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PORTER v. GIBSON

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District Court of Appeal, Second District, Division 1, California.

PORTER v. GIBSON.

Civ. 14196.

Decided: November 17, 1943

Welburn Maycock, of Los Angeles, for appellant. Harry G. Sadicoff, of Los Angeles, for respondent.

On May 29, 1942, respondent Lucille J. Porter filed an action for money in the superior court of Los Angeles County. From a judgment in her favor, appellant prosecutes this appeal.

This litigation arises out of a contract entered into by plaintiff and defendant on July 24, 1939, whereby defendant agreed to purchase 200 shares of stock of the Gibson Oil Company, Inc., at $50 per share, payable in installments of $150 per month, commencing on the 24th day of July, 1939. At the time of filing the action 35 monthly installments of $150 each, or $5,250, had become due and payable, whereas only $1,550 had been paid. Prior to trial plaintiff supplemented her complaint to include installments accruing subsequent to the filing of the original complaint, and she further alleged delivery of the full 200 shares of stock to defendant.

The contract here in question provided that the defendant (buyer) might elect to take up the whole amount of the stock at any time upon the payment of the balance due at the rate of $50 per share; that buyer should have the right of delivery to him of the stock paid for each month, but in lots of not less than ten shares; that “buyer shall be under no further or additional obligation to purchase stock under this agreement should Gibson Oil Company be adjudicated a bankrupt or an assignment for the benefit of creditors be made by it, or if Mr. Gibson, party of the second part, is removed from the management of the company through the action of its creditors or bankers”. The contract also included clauses referring to voting rights of the seller, which rights were to be retained by her until the shares were transferred on the corporation's books. Also “In the event that buyer shall fail to purchase the full number of shares, to–wit, 200, then no rights are waived hereby by seller”. In order to facilitate the operation of the agreement, it was agreed in the contract that an escrow be opened wherein plaintiff deposited the 200 shares of stock with instructions to the escrow holder to collect the agreed amount monthly and make delivery of the stock in ten–share lots. The defendant agreed to pay the escrow charges and taxes, so that plaintiff would receive $50 per share without any deductions whatsoever. The contract also contained the provision that “Time shall be the essence of this agreement and in particular of the payments herein provided to be made”. The agreement further contained the following: “It shall be a condition of said escrow and of this agreement that should buyer fail to make any payment for said shares at the times and in the amounts and manner herein provided, or in the event that buyer shall fail to pay any escrow charges, taxes and other sums herein provided to be paid by buyer, then in either of such events seller may withdraw from said escrow, without any notice to or demand upon buyer, all shares of said stock not paid for and withdrawn and seller may retain any of said shares as to which payment may have been made, as liquidated damages for any such breach of this agreement; and it shall be a further condition of this agreement and of said escrow that in the event of any such default in payment, said escrow holder shall redeliver to seller promptly and without question upon demand, notwithstanding any notice, demand or contention upon the part of buyer, all of said shares not then withdrawn from said escrow, and that said escrow holder shall not be liable to buyer by reason of any such redelivery, and seller may otherwise dispose of said shares freed of the terms of this agreement.”

The escrow provided for in the agreement was opened on August 4, 1939, and defendant continued to make payments on the contract until March 16, 1940, when payments stopped. Up to the latter date defendant had paid in $1,550 and had received 30 shares of stock, and there remained $50 in the possession of plaintiff for one share of stock not delivered.

In the meantime, however, and during August, 1940, the Gibson Oil Company experienced financial difficulties and a majority of its creditors agreed to form a creditors' committee, which committee entered into an agreement with the company on November 20, 1940, providing, among other things, that all checks issued by the company be countersigned by a member of the committee; that C. J. Gibson, appellant herein, be retained to manage the affairs of the company, subject to the terms of the agreement and subject to the control of the committee, at a salary of $250 per month or 10% of the company's net production, whichever was less; that the committee have power to recommend the discharge, retention, or employment of all employees or agents of the company, and the company agreed to comply with all recommendations of the committee in these respects. In other words, the record reveals that the creditors' committee took over the affairs of the company temporarily in an advisory and supervisory manner with the view of securing the payment of the company's indebtedness to them on an equal and proportionate basis.

