NARRON et al. v. SWITZER et al.
Defendants appeal from a judgment in favor of plaintiffs in an action for damages for fraud and to quiet title. Plaintiffs allege that they were induced to convey their real and personal property to defendant L. Glenn Switzer by reason of his promise to enter into a partnership agreement with them; that said promise was made without any intention to perform the same and plaintiffs were thereby damaged in the amount of the value of the property so conveyed.
In March, 1944, plaintiffs purchased a sand, rock, gravel and concrete business in Imperial Valley from a Mr. Winn on a conditional sales contract. They operated this business for approximately three years prior to June, 1947, and during the first part of that year they were having financial difficulties. In this connection plaintiff Ernestine Narron testified:
‘Well, we were short on operating finances. We were making such high payments to Mr. Winn on the property and also paying such a high rate of interest on all our borrowed money on the equipment or on the contracts that we were paying out, that we were sort of crippling ourselves, so-to-speak. I mean, we were just hobbling along, you might say.’
Plaintiffs had commenced an action against Winn, the conditional vendor, for an injunction forbidding Winn from foreclosing the said conditional sales contract so long as plaintiffs continued to keep up all current payments due thereon, and a temporary injunction was issued in that action. The injunction was vacated and the action was set for trial on August 4, 1947. Upon receiving notice of the dissolution of the injunction and of the notice setting the trial for August 4th, plaintiffs sought financial help. In the latter part of May or early part of June, 1947, Mr. Narron went to the office of defendant L. Glenn Switzer (hereinafter referred to as Switzer) to see if he would be interested in buying some of Narron's equipment. Switzer and his brother, Howard, were then copartners operating about nine ‘batching plants' out of which they served the building trades and others with ready mixed concrete for foundations, curbs and other structures. Their principal offices were located at Pasadena. Howard Switzer took no part in the negotiations here involved. Switzer told Narron that he would not be interested in buying the equipment. Narron testified that when Switzer was asked if he might be interested in some kind of a partnership deal, Switzer said he didn't know and that he would have to come down and look it over before he would go into any kind of a business deal with anybody. However, in his deposition Narron stated that on this occasion he just asked Switzer about selling some equipment and the conversation was relative to selling trucks only.
A Mr. Harryman testified that he was present at this meeting; that Narron explained his needs; that Switzer told Narron that he might be interested; that he had anticipated expanding down in the desert areas and that if Narron would outline the equipment he had at the present time, he, Switzer, might consider buying the machinery in Imperial Valley.
About June 18, 1947, Narron and his wife returned to the Switzer offices in Pasadena. Mrs. Narron testified that she there supplied Switzer with information concerning their plant, equipment and business; that after stating that the Narron equipment was too small, Switzer made the remark that ‘he would have lots of equipment; that he could and would bring into the business larger equipment, larger trucks and larger mixers'; that she informed him that she considered the business to be worth around $70,000; that Switzer stated that if the equipment was as represented to him ‘the rest of the business and the business and outlook for business down here, why it would be worth $70,000 of anybody's money to go into a partnership deal, but at that time he said he was short on money—on cash, or money to bring into a business;’ that after these conversations Switzer sent one of his field men, Mr. Lewis, to El Centro to look over the Narron equipment; that on or about July 29, 1947, she again went to Switzer's office and stated to him:
‘We have waited over a month since you made a survey of our equipment and you have had plenty of time to think it over and we are to a point where we have to know whether you are interested or whether you are not interested in coming into the business as a partnership with us, and he stated that he didn't—I said ‘You have either got to come down there and make some arrangements with us or else we are going to have to start looking around for another partner or we are going to have to sell some of our equipment or trade it in on larger equipment.’'
That Switzer stated he would try to come down to El Centro; that he still didn't know for sure whether he would be able to come into the business with them unless he could make some transfers or unless the Narrons would be able to pay off Winn and then the properties could be transferred to Switzer and he could borrow the money and perhaps see his way clear to come into the business with the Narrons; that he told her to contact Winn and have him available and he, Switzer, would see what they could do about it.
