ZINN ET AL v. EX CELL CORPORATION ET AL (1943)

Plaintiffs have appealed from an adverse judgment in an action for rescission or damages based on the alleged fraudulent procurement of a sale by them to defendant Ex–Cell–O Corporation of shares of the capital stock of Sealed–Pure Systems, Inc., a corporation.

Defendant Ex–Cell–O Corporation (hereinafter called Ex–Cell–O) is a manufacturer of machines designed for the manufacture of cardboard milk containers. Plaintiff Zinn and the other plaintiffs were stockholders in a Washington corporation known as Gold Star Creameries which in 1937 had constructed a building in Everett, Washington, for the purpose of bottling milk in cardboard containers. Zinn conceived the idea of not only installing one of Ex–Cell–O's machines in the factory of Gold Star Creameries, but also of obtaining an exclusive agency from Ex–Cell–O for marketing their machines on the Pacific Coast. In this latter project he interested plaintiff Kemp, who advanced enough money to finance a trip by Zinn to San Francisco and to Ex–Cell–O's head offices in Detroit, Michigan. In San Francisco Zinn interviewed officers of Fibreboard Products Co., who are large manufacturers of cardboard on the Pacific Coast. They became interested to the extent of expressing a desire to get an exclusive contract for the manufacture of the cardboard blanks which are used to make the milk containers, but refused to commit themselves as to whether, in the event Zinn secured an agency from Ex–Cell–O, Fibreboard Products Co. would purchase stock in a corporation proposed to be formed to handle such agency. Zinn proceeded to Detroit and as a result of his negotiations there, which were later continued in Seattle, on October 30, 1937, Ex–Cell–O entered into a contract with plaintiffs Zinn and Kemp and defendant Malkson, making them its exclusive distributing agents for the Pacific Coast states and Hawaii. We only notice respondents' claim that in the negotiation of this agreement Zinn made certain false representations to Ex–Cell–O to point out (1) That there was no such issue made by the pleadings; (2) No finding was made on this subject; and (3) It is entirely immaterial since Ex–Cell–O continued with the contract long after any such representations must have been known by it to be false, if any were in fact made. These individuals then incorporated Sealed–Pure Systems, Inc. (hereinafter called Sealed–Pure), with a capital stock of 10,000 shares of no par value, and with the consent of Ex–Cell–O, assigned to it their rights under their agency contract. About the same time Ex–Cell–O entered into a contract with Fibreboard Products Co. giving it the exclusive right to manufacture the cardboard blanks to be used in its machines in the same territory. The agency contract provided that Sealed–Pure should place three machines within 90 days and within 6 months one machine in Seattle, one in either Oakland or San Francisco and one in Los Angeles.

One machine was immediately placed with Gold Star Creameries at Everett, Washington, in the vicinity of Seattle, which apparently is conceded to have been a substantial compliance with the requirement that a machine be placed in Seattle, but no others were placed within 90 days. Gold Star Creameries got into financial difficulties and, apparently with the acquiescence of Ex–Cell–O, Sealed–Pure lent considerable sums to Gold Star Creameries in the belief frequently expressed in correspondence introduced in evidence that it would be fatal to the prospect of placing other milk packaging machines in the Pacific Coast territory if the first one installed in this territory should prove a failure. As a result of these loans Sealed–Pure also encountered financial troubles and disputes arose between Zinn and Kemp on the one hand and Malkson on the other, with the result that in February, 1938, the sales manager of Ex–Cell–O went to Seattle and arranged that Sealed–Pure should open an office in San Francisco with Malkson as general manager and Zinn should devote his attention exclusively to the business of Gold Star Creameries.

Gold Star Creameries continued to operate at a loss and was unable to make any payments to Sealed–Pure on its indebtedness, with the result that Malkson was short of funds and arranged for advances from Ex–Cell–O on the security of Gold Star Creameries' notes.

During all of this time Ex–Cell–O had taken no step to cancel the agency agreement, and in January expressly agreed to an extension of the 90 day clause “providing aggressive sales effort is made.”

