. PEARSON

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

KESSLOFF v. PEARSON et al.

Civ. 17742.

Decided: January 19, 1951

Aaron Sapiro and Hyman O. Danoff, Los Angeles, for appellant. Louis Licht, San Francisco, Mitchell, Silberberg & Knupp and Arthur Groman, all of Los Angeles, for respondents.

The question to be determined is whether the trial court exercised its discretion erroneously in holding the complaint insufficient to require it to proceed to a declaratory judgment.

As the case was heard upon the complaint and a verified amended answer the facts upon which decision must rest are those set forth in the complaint and admitted or not denied by the amended answer and those affirmatively set up therein.

The following facts alleged in the complaint are admitted by the amended answer of the respondents: Respondent Edward F. Pearson in 1944 entered into a written contract whereby he agreed to employe appellant as a candy maker for the Pearson Candy Co., one of the respondents, agreeing to pay appellant a stipulated weekly wage and annually in addition a stated percentage of the net profits of respondent Pearson Candy Co.'s business as long as the contract continued in force. The parties operated under the terms of the contract until its expiration on July 1, 1948. Thereafter and until the appellant quit the employ of respondent in 1949 the appellant was employed upon somewhat different terms and conditions. Appellant was paid annually the stated percentages due on the net profits of the Pearson Candy Co. as they were computed by the respondent Edward F. Pearson. Under the terms of the written contract appellant was employed merely to make and supervise the making of candy and should ‘have nothing to do with the purchasing, selling, management, control, [or] control of employees; that is to say hiring and firing of employees, [or] financing and [or] expending funds of the Pearson Candy Co.’

As to other minor facts, the state of the pleadings may be briefly summarized. The complaint asserts: The respondent Edward F. Pearson, when he made the annual percentage payments to appellant, represented they were correct and appellant was not entitled to any explanation thereof; that respondent never permitted appellant to examine the company's books so as to enable him to determine the facts; that appellant believed and trusted respondent during the entire term of the written contract and did not believe respondent would deliberately make improper charges to expenses and thereby fail to pay over to him what was justly due; that when appellant quit his employment he made a demand in writing for a full and complete accounting of any and all profits earned by the business during the term of the contract including a statement of the salaries and drawings paid out by the business to respondent Edward F. Pearson and all other persons and that this demand for an accounting was refused.

The appellant then goes on the allege in his complaint that respondent Edward F. Pearson incorrectly computed the net profits in that he charged to the expenses of the business not only certain gifts to relatives and employees, but certain salaries which were either not earned or grossly exorbitant and thereby the net profits used by respondent Edward F. Pearson in computing appellant's percentages were greatly and improperly reduced; that under the terms of the contract the respondent Edward F. Pearson was not entitled to reduce the net profits in the manner indicated even though he claims he was entitled to do so. Accordingly he seeks a declaration as to whether or not the items mentioned were properly used to reduce the net profits upon which his annual percentages were based; that if the court should declare the items were not so chargeable, it then declared that respondent be required to make a full and complete accounting; that the court having declared from the accounting the amount due appellant, it ordered the respondent to pay the same.

In the amended answer respondents expressly deny that Edward F. Pearson in computing the percentage based on the net profits charged against gross profits any gifts or unearned or exorbitant salaries. Respondents further admit that under the terms of the contract such items could not properly be charged and expressly disclaim that they have ever contended otherwise and aver they do not now so content. Other defenses set up by the answer are not here material, except it should perhaps be stated that respondents deny Edward F. Pearson was the sole proprietor of the Pearson Candy Co. and aver it was a copartnership consisting of him and certain other persons named as defendants below and as respondents here.

The case then as it stood when it was called for trial required, by reason of the concession in the amended answer, no declaration as to the meaning of the terms of the contract. Shorn of this necessity the complaint presented simply the question whether the net profits of the business upon which appellant's percentage computations were to be based had actually been reduced by any gifts or salary charges of the character enumerated in the complaint. This involved only a question of fact and no declaration whatever as to legal rights or duties of the parties.

At the opening of the trial the respondents objected to the introduction of any evidence on the ground that plaintiff's complaint did not state a cause of action for declaratory relief. The court sustained the objection and thereupon dismissed the case. In ruling on the motion the court expressed the view that the case as it then stood before him called for no declarations on the court's part and in its essence presented merely a case for an accounting. In then observed that the cause of action was actually merely one for damages which had accrued before the action was filed, and that the traditional remedies were entirely adequate and just as efficient as the declaratory relief remedy sought. Hence, in view of the discretion confided to it, by the statute, to dismiss a declaratory relief action where a declaration is not necessary or proper under the circumstances it should exercise that discretion. Before doing so the trial court inquired of counsel for appellant what further he had to say to the proposed ruling. In substance the only answer of appellant was that he was entitled to declaratory relief. If, as appellant now contends, he was entitled to some other equitable relief, which we do not decide, he failed to so advise the court. Accordingly, we are of the opinion that the trial judge did not erroneously exercise his discretion and much less did not abuse it.

