Unruh v. Kauffman

SEAWELL, J.

The question presented by this appeal is whether the action brought against the stockholders of a corporation upon the personal liability provision of section 322 of the Civil Code for compensation for services rendered said corporation under a contract entered into by said corporation and the claimant is barred by the provisions of section 359 of the Code of Civil Procedure. The trial court held that it was not; hence the appeal.

In 1912, Milton Kauffman, appellant herein and a defendant at the trial, purchased a tract of unimproved land, consisting of about 2,000 acres and known as tract 2371, from the E. J. Baldwin estate for the purpose of bringing the same into a high state of development and offering lots and parcels thereof for resale in accordance with a plan of subdivision which he had in contemplation. David S. Unruh, a civil engineer, was acquainted with the lands purchased, as both he and said Milton Kauffman either had owned or did then own small tracts of land situate in the vicinity of said tract 2371 prior to the purchase of the latter by said Milton Kauffman. Kauffman and Unruh entered into an agreement whereby Unruh was to do the surveying, subdividing, laying out of and grading of streets and such other work of engineering as would bring said lands into a state of improvement and development that would make them readily marketable. Said improvement included the development of a water system for irrigation purposes of a capacity sufficient to produce upon said lands citrus fruits, as well as expensive land improvements not necessary here to describe. From the inception of the purchase of said lands by Kauffman it was agreed between him and Unruh, who consulted and advised with Kauffman in the matter,

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that as soon as feasible a corporation was to be formed and said tract of 2,000 acres was to be conveyed to it in consideration of a certain number of shares of stock of said corporation to be issued to said Kauffman as would be fair and just in the premises. Kauffman and Unruh agreed that in the meantime the latter should begin the work of construction, development, and subdivision as was forecast by the project. In furtherance of said plan the Valencia Heights Water Company was incorporated November 6, 1912, and by amended articles thereafter filed it became a mutual water company operated for the benefit of the land owners. Unruh commenced the work of construction, development, and subdivision during the fall of 1912. It was the agreement of Kauffman and Unruh from the beginning of their contractual negotiations that Unruh was to receive as compensation for all services rendered by him in connection with said tract 2371, comprising 2,000 acres of land, which services included the development of water, sinking of wells, building of reservoirs, laying out and grading of streets, subdivision, and other development work, a commission computed upon a sales price valuation of the lands to be fixed when the subdivision was finally completed and a map thereof was placed of record. Said map was recorded July 8, 1913. The method of fixing the basis of the compensation which Unruh was to receive for all services performed by him was orally agreed to in March of said year 1913. The corporation, which it was agreed from the first should be formed to finance and handle the project, was incorporated April 17, 1914, and was given the corporate name of Valencia Groves Company. The capital stock consisted of 500,000 shares. Only about 2,003 shares were fully paid for or issued. Practically all of said stock issue—1991 shares—was held and owned by Milton Kauffman. The other few shares were issued for organization purposes only. Milton Kauffman was the president-treasurer-manager of said corporation. It was understood between said Kauffman and Unruh from the commencement of their business engagements that Unruh was to receive as compensation for all services rendered by him two and one-half per cent commission on the sales price of the land. The oral agreement was definite as to the payment of two and one-half per cent commission, but was silent as to some of the subjects contained in the written contract