Darden v. Reese

Action to set aside an execution sale of corporate stock in which the sale was vacated by the judgment and the purchaser of the stock and other defendants appeal from the judgment.

The judgment was based upon findings that the sale was made without the knowledge of plaintiff, the owner of the stock, was knowingly made for a grossly inadequate consideration, that defendant Brown was not a bona fide pur

The Lakeshore Beach Company, a corporation, had issued 100 shares of its capital stock which was owned as follows: Charles S. Darden, 54 shares; Arthur L. Eeese, 36 shares; Mercer Eeese, 2 shares; Alonzo Adams, 2 shares; Clarence Jones, 1 share; and the estate of Sally Bichardson, 5 shares. Darden was the president of the corporation and exercised a controlling influence in the management of its affairs. Arthur L. Eeese was the secretary; Clarence Jones was the vice president, and A. A. Adams assistant secretary. All of these officers had offices in Los Angeles, but for some two years Darden had maintained his actual place of abode on the property at Elsinore. During that period he had received correspondence from Eeese and from Harold B. Pool, attorney for Eeesé, at his Elsinore address, as well as at his Los Angeles address. For more than 20 years the corporation had owned 47 acres of land in the vicinity of Lake Elsinore, in Eiverside County, which had been improved with numerous buildings and was operated for recreational purposes. The project had not been a profitable one. There had long been dissension among the stockholders, manifested by the activities of Arthur L. Eeese, who had instituted suit in 1939 to dissolve the corporation, had demanded of the directors that they terminate a lease of the property which had been given to Darden, and had instituted suit for a cancellation of the lease, all against the wishes of the other members of the board of directors. By the terms of the lease, which was executed in 1937, Darden had agreed to pay, among other things, all assessments and taxes against the real property of the corporation, and had been in possession, managing the property, pursuant to the lease. He failed to pay the taxes, Eeese paid them, made demand upon the corporation that it sue Darden upon his obligation, and when the board of directors refused to institute action the same was instituted by Eeese as a stockholder on behalf of the corporation. The purpose of this suit was to force compliance with the terms of the lease or

The court found that the market value of the 54 shares of stock was approximately $35,000, and that defendant Reese instructed defendant Charles J. Brown to bid the sum of $1,150, knowing that said sum was grossly inadequate. The sale left the judgment against Darden unsatisfied in the sum of $1,133.

Appellants attack the finding as to the value of the stock, claiming that it is not supported by the evidence. We believe it to be amply supported. There was expert testimony as to the value of the land and there was also evidence as to the amount of the obligations of the corporation. This testimony was sufficient to support the findings of value. Additional evidence consisted of the testimony of Darden that the stock was worth $35,000 and testimony by Reese that it was worth between $50 and $100 per share. The amount for which the stock was sold was grossly inadequate. The court also found that defendant Brown was not a bona fide purchaser of the stock but had bought the same for and on behalf of defendant Reese. This finding also has support in the evidence. Brown had been in the amusement business in Venice; he was a

It is conceded by respondent that inadequacy of price alone does not invalidate an execution sale, and the parties are not in substantial disagreement as to the rule which is applicable to actions to set aside such sales. It was stated in Sargent v. Shumaker, 193 Cal. 122 [ 223 P. 464 ], as follows: “Where, however, the price obtained is greatly disproportionate to the actual value, very slight evidence of unfairness or irregularity will suffice to authorize the granting of the relief. (Rauer v. Hertweck, 175 Cal. 278 [ 165 P. 946 ] ; Winhigler v. Sherman, 175 Cal. 270 [ 165 P. 943 ]; Bock v. Losekamp, 179 Cal. 674 [ 179 P. 516 ]; Odell v. Cox, 151 Cal. 70 [ 90 P. 194 ].)” (See, also, Baldwin v. Brown, 193 Cal. 345 [ 224 P. 462 ], and Schuler-Knox Co. v. Smith, 62 Cal.App.2d 86 [ 144 P.2d 47 ].) The case of Mortimer v. Young, 53 Cal.App.2d 317 [ 127 P.2d 950 ], relied upon by appellant, does not depart from the rule, nor criticize it. The rule was applied but the ease was decided upon wholly different facts. The judgment setting aside the execution sale was reversed for the reason that “there was no evidence at all of unfairness or irregularity. ”

The question here is whether under the facts established at the trial the case is one for relief under the rule above stated. The finding of fraudulent conduct and great unfairness on the part of Reese was based upon the findings already mentioned and evidence of the following facts and consequent inferences: (1) That Reese intentionally withheld information of the levy of execution from Darden, Jones and Adams, for the purpose and with the intention of acquiring the stock for himself at a price fixed by him, and without regard to its value; (2) that he gave instructions and directions to Brown with respect to bidding at the sale with the same purpose and intention. The findings upon these points have clear support in the evidence. It is significant, as bearing upon the motives of Reese in withholding information as to the levy, that Jones, the vice president, and Adams, the assistant secretary, were aligned with Darden in the

Reese held the judgment against Darden as trusteee for the corporation and his attorney Pool. It was his duty as such trustee and as secretary to use his best efforts to collect the judgment in full by execution sale of the stock. That he intentionally disregarded that duty can scarcely be disputed. The trier of facts could have inferred, with good reason, that when Darden’s address was given in the instructions to the sheriff as 1802 Central Avenue, it was the expectation of the attorney for Reese that he would not be found at that address. The fact that Darden had been residing at Elsinore, and operating the property there, was known to both Reese and his attorney. Although Jones, as vice president, and Adams, as assistant secretary, were qualified to receive notice of the levy (Code Civ. Proc., § 688), the name and address of neither was stated in the instructions, with the result that Reese alone would receive notice of the levy if Darden should not be found at the Central Avenue address. The court found that Herbert V. Walker, then counsel for Darden, had requested the attorney for Reese, on October 15, 1946, to advise Jones, who was an attorney, of all matters affecting plaintiff herein, in the action of Reese v. Darden. Jones was not advised of the levy of the execution. By these means, Reese was able to withhold from the officers of the corporation all information as to the execution and the proposed sale, although the interest of the corporation required that the sale should produce a sufficient amount to satisfy the judgment, and the interest of Reese in the same manner was opposed to that of the corporation. It was found that Reese knew that a larger sum would be realized from the sale if the plaintiff or the other corporate officers were notified of the proceedings, and that he intentionally concealed information from them for the purpose of serving his own personal interest. The evidence justified this finding. Such conduct was a palpable fraud upon the corporation. It evidenced a breach of a legal duty, distinct from any that Reese owed to Darden, but it nevertheless affected adversely the interest of the latter to an even greater extent that it did that of the corporation. Acts of oppression and unfairness which will justify vacating an execution sale need not amount to legal fraud. “Unfairness,” as it relates to conduct in connection with execution sales, embraces all types of dishonesty,

The judgment is affirmed.

Wood, J., and Vallée, J., concurred.