On May 27, 1942, after default of the defendant buyer, plaintiff withdrew from the escrow the remaining 170 shares of stock and on the same day tendered them to defendant, properly endorsed, coupled with a demand for the payment of $3,700, the accrued installments then due, and on May 29, 1942, filed the action here involved. On June 16, 1942, defendant returned the tendered shares of stock to plaintiff's attorney, refusing acceptance of same and denying any liability under the contract, stating in his letter to plaintiff's attorney: “Mrs. Porter's tender was not made in accordance with the terms of the contract of July 24, 1939, and I am not under any obligation to purchase the balance of the stock. The Gibson Oil Co., Inc., has been under the management of a Creditors' Committee since November, 1940, and in accordance with the terms of the contract, I am no longer obligated to purchase the balance of the stock”. Plaintiff's attorney, on June 23, 1942, advised defendant by letter that “The certificates are held by me for your account and you can have them at any time you desire, as they are your property”.

On April 22, 1942, at a meeting of the Board of Directors of the Gibson Oil Company, Inc., the directors of said corporation passed a resolution to amend the articles of incorporation of the corporation to provide for the assessment of its capital stock, such authorization not having been previously given to the directors. The necessary consent of the holders of two–thirds of the outstanding shares of stock, which did not include those held by plaintiff, having been obtained, the proposed amendment was added to the articles of incorporation. Pursuant thereto an assessment of $6 per share was levied on all stock and on May 5, 1942, Mrs. Porter received a notice of such assessment to be paid on or before June 6, 1942; to become delinquent on June 8, 1942, and if unpaid the stock would be sold on June 25, 1942, to pay the assessment plus a penalty of 5%. Mrs. Porter failed to pay the assessment and on June 25, 1942, the 170 shares were sold to one D. E. Spriggs for $1,071.

Appellant first contends that the contract being executory, upon default of the buyer and the attempted tender by the seller, an allegation in the pleadings that the goods “cannot readily be resold for a reasonable price” is necessary to maintain an action for the price. Conceding this to be true, nevertheless, the third paragraph of the complaint specifically alleged that plaintiff had delivered 200 shares of the stock of said company and had made demand upon defendant for payment of the sum of $3,700 then due and unpaid, but that defendant had failed, neglected and refused to pay said sum or any part thereof. By his answer defendant admitted delivery of the stock to him, as charged in the complaint, but alleged that he returned such shares of stock to plaintiff through her attorney and that she or her agent was in possession thereof. At the trial such delivery of the stock was established by both oral and documentary evidence.

Appellant, however, asserts that the evidence, instead of proving performance of her contract by respondent, established the fact that she had cancelled the contract pursuant to the terms thereof when she withdrew the stock from escrow and retained the $50 received in escrow in excess of the amount theretofore paid for stock which was delivered in lots of ten shares to appellant and for which he had paid the purchase price. It is true the contract herein provided that should defendant buyer default in any of the covenants made by him in the contract, plaintiff seller was entitled to withdraw from escrow all stock unpaid for, and might “retain any of said shares as to which payment may have been made, as liquidated damages for any such breach of this agreement”, but plaintiff did not retain the $50 in question as damages, but on the contrary sent to defendant all of the stock unpaid for as well as the one share paid for by him with the aforesaid $50. Furthermore, the rule is firmly established that a provision for liquidated damages cannot be enforced when the damages are clearly ascertainable. In the instant case it cannot be said from the nature thereof that it would be either impracticable or extremely difficult to fix the actual damage (sections 1670 and 1671, Civil Code). Furthermore, it cannot be said that by withdrawing the unpaid for stock from escrow, after default upon the part of defendant, that plaintiff breached the contract, because the essence and gravamen of the contract in question was the mutual agreement to buy and sell the stock. The establishment of an escrow was merely incidental to the main purpose of the contract and solely for the convenience of the parties in carrying out the principal purpose of the agreement. It must, therefore, be held that in withdrawing the escrowed stock plaintiff did not contravene a condition of the contract which vitiated the agreement and relieved defendant from liability thereunder.

We are convinced that the agreement of July 24, 1939, with which we are here concerned was an executory contract for sale and purchase of personal property and that plaintiff did all that she was required to do to vest title to the stock sold in defendant vendee. In the full performance of her obligations under the contract she delivered the stock, properly endorsed, to the buyer and, after the latter thereafter returned the stock to her, plaintiff notified him that such stock was being held for his account and subject to his order (sections 1502 and 1503, Civil Code). Defendant entered into a binding contract to purchase the stock, and if title to the same vested in him then plaintiff was justified in suing upon her contract of purchase and sale to recover the amount due according to the purchase price rather than for damages for breach of contract. Manifestly, every tender does not transfer title, and where a contract provides for payment on delivery, the tender implies that the fulfillment of this concurrent condition must be complied with before title will pass from the seller to the buyer, but under an executory agreement such as we are confronted with herein, if delivery of the stock was made to the buyer with intent to transfer title, then such title passed. The governing principle being that of intention, the question in the main is one of fact. When, in the instant case, resort is had to the terms of the contract, the conduct of the parties, and the circumstances attending the delivery of the stock, we think the conclusion is justified that such transfer was made with the full intent and purpose upon the part of plaintiff to unreservedly vest title to the stock in defendant. Gopcevic v. California Packing Corp., 64 Cal.App. 132, 220 P. 1078, hearing in Supreme Court denied.

