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


No. 16052.

Decided: June 23, 1954

W. Burleigh Pattee, Bruce M. Casey, Jr., and Chickering & Gregory, San Francisco, for appellant. Joseph C. Haughey, Toland C. McGettigan, San Francisco, for respondent.

This is an appeal by defendant, from a judgment in favor of plaintiff in the sum of $14,396.28 and costs rendered by the trial court on the first count of plaintiff's complaint. Judgment on the second and third counts thereof were in favor of defendant. No appeal was taken by plaintiff from the judgment on the latter two causes of action.

In the first cause of action respondent Edward McKeon, a civil engineer, sought recovery for moneys allegedly due him for services performed by him in defendant's general contracting business. The first count of the complaint alleged the execution by appellant and respondent of a contract in writing dated April 11, 1951, but effective as of January 1, 1951, under which appellant, Benedict Giusto, agreed to employ respondent as an estimator and office manager in appellant's general contracting business for a period of one year at a salary of $100 per week, together with a sum which, when added to said salary, would equal 30% of the net profits derived from such business as general contractor during the year, including net profits on all jobs completed during the year 1951 but on which full payment might not have been made during said year. The contract contained the following paragraph:

‘IV. It is agreed that in event you continue in my employ after December 31, 1951, it shall be at a salary of One Hundred Dollars ($100) per week, plus only such amounts as may hereafter mutually be agreed upon in writing.’

It was further alleged that following the expiration of the term of said written agreement, appellant orally agreed to extend said agreement and to continue plaintiff in his employment ‘upon the same terms, conditions and rate of compensation specified and set forth in Paragraphs 1, 2 and 3 of said agreement * * * and contrary to and in modification of the provisions of Paragraph 4 of said agreement of employment.’

The complaint alleged rendition of work, labor and services by respondent pursuant to their agreement up to and including February 29, 1952, when, it was alleged, appellant without cause wrongfully discharged respondent; that respondent was ready and willing to continue to perform the agreement but was prevented therefrom by appellant. Respondent admitted payment received by him from appellant in the amount of $5700 for the period ending December 31, 1951, and admitted receipt of $1,400 pursuant to the agreement as extended and modified. It was alleged that there were profits owing to respondent for the period ending December 31, 1951, and for the extended period in 1952, which respondent was unable to determine because of his inability to examine appellant's books. An accounting was asked of all profits realized by appellant from his general contracting business for the period during which respondent was employed.

It is appellant's contention that the sole question to be decided on this appeal is whether there was sufficient evidence to sustain the trial court's finding that the employment contract between appellant and respondent had been modified and the term extended beyond December 31, 1951.

Appellant was also a graduate civil engineer, who had held various engineering positions until 1945 when he went into the business of general contractor. He had never in his career prepared any plans or specifications or made any designs for structures bearing his stamps as a civil engineer. He had, however, made rough sketches. From 1945 until April 1950, appellant operated the business with a partner, Mr. Rademan, and after that continued as sole owner. Mr. Rademan and respondent were friends, and appellant and Rademan engaged respondent on several occasions to prepare plans and designs for projects which had been contracted for.

Appellant in May 1950 learned that respondent wished to make a change from the firm by which he was employed and where he was receiving between $6,000 and $7,000 per year salary. Respondent became associated with and entered appellant's employ in August, 1950, upon an oral understanding that respondent would receive $100 per week together with an amount which when added to his salary would equal 30% of appellant's net profits from the business. It was understood by both parties that this agreement was to be reduced to writing but this was not done until April 11, 1951. The agreement was back dated to January 1, 1951. Appellant's attorney drew up the agreement, and it provided that profits were to be computed on a cash basis, but this was conceded to be an error, and it was noted later on the instrument by both parties ‘Calculated as per books, i. e., accrued not cash basis.’

Respondent continued to draw his salary of $100 per week, and performed services as required, including designing and preparation of plans for various structures. In the early part of 1951 appellant caused to be issued a brochure describing his activities in the general contracting field, and his specialization in commercial construction. E. F. McKeon was described as general manager and estimator for the firm, and his experience in varied construction fields was emphasized, and numerous important construction projects were listed, including the Parkmerced Apartment Towers, in which it was stated he had had a part in the structural design thereof.

Appellant was hospitalized in September 1951 for a heart ailment. There were then two large projects under way, a radiological laboratory for the United States Navy at Hunter's point, the contract for which was awarded in 1951 with completion date scheduled for February 7, 1952, and an apartment house known as the Simon Apartments. Respondent stated that at appellant's request he assumed full responsibility for these projects.

Respondent testified that in December 1951, he approached appellant in regard to the matter of his continued employment and his right to share in the profits since it was obvious that projects then in construction would not be completed in 1951. He said that he discussed the matter with appellant because he wished to clarify the ‘completed jobs', because he could see the Nevy job was running over into 1952, also the motel job and the Simon Apartments. Appellant told him that he would renew the contract, and that he would take the matter up with the lawyer, and for respondent not to worry about it, that he would get his share of these jobs. Appellant admitted that respondent had discussed the matter with him in December but stated that he had said that he wouldn't agree to any renewal at that time, that he wanted to wait for the audit.

It is admitted that respondent performed all services required of him, and received $5700 in 1951 consisting of $5200 salary for 52 weeks and $500 additional paid in September 1951.

From December 31, 1951 until he left appellant's employ, respondent continued to render services principally in connection with the Navy job, the Flamingo Motel and the Simon Apartments. No accounting of the profits for 1951 had yet been rendered by appellant. Respondent estimated that the Navy job was about 90% completed at the end of 1951. A progress payment of about $90,000 had been received in December 1951.

Respondent again approached appellant on or about January 15, 1952, concerning the matter of reducing the contract to writing as he had promised in December, and the obtaining of an audit. Respondent pointed out that he had been there a year and a half and had not yet obtained anything out of the percentage arrangement. He then asked for an advance of $500 out of the Navy job, because he knew that was a good one. Appellant told him to have the bookkeeper draw a check for that amount. Appellant promised that he would get after the matter of the contract again with his lawyers and have it drawn up.

About the middle of February appellant came to respondent and told him that ‘this percentage arrangement is not working out for you and it is not working out for me.’ He told McKeon, ‘I would like to change the set-up and possibly put you on a salary basis and a bonus arrangement or something more definite.’ He then pointed out that the Navy contract was subject to the Renegotiation Act of 1951, 50 U.S.C.A.Appendix, §§ 1191, 1211 et seq., and that it was possible that the government might come back a year later and recapture excess profits. Respondent replied that he would at least be allowed to keep a 10% profit, that he could distribute on that basis, and put the remainder in escrow, but appellant objected to tying up his funds as he needed them in the business. Respondent then asked him to find out much he had coming from the jobs that were on the books, as he didn't want to enter into any more agreements until he knew what he had coming. He informed appellant that the Navy job was coming in close to 20%, and the 20% of $320,000 would be around $60,000, that 10% profit would be $32,000 and respondent's 30% would be in the neighborhood of $10,000. Appellant said he would talk it over with his lawyer and the auditor and see what respondent had coming.

Approximately one week later appellant told respondent that he had been talking to his lawyers and that it was not going to work out. He thought the best thing to do was to offer respondent a cash settlement and terminate the arrangements. He said he would give him $4,000 to which respondent replied that he supposed he would deduct the $1400 that he had already drawn [in 1952] and that he ‘would be left with peanuts for all my work.’ Respondent refused to accept the $4,000. McKeon left on February 29, as he couldn't get the accounting, or the written contract, and he had to get out and get another job.

On March 4, 1952, he attended a conference at appellant's office with appellant and his auditor present. A document entitled ‘Calculation of Amount Due Edward F. McKeon’ was handed to respondent which showed a balance owing to respondent of only $123.64. Respondent said that when the auditor handed it to him he said ‘It isn't very much but the big one is coming up.’ McKeon said, ‘What do you mean the big one?’ to which the auditor answered, ‘The Navy Job.’ At this conference a letter was produced by the auditor which appellant snatched from respondent's hands before he had finished reading it. This letter admitted in evidence was written to appellant by the auditor on March 3, 1952, and stated that appellant had no legal obligation to pay respondent a bonus on the two large jobs in progress at the end of the year, ‘although you [appellant] have stated that it is your intention to do so, because you feel that there is a moral obligation on your part to do so.’

Following this incident, appellant and respondent left the office, and appellant offered to write respondent a check for $6,000, which he did not accept.

Appellant's auditor, Thomas McGuire, stated that prior to March 3, 1952, appellant told McGuire that it appeared that he and McKeon were not going to get together for 1952, but that he wanted to pay a bonus of some kind to him, that they had both hoped that this was going to be a very profitable association, they were very friendly as individuals, but that from the information he had received from his attorneys, if the contract were not renewed in writing it would not be necessary for him to pay any bonus on jobs incomplete on the date that the contract concluded.

At the conclusion of the trial, after the trial court had granted respondent an accounting, appellant in order to save expense gave respondent's accountant access to his books and records. A stipulation was entered into covering the periods from August 7, 1950, through December 31, 1950; from January 1, 1951, through December 1951; and from January 1952, through February 29, 1952. It was agreed that nothing was owing for the first period. The net profits for the second period, January 1, 1951, to December 31, 1951 were $21,108.79; the net profit for the three projects begun in 1951 but completed after December 1951 were $50,545.47. From January 1, 1951 until February 29, 1952, respondent had received $6,100 in salary, and advances totalling $1000.

The trial court found that it was true that following the expiration of the written agreement of employment of April 11, 1951, ‘said plaintiff and defendant, * * * on or about the 14th day of January, 1952, orally agreed that said agreement would be extended from and after January 1, 1952, and that plaintiff would continue in the employment of said defendant, and said defendant would continue to employ plaintiff upon the same terms and at the same rate of compensation specified and set forth in Paragraphs 1, 2 and 3 of said written agreement * * * and contrary to and in modification and abandonment of the provisions of Paragraph 4 of said agreement of employment, and for such period of time as would be required to bring to completion those certain hereinafter described projects which were entered upon by defendant prior to December 31, 1951, but which were not completed on said date, and the court further finds that said defendant * * * did * * * repeatedly thereafter represent, state to, and advise plaintiff that he * * * would cause the terms of said agreement as orally modified and extended to be reduced to writing and the plaintiff remained in said defendant's employ on and after December 31, 1951, pursuant to the terms, conditions and promises of the oral modification of said written agreement and in consideration thereof and in the belief and upon the understanding and representations of defendant that said oral agreement would be immediately placed in writing.’

Appellant contends that the terms of the contract were clear and unambiguous, hence parol evidence was inadmissible to explain its terms. Paragraph 2 providing that in computing net profits ‘the amount due on all jobs which have been fully completed during 1951, but on which full payment may not have been made during said year’ certainly requires no further explanation. And Paragraph IV provided that if respondent continued in appellant's employ after the expiration date of December 31, 1951, it should be at a salary of $100 per week plus only such amounts as should be agreed to in writing. As far as 1951 is concerned, the contract is certainly unambiguous, but the controversy between the parties is not concerned with the manner of computing profits for 1951, but with the profits on projects which ran over into 1952, and which constitute the major part of the judgment here given for respondent. It is appellant's position that as to 1952, the contract is equally clear. It provides only for $100 per week salary, and nothing else unless it is agreed to in writing. However, it was the position of the trial judge that the phrase ‘plus only such amounts, if any, as may hereafter mutually be agreed upon in writing’ contemplated something additional to the $100 per week and called for further evidence of the circumstances and conduct of the parties.

Appellant argues that even if the evidence were properly admissible, all of it taken at its face value shows only that the parties were attempting to agree on some new employment contract and not that any agreement was reached. Appellant cites Mercantile Trust Co. v. Sunset, etc., Co., 176 Cal. 461, 168 P. 1037, to the effect that where it is a part of the understanding of the parties that the terms of their compact are to be reduced to writing and signed by the parties, the assent to its terms must be evidenced in the manner agreed upon or it does not become binding. See, also Columbia Pictures Corp. v. DeToth, 87 Cal.App.2d 620, 629, 197 P.2d 580.

The situation, here, was of course different from that where parties are entering into an agreement for the first time. Here there had been a course of dealing between the parties since 1950. It is to be noted that when respondent went to work with appellant in 1950 it was understood that the arrangement for 30% of the net profits less salary was to be evidenced in writing, but the parties worked together for about eight months before the writing of April 11, 1951, was finally drawn up.

Respondent contends that if all inferences most favorable to respondent are drawn from the evidence, the finding of the trial court that the contract was modified and extended to cover the projects underway but not completed in 1951, is supported.

In re Estate of Bristol, 23 Cal.2d 221, 223, 143 P.2d 689; Berniker v. Berniker, 30 Cal.2d 439, 444, 182 P.2d 557.

It is respondent's position that the terms of the contract were definite and certain insofar as 1951 was concerned, but were thereafter subject to alteration and change by agreement of the parties. Parties are as free to alter a contract as they are to make it. Opdyke & Butler v. Silver, 111 Cal.App.2d 912, 916, 245 P.2d 306; Bavin & Burch Co. v. Bard, 81 Cal.App. 722, 255 P. 200. There is direct testimony of respondent that appellant agreed that he would receive his share of the profits on the jobs underway at the end of 1951 but which could not be completed in that year. The parties, respondent says, obviously had the right to modify the terms of this written agreement by parol. If appellant did not believe himself bound for anything but the $100 per week in 1952, why did he offer respondent $6,000 in settlement when only a few hundred dollars was owing respondent for 1951 profits? As the accountant had told respondent, ‘the big one’ was coming up in 1952, the profit of $39,730.92 on the nearly completed Navy job.

In Empire Steel Building Co. v. Harvey Machine Co., 122 Cal.App.2d 411, 265 P.2d 32, 34, it is said that in the absence of statutory requirement, an oral agreement reached by the parties is binding unless it is clear that the parties intend that it is not to be effective until reduced to writing, and it was noted that in the case of two former buildings constructed for Harvey by Empire, ‘work had been commenced several days before the contract was put in writing.’ It was there held that it was not error to admit evidence of two prior building contracts between plaintiff and defendant. Such evidence was held to have been properly admissible to show the practice of the parties in commencing work before previous oral contracts had been reduced to writing. There appellant conceded that evidence of prior dealings between the parties was admissible to illustrate the transactions in question.

The trial court made a finding that ‘the oral agreement entered into by and between plaintiff and defendant * * * on or about January 14, 1952, altering, amending and modifying the provisions of paragraph (4) of said written agreement as hereinabove found, was thereafter executed by both of said parties and was a valid and binding agreement.’

Appellant contends that this finding is not supported by the evidence. The court gave judgment for the profit from the Navy job, the Simon Apartments and the Motel project. Finding XVI recites that final payment for the Navy job had not been made at the conclusion of the trial. There is testimony, however, to the effect that the work on this project was completed in February. The court also found that the job for constructing the Simon Apartment House was completed in February 1952, and that final payment was received in April 1952. The completion date, but not the final payment date, is of importance, since the original contract provided that net profits were to be computed on jobs completed during the year, even though final payment had not been received. Finding XVI also recites that the Motel job was not completed until September, 1952.

Since an alteration or modification of a written contract is involved, appellant maintains that Sec. 1698 of the Civil Code applies. That section provides that ‘A contract in writing may be altered by a contract in writing, or by an executed oral agreement, and not otherwise.’ It is obvious that the motel job was not completed on February 29, 1952, when appellant's and respondent's association ended. In D. L. Godbey & Sons Const. Co. v. Deane, 39 Cal.2d 429, 246 P.2d 946, it was held that where there was consideration for an oral modification of a written contract, it need not be fully executed by both parties to comply with Sec. 1698, Civil Code; it is sufficient if full performance has been rendered by the party relying on the oral agreement. Respondent also relies on this case in support of his position. It appears that as to the Navy job and the Simon Apartments project full performance was rendered by respondent since there is evidence to support a finding that work was completed on them in February of 1952. There is no evidence to support the finding that the agreement had been executed in regard to the motel project which was not completed until September, 1952.

Respondent contends also that appellant is now estopped from asserting that he did not incur liability over and above $100 per week because no additional amount was agreed to in writing. As appellant notes, however, the trial court has made no finding on waiver or estoppel, and no estoppel was pleaded by respondent. Respondent cannot shift to a new theory on appeal. Graddon v. Knight, 99 Cal.App.2d 700, 704–705, 222 P.2d 329. In A. Farnell Blair Co. v. Hollywood State Bank, 102 Cal.App.2d 418, 227 P.2d 529, 538, it is said that ‘Unless the several elements of estoppel are established by unconflicting evidence or by findings of a trial court the rule cannot be applied on appeal.’ In the instant case, appellant's testimony conflicts with respondent's as to the extension of the 1951 arrangement into 1952. See, also, Bruner v. Van's Markets, 103 Cal.App.2d 135, 142, 229 P.2d 56.

We are satisfied that the findings of the trial court are supported by the evidence on the theory of an executed oral modification of paragraph (4) of the contract in respect to the profits from the Navy and Simon Apartment House projects.

The finding of the trial court with respect to the motel project does not find support in the evidence in that no executed oral agreement was proved with respect to that job. The evidence discloses that the motel job was not completed until September 1952; respondent was employed in part of an office manager and quit his job with appellant in February of 1952, hence with respect to the motel job full performance on the part of respondent was lacking and the oral agreement in so far as it covered the motel job was not executed.

Judgment reversed with directions to the trial court to modify, amend and recalculate the amount of the judgment in accordance with the views herein set forth, and then enter said judgment as amended and modified.

KAUFMAN, Justice.

NOURSE, P. J., and DOOLING, J., concur.

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