Shafford v. Otto Sales Co.

• Decision Date: 25 August 1953
• Citation: 119 Cal.App.2d 849,260 P.2d 269
• Court: California Court of Appeals Court of Appeals
• Parties: SHAFFORD v. OTTO SALES CO., Inc., et al. Civ. 15510.

Page 269

260 P.2d 269

119 Cal.App.2d 849

SHAFFORD v. OTTO SALES CO., Inc., et al.

Civ. 15510.

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

Aug 25, 1953.

Hearing Denied Oct. 22, 1953.

Fabian D. Brown, San Francisco, for appellants.

Dana, Bledsoe & Smith and R. S. Cathcart, San Francisco, of counsel, for respondents.

PETERS, Presiding Justice.

Plaintiff, R. H. Shafford, brought this action against Otto Sales Company, Inc. (hereafter referred to as Otto Sales), and against the senior Walter E. Otto, president and general manager of Otto Sales, to recover commissions claimed to be due to him under the terms of an oral agreement. Based upon a jury verdict, he recovered judgment against both defendants in the sum of $15,760.20, with interest, and costs. Both defendants appeal.

Both appellants urge that the judgment for commissions cannot stand because, under the terms of his contract, Shafford was to receive commissions only on all sales of coconut made by Otto Sales to the B & O Nut Company (hereafter called B & O) and, so it is claimed, there is no evidence that any such sales were made. While appellants admit that many coconut transactions between Otto Sales and B & O occurred, it is claimed that none of them involved sales between the two, but that in all of them B & O acted as a factor or agent for Otto Sales and was not a purchaser. The individual appellant urges, in addition, that the judgment against him personally cannot stand because the transaction was a corporate one, and, so it is claimed, there is no evidence that justified the court in disregarding the corporate entity so as to hold him personally.

Before the facts are set forth, the main characters in this case should be identified.

Respondent Shafford, one of the two witnesses for respondent, is a licensed broker and the sole owner of an unincorporated brokerage business located in Los Angeles and Chicago and known as 'Worthington Sales Associates.' It is his business to bring sellers of commodities into contact with purchasers, for which service he receives a commission.

Walter E. Otto, the sole witness for appellants, has been self-employed as an import and export merchant since 1919, and, so he testified, has 'never worked for anybody else.' He, and the corporation later formed, operate from San Francisco. Prior to 1947 he did business as 'W. E. Otto.' At some undisclosed time in that year he incorporated the Otto Sales Company, Inc. He testified that the corporation was formed because he was busy, and because his family wanted to invest money in the business; that his wife and two children each invested a substantial sum of their money in the corporation; that he is the owner of but one-third of the shares of the company; that he and his family own 150 of the 153 shares of Otto Sales, the other three shares being held by an employee.

Otto Sales was engaged in both the import and export business. The import business consisted of buying commodities abroad and selling them to purchasers here, either through salesmen employed by Otto Sales or through independent brokers. The product involved in the present action is desiccated coconut. Until Otto Sales made the Philippine connections hereafter described it was getting some coconut from producers in India and Ceylon, but was not itself engaged in the production of coconut.

B. J. Grantier, the only other witness for respondent, was in charge of the import department, first for Otto and then for Otto Sales. He testified through a deposition inasmuch as he was to be out of the country at the time of trial. This deposition was taken at a time when Otto Sales and Walter Otto, Jr. (later dismissed), had been served in the action, but before Otto, Sr., had been individually served or had appeared. Both counsel agreed that this was so. The trial court ruled that the deposition was admissible only against the corporation and Otto, Jr. So far as the deposition not constituting evidence against Otto, Sr., is concerned, that ruling was correct. Overton v. Harband, 6 Cal.App.2d 455, 44 P.2d 484. Grantier testified that Otto was domineering, refused to delegate authority, was the only one exercising any real power in the corporation, and made all important decisions.

