Berg v. King-Cola, Inc.

• Decision Date: 20 May 1964
• Docket Number: INC,KING-COL
• Citation: 38 Cal.Rptr. 655,227 Cal.App.2d 338
• Parties: Beckie BERG, Plaintiff and Respondent, v., Defendant and Appellant. Civ. 26951.
• Court: California Court of Appeals Court of Appeals

Page 655

38 Cal.Rptr. 655

227 Cal.App.2d 338

Beckie BERG, Plaintiff and Respondent, v. KING-COLA, INC., Defendant and Appellant.

Civ. 26951.

District Court of Appeal, Second District, Division 3, California.

May 20, 1964.

Hearing Denied July 15, 1964.

William H. Neblett, Los Angeles, for defendant and appellant.

William G. Israel, Beverly Hills, for plaintiff and respondent.

FILES, Justice.

Plaintiff brought this action against Ann Borden, as executrix of Benjamin Borden, deceased, and against King-Cola, Inc., a corporation, for a declaration of constructive trust and for a recovery of money based upon the fraud of the deceased. After a trial before the court sitting without a jury, the court gave judgment in favor of plaintiff against King-Cola, Inc., in the amount of $29,111.37. Recovery against the executrix was denied. King-Cola alone has appealed from the judgment.

The trial court made findings of fact which included the following matters, in substance:

Plaintiff and Ann Borden are sisters; Benjamin Borden (hereinafter referred to as Borden) was Ann's husband and a successful businessman. Plaintiff is a widow, who was 62 years of age in 1955, and not versed in corporate legal matters. From 1940 until the date of Borden's death on February 15, 1960, plaintiff reposed trust and confidence in Borden and counselled with him regarding her business affairs and believed he would deal fairly and justly with her in all things. Borden voluntarily assumed such a position of trust and confidence with plaintiff.

In May 1955 plaintiff Borden discussed the purchase of the Lakeview Hotel in Elsinore as a business venture. Borden informed plaintiff that in 1947 he had formed King-Cola, Inc., for the purpose of acquiring a soft drink bottling business, but that the corporation had never engaged in business and that the corporation could be used for the purpose of acquiring and operating the hotel, and that the corporation could issue shares of stock for the money advanced by the participants.

King-Cola acquired title to the hotel on August 1, 1955. Plaintiff paid $5,000 to the corporation as a part of the initial capital of the venture. Two other individuals, not parties here, also invested. These two investors later were repaid, and their temporary participation is of no materiality now.

Thereafter the hotel was operated, and plaintiff made additional payments to and for King-Cola. Plaintiff herself managed the hotel until January 1956. Plaintiff made frequent demands on Borden to give her some evidence of her interest in the enterprise or to arrange for stock to be issued by the corporation for her contributions, but Borden each time put her off, stating that he did not have time to take care of the matter. By his statements and conduct Borden dissuaded plaintiff from pursuing any investigation into the matter of issuance of stock.

After the two other investors had withdrawn, Borden and plaintiff agreed to carry on the enterprise in equal shares.

Actually, King-Cola had issued 600 shares of its stock to Borden in 1947 and 1948, and Borden was at all times thereafter its sole shareholder. Borden did not disclose this fact to plaintiff and she was unaware of it. Although plaintiff was elected an officer and director of the corporation, she held these positions in name only. The books and records of King-Cola were kept by Borden, and plaintiff performed only those acts for the corporation which Borden directed her to perform. At no time did she have any control over King-Cola or exercise the powers of an officer or director.

Altogether plaintiff paid a total of $29,111.37 to and for the benefit of the hotel business and King-Cola, all of which was advanced with the knowledge of Borden and while plaintiff was under the misapprehension that no stock had been issued and under the expectation that stock would be issued to her.

At no time did plaintiff receive any consideration for the $29,111.37 advanced by her.

The court further found that: 'At all times between May 1, 1955 and the time of his death in February, 1960, all things done and said by BORDEN relating to the subject matter of this action were done and said by him in his capacity as officer, director and agent of KING COLA, and as a person in full control of the corporation as the owner of all of the outstanding stock thereof.'

Borden died February 15, 1960. He left a will in which he bequeathed his estate to his widow.

In December 1960 plaintiff first learned that King-Cola had issued stock to Borden. Thereafter plaintiff made demand for the return of her money, and upon refusal, commenced this action on February 1, 1961.

Defendant does not contend that there is not substantial evidence in the record to support all of these findings, excepting one item which will be mentioned later.

Upon the facts as found by the trial court, plaintiff is clearly entitled to a return of her money on one theory or another. Plaintiff and Borden entered into an association to carry on as co-owners a business for profit. This relationship was, as a matter of law, a partnership or joint venture. (Corp.Code, § 15006.) Borden was a fiduciary, both because of the personal relationship of trust and confidence found by the court, and because of the confidential relationship which exists between partners, as a matter of law. (Civ.Code, § 2219; MacIsaac v. Pozzo, 26 Cal.2d 809, 813, 161 P.2d 449.) Borden was under a legal duty to disclose to plaintiff matters affecting their business relationship (Corp.Code, § 15020), and his failure to disclose that he held the outstanding stock of King-Cola was a breach of that duty, amounting to fraud (Civ.Code, §§ 2228, 2232, 2233, 2234). Inasmuch as the trial court found that Borden was at all times acting as agent of King-Cola, the fraud is imputable to the corporation, which thereby becomes answerable to plaintiff. This is enough to support a judgment against King-Cola for restitution of the money which plaintiff paid to it.

The trial court wrote a memorandum of decision in which it expressed the view that plaintiff had paid her money to King-Cola under a mistake of fact, the mistake being her belief that she was investing in a corporation which had not yet issued stock instead of a corporation whose stock was owned by Borden. This theory of recovery of money paid through mistake is supported by the Restatement of Restitution, section 28, which states:

'A person who has paid money to another because of a mistake of fact and who does not obtain what he expected in return is entitled to restitution from the other if the mistake was induced:

'(a) by the fraud of the payee, or

'(b) by his innocent and material misrepresentation, or

'(c) by the fraud or material misrepresentation of a person purporting to act as the payee's agent, or

'(d) by the fraud or material misrepresentation of a third person, provided that the payee has notice of the fraud or representation before he has given or promised something of value.'

This section 28 was cited with approval by the Supreme Court in Seeger v. Odell, 18 Cal.2d 409, 414, 115 P.2d 977, 136 A.L.R. 1291, an action for restitution of real property. Under the rule expressed in the Restatement, King-Cola is obligated to make restitution even if it should be regarded as a third party.

There is no statute of limitations problem in this case. The court found that in December 1960 plaintiff first learned that King-Cola had issued stock to Borden. It also found that she had been dissuaded from investigating during...