Appellant calls our attention to the provision contained in the contract which reads: “and the seller may otherwise dispose of said shares freed of the terms of this agreement”, but this does not preclude seller from pursuing remedies provided by law on account of the breach of the contract. Appellant's argument that if the doctrine of mutuality is still effective, the clause which permits seller to relieve herself of all obligations under the contract and permits her to sell the stock elsewhere also relieves the buyer from his obligation to make further purchases, is specious under the circumstances here present as default had been made by the purchaser and none had occurred on the part of the seller.

Appellant next contends that he had been removed from the management and control of Gibson Oil Company by action of its creditors, and therefore, by reason of a heretofore quoted provision in the contract in that regard, he was not obligated to make further payments upon his contract to purchase plaintiff's stock. We think a complete answer to this contention is that defendant's default under the contract occurred in March, 1940, while it was not until the following September that the agreement with creditors of the corporation was entered into. Be that as it may, however, we do not regard the arrangement made between the corporation and its creditors as one by which defendant was “removed from the management of the company through the action of its creditors or bankers”.

The trial court found that appellant was not so removed through the action of the creditors, and the finding in that regard is amply supported by the evidence. Appellant by his own testimony and also by oral and documentary evidence offered in his behalf admitted that the creditors' committee participated in the operation of the business temporarily with a view to securing proportional payments on the indebtedness of the company to them and to check payments being made by appellant to the various creditors. There was introduced in evidence a letter, dated May 22, 1942, from Fred J. Carpenter, chairman of the creditors' committee, to Mr. Gibson, in which Mr. Carpenter protested a payment to his own company which he felt was too small in comparison to a payment to another creditor. Mr. Carpenter testified that although he protested this payment, nevertheless the same was made in the manner and form determined upon by appellant and not as recommended by one of the creditors' committee. If the creditors' committee, of which Mr. Carpenter was chairman, had full control of the business and Mr. Gibson was “removed” as claimed by him, certainly no payments of funds contrary to the wishes of the creditors' committee could have been made by Mr. Gibson. Instead of being “removed” from the management of the affairs of Gibson Oil Company, the defendant was specifically retained, according to the agreement, “to manage the affairs of the company” subject only to the right of the creditors' committee to countersign checks and dictate the hiring and discharging of company employees. Indeed, the so–called “removal” agreement provided that “In the event of a dispute as to the validity, priority or amount of any claim or claims the committee, with the consent of the company (and appellant concededly owned the company) but not otherwise, shall have the authority and power to compromise, settle or adjust such dispute” (emphasis added).

The finding of the court that plaintiff did not cause 170 shares of stock to be delivered to the defendant and that such shares were not returned by defendant to plaintiff's attorney, is next made the basis of an attack upon the judgment herein. It is conceded by all parties to this appeal that plaintiff's complaint and defendant's answer both alleged that the stock, contrary to the finding made, was delivered and returned as above set forth. It is also stipulated that the evidence abundantly and conclusively establishes such delivery and return of the stock in question. The challenged finding is not, therefore, supported by the evidence, being in fact contrary thereto, and, obviously, was inadvertently made by the court. In view of the fact that the delivery and return of the shares of stock is conceded by all parties, no prejudice arises from the patent error, and a reversal is, therefore, neither justified or necessary. Cornblith v. Valentine, 211 Cal. 243, 294 P. 1065; Thayer v. Tyler, 169 Cal. 671, 147 P. 979.

Appellant's contention that the contract herein was not of the character contemplated by subdivisions 1 and 2 of section 1783 of the Civil Code is answered by what we have heretofore said in holding that under the circumstances here present it was intended that title to the stock should and did pass to the buyer. Therefore, the instant action was maintainable by plaintiff seller pursuant to the provisions of subdivision 1, section 1783 of the Civil Code.

For the reasons herein stated, judgment is affirmed.

WHITE, Justice.

YORK, P. J., and DORAN, J., concur.

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