Roberts v. Wachter

• Decision Date: 17 May 1951
• Citation: 231 P.2d 534,104 Cal.App.2d 271
• Court: California Court of Appeals Court of Appeals
• Parties: ROBERTS v. WACHTER et al. Civ. 17864.

Page 534

231 P.2d 534

104 Cal.App.2d 271

ROBERTS v. WACHTER et al.

Civ. 17864.

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

May 17, 1951.

Earl D. Killion, North Hollywood, for appellants.

Elmer Patrick Friel, Marcus L. Roberts, Los Angeles, in pro. per.

DRAPEAU, Justice.

The complaint herein alleges that in 1942, plaintiff, an active member of the State Bar of California, organized the produce firm of Drudis, Means & Wachter, with assets valued at $6,500 furnished by defendant Drudis and $20,000 cash furnished by the latter's wife. That Means and Wachter were taken in as partners but furnished no capital. Defendant Drudis was to take no active part, but under an oral agreement between him and plaintiff, the profits from his share of the business were to be divided between them in consideration for plaintiff's services in organizing the business, representing Mr. Drudis and looking after their joint interests.

It is further alleged that in 1945 the net profit from the business was $60,640.62, of which defendant Drudis' share was $22,813.54; that on December 30, 1945, plaintiff and said defendant had a settlement and an account stated was made between them that $10,406.77 was due to plaintiff, whereupon defendant Drudis paid plaintiff $6,406.77, but failed upon demand to pay the balance of $4,000.

The complaint contains a second cause of action based on a common count for money had and received for the use of plaintiff which is predicated upon the following facts: that plaintiff's 1945 profits amounting to $4,000 were on deposit with the partnership subject to plaintiff's withdrawal as in former years; that at a time when neither objection nor dispute existed as to plaintiff's withdrawal of the money, the partnership asked for and was granted by plaintiff a loan of the $4,000 which upon demand it refused to pay.

Defendant Drudis interposed a general and special demurrer which was overruled. By his amended answer, he alleged among other things that in July, 1942, he orally agreed to pay plaintiff one-sixth of his share of the net profits realized from the partnership 'which was in consideration of legal services rendered and to be rendered by plaintiff to this defendant'; and that on October 9, 1942, said agreement was reduced to writing; that subsequently, either in December of 1944, or in January, 1945, he and plaintiff orally modified the agreement of October 9, 1942, whereby he agreed to pay plaintiff one-half of his share in the profits after deducting an amount equal to 5% on his investment, provided he had recouped his losses previously sustained.

Defendant also alleged that when the contract was orally modified, his consent thereto was procured through reliance upon statements of plaintiff that all of defendant's losses had been recouped; that such statements were false and known to plaintiff to be false; that when the contract was modified he neither had nor sought any independent legal advice because he assumed that the terms of the agreement and the modification were fair and reasonable and provided for a just and reasonable compensation; but that on the contrary the compensation provided therein was greatly in excess of the value of the services rendered and to be rendered. Accordingly, by way of counterclaim, defendant sought to recover the $6,406.77 which he had paid to plaintiff.

From a judgment in plaintiff's favor for the sum of $4,000, defendants appeal. Defendant Drudis will hereinafter be referred to as appellant.

It is here urged that the contract which was made during the existence of the relationship of attorney and client is presumptively invalid and without consideration, and that respondent did not sustain the burden of proof to overcome such presumption.

While it is true that many of the findings are negative in form, it is to be noted that the trial court affirmatively found that the parties entered into an oral agreement during the month of July, 1942, wherein appellant agreed to pay respondent one-sixth of his profits from the partnership; that on October 9, 1942, a written memorandum to that effect was signed by appellant and delivered to respondent; and that subsequently, appellant orally agreed to increase respondent's share to 50% of the profits accruing to appellant. From such findings, it must be inferred that the trial court was satisfied with the manner in which respondent met the burden of proof cast upon him.

Respondent testified he had known appellant since 1935; that prior to 1941 he had handled a few legal matters for him; that in 1941 he made out income tax returns for appellant and his wife. During that year appellant sought respondent's advice regarding the acquisition of a business in which to invest some money his wife was going to give him. Respondent discouraged this and advised him to lend the money on trust deeds or mortgages. After Pearl Harbor, appellant told respondent he wanted to get into the farm produce business, and as a result of information supplied by respondent, appellant became interested in the American Produce Company, formerly owned by a Japanese who had been interned for the duration of the war. Respondent made a thorough investigation of this business and reported to appellant, who was then ready to invest but did not wish to take an active part. It was arranged that appellant should put up the money and that respondent's son-in-law, Mr. Higgins, should acquire appellant's interest as trustee and be paid a straight salary. They then discussed division of the profits and compensation to respondent, appellant agreeing that after he got 5% on his invested capital, he would give respondent 50% of the net profit realized from his share of the business. In respondent's words: 'I was merely putting in my services and if he made any money I was to get my cut. If there were any losses that he would have to bear them * * * I would give all the time I could to looking after the business, whatever was needed. * * * He said that was satisfactory to him. * * * I was to go out and help the Japanese organize this company and look after it, see that the business was properly carried on and that I would keep close watch * * * over everything, and see that we got our proper returns from his investment. This was * * * the latter part of January, 1942.' Operations started immediately, respondent handling all the details of organization, obtaining the necessary permits and bonds, and starting a bookkeeping department. Many difficulties were encountered because of evacuation of the Japanese growers and workers with resulting loss of farm connections and competent help. During this period, respondent was putting in over ten hours a day, buying produce and hiring men. Meanwhile the bookkeeping and accounting department went awry and the business was operating at a loss. Respondent suggested discharge of the accountant, but appellant objected, saying he would rather have the accountant manage the business than respondent. 'I told him I thought he was doing the wrong thing; that I was doing my best; that I thought I could straighten matters out, but if he desired it that way, it was all right with me and if he'd come to the office I would draw up a little agreement in which we would release one another from any further obligations. * * * We signed this on June the 22nd, 1942.' And respondent left.

Three weeks later respondent had a talk with appellant and Mrs. Drudis at which time he informed them that he believed appellant was doing the wrong thing to discontinue the business; that if appellant would not interfere with his management, he could put the business on a paying basis by carrying out plans he had formulated before he was asked to leave. It was then agreed that respondent should again manage the business but without interference from appellant. Thereupon, respondent proceeded to work out a cooperative plan through various produce growers in the State of California. While so doing, he met appellants Means and Wachter, experienced produce men who were willing to join appellant and respondent on a salary and percentage basis. By that time, appellant had no money with which to finance the continuation of the produce business. Respondent informed appellant and Mrs. Drudis that he would require $20,000 for this purpose. Mrs. Drudis said she would advance it, if it were approved by her business advisors: her brother-in-law, Mr. Hamilton Cotton of the Dominguez Land Co., and her brother, David Carson, of the Carson Estate Co. Respondent discussed the matter with both. Mr. Cotton advised appellant to quit business; Mr. Carson thought it better to continue in order to avoid loss of money already expended, and advised Mrs. Drudis to advance the $20,000 which she did. The partnership between Drudis, Means and Wachter was formed. Appellant had sustained a loss under the original agreement, and in order to help him recover it, respondent agreed in July, 1942, to reduce his percentage from 50% to 1/6th of appellant's share of the net profits, or 5 1/2% of what the partnership made. Appellant in return agreed to follow respondent's advice and permit him to manage the affairs of the partnership without unnecessary interference, to wit: to keep in constant touch with the business; to see that a proper system of bookkeeping was installed; to pass upon any loans that might be made. Accordingly, respondent had the proper books installed, monthly accounts were rendered to all partners, and he arranged for the necessary licenses, bonds and insurance, and was in daily contact with the business.

The partnership was operated on this basis until October 9, 1942, when a written memorandum of the existing oral agreement was executed by appellant at respondent's request, to wit:

'Memorandum of Agreement.

'For and in consideration of legal services heretofore and hereafter to be rendered by Marcus L. Roberts for and in behalf of Jose Drudis...