California Court of Appeals
121 Cal.App. 4th 1238 (Cal. App. 2004)
Jara, Sr. (plaintiff) was a restaurant owner. His son, Jara, Jr., with his friend Rodriguez, started a wholesale meat distribution business named Suprema Meats, Inc. (Suprema) (defendant). Jara Jr. and Rodriguez were majority shareholders in Suprema, while Jara, Sr. was made a minority shareholder. When setting up the business, Jara, Jr. consulted via telephone with his father about the compensation Jara. Jr. and Rodriguez should receive as officers of Suprema. After agreeing it should initially be set at $800 per week, Jara, Jr. asked his father’s advice on whether compensation should only be raised through unanimous shareholder consent. Jara, Sr. supported this idea, and Jara Jr. had the policy written in a footnote in Suprema’s annual financial statement. Suprema was very successful for the next three years, after which Jara, Jr. and Rodriguez decided to increase their personal compensation to twenty percent of the corporation’s profit, a rate in line with industry standards. They did not seek approval from Jara, Sr. The company continued to be successful, and Jara, Sr. was eventually removed from the board of directors. He brought suit in California state court against Suprema for breach of contract, alleging that Jara, Jr. and Rodriguez violated their agreement to only increase officer compensation through unanimous board approval. Suprema stated a contract had never been made, but that the agreement to seek unanimous board approval was merely a gratuitous promise lacking consideration. The trial court upheld the existence of a contract and awarded damages to Jara, Sr. Suprema appealed.
Rule of Law
Holding and Reasoning (Swager, J.)
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