Gormly v. Dickinson

This is an appeal by defendant John L. Dickinson from a judgment in favor of the plaintiffs. The action arises out of a sale of shares of stock in a corporation known as Waterwear Corporation.

On February 14, 1958, pursuant to stipulation, the motion of the plaintiffs to amend their original complaint was granted. The first cause of action of the amended complaint was based upon a document of November 21, 1955, under which the defendant Dickinson was to purchase from plaintiff H. James Gormly the shares of corporate stock. That document is set forth hereafter in footnote 2. The third cause of action was based upon the allegation that at the time of the transaction on November 21, 1955, involving the sale of stock to Mr. Gormly, no permit with respect to such stock had been issued as required by the California Corporate Securities Law. On May 12, 1958, the court granted permission to the plaintiffs to file another amended complaint. Such second amended complaint was filed on May 19, 1958. The third cause of action contained an allegation that no permit, as required by law, had been issued at the time of the transaction on November 21, 1955, but the cause of action was also founded on allegations of express fraudulent misrepresentations.

The judgment in favor of plaintiffs was with respect to the third cause of action of their second amended complaint. The findings of fact of the trial court pertinent thereto were as follows: 1. That on November 21, 1955, and for several

“In passing on appellant’s contention that the findings are lacking in evidentiary support, the following principles must be observed: ‘When a finding of fact is attacked on the ground that there is not any substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether there is any substantial evidence contradicted or uncontradicted which will support the finding of fact. [Citations.] When two or more inferences can reasonably be deduced from the facts, a reviewing court is without power to substitute its deductions for those of the trial court. [Citations.] ’ (Primm v. Primm, 46 Cal.2d 690 , 693-694 [ 299 P.2d 231 ].) Thus we must ‘view the evidence in the light most favorable to the respondent’ (Estate of Isenberg, 63 Cal.App.2d 214 , 216 [ 146 P.2d 424 ]), and bear in mind that it is the function of the trial court to pass on the credibility of the witnesses and determine the weight to which their testimony is entitled.” (Gardner v. Rubin, 149 Cal.App.2d 368 , 372 [ 308 P.2d 892 ].)

Applying these principles, the evidence will be examined to determine if there is support for the challenged findings as to misrepresentations which were fraudulent in nature. Mr. Gormly testified that after meeting the appellant, probably in the early summer of 1955, he had a number of conversations with him about the business. The appellant took him to Newport Beach to observe the business. Mrs. Gormly accompanied her husband. A tour was made of the plant. The appellant said that money was needed to expand the business and that it was desired to terminate the present

Mr. Gormly testified that on November 21, 1955, a meeting was held at the home of Mr. Cox at which the appellant and the respondents were present. Mr. Gormly handed his check for $10,000 to the appellant. The appellant said that the respondents would be given their stock as soon as the corporation was formed. Nothing was said by either Mr. Cox or the appellant which indicated to Mr. Gormly that they did not have the authority and the right under the law to receive the money from Mr. Gormly in exchange for the stock. Mr. Gormly testified, “I wouldn’t have handed my money over, if they had said anything like that. ’ ’ Mr. Gormly did not then have knowledge that such transaction was prohibited by the Corporate Securities Law. On that occasion, as Mr. Gormly was handing the check to the appellant, he said, “Now, before I give you this money, you understand that it is not to be used in any way until we receive our stock in the corporation,” and the appellant replied that it would not be touched. If he had not given that answer, Mr. Gormly would not have paid the money over to him. Nor would he have done so if the appellant had not presented to him the document signed by

Mr. Gormly further testified that on one occasion prior to November 21, 1955, he had a discussion with the appellant as to what his duties were going to be in the business. The appellant said that he was going to supervise the spending of monies by the company, and that all disbursements would pass over his desk. He stated that he felt he would like to tell Mr. Gormly this because then Mr. Gormly would feel more comfortable about what was going to be done with any money that was invested in the business. Furthermore, prior to November 21, 1955, as already noted, the appellant told Mr. Gormly that he had begun working full time with Waterwear.

