K. King & G. Shuler Corp. v. King

Decision Date23 February 1968
Citation66 Cal.Rptr. 330,259 Cal.App.2d 383
CourtCalifornia Court of Appeals Court of Appeals
PartiesThe K. KING AND the G. SHULER CORPORATION, a California corporation, Plaintiff-Appellant, v. Theresa KING, aka Theresa Rankin Bizzelle, Defendant-Respondent. Civ. 30348.

Hanrahan & Kippen, Los Angeles, for plaintiff and appellant.

Richard Morris, for defendant and respondent.

AISO, Justice pro tem. *

Plaintiff, 1 The K. King and The G. Shuler Corporation, appeals from the judgment awarding it $300.00 on its first amended complaint against the defendant Theresa King. Consideration of plaintiff's claims of error in light of the record and the applicable rules of law has led us to conclude that the judgment should be affirmed.


Because insufficiency of the evidence to support the judgment and some of the findings constitutes the gravamen of the appeal, the facts will be set forth in some retail. 2

In June of 1962, Frank's Golden Rooster, a corporation (attorney John P. Hanrahan of counsel for appellant at trial and on this appeal being its president), had a cocktail lounge called, 'Golden Rooster' at 2139 Westwood Boulevard, Los Angeles, California, for sale.

A Kenneth King and a George Shuler desired to purchase the 'Golden Rooster.' For the purpose of acquiring and running the 'Golden Rooster,' they formed The K. King and The G. Shuler Corporation. Hanrahan, as an accommodation to his corporation's purchasers, organized the plaintiff corporation under California law, obtained its permit to issue stock, and had himself approved as the escrow holder 3 to hold the stock as its issue was conditioned upon its being escrowed. (Permit was dated, July 6, 1962.)

Stock was issued to the persons and in the respective ratios shown:

                Kenneth King   490 shares  (49%)
                George Shuler  490 shares  (49%)
                Tommy James     20 shares  ( 2%)

Tommy James, an inexperienced bartender, who paid no consideration for the stock issued in his name was a mere 'dummy' for King and Shuler. Designation of James as a stockholder was for the sole purpose of providing a third record shareholder.

On or about July 4, 1962, 4 King and Shuler paid Frank's Golden Rooster, a corporation, $10,000.00 cash, together with two corporate notes of the plaintiff, each in the principal amount of $4,500.00, payable to the order of Frank's Golden Rooster, a corporation. To secure payment of said notes, both the plaintiff corporation and its stockholders executed a written Pledge Agreement pledging the one thousand shares of plaintiff to Frank's Golden Rooster. For further security, each of the individual stockholders, King, Shuler and James, guaranteed payment of the two corporate notes. Plaintiff also executed a chattel mortgage on its fixtures and gave the obligee as security interest in its lease of the 'Golden Rooster' premises.

By the Pledge Agreement, Hanrahan was constituted an assistant secretary of plaintiff for so long as the notes should remain unpaid and outstanding. One note was negotiated to a Mr. Temkin; Hanrahan who became the holder of the other note, instructed plaintiff to make all note payments falling due to Temkin until his note was paid in full.

Plaintiff took over the 'Golden Rooster' lease, fixtures, liquor license, and liquor inventory from Frank's Golden Rooster (the selling corporation) and commenced business operations on or about July 17, 1962. King became the active manager of the business with Shuler's consent.

In December 1962, Kenneth King married defendant Theresa King also known as Theresa Rankin Bizzelle. She began to help in various capacities around the 'Golden Rooster.' In February of 1963, Kenneth and Theresa had marital disagreements and separated.

On or about March 8, 1963, Kenneth King turned over the possession and operation of the 'Golden Rooster' to defendant, intending thereby to give or quitclaim his complete interest in plaintiff corporation and its business to defendant. There was, however, no formal agreement entered into between them, either oral or written. On that date, Kenneth King was president and a director of plaintiff. He later executed a written resignation from both offices on a form prepared by defendant's then attorney, the senior Morris (father of defendant's attorney at trial and on this appeal), now deceased.

About this time, defendant entered into a written agreement 5 with Shuler to purchase his 49 per cent stock interest for a total purchase price of $7,530.00. Defendant paid Shuler $1,000.00 upon execution of this agreement, the balance of $6,530.00 was to be paid on or before September 1, 1963, together with interest at 5 per cent per annum. Consummation of this sale with Shuler was also to carry with it Shuler's interest in the 20 shares issued in the name of Thomas H. James, (Tommy James). Failure to complete the purchase on defendant's part was to cause a forfeiture of her $1,000.00 down payment as and for liquidated damages. Shuler also agreed to resign in writing as a director and vice-president of plaintiff corporation, and 'not interfer(e) with the business or operation thereof.' The agreement also granted to defendant Shuler's proxy to vote his 490 shares at all stockholders' meetings, and the proxy was stated to be coupled with defendant's interest in the corporation. Defendant undertook to pay only the installments coming due on the William Tempkin (Temkin) note up to September 1, 1963, unless she consummated her purchase from Shuler.

