PIGEON POINT RANCH INC v. PEROT (1962)

This is an appeal from a judgment of dismissal of the first, second and third counts of the second amended complaint. The judgment was entered upon motion of the defendants after a general demurrer to each of those causes of action had been sustained with leave to amend and the plaintiff had filed a written declination with respect to such leave. A general demurrer directed to the fourth cause of action was overruled and an answer thereto was filed.

In each count of the second amended complaint were embodied allegations as to an agreement whereby the defendant Edward S. Perot, on behalf of himself and others whom he represented, and Charles W. Beeler undertook to sell all of the stock of the plaintiff corporation to one Ward who was acting for undisclosed principals. Beeler owned 2,800 shares and the Perot group 4,200 shares. The corporation was indebted to Perot Shasta Ranch in the sum of $180,000 and to Mr. and Mrs. Perot in the sum of $20,000. It was provided that, in exchange for their 4,200 shares of stock and a discharge of all corporate obligations to the Perot Shasta Ranch and Mr. and Mrs. Perot, the Perot group should receive $237,500, together with two lots in Marin County owned by the corporation, the transfer of the lots to Mr. Perot to be ‘subject to any present encumbrances that may be existing.’ In addition, there was a provision that Mr. Perot should assume the obligation to discharge accrued attorneys' fees for services to the corporation in any amount in excess of $1,500 and that he should receive ‘$1500.00 attorneys' fees' with respect to that matter. The document whereby Mr. Perot accepted the agreement on behalf of himself and those whom he represented was executed on or about September 20, 1957. The transaction was consummated; on or about November 12, 1957, Ward completed the payment to the defendant Perot of the sum of $237,500 together with the additional sum of $1,500.

In the first cause of action of the second amended complaint, it was alleged that the plaintiff corporation was organized on or about February 2, 1955, and that the defendant Edward S. Perot was the president and a director thereof from the time of its formation until on or about November 12, 1957. In November 1956, Arthur F. Duncan became the secretary and treasurer. It was further alleged that ‘ever since said 2d day of February, 1955, and to on or about the 12th day of November, 1957, the said Edward S. Perot controlled, through ownership of stock and by proxy, the vote of sixty per cent (60%) of the capital stock issued by plaintiff corporation and * * * in truth and in fact, the said Edward S. Perot together with the said Arthur F. Duncan from and since the 10th day of November, 1956, to on or about the 12th day of November, 1957, had complete and absolute control and management of all the business, finances, property, records and accounts of said plaintiff corporation.’ Additional allegations were that Ward was in fact acting as the agent of Beeler and that the stock transferred by the Perot group was retired and Beeler became the sole stockholder. The wrong asserted was that the defendant Perot ‘violated the terms of said agreement and further violated his duties and obligations to plaintiff corporation as an officer and director thereof’ in that he did not use the sum of $1,500 to pay the fees of the law firm which had rendered services to the corporation but converted that amount to his own use and paid the fees for such services in the amount of $1,437.14 out of corporate funds. Of the latter sum $1,325 was paid on November 8, 1957, and $112.14 on or about October 25, 1957. Recovery of $1,437.14 from Perot was sought under the first cause of action.

In the second cause of action the allegations of the first cause of action with respect to the transaction as to the transfer of the shares of stock were incorporated by reference. It was further alleged that under the contract the two lots in Marin County were to be transferred to Mr. Perot subject to the encumbrances thereon. At the time of the making of the contract the lots were encumbered by certain improvement bonds. The wrong asserted was that on or about October 25, 1957, the defendant Perot paid to the city of Mill Valley from corporate funds the sum of $868.65 with respect to such bonds and that on or about November 21, 1957, the defendant Perot accepted the deed of the plaintiff corporation to the lots without repaying that sum to the plaintiff. Recovery of that amount was sought.

In the third cause of action, in addition to the allegations incorporated therein by reference with respect to the transaction for the transfer of the shares of stock, it was alleged that part of the corporate indebtedness to Perot which was to be paid under the terms of the agreement was in the sum of $1,000. It was further alleged that on November 12, 1957, under the terms of the agreement Perot received that sum but that, prior thereto, on or about October 25, 1957, the defendant Perot had reimbursed himself as to that obligation from the funds of the corporation; by reason of such facts he was twice paid the amount owed him. Recovery of $1,000 was sought.

