Sheets v. Superior Court of L.A. Cty.

257 Cal. App. 2d 1, 64 Cal. Rptr. 753, 1967 Cal. App. LEXIS 1748
CourtCalifornia Court of Appeal
DecidedDecember 14, 1967
DocketCiv. 32028
StatusPublished
Cited by7 cases

This text of 257 Cal. App. 2d 1 (Sheets v. Superior Court of L.A. Cty.) is published on Counsel Stack Legal Research, covering California Court of Appeal primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Sheets v. Superior Court of L.A. Cty., 257 Cal. App. 2d 1, 64 Cal. Rptr. 753, 1967 Cal. App. LEXIS 1748 (Cal. Ct. App. 1967).

Opinion

*4 McCOY, J. pro tem. *

—In August 1960 John Sheets and Frank Masin entered into a limited partnership agreement for the development of certain land owned by Sheets. The original agreement was replaced by a new agreement early in 1962. Acting under this latter agreement Masin supervised the construction of an apartment building which became operative in January 1963. Early in 1966 Sheets, as limited partner, came to the conclusion that all was not well, and filed an action in the respondent court against Masin and his wife for injunctive relief and dissolution of the partnership and an accounting, and for damages for breach of the partnership agreement and for fraud.

As the litigation progressed following the filing of an amended complaint in June 1966, Masin served some interrogatories on Sheets. Sheets having answered some of these interrogatories and objected to others, Masin sought and obtained an order from the respondent court requiring Sheets to answer a large number of the interrogatories to which he had objected. Sheets thereupon initiated the present proceedings, claiming that in making that order the court had abused its discretion and had acted in excess of its jurisdiction.

The amended complaint contains eight alleged counts or causes of action, all arising out of Masin’s acts as general partner. The first two seek an injunction prohibiting the foreclosure of the deeds of trust executed on behalf of the partnership to secure two partnership notes payable to Masin and his wife.' By his' third, fourth and fifth causes of action Sheets seeks a dissolution of the partnership and an accounting, and the appointment of a receiver. The sixth and seventh are for damages for breach of contract and fraud, while the eighth is for declaratory relief.

In order to resolve the problem before us it is necessary to look to Sheets’ principal complaints with respect to Masin’s acts as set out in the amended complaint. It is there alleged that after the completion of the apartment units in December 1962, they were operated and managed on behalf of the partnership by Masin as the general partner. In May 1965, Masin as general partner executed a promissory note in the face amount of $25,000 payable in full on January 1, 1966, with himself and his wife Sonja as .payees,- together with-a deed of trust of the partnership property as security for the note. In January 1966 Masin recorded a. notice-of ■default and. election *5 to sell under this deed of trust, alleging that the partnership had failed to pay the installments of principal and interest due on January 1, 1966. Previously, on January 7, 1964, Masin as general partner had executed a similar note in the sum of $85,000 payable in full on January 1, 1967, to Masin and his wife, secured by a trust deed of the partnership property. In April 1966 Masin recorded a notice of default and election to sell under this deed of trust, setting forth the failure of the partnership to make the payments of principal and interest due January 1,1966.

With respect to both of these transactions Sheets alleges that Masin’s acts as the general partner violated his fiduciary duties and were in breach of the agreement, in that under the agreement Masin was authorized to borrow money on the security of the partnership property only in the event that the proceeds of the permanent financing loans were not sufficient to cover the total cost of the improvements, whereas the monies represented by the two notes were advanced by Masin for operational expenses and to pay taxes. He further alleges that under the agreement Masin was obligated as a matter of law to advance the amount necessary for operating expenses as a capital contribution, and that, therefore, the notes did not properly represent an obligation of the partnership. Finally he alleges that under a contemporaneous oral agreement any such contributions by Masin were to be without interest, and that in any event Masin could have borrowed the necessary monies elsewhere for a longer period of time and at less than the 10 percent interest provided in the notes.

Sheets further alleges that even if the two notes were properly executed by Masin on behalf of the partnership, they were not in default (1) in that the partnership income was at all times adequate to pay the principal and interest of the loans, but that Masin “has diverted partnership funds to his own use and benefit rather than paying the principal and interest payments and the taxes upon the partnership real property. That but for the diversion of funds as aforesaid, no breach or default in the terms and conditions of said promissory note[s] and trust deed[s] would have occurred’’ and (2) in that the money necessary to pay the obligations evidenced by the notes is “readily available,’’ but that Masin has failed and refused to make the necessary arrangements to satisfy these obligations, in violation of his fiduciary duty to the partnership.

Elsewhere with respect to the several counts of the amended *6 complaint it is alleged that Masin diverted partnership funds to his own use; that the books and records of the partnership do not accurately and correctly reflect the financial transactions and condition of the partnership; and that defendant diverted partnership property to other construction projects, all in violation of his fiduciary relation as the general partner to the detriment of the partnership and Sheets’ interest therein.

In answer to some preliminary interrogatories Sheets admitted that in February 1967 he had employed one Danziger, a certified public accountant, to inspect the partnership books, and that Danziger had made a written report of the result of his inspection. He also admitted that he had employed one Bdelson as an “estimator” to examine certain partnership records relating to the construction, and that Bdelson had made an oral report “indicating an estimate of one or more phases of the construction of the Tropicana Apartments. ’ ’

With respect to Danziger, the certified public accountant, Sheets was asked, in substance, to state in answer to interrogatories 9 and 10 whether Danziger had reported that he had found any errors, discrepancies, or false entries in the books, and if so to identify any such items and, “As to each such entry, as to which the accountant reports there to be an error or false entry” to “set forth all of the facts and information upon which he bases his report to that effect,” and to “set forth what he claims should be the correct entry.” Interrogatories 11, 12, 13 and 14 read as follows: “11. Has said accountant reported any facts or information which tend to support your allegations that (a) Defendant Frank J. Masin has diverted partnership funds to his own use and benefit; (b) Defendant Frank J. Masin has converted and misappropriated partnership funds to his own use by diverting monies obtained for construction loans and permanent financing to construction projects being carried on by the said defendant for his own account and benefit; (e) During the period of construction, defendant, Frank J. Masin, diverted partnership property to other construction projects. 12. With respect to any portion of interrogatory No. 11, as to which your answer is in the affirmative, state specifically what facts or information has been reported by said accountant. 13.

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Cite This Page — Counsel Stack

Bluebook (online)
257 Cal. App. 2d 1, 64 Cal. Rptr. 753, 1967 Cal. App. LEXIS 1748, Counsel Stack Legal Research, https://law.counselstack.com/opinion/sheets-v-superior-court-of-la-cty-calctapp-1967.