Zinn, and later Malkson, had devoted a great deal of time in an attempt to place machines with Lucerne Cream and Butter Company (hereinafter called Lucerne), a subsidiary of Safeway Stores, Inc. (hereinafter called Safeway), an operator of chain–store groceries in the Pacific Coast territory. By July, 1938, these negotiations reached such a promising point that Ex–Cell–O was asked to send a representative to San Francisco with full power to negotiate a contract. Defendant Bixby, representing Ex–Cell–O, came to San Francisco from Detroit in answer to this request and Bixby and Malkson succeeded on July 25, 1938, in securing a contract with Lucerne for the placing in Oakland of one machine on ninety days' trial with option to purchase it for $32,500 and the option to purchase additional machines at $37,500 each. This contract is set out in the findings hereinafter quoted.

While in San Francisco Bixby told Malkson that Ex–Cell–O planned to cancel the Sealed–Pure agency. Malkson said that he was sorry but asked Bixby to engage him as Pacific Coast agent if this was done. Bixby proceeded to Seattle and three days after the Lucerne contract was signed, on July 28, 1938, met plaintiffs Zinn, Kemp and Nelson. He told them that Sealed–Pure had failed to place any machines as required by its contract and that Ex–Cell–O was going to cancel the agency, and that on cancellation their stock would be valueless. They first demurred to the proposed cancellation and Zinn made some unsuccessful attempts to raise additional funds. They then negotiated with Bixby for the sale of their stock to Ex–Cell–O and Bixby told them that he would try to get $1 per share for their stock but they would have to take the Gold Star Creameries' notes held by Ex–Cell–O in part payment. Zinn then said to Bixby in the presence of the others: “How do I know that you haven't already got an order in your pocket or have made some deal that we don't know anything about?” Bixby replied: “If I had an order in my pocket or had made any deal I would tell you about it.”

The agency contract was subsequently cancelled, the stock sold to Ex–Cell–O on the basis suggested, Sealed–Pure was dissolved and Ex–Cell–O appointed Malkson as its Pacific Coast agent.

Within a short time after July 28, 1938, Lucerne bought six machines pursuant to its contract of July 25, 1938, and on August 13, 1938, one machine was bought by Jerseymaid Milk Products Co. of Los Angeles. So within half a month of July 28, 1938, three machines had been placed, one in Seattle, one in Oakland and one in Los Angeles, thus satisfying both provisions of the contract for the placing of machines above noticed, although not within the times specified. This is important in view of the trial court's finding, which is not questioned on this appeal: “that Sealed–Pure Systems Inc. was entitled to notice from Ex–Cell–O Corporation that Ex–Cell–O Corporation intended to terminate and cancel said contract and to a reasonable time thereafter within which to comply with its terms and conditions before a forfeiture thereof could be declared.”

Performance within the time specified in the contract having once been waived, the finding that Sealed–Pure was entitled to notice and a reasonable time thereafter to perform follows settled law. 6 Cal.Jur. 357–8 and cases cited in notes 17 and 18; 17 C.J.S. Contracts, § 506, p. 1081 and cases cited in note 73.

Two other matters may be preliminarily disposed of: (1) The Court found that defendant Malkson was not a party to the fraud. This finding is not attacked on appeal and the judgment in favor of this defendant must be affirmed. (2) The action was in the alternative, for rescission or damages. The sale of plaintiffs' stock cannot be effectually rescinded since Sealed–Pure has since been dissolved. This leaves the case as a simple action for damages for fraud. “There is nothing inconsistent in his asking for rescission first and damages if he cannot have it.” Bancroft v. Woodward, 183 Cal. 99, 102, 190 P. 445, 447. Being reduced to an action for damages the question of laches is out of the case, and the action may be maintained at any time within the period of the statute of limitations. Stevens v. Sacramento Suburban Fruit Lands Co., 109 Cal.App. 120, 121, 292 P. 699.

This brings us to the main points on appeal, that certain of the findings are not supported by the evidence. The findings are rather elaborate and for a clear understanding of the questions involved must be quoted at some length, as follows:

“III. The court finds that it is true that on or about July 28th, 1938, at Seattle, Washington, defendant Ex–Cell–O Corporation by defendant Bixby, as its officer and agent as aforesaid, offered on behalf of said Ex–Cell–O Corporation and subject to its approval, to purchase from plaintiffs the stock in said Sealed–Pure System Inc., which was owned by them respectively in the amounts hereinafter set forth and to pay them therefor the amount paid by them respectively for said stock, to–wit: one dollar per share. * * * It is true that for the purpose of inducing plaintiffs to accept said offer said Bixby at said time and place also informed plaintiffs that said Sealed–Pure Systems, Inc. was in an unsound financial condition and that he also represented to them that none of said machines referred to in paragraph two of said complaint and which were being manufactured by said Ex–Cell–O Corporation as therein alleged, had been placed by Sealed–Pure Systems, Inc. in California as required by said contract of October 30th, 1937; also that although there were prospects pending in California with certain firms for the leasing of certain of said machines that none of said firms had executed or was then ready or willing to execute a contract for the purchase or leasing of any of said machines; that said Bixby also represented to said plaintiffs at said time and place that said Sealed–Pure Systems, Inc. needed thirty thousand dollars in cash in order to effect the purposes contemplated by and provided for in its said contract with Ex–Cell–O Corporation, and that said sum was not available in whole or in any substantial part, and that all methods that had been resorted to by Sealed–Pure Systems, Inc. to raise additional capital for said Sealed–Pure Systems, Inc. had failed; said Bixby at said time and place and for the same purpose represented to plaintiffs that, as the representative of said Ex–Cell–O Corporation, he planned on recommending to said company the cancellation of said contract between said Sealed–Pure Systems' Inc. and said Ex–Cell–O Corporation by reason of the fact that said Sealed–Pure Systems, Inc. had failed to carry out the terms of its said contract in certain respects and particularly in that said Sealed–Pure Systems, Inc. had failed to place the number of machines called for under the terms of said contract and that as a result said Sealed–Pure Systems, Inc. was in default under said contract; said Bixby also then and there represented to plaintiffs that in the event the said contract was so cancelled plaintiffs' stock in said Sealed–Pure Systems, Inc. would have no value whatsoever.

“IV. That it was not true that none of said machines so manufactured by Ex–Cell–O Corporation had been placed by Sealed–Pure Systems, Inc. as represented by Bixby, but on the contrary the court finds on or about July 25th, 1938 said Sealed–Pure Systems, Inc. through the instrumentality of its California manager, defendant Malkson, had brought about the execution of a contract between Ex–Cell–O Corporation and the Lucerne Cream and Butter Co. and/or Safeway Stores, Inc. for the placing of one of said machines in Oakland, California, which contract provided in part as follows:

“ ‘It is expressly understood that we (Safeway Stores, Inc., and/or Lucerne Cream and Butter Company) are to have free use of this machinery for a period of ninety days after installation. If for any reason we decide not to keep this machine we will properly crate same and return it to your plant at Detroit. We are to pay the cost of shipping both ways. If we do not notify you that we are to return the machine within ninety days after installation we are to promptly make payment of $32,500. This price is f. o. b. your plant at Detroit, Michigan’.

“At the same time, and as a part of the same transaction, Safeway Stores, Inc., and Ex–Cell–O Corporation executed an agreement, reading as follows:

“ ‘July 25, 1938

“ ‘Ex–Cell–O Corporation,

“ ‘1200 Oakland Boulevard,

“ ‘Detroit, Michigan.

“ ‘Gentlemen:

“ ‘We are enclosing our purchase order No. 4972 covering one complete paper milk bottling machine at a cost of $32,500.00.

“ ‘Any future machines ordered before December 31, 1939, we agree to pay you $37,500.00 for each machine upon the same conditions as outlined in the attached purchase order.

“ ‘Very truly yours,

“The court further finds that the facts with reference to the execution of said contract pertaining to said machine were intentionally withheld by defendant Bixby from plaintiffs because he intended to recommend to Ex–Cell–O Corporation that the said contract between Ex–Cell–O Corporation and Sealed–Pure Systems, Inc. be cancelled and because the said Bixby did not believe that it was possible for the said Sealed–Pure Systems, Inc., while it was controlled by plaintiffs, ever to make a success within any reasonable time of the business of marketing said machines in the territory assigned to it, and because the said Bixby believed that if it were possible for Ex–Cell–O Corporation to acquire the said stock of plaintiffs the possibility of trouble and litigation with Sealed–Pure Systems, Inc. and with plaintiffs would be prevented.

“VI. ‘The court also finds that Sealed–Pure Systems, Inc. did not, up to the time that said representations were made by the said Bixby as aforesaid, place the number of machines called for and required in said contract or place more than two machines in all, including one placed with said Lucerne Cream and Butter Co., and/or Safeway Stores, Inc., up to the date when the said representations were so made. But the court also finds that said Ex–Cell–O Corporation did not take any steps to rescind, cancel or terminate said contract at the different times when the said Sealed–Pure Systems, Inc. fell in default under said contract by reason of its failure to place said machines.

