Auer v. Frank

Decision Date25 May 1964
Citation227 Cal.App.2d 396,38 Cal.Rptr. 684
CourtCalifornia Court of Appeals Court of Appeals
Parties, 8 A.L.R.3d 1108 Alvin C. AUER and H. Dean Loomis, copartners doing business as Century Homes, a copartnership, Plaintiffs and Appellants, v. Lou FRANK and Carl Sumner, Defendants and Respondents. Civ. 20846.

Harold D. Mefford, Hayward, for appellants.

Sabraw & Avera, Fremont, for respondents.

MOLINARI, Justice.

This is an appeal by plaintiff general contractor from a judgment, after a court trial, in favor of individual defendants who were sought to be held responsible for obligations incurred by the corporate defendant on a contract for the construction of certain dwelling houses in Alameda County.

The Facts

Preliminarily, we set out the following background facts: Plaintiffs, Alvin C. Auer and H. Dean Loomis, are copartners doing business as Century Homes, a licensed general contractor. 1 Defendant Castro Valley Sales & Investment Company 2 (not a party to this appeal), is a California corporation whose president and secretary, respectively, are defendants Lou Frank and Carl Sumner. 3 In March 1960 plaintiff and defendants, acting for the corporation, entered into an oral agreement whereby plaintiff agreed to provide labor, services and materials for the completion of five dwelling houses owned by the corporation for a sum equal to the cost of said labor, services and materials plus the further sum of 10 percent of such cost. Plaintiff knew at the time of making said verbal agreement that Castro Valley Sales & Investment Company was in fact a corporation, and that defendants were officers of the corporation. The evidence discloses that plaintiff was informed that in making the verbal agreement defendants were acting in a representative capacity and on behalf of the corporation.

During the period from March to July of 1960 plaintiff performed services and provided materials to the corporation in connection with the construction of said houses. In December 1960 an action in two counts entitled 'Complaint for Money,' was filed by plaintiff against the corporation and defendants. An answer was filed by defendants, but none was filed on behalf of the corporation. On February 3, 1961, the corporation filed a voluntary petition in bankruptcy and was adjudicated a bankrupt by the United States District Court. Prior to trial, the default of the corporation was entered, and the cause thereafter proceeded to trial against defendants. After the submission of the cause, and based upon findings of fact and conclusions of law, and pertinent provisions of which we shall hereinafter set out, the trial court ordered that plaintiff have judgment against the corporation in the sum of $6,779.80 but that it take nothing against defendants.

Pleadings and Proceedings Prior to Trial

After the usual introductory and identifying statements the first count of the complaint alleged in pertinent part as follows: 'IV. That prior to July 1, 1960, and within one year last past, in connection with the completion of the construction of eight dwelling houses * * *, plaintiffs at the request of the defendants, and each of them, performed work, labor and services in the completion of construction of said dwelling houses, as general contractors, and furnished materials in and about said work; that plaintiffs performed said work, labor and services and furnished said materials to said defendants, in the County of Alameda, State of California. V. That at the time said work, labor and materials were ordered of the plaintiffs by the defendants, the defendants, and each of them, promised to pay to the plaintiffs an amount equal to the cost of all such labor, services and materials used in the completion of the construction of said dwelling houses, together with the further sum of 10% of said cost, to be paid when said work should be completed; that said work of construction was completed on or about July 1, 1960; that there became due and payable to the plaintiffs from the defendants for said labor, materials and services the amount of $18,111.86. VI. That defendants have not paid the same nor any part thereof except the amount of $10,365.20, and there is now due, owning and unpaid the principal sum of $7,746.66, together with interest at the legal rate of 7% from July 1, 1960.' In the second count plaintiff incorporated the preliminary statements of the first count and alleged as follows: 'II. That on December 1, 1960 an account was stated between the plaintiffs and defendants Lou Frank and Carl Sumner, and each of them, wherein it was agreed and determined that the defendants were indebted to the plaintiffs in the amount of $6,779.80. III. That although demand has been made for the payment thereof defendants have failed and continue to fail to pay said amount and there is now due and owing and unpaid the amount of $6,779.80 from the defendants to the plaintiffs. * * *'

In their answer defendants denied generally and specifically the allegations of the complaint insofar as they purported to fasten liability upon them individually, and averred therein that any work, labor and services performed by plaintiff, and any materials furnished by it, were provided to the corporation, and that any sum that may be due to plaintiff in the premises is due from the corporation.

