Stafford-Lewis v. Wain

In this action plaintiff seeks to have an agreement for the purchase and sale of the entire stock of a corporation which she owned, together with her option to repurchase such stock, declared a usurious loan. Defendants

Plaintiff has been engaged for many years in. the exploration and production phases of the oil industry, principally in the Wilmington field in California, where she had 11 wells, and the Centralia, Illinois field, where she had three. She operated through the Selegna Petroleum Corporation, hereinafter referred to as Selegna. She owned all of its issued capital stock. In 1946 she ventured into the Tejón field in California but without success; in fact, she sustained substantial losses in that operation. In about February, 1948, plaintiff secured a loan from the Empire Trust Company of New York in the amount of $285,000, to be repaid in monthly installments from the production of Selegna’s wells. When this loan was being arranged the trust company required an independent audit of the books of Selegna, and designated three Los Angeles firms of certified public accountants for the task, any one of which would be acceptable to it. One of these firms was Philip Wain and Company. At that time Maurice Mac Goodstein was attorney for plaintiff and Selegna. He was acquainted with Mr. Wain and as a result of his recommendation Mr. Wain’s company was selected to make the, audit for Empire Trust. Since that time the firm of Wain and Company has continued as the official auditor for Selegna.

Later plaintiff secured a personal loan of $70,000 from Frank E. Hurd, pledging all the stock in Selegna as security therefor. This loan being long past due, Hurd, early in 1951, employed counsel who brought an action to foreclose on the security and to enforce payment of the loan. The foreclosure sale was set for February 19. Plaintiff was in New York attempting, but without success, to negotiate a new loan with which to repay Hurd. Realizing plaintiff’s precarious financial position, Goodstein, who was still her attorney, telephoned Wain to inquire whether he could “help refinance or bail her out of this situation.” Aft^r ascertaining that plaintiff required $115,000 and wanted an additional $10,000 with which to do some remedial work on the wells, Wain discussed the situation with some of his friends and advised Goodstein that “he and his associates were not interested in making a loan because they didn’t want ordinary income, and that the

The parties met at the bank on February 17 to close the deal. Those present were plaintiff and her attorney, Wain, Eosenus and his wife, Shane and Ziffren. This was the first meeting of plaintiff and Eosenus and Shane although she and Goodstein had been advised by Wain that he had associates in the deal. Ziffren explained to plaintiff the purchase and

Plaintiff never exercised the option although an escrow was opened for that purpose on September 19, 1951. Defendants withdrew their stock and other documents on September 26 upon plaintiff’s failure to deposit the money.

Plaintiff filed this action in March, 1953. Defendants set up the defense of laches by alleging that in the early part of 1953 and prior to the filing of this action the value of the properties of Selegna substantially increased by virtue of a rise in the market price of oil sold by the corporation and also by reason of an increase in the production of its wells

The court found the transaction was not a loan and exonerated defendants of the charge of fraud, undue influence and duress, and sustained their defense of laches. The title of the defendants to the stock was quieted.

The money judgment in favor of defendants on their cross-complaint grows out of the execution by plaintiff, as president of Selegna, of two promissory notes in the principal sums of $5,000 and $200 respectively, payable on demand to a New York bank. The existence of these notes was not known to defendants and was not indicated by the balance sheet. She signed a memorandum when the deal was being consummated on February 17 that there were no outstanding contracts or commitments of Selegna except the contract for the sale of oil to General Petroleum. Defendants paid these notes, together with interest and certain additional costs and expenses totaling in excess of $5,355. Recovery was sought on the theory that by the above mentioned memorandum plaintiff had warranted the financial condition of Selegna as of February 17, 1951, and that there had been a breach thereof by her, causing damage to defendants in the amount they were required to pay to discharge these obligations of Selegna.

