Snukal v. Flightways Manufacturing, Inc.

• Decision Date: 17 July 2000
• Docket Number: No. S067271.,S067271.
• Citation: 3 P.3d 286,23 Cal.4th 754,98 Cal.Rptr.2d 1
• Court: California Supreme Court
• Parties: Robert SNUKAL, Plaintiff, Cross-defendant and Respondent, v. FLIGHTWAYS MANUFACTURING, INC., Defendant, Cross-complainant and Appellant.

98 Cal.Rptr.2d 1

23 Cal.4th 754

3 P.3d 286

Robert SNUKAL, Plaintiff, Cross-defendant and Respondent, v. FLIGHTWAYS MANUFACTURING, INC., Defendant, Cross-complainant and Appellant.

No. S067271.

Supreme Court of California.

July 17, 2000.

Akre, Bryan & Chang, Ronald A. Selgrath and Geoffrey L. Bryan, Los Angeles, for Defendant, Cross-complainant and Appellant.

Law Offices of David B. Bloom, David B. Bloom, James E. Adler; Sandra Kamenir, Los Angeles; and Peter 0. Israel, Beverly Hills, for Plaintiff, Cross-defendant and Respondent.

Heller, Ehrman, White & McAuliffe, Steven O. Weisse; Wilson Sonsini Goodrich & Rosati, Meredith S. Jackson, Palo Alto; Rodriguez, Horii & Choi, Albert R. Rodriguez; Sheppard, Mullin, Richter & Hampton, John D. Berchild, Jr., Los Angeles; Brobeck Phleger & Harrison, George A. Hisert; McCutchen, Doyle, Brown & Enersen, Henry D. Evans, Jr., San Francisco; Latham & Watkins, Linda Schilling, Costa Mesa; Hoffman, Finney & Klinedinst, William P. Hoffman, Jr., San Francisco; Law Offices of Francis Mintz, Francis Mintz, Los Angeles, O'Melveny & Meyers and R. Bradbury Clark as Amici Curiae.

GEORGE, C.J.

The lessor of a personal residence filed this action in the municipal court against the lessee, a corporation, alleging breach of a written lease agreement executed by the president of the corporation. Following judgment in favor of the lessor in the municipal court, and affirmance in the appellate department of the superior court, the Court of Appeal directed that the case be transferred to itself in order to resolve a single issue of statutory construction pursuant to its authority under Code of Civil Procedure section 911 "to secure uniformity of decision or to settle important questions of law." Contrary to the conclusion reached by the appellate department, the Court of Appeal determined that Corporations Code section 313, which precludes a corporation from challenging an agreement based upon lack of authority when the agreement has been executed on behalf of a corporation by specified corporate officers, was inapplicable to the lease agreement here in question. The Court of Appeal then directed that the case be remanded and the remittitur transmitted to the appellate department of the superior court in order to permit that court to determine whether, instead, the lease agreement was binding upon the corporation under traditional, common law contract doctrine.

Initially we determine whether, pursuant to Code of Civil Procedure section 911 and California Rules of Court, rules 62 and 63,¹ providing that the Court of Appeal may order transfer of a case from the appellate department of the superior court to itself for hearing and decision "in order to secure uniformity of decision or to settle important questions of law," the Court of Appeal is authorized to decide only a limited issue or selected issues that are not dispositive of the case it has transferred. In connection with that question, we also determine whether, pursuant to rule 68, requiring the Court of Appeal to issue and transmit the remittitur to the court from which the appeal originally was taken (with an exception not applicable herein), the Court of Appeal may order transmittal of the remittitur to the appellate department of the superior court to decide the issues remaining on appeal. We conclude that under the terms of the current statute and rules of court, the Court of Appeal is not authorized to decide selected issues that are not dispositive of the appeal. Accordingly, the Court of Appeal is required to decide the issues necessary to resolution of the appeal and thereafter to transmit the remittitur to the municipal court (or, in the instance of a limited civil case tried in a unified superior court, to transmit the remittitur to the superior court).

In addition, we interpret Corporations Code section 313, which provides that a contract entered into between a corporation and another person, "when signed by the chairman of the board, the president or any vice president and the secretary, any assistant secretary, the chief financial officer or any assistant treasurer of such corporation," is binding upon the corporation even if the signing officers in fact lack authority to enter into the contract, so long as the other person does not have actual knowledge of that lack of authority. Contrary to the determination of the Court of Appeal, we conclude that under Corporations Code section 313 a contract is binding upon a corporation when an individual who in fact occupies the office of president, chief financial officer, and secretary of a corporation, executes a contract on behalf of the corporation, even when the contract expressly identifies the individual solely as its president. Accordingly, the judgment of the Court of Appeal, reversing the judgment of the appellate department of the superior court and remanding the case to that court, is reversed.

I

In October 1992, plaintiff Robert Snukal leased a residence he owned in Malibu, California, to defendant Flightways Manufacturing, Inc. (hereafter, Flightways) for a two-year term commencing in November 1992. The residence was to be occupied by Kirt Lyle, who at that time was president, chief financial officer, and secretary of Flightways. On behalf of Flightways, Lyle alone executed the lease agreement, designating his title as president, without indicating that he also was chief financial officer and secretary of the corporation.

Within several months of the commencement of the lease term, Flightways was in arrears in its monthly rent payments, and in September 1993, plaintiff sent Flightways a notice to pay rent or quit. Lyle vacated the premises approximately one year after the inception of the lease term. Plaintiff commenced the present action, seeking recovery of past due rents, payment of future rents according to the terms of the lease, and other relief. In its answer to the complaint, Flightways denied that Lyle was authorized to enter into the lease agreement on its behalf. Flightways filed a cross-complaint alleging that it had not authorized Lyle to enter into the lease agreement on its behalf, and seeking relief in the amount of the monthly rent payments previously made.

The parties stipulated to trial by the court. Plaintiff testified that he personally did not meet with Lyle or Flightways and that the lease transaction was conducted through real estate brokers. Plaintiff was unaware of Lyle's actual interest in Flightways. Plaintiffs secretary received and deposited certain rent checks bearing the name "Lyle Kirtisine" rather than Flightways, but most of the rent checks received were issued on an account bearing the name "Flightways Manufacturing, Inc."

A member of its board of directors testified that Flightways did not authorize Lyle to enter into the lease agreement, and in fact was attempting to reduce its expenses during the period in which Lyle executed the agreement on its behalf. Although Flightway's monthly bank statements clearly reflected the checks (numbered in a sequence distinct from that of most of the checks written on the corporate bank account) written by Lyle on Flightway's bank account to pay the monthly rent for the residence, Lyle's duties also included the preparation (based upon those records) of the monthly corporate financial statements that were examined by the board of directors. At one point, in order to determine the reliability of the financial records, the board of directors employed an accounting firm to review the company's financial statements, but that firm did not detect anything unusual. Lyle told the board members that he was house-sitting for a girlfriend who lived in Malibu.

The municipal court determined that Flightways was bound by the lease agreement, noting that although Flightways had been the apparent victim of fraud on the part of Lyle, in view of the circumstance that a corporation reasonably might lease a residence on behalf of a corporate officer, Flightways was in a better position than plaintiff to detect and prevent the fraud. (See Civ.Code, § 3543.) The municipal court entered a judgment in favor of plaintiff in the amount of $22,300 for past due rent and attorney fees. The parties stipulated to the entry of judgment in favor of plaintiff on Flightway's cross-complaint.

Flightways filed an appeal in the appellate department of the superior court. Flightways contended that the evidence did not support the finding that plaintiff justifiably relied upon representations made by Flightways, that plaintiff was not entitled to rely upon Lyle's ostensible authority because Lyle did not act in the ordinary scope of business and received a personal benefit, that Civil Code section 3543 was inapplicable because Flightways was not negligent, and that Corporations Code section 313 did not apply because Lyle executed the lease agreement solely as president of Flightways.

The appellate department affirmed the judgment of the municipal court, concluding that Corporations Code section 313 was dispositive. The appellate department determined that Lyle, as president, chief financial officer, and secretary of Flightways, had "assertive authority" to enter into agreements on its behalf, and pursuant to that statute plaintiff, who did not have actual knowledge that Lyle lacked such authority, was entitled to rely upon Lyle's authority to act based upon Lyle's sole signature as president of the corporation.

Flightways requested the appellate department of the superior court to certify the case for review by the Court of Appeal. The appellate department certified that transfer was necessary to determine "when the same person is president as well as secretary and chief financial officer of a corporation, whether it is necessary under ... section 313 for the written contract to specifically reflect a corporate office designation in addition to that of President as signatory in order to bind the corporation...