Shafford v. Otto Sales Co.
| Decision Date | 26 March 1957 |
| Citation | 308 P.2d 428,149 Cal.App.2d 428 |
| Court | California Court of Appeals Court of Appeals |
| Parties | R. H. SHAFFORD, Plaintiff and Respondent, v. OTTO SALES COMPANY, Inc., et al., Defendants, Walter E. Otto, Sr., Defendant and Appellant. Civ. 17159. |
Fabian D. Brown, San Francisco, for appellant.
Bledsoe, Smith, Cathcart, Johnson & Phelps, R. S. Cathcart, San Francisco, for respondent.
Plaintiff Shafford brought this action to recover his commissions on sales of cocoanut from Otto Sales Co., Inc., a corporation, to the B & O Nut Company. In addition to the Otto Sales corporation he joined Walter E. Otto, St., as a defendant, upon the theory that Otto used the corporation as a shield to cover up his activities as an individual. Shafford recovered judgment against each, which was affirmed as against the corporation but reversed as against Otto. Shafford v. Otto Sales Co., Inc., 119 Cal.App.2d 849, 260 P.2d 269.
In reversing as to Otto, Sr. (hereinafter called 'Otto'), we indicated that much of the significant evidence in the case came in through the deposition of one Grantier but applied only to the defendant corporation, not to Otto, because the deposition was taken before process had been served upon Otto. Especially, did we note that there was no evidence that the corporation was used as a shield by Otto to cover up his activities as an individual; no evidence that plaintiff believed he was dealing with Otto personally; no evidence that plaintiff placed any reliance upon such a belief; no evidence that the corporation was under-capitalized or not financially responsible; and no evidence that any inequitable result would follow a refusal to disregard the corporate entity. See pages 860 and 861 of 119 Cal.App.2d, pages 275 and 276 of 260 P.2d.
Upon the retrial, the record of that portion of the former evidence which applied to Otto was put in evidence. Grantier's deposition was again taken and the testimony of Otto and other witnesses was also taken, addressed to the issues indicated in our former opinion. There resulted a judgment against Otto based upon findings the more significant features of which may be summarized as follows:
(1) For a period of 15 years prior to December 16, 1946, Otto had been doing an export and import business in San Francisco under the name of 'Otto Sales Company'; (2) on December 16, 1946, Otto caused to be filed with the Secretary of State articles of incorporation relating to 'Otto Sales Company, Inc.' and later caused to be filed with the State Corporation Commissioner an application on behalf of said corporation for the issuance of stock therein; (3) a permit was issued authorizing the issuance of certificates of stock but the corporation never issued any valid certificates pursuant to the permit or otherwise; (4) Otto invested $50 in the purported corporation and caused its books to be set up with an outstanding capital of $50; the purported corporation never had in excess of $50 in this stated capital account; (5) the purported corporation was grossly under-capitalized and has been at all times subsequent to December 31, 1947, and now is involvent; (6) the purported corporation has wholly failed and is financially unable to pay the judgment recovered against it in favor of plaintiff on the prior trial of this action; (7) Otto formed the purported corporation merely as an instrumentality through which he, for his personal convenience, transacted business; (8) at all times referred to in the complaint the purported corporation was dominated and controlled by Otto and at all of said times was the alter ego of Otto and merely the conduit through which Otto performed the acts and made the promises and representations hereinafter referred to; (9) it is and would be inequitable to recognize any corporate entity separate and apart from Otto; (10) on January 9, 1948, Otto controlled and owned all the output of a certain desiccated cocoanut factory in the Philippine Islands; (11) on January 9, 1948, Otto entered into an oral contract with plaintiff under the terms of which he employed plaintiff to sell for the account of Otto said factory's entire output of desiccated cocoanut for a term of one year and promised to pay plaintiff a commission of 5% on gross receipts derived from such sales to any purchaser procured by plaintiff; (12) pursuant to said contract plaintiff promised to and did use his best efforts to procure a purchaser or purchasers and did procure and introduce to Otto on January 9, 1948, a purchaser, the B & O Nut Company, ready, willing and able to purchase the total annual output of said factory for one year at the prevailing market price; (13) between April 28 and September 27, 1948, Otto sold and delivered to B & O Nut Company and the latter paid Otto for the desiccated cocoanut produced at said factory a total purchase price of $250,788.46; (14) pursuant to Otto's contract with plaintiff there became payable from Otto to plaintiff his commission of 5% of said purchase price or the sum of $12,539.42; (15) said sum has been payable from Otto to plaintiff ever since November 1, 1948, with interest at 7% per annum from said date, amounting to $5,850.89 calculated through June 30, 1955. Accordingly, judgment was rendered in favor of plaintiff in the sum of $18,390.31 with interest thereon at 7% from July 19, 1955, until paid.
These findings are adequately supported by the evidence, except possibly as to the date (December 31, 1947; see clause (5), above) from and after which the corporation has been insolvent. The corporation's balance sheet for December 31, 1947, indicated a surplus of assets over liabilities amounting to $27,000. Plaintiff claims that the trial court was entitled to and presumably did impliedly find that a number of items listed as assets were of little or no value. That may well be. The corporation had no real property and its assets consisted largely of accounts receivable. From the beginning the bank which handled the corporation's credit held all the assets in pledge. But insolvency on that particular date is not an indispensable basis for the trial court disregarding the corporate entity. The evidence quite clearly shows that the corporation's liabilities exceeded its assets, beginning at least as early as December 31, 1948. The gross under-capitalization, the failure to effect a legal issue of shares of stock, the promptness with which corporate insolvency did ensue, and other pertinent factors, support the action of the trial court in disregarding the corporate entity.
It is not necessary to summarize the evidence. It is well, however, to mention a few bits of evidence that are reflected but not specifically mentioned in the findings: Immediately after formation of the corporation, Otto advanced it $25,000, the amount required to open its bank account with the bank that undertook to extend it credit. That loan has never been repaid. The minute book of the corporation is very meager. It has very few entries of action, if any, taken by the board of directors or by the stockholders. During the period of his negotiations with Otto (1947-48) plaintiff did not know that Otto Sales Company was a corporation, nor did he understand that he was dealing with a corporation. He wrote to the company many times and received replies written on the letterhead which apparently had been used by Otto prior to the incorporation, while he was doing business under the name of 'Otto Sales Company.' The only form of contract furnished plaintiff for use in...
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