Reed v. Norman
| Decision Date | 30 July 1957 |
| Citation | 152 Cal.App.2d 892,314 P.2d 204 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Hoyt REED, Plaintiff and Appellant, v. Carl O. NORMAN, Carl O. Norman, d/b/a Carl's Paint Store, Norman Decorating Co., Inc. (a California Corporation), John Doe Corporation, John Doe, Richard Roe, and Jane Doe, and Guy A. Ray and John E. Haskins, Defendants. Norman Decorating Company, Carl O. Norman, John E. Haskins and Guy A. Ray, Respondents. Civ. 21923. |
Hy Schwartz, Beverly Hills, for appellant.
Raymond R. Roberts, Van Nuys, for respondents.
Plaintiff appeals from the judgment of January 24, 1956, entered after an objection by defendants had been sustained to the introduction of any evidence, and from order taxing costs.
By his amended complaint of May 9, 1950, appellant alleged that in April 1949 application was made to the Corporation Department for the issuance of 500 shares of stock of respondent corporation (Norman Decorating Company) of the par value of $10 par for cash; that the permit authorized the issuance of such shares at par for cash without commission for the sale thereof; that the corporation issued to appellant 245 shares for which he paid the corporation $2,450 and he has continued to be owner and holder thereof; that Norman caused 255 shares of such stock to be issued to himself but that 150 shares were issued for $1,500 which Norman had borrowed from the National Paint Company; that respondent corporation issued its note for $1,500 to the National Paint Company and that such note was subsequently paid by the corporation but that appellant did not learn of such transactions until April 1950; that at the time of gaining such knowledge, appellant learned that an additional 105 shares of respondent corporation were issued to Norman; that he paid nothing therefor but caused an entry to be made on the books of the corporation showing $1,000 payment for the 105 shares and charged that sum as a corporate loan to Norman; that such facts did not become known to appellant until about April 1950.
In May 1950 appellant sued Norman for a judgment declaring the issuance of the 255 shares to be void. A judgment favorable to Norman was reversed by the Supreme Court which annulled, in effect, the issuance of 105 of the shares theretofore issued to Norman for the reason that the Corporation had not complied with the stock permit. Reed v. Norman, 41 Cal.2d 17, 256 P.2d 930.
In his amended complaint, appellant alleged that he and Carl O. Norman are directors and stockholders of respondent corporation; that one Harry Maslovitz is its secretary but owns no stock; that appellant has been a licensed painting contractor for many years and was superintendent in charge of painting for the corporation; that Norman has been acting director and president of the corporation and took full charge of said corporation, its finances, its accounts and is in complete charge and control and management of the corporation to the exclusion of appellant.
The pleading alleges that Norman has at various times declared that he was president and in full charge of the corporation and that it was no business of appellant how the books and funds were handled; that he, Norman, was boss and would do as he pleased in running corporate business and affairs.
That in January 1950 Norman refused to allow appellant to examine the corporation's books or to give financial statements as requested by appellant; that he withdrew from the corporation $110 as interest for the loan made by National Paint Company but did not pay such sum to National Paint Company, or return the $110 to the corporation; that as Carl's Paint Store, he withdrew, in 1949, in excess of $40,000 from the funds of the corporation, in large sums, and that in 1950 he withdrew from such corporate funds in excess of $50,000 without book entries or invoices; that Norman caused Carl's paint store to appropriate about $35,000 by having it charge lump sums to the corporation and that such charges exceeded the prices agreed to be paid by the corporation by about 40 per cent; that Norman appropriated large sums of money of the corporation by having it pay the following sums:
$2,000 for training a horse to be run in a race;
800 for advertising Carl's Paint Store;
2,100 for purchase of an automobile;
200 per month to Norman's daughter;
sums unknown to Mrs. Morman and Rose Norman
5,000 paid out that were not corporation liabilities.
Since its inception, the corporation performed $400,000 in painting contracts; that all payments for the work were handled by Norman, some of which were deposited to his own account.
Other misdeeds of Norman against the corporation and his usurpation of all power over the corporation are alleged along with other facts showing that Norman made use of the funds and powers of the corporation to its detriment.
In his prayer, appellant asked that the shares issued to Norman be declared invalid; that he account to the corporation for all moneys paid out or received by Norman or Carl's Paint Store; that Norman be barred from holding office, in any capacity, in the corporation and that he be restrained from holding any meeting of its shareholders.
A preliminary injunction was issued upon the amended complaint on June 7, 1950, whereby the defendants were restrained from withdrawing any funds of the corporation from any source for payment or use of Norman or Carl's Paint Store or for any purpose other than in the regular course of business of the corporation; that no withdrawal or use of its funds be made except on the checks of the corporation executed by Carl O. Norman and Hoyt Reed; that no funds received by the corporation be banked to any account except that of the corporation at the Security-First National Bank at Burbank.
On May 31, 1951, appellant obtained leave to file his supplemental complaint and 'to bring in Guy A. Ray and John E. Haskins new parties defendant'; it alleges that Haskins was secretary and director of the corporation after May 1950, and that Guy A. Ray is an accountant and since the last mentioned date has been acting as such for Carl O. Norman and has knowledge of the books and records of the corporation; that Norman made a claim of $5,000 against the corporation and has withdrawn large sums of money from the corporation, but he was entitled to none of them or to the $5,000; that Guy A. Ray made claim to $750, but the corporation was not indebted to him; that in order to circumvent the preliminary injunction, Norman and Ray schemed to assign the Norman claim of $5,000 to Ray; that upon such assigned claim and his own claim Ray sued the corporation and caused to be entered a default judgment, John E. Haskins appearing as Ray's attorney; that a levy was made upon the bank account of the corporation and the bank turned over to the sheriff the net sum of $4,506.57; that upon learning of such events, appellant moved to vacate the judgment and default and offered an answer to be filed, which motion was granted; that appellant demanded repayment of the sums such parties received from the sheriff but it has not been paid; that further to avoid the preliminary injunction of June 7, 1950, Norman caused the signatures for the withdrawal of funds from the Security Bank to be changed to Carl O. Norman and John E. Haskins; and that certain amounts have been withdrawn by Norman. That since the filing of this action, Deane, Gunther & Shirley became indebted to the corporation in the sum of $11,500 for work done by the corporation; that Norman has demanded payment of that sum to himself; that when the debtor firm made its check to the corporation, Norman endorsed it to his own paint store and it was cleared, leaving the money in the possession of Norman.
Norman and Haskins both filed their answers in June 1951 denying the allegations of the supplemental complaint but laid claim to $5,000 Norman had allegedly paid to National Paint and Varnish Company for the use of the corporation and that by resolution of special meeting, June 22, 1950, Norman and Haskins were authorized to sign checks necessary for the ordinary conduct of the corporate business. The action was called for trial before Judge Barnes on June 21, 1951; the judgment is that which involved the legality of Norman's stock and was reversed May 12, 1953. Reed v. Norman, supra.
On December 8, 1953, the action was called for trial before Judge McKay and on ...
To continue reading
Request your trial
-
Lopes v. Vieira
...the demand requirement of Section 800 would have been futile with regard to CVD and Valley Gold. Plaintiffs cite Reed v. Norman, 152 Cal.App.2d 892, 898, 314 P.2d 204 (1957): While it is the general rule that in a derivative action the plaintiff must plead a demand upon and refusal by the d......
-
Country Nat. Bank v. Mayer
...(1969). Under California law, such an action ordinarily must be instituted by the directors of the corporation. Reed v. Norman, 152 Cal.App.2d 892, 897, 314 P.2d 204 (1957). The so-called "business judgment rule"15 provides that the judgment of shareholders and courts cannot supplant the de......
-
Lopes v. Vieira
...exercise of its business judgment to commence the action, the shareholder may not institute the action. In Reed v. Norman, 152 Cal.App.2d 892, 898, 314 P.2d 204 (1957), the Court of Appeals While it is the general rule that in a derivative action the plaintiff must plead a demand upon and r......
-
Fairchild v. Bank of America
...settled that such demand need not be alleged if the facts pleaded show that such a demand would have been futile (Reed v. Norman, 152 Cal.App.2d 892, 898, 314 P.2d 204). However, the conclusionary allegation 'that further demand as stockholder would be futile' would not appear to meet the r......