Opinion
Rehearing Denied June 2, 1931
Hearing Granted by Supreme Court July 13, 1931.
Appeal from Superior Court, Los Angeles County; Thomas C. Gould, Judge.
Action by D.N. & E. Walter & Co., a corporation, against H. Lew Zuckerman. Judgment for defendant, and plaintiff appeals.
Affirmed.
HOUSER, Acting P.J., dissenting.
COUNSEL
Ben C. Cohen, of Los Angeles (Leo Shapiro, of Los Angeles, of counsel), for appellant.
S.W. Newman, of Los Angeles, for respondent.
OPINION
BISHOP, Justice pro tem.
Plaintiff seeks to hold defendant Zuckerman on his written guaranty that defendant Joe Goldberg, doing business under the name Home Builders’ Supply Company, would pay for goods supplied him. The defense interposed was that the balance of $2,567.22 admittedly due plaintiff was for goods furnished to the Home Builders’ Supply Company, a newly created corporation whose account defendant Zuckerman had not guaranteed. The trial court’s findings are supported by the evidence, and the findings support the judgment which was for defendant, the guarantor.
Appellant assails the findings as irreconcilably inconsistent in that in one place it is found that the goods delivered and not paid for were sold to the corporation, and not Joe Goldberg, whereas elsewhere it is found that "Joe Goldberg continued in active management and control of the *** corporation, and purchased and paid for all materials supplied and merchandise delivered to the corporation." Applying "the well-settled rule that the findings are to be liberally construed in support of a judgment; that all of the findings are to be read and considered together, and, if possible, are to be reconciled so as to prevent any conflict on material points" (Haight v. Haight [1907] 151 Cal. 90, 92, 90 P. 197, 198), the conflict disappears. Plainly, the court found that the goods were sold and delivered, not to Goldberg individually, but to the corporation for which Goldberg was the active representative.
To arrive at these findings the trial court first had to conclude, not only that the goods were sold and delivered to the corporation and not to Goldberg, but further that the case was not one where justice required the corporate identity to be disregarded because but the alter ego of the man who owned and managed it. The principle controlling is thus expressed in Erkenbrecher v. Grant (1921) 187 Cal. 7, 11, 200 P. 641, 642: "In order to cast aside the legal fiction of distinct corporate existence as distinguished from those who own its capital stock, it is not enough that it is so organized and controlled and its affairs so managed as to make it ‘merely an instrumentality, conduit or adjunct’ of its stockholders, but it must further appear that they are the ‘business conduits and alter ego of one another,’ and that to recognize their separate entities would aid the consummation of a wrong. Divested of the essentials which we have enumerated, the mere circumstance that all the capital stock of a corporation is owned or controlled by one or more persons does not, and should not, destroy its separate existence; were it otherwise, few private corporations could preserve their distinct identity, which would mean the complete destruction of the primary object of their organization." Again, in Minifie v. Rowley (1921) 187 Cal. 481, 202 P. 673, 676, we find the rule given: "Before the acts and obligations of a corporation can be legally recognized as those of a particular person, and vice versa, the following combination of circumstances must be made to appear: First, that the corporation is not only influenced and governed by that person, but that there is such a unity of interest and ownership that the individuality, or separateness, of the said person and corporation has ceased; second, that the facts are such that an adherence to the fiction of the separate existence of the corporation would, under the particular circumstances, sanction a fraud or promote injustice."
Tested by these standards we believe the evidence and the inferences which the trial court could reasonably draw therefrom, do not require the conclusion that, if the actual facts and the separate corporate identity are recognized, it would aid the consummation of a wrong, sanction fraud, or promote injustice. The corporation was organized, the trial court might well have found from the evidence, to make possible the refinancing of the business, not an unworthy motive. Goldberg turned over to it all the assets of the business he was doing under a fictitious name, and it accepted the liabilities of that business, including the sums owed plaintiff. Some of those sums were paid by the corporation’s check, signed by Goldberg, president. Plaintiff had notice of the fact of incorporation with its attendant transfer of assets and liabilities. Thereafter the goods were delivered to the place of business of the corporation which had been Goldberg’s business location. How can it be said that plaintiff will be defrauded, or that a wrong will be consummated, if all that is required of him is to face the facts he knew to exist?
There is another principle involved, for plaintiff is endeavoring to hold, not alone Goldberg, but a guarantor. It is that "the liability of a guarantor can never be extended beyond the express terms of his contract." 13 Cal.Jur., p. 108, § 21. Accordingly it was held in Coan v. Patridge (Sup.1906) 98 N.Y.S. 570, 572, that: "It seems to me that a guaranty of an individual cannot be extended so as to cover the liability of a firm of which the individual subsequently becomes a member." In Lamm v. Colcord (1908) 22 Okl. 493, 98 P. 355, 358, 19 L.R.A.(N.S.) 901, it was sought to hold defendant for the debts of Scoresby Tailoring Company, he having guaranteed the accounts of O.C. Scoresby. The court said: "A guarantor has the right to prescribe the exact terms upon which he will enter into the obligation, and to insist upon a discharge in case those terms are not observed. If the Scoresby Tailoring Company was a corporation or a partnership composed of members other than the party mentioned in this guaranty, the defendant could not be held as guarantor in this action." In Garfield v. Ford (1923) 191 Cal. 69, 214 P. 963, 964, the guarantors were held not liable to one believed to be a principal but actually an agent for an undisclosed principal, the court saying: "They cannot be held liable upon any contract that is not within the terms of their guaranty." Obviously, when defendant guaranteed the accounts of Goldberg, doing business under a fictitious name, he did not guarantee the accounts of a corporation with that or any name. It may be possible to make out a case where the guarantor should not be heard to say: "This corporation is not the man whose accounts I agreed to make good." Plaintiff has made out no such case here.
The judgment is affirmed.
I concur:
YORK, J.
HOUSER, Acting P.J.
I dissent. Not that I cannot agree with the principles of law set forth in the opinion of my associates, but that, as such principles are applied to the facts of the case, I find my mind out of harmony with the conclusion which they have reached.
As stated in the prevailing opinion herein, the guaranty of defendant was that he would pay for goods furnished by the plaintiff to "Joe Goldberg, doing business under the name ‘Home Builders’ Supply Company.’ " At that time, "Home Builders’ Supply Company" was but a fictitious name under which Joe Goldberg transacted his business. He was the sole owner of such business. All goods sold to Joe Goldberg by the plaintiff were billed, not to him, but to "Home Builders’ Supply Company"; it was under such fictitious name that the accounts were kept by the plaintiff, as well as by Joe Goldberg; and checks in payment of goods furnished were signed "Home Builders’ Supply Company, by Joe Goldberg." Later, and after the Home Builders’ Supply Company was incorporated, Joe Goldberg remained the sole owner of all the capital stock of the company; and, following such incorporation, the only change made in any way in the manner of doing business between the plaintiff and Home Builders’ Supply Company was that checks given in payment on account of purchases had the additional word "President" following Joe Goldberg’s name.
There can be no doubt but that technically, after Home Builders’ Supply Company was incorporated, sales made by the plaintiff apparently to Joe Goldberg, as a matter of law, were made to the corporation; and hence, literally, that the guaranty of defendant did not cover such transactions. But, to my mind, strict though the law of guaranty, as affects a guarantor, may be, the prevailing principle thereof was never intended to enable a guarantor to escape his just obligations. The doctrine of "alter ego" would seem most appropriate in the instant case as a preventive of such a result. Paraphrasing the quotation from the case of Minifie v. Rowley, 187 Cal. 481, 487, 202 P. 673, 676, to which reference has been made in the opinion of my associates— if it appear that the corporation is "influenced and governed" by any person; "that there is such a unity of interest and ownership that the individuality, or separateness, of the said person and corporation has ceased" and "that the facts are such that an adherence to the fiction of the separate existence of the corporation would, under the particular circumstances, sanction a fraud or promote injustice"— the acts and obligations of the corporation will be legally recognized as those of such person.
