McCarthy v. Mount Tecarte Land & Water Co. (1896) · DecisionDepot
McCarthy v. Mount Tecarte Land & Water Co.
California Supreme Court Feb 21, 1896 No. L. A. No. 85Published
Before: McFarland
Synopsis
Account Stated — New Contract—Balance of Account — Item of Credit — Subsequent Agreement for Release — Finding against Evidence.—A contract created by an account stated is a new and independent contract, as much so as if a note had been given for the balance of the account; and where an account stated upon a particular date is declared upon for a sum equal to the amount of wages, exclusive of any credit, hut an item of credit in fact appears in the account stated on that date, for the purchase price of certain shares of stock, in a specified sum, a finding of an account stated on that date for the amount of the charges only, omitting the credit and the balance of the account, is against the evidence, notwithstanding there is evidence that at a subsequent time there was an agreement to release the credit, and to permit the account to he presented for further examination and allowance.
Id.—Opening of Account Stated—Cause of Action—Support of Judgment.—If an account stated at a certain date, which is sued upon, was afterward opened up, it cannot stand as a cause of action; nor can a judgment for the aggregate amount of the items of charges he sustained upon a stated account which shows a credit and a balance of a smaller sum.
.Corporations—Services of Stockholder and Director as Superintendent and Manager—Implied Contract for Compensation.—A stockholder and director of a corporation is not entitled to compensation for services rendered by him as superintendent and general manager, unless there is a contract, express or implied, for such compensation; and when the recovery of compensation depends upon an implied contract, arising oufc of and inferable from the situation and relation of the parties, evidence is admissible to prove any fact which would throw light upon that relation, or tend to show the intention of the parties; and it is error to refuse to allow evidence to what extent the plaintiff was a stockholder of the corporation, and that it was a usage of the corporation that no compensation should be paid to the directors or other officers, and that it was so agreed upon between the original corporators.
Id.—Usage as to Compensation—Matter op Fact—Conclusion op Witness—Importance op Testimony—Financial Condition op Corporation.—Whether there is a usage of a corporation not to pay compensation to its officers is matter of fact, competent and relevant to be testified to upon an issue as to whether there was an implied understanding for compensation to a stockholder and director acting as superintendent and general manager; and such testimony is not objectionable as being the conclusion of the witness, and it is specially important where it appears that the corporation was in poor financial condition when the services were rendered.
Id.— Statute of Limitations — Written Instrument—Resolution op Director—Implied Contract por Services.—Where there is no express written contract of a corporation to pay a compensation to one of its stockholders and directors for services rendered as its superintendent and general manager, the cause of action to recover for such services cannot be based upon a mere resolution of the directors appointing to those positions, as being a written instrument within the meaning of the code, hut can only be based upon an implied contract for reasonable compensation for the services rendered; and such cause of action is barred as to all services rendered more than two years before the commencement of the action.
McFarland, J. Judgment went for plaintiff, and defendant, a corporation, appeals.
There are two counts in the complaint. In the first it is averred that on September 11, 1891, there was an account stated between the parties for moneys before that time expended by plaintiff for the use of defendant; that the balance on said account stated was on said day [333]$10,050.07; and that defendant agreed and promised to pay said balance. The alleged cause of action in this first count is purely an account stated. The second count is for $23,000 alleged services by plaintiff as general manager of defendant.
1. The court found, on the first count, that on September 11, 1891, defendant was indebted to plaintiff fpr moneys expended for defendant’s use in the sum of $10,050.07, “ and that on the said eleventh day of September, 1891, the plaintiff stated his account for such moneys to the defendant in the said sum of ten thousand and fifty and seven one-hundredths ($10,050.07) dollars, and that defendant accepted the account as stated, and agreed in writing to pay the same.” It is further found that defendant afterward paid plaintiff $2,000, and that at the commencement of the action there was due thereon $8,050.07, with interest from said September 11th at seven per cent per annum—for which amount judgment was rendered.
