Kraus v. Willow Park Public Golf Course

• Decision Date: 15 September 1977
• Citation: 73 Cal.App.3d 354,140 Cal.Rptr. 744
• Court: California Court of Appeals Court of Appeals
• Parties: Benny KRAUS et al., Plaintiffs, Cross-Appellants and Respondents, v. WILLOW PARK PUBLIC GOLF COURSE et al., Defendants and Cross-Respondents, Edward R. Fitzsimmons, Defendant, Appellant and Cross-Respondent. Civ. 38655.

Page 744

140 Cal.Rptr. 744

73 Cal.App.3d 354

Benny KRAUS et al., Plaintiffs, Cross-Appellants and Respondents, v. WILLOW PARK PUBLIC GOLF COURSE et al., Defendants and Cross-Respondents Edward R. Fitzsimmons, Defendant, Appellant and Cross-Respondent.

Civ. 38655.

Court of Appeal, First District, Division 4, California.

Sept. 15, 1977.

As Modified Oct. 7, 1977.

Hagler, Knudsen & Kaufman, Castro Valley, for Benny Kraus et al.

Simonian & Pretzer, Arthur L. Pretzer, San Leandro, for Viviani, Davis, and Willow Park Public Golf Course.

Law Officer of Edward R. Fitzsimmons, Oakland, for Edward R. Fitzsimmons.

CHRISTIAN, Associate Justice.

On June 22, 1967, Benny Kraus ¹ and other investors in Dorado-Pacific Investment Corporation's Willow Park Public Golf Course project filed a complaint in the superior court against Willow Park Golf Course, a corporation, Richard F. Davis, Leroy Spaggiari, Rene Viviani, Edward R. Fitzsimmons (ind. and dba Willow Park Public Golf Course, a limited partnership), Palmer Crow, Ray G. Montalvo, Bob Baldock, Dorado-Pacific Investment Corp., and Bob Baldock, Inc. The complaint contained allegations of breach of contract, fraud, negligent misrepresentation, conversion, violation of the California Corporate Securities Law, breach of a third-party beneficiary contract, and fraudulent conveyance. The complaint prayed for damages against defendants, a declaration that defendants held title to the leasehold interest in certain real property (known as Anthony Chabot Regional Park) in constructive trust for plaintiffs, an order compelling defendants to convey to plaintiffs title to the leasehold interest, and for an accounting of the rents and profits from the leasehold. Edward R. Fitzsimmons appeals from the judgment of the superior court imposing a constructive trust, upon his interest in the Willow Park Public Golf Course, in favor of respondents. Respondents cross-appeal from the judgment.

In Alameda County in the late summer and fall of 1965, respondents and representatives of Dorado-Pacific Investment Corporation (hereinafter 'Dorado') orally agreed that in consideration of certain payments made by respondents to Dorado that respondents would become limited partners in Willow Park Public Golf Course, a limited partnership which supposedly had been formed by Dorado. Dorado was represented in these transactions by its vice-president, Ray G. Montalvo who was operating under the direction and control of the president of the corporation, Palmer Crow. Montalvo and Crow agreed with respondents that the moneys paid by respondents were to be used by the limited partnership for the purpose of developing Willow Park Public Golf Course and for no other purpose, and that the moneys would be held in escrow and in trust until devoted to the development of Willow Park Public Golf Course. ²

Respondents performed all the conditions, covenants and promises which they were required to perform under the contract. Dorado, Palmer Crow and Ray Montalvo, however, breached the agreements: they never created the limited partnership; they did not hold in escrow or in trust the moneys given to them by respondents; nor did they use respondents' funds exclusively for development of the golf course. The trial court found that, at the time of the making of these agreements, Montalvo and Crow falsely represented to respondents that they would perform the agreements and that Montalvo and Crow knew that their representations to respondents were not true. Although the representations of Montalvo and Crow were in fact false, respondents made the payments to Dorado because respondents believed and relied upon these representations. The trial court also found that Dorado, Montalvo and Crow failed to obtain a permit from the California Corporations Commissioner for the sale of partnership interests as required by section 25500 ³ of the Corporations Code.

On or about September 23, 1965, Dorado entered into an agreement with the East Bay Regional Park District by which the park district agreed to lease certain land in Anthony Chabot Regional Park in Alameda County to Dorado in consideration of its developing a golf course on that land according to certain specifications.

On or about October 22, 1965, and just shortly before it filed a petition under Chapter XI of the Bankruptcy Act, Dorado assigned all of its rights in the agreement with the East Bay Regional Park District to Willow Park Public Golf Course, a California corporation. Under the assignment agreement Willow Park agreed to assume Dorado's indebtedness to all those persons who had paid money to Dorado for the development of the golf course. ⁴ Willow Park accepted the assignments from Dorado and agreed to assume the indebtedness. Sometime thereafter, Dorado was adjudicated a bankrupt.

The corporation, Willow Park Public Golf Course, had been organized by appellant Edward R. Fitzsimmons, Rene Viviani, Richard R. Davis, Leroy Spaggiari and Raymond Montalvo. It existed as a corporate shell; no unencumbered capital was ever placed at its risk. It was never authorized to nor did it ever issue stock. The trial court found, however, that it was organized in good faith. The corporation never paid any sums in return to those persons who invested in Dorado. Its corporate status was suspended on February 1, 1967.

On or about June 10, 1966, Richard F. Davis, Leroy Spaggiari, Rene Viviani and appellant Edward R. Fitzsimmons, as general partners, formed Willow Park Public Golf Course, a limited partnership. ⁵ The general and limited partners signed a partnership agreement which was prepared by the general partners. The limited partners in Willow Park Public Golf Course limited partnership consisted of all those people who had invested in Dorado except for respondents.

Also on or about June 10, 1966, Willow Park Public Golf Course, the corporation, assigned to Willow Park Public Golf Course, the limited partnership, without consideration all of its rights in the East Bay Regional Park District lease agreement. At the time of the assignments of its rights to the lease, Willow Park, the corporation, did not have sufficient assets to pay its indebtedness to respondents. Thereafter the corporation remained insolvent.

All of these matters were known to Willow Park, the corporation, and its officers and to the general partners of Willow Park, the limited partnership.

The trial court found that, in making representations to respondents in order to induce them to enter into a contract in the fall of 1965, defendants Dorado-Pacific Investment Corporation, Crow, and Montalvo 'acted tortiously, fraudulently and oppressively.' It also found that Dorado materially breached its contract with respondents and that Dorado, Crow, and Montalvo violated the California Corporate Securities Act.

The trial court further found that respondents and all those who had invested in Dorado's Willow Park Public Golf Course project were third party beneficiaries of the assumption contract entered into by Dorado and Willow Park Public Golf Course, a corporation, on or about October 22, 1965, and that Willow Park, a corporation, had breached this contract by failing and refusing to repay respondents and the other investors the amounts they had invested in Dorado. The court determined that defendants Willow Park Public Golf Course, a limited partnership, and Davis, Spaggiari, Viviani, and appellant Fitzsimmons held their interest in the golf course in trust for the benefit of respondents and the other investors in Dorado. The court made respondents 'limited partners' in the Willow Park Public Golf Course limited partnership and set the respective percentages of ownership of each of the general and limited partners. It then held that, with certain exceptions, the limited partnership agreement entered into between the general and limited partners in June of 1966 should govern the relationship between the partners.

Appellant raises for the first time on appeal the contention that all of the limited partners of Willow Park Public Golf Course limited partnership were 'indispensable' parties to this litigation and that the trial court lacked jurisdiction over the cause because of the absence of such indispensable parties. Appellant argues that the judgment of the trial court reflects the fact that, in addition to imposing a constructive trust upon the partnership interests of appellant, Davis, Spaggiari and Viviani, the court purported to adjudicate the respective percentages of ownership in the Willow Park Public Golf Course limited partnership of not only the plaintiff 'limited partners' (i.e., respondents) but of the absent limited partners as well.

At the time this litigation was initiated, section 389 of the Code of Civil Procedure read, in pertinent part, as follows:

A person is an indispensable party to an action if his absence will prevent the court from rendering any effective judgment between the parties or would seriously prejudice any party before the court or if his interest would be inequitably affected or jeopardized by a judgment rendered between the parties.

A person who is not an indispensable party but whose joinder would enable the court to determine additional causes of action arising out of the transaction or occurrence involved in the action is a conditionally necessary party.

When it appears that an indispensable party has not been joined, the court shall order the party asserting the cause of action to which he is indispensable to bring him in. If he is not then brought in, the court shall dismiss without prejudice all causes of action as to which such party is indispensable and may, in addition, dismiss without prejudice any cause of action asserted by a party whose failure to comply with the court's order is wilful or negligent.

When it appears that a conditionally necessary party has not been joined, the court shall order the party asserting the cause of action whi...