Bristol Convalescent Hospital v. Stone

• Decision Date: 13 February 1968
• Court: California Court of Appeals Court of Appeals
• Parties: BRISTOL CONVALESCENT HOSPITAL, A Calif. Corp., Plaintiff and Respondent, v. Charles C. STONE and Mrs. Charles C. Stone, Defendants and Appellants. Civ. 8768.

Page 404

66 Cal.Rptr. 404

258 Cal.App.2d 848

BRISTOL CONVALESCENT HOSPITAL, A Calif. Corp., Plaintiff and Respondent, v. Charles C. STONE and Mrs. Charles C. Stone, Defendants and Appellants.

Civ. 8768.

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

Feb. 13, 1968.

[258 Cal.App.2d 851] Edgar R. Carver, Jr., Beverly Hills, for appellants.

Adams, Hunt & Martin, Santa Ana, for respondent.

OPINION

WHELAN, Associate Justice.

Defendants Charles C. Stone (Stone) and Mrs. Charles C. Stone (Mrs. Stone) have appealed from a judgment taken against them by default after their failure to answer an amended complaint. In the court below no motion was made for relief from default, which was entered more than six months before the judgment. The Stones engaged new counsel on appeal.

The chief contention of the Stones is that the allegations of the amended complaint add nothing of substance to the original complaint to which they filed an answer, which it is now contended should have sufficed to answer the allegations of the amended complaint.

On July 19, 1963, plaintiff filed its complaint in six causes of action. The first cause of action alleged that defendant Stone had told a Mrs. Terry (Terry) he would contribute $65,000 to plaintiff when plaintiff should be incorporated, so that 60 per cent of plaintiff's capital stock could be issued to Terry, who on her part was to contribute to Stone assets having a value of $52,000 to be reinvested by him in plaintiff; Terry was to transfer eight per cent of the capital stock of plaintiff to one Burlingame; that the corporation subsequently was incorporated and authorized to issue 60 per cent of its stock to Terry for $65,000 cash; that Terry caused eight per cent of the stock to be transferred to Burlingame; that in making such agreement, Terry relied upon certain false and fraudulent representations of Stone made by him for the purpose of inducing action by Terry; it was not alleged directly that Terry paid anything to Stone, and only indirectly that she 'contributed' $40,000.

Essentially, the first cause of action of the original complaint was one to obtain cancellation of eight per cent of plaintiff's shares caused to be issued to Burlingame. It did not allege directly that any shares were issued to Terry.

A second cause of action incorporated all the allegations of the first; and declared that the oral agreement between Terry and Stone was reduced to writing on December 4, 1961 and amended in writing on January 8, 1962, and that Terry performed her part of the agreement. In neither of the appended writings did Stone agree to pay plaintiff any money.

The third cause of action alleged the formation of a joint venture between Stone, Cella and Sive (two medical doctors), and Scobie (a real estate broker), of which a written memorandum dated October 24, 1960 was attached, and under which the two doctors were to furnish a building site worth $35,000 for a 50-bed convalescent hospital; 'Charles C. Stone and Associates' was to have charge of construction of a building to cost $152,000; other improvements, such as grading, walls, public utilities, etc., were to cost some $20,000; 'Charles C. Stone and Associates' was to put in $70,000 cash; Scobie was to benefit as a result of his having brought the others together; Stone was to receive $12,300 of the $152,000 of the building cost, the items of which were set out in an estimate sheet, the $12,300 being set out as the profit in the construction; it was then alleged that Stone had agreed with defendant Young of W. C. Young, Inc., a building contractor, to construct the building for less than $95,000 and that the difference between that amount and $152,000 was to have been paid to Stone by Young; that the doctors signed the joint venture agreement, escrow instructions for the transfer of their real estate, and a construction contract with Young for $152,000; the latter contract recited that Young had been paid $25,350 'outside.' It was not alleged directly that the building was ever constructed, nor, if so, what it cost or what its reasonable value was. A corporation was to be formed to carry out the plan.

In a fourth cause of action it was alleged that Stone had informed the two doctors that the cost of equipping the hospital would be $43,860; that Stone would procure the equipment at that price; that his only interest was that he would be paid a commission by the supplier when Stone had equipped 10 hospitals, of which plaintiff's would be one; that all the statements were false and known by Stone to be false, were made by him to induce action by the doctors who believed, relied upon and acted upon them; that the doctors signed a conditional sales agreement to buy the equipment from Stone for $43,860; that in fact the equipment was purchased subsequently by plaintiff from another supplier for $25,614; that the difference between that amount and $43,860 was a secret profit to Stone; damage to plaintiff in the sum of $20,000 was alleged.

