Court Opinion

ID: 9538747
Source: CourtListenerOpinion
Date Created: 2023-08-07 07:41:05.419683+00
Date Added: 2024-06-11T14:58:07.927496
License: Public Domain

MOORE, P. J.
I dissent.
The interpretation of the contract adopted by the majority opinion does not square with prevailing ethical standards in trade, commerce and business. It is an emphatic approval of a man’s taking from his partner the latter’s substance without consideration. It is a reversal of the growing doctrine : “Live and help live.” It even discourages the ancient adage, “Live and let live.” Four thousand five hundred and fifty dollars is more than two thirds of plaintiff’s capital investment in the machine shop. That he had no more at the time of the dissolution is essentially due to the mismanagement of the enterprise by defendants. They boldly assert that for 91 weeks plaintiff was absent from the shop. Hence, they were by him unhindered. Now, that they have reached a parting of their ways they confront him with a contract which, they contend, binds him to pay them $50 a week for the “time of an extended absence.” Since the business earned no profits under their unmolested control, they assert that the last quoted phrase is their authority to transfer his possessions in sufficient amount to pay themselves $4,550 for his absence. To approve their ethics is, in effect, to give judicial recognition to the art of plundering one’s associate by a squinted view of a written contract which could not reasonably have contemplated such tragical results as must follow the order if affirmed.
The basis for the claim of defendants’ and of the trial court’s judgment is the fifth paragraph of the contract, to wit,
“5. Division of Profits. That all parties shall devote all their time, energy and business experience to the business of the Co-partnership and shall divide all profits and losses as follows: Henry Rainey, 60%, Samuel Balian, 20%, Harry Chakmakjian, 20%.
“No salaries shall be paid to any of the partners. However, in case of extended absence of any partner, that partner shall.forfeit $50.00 per week for the time of the extended absence, which amount will be charged to the absent partner and distributed to the remaining partners in the proportion *18that their respective shares of profits and losses bear to one another.”
Such language relates solely to the division of profits. After designating the share to which each shall be entitled it specifically inhibits the payment of salaries to the partners. But in order to make effective the provision for all partners “to employ their best endeavors to promote and further the interest of said copartnership,” the contract undertook to restrict participation in the earnings by withholding from each partner $50 of his share of the profits for every week during which he performed no service for the business. That this is a more reasonable interpretation of the contract than to say that they agreed to forfeit a portion of a partner’s capital for his breach of a covenant appears readily when it is realized how far-reaching it would be so to construe such a contract as to empower two partners to confiscate the investment of the third. At the time of dissolution, the appraisal of the respective interests of the partners fixed Balian’s share at $6,569.84; Chakmakjian’s at $6,564.84, and Rainey’s at $22,439.52. By the order approving the referee’s report, the court took $4,550 from Bailian and gave it to defendants as penalty for his absence from his business. Such a judgment is more devastating than storm or financial panic. Without proof that defendants had been injured in the slightest degree by Balian’s absence from the business, more than two thirds of his investment was taken from him in addition to a shrinkage of $5,256 he had suffered while the business was under the domination of defendants.
The law abhors a forfeiture. (Civ. Code, § 1442; Ballard v. MacCallum, 15 Cal.2d 439, 444 [109 P.2d 692].) It cannot arise by implication, but can be effected only by clear and unambiguous language. (Quatman v. McCray, 128 Cal. 285, 289 [60 P. 855] ; Cleary v. Folger, 84 Cal. 316, 321 [24 P. 280, 18 Am.St.Rep. 187] ; Cullen v. Sprigg, 83 Cal. 56, 64 [23 P. 222].) There is no such language in the contract of these parties. While the clause declares a “partner shall forfeit $50 per week for the time of the extended absence” it is clear from the context that the intention was to withhold $50 a week from the dividends earned by the absent partner during the period of his absence. The language does not indicate an intention to deprive a partner of his capital investment at all. It does not bind a partner to forfeit anything but $50 weekly out of his share of the earnings. The entire purpose of the partnership was to make profits, not to take the capital of *19one partner and give it to another. A fair interpretation of the contract compels the construction that in the event of a partner’s extended absence he should pay a portion of his earnings to his partners in lieu of his contribution of labor to the business.
