Bertero v. National General Corp.

• Decision Date: 06 September 1967
• Citation: 254 Cal.App.2d 126,62 Cal.Rptr. 714
• Court: California Court of Appeals Court of Appeals
• Parties: John B. BERTERO, Plaintiff and Respondent, v. NATIONAL GENERAL CORPORATION, a corporation, and Fox West Coast Theatres Corporation, a corporation, Defendants and Appellants. Civ. 30652.

Page 714

62 Cal.Rptr. 714

254 Cal.App.2d 126

John B. BERTERO, Plaintiff and Respondent, v. NATIONAL GENERAL CORPORATION, a corporation, and Fox West Coast Theatres Corporation, a corporation, Defendants and Appellants.

Civ. 30652.

Court of Appeal, Second District, Division 1, California.

Sept. 6, 1967.

Rehearing Denied Oct. 5, 1967.

Hearing Denied Nov. 22, 1967.

Hindin, Sterling, McKittrick & Powsner, Ronald M. Sohigian and Robert H. Powsner, Beverly Hills, for defendants and appellants.

Bodkin, Breslin & Luddy, Henry G. Bodkin, Jr., and Timothy J. Sargent, Los Angeles, for plaintiff and respondent.

KINCAID, Associate Justice pro tem. ^*

Appeal is taken herein by defendants from a judgment in favor of plaintiff John B. Bertero following a trial without a jury.

Plaintiff's action is one in equity in which he sought a judgment for declaratory relief with respect to the rights and duties of himself and the defendants to three written contracts. The first, an employment contract between plaintiff and defendant National General Corporation (National), was also executed by National's principal subsidiary, defendant Fox West Coast Theatres Corporation (Fox), which was made jointly and severally liable with National for the performance of the latter's obligations thereunder. The other two agreements granted Bertero options to purchase stock of his employer, National. By his complaint plaintiff also sought a judgment for accrued salary to date of judgment.

The evidence discloses that the defendants, National and Fox, hereinafter collectively referred to as National, and the plaintiff Bertero entered into a contract of employment dated November 12, 1959, under which Bertero, National's then president, became a part-time executive of the company. The contract provided that Bertero, when called upon in writing by the board of directors or the chief executive officer (president) of National, should render a limited amount of specified services, mainly of a consultative nature. Under the terms of the contract, Bertero was free to engage in other pursuits to the extent there was no interference with his obligations to National, but he expressly covenanted not to engage in activities competitive with those of National. National agreed that throughout the term of the contract it would pay Bertero a weekly salary whether or not he was called upon for services, and, in the event of his death, to pay to his widow an agreed weekly sum to the expiration date of the contract.

In 1955 the stockholders of National had adopted a restricted stock option plan in conformity with 1954 Internal Revenue Code, section 421, authorizing the issuance of restricted stock options to qualified employees. In 1957, National issued a restricted stock option to Bertero, he then serving as president of Fox. In 1958, Bertero entered into a new contract of employment to serve as chief executive officer of National. The contract provided that an additional The section 421 provided that to obtain the capital gain benefits of a restricted stock option the optionee must have the status of an employee at the time he exercises the option, or, in the event his employment is terminated, that the option must be exercised, if at all, within three months after the optionee ceases to be an employee. It also provided that a restricted stock option must by its very terms be not transferable and that during the optionee's lifetime it can be exercised only by him.

restricted stock option should be issued to him and, accordingly, said option was issued. Each of the options is for a term of seven years, the 1957 option expiring by its terms on March 20, 1964, and the 1958 option on October 1, 1965.

On March 29, 1962, some two years and four months after the execution of the part-time executive contract, the then president of National, Eugene V. Klein, sent Bertero a letter ¹ notifying him that the contract was invalid and unenforceable; that he had performed no services whatever since its inception; that it only obligated National to pay for such services as National called upon him to perform, and further notifying him that it was terminated and cancelled in any event. Thereupon National wholly defaulted in the performance of its obligations under the contractual arrangements. Neither National's nor Fox's board of directors had authorized Klein to repudiate or terminate the contract.