“VII. ‘* * * It is true that at the time the said representations were made by the said Bixby as aforesaid, Sealed–Pure Systems, Inc. had certain prospects for the possible placing of certain of said machines which if contracts therefor were entered into by said prospects within a reasonable time and under certain conditions, would give the stock of Sealed–Pure Systems, Inc. a value of one hundred thousand dollars or more as alleged by plaintiffs. It is also true that Bixby's references to said prospects in his conversations with plaintiffs on or about July 28th, 1938 did not adequately or correctly describe the extent of the interest of certain of said prospects in said machines nor the possibility of the number of said machines that the statements made by one or more of said prospects suggested that they might take. But the court also finds that all of said prospects were at all times known to defendant Malkson who at all times was an officer and director and the California representative of Sealed–Pure Systems Inc. and also a stockholder in said corporation with the plaintiffs herein. The court also finds that certain of said prospects were known to plaintiffs at all times as being interested in said machines with a view to the possible purchase or lease of one or more of them. * * *

“X. ‘It is true that the plaintiffs believed and relied upon the representations made by Bixby as aforesaid except to the extent that they personally and directly acquired knowledge and through said Malkson as an officer of Sealed–Pure Systems, Inc. had imputed knowledge on certain of said subjects as found above. * * *

“XI. ‘It is not true as alleged in paragraph twelve of said complaint that if plaintiffs had known that said misrepresentations made by said Bixby as found above were untrue plaintiffs would have rejected said offer and would have refused to sell said stock. The court finds that as set out above defendant, Sealed–Pure Systems, Inc. was in default under its contract with Ex–Cell–O Corporation and that plaintiffs believed that Ex–Cell–O Corporation had a right to declare said contract forfeited by reason of the failure of said Sealed–Pure Systems, Inc. to comply with the terms of said contract as aforesaid. The court also finds that said Ex–Cell–O Corporation did in fact have a right to terminate said contract by reason of the failure of Sealed–Pure Systems, Inc. to comply with its terms as set out above, and that the effect of the termination of said contract when, as the court finds, it was terminated by said Ex–Cell–O Corporation on or about the seventh day of August, 1938, by reason of the failure of Sealed–Pure Systems, Inc. to comply with its terms, was to render said stock of plaintiffs valueless. The court also finds that Sealed–Pure Systems, Inc. was entitled to notice from Ex–Cell–O Corporation that Ex–Cell–O Corporation intended to terminate and cancel said contract and to a reasonable time thereafter within which to comply with its terms and conditions before a forfeiture thereof could be declared. However, the court also finds that said Sealed–Pure Systems Inc. did not insist on said right but waived their right to such notice and to time within which to comply with said contract, and that both said Sealed–Pure Systems Inc. and plaintiffs acquiesced in the cancellation of said contract by Ex–Cell–O Corporation.”

It will be observed that the quoted findings are somewhat vague in certain particulars both as to what false representations were made and of what facts plaintiffs had independent knowledge, and in a sense contradictory in that they find that plaintiffs relied upon Bixby's misrepresentations but would have made the sale even if they had not been deceived. However, we will single out one clear false representation found to have been fraudulently made, that no machine had been placed under the contract in the face of Bixby's knowledge of the Lucerne agreement which he had himself signed three days before. As to this false representation both the findings and evidence are clear that it was believed and relied upon by plaintiffs, and it is settled that “a single material misstatement, knowingly made with intent to influence another into entering into a contract, will, if believed and relied on, afford as complete a ground for rescission as if it had been accompanied by a multitude of other false representations.” 12 Cal.Jur. 741.