That the parties intended only profits should be “forfeited" is shown by their only interpretation of the contract prior to the unpleasant behavior of defendants after the fall of 1948. At that time there was no suggestion that any absent partner should be required to pay his associates any part of his investment on account of his “extended absence." When they disbursed “profits" on January 17, 1949, they deducted $350 from plaintiff’s share of seven weeks’ profits during his absence in the fall of 1948. At that time, when all was agreeable, there was no intimation that Balian should pay his partners out of his capital $50 per week for his absence. If such was their own interpretation in calmer hours of their business association, is it not more likely to have been their intention, in drafting the contract, to provide for a different division of the profits earned during an extended absence of one of them rather than out of his capital? (See Woodbine v. Van Horn, 29 Cal.2d 95, 104 [173 P.2d 17].)
But if it be conceded that the contract intended a forfeiture, such right was waived by defendants. The referee found that each partner was “at varying times and for varying reasons actually absent from the affairs of the business and that for such absences no charge was made except for Balian’s first absence of seven weeks when his share of profits was reduced by $350. When the parties became estranged and Balian asked defendants whether they desired him to work, their reply was that so far as they were concerned he could stay away. If they had intended to demand a forfeiture for his absence, honesty to a fiduciary required the reply; “Stay on the job if you do not wish to forfeit $50 a week." During the 91 weeks of plaintiff’s “extended absence” from the plant, not once did defendants suggest or intimate that they entertained the idea of enforcing a forfeiture of plaintiff’s capital investment. By their conduct they evinced an intention to allow Balian to go his way and leave them in peace. Thereby they waived whatever right they had to a forfeiture. “Evidence tending to show the waiver of a forfeiture will be looked upon with kindly eyes." (Knarston v. Manhattan Life Insurance *20Co., 124 Cal. 74, 77 [56 P. 773]; Panno v. Russo, 82 Cal.App.2d 408, 412 [186 P.2d 452].)
Defendants never made mention of a damage they had suffered by virtue of Balian’s absence from the plant. For the first time in their brief, they argue that paragraph 5 “discloses an intent to avoid any forfeiture and to provide the partners with a means of indemnification in the event that one or more partners desire to remain aloof from the actual labors of the partnership.” Now, the clause must have intended either a “forfeiture” of a weekly sum of $50, or such sum as liquidated damages. If they intended a forfeiture, their recovery is stymied by the doctrines that the law abhors a forfeiture; the provision must be strictly interpreted against him who asserts the claim thereto; and it must be expressed in unambiguous language. If the clause be deemed one for liquidated damages, defendants again find themselves in a blind alley; the contract contains no provision expressly declaring a reason for providing for liquidated damages or that from the nature of the ease it would be impracticable or extremely difficult to fix the actual damage in the event of a breach of a material covenant. (Civ. Code, § 1670.) Neither did they file a pleading declaring either of those facts. (Civ. Code, § 1671.) Liquidated damages cannot be recovered in the absence of such allegations. (Kekich v. Blum, 43 Cal.App.2d 525, 527 [111 P.2d 411] ; Olson v. Biola Coop. Raisin Growers’ Assn., 33 Cal.2d 664, 668 [204 P.2d 10, 12 A.L.R.2d 112] ; Bay Shore Motors v. Baker, 90 Cal.App.2d Supp. 895 [202 P.2d 865]; Kelly v. McDonald, 121 Cal.App. 121, 123 [276 P. 404].) The findings of the referee do not disclose that it was even suggested that the partnership was damaged by the absence of Balian, but rather does the invitation for him to remain away indicate defendants’ opinion that their welfare was enhanced by his absence. Neither did they plead or prove any difficulty in demonstrating an actual damage. Even though paragraph 5 might have been intended as a provision for liquidated damages, that clause does not establish damage, nor could it mean the amount specified was payable in the absence of proof of damage. (Kelly v. McDonald, supra, p. 125.) The parties were related: Balian is Rainey’s stepfather, Chakmakjian is Rainey’s father-in-law. It requires no Socrates to understand that the personal feeling subsisting among the three men would have increased with Balian’s daily presence in the plant. If so, with him daily present amidst such feeling, the business would have suffered actual detriment. *21If such proof had been made under proper pleadings, it is readily to be seen that no actual damage could have been shown.
The order should be reversed.
A petition for a rehearing was denied January 7, 1953. Moore, P. J., was of the opinion that the petition should be granted.
Appellant’s petition for a hearing by the Supreme Court was denied February 19, 1953.