Walsh v. Hooker and Fay

• Decision Date: 29 January 1963
• Citation: 28 Cal.Rptr. 16,212 Cal.App.2d 450
• Court: California Court of Appeals Court of Appeals
• Parties: John D. WALSH, Plaintiff and Respondent, v. HOOKER AND FAY, a copartnership, Defendant, Cross-complainant and Appellant, and Joseph D. Scannell, Defendant, Cross-defendant and Respondent. Civ. 20228.

Page 16

28 Cal.Rptr. 16

212 Cal.App.2d 450

John D. WALSH, Plaintiff and Respondent, v. HOOKER AND FAY, a copartnership, Defendant, Cross-complainant and Appellant, and Joseph D. Scannell, Defendant, Cross-defendant and Respondent.

Civ. 20228.

District Court of Appeal, First District, Division 2, California.

Jan. 29, 1963.

Hearing Denied March 27, 1963.

Elden C. Friel, San Francisco, for appellant Hooker and Fay.

Nicholas Zoller, San Francisco, for respondent John D. Walsh.

AGEE, Justice.

Plaintiff was induced by false representations, made to him by defendant Scannell, to buy 4,000 shares of stock in Sastex Oil & Gas Co. Seannell was employed as an 'account executive' or salesman by defendant Hooker & Fay, a stock brokerage firm.

Plaintiff purchased the stock in two lots, on November 7, 1956 and November 9, 1956, respectively, at a total cost of $3,606.17. He discovered the falsity of Scannell's representations on November 6, 1957, at which time the stock had a reasonable market value of $180. (Plaintiff does not object to the cut-off date of November 6, 1957, although he later sold the stock at a net to him of only $111.16.) Damages of $3,426.17 were awarded to plaintiff against both defendants, each of whom filed an appeal from the judgment. Scannell's appeal has been dismissed for failure to file an opening brief, leaving Hooker & Fay as the only appellant.

The pertinent findings of the trial court may be summarized as follows: On or about November 1, 1956, Scannell suggested and recommended to plaintiff that he purchase stock in Sastex Oil & Gas; that for the purpose of inducing plaintiff to do so, Scannell represented to plaintiff that Sastex was backed by the Doheny interests and that they were drilling for oil in Southern California, that he had some of the stock himself, and that he had talked with one of the partners of Hooker & Fay who said (with reference to the stock), 'Yes, it's all right'; that these representations were false, were known by Scannell to be untrue, and were made by him with the intent to induce the plaintiff to act in reliance thereon; that plaintiff had no knowledge or information on said stock; that he believed the representations made by Scannell and, in reliance thereon, ordered him to purchase for his account (with Hooker & Fay) 4,000 shares of Sastex stock; that Scannell, without the knowledge or consent of Hooker & Fay authorized General American & Canadian Securities, Inc., a securities brokerage firm, to make such purchase; that this firm purchased said stock (on the Calgary Stock Exchange) from an undisclosed vendor at a total cost to plaintiff of $3,606.17, of which $80 was for its commission; that Hooker & Fay paid this amount to said firm upon plaintiff's authorization; that on November 6, 1957, plaintiff discovered the falsity of the representations made by Scannell; that as the result of said false representations plaintiff was damaged in the sum of $3,426.17, that being the difference between the cost to plaintiff and the value of the stock as of the date of the discovery of the fraud; that all of the acts of Scannell above specified were done in the course of his employment by Hooker & Fay as its agent; that neither Scannell nor Hooker & Fay was the vendor or owner of said stock but instead each acted as the agent of plaintiff in connection with said stock purchase; that at all times involved herein, a fiduciary relationship existed between the plaintiff and the defendants. (1 Witkin, Summary of California Law 404, Agency and Employment § 26; Webb v. Saunders, 79 Cal.App.2d 863, 870, 181 P.2d 43; Kinert v. Wright, 81 Cal.App.2d 919, 925, 185 P.2d 364.)

Amendment of complaint to conform to proof. Plaintiff's original complaint contained the following paragraph: 'That on or about the 1st dat of November, 1956, defendant, JOSEPH SCANNELL, as such agent [of Hooker & Fay] and in the course of his employment for defendant, HOOKER & FAY, offered to sell to plaintiff 4000 shares of stock of Sastex Oil and Gas Co. at a price of $3,606.00.' (Emphasis ours.) Thus, the relationship between plaintiff and the defendants was alleged to have been that of vendee-vendor.