Appellants attack the finding that the effect of the termination of the agency contract between Ex–Cell–O and Sealed–Pure was to render appellants' stock in Sealed–Pure valueless, as contrary to the undisputed evidence. Under the contract between Ex–Cell–O and Sealed–Pure the latter was entitled to receive for the first two years twelve and one–half per cent of all rental payments received by Ex–Cell–O “under any standard lease–royalty agreement obtained by” Sealed–Pure. Under this contract Ex–Cell–O reserved the right to adopt other methods of placing the machines than by lease–royalty agreement and the evidence is clear that in the case of the contract with Lucerne Ex–Cell–O exercised this right and agreed to outright sales instead of lease–royalty agreements. Under those circumstances it seems clear that some commission would be payable to Sealed–Pure on the sale price of the machines when received by Ex–Cell–O and the twelve and one–half per cent fixed in the contract as commission on lease–royalty agreements would at least prima facie establish the rate of commission to be paid in case Ex–Cell–O exercised its reserved right to make an outright sale. The court found that “on or about July 25th, 1938 said Sealed–Pure Systems, Inc. through the instrumentality of its California manager, defendant Malkson, had brought about the execution of a contract between Ex–Cell–O Corporation and the Lucerne Cream and Butter Co. and/or Safeway Stores, Inc.” for the placing of one machine on trial for 90 days to be purchased for $32,500 or returned, and giving an option to purchase additional machines before December 31, 1939 at $37,500 each. In all six machines were purchased by Lucerne under this contract “brought about” by Sealed–Pure. It was apparently the theory of the learned trial judge that the termination of the agency contract operated to deprive Sealed–Pure of its right to commissions on these sales. This theory finds no support in any case that has been cited to us and the contrary conclusion is amply supported by authority.

It is apparent that when Sealed–Pure brought about the execution of the contract with Lucerne it had done all that was required of it to entitle it to receive commissions if, thereafter, Lucerne elected to purchase one or more machines pursuant thereto. The applicable rule is succinctly stated in 12 C.J.S., Brokers, § 86, p. 200: “Although the broker has obtained only an option, he is entitled to a commission when the customer exercises the option, within the life thereof, by entering into the transaction which the broker was employed to negotiate.”

To the same effect are: 8 Am.Jur. 1094; Dinkelspiel v. Nason, 17 Cal.App. 591, 120 P. 789; Mitchell v. Derby Oil Co., 117 Kan. 520, 232 P. 224; Finnerty v. Stratton's Estate, 53 Colo. 17, 123 P. 667; Snead v. Wood, 24 Ga.App. 210, 100 S.E. 714; Mahoney v. Pitman, Tex.Civ.App., 43 S.W.2d 143; Campbell v. Rawlings, 52 App.D.C. 37, 280 F. 1011.

Having fully performed the service which would entitle it to commissions upon sales subsequently made under the trial–option contract with Lucerne the only question remaining is the effect upon its right to the commissions of the termination of its agency contract by Ex–Cell–O.

The applicable rule is thus stated in Vol. II Restatement of the Law of Agency, § 456, p. 1075:

“If a principal properly discharges an agent for breach of contract, * * * the principal is subject to liability to pay the agent, with deduction for the loss caused the principal by the breach of contract:

“(a) the agreed compensation for services properly rendered for which the compensation is apportioned in the contract, whether or not the agent's breach is wilful and deliberate.”

Similarly it is said in 3 C.J.S., Agency, § 187, p. 88: “The rule that the agent is entitled to recover for services rendered before his discharge is particularly applicable where the contract of agency is severable. Accordingly, an agent selling goods on commission is entitled to a commission on goods sold by him during the continuance of the agency, although the goods were not delivered or paid for, or even where the orders were not received by the principal, until after the termination of the relationship. If the contract contemplates that the agent shall receive compensation for sales of which the agent was the procuring cause, the agent is entitled to a commission on sales procured by him although the sales were actually consummated by the principal after the termination of the agency.”

Again in 3 C.J.S., Agency § 189, p. 91 we read: “Where the services to be performed by the agent are severable, he may, in the absence of a contrary provision in the agency contract, recover for services performed before the termination of the relationship.”

The above quoted statements find ample support in decided cases involving situations not unlike that in the pending case. Brea v. McGlashan, 3 Cal.App.2d 454, 39 P.2d 877; Sackett v. Centaur Motor Co., 189 Ill.App. 372; S. H. Greene & Sons v. Freund, 2 Cir., 150 F. 721; White Co. v. W. P. Farley & Co., 219 Ky. 66, 292 S.W. 472, 52 A.L.R. 541; Singer Sewing Mach. Co. v. Brewer, 78 Ark. 202, 93 S.W. 755; Fuchs v. Standard Thermometer Co., 178 Mich. 37, 144 N.W. 484.

In S. H. Greene & Sons v. Freund, supra, plaintiff was engaged by defendant to solicit and obtain orders for the bleaching, dyeing and printing of cotton goods for a commission on all orders obtained by him. Plaintiff submitted to prospective customers “price memos” covering the proposed work, which did not become binding on the customers until orders were sent to defendant by them. Upon plaintiff's discharge he sued defendant and recovered judgment for commissions on orders sent to defendant by customers after plaintiff's discharge but pursuant to price memos submitted to the customers by plaintiff before his discharge. This judgment was affirmed, the Circuit Court of Appeals saying at page 724 of 150 F.: “Having accepted the offers by ordering under them, the customers had entered into binding contracts with the defendants for, at least, the minimum amount, and the plaintiff was entitled to commissions upon the amount of work thus secured for defendant by his exertions.”

In White Co. v. W. P. Farley & Co., supra, plaintiff was discharged as selling agent for automobiles. The court said at page 475 of 292 S.W.: “Even when a party to a contract exercises the right under its terms to cancel it when it has been partially performed by the other party, he is required to place the other in statu quo; that is, he must not cancel it so as to injuriously affect any rights that have already accrued to the other in its partial execution. Here appellee * * * worked up a prospective sale to Kirk & Key, and had interested them in the purchase of a truck through his agency, whereby he would have upon its consummation been entitled to $840 in commission, and, if appellant under those conditions sought to terminate the agency, and had the right to do so under its contract, yet the law requires it to do justice to the opposite party, and to make him whole, and remunerate him for the service he has rendered in its execution.”

In Sackett v. Centaur Motor Co., supra, plaintiff had an agency for the sale of automobiles on a commission “of the gross sales emanating” through his office. Plaintiff was discharged and claimed commissions on automobiles sold on orders given after his discharge pursuant to what amounted to options arranged by him before discharge. The court said at page 375 of 189 Ill.App.: “If the alleged contracts were nothing more than arrangements, when an ‘arrangement’ with a prospective purchaser ripens into a sale, it gives a right to the agent to a commission for the reason that the agent's efforts are the efficient cause of the sale.”

We conclude that under its contract Sealed–Pure “obtained” the sales to Lucerne pursuant to the contract brought about by it, that it was entitled to the commissions on such sales despite the termination of its agency, and that for this reason the termination of the agency contract did not render the stock of Sealed–Pure valueless as found by the trial court.

The commissions on the sales made to Lucerne pursuant to the trial–option contract brought about by Sealed–Pure at twelve and one–half per cent would have amounted to $27,500. This, without more, after deducting all indebtedness then outstanding against Sealed–Pure, would have given its shares a value of approximately $2.50 per share at the time of their purchase from plaintiffs by Ex–Cell–O.

In view of this fact and the further fact that the trial court found on substantial evidence that plaintiffs “believed and relied upon the representations made by Bixby”, we approach the question whether the finding that “it is not true * * * that if plaintiffs had known that said misrepresentations made by said Bixby * * * were untrue plaintiffs would have rejected said offer and would have refused to sell said stock” finds any substantial support in the evidence. The whole basis on which the plaintiffs were dealing with Bixby was that on the cancellation of the agency contract their stock would be valueless. This belief was induced by the false representation wilfully made to them by Bixby that Sealed–Pure had failed to place any machines with customers except the one originally placed with Gold Star Creameries. Had Bixby fully and fairly advised plaintiffs, in answer to their query, of the contract with Lucerne and the negotiations leading up to it, which gave every reason to believe that the prospects of selling a considerable number of machines to Lucerne were good, and that these prospects had already crystallized into a contract which would entitle Sealed–Pure to very substantial commissions if machines were purchased under its terms, it is evident that the whole basis upon which the parties were dealing would have been changed completely. The belief of plaintiffs that their stock would be rendered valueless by the impending cancellation was induced by Bixby's false representation that no machines had been placed by Sealed–Pure, and plaintiffs would have known that the stock had a substantial prospective value if Bixby had told them the truth. If they had known the truth, even though as found by the court “plaintiffs believed that Ex–Cell–O Corporation had a right to declare said contract forfeited”, they would not have believed that by such forfeiture their stock would be rendered valueless. It was the belief that their stock was valueless which induced the sale to Ex–Cell–O on the basis of $1 per share, not the belief that Ex–Cell–O had a right to forfeit the contract. This belief in turn having been induced by Bixby's fraud, it follows that Bixby's fraud was the inducement to their sale and the finding that they would have sold their stock in the absence of the fraudulent misrepresentations finds no support in the evidence. In fact, reading the findings as a whole, it seems apparent that the trial judge's conclusion that the fraud did not induce the sale is based upon the false premise that the effect of the cancellation was to render the stock valueless.

The case on its facts is very like Pohl v. Mills, 218 Cal. 641, 24 P.2d 476. Before plaintiffs agreed to sell their stock Zinn had asked Bixby pointedly whether Sealed–Pure had placed any machines and Bixby falsely replied that it had not. In Pohl v. Mills, supra, a similar inquiry was made as to whether the subject of the contract was copyrighted. The court in that case at pages 652, 653 of 218 Cal., 24 P.2d at page 481, referred to this fact of inquiry as follows: “Moreover, the record clearly shows, from the testimony of the witnesses for the defendants themselves, that the plaintiff carefully inquired into the question of whether or not the structures were adequately protected by a copyright. * * * Entirely eliminating from consideration the testimony by the plaintiff that the representation that the Jumbo Lemon was a copyrighted structure was the inducing cause of his entering into the contracts, the record clearly shows that this was in fact the inducing cause, and that, if he had not been led to believe that the structure was copyrighted, he would not have invested his money in the business.”

Plaintiffs all testified that they would not have sold the stock if they had not believed and relied upon Bixby's fraudulent misrepresentations. This testimony is buttressed by the rule that where, as here, the fraudulent representations are calculated to induce the action of the party to whom they are made it is presumed that his action was induced thereby, and in order to take away his right to relief on the ground of fraud, evidence must be introduced to show affirmatively that he did not rely on the false representation. 12 Cal.Jur. 827; Dow v. Swain, 125 Cal. 674, 58 P. 271; Troy, etc., Co. v. Drivers', etc., Co., 14 Cal.App. 152, 111 P. 121; De Garmo v. Petitfils Confiserie, 93 Cal.App. 261, 269 P. 692; Pohl v. Mills, supra, 218 Cal. at page 652, 24 P.2d 476.

The only evidence pointed to by respondents to support the finding that the sale was not induced by Bixby's fraud is that plaintiffs Zinn and Nelson learned that Lucerne had a machine on trial shortly after cancellation of the agency and at that time took no action. Their testimony is, however, that relying on Bixby's false representation they believed that this was pursuant to an arrangement effected by Ex–Cell–O after the agency was cancelled. This explanation is corroborated by the fact that upon Zinn's learning in January, 1939, that a large quantity of cardboard for milk bottles had been ordered by Safeway from the Fibreboard Products Co. on August 1, 1938 (a date so close to the date of Bixby's false representations as to lead Zinn to suspect for the first time that a machine had already been placed when those representations were made), the investigation which culminated in this action was immediately begun. We cannot find any substantial evidence in these facts to support the finding that the fraud did not induce the sale of plaintiffs' stock.

The suggestion in the findings that Malkson's knowledge of any facts was imputed to plaintiffs is without support in law. There is no such privity between the officers or stockholders of a corporation as to impute the knowledge of one to another in his individual capacity. Pitman v. Walker, 187 Cal. 667, 670, 203 P. 739.

There is some suggestion by respondents that the cause of action, if any, is in Sealed–Pure and not in plaintiffs. This is a misconception. Sealed–Pure has been dissolved. If not, it would have a cause of action for commissions earned. But because Sealed–Pure has been dissolved it is impossible for plaintiffs to have a rescission and they are remitted to their alternative action for damages. These are properly measured by the difference in actual value between what plaintiffs received for their shares and what the shares were in fact worth. Sec. 3343, Civ.Code. The actual value of the stock which is the measure of plaintiffs' damages under sec. 3343, Civ.Code, is “the actual intrinsic value of the stock, determined by the actual worth of the corporate assets, not the ‘market value’ of the stock.” Note in 57 A.L.R. 1153 and cases therein collected. In determining this intrinsic value the only possible inquiry under the facts of this case lies in the proof of subsequent transactions which would have given Sealed–Pure a right to commissions but for its dissolution which was brought about by Bixby's fraudulent conduct. Future profits may be shown for the light that they throw on the actual value of the stock at the time of its fraudulent purchase. Hacker Pipe & Supply Co. v. Chapman Valve Mfg. Co., 17 Cal.App.2d 265, 271, 61 P.2d 944; Pittsburg Gauge Co. v. Ashton Valve Co., 184 Pa. 36, 39 A. 223, 224; Wakeman v. Wheeler & Wilson Mfg. Co., 101 N.Y. 205, 4 N.E. 264, 271, 54 Am.Rep. 676; Bredemeier v. Pacific Supply Co., 64 Or. 576, 131 P. 312, 314; Macan v. Scandinavia Belting Co., 264 Pa. 384, 107 A. 750, 753, 5 A.L.R. 1502. The rationale of cases holding that subsequent experience may be looked to in fixing value at the date of the wrong is well expressed by Mr. Justice Cardozo in Sinclair Refining Co. v. Jenkins Petroleum Process Co., 289 U.S. 689, 53 S.Ct. 736, 739, 77 L.Ed. 1449, 1456, 88 A.L.R. 496: “To correct uncertain prophecies in such circumstances is not to charge the offender with elements of value nonexistent at the time of his offense. It is to bring out and expose to light the elements of value that were there from the beginning.” Defendants Bixby and Ex–Cell–O, for whom Bixby acted, cannot escape liability because Bixby's machinations have made it difficult to assess the damages. Pye v. Eagle Lake Lumber Co., 66 Cal.App. 584, 590, 227 P. 193; Hacker, etc., Co. v. Chapman Valve Mfg. Co., supra, 17 Cal.App.2d 265, 267, 61 P.2d 944; Caspary v. Moore, 21 Cal.App.2d 694, 699, 70 P.2d 224; Seymour v. Oelrichs, 156 Cal. 782, 803, 106 P. 88, 134 Am.St.Rep. 154; Long Beach Drug Co. v. United Drug Co., 13 Cal.2d 158, 174, 88 P.2d 698, 89 P.2d 386.

Since the judgment must be reversed because of the unsupported findings hereinabove discussed, upon the issue of damages the court on a second trial should determine whether plaintiffs, who were the majority stockholders in Sealed–Pure, had they known the truth, would have opposed the cancellation of Sealed–Pure's agency or insisted upon a reasonable time for performance, as the trial court found they were entitled to do. Within a very short time after the cancellation the evidence shows the provision of the contract for placing three machines would have been performed, since a sale was made to Jerseymaid Milk Products Co. in Los Angeles on August 13, 1938. This would have so completely changed the entire picture that Ex–Cell–O would no longer have had the right to cancel the agency contract for failure to place three machines, and might have enhanced the value of plaintiffs' stock to the point found by the trial court that “Sealed–Pure Systems, Inc. had certain prospects for the possible placing of certain of said machines which if contracts therefor were entered into by said prospects within a reasonable time and under certain conditions, would give the stock of Sealed–Pure Systems, Inc. a value of one hundred thousand dollars or more as alleged by plaintiffs.” We consider it inappropriate to discuss other matters suggested by appellants which might operate to enhance their damages, since the amount or measure of damages is only in issue on this appeal to the extent that respondents have challenged the evidence as sufficient to support any judgment for damages.

The briefs contain much discussion of the failure of the trial court to find that the fraudulent representations were material. “To be material, a representation must be of such a character that, if it had not been made, the contract or transaction would not have been entered into.” 12 Cal.Jur. 740–741. If the trial court finds on a retrial of that issue that the sale of the stock would not have been made but for the fraudulent representations, such finding will establish their materiality.

There appears no necessity to retry all of the issues. The findings that fraudulent representations were made and believed are supported by the evidence. It will only be necessary to retry the issues of inducement and damages. Tulare Irr. Dist. v. Lindsay–Strathmore Irr. Dist., 3 Cal.2d 489, 583, 45 P.2d 972; Lindsay v. Mack, 5 Cal.App.2d 491, 497, 498, 43 P.2d 350.

The judgment is affirmed as to respondent Malkson. The judgment is reversed as to respondents Ex–Cell–O Corporation and Bixby, with directions to the trial court (following the formula of Vitagraph, Inc., v. Liberty Theatres Co., 197 Cal. 694, 702, 242 P. 709) to make new findings on the issues of (1) Whether the fraudulent representations found were an inducing cause of the sale of appellants' stock as alleged in their complaint, and (2) Damages, either upon the evidence already introduced and such further evidence as the parties may offer on those issues, or upon a complete retrial of those issues, as the trial court may elect.

I dissent.

Plaintiffs sued for rescission of the sale of their corporate shares of the capital stock of Sealed–Pure Systems, