Arcturus Mfg. Corp. v. Rork

• Decision Date: 19 December 1961
• Court: California Court of Appeals Court of Appeals
• Parties: ARCTURUS MANUFACTURING CORPORATION, a corporation, Plaintiff and Respondent, v. Elwood C. RORK and Jacquelyn Rork, husband and wife, Paul S. Anderson and Esther Anderson, husband and wife, Mark A. Perry and Toni Perry, husband and wife, Metal Inspection Company, Inc., Metal Inspection and Engineering Corporation, corporations, Defendants. Elwood C. Rork and Jacquelyn Rork, Appellants. Civ. 25469.

Page 758

17 Cal.Rptr. 758

198 Cal.App.2d 208

ARCTURUS MANUFACTURING CORPORATION, a corporation, Plaintiff and Respondent, v. Elwood C. RORK and Jacquelyn Rork, husband and wife, Paul S. Anderson and Esther Anderson, husband and wife, Mark A. Perry and Toni Perry, husband and wife, Metal Inspection Company, Inc., Metal Inspection and Engineering Corporation, corporations, Defendants Elwood C. Rork and Jacquelyn Rork, Appellants.

Civ. 25469.

District Court of Appeal, Second District, Division 4, California.

Dec. 19, 1961.

Hearing Denied Feb. 14, 1962.

Eugene M. Elson, Los Angeles, for appellants.

Guy Richards Crump, Los Angeles, for respondent.

BALTHIS, Justice.

This is an appeal from an order denying the motion of defendants Rork to dissolve an attachment.

The attachment was made under the provisions of section 537, subdivision 1, of the Code of Civil Procedure and the question is whether the action here is 'upon a contract, express or implied, for the direct payment of money * * *.'

The allegations of the complaint particularly as against defendants Elwood C. Rork and his wife may be summarized as follows: The first cause of action is to recover secret profits or kickbacks received by defendant Rork while an employee, director, officer and general manager of plaintiff. At the time defendant Rork was employed by plaintiff it was agreed that defendant 'would devote his entire working time and loyalty solely to the business of plaintiff.' Plaintiff operated a forging plant and machine shop. Working with other named defendants (who are not involved in this appeal) and as part of a plan and scheme to cheat and defraud plaintiff, defendant Rork designated certain persons to do metal inspection work for plaintiff. From the payments made by plaintiff to such persons for metal inspection defendant Rork received secret profits and kickbacks and in the year 1957 the sums so received by defendant Rork were in excess of $63,000.00, and in 1958 the sums received by said defendant were in excess of $60,000.00. It is specifically alleged that 'Said sums so paid to defendant(s) Elwood C. Rork * * * were and are kick-backs and secret profits and were and are the property of plaintiff.'

The second cause of action after incorporating certain paragraphs contained in the first cause of action, alleges defendant Rork received to and for the use and benefit of plaintiff 'sums in excess of $100,000.00.' The prayer asks for judgment against defendants 'in the sum of $123,000.00 so paid to defendant Elwood C. Rork, together with any addition sum which an accounting may show to have been so paid * * *'

The defendants Rork contend (1) that the second cause of action for money had and received, being based upon the facts specifically pleaded in the first cause of action, will not support the attachment if the first cause of action is in tort and (2) that the gravamen of the first cause of action is in tort.

Plaintiff, in support of the attachment, takes the position (1) that the gravamen of the first cause of action is not in tort and (2) that the action here gives plaintiff the choice of remedies and plaintiff chose to sue on an implied contract.

The gist of this action as pleaded is in quasi-contract to recover property belonging to plaintiff. While fraud may be involved, and undoubtedly there is a breach of fiduciary obligation alleged, the gravamen of the complaint is to recover against the defendant agent on the promise implied by law to pay to the plaintiff principal the specific secret profits and kickbacks received.

The duty of the agent to account to his principal for secret profits and kickbacks is fundamental. Section 388 of the Restatement of the Law, Agency 2d, states: 'Unless otherwise agreed, an agent who makes a profit in connection with transactions conducted by him on behalf of the principal is under a duty to give such profit to the principal.' Section 403 of the same Restatement reads: 'If an agent receives anything as a result of his violation of a duty of loyalty to the principal, he is subject to a liability to deliver it, its value, or its proceeds, to the principal.' In the comment to section 403 it is said, 'The principal has a cause of action either for a breach of contract or for a tort, as a remedy for damage caused by the violation of any duty of loyalty on the part of the agent. The principal may also charge the agent with anything which the agent receives as a result of the violation of duty, its value or its proceeds.'

The historical development of the remedy to recover money in quasi-contract is reviewed in Philpott v. Superior Court, I Cal.2d 512, 36 P.2d 635, 95 A.L.R. 990. That case holds that an action to recover money paid on a contract procured by fraud, after rescission, is an action at law, not in equity.

In McCall v. Superior Court of Imperial County, 1 Cal.2d 527, 36 P.2d 642, 95 A.L.R. 1019, the question was raised as to whether, in an action to obtain return of the consideration paid upon a contract after rescission for fraud, an attachment would lie under section 537 of the Code of Civil Procedure. The court said, at pages 531-533, at page 644 of 36 P.2d, '* * * there are at least three classes of promises to pay; an express promise to pay, a promise implied from the facts of the case, and a promise implied by law. * * * the implied promise supplied by law is ex contractu in its nature. Philpott v. Superior Court, supra. With this in mind we are unable to see any distinction between the three classes of promises so far as said chapter of the Code is concerned, or why all are not included in the section allowing attachment. * * * The action in assumpsit in such cases is not upon the failure of consideration or upon the fraud practiced, but upon the promise or obligation set up by the law to afford the injured party additional relief. Failure of consideration, duress, fraud, or mistake, are elements only in the sense that they furnish a foundation upon which to rest the rescission from which flows the promise or obligation. We therefore conclude that in such cases when suing for the consideration paid, the injured party may, where he has received nothing of value, have the writ of attachment.'

In a number of cases it has been held squarely that an attachment will lie where the action has been brought upon the promise implied in law. Thus, in Los Angeles Drug Co. v. Superior Court of Los Angeles County, 8 Cal.2d 71, 63 P.2d 1124, petitioner sought a writ of prohibition to prohibit the dissolution of an attachment in a pending case in the superior court. The allegations of the complaint in that pending case were to the effect that defendants conspired and did convert goods, wares, drugs and merchandise belonging to the plaintiff to their own use and benefit; that the reasonable value of the goods so coverted was the sum of $18,000.00 and that no part thereof had been paid. The second count in the complaint asked for an accounting. A writ of attachment was issued in the action and the defendants moved to dissolve the attachment. The Supreme Court held the attachment proper and said, at pages 74-75, at page 1125 of 63 P.2d, 'It is well settled that where personal property is converted the injured party may 'waive the tort and sue in assumpsit.' * * In Corey v. Struve, supra, [170 Cal. 170, 149 P. 48], the allegations of the complaint were in all material respects identical with those now before us, and the court said: 'While the complaint does allege that the property was 'converted' by defendants, we think that the action was in reality one in assumpsit for the value of the property sold, or perhaps it might be more aptly characterized as one in the nature of a suit for money had and received.' * * * In other words, while the tort is...