It would indeed be difficult to imagine a state of facts which would more nicely fit with the legal requirements of the doctrine of "alter ego," as laid down in the authority to which reference has just been had, than do the facts in the instant case. The requirements of the rule there announced, "that the corporation is *** influenced and governed by that person," and that a "unity of interest and ownership" appear, are fully met by the facts that Joe Goldberg was the sole owner of all the stock of the corporation, and that he dictated and controlled its every act. No person, other than Joe Goldberg, had or claimed even the remotest interest in the business transacted by either the fictitious "Home Builders’ Supply Company" or the corporation Home Builders’ Supply Company. The additional condition of the rule— "that the individuality, or separateness, of the said person and corporation has ceased"— is also fully complied with, in that, except by reason of a legal fiction, the corporation never possessed any "individuality, or separateness," from Joe Goldberg. As between the corporation and Joe Goldberg, the "individuality, or separateness," had ceased, for the simple reason that it never began; it never, in fact, had any existence. And the final requirement of the rule also is most apparent— "the facts are such that an adherence to the fiction of the separate existence of the corporation would, under the particular circumstances, sanction a fraud or promote injustice." It is all too plain that the intention of the parties to the guaranty was to guarantee the payment of debts contracted by "Joe Goldberg, doing business under the name of Home Builders’ Supply Company." As long as Joe Goldberg was the sole owner, what possible difference it could make to the guarantor whether Home Builders’ Supply Company was a fictitious name, or whether it was the genuine name of a corporation, is not so apparent. Indeed, the guaranty itself failed to specify whether Home Builders’ Supply Company was fictitious or whether it was real, Apparently, the status in the law of "Home Builders’ Supply Company," whether as a fictitious company, or as a duly created corporation, was not taken into consideration by the guarantor either as a controlling element in the matter of his liability, or even that a legal or other determination as to such status might constitute as much as a remote factor in reaching a decision as to whether the guaranty was a binding and effective instrument. Conceding, as a fact, that, at the time the guaranty was executed, Home Builders’ Supply Company was a fictitious name, as long as Joe Goldberg was the sole owner of the business, both at that time and ever after, it is difficult to understand how a change simply in the legal status of the name under or by which the business of Joe Goldberg was conducted could injuriously affect the promise made by the guarantor that he would answer for the debt of "Joe Goldberg doing business under the name of Home Builders’ Supply Company."
Supposing that instead of using the fictitious name of Home Builders’ Supply Company, Joe Goldberg, being the sole owner of a business, had carried on such business under the fictitious name of "Joe Goldberg Company," and that defendant had guaranteed the payment of debts contracted by "Joe Goldberg doing business under the name of Joe Goldberg Company," and supposing that Joe Goldberg, being such sole owner of the business operated under the fictitious name of "Joe Goldberg Company," later incorporated by the identical name, to wit, "Joe Goldberg Company"— which theretofore had been used by the individual Joe Goldberg and of which corporation Joe Goldberg was the sole owner of all its capital stock— it is manifest that the legal situation would have been no different from that presented by the actual facts in the instant case. In such circumstances, would it seem reasonable and just that the guarantor should escape the consequences of his guaranty? It is clear that the doctrine of "alter ego" is meant to cover just such a situation. For most purposes, the law recognizes a corporation as an entity distinct and separate from the individuality of its stockholders; but when a corporation may be said to be identical with a single individual who is the owner of all the stock of the corporation, equity should not, nor will not, aid in the promotion of what may amount to a fraud, simply for the purpose of protecting in its purity a legal fiction. The conclusion reached herein by my associates may be a declaration of a sound legal principle; to my mind, it is not equitable that it should prevail.