Appellant contends that the finding of an account stated on September lltli for $10,050.07 is not supported by the evidence, and is against law; and the contention must be sustained. As to the question whether there was any stated account at all on September 11th—that is, whether the appellant then agreed to any account presented by respondent as a final settlement—the evidence is conflicting. But, if we assume that there was an account stated on that day, it is clear that it was not for $10,050.07, but for only $3,550.07. The contract found is not the one proved. The statement on motion for a new trial contains the following: “Said account was headed, ‘ Mt. Tecarte Land and Water Company in account with D. O. McCarthy,’ and consisted of a large number of items of debit against the defendant running from May 15, 1888, to September 2, 1889, and aggregating the sum of $10,050.07, with a credit under date of July 2, 1891, of $6,500, and. showing a net balance of $3,550.07. The aggregate of the account, the credit [334]
thereon, and the balance after deducting the credit being as follows:
“$10,050 07
“July 2, 1891, Cr. by issue to D. 0. McCarthy of 65,000 shares of stock at ten cents per share ...................... 6,500 00
“Balance due $3,550 07”
And immediately following was an indorsement as follows:
“Approved and ordered paid at a meeting of the board of directors held September 11, 1891.
“ E. M. Dean, Secretary,
- “By B. F. Moore, Ass’t Sec’ty.”
(The respondent withdrew from his offer of the account the indorsement of the secretary, Dean. Appellant objected to this withdrawal, because, then, only a part of the account was offered, and his objection was overruled. If that indorsement be not considered, then there is little evidence tending to show that any account was agreed to by appellant; but that is not important here, because we are now assuming that there was some kind of a stated account on September 11th.)
There is no evidence showing, or tending to show, any account stated on September lltli, other than the one described in the part of the transcript above quoted; and that account clearly showed a balance of only $3,550.07, and for the latter sum alone could the appellant be held liable upon the contract which is created by a stated account—which is a new and independent contract. (See Coffee v. Williams, 103 Cal. 556, and cases there cited.)
The finding was, no doubt, based upon some occurrences which took place long after the alleged stating of the account on September lltli, and which, keeping in view the nature of a stated account, should not have been considered. The $6,500 worth of stock of the corporation defendant, with which respondent credited [335]■appellant in the alleged stated account of September ILth, had been purchased by respondent on July 2, 1891, and had not been paid for; and it appears that afterward, on November 26, 1891, the board of directors of the appellant—a new board having been elected about that time—by resolution allowed respondent to surrender the certificates for said stock, and cancel said sale, and to be released of said credit, and it was resolved “ that said D. 0. McCarthy be and he is hereby requested and allowed to present his account against the company, together with the account of J. Harvey McCarthy, against the company, to this board for examination and allowance, within the period of sixty days next ensuing from and after this date.” There is a conflict of evidence on the question whether respondent ever did afterward present another account; but this is immaterial here, because the transactions of November 26tli did not change the liability of appellant upon the contract evidenced by the alleged stated account of September 11th—unless, indeed, they showed that said alleged account was not intended to be a final stated account, or unless they worked a rescission of that contract. In this action respondent must rely upon the alleged stated account of September 11th as it stood stated on that day. If it was afterward opened up, it cannot stand as a cause of action. A judgment for $10,150.07 upon a stated account which shows a balance of only $3,550.07 cannot be sustained. If the account of September 11th was a stated account, the appellant is in the same position, except in some particulars not important here, as it would have been if it had given its promissory note for the said balance of $3,555.07; and in an action based on the stated account a judgment for more than the balance due on the face of the account would be as erroneous as a judgment on a promissory'note for more than the face of the note.
It is also averred in the complaint that the account was restated on or about the 24th of November, 1891; [336]but as the averment was denied, and the court made no finding on the subject, it must be disregarded.