In contending to the contrary appellant appears to be of the view (1) that if the complaint alleges an actual controversy between a plaintiff and defendant the courts are bond by the allegation and so may not refuse to grant a declaration or dismiss the action; (2) that if the complaint disclosed facts which if proved would entitle the plaintiff to some relief declaratory or otherwise the court may not refuse to make a declaration and thereupon dismiss the action.

Before discussing these contentions we think it important to review briefly the legislative history and the language of our Declaratory Judgment Act. Code Civ.Proc. § 1060 et seq. The Act enacted by our legislature in 1921 is not only very broad in its terms, but was intended as a cumulative remedy to the existing traditional and statutory remedies. Rather than limit the sweep of the statute by detailed restrictions upon its use, the legislature chose instead to invest the judiciary with the power to refuse to entertain, hear or adjudge a declaratory relief cause if it presented no ‘actual controversy relating to the legal rights and duties of the respective parties' or if the court was of the view that ‘its declaration or determination is not necessary or proper at the time under all the circumstances.’ The legislature having restricted, as indicated, the right of litigants to make use of the Act, added the following provisions in 1927: ‘Actions brought under the provisions of this chapter shall be set for trial at the earliest possible date and shall take precedence of all other cases, except older matters of the same character and matters to which special precedence may be given by law.’ Code Civ.Proc. sec. 1062a. It seems quite evident that this addition to the statute would not have been enacted, had it not been contemplated by the legislature that the courts should and would properly exercise the discretion confided to them by the statute. Plainly the legislature did not intend that a litigant should be granted priority on the trial court's calendar through the mere device of filing a declaratory relief action rather than a traditional or statutory action. To avoid any such improper result the ligislature left the power of control to the trial court.

Turning to the case at hand we are at once struck with the fact that appellant by framing his cause of action for a declaratory judgment rather than a simple action for an accounting was enabled, if he so chose, to attain priority over such cases. This factor it is plain is one that a trial court could and should consider in any case where it is called upon to exercise its discretionary power. Simpson v. Security First Nat. Bank, 71 Cal.App.2d 154, 162 P.2d 494. Whether in the instant case the trial judge regarded the issues tendered to sustain the case for declaratory relief as being fictitious is not clear from his comments, but that he regarded them as being moot is plain. That the question as to a controversy as to legal rights and duties became moot by the concessions made in the amended answer appears to us to be entirely obvious and accordingly merited no declaratory judgment. Courts are not permitted to entertain and decide moot issues or cases. Borchard, Declaratory Judgments, p. 46; Anderson, Declaratory Judgments, sec. 102, p. 275. The only issue remaining in the case for determination when it was called for trial was a fact question, i. e., whether respondent Edward F. Pearson in computing the ‘net profits' had charged to gross profits any improper salaries or gifts, and if so, the amount thereof. As the trial judge rightly observed this involved no declaration as to the legal rights or duties of the parties.

From what has so far been said it is crystal clear that a litigant does not have an absolute right to a declaratory judgment even though he has in the first instance stated a good cause of action for declaratory relief. City of Alturas v. Gloster, 16 Cal.2d 46, 104 P.2d 810; Monahan v. Dept. of Water & Power, 48 Cal.App.2d 746, 120 P.2d 730; Simpson v. Security First Nat. Bank, supra.

There remains for consideration the further contention of appellant that his complaint stated a cause of action for some equitable relief, i. e., accounting, and hence the court erred in dismissing the action. Appellant cites Lord v. Garland, 27 Cal.2d 840, 168 P.2d 5, 12, as so holding and subsequent cases which quote or refer to it. We do not understand that the Supreme Court by the language it used in the Lord case intended to hold that a trial court could not dismiss an action if it stated or presented no cause for declaratory relief even though it stated a cause for some other relief. We here quote the language of the court, interpolating therein in brackets the word ‘declaratory’ as sufficiently indicating the interpretation we place upon it: ‘However, it is equally true that section 1061 of the Code of Civil Procedure, which allows the trial court to refuse to render a declaratory judgment, does not apply where, upon the facts stated, the plaintiff is entitled to some [declaratory] relief in connection with the matter which occasioned the controversy. Henderson v. Oroville-Wyandotte Irr. Dist., 207 Cal. 215, 277 P. 487; Phelps v. Loop, 53 Cal.App.2d 541, 128 P.2d 63; Zimmer v. Gorelnik, 42 Cal.App.2d 440, 109 P.2d 34.’

From the last-quoted paragraph, it is clear that where a plaintiff, as in the Lord case, has a good cause of action for declaratory relief and is entitled to some declaratory relief in connection with the matter which occasioned the controversy, it is an abuse of discretion of the trial court to sustain a general demurrer to the complaint upon the ground that the remedy was not necessary or proper. But where a plaintiff states a cause of action for breach of contract or for an accounting or for any other like action, and demands declaratory relief, the court is not compelled to render a declaratory judgment simply because plaintiff is entitled to some relief under the cause of action stated other than for declaratory relief. If appellant's interpretation of the Lord case is correct, then Section 1061 of the Code of Civil Procedure has no meaning because the discretionary power of the court could be taken from it by the simple expedient of casting a cause of action of the conventional type in the form of an action for declaratory relief.

