Roberts v. Reynolds

• Decision Date: 08 February 1963
• Citation: 28 Cal.Rptr. 261,212 Cal.App.2d 818
• Court: California Court of Appeals Court of Appeals
• Parties: Stanley P. ROBERTS and Warren S. Roberts, Plaintiffs and Respondents, v. James J. REYNOLDS, Defendant and Appellant. Civ. 25976.

Page 261

28 Cal.Rptr. 261

212 Cal.App.2d 818

Stanley P. ROBERTS and Warren S. Roberts, Plaintiffs and Respondents, v. James J. REYNOLDS, Defendant and Appellant.

Civ. 25976.

District Court of Appeal, Second District, Division 3, California.

Feb. 8, 1963.

Hearing Denied April 3, 1963.

L. Dean Petty, Beverly Hills, and Jean Wunderlich, Los Angeles, for appellant.

Frank J. Kanne, Jr., Los Angeles, for respondents.

FORD, Justice.

The plaintiffs sought declaratory relief with respect to the meaning of an agreement made after a business venture of a corporation in which the parties were interested had failed. The agreement was deposited in an escrow by means of which the plaintiffs transferred their corporate stock to the defendant. The defendant has appealed from a judgment adverse to his contention with respect to the extent of his contractual obligation.

The findings of fact of the trial court were in part as follows: 1. On or about March 17, 1958, the plaintiff Stanley P. Roberts was the president of Stanwar's Inc., a California corporation, and the plaintiff Warren S. Roberts was secretary and treasurer thereof. Fifty-one per cent of the corporate stock was owned by the plaintiffs and 49 per cent was owned by the defendant. 2. Commencing about March 1957 the corporation operated a restaurant 'under a management contract with plaintiffs.' The venture was unsuccessful and in February 1958 the plaintiffs ceased to act as managers of the business. 3. 'In February, 1958 the plaintiffs and the defendant verbally agreed that the plaintiffs would resign as officers and directors and would assign their stock in said corporation to defendant in consideration of his undertaking to indemnify the plaintiffs against certain personal liabilities incident to the operations of said business. The plaintiffs did so resign and did so assign their stock to defendant. The defendant executed and delivered to plaintiffs and plaintiffs approved and accepted in writing an agreement between them as follows:

'For value received, the undersigned does hereby agree to indemnify Stanley P. Roberts and Warren S. Roberts against any loss as a result of any taxes that may be owed by Stanwar's Inc., which said Stanley P. Roberts and Warren S. Roberts have personally guaranteed. This guarantee shall cover any and all of said taxes up to the date hereof.

"Dated: March 17, 1958

"JAMES J. REYNOLDS'

That said written agreement superseded all prior oral negotiations. That said written agreement was prepared by the defendant or his agent.' 4. The Director of Internal Revenue has made demand upon the plaintiffs as responsible officers of the corporation for 'certain delinquent employment taxes' for the fourth quarter of 1957 and for the first quarter of 1958 in the total amount of $5,001.15 and has threatened to assess further sums as penalties and interest if the claim is not paid forthwith. 5. By the written agreement the parties intended that the defendant indemnify the plaintiffs 'for all loss to them resulting from personal liability for taxes owing by the corporation,' including 'both taxes on which the plaintiffs assumed personal liability by express action and those on which they were personally liable by operation of law.' ¹

By the judgment it was declared that the agreement was one of indemnity against any loss as a result of any taxes owing by the corporation 'as to which the plaintiffs were personally liable, whether said liability was created by express action or by operation of law.' A further declaration was that the obligation under the agreement included the claim for $5,001.15, together with any further penalties or interest, and that, upon payment of the whole or any part thereof by the plaintiffs, the defendant was bound to reimburse the plaintiffs for the amount or amounts so paid.

At the trial it was the defendant's contention that the agreement was free from ambiguity and that, therefore, extrinsic evidence was not admissible upon the issue of the meaning of the agreement. ² However over the defendant's objection based on that ground, such evidence was received. Portions thereof will be hereinafter stated.

The defendant, when called as a witness under the provisions of section 2055 of the Code of Civil Procedure, testified that 'during the period of the escrow' (relating to the transfer of the plaintiffs' shares of stock to the defendant) the subject of taxes was discussed, the discussion being as follows: 'They wanted to know what they would do about taxes and I said, 'Well, as far as I am personally concerned, I'm not going in back of and guarantee anything that you haven't guaranteed personally,' so as a result of that an agreement was drawn up.' Further testimony of the defendant was: 'Q. Before the agreement was drawn and you said what you have just testified to, was there any discussion by you or any inquiry by you as to what taxes they had personally guaranteed? A. No. No, there was no discussion. Q. Did you know of any taxes that they had personally guaranteed? A. No. Q. Did you know whether or not Stanwar's Inc. was indebted on withholding taxes? A. I didn't know. I didn't ask and they didn't volunteer. Q. What taxes did you have in mind that they had personally guaranteed? A. They had a number of checks come back which were then in the hands of the co-ordinator that had taken it over under Chapter XI. I understood that there was some tax checks that had come back and Warren [one of the plaintiffs] asked me at the time we were in escrow, 'What about the taxes?' I said, 'Well, any taxes you personally guaranteed I will assume.' * * * THE COURT: * * * You did know that some checks had been returned which had been given in payment of taxes, however? THE WITNESS: That's right, your Honor. * * * Q. BY MR. KANNE [counsel for plaintiffs]: You intended by 'personally guarantee' to mean taxes on which the Roberts had issued checks which had not been honored by the bank? A. I didn't intend any such a thing, Mr. Kanne. * * * Q. BY MR. KANNE: By that answer do you mean that when the checks that had been given for taxes had been returned--did you understand that to mean that the Roberts had thereby personally guaranteed those taxes? * * * THE WITNESS: No, I did not understand any such thing.' The defendant also testified as follows: 'Q. Did the Roberts tell you of any taxes that they had personally guaranteed? Q. No, they didn't. * * * Q. BY MR. KANNE: What did either of the Mr. Roberts say themselves that resulted in the words 'guarantee against taxes' being injected into this acquisition by you of the Stanwar's stock? A. They said, 'What are we going to do about taxes?' And I said, 'Any taxes that you have personally guaranteed I will be responsible for.''

The defendant identified the escrow instructions used and they were received in evidence. The instructions were signed by all the parties. Therein it was stated that the plaintiffs had agreed to assign their shares of stock in the corporation to the defendant and his wife who had agreed to take over those shares upon the terms and conditions thereinafter set forth. Part of the documents which the plaintiffs undertook to place in the escrow were as follows: (1) A 'management agreement' between the corporation and the plaintiffs, together with an agreement by the plaintiffs 'to terminate' the management agreement; (2) a note for $5,000 made by the corporation in favor of the plaintiffs or one of them, together with an assignment thereof by the payee or payees to the defendant; (3) a release by Leon Abajian of the corporation's liability on a note in his favor for the sum of $5,000; (4) two notes executed by the corporation, each in the amount of $950, one being in favor of one plaintiff and one being in favor of the other plaintiff, together with assignments thereof to the defendant. Documents which the defendant undertook to place in the escrow were described as follows: '(a) Agreement by Second Party [the defendant] to assume personal liability of First Party [the plaintiffs] on the Apfel Note of approximately $10,900.00. (b) Agreement by Second Party relieving First Party of any and all liabilities personally guaranteed by them for back taxes in connection with the operation of Stanwars Inc.' Also received in evidence was a document embodying the agreement as to taxes which has been set forth herein in the resume of the findings of fact. Another document received in evidence was one executed by the plaintiffs relating to the termination of their management contract.

The manager of the escrow department of the bank at which the escrow instructions were prepared testified when called as a witness on behalf of the defendant. He identified a copy of the document in the escrow file relating to taxes, upon the bottom of which the plaintiffs had signed in his presence a notation that it was approved 'as to form.' The witness also produced from the escrow file another document signed by the defendant and containing a notation, signed by one of the plaintiffs, that it was approved 'as to form.' The latter document related to the Apfel note. ³ As to conversation which occurred in the course of the escrow, the witness testified: 'A. Well, I can't repeat exactly what they said but the instruction to me was to prepare the instructions to cover an agreement in which the second party relieved the first party of any and all liabilities personally guaranteed by him. Q. Was that with reference to taxes or the note, or what? Would you identify them. A. Well, all these agreements were discussed and that was the outcome of the discussion that I drew the instructions for.'

The plaintiff Warren S. Roberts testified that about January 1958 the parties had several discussions. Part of the witness' testimony was: 'Discussion came up then about the withholding taxes and Jim [the defendant] said that he would take over any obligation that we had in the matter.' Funds were to be...