2. In the second count it is averred that on or about February 1, 1888, the defendant employed plaintiff as its general manager and agreed to pay him for his services as such a fair and reasonable compensation; that he accepted such employment and remained its general manager continuously from about February 1, 1888, to about November 24, 1891, and that his services during that period were reasonably worth $23,000—no part of which had been paid. In the answer all these averments are denied; and it is averred that the cause of action, if it ever existed, is barred by subdivision 1 of section 339 and by section 337 of the Code of Civil Procedure. During all the time mentioned in the complaint the respondent was a large stockholder and a director of the corporation defendant.
The court found that on June 6, 1888, the defendant, by a resolution of its board of directors, appointed the plaintiff its superintendent, and that lie then entered upon the duties of “said office,” and discharged them until November 24,1891; that during that time he assumed and discharged the duties of general manager with the knowledge and consent of the directors, but without any express appointment until September 2, 1891; and that on said September 2, 1391, he was, by a resolution of the board, appointed “ superintendent and general manager.” It was further found “ that no order was ever made by the board of directors of the defendant, nor any contract or agreement by any of its officers, fixing the compensation of plaintiff for his services or the time of payment thereof; but that it was nevertheless the understanding and expectation of the plaintiff and the board of directors of the defendant, at the time of plaintiff's said appointment and during the entire period of his services, that he was to receive reasonable compensation for such services.” It was also found that the value of his services during said period was $150 per [337]month; also, that no part of this cause of action was barred by subdivision 1 of section 337 of the Code of Civil Procedure; but that his right to recover for services rendered prior to January 11, 1889—four years before the commencement of the action—was barred by section 337 of the Code of Civil Procedure. Judgment on this count was ordered and rendered for $5,175.
Counsel for appellant contends that the evidence is insufficient to support the finding that “ it was nevertheless the understanding and expectation of the plaintiff and the board of directors ” that respondent was to receive compensation; but that, on the contrary, the evidence shows that the company was in poor financial circumstances, and that it was understood that none of the directors were to receive compensation for what they should do in the interest of all the projectors of the water scheme which they had in view. The preponderance of the evidence certainly seems against any understanding or expectation that respondent was to be paid; but, under our views of the case on other points, it is unnecessary to decide whether there was any material evidence sufficient to justify said finding. In the first place, we think that the court erred in ruling upon the admissibility of evidence offered on that point. As the respondent was a stockholder and director of the, corporation, he was not entitled to compensation for services rendered by him for' it, no matter under what name or official position, unless there was some kind of a contract for such compensation. Now, there is no pretense that there was an) express contract for compensation; consequently, if there was any such contract, it must have been an implied contract arising out of and inferable from the situation and relation of the parties; and any fact which could reasonably throw light upon that relation, or tend to show the intention of the parties, was relevant and admissible. (Barstow v. City R. R. Co., 42 Cal. 465.) And we think that the court erred in sustaining objections to evidence offered by appellant for that purpose. [338]For instance, appellant asked the respondent when on the witness stand: “To what extentwere you interested as a stockholder in the Mt. Tecarte Land and Water Company in the year 1888?”