No written or oral agreement, express or implied, was entered into by or between defendant and plaintiff relating to her proposed acquisition of the 'Golden Rooster,' or prescribing her duties and obligations, if any, in the operation and management thereof. Defendant dealt only with the principal stockholders and her transactions with each were separate from each other. No corporate resolution nor any other formal or informal corporate action was taken to authorize the prospective acquisition of the 'Golden Rooster' or of plaintiff by defendant. There was no transfer of record of the escrowed shares certificates nor any formal notification of the escrow holder of defendant's interest in the shares.

No written instructions or memoranda (except as above noted), were given defendant to evidence her status with respect to the 'Golden Rooster' or its liquor license. Defendant had no salary arrangement with plaintiff, Kenneth King or Shuler.

Defendant had possession of the assets of plaintiff and operated its business from March 8, 1963, until July 31, 1963, with the consent and knowledge of both Kenneth King and Shuler. During this period, defendant was never an officer or member of the board of directors of plaintiff.

During the period July 17, 1962, to March 8, 1963, during which Kenneth King managed the 'Golden Rooster,' he made all the business decisions with occasional informal discussions with Shuler. No business of plaintiff corporation was formally conducted, no directors' meetings held, nor corporate minutes or resolutions kept or passed. No profit was realized during this period, the business barely meeting current operating expenses.

Plaintiff did have a firm of accountants in Santa Monica who handled monthly accounting records, for which they charged $35.00 per month. After defendant took over, she discharged these accountants claiming that the business could not afford the $35.00 monthly charge.

Hanrahan first learned of the delinquencies on both the rent and note payments in March or April of 1963, when he received telephone calls from Temkin (note holder) and Dr. Pitts (the lessor) that the monthly payments respectively due and payable had not been forthcoming. Hanrahan then telephoned the 'Golden Rooster,' talked to defendant, and learned that it was she who was in actual possession and running the business. He demanded that defendant bring the respective payments up to current status. In late May, he asked defendant for a financial statement of the plaintiff, but received none.

A meeting on June 12, 1963, was scheduled so that all parties concerned could ascertain the financial status of plaintiff. Hanrahan was desirous of obtaining defendant's guaranty on the two outstanding corporate noted, but defendant declined signing upon advice of counsel. During this period and whenever demands for payments were made upon defendant by Hanrahan, defendant stated to Hanrahan that business of the 'Golden Rooster' was good and all she needed was additional time within which to make the payments.

A further meeting was scheduled for June 26, 1963. When defendant failed to appear at this meeting, Hanrahan caused the pledgee's lien on the stock to be foreclosed; the stock was sold on or about July 8, 1963, at public auction pursuant to the terms of the Pledge Agreement. Hanrahan acquired all the stock at this auction and as sole stockholder elected a new board of directors and became president of plaintiff corporation.

As plaintiff's new president, Hanrahan made oral demands upon defendant on or about July 8, 1963, to deliver up possession of the 'Golden Rooster' to him, but defendant remained in possession until July 31, 1963, upon which date Hanrahan accompanied by two persons from the Alcoholic Beverage Control Board went to the 'Golden Rooster' and demanded surrender of the premises. Defendant peaceably complied.

Hanrahan testified that he demanded all of the books and records of the plaintiff, but that all she handed him at that time was a stack of chits or tabs (Exhibit 5). Defendant testified that a large account book, the check book, and a batch of bills that had been paid for in cash and stapled together were on the desk in the office (backroom) when she surrendered possession of the premises to Hanrahan. Hanrahan did not look into the office until a few days after July 31, 1963, and he testified that when he looked he found no records at all.

When Hanrahan left the ...

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    ...§ 520.) Some cases have even assumed that fraud must be proven by 'clear and convincing' evidence. (See K. King and G. Schuler Corp. v. King, 259 Cal.App.2d 383, 396, 66 Cal.Rptr. 330; Farmers, Supra, 39 Cal.App.2d, p. 393, 103 P.2d 230; but see Sierra Nat. Bank v. Brown, 18 Cal.App.3d 98, ......
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