We turn now to a discussion of the events leading up to the present controversy. On this appeal it is admitted by appellants that Shafford and Otto Sales entered into a contract on January 9, 1948, whereby Shafford was to receive a commission on all sales of coconut by Otto Sales to B & O. The negotiations between the parties, leading up to that contract, are important. During the war many of the coconut plantations in the Far East had been destroyed. In 1947, when the candy business in this country resumed upon the termination of rationing, there was a great demand for cocount, and but a very limited supply. In the early part of 1947 Shafford had learned that Otto or Otto Sales had cocount for sale, and communicated with them looking towards sales to his clients. In fact, Shafford had made offerings to his clients based upon listings furnished him by Otto or Otto Sales. Two of the documents upon which Shafford relies to establish Otto's misuse of the corporate entity belong to this early period. One was the initial communication between Shafford and appellants. It is a form letter dated January 30, 1947, and sent to the trade and to Shafford by 'W. E. Otto,' setting forth the terms of an offering of Ceylon desiccated coconut. It should be noted that this letter was sent about a year before the contract for commissions was entered into. Just when, in 1947, Otto Sales was incorporated, does not appear. Thus, this letter may have been sent prior to the incorporation of Otto Sales.

The second document is a form contract captioned 'W. E. Otto' sent to Shafford in August, 1947, with a letter under the name 'Otto Sales Company,' telling Shafford that such contracts should be signed by Shafford or his customers. The contract form contains blanks, including one for acceptance by W. E. Otto.' Shafford used this form of contract in several transactions. All other later letters, telegrams and other communications were sent out by Otto Sales.

Under date of November 4, 1947, Grantier, for the corporation, wrote to Shafford to the effect that the corporation wanted to deal exclusively through Shafford in making coconut sales rather than employ a sales force, and that a definite agreement should be executed as soon as a regular source of supply of coconut could be secured. Prior to this date Shafford had already contacted B & O as a prospective client, hoping to secure coconut for that corporation through Otto Sales.

In the fall of 1947 Otto went to the Philippines looking for a coconut supply. On December 17, 1947, he signed a contract with one Angel Reyes, the owner of a desiccated coconut plant on Luzon, whereby Otto Sales obtained complete control over the operation and products of the plant for one year. The agreement provided for a fifty-fifty split of profits between the Otto Sales and Reyes. This was the first time Otto Sales had entered into the production end of the business.

Shafford was notified of this source of supply and immediately came to San Francisco and talked first to Grantier, and, upon his return, to Otto. Shafford was informed that the Luzon plant had a potential of 16,000 pounds of shredded coconut per day, but that $75,000 was needed to finance the first month's production. Shafford stated that he would try to secure the needed financing. At this conference Shafford was promised a 5% commission on all sales for one year, and was handed a letter from Otto Sales describing the need for $75,000 financing and setting forth the terms under which Shafford could offer the coconut to be produced and processed in the then unfinished plant.

On January 6, 1948, Otto Sales sent Shafford a telegram offering 300,000 pounds of coconut for February, March and April, at a designated price, but requiring purchases to be financed by letters of credit plus a deposit of ten cents a pound upon placing the order. The telegram stated that the quoted prices included a 5% commission for Shafford. Shafford immediately communicated with Oppenheimer, president and manager of B & O. That company expressed a desire to purchase 600,000 pounds of coconut during the year, and Shafford told Oppenheimer that his source was ready to furnish that amount and much more. Oppenheimer, by telegram to Shafford, stated his acquiescence in the price offered, but not in the terms of payment, being disturbed about the required deposit of ten cents a pound. Shafford thereupon notified Otto Sales that he had a potential customer, and that company requested Shafford to come to San Francisco on January 9, 1948, to discuss this prospective sale.

The conference was held on the date specified. Shafford had not yet disclosed to Otto Sales the name of his prospective purchaser, nor had he disclosed to B & O his prospective source of supply. He told Otto that he had a buyer who was then in San Francisco who wanted about a million pounds, and that he, Shafford, wanted a letter confirming the 5% commission promised in the telegram. Otto dictated to Grantier such a letter, which contained a blank line for the name of the yet undisclosed purchaser, in which it was agreed that Shafford was to receive a 5% commission on all sales to such purchaser up to one million pounds. This letter was not signed.

Shafford testified that he then asked Oppenheimer to come to the office of Otto Sales to meet the source of supply, and disclosed the name of the purchaser to Otto. The names of B & O and Oppenheimer were then typed in the blank space of Shafford's letter. Before Oppenheimer arrived, according to Shafford, Otto told him that he knew of Oppenheimer's financial standing and believed that he would want to buy the entire output of the Luzon plant, which...