The pretrial conference order adopts the pretrial statement of defendants as a part thereof, and provides that it is stipulated by said defendants 'that the work was performed by plaintiffs.' The pretrial order is thus left in a posture where the respective contentions of the parties are stated but no specific issues are delineated. The essence of defendants' pretrial statement is that plaintiff contends that defendants are indebted to plaintiff as alleged in its complaint and that defendants deny that they are indebted to plaintiff as in said complaint alleged.

Proceedings at Trial

In his opening statement counsel for plaintiff stated that he proposed to produce evidence showing that the corporation was the alter ego of defendants. Defendants' counsel objected that the issue of alter ego was not before the court because it was neither pleaded in the complaint nor designated as an issue in the pretrial order. Counsel for plaintiff conceded that at the time the complaint was filed no issue was intended to be raised involving alter ego, and that it was only after the taking of depositions that the issue presented itself as a basis of liability on the part of defendants. He urged, however, that the 'general nature' of the pleading permitted the introduction of evidence on the theory of alter ego. No motion was made by plaintiff to amend the complaint or the pretrial order so as to specifically raise this issue. The trial court reserved its ruling and proceeded to hear the testimony in the case. On the third day of the trial the court ruled that it would be proper to admit evidence bearing on the issue of alter ego. Evidence was thereupon adduced on this issue consisting, generally, of the failure to obtain authority to issue stock and tending to show that the corporation was inadequately capitalized. It should be here pointed out that at the conclusion of the case plaintiff did not seek to amend its complaint to conform to proof on the alter ego theory, although it did seek to amend to conform to proofs in other respects.

Upon the submission of the cause the trial court made its findings of fact and conclusions of law. Essentially, the trial court found: that plaintiff entered into a verbal agreement with the corporation to provide the labor, services and materials as alleged in plaintiff's complaint, and for the compensation therein stated, at the instance and request of said corporation; that there is a balance due and owing from said corporation to plaintiff for said services and materials in the sum of $6,779.80; that said balance is due and owing from said corporation 'and not from defendants Lou Frank and/or Carl Sumner, as individuals'; that 'said verbal contract was not made between the plaintiffs and defendants Lou Frank and Carl Sumner as individuals'; and '[t]hat plaintiffs knew and were informed, at the time that said verbal agreement was made and entered into, as aforesaid, that Castro Valley Sales & Investment Company was in fact a corporation, and that defendants Lou Frank and Carl Sumner were officers of said corporation; and that in making and entering into said verbal agreement, said individual defendants were acting in a representative capacity and on behalf of said defendant corporation'; that the services performed and materials furnished were at the instance and request of the corporation, and 'that said services and materials were not provided for or at the instance or request of defendants Lou Frank and/or Carl Sumner, as individuals'; and that no account was stated as between plaintiff and defendants at any time, wherein it was agreed that said defendants were indebted to plaintiff. Plaintiff does not challenge this last-mentioned finding of fact, nor does it raise any objection pertaining to the account stated on this appeal.

Contentions of the Parties

Plaintiff contends that the trial court failed to find on the material issue of alter ego. Defendants urge that the pleadings in this case raise no issue of fact involving the alter ego doctrine, and that therefore no findings of fact are necessary. It is argued by defendants, moreover, that if it be held that such issue was before the court then the findings of fact made necessarily imply a finding on that issue in favor of defendants.

Was the Application of the Alter Ego Doctrine an Issue in the Case?

Yes. In their arguments before this court defendants have placed themselves in the position where they 'wish to eat their cake and have it too.' They contend that the issue of whether there was an alter ego relationship was not before the trial court because it was not...

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