On Saturday, August 2, 1947, Switzer and Lewis, his field superintendent, went to El Centro and while with the Narrons, Switzer listened in on a 'phone conversation between Mr. Winn and Mrs. Narron to the effect that Winn would postpone the trial set for August 4th if $2,500 was placed in escrow the following Monday, August 4th, under conditions that if the $14,000 balance of the purchase price stated in the conditional sales agreement was not paid within thirty days thereafter, the Narrons would not only forfeit the $2,500 to Winn, but also all title and right to possession of the real and personal property described in the conditional sales agreement.
Narron advised Switzer that the Reclamation Department of the United States was offering for bid the right to take rock, sand and gravel from the deposits of such aggregates along the old beach line, about thirty miles from El Centro. Narron and Switzer then went out to look over these deposits and Switzer gave Narron a check for $5,000, part to be deposited in escrow for the Winn contract, and the balance to be deposited to the bid to the Reclamation Department for the right to take materials from the beach line deposits. Narrons claim that $2,500 of this check was to be deposited in the Winn escrow and the balance was to be used to meet other obligations. Mrs. Narron testified that on August 2nd Switzer told them he would help them out ‘He had decided to make the deal, some kind that he and Wilson could work out whereby he could get by.’ On Monday, August 4, 1947, Mrs. Narron delivered the $5,000 check which her husband had received from Switzer to an attorney, who gave her his personal check for $2,500 to be deposited with the title company and kept the balance for her. This balance was apparently used by the Narrons as a deposit in connection with obtaining the permit to take aggregates from the beach line pit.
Mrs. Narron testified that on August 2nd Switzer stated that at that time he did not have the money ‘to come into the business with us, not cash money’; that ‘he didn't see his way clear unless we could borrow the money on the equipment and on the property to pay off these high rate of interest contracts which we were carrying’; that she gave Switzer a list of all their equipment and their valuation of it; that Switzer stated he would pay off the Winn contract and he would then ‘borrow money on it’; that he was positive he could finance the whole deal ‘and enable him to come into the business as a partner and match their equipment with additional equipment which he had and what he didn't have, he would be in a position to buy’; that Mr. Narron stated he would transfer plaintiffs' title to this property to Switzer until all the money advanced by him in paying off the debts had been repaid; that Switzer stated they could take their time about paying back the indebtedness; that Switzer asked how much money it took for the Narrons to get by on a month or how much they would want to take from the partnership a month; that they stated they ‘didn't want to take anything from the business, only just barely enough to live on and that they would leave all their profits in the business with the exception of around $500 per month; that they informed Switzer that the remaining profits would go toward payment of the sums advanced by him; that Narron told Switzer he had to know something definite as to a partnership deal between them; that Switzer stated he was reasonably sure he would come into the business if they had an additional thirty days to wait for the escrow; that by then he could see his way clear to come into the business and then he would come in as a partner; that Switzer told Narron to have a contract drawn up; that Narrons' attorney was ill and he, therefore, told Switzer to go ahead and draw up the contract and bring it down. In this connection Narron testified that he and Switzer both stated they were going to have an equal partnership ‘50–50’; that Switzer said he would sign a contract but nothing was said by him as to what kind of a contract; that Switzer told him they would operate the business as partners and that nothing was said as to how much Narron was to get for his equity in the equipment and property; that if the business did not make a profit they were supposed to sell it; that they would pay Switzer from the proceeds of the sale the sums advanced by him, plus any loss.
On August 4, 1947, the Winn escrow was opened and on September 11th the Narrons assigned all their interest in the property covered by the Winn contract to Switzer.
Mrs. Narron, when signing the various instruments transferring title to their property, asked Switzer's attorney for an explanation as to the assignments without a contract with Switzer and at the attorney's suggestion and with his assistance wrote a letter to Switzer, dated September 12, 1947, outlining their understanding of the deal as follows:
‘We feel that it might be wise for you and us to set down in writing the understanding between you and us whereby we are transferring our business and all property used therein to you, so that we may avoid any possible misunderstanding which may arise in the future. It is our understanding that you do not wish to obligate yourself to pay us any certain sum of money but generally speaking is agreed that we are to be employed by you in your continuation of the present business at reasonable salaries and that if the business earns a profit we are to receive from you a portion of the profit until we have been repaid our initial investment in the business.
‘We have discussed the foregoing with Mr. Fletcher and he has suggested that we write you our views on the matter with the thought that perhaps a written agreement can be entered into between us making somewhat definite your plans with regards us for the future.
‘Please give this your earnest thought and advise us just how you feel, that is if you are not planning on coming back down real soon. We want you to know that we want to be as fair with you as you have been with us. We are signing the two assignments, the right title and interest in escrow 38603 and all right title and interest in and to that certain contract dated March 1, 1944 by and between W. M. Winn and Wilson Narron, and are enclosing same to you today. We certainly hope that all of this works out as soon as possible that we may be able to get going here.
‘We shall be awaiting word from you as to the above matter, and want to now express our thanks to you for all that you have done so far and just hope we will be able to repay in gratefulness and our services. Hoping to see you soon,
‘We wish to remain
/s/ Wilson Narron
/s/ Ernestine Narron.'
Switzer replied as follows:
‘Your letter of Sept. 12th received with the various enclosures which you mention, signed. Note the various items contained in your letter and feel that you are entitled to a written understanding for your own information as well as for our own records here. You may be assured that something that will be satisfactory to all concerned will be prepared and submitted for your approval as soon as all details are gotten together and we are ready to take over the operation there.
‘We naturally want to have you remain in our employ there and to consider that you are not going out of business but that you are being taken into and joining us in a venture that will prove profitable and a happy one for all concerned.
‘It is our understanding that you have talked over with Mr. Fletcher the matter of your retaining your accounts receivable and also any cash in the bank there; also that you are to pay all your accounts payable. It might be that we would want to assist you in taking care of some of these and in that case any money we paid out for your account could be charged to your account to be repaid as might be determined later on.
‘You mention a salary for you both; this will be arranged also some arrangement for you to receive from the net profits of the business a certain percentage until you have received back out of your original investment your present net worth. This figure we would like to have you submit your idea of just what that amount would be.
‘We are getting all things under way as fast as we can and will undoubtedly be seeing you again very soon.
‘Yours very sincerely
/s/ L. Glenn Switzer
L. Glenn Switzer.'
Following September 11, 1947, defendants operated the business in El Centro. Equipment was moved from Pasadena to El Centro by Switzer. The Narrons were permitted to work in the business and to draw $500 per month for living expenses until their employment was terminated by a letter from Switzer on May 10, 1948. The record shows that the business commenced to lose money and the net loss for the period October 1, 1947 to November 30, 1949, amounted to the sum of $124,248.69. This loss was paid by the defendants.
Plaintiffs took the position at the trial that Switzer promised to enter into a partnership with plaintiffs and that he did not intend to keep this promise; that plaintiffs, in reliance upon Switzer's promises and representations with respect to a partnership, conveyed their property to him and that they are entitled to recover the value of the property so conveyed.
The trial court found, among other things, that defendants paid to the creditors of plaintiffs and advanced to and for plaintiffs the total sum of $29,034.66; that the plaintiffs are entitled to a judgment against the defendants for $83,108.50 (the fair market value of all real property with improvements attached thereto and all personal property), $21,801.18 (fair market value of material taken from the government pit), and $5,000 (advanced royalties by the plaintiffs to the Bureau of Reclamation to the new government pit), a total of $109,909.68; that defendants are entitled to a credit in the said sum of $29,034.66. The court quieted plaintiffs' title to the permit issued by the Bureau of Reclamation and also quieted title in defendants to certain real and personal property. It found that Switzer promised plaintiffs he ‘would prepare and enter into a written partnership agreement or joint venture with plaintiffs and that it was at no time the intention of Switzer to enter into a partnership in the cement business in good faith with the plaintiffs and said promise was made without any intention of fulfillment.’ However, according to Narron's testimony the terms of the proposed written partnership contract were never discussed and we find no evidence in the record from which the precise terms of such a proposed contract can be ascertained. That the parties never reached an agreement as to their contractual relationship is evidenced by the letter of September 12th to Switzer and his reply thereto. The contract was never prepared or submitted to the parties for execution. Narron testified that he and Switzer both stated that they were going to have an equal partnership and Switzer stated that they would operate the business as partners. However, if a partnership agreement had been drawn and executed by Switzer in accordance with Narron's understanding, it would necessarily contain a provision relative to sharing the losses as well as the profits of the business. As was said in Nelson v. Abraham, 29 Cal.2d 745, 749, 177 P.2d 931, 933:
‘A partnership connotes coownership in the partnership property with a sharing in the profits and losses of a continuing business.’