The appellant, John L. Dickinson, took the witness stand in his own behalf. His version of the meeting of November 21, 1955, was as follows: “Mr. Cox recited generally the nature of developments in his company up to that time, and pointed out the necessity of doing something with his partner as soon as possible before his partner would take steps to dissolve the partnership. Mr. Cox inquired of Mr. Gormly if he felt he could assist him in carrying on the plans for acquiring full control of the partnership. Agreement was met, and Mr. Gormly prepared a check in the amount that Mr. Cox designated as the amount sufficient to settle with his partner. ’ ’ The appellant stated that Mr. Gormly requested that the money be set aside in a special account but that he made no statement with regard to the request and did not recall whether

On cross-examination, the appellant answered, in response to a question as to his knowledge as to whether or not Water-wear Corporation had a permit to issue stock, that he “had no idea of the status.” As to whether he concerned himself with the question of whether or not there was such a permit, he said, “It was business in the process that I knew nothing about.” He testified that prior to the meeting of November 21, 1955, he had not discussed with anyone whether or not Waterwear Corporation “had the legal authority to accept this money in exchange for stock.” He admitted that he signed agreements relating to repurchase of stock for two or three persons other than Mr. Gormly. The appellant testified that during the last week of November, 1955, and December, 1956 [sic] he did not concern himself with what happened to Mr. Gormly’s money. On redirect examination, the appellant stated that at the meeting of November 21, 1955, there was discussion to the effect that if a permit was not granted, the money would be returned to Mr. Gormly by the Waterwear Company. He further said that there was no discussion that Mr. Gormly was buying stock and that “He was not at that time buying stock in any corporation” but “he was making an advance to Mr. Cox, to the company.” He further said, “He [Gormly] eventually would receive the stock of the corporation, if and when it was going to be issued, if this could be arranged by Mr. Cox, through gaining control of the Waterwear Company. Then it would be available.”

It is clear that, in determining the credibility of the witnesses, the trial judge believed the testimony of Mr. Gormly and rejected that of the appellant to the extent that it was inconsistent with the evidence produced by the respondents. This the trier of fact was free to do. (Voss v. Friedgen, 141 Cal.App.2d 135 , 137 [ 296 P.2d 424 ] ; La Jolla Casa de Manana v. Hopkins, 98 Cal.App.2d 339 , 345-346 [ 219 P.2d 871 ].)

In Mary Pickford Co. v. Bayly Bros., Inc., 12 Cal.2d 501 , the Supreme Court stated, at pages 525-526 [ 86 P.2d 102 ] : “Upon a full consideration of the applicable principles of law, it is clear that a person who sells a security impliedly represents that a permit therefor has been secured when one is required by the Corporate Securities Act for such a sale. If this implied representation is false, then it is a negligent misrepresentation which is an actionable fraud, and the buyer’s right of action does not accrue until he discovers

In the present ease, there is no evidence sufficient to sustain an inference that the appellant “acted upon information sufficient to justify a reasonable man in concluding that no permit was required.” To the contrary, the appellant testified that prior to the meeting of November 21, 1955, he had not discussed with anyone whether or not Waterwear Corporation “had the legal authority to accept this money in exchange for stock.”

Since the appellant was the person who consummated the fraud, he is liable for the full amount of the damages, regardless of whether he personally profited by the transaction. (Ogier v. Pacific Oil & Gas Development Corp., supra, 135 Cal.App.2d 776 , 780; Tevis v. Blanchard, 122 Cal.App.2d 731 , 738 [ 266 P.2d 85 ]; Randall v. Beber, supra, 107 Cal.App.2d 692 , 701; see Mary Pickford Co. v. Bayly Bros., Inc., supra, 12 Cal.2d 501 , 515; 23 Cal.Jur.2d, Fraud and Deceit, § 47.)