Bertero then commenced this action for declaratory relief. He alleged the contractual arrangements, performance by him to the time of National's default, and the claims of National as known to him in the letter of termination. He prayed for a decree declaring the validity of the contract and options. He also asked for a declaration that any failure or refusal by National National, in its answer and amendment thereto, asked for a declaration that the contract is invalid and unenforceable; that it had been lawfully terminated and cancelled on March 29, 1962, and Bertero lawfully discharged and removed from office on that date, and for a further declaration that his stock options expired three months after said date. Concurrently with the filing of the answer and amendment in 1963, National filed a cross-complaint to recover all payments made to Bertero under the contract.

to call upon him for services does not 'affect his rights and status as an employee' under the contract and options. Bertero also asked for a judgment for accrued unpaid salary to the date of judgment. Bertero did not seek a decree directing National to specifically or otherwise perform the contract subsequent to the decree requested by him or which would prevent National from breaching the contract or options subsequent to the rendition of the requested decree.

At the trial it was Bertero's contention that National's purported termination of the contractual arrangements on the ground of invalidity and on the ground that he had performed no services, was made wrongfully and in bad faith, for the purpose of destroying his status as an 'employee' under the restricted stock options and Internal Revenue Code, section 421, and for the further purpose of achieving a position of unconscionable advantage so as to compel him to compromise his rights under his employment contract. That an action for damages for breach of contract would necessarily recgnize that the contract was at an end; that Bertero's status as an employee had terminated upon the breach, and that, unless he exercised the options within three months after the breach, they were extinguished, despite the fact that each of them had a term of several more years to run. Plaintiff contended equity could and should thwart the attempted wrong of National and (1) declare the 1959 agreement and options to be valid and subsisting; (2) declare that any failure to call upon Bertero for services did not affect his rights and status as an employee under the employment contract and option; (3) grant him a judgment for accrued salary, and (4) retain jurisdiction to settle any future dispute between the parties.

National contended that the employment agreement was invalid and unenforceable because it had been obtained by duress and undue influence and lacked consideration. It further contended that when the agreement was made Bertero acted in a fiduciary capacity; that he obtained an advantage thereby, and that under Civil Code, section 2235, it is presumed that it was entered into by National under undue influence. National also contended that Bertero had breached the agreement in many respects and its termination for breaches was lawful. National took the further position that even if it had wrongfully terminated the agreement, nevertheless Bertero's options had expired three months thereafter, he not having exercised them within said period.

National also argued at the trial that even if its purported termination of the contractual arrangements was wrongful, a court of equity had no power to declare the contracts to be valid and subsisting at the date of its decree and that its liability for the wrong committed had to be liquidated in a judgment for damages for breach of contract.

Following oral rendition of judgment by the court in favor of plaintiff and against defendants on the foregoing issues, plaintiff submitted findings of fact and a form of proposed judgment declaring the 1959 agreement and the options to be 'valid, subsisting and enforceable.' The proposed judgment did not order performance by National or Bertero subsequent to rendition of the decree but retained jurisdiction to interpret and enforce the judgment by such further orders as might be necessary, should further disputes arise. As to the stock options, the proposed judgment gave National the choice of either stipulating that they should be extended so that Bertero should be accorded the benefit of a full seven year At the hearing on objections of defendants to the proposed findings and judgment, defendants' counsel, among other things, objected to inclusion of the words 'subsisting and enforceable' as related to the 1959 employment agreement and the option agreements. He insisted, over protestations of plaintiff's attorney, that the words 'and the parties are ordered to perform thereunder' be inserted in both the findings and judgment following the finding that the 1959 agreement and the 1958 option is a 'valid, subsisting and enforceable agreement.' The court acceded and the additional words were interlineated in both the findings and the judgment.

term as to each, or of paying damages for their breach in the amount found by the trial court.

In addition to declaring that the 1959 agreement, and the two options, are valid, subsisting and enforceable agreements, the judgment further declares that any failure or refusal of National to call upon Bertero for services 'does not affect his rights and status' under the agreement or options. It also orders National to extend each of the...