The trial court made no finding as to the losses paid by Switzer during the time the business was operated by the parties and this was a material issue raised by the allegations of the answer of the Transmix corporation to the amended and supplemental complaint. Since the damages recoverable by plaintiffs for the alleged failure of defendant Switzer to perform a promise to execute a partnership agreement are limited by the amount they would be entitled to receive had the promise been kept, Civil Code section 3358; Cutler v. Bowen, 10 Cal.App.2d 31, 37, 51 P.2d 164, the failure of the court to find as to the loss suffered by the business and to consider this loss in awarding damages to plaintiffs constitutes prejudicial error.
The trial court erroneously awarded plaintiffs $21,081.18, found to be the fair market value of the material taken from the government pit involved. A person claiming to be defrauded by false representations may elect to rescind the contract or affirm it and claim damages but he may not do both. LeClercq v. Michael, 88 Cal.App.2d 700, 703, 199 P.2d 343; Bagdasarian v. Gragnon, 31 Cal.2d 744, 750, 192 P.2d 935. In the instant case the trial court found that the plaintiffs elected to pursue the remedy of damages. The evidence shows that it was agreed between the parties that the permit to take rock, sand and gravel from the government pit was to be taken in plaintiffs' name and the material used in the operation of the business. At least $2,500 of the $3,000 deposited with the Reclamation Bureau was furnished by Switzer as advanced royalties for the first year's use of the pit. Switzer, at his own expense, built a road to the pit and installed a rock, sand and gravel plant, with a sand washer. After the plant was installed, the pit material was segregated and washed and, in part, stockpiled. The total amount of material used in the business was found to be 72,670.60 cubic yards. The government permit was merely to take materials from the pit and pay a royalty to the Reclamation Bureau of 15¢ per cubic yard. It was limited to five years and the quantity of materials available under the permit was approximately 5,000,000 cubic yards. It was not shown that the removal of 72,670.60 cubic yards and its use in the business damaged the Narrons to the extent of the fair market value thereof. The trial court found in this connection that plaintiffs permitted the mining of sand and rock in said pit by defendants in the belief that it would be mined for the benefit of the partnership in which plaintiffs had an interest and the evidence shows that it was so mined and used. The damage to plaintiffs, if any, occasioned by the removal and use of the pit materials in the business occurred by reason of the failure to realize a profit from the operation of the business and not by the failure of Switzer to execute a formal partnership agreement.
The trial court further found that Switzer informed plaintiffs he could borrow money at a lower rate of interest than plaintiffs; that he represented to plaintiffs that defendants had a great deal of equipment and had competent men in their employ who could and would act as managers and office men; that Switzer promised plaintiffs that he would examine their properties and equipment and if plaintiffs' equipment and properties were as represented, he would furnish equipment equal or greater in value than that owned by the plaintiffs; that he promised to furnish a manager and office man and money for working capital. It was then found that all of the aforesaid promises, statements, representations and conduct on the part of the defendants were false, untrue and fraudulent. The evidence does not support this general finding as the record does show that the defendants did have a great deal of equipment and competent men in their employ; that they did examine the properties of plaintiffs and did furnish the equipment, men, and working capital as promised.
It is apparent from the record before us that the plaintiffs, faced with a foreclosure trial, needed capital to save their business. Switzer agreed to and did pay their debts in the sum of $29,034.66, taking title to their equipment and property. He took charge of and operated the business, employed plaintiffs and agreed that plaintiffs could pay back the money advanced by him out of the profits of the business. While the evidence supports the finding that Switzer agreed to execute a formal partnership agreement and failed to do so, there was no proof that the defendants wasted or mismanaged the business or business property, or that a profit would have been made if a written partnership agreement had been executed. If we assume that Switzer fraudulently represented that he would execute such an agreement or promised to execute it without any intention to keep the promise there was nevertheless a failure on the part of plaintiffs to prove that they were thereby damaged in the amount awarded by the judgment. The record shows that plaintiffs' loss was caused by the failure of the business and not by defendants' failure to execute a partnership agreement.
BARNARD, P. J., and GRIFFIN, J., concur.