White Lighting Co. v. Wolfson

• Court: United States State Supreme Court (California)
• Writing for the Court: TOBRINER; TRAYNOR; McCOMB; McCOMB
• Citation: 66 Cal.Rptr. 697,68 Cal.2d 336,438 P.2d 345
• Parties: , 438 P.2d 345 WHITE LIGHTING COMPANY, Plaintiff, Cross-Defendant and Respondent, v. James A. WOLFSON, Defendant, Cross-Complainant and Appellant, Samuel Shaft et al., Cross-Defendants and Respondents. L.A. 29493.
• Decision Date: 14 March 1968

Page 697

66 Cal.Rptr. 697 68 Cal.2d 336, 438 P.2d 345 WHITE LIGHTING COMPANY, Plaintiff, Cross-Defendant and Respondent,
v.
James A. WOLFSON, Defendant, Cross-Complainant and Appellant,
Samuel Shaft et al., Cross-Defendants and Respondents. L.A. 29493. Supreme Court of California,
In Bank. March 14, 1968.
As Modified on Denial of Rehearing May 1, 1968.

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[438 P.2d 347] [68 Cal.2d 340] Richard A. DeSantis, Los Angeles, for defendant, cross-complainant and appellant.

[68 Cal.2d 341] Staitman & Snyder and Jack M. Staitman, Beverly Hills, for plaintiff, cross-defendant and respondent and for cross-defendants and respondents.

TOBRINER, Justice.

Although it discusses other matters, this opinion sets forth three principal rulings: first, that the statute of frauds does not appy to an oral employment contract, even though it provides in part for the meansurement of the employee's compensation by annual receipts of the employer, unless its terms foreclose the employee's completion of the performance of the contract within one year; second, that the statute of frauds does not apply to an oral contract in its entirety if the court by reference to the terms of the agreement can separate those promises of performance not falling within the

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[438 P.2d 348] statute from those that do so; third, that a claim based on excessive attachment constitutes a cause of action for abuse of process rather than for malicious prosecution and such a claim may be brought in the action in which the attachment issued.

Plaintiff White Lighting Company, hereinafter 'White,' sued defendant Wolfson to recover $850 for money due and owing. Wolfson denied the indebtedness and filed his first cross-complaint against White, Shaft (the president, controlling owner, and a director of White), Beber (an officer and director of White), and Basin (a corporation) on November 9, 1964. The cross-complaint alleged in substance that Wolfson and cross-defendants entered into an oral employment contract which obligated White to employ Wolfson on a 'permanent' basis; that in connection with it Wolfson had been fraudulently induced to buy 5,000 shares of White stock from cross-defendant Basin; that the sale of the White shares violated section 5 of the 1933 Securities Act; and that White and cross-defendants Shaft and Beber had breached an oral termination of employment agreement. The trial court sustained general and special demurrers to the cross-complaint with leave to amend.

The first amended cross-complaint added as a fourth cause a common count in quantum meruit for the reasonable value of the services rendered by Wolfson to White. The trial court again sustained general and special demurrers with leave to amend.

The second amended cross-complaint contained five counts. The trial court sustained general demurrers to the first count [68 Cal.2d 342] (oral employment contract), the second count (oral termination of employment contract), the fourth count (common count in quantum meruit), and the fifth count (excessive attachment by White allegedly constituting abuse of process) Without leave to amend. A general demurrer With leave to amend was sustained as to the third count (the Securities Act violation).

Wolfson's third amended cross-complaint alleged in two counts the Securities Act violation alleged in the third count of his second amended cross-complaint. The first count alleged that the sale to Wolfson of the 5,000 White shares violated section 5 of the 1933 Securities Act, and the second count alleged that cross-defendants Shaft and Basin had fraudulently induced Wolfson to buy the shares. The trial court sustained general and special demurrers without leave to amend and granted a motion to strike the third amended cross-complaint. The trial court then dismissed defendant's action on the cross-complaint. ¹

We shall explain why we have concluded that the trial court erred in sustaining general demurrers without leave to amend to the first, second, fourth, and fifth counts of the second amended cross-complaint. The causes of action alleged in the first two counts are not barred by the statute of frauds; the fourth count is not demurrable; the cause of action for abuse of process alleged in the fifth count is not premature. The court also erred in striking the third amended cross-complaint on the ground of failure to comply with section 442 of the Code of Civil Procedure; and, as to cross-defendants Shaft and Basin, the court erred in sustaining without leave to amend the demurrers to the two counts of the third amended cross-complaint.