The gist of the fourth cause of action was that while under the terms of the agreement the defendant Arthur F. Duncan was to be paid from corporate funds the reasonable value of the accounting services rendered by him to the corporation to the date of the closing of the escrow, on September 20, 1957, and again on October 7, 1957, Duncan as secretary and treasurer and the defendant Perot as president caused the sum of $1,000, or the total amount of $2,000, to be paid to Duncan from corporate funds ‘in purported payment of accounting services,’ whereas the services were not of a reasonable value in excess of $750. Recovery from the defendants Perot and Duncan of $1,250 was sought. The sufficiency of the pleading of this cause of action is not involved on this appeal.

The first problem to be determined is whether the judgment entered is a final judgment from which an appeal can be taken. The judgment does not completely dispose of the action; the fourth cause of action remains to be tried. However, that count is of such a nature that it, standing alone, is within the jurisdiction of the municipal court. (Code Civ.Proc., § 89.)

The general rule is that there cannot be piecemeal disposition of several counts in a complaint which are all directed against the same defendant or defendants. (Gombos v. Ashe, 158 Cal.App.2d 517, 520–523, 322 P.2d 933.) Thus, in Mather v. Mather, 5 Cal.2d 617, 55 P.2d 1174, where a demurrer to one cause of action was sustained without leave to amend and a judgment was thereafter entered to the effect that the plaintiff take nothing by that cause of action, the Supreme Court dismissed the appeal from that judgment, stating that the judgment was not a final judgment and was not appealable. (See also de Vally v. Kendall de Vally Operalogue Co., Ltd., 220 Cal. 742, 745–746, 32 P.2d 638; Wilson v. Wilson, 96 Cal.App.2d 589, 595–596, 216 P.2d 104.) Whether the present judgment is appealable under an exception to the general rule presents a difficult question. The resolution thereof appears to be related to the problem of whether the superior court had jurisdiction to determine the fourth cause of action on its merits after the judgment of dismissal was entered as to the other causes of action. The pertinent authorities will be discussed.

In Wexler v. Goldstein, 146 Cal.App.2d 410, 304 P.2d 41, the plaintiffs commenced an action in the municipal court to recover a money judgment for legal services. The defendant cross-complained for an amount in excess of the jurisdiction of that court and the municipal court transferred the action to the superior court. (Code Civ.Proc., § 396.) Thereafter the defendant filed a second amended cross-complaint containing two counts. A general demurrer was sustained as to the second count with leave to amend, but the defendant did not avail himself of such leave. By the remaining count of the cross-complaint the defendant sought to recover an amount within the jurisdiction of the municipal court. After the plaintiffs had filed an answer to that count, the defendant sought to retransfer the action to the municipal court, but his motion was denied. The case went to trial in the superior court and the plaintiffs recovered judgment. While the defendant's motion for a new trial was pending the court made an order, nunc pro tunc as of the date of the trial, dismissing the second count of the defendant's cross-complaint because of his failure to amend. Thereafter the motion for a new trial was granted and it was ordered that the action be remanded to the municipal court. The appeal was from both orders.

In the Wexler case the appellate court discussed the provisions of the second paragraph of section 396 of the Code of Civil Procedure,¹ stating (146 Cal.App.2d at page 414, 304 P.2d at page 43): ‘The plain meaning of this paragraph, standing alone, is that if at any time, up to and including the trial, the court in which the action is then pending finds that its decision of the action will necessarily involve a determination of a question not within its jurisdiction, it must transfer the action to a court having jurisdiction.’ However, the court concluded that, because of the fifth paragraph of section 396 of the Code of Civil Procedure,² the superior court was not under the same disability as the municipal court. The court said (146 Cal.App.2d at page 414, 304 P.2d at page 43): ‘The effect of this paragraph is to qualify the second paragraph of section 396 as to superior courts only. It gives such courts the discretion either to transfer back to the municipal courts or retain jurisdiction where what otherwise would be a lack of jurisdiction is ‘determined at the trial or hearing.’'

In applying such interpretation of section 396 to the case then before it and determining that the superior court retained jurisdiction, the court said (146 Cal.App.2d at pages 414–415, 304 P.2d at page 44): ‘The next question is whether the order dismissing the second count of the cross-complaint was a part of the trial within the meaning of said fifth paragraph. Up until the dismissal of the second count, defendant could have filed an amendment thereto and thus kept it alive. The determination which caused it to be no longer a pleading in the case was the nunc pro tunc order of dismissal. The legal situation then became the same as though the plaintiffs had actually moved, at the start of the trial, to have such count dismissed for failure to amend. It would thus follow that the first time it appeared that the judgment to be rendered was within the jurisdiction of the municipal court was when the superior court ‘determined at the trial’ to dismiss the second count. This being so, the superior court had the right to either transfer the cause back to the municipal court or go ahead and complete the trial. The trial was completed and a judgment rendered upon the merits. Thus, the very object of the fifth paragraph of section 396 was achieved.' (See also Adams v. County of San Joaquin, 162 Cal.App.2d 271, 275–276, 328 P.2d 250; Muller v. Reagh, 150 Cal.App.2d 99, 102–103, 309 P.2d 826.)

