ARNOLD VS WILLITS & PATTERSON

FACTS:
1916. The Firm Willits & Patterson in San Francisco entered into a contract with
Arnold whereby Arnold was to be employed for a period of five years as the agent of
the firm here in the PI to operate an oil mill for which he was to receive a minimum
salary of $200/mth, a 1% brokerage fee from all purchases and sales of
merchandise, and half of the profits of the oil business and other businesses.
Provided if the business was at a loss, Arnold would receive $400/mth.
Later, Patterson retired and Willits acquired all interests of the business.
Willits organized a new Corp in San Francisco which took over and acquired all
assets of the Firm Willits & Patterson. Willits was the owner of all the capital stock.
New corporation had the same name.
After, Willits organized a new Corporation here in the PI to take over all the business
and assets of the firm here in the PI. Willits was the owner of all the capital stock.
Later, there was dispute with regard to the construction of the contract as a result, a
new contract in the form of a letter was entered into. Willits signed this.
The statements of account showed that 106K was due and owing to Arnold.
W&P Corp was in financial trouble and all assets were turned over to a creditors
committee.
1922. Arnold filed this complaint to recover 106K from W&P.
W&P argues that the 2nd contract was signed without authority. And as
counterclaim alleged that Arnold took 30K from the Corp but only 19.1K was due to
him thus he owed 10.1K to W&P.
CFI ordered Arnold to return the 10.1K.
SC reverses. Arnold entitled to 68K plus half of 75K, representing PNs.
Both Corps organized by Willits were a One Man Corporation. After the 2nd contract
was signed it was recognized by Willits that Arnolds services were to be performed
by its terms and there never was any dispute between Arnold and Willits.
Although a new corporation was created, the new corporation dealt with and treated
Arnold as its agent in the same manner as the previous corporation had, thus the
new corporation is bound by the contract which the old firm made.
In fact, the 2nd contract protected Willits from a larger claim, which the accountant
said, would be over 160K.

Where a stock of a corporation is owned by one person whereby the corporation

functions only for the benefit of such individual owner, the corporation and the
individual should be deemed to be the same.
Thus the corporation is bound by the contract.
HELD:
1. CONSTRUCTION OF CONTRACT. Where A entered into a written contract with
the firm of W & P by which he was employed as agent of the firms for a period of
five years, and dispute arose between them as to the compensation which A should
receive for his services, and A wrote a letter, known in the record as Exhibit B, which
clearly defined and specified the compensation which he was to receive, to which
one member of the firm gave his "conforme," A's compensation for his services is
measured and controlled by Exhibit B.
2. WHEN CONTRACT WITH FIRM BINDS CORPORATION. Where A entered upon the
discharge of his duties under a contract with the firm of W & P, and the firm
organized a corporation, which took over all of its assets and continued to conduct
the business of the firm as a corporation and which dealt with and treated A as its
agent, in the same manner as the firm had previously done, the corporation is
bound by the contract which the firm made with A.
3. WHEN CONTRACT BY INDIVIDUAL BINDS CORPORATION. Where a contract is
made with A by W in his own name, and W is the owner of all of the capital stock of
the corporation, and the corporation deals with A as its agent under the contract,
the contract which W made with A becomes a contract between A and the
corporation, and the corporation is bound by the contract.
4. IN THE ABSENCE OF FRAUD "CREDITORS' COMMITTEE" OF INSOLVENT
CORPORATION CANNOT RESCIND CONTRACT OF CORPORATION. Where a
corporation becomes insolvent, and its aairs were placed in the hands of a
"creditors' committee," the "committee," is bound by any valid contract made
between A and the corporation, and, in the absence of fraud, the "creditors'
committee" has no power to rescind the contract.