—and he was asked the same question as to the years 1889, 1890, and 1891. Objections to these questions were sustained, and we think erroneously. The questions tended to show the relations of the parties, and the interest which respondent himself had in the property, and to throw light on the question whether or not it was intended that he should have compensation, or, if so, how much; and “the situation of the parties at the time—the relation, if any, in which they stood of a business character, or otherwise—are important to be known and considered in order to arrive at a correct solution of the ultimate question involved.” (Barstow v. City R. R. Co., supra.) Other questions of a similar character not necessary to be here specially mentioned were incorrectly ruled out; and it was particularly erroneous and prejudicial to sustain objections to the following question, asked by appellant of one of its witnesses, who was an original incorporator and director: “ Was it not a usage of the defendant corporation that no compensation should be paid to the directors or its officers?” and to strike out the following statement of another of its witnesses: “It was agreed upon between the original incorporators that no officers should receive salaries for their services.” The court found that there was an “understanding” of the appellant that there -was to be compensation to respondent, and, as bearing on that question, the said testimony sought to be introduced by appellant was relevant and competent. Whether there was such a usage was a fact and not a mere conclusion of the witness. Upon this point the case at bar is not distinguishable from Fraylor v. Sonora Min. Co., 17 Cal. 594. In that case the plaintiff was a stockholder in the corporation defendant and had been appointed its secretary, and he sought to recover the value of services rendered as such secretary. The defendant “offered to [339]show that by the usage and custom of the corporation no compensation was chargeable for services of this nature.” Objection was sustained, and this court, on appeal, reversed the judgment. The court, in its opinion, quotes from Angelí and Ames on Corporations, as follows: “ The officers of a corporation who are to receive any compensation are usually provided for by regular salaries. If there is no salary and no particular contract, much must depend, as in other cases, upon the custom with regard to compensation for the particular services, and the expectations of the parlies growing out of it.” The court then say: “The rule thus laid down covers the principle involved in the offer made by the defendant, and we think there was a violation of this rule in the rejection of that offer. .... We have no doubt of the admissibility of the evidence; and, if the plaintiff was informed of the existence of the usage and custom referred to, the inference would naturally be that he accepted the office and performed its duties without any expectation of being compensated for his services. If any such usage in fact existed, his position as a member and officer of the corporation is sufficient,prima facie, to charge him with a knowledge of its existence.” In the case at bar we gather from the evidence that the project of the corporation was to acquire and create water and ditch property with means to be obtained by the sale of its stock; and while the record does not show affirmatively that the project was a failure, it does appear in the evidence that all the money it ever received and expended on its works did not exceed $10,000. Under these circumstances it might well have been the usage, custom, and understanding that the directors should not receive compensation for their efforts in helping along the enterprise in Avhich all Avere interested; and the said testimony offered by appellant and excluded by the court was not only admissible but highly important.
There is another point in the case Avhich demands notice. The court found that no part of respondent’s [340]cause of action for services was barred by subdivision 1 of section 339 of the Code of Civil Procedure, but that the part of the cause of action which accrued more than four years before the commencement of the action was barred by section 337. The court, therefore, must have found that the action is upon a “ contract, obligation, or liability founded upon an instrument in writing.’5 We think that the court erred in thus holding. It is contended by respondent that the resolution of the directors of appellant appointing him superintendent, or general manager, is the instrument in writing upon which this action is brought. (It may be observed that, even under this view, there was no resolution appointing him “general manager" until September 2, 1891, which was only a couple of months before his alleged services ended, and that the complaint is for services only as general manager. The resolution of June 6,1888, was for his appointment only as superintendent; and there usually is a great difference between the two positions. But as appellant does not make this point, it may be assumed, we suppose, that the resolution of June, 1888, appointed him to the place for services in which he sues.)