We are not persuaded, however, that the interpretation placed upon the fifth paragraph of section 396 of the Code of Civil Procedure in Wexler v. Goldstein, supra, 146 Cal.App.2d 410, 304 P.2d 41 (which was followed in Muller v. Reagh, supra, 150 Cal.App.2d 99, 309 P.2d 826, and Adams v. County of San Joaquin, supra, 162 Cal.App.2d 271, 328 P.2d 250) is correct. We believe that the proper construction is that set forth in 1 Chadbourn, Grossman and Van Alstyne, California Pleading, § 99, at page 71, as follows: ‘In our opinion the sole significance of § 396, paragraph five is this: It is a modern statutory enunciation of the ancient principle that when a case is stated within Superior Court jurisdiction such jurisdiction is not ousted by failure to prove the case. This principle was (we believe) inserted in § 396 as a measure of precaution to indicate its continuing force and operation, notwithstanding anything in § 396. Since we think this (and this only) was the purpose of paragraph five, we regard as decidedly erroneous the construction of that paragraph which makes of it a source for creating jurisdiction of a case not within normal jurisdictional bounds of the Superior Courts.’

In view of the conclusion just expressed, it is not necessary to discuss whether the factual situation in the present case falls outside of the rationale of the Wexler case in that the judgment of dismissal, which constituted the determination by virtue of which the first three counts ceased to have any effect as part of the plaintiff's pleading, was rendered pursuant to the defendants' motion prior to any trial of the factual issues raised as to the remaining cause of action.

Upon the entry of the judgment of dismissal, only the fourth cause of action remained. That cause of action, standing alone, was not within the jurisdiction of the superior court and it was the duty of that court to transfer the action to the municipal court in due course pursuant to the provisions of the second paragraph of section 396 of the Code of Civil Procedure. As applied to that situation, the reasoning of Keenan v. Dean, 134 Cal.App.2d 189, 285 P.2d 300, leads to the conclusion that the judgment now before this court is an appealable judgment. In the Keenan case an unlawful detainer action was transferred from the municipal to the superior court because of a cross-complaint filed by the defendant against the plaintiff. In the latter court the plaintiff moved to strike the cross-complaint from the files on the ground that the particular cause of action therein pleaded was not a proper ground of cross-complaint in the pending case. The motion was granted and the defendant appealed from the order. In determining that the reasons underlying the general rule that an order of the superior court striking a cross-complaint can only be reviewed on appeal from the final judgment did not apply in that case, the court said (134 Cal.App.2d at page 192, 285 P.2d at page 302): ‘In the instant case the action was commenced in the Municipal Court and then was properly transferred to the Superior Court solely because of the cross-complaint. That cross-complaint now has been stricken. All that remains to be tried is the original action properly filed in the Municipal Court. When that fact is called to the attention of the Superior Court, under the mandatory provisions of section 396 of the Code of Civil Procedure, it will have to return the case for trial to the Municipal Court. Neither that court, nor the Appellate Department of the Superior Court has power to review the propriety of the ruling of the Superior Court striking the cross-complaint. Thus, in a very real sense the order striking the cross-complaint was a final order or judgment. The Superior Court has finally determined that it has no jurisdiction of the proceeding. Unless the propriety of that order can be reviewed on this appeal its propriety cannot be reviewed at all. The order to strike was tantamount to a dismissal of the action on the cross-demand, Herrscher v. Herrscher, 41 Cal.2d 300, 259 P.2d 901, and, under the circumstances, was a judgment within the meaning of section 581a of the Code of Civil Procedure. See Costa v. Regents of the University of Cal., 103 Cal.App.2d 491, 229 P.2d 867. Since the propriety of such judgment cannot otherwise be reviewed it is necessarily a final judgment and therefore appealable.’ In the present case, to deny the plaintiff an appeal to this court from the judgment of the superior court would be, as in the Keenan case, to deny it any review at all of the challenged action of the superior court.