Plaintiff contends that the court erred in finding that: (1) ■ the transaction was not usurious; (2) there was no undue influence or duress; (3) the consideration paid to her was the fair market value of Selegna’s stock on February 17, 1951. She further contends (4) that the court erred in excluding certain evidence, and (5) that the finding that defendants were damaged in the sum of $5,355 is not supported by any evidence. None of these contentions is well taken.

Plaintiff’s position that the court erred in finding the transaction was not usurious simply means she is arguing that the evidence is insufficient to support the finding that the deal was in fact what it purported to be, viz., a purchase and sale of the stock of Selegna with an option in plaintiff to repurchase the same. Likewise, her claim that the court erred in finding there was no undue influence or duress, and that the consideration represented the fair market value of the stock is merely another way of saying that the evidence is insufficient to sustain these findings also.

In passing on the sufficiency of the evidence to support the findings it must be remembered that an appellate

the evidence, of course, must be resolved by the trier of the facts. Furthermore, in reviewing the sufficiency of the evidence the task of an appellate court ends when it finds substantial evidence, contradicted or uncontradicted, that supports the challenged finding. (Crawford v. Southern Pac. Co., 3 Cal.2d 427 , 429 [ 45 P.2d 183 ].)

Whether a business transaction is usurious depends on its own facts. The presumptions are that such transactions have been fair, regular and legal. (Code Civ. Proc., § 1963, subds. 19 and 33; Hersum v. Latham, 120 Cal.App.2d 325 , 328 [ 260 P.2d 988 ].)

Applying these principles, it is apparent that the evidence to which we have referred amply supports the findings that this was a purchase and sale transaction .with an option to repurchase and that there was no fraud, duress or undue influence. The testimony of Goodstein and Ziffren clearly justify such findings. Wain made it plain to Good-stein soon after the latter’s inquiry about refinancing or bailing plaintiff out of her financial difficulty that he and his associates were not interested in making a loan and that the proposed loan would be usurious; that they were only interested in a deal where a capital gain could be realized. It was then that a sale of the stock with an option to repurchase was suggested, and Goodstein advised Wain that such a transaction would be legal. Such advice by plaintiff’s counsel, who had gone into the question to the point of looking up a California appellate decision that he felt justified his opinion, supports an inference that he (Goodstein) regarded the proposed sale and option to repurchase as in fact being exactly that kind of a deal, and not a subterfuge for a usurious loan for obviously such a scheme would have been illegal. It- was after this that plaintiff called on Wain. He also told her that he and his associates were not interested in making a loan; but were interested in getting a capital gain; and that the only basis upon which they could handle the deal would be a sale with an option to repurchase. Plaintiff did not desire to sell but her creditor, Mr. Hurd, who had all the stock in Selegna pledged as collateral to his loan, was pressing for payment in a vigorous and unrelenting manner.

The meticulous and painstaking explanation of the deal that Mr. Ziffren made to plaintiff at the bank before the papers were signed; the fact that she wrote out in her own handwriting a statement that “the buyer,” Wain, would be elected to the board of directors and that “the buyer” would have the by-laws amended to require that all actions of the board must be unanimous; the signed statement by her attorney that he was familiar with all details of the transaction and had advised her fully as to her rights and liabilities; and her presence during the discussion between Wain, Eosenus and Shane that this investment was contributed equally by each of them and that each was entitled to one third of the stock purchased further supports and fortifies the finding that this was a sale of the stock with an option to repurchase.

In her .reply brief, plaintiff notes a number of items of evidence relating to the negotiations and circumstances and conduct of the parties surrounding and connected with the transaction together with inferences and arguments therefrom which she insists prove that this was a usurious loan. To follow her theory and to reach her conclusion this court would be compelled to reevaluate the evidence and credibility of the witnesses, draw inferences contrary to those of the trial judge and resolve conflicts in her favor. These, of course, are not functions of a reviewing court.