The fifth cause of action alleged that an escrow agreement, dated February 27, 1961, was signed by Stone and the doctors, naming Orange County Title Company as escrow agent; that the escrow agreement reflected an amended joint venture agreement as originally reflected in the memorandum of October 24, 1960, except that it failed to state that Scobie was to receive five per cent and Stone and Associates to receive 60 per cent of plaintiff's capital stock; that under it title to the real property owned by the doctors was to be conveyed to Stone or his nominees; an interim loan of $141,000 for construction was to be obtained; Stone was to deposit the sum of $65,000 with the bank making the loan, to be used in connection with the construction; a corporation was to be formed to which title to the building site property would be conveyed; the corporation was to 'include' Stone and the doctors; that after the escrow agreement was signed, Stone informed the doctors he had assigned to Terry his right to receive 60 per cent of the stock, but that he would pay the $65,000 on behalf of Terry; that Stone did not pay in $65,000 or any money, but instead caused to be deposited with the escrow agent a purported assignment of a check for $57,500 from Stone to Young as well as purported receipts from Young to Stone of an additional amount ($7,500?); that in fact said check was never assigned; that by that means the escrow holder was induced to issue to Terry 60 per cent of plaintiff's authorized capital; that the corporation commissioner's permit authorized the issuance of not to exceed 650 of its shares to Terry for $100 per share cash.

The sixth cause of action was against United Savings and Loan Association, which had made the building loan.

The first cause of action alleged assignments to plaintiff from the doctors, Terry, Scobie and other named persons of all their claims and causes of action against the Stones. That allegation and the allegations with regard to fraud practised on Terry are by reference carried into all the other causes of action.

The answer of Stone and Mrs. Stone, filed August 8, 1963, in large part consisted of denials of certain allegations of the complaint; it admitted the correctness of the various writings referred to in and attached to the complaint, and that Stone had received assets having a claimed value of $52,000 from Terry for the business enterprise in which they were engaged and had not transferred any part of it or of an additional $13,000 and had not paid plaintiff any part of the $65,000 mentioned in the second cause of action of the complaint; the answer to the fifth cause of action denied that no part of the $65,000 mentioned in that cause of action had been paid and denied that the Stones agreed to pay it; the answer admitted that Stone was to receive a profit from the construction of the hospital; and that Stone informed certain of the parties he had assigned his right to receive stock in plaintiff corporation to Terry.

As a separate defense, the Stones alleged that none of the alleged causes of action of the original complaint stated facts sufficient to constitute a cause of action.

A cross-complaint was filed with the answer. One of two counts alleged the making and breach by plaintiff of a written contract to employ Stone as manager of the hospital; the second against the two doctors alleged the breach of the contract to buy equipment for $43,860 on which Stone claimed a loss or profit of $17,860.

Plaintiff's answer to the cross-complaint alleged unilateral rescission by Stone and a mutual rescission of the employment contract.

The case was set for trial and continued several times. Plaintiff, on June 1, 1964, replaced its attorney with the counsel that now represents it. On June 17, 1964, the case was ordered off calendar.

On March 8, 1966, plaintiff filed a motion noticed for March 30, 1966 for leave to file an amended complaint, supported by a memorandum of points and authorities and a declaration of its counsel. Hearing of the motion was continued several times until, on April 27, with both parties represented, it was taken under submission. A minute order entered May 6, 1966 recites granting of the motion on May 2.

On May 6, 1966, the amended complaint was filed and a summons thereon issued.

On May 6, notice was served on defense counsel of the ruling allowing the amended complaint.

An affidavit of service shows that copy of the amended complaint and summons were mailed to defense counsel on May 5, 1966.

On June 20, 1966, pursuant to written request, the defaults of Stone and Mrs. Stone were entered for failure to answer the amended complaint.

A memorandum of setting of the case for hearing on the default calendar was filed December 8, 1966, requesting a hearing on December 22.

On December 22, 1966, the matter came before the court, Scobie was sworn and testified, and the matter was taken under submission.

On December 29, 1966,...