Turning then to the merits of the appeal, it is to be first noted that this court is not concerned with any cause of action which any party to the agreement for the transfer of the shares of stock may have as against any other party under that agreement. The sole question with respect to each of the three counts is whether a cause of action has been stated as between the corporation and the defendant. Perot. In passing upon the sufficiency of a pleading, the guiding principle is that its allegations must be liberally construed with a view to substantial justice between the parties. The allegations of the complaint must be regarded as true and it must be assumed that the plaintiff can prove all the facts as alleged. (Schaefer v. Berinstein, 140 Cal.App.2d 278, 288, 295 P.2d 113.)

The defendant Perot was the president of the corporation and managed its affairs. As such officer he had well-defined obligations. Those obligations are stated in Western States Life Ins. Co. v. Lockwood, 166 Cal. 185, at page 190, 135 P. 496, at page 498: ‘Such an officer, and especially a director who is president of a corporation, is obligated, by reason of his mere occupancy of the office, to act in all matters affecting the corporation and its stockholders solely with an eye to their best interests, unhampered by any pecuniary interest of his own. ‘By assuming the office he undertakes to give his best judgment in the interests of the corporation in which he acts for it, untrammeled by any hostile interest in himself or others. There is an inherent obligation on his part that he will in no manner use his position to advance his own interests as an individual, as distinguished from that of the corporation.’ [Citation.]' (See also Lawrence v. I. N. Parlier Estate Co., 15 Cal.2d 220, 229, 100 P.2d 765; Abbot Kinney Co. v. Harrah, 84 Cal.App.2d 728, 734, 191 P.2d 761; Lowe v. Copeland, 125 Cal.App. 315, 322, 13 P.2d 522.) A corporation may sue a managing officer to recover for any loss suffered by it as a result of the misfeasance of such officer. (Anderson v. Derrick, 220 Cal. 770, 773, 32 P.2d 1078; see Uchida Investment Co. v. Inagaki, 108 Cal.App.2d 647, 239 P.2d 644; Abbot Kinney Co. v. Harrah, supra, 84 Cal.App.2d 728, 191 P.2d 761.)

With respect to the first cause of action, it was sufficiently alleged that there was a provision in the agreement for the transfer of the shares of stock under which Perot would receive $1,500 to be used to discharge the obligation of the corporation for attorneys' fees. He received that amount. However, during the time that he was in charge of the corporation's affairs he used its funds to discharge the obligation. Obviously, such conduct constituted willful mismanagement of the affairs of the corporation to its detriment because Perot knew that the obligation could be satisfied by funds to be received under the contract without any necessity of recourse to the funds of the corporation for the payment thereof. Further, such mismanagement inured to his personal benefit because he received the sum of $1,500 pursuant to the terms of the contract after the obligation, in the discharge of which such money was intended to be used, had been unnecessarily paid with corporate funds. Perot's conduct, as alleged, could not be said to have been in good faith and with a view to the best interests of the corporation. The corporation suffered a wrong and a cause of action with respect thereto was stated.

By the same reasoning, a cause of action was stated in the third count with respect to the use of corporate funds to pay $1,000 to Perot at a time when he knew that such payment was unnecessary and a dissipation of corporate funds because provision for the extinction of the obligation had been made in the contract for the sale of the shares of stock.

With respect to the second count, Perot knew that under the agreement the lots in Marin County were to be transferred to him ‘subject to any present encumbrances that may be existing.’ Obviously there was no necessity to use corporate funds to discharge any part of the indebtedness against the lots which was represented by the improvement bonds since thereby no benefit could accrue to the corporation. Its funds were dissipated by such action and the only benefit was that which was realized by Perot personally when the property was thereafter transferred to him. A cause of action was stated.

The judgment is reversed with directions to overrule the demurrer as to each of the first three causes of action of the second amended complaint.

FOOTNOTES

1.  That paragraph is in part as follows: ‘If an action or proceeding is commenced in or transferred to a court which has jurisdiction of the subject matter thereof as determined by the complaint or petition, and it thereafter appears from the verified pleadings, or at the trial, or hearing, that the determination of the action or proceeding, or of a counterclaim, or of a cross-complaint, will necessarily involve the determination of questions not within the jurisdiction of the court, in which the action or proceeding is pending, the court, whenever such lack of jurisdiction appears, must suspend all further proceedings therein and transfer the action or proceeding * * * to a court having jurisdiction thereof * * *.’ (Emphasis added.)

2.  That paragraph is as follows: ‘Nothing herein shall be construed to require the superior court to transfer any action or proceeding because the judgment to be rendered, as determined at the trial or hearing, is one which might have been rendered by a municipal or justice court in the same county or city and county.’ (Emphasis added.)

FORD, Justice.

SHINN, P. J., and FILES, J., concur. Hearing granted; SCHAUER, J., not participating.