The appellant makes the contention that the respondents must be found to have been in pari delicto. But the evidence does not support such claim. Mr. Gormly testified that at the time of the transaction he did not have knowledge that such transaction was prohibited by the Corporate Securities Law. As stated in Taormina v. Antelope Mining Corp., supra, 110 Cal.App.2d 314 , at pages 320-321: “With reference to the contention that the plaintiffs were in pari delicto with defendants and therefore may not recover, the rule in this regard is that in actions such as the one with which we are here concerned ordinarily the purchaser of securities will not be held to be in pari delicto, because the Corporate Securities Law was enacted primarily for the protection of the investing public. ‘When the action is between the purchaser and the corporation, the law attaches such great importance to the policy underlying the Blue Sky Law that the purchaser must be equally culpable with the corporation before he will be held to be in pari delicto.’ (Miller v. California Roofing Co., 55 Cal.App.2d 136 , 144 [ 130 P.2d 740 ], and cases cited.) Even had the plaintiffs known that the consent of the Commissioner of Corporations would

Since the cause of action upon which the respondents recovered was one for damages for fraud, such cause of action is not deemed “to have accrued until the discovery, by the aggrieved party, of the facts constituting the fraud.” (Code Civ. Proc., § 338.) The second amended complaint was filed on May 19, 1958, which was within three years of the transaction of November 21, 1955. The cause of action was not barred. (Voss v. Friedgen, supra, 141 Cal.App.2d 135 , 142.)

Proof of one material fraudulent representation was sufficient to justify recovery by the respondents. (Dillon v. Sumner, 153 Cal.App.2d 639 , 644 [ 315 P.2d 84 ].) Accordingly, it is not necessary to consider the sufficiency of the evidence to support the findings of the trial court that the appellant falsely represented and promised.that the $10,000 would not be used in any way until the respondents had received the corporate stock and that the appellant would purchase from the respondents at par value any corporate stock in Waterwear Corporation which they held one year from November 21, 1955, when in fact the appellant had no intention that such promises would be performed. (Sears v. Myerson, 106 Cal.App. 220 , 223 [ 289 P. 173 ].)

The implied representation made by the appellant to the respondents was material because, as shown by the testimony of Mr. Gormly, if it had not been made, the respondents would not have delivered the check for $10,000. (Adkins v. Wyckoff, 152 Cal.App.2d 684 , 689 [ 313 P.2d 592 ].)

The appellant makes the contention that the respondents are not entitled to prevail in this action because they entered into the transaction in reliance upon their own investigation. But the evidence does not support his position. It is true that the respondents did make some inquiry as to the nature of the business and its assets. But their investment was not made solely in reliance on their own investigation.

.“The mere circumstance that one makes an independent investigation or consults with others does not neces

The appellant raises some question as to the sufficiency of the evidence as to reliance by Mrs. Gormly, but that contention is set at rest by the reasoning found in Hunter v. McKenzie, 197 Cal. 176 , at page 185 [ 239 P. 1090 ] : “Of course it is incumbent upon the party seeking to recover in an action for deceit, founded upon false representations, to show that he relied upon and was influenced by them. True, there is no direct evidence showing that Mrs. Hunter relied and acted upon the alleged and found false representations, still it was not essential to a cause of action in her behalf to produce direct evidence that she relied upon such false representations. The fact of reliance upon alleged false representations may be inferred from the circumstances attending the transaction which oftentimes afford much stronger and more satisfactory evidence of the inducement which prompted the party defrauded to enter into the contract than his direct testimony to the same effect.” (See also Thomas v. Hawkins, 96 Cal.App.2d 377 , 380 [ 215 P.2d 495 ].)

The trial court properly awarded interest on $10,000, the amount of the judgment, at the rate of seven per cent per annum from November 21, 1955, the date upon which the respondents parted with their cheek. (Nathanson v. Murphy, 147 Cal.App.2d 462 , 466 [ 305 P.2d 710 ] ; see Mary Pickford Co. v. Bayly Bros., Inc., supra, 12 Cal.2d 501 , 526.)

The judgment is affirmed.

Shinn, P. J., and Vallée, J., concurred.