But a cause of action is not upon a contract founded upon an instrument in writing, within the meaning of the code, merely because it is in some way remotely or indirectly connected with such an instrument, or because the instrument would be a link in the chain of evidence establishing the cause of action. In order to be founded upon an instrument in writing, the instrument must, itself, contain a contract to do the thing for the nonperformance of which the action is brought. In Chipman v. Morrill, 20 Cal. 132, it was held that an action by one joint maker of a promissory note against the others for contribution was not upon the note as “an instrument in writing” within the meaning of the statute, and was barred in two years. In that case Justice Field, delivering the opinion for the court, said: “ Our conclusion is that it is not thus founded; [341]that the statute, by the language in question, refers to contracts, obligations or liabilities resting in or growing out of written instruments, not remotely or ultimately, but immediately. He further says: “ The construction would be the same if the word ‘ founded ’ were omitted and the statute read ‘ upon any contract, obligation, or liability, upon an instrument in writing ’ ” In the case at bar the contract—if any such there beef the appellant to pay respondent for services is not the direct and immediate consequence of the resolution appointing him superintendent. Respondent, being a director of appellant, was not entitled to compensation for services rendered the corporation, unless the circumstances were such as to raise an implied assumpsit to pay what they were reasonably worth. But that assumpsit did not arise out of the mere fact of his appointment as superintendent, as might have been the case, perhaps, if he had been a stranger. In Smith v. Long Island R. R. Co., 102 N. Y. 192, where it was held that the employment by a corporation of a stranger as secretary raised an implied obligation to make compensation for services, the court put it on the express grounds that: “He was neither stockholder nor director of the defendant, and stood in no relation to the company which entitled it to his gratuitous service, or which made it his interest to serve the-company without compensation.” And the court say further: “ The rule that directors or trustees cannot recover for services rendered for the corporation upon an implied promise is an application of the general rule applicable to trustees. But we perceive no reason of policy or justice which should prevent a person appointed as secretary, and who is neither a director nor stockholder, from receiving a reasonable compensation for his services.” (See Taylor on Private Corporations, secs, 646, 647, and cases cited; Brown v. Republican etc. Silver Mines, 17 Col. 421.) In most of the cases cited by respondent the officer or employee was a stranger having no relation to the corporation. In Rosborough v. Shasta R. R. Co., 22 Cal. 557, [342]the decision was upon the ground that there was a written order that the compensation of the plaintiff “ be established at fifty dollars per month”; and what the court said in its opinion on the subject here involved was dictum, and was not clear, because it speaks of an “ understanding and expectation” which “ removes all presumptions that the services were performed gratuitously.” The opinion refers to Fraylor v. Sonora Min. Co., supra, in which the court say that “ the right of the plaintiff to recover rests alone upon the fact of the rendition of the services.” In the case at bar, therefore, respondent’s cause of action is not upon a “ written instrument,” to wit, the resolution appointing him superintendent, or general manager. Appellant could not have been precluded from showing affirmatively that no compensation was intended or expected, upon the ground that it would have been an attempt to contradict a written instrument. If respondent have any cause of action, it is upon an understanding of appellant and the expectation of respondent that he would be compensated, which may be implied, if the evidence be sufficient, from all of the circumstances of the case, and not upon any written instrument. Indeed, the finding of the court is not that there was a contract in writing to pay compensation, but that there was, “ nevertheless, the understanding and expectation” of the respondent and the board that there should be reasonable compensation. Our conclusion, therefore, is that the cause of action set up in the second count is not upon an instrument in writing within the meaning of said section 337 of the Code of Civil Procedure; and that, as to all services rendered more than two years before the commencement of the suit, the cause of action is barred by subdivision 1, section 339, of said code.
The judgment and order denying appellant’s motion for a new trial appealed from are reversed, and a new trial is granted.
Henshaw, J., and Temple, J., concurred.
Hearing in Bank denied.
AI Brief
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Holding. The court held that a judgment for an account stated cannot exceed the balance shown on the face of the account, and that a director's claim for compensation against a corporation is not founded on a written instrument, making it subject to a two-year statute of limitations.
Issues
Whether a judgment on an account stated can exceed the balance shown on the face of the account.
Whether a corporate director's claim for compensation is 'founded upon an instrument in writing' for statute of limitations purposes.
Whether evidence of corporate usage or custom regarding non-compensation of directors is admissible to rebut an implied contract for services.
Disposition. reversed
Quotations verified verbatim against the opinion
“A judgment for $10,150.07 upon a stated account which shows a balance of only $3,550.07 cannot be sustained.”
“In order to be founded upon an instrument in writing, the instrument must, itself, contain a contract to do the thing for the nonperformance of which the action is brought.”
“The officers of a corporation who are to receive any compensation are usually provided for by regular salaries.”