We pause to comment but briefly on the three cases mentioned in the above quotation. In none of these cases is it suggested that any relief other than declaratory relief may be granted. In the Henderson case, which was an action for declaratory relief, the trial court dismissed it on the ground it had no jurisdiction of the subject matter of the case. On appeal the Supreme Court reversed, holding that the lower court had jurisdiction, pointing out that even if the trial court had not had jurisdiction to interpret one of the documents involved (order of the Railroad Commission) it clearly had jurisdiction to interpret the others and so should have done so as a good cause of action for declaratory relief was stated as to those documents.

In the Zimmer case the plaintiff sued for declaratory relief as to the respective rights of himself and the defendant, concerning a division of profits in connection with the business operations of the two on the theory they were operating as partners or joint adventurers. The plaintiff's case rested in part on the terms of a written contract and in part on an oral contract. The trial court declined to receive evidence which would have supported the oral contract on the erroneous theory that the Declaratory Judgment Act did not permit of it. At the close of all the evidence the trial court ruled the written contract was void for uncertainty and accordingly denied the plaintiff any relief whatsoever. In reversing on both grounds the court said: ‘For the reasons given the court erred when it denied plaintiff the right to prove the oral contract, and when it dismissed the action without giving plaintiff the relief which the facts disclosed he was entitled to. We do not discuss the other points raised except to add that this is not a case for the application of section 1061, Code of Civil Procedure, authorizing the trial court to refuse to exercise the powers where a declaration is not necessary or proper. Because the admitted facts are that the plaintiff was entitled to some relief over which the parties are in controversy a declaration was both necessary and proper. Hence, the case comes squarely within the rule of Henderson v. Oroville-Wyandotte Irr. Dist., 207 Cal. 215, 277 P. 487 [42 Cal.App.2d 440, 109 P.2d 38].’ (Italics supplied.)

In the Phelps case (a decision by this court), the plaintiff likewise sought declaratory relief. In that case Phelps, who had levied an execution against a lot and building owned by Loop, sought a declaration that Loop's homestead declaration with respect thereto was invalid. After hearing the evidence for the plaintiff the trial court granted a nonsuit on the theory that the evidence failed to show that the homestead declaration was invalid. On appeal to this court Phelps not only contended that his evidence was sufficient as against the motion for a nonsuit, but also that a nonsuit could not be granted in a declaratory relief action. In deciding that case we were of the opinion that not only did the complaint state a cause of action for declaratory relief but that the evidence was sufficient to overcome the motion for a nonsuit. Additionally we expressed the view that a nonsuit could not be granted in a declaratory relief action where the allegations, as in that case, stated a cause of action for declaratory relief. In short, we held that under those circumstances the trial court, regardless of the insufficiency of the evidence at the close of plaintiff's case, was under a duty to deny a motion for a nonsuit and was obligated at the close of the case to make his declaration on the issues tendered. The case was decided about ten years ago. Since then the trend of the decisions, among them those of our Supreme Court and indeed those of our own court, make it indubitably clear that the views we then expressed were erroneous and must now be disavowed by us, which we do. cf. Moss v. Moss, 20 Cal.2d 640, 128 P.2d 526, 141 A.L.R. 1422; Adams v. Cook, 15 Cal.2d 352, 101 P.2d 484; Merkley v. Merkley, 12 Cal.2d 543, 86 P.2d 89; Simpson v. Security First Nat. Bank, supra; Ingrao v. Karsten, 94 Cal.App.2d 517, 211 P.2d 41; Borchard, Declaratory Judgments, p. 432; Anderson, Declaratory Judgments, sec. 188, p. 564.

In his ruling the trial judge in the case at bar adverted to the fact that the appellant's cause of action had fully accrued before the instant action was filed and hence that the traditional actions such as breach of contract or for an accounting were adequate. This was a factor to be taken into account by him even though as appellant correctly contends it in and of itself is not a decisive factor. In the instant case it was only one of several factors upon which the trial court based its ruling.

If, as appellant contends, the complaint stated sufficient facts for the remedy of an accounting or any other conventional remedy, he nevertheless failed to preserve any such right. When the court announced he would not entertain the case for a declaratory judgment, appellant was certainly under a duty to move that the case be entertained for the purpose of showing he was entitled to an accounting. As the appellant was adamant in his insistence that he was entitled to a declaratory judgment, the court in view of its ruling and for want of any further motion on appellant's part had no alternative except to dismiss the case.

Judgment affirmed.

HANSON, Justice pro tem.

WHITE, P. J., and DORAN, J., concur.

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