1. The statute of frauds does not apply to an oral employment contract, even though it provides in part for the measurement of the employee's compensation by annual receipts of the employer, unless its terms foreclose the employee's completion of the performance of the contract within one year.

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[438 P.2d 349] Wolfson alleged as the first count of the second amended cross-complaint that during October 1963 cross-defendant [68 Cal.2d 343] promised him that if he would continue with White as vice president and sales manager he would receive a salary of $300 per week, automobile and other business expenses, and one percent of the annual gross sales of White exceeding one million dollars per year, payable quarterly commencing November 1, 1963. Although Wolfson relied to his detriment on these oral representations and performed all the conditions, cross-defendants refused not only to comply with the promise as to the percentage of gross receipts but also to give Wolfson any information by which he could determine if any amount was owing to him. Although Wolfson's employment was to be on a 'permanent' basis, it was not to continue for any specified period. To this count the trial court sustained a general demurrer without leave to amend on the ground that the alleged oral employment contract violated the statute of frauds. (Civ.Code, § 1624, subd. 1.)

Even though part of an employee's compensation is to be measured by annual receipts of the employer, the statute of frauds does not apply to an employment contract unless its terms provide that the employee cannot completely perform it within one year from the making of the contract. Civil Code, section 1624, subdivision 1, invalidates 'an agreement that by its terms is not to be performed within a year from the making thereof' unless the contract 'or some note or memorandum thereof, is in writing and subscribed by the party to be charged or by his agent.' The cases hold that section 1624, subdivision 1, applies only to those contracts which, by their terms, cannot possibly be performed within one year. (E.g., Hollywood Motion Picture Equipment Co. v. Furer (1940) 16 Cal.2d 184, 187, 105 P.2d 299; Keller v. Pacific Turf Club (1961) 192 Cal.App.2d 189, 195--196, 13 Cal.Rptr. 346.) ²

The contractual provision that Wolfson would receive one percent of the annual gross sales of White exceeding one [68 Cal.2d 344] million dollars per year does not in itself convert the oral employment contract into one which by its terms cannot be performed within a year. Decisions involving other oral employment contracts with similar terms as to compensation support this conclusion. Thus the statute of frauds does not apply to employment contracts for an indefinite period merely because the contract provides that payment will be forthcoming on termination of the employment relationship. (Lloyd v. Kleefisch (1941) 48 Cal.App.2d 408, 414, 120 P.2d 97.) Nor does the statute of frauds apply to employment contracts because the compensation for the services is to be measured by their value to the employer over a period of more than one year. (Reed Oil Co. v. Cain (1925) 169 Ark. 309, 275 S.W. 333.) Moreover, in Pecarovich v. Becker (1952) 113 Cal.App.2d 309, 315--316, 248 P.2d 123, the court held that the statute of frauds does not apply to an oral contract relating to the services and annual salary of a football coach for a three-year period; the court explained that the contract authorized the employer to terminate the employment relationship at the end of each year by payment of a named sum.

Our conclusion coincides with the position unanimously taken by the few courts that have dealt with oral employment contracts

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[438 P.2d 350] involving bonus or profit-sharing provisions. Thus in Dennis v. Thermoid Co. (1942) 128 N.J.L. 303, 305, 25 A.2d 886, the court held that a provision for a bonus payable at the end of the year did not render an oral employment contract not performable within that year. ³

Since in the instant case the alleged oral contract may be terminated at will by either party, it can, under its terms, be performed within one year. When Wolfson's employment relationship with White was terminated, Wolfson had completely performed; White's performance consisted of nothing more than compensating Wolfson. (See Roberts v. Wachter (1951) 104 Cal.App.2d 271, 280--281, 231 P.2d 534.) Moreover, as we have explained, the inclusion of the provision for a bonus ascertainable only after one year does not invalidate the oral agreement under the statute of frauds.

[68 Cal.2d 345] 2. The statute of frauds does not apply to an oral contract in its entirety if the court by reference to the terms of the agreement can separate those promises of performance not falling within the statute from those that do so.

Wolfson cross-complained that during the month of June 1964 Beber requested his resignation as vice president of White, and that consequently he entered into an oral settlement agreement with Beber and Shaft acting as agents of White. Pursuant to this oral contract, Beber, Shaft, and other undisclosed associates were to purchase from Wolfson the 5,000 White shares for a total sum of $15,000, and White was to pay Wolfson $1,200 for moving expenses to Chicago, one month's severance pay in the sum of $1,200, and the share of the gross receipts due...