Plaintiff argues that a fiduciary relation existed between Wain and plaintiff. The mere fact that Wain’s accounting firm audited the books of Selegna does not as a matter of law establish a fiduciary relationship between them. From an evidentiary standpoint, the testimony did not require, and in fact did not justify, a finding that such a relationship existed between Wain and plaintiff. It was made clear from the outset that the parties were dealing at arm’s length and that others were associated with Wain in this

It was stipulated that as of February 17, 1951, the fair market value of the assets of Selegna was between $275,000 and $350,000. The balance sheet of December 31, 1950, which represented the condition of the corporation on February 17, 1951, “except for ordinary current transactions in the regular course of business,” disclosed the current liabilities of the corporation to be $33,747.66 and that it still owed the Empire Trust Company $104,397.69. These items added to the $125,000 paid for the stock give a total of $263,145.35. In addition, in handling a deal of this character where there was not adequate time to check carefully all the details, it would be reasonable to make some fair allowance for unknown and undisclosed liabilities such as, e.g., unpaid taxes. This item is particularly apropos here for the United States Treasury Department made an additional assessment for the fiscal year ending March 31, 1948, of $24,043.06. There were also the two notes of $5,000 and $200, respectively, payable to a New York bank, which are the subject matter of defendants’ cross-complaint and may therefore be eliminated from consideration here. There was, however, another claim for $3,000. Thus, excluding the notes, there were some $27,000 in claims that showed up. The record does not disclose the disposition of these claims. Hence it is apparent that defendants paid out and were obligated to pay out more than $263,000 and adjust claims of some $27,000 in order to acquire the Selegna stock. Considering the stipu’ated value of Selegna’s assets, its known liabilities and the other claims against it, the finding that $125,000 was the fair market value of Selegna’s stock is not without reasonable and substantial evidentiary support.

Plaintiff, however, argues in her reply brief that a stipulation as to the fair market value of the assets will not support a finding as to the fair market value of the stock. Hence, she avers, this finding is not supported by any evidence. She is in error as to her conclusion because she fails to appreciate the additional factors that the court had before it in arriving at a fair consideration for the stock. The court was ad

In an effort to show that the consideration for the stock was inadequate, plaintiff asserts that she received only $49,320.92 whereas the lowest figure of the stipulated fair market value of the assets of Selegna ivas $275,000. The fallacy of this comparison is obvious because in arriving at the fair market value of the stock the debts and claims against the corporation must be taken into consideration whereas they are not involved in fixing the value of the assets. The debts alone, exclusive of the unliquidated claims, amounted to more than $138,000. Thus an erroneous attempt is made to compare items that are simply not comparable because they include different factors.

In saying that she received only $49,320.92 as consideration for her interest in Selegna, plaintiff, misconceives the record for such is not the fact. It is true that $10.000 out of the $125,000 purchase price was used for remedial work on the wells. This, however, was done at her request. She thought

Plaintiff does not challenge the sufficiency of the evidence to sustain the finding of laches. This was a question of fact (see King v. Los Angeles County Fair Assn., 70 Cal.App.2d 592 , 596 [ 161 P.2d 468 ]) and the evidence was clearly ample to support such finding.

Plaintiff complains of the exclusion from evidence of the depositions of defendants and the failure of the court to consider the depositions of Wain and Eosenus. Although the depositions had been filed earlier and portions had been used for impeachment purposes, they were not actually offered in evidence until during the course of the closing argument on behalf of plaintiff. The admission of the depositions at this point would have required the court to reopen the case; would have necessitated reading the depositions into the record; and the consequent determination by the court of the admissibility of such portion of the depositions as to which objections had been made when they were taken and would possibly have occasioned the introduction of further evidence and further argument on behalf of defendants. Because of the lateness of the offer the court did not abuse its discretion in refusing to admit the depositions in evidence.