In a memorandum opinion, filed on March 9, 1961, the trial judge stated that the evidence established that the relationship was not that of vendee-vendor but rather was that of principal and agent and was fiduciary in character; 'that the measure of damages for a violation of such a fiduciary duty is that applied to contract cases generally i. e., the amount which will compensate the principal for all the detriment proximately caused by the breach'; that the complaint did not plead such a fiduciary relationship and, therefore a finding to this effect could not be made; that, in the absence of such a finding, the measure of damages would be controlled by section 3343 of the Civil Code.

This section provides, generally, that one defrauded in the purchase of property is entitled to recover the difference between the actual value of that with which he parted and the actual value of that which he received.

In its original findings and conclusions, which were filed on the same day as the foregoing memorandum opinion, the trial court found that the value of the stock at the time plaintiff received it was $3,526.17, this being the quoted price of the stock on the Calgary Stock Exchange at the time it was purchased for him. The court accordingly limited damages to $80, the amount of the commission.

On March 16, 1961, plaintiff filed a motion to amend his complaint to conform to the proof. These amendments reflected the court's findings previously made and the memorandum opinion referred to above. The principal amendment requested was that the allegation, 'offered to sell to plaintiff,' be changed to the allegation, 'suggested and recommended to plaintiff that he purchase.'

Plaintiff's affidavit in support of his motion alleged that it was not until the trial of the action that the full and accurate relationship of the parties was determined; that the facts as to this relationship were established at the trial and were uncontroverted; that no objection was interjected by defendants when this proof of relationship was developed at the trial. This affidavit was not controverted.

On April 6, 1961, the trial court granted the motion to amend the complaint and, on the same date, amended paragraphs I and XI of its findings and paragraph I of its conclusions by adding the following: 'I. That at all times herein mentioned, defendant, Joseph Scannell, was an agent of defendant, Hooker and Fay, a copartnership, and all of the acts hereinafter specified and done by said Joseph Scannell were done in the course of his employment for defendant, Hooker and Fay. That at all times herein mentioned, defendants, Joseph Scannel and Hooker and Fay, a copartnership, were the agents of plaintiff, and all of the acts hereinafter specified and done by said defendants, respectively, were done in the course of their employment for said plaintiff. * * * XI. That as a result of said representations plaintiff has been damaged in the sum of $3,426.17. * * * I. [Conclusions] That at all times mentioned herein a fiduciary relationship existed between the plaintiff and the defendants and that accordingly plaintiff is entitled to recover from defendants, Joseph Scannell and Hooker and Fay, the sum of $3,426.17, together with his costs of suit.' Judgment was entered accordingly on April 11, 1961.

Section 473 of the Code of Civil Procedure authorizes the trial court, 'in its discretion,' to allow amendments to any pleading, 'in furtherance of justice.' In 2 Witkin, California Procedure 1605, Pleading § 594, it is stated: 'The policy of great liberality in permitting amendments at any stage of the proceeding was declared at an early date and has been repeatedly restated.' (Citing authorities.) The same treatise states (§ 597): 'An amendment after the conclusion of the trial, with the evidence in and arguments completed, is permissible * * * [t]o conform to proof without introducing new evidence. Here the rule is extremely liberal.' In Eatwell v. Beck (1953), 42 Cal.2d 128, 135-136, 257 P.2d 643, the Supreme Court held that, the complaint having sufficiently alleged facts of fraud and injury, it was reversible error not to permit the plaintiffs to amend their complaint to allege more clearly the facts supporting recovery on the correct rule of damages.

We find no abuse of discretion by the trial court in allowing the complaint to be amended. This being so, it follows that the trial court was required to amend its findings and conclusions in order to cover the amended allegations of the complaint.

Respondent Superior. Appellant's liability to respondent for the fraudulent representations of Scannell is based upon the theory of ostensible agency. The trial court found that all of the acts of Scannell which are involved herein were done in the course of his employment by appellant. It further found, however, that appellant had no knowledge of nor did it consent to the act of Scannell in authorizing General American to purchase 4,000 shares of Sastex for plaintiff's margin account with it.

However, respondent dealt with Scannell in the belief that Scannell was acting as the agent of appellant and we agree with the trial court that he had reasonable grounds for such belief. His prior purchases of stock made through Scannell for his account with appellant had been handled in the same way as the Sastex purchase, with the exception that, in the latter, the sale confirmation slips were on the printed form of General American instead of that of the appellant. However, respondent testified that he had not seen any significance in this. He further testified, without objection, that it was his impression that he was dealing with appellant throughout the entire transaction.

The purchase price of the Sastex stock plus the commission to General...