Plaintiff now argues that by reason of an incident that occurred during the course of the trial the deposition of Wain was in evidence and that since the court admittedly did not read it prejudicial error was committed. This incident took place about the middle of the trial when counsel for plaintiff was examining Wain. The record to which our attention is directed reads, in part, as follows:

“Q. (By Mr. Cummins): I show you a copy of the deposition taken of you on Wednesday, July 8, and Thursday, July 9, 1953, and direct your attention to page 109 thereof,

Mr. Wain, or 108 at the bottom of the page, and ask you to read the question commencing on line 24, page 108: ‘And you disclosed to Mrs. Lewis-——’

“The Court: No, it is in the record already.

“Q. (By Mr. Cummins) : Will you read it, Mr. Wain?

“The Court: How far do you wish him to go?

“Mr. Cummins: Down to line 23 on the next page.

“The Court: All right. Let the witness read and then, of course, you can read such portions into the record as you desire Mr. Cummins.” Plaintiff contends the court’s observation, “No, it is in the record already” establishes that the deposition was in evidence. Just what was meant by this comment is not entirely clear. It may well have meant that the particular testimony to which counsel was directing the attention of the witness was already in the record. In any event, when considered in the light of the immediate direction to counsel to “Let the witness read and then, of course, you can read stick portions into the record as you desire Mr. Cummins” (emphasis added), it becomes certain the court did not understand the deposition was in evidence. Furthermore, when counsel offered the deposition of all the defendants in evidence during his closing argument he made no suggestion to the court that the Wain deposition was already in evidence as a result of the foregoing incident. His argument here is obviously an afterthought. .

In examining Rosenus, counsel for plaintiff directed his attention to a portion of page 7 of his deposition. The court thereupon, in the interest of clarity, suggested that “In addition to what you read from the deposition on page 7 I think the following four lines should be read. Line 20:” The court then apparently read those lines consisting of a question and answer into the record. After a colloquy between the court and counsel relative to uncertainty in the portion of the deposition to which counsel had directed the witness’ attention as to when a particular event took place, the court observed: “Then he goes on and adds what I have read.” Plaintiff argues that the action of the trial court is “gratuitously reading into the record portions of the deposition” and “apparently” extending “his perusal of the Rosenus deposition beyond the portion read into the record by Mr. Cummins at that time” constituted “a submission and offer of the entire” deposition to the court as evidence since there is no authority for the introduction of a portion of a deposition. This is a synthetic argument. True, the court read four

Plaintiff also complains that the court erred in excluding from evidence a transcript of a monitored conversation between counsel for plaintiff and defendant Shane. This conversation occurred shortly before the complaint in this action was filed. It was initiated by a telephone call from plaintiff’s attorney to Shane, inquiring whether at that time Shane would be agreeable to a resale of the stock of Selegna if $200,000, in cash, were made available for such purpose. This was some two years after the transaction, which was the basis of this suit, had taken place. This conversation was neither relevant nor material to any of the issues made by the pleadings. There was clearly no abuse of discretion or prejudicial error in rejecting such proffered evidence.

Plaintiff’s final argument is that the finding that defendants “were damaged in the sum of $5,355 is not supported by any evidence.” Her position cannot be sustained. By cross-complaint recovery of damages is sought for a breach of warranty contained in the contract for the sale of the stock which was entered into between Mrs. Lewis and the defendants on February 17, 1951. Attached to the contract is a balance sheet of Selegna dated December 31, 1950. The contract provides that such balance sheet “fully and accurately reflects the condition of the company as of this date; that all assets listed thereon are owned by said company and there are no liabilities, contingent or otherwise, of the said company.” As previously noted, Mrs. Lewis signed a handwritten memorandum, at the time the deal was closed, stating “There are no contracts or commitments of Selegna ... of any kind written or oral except the contract

The evidence and the reasonable inferences therefrom amply support the findings essential to sustain the judgment.

The judgment is affirmed.

Moore, P. J., and McComb, J., concurred.

A petition for a rehearing was denied December 3, 1954, and appellant’s petition for a hearing by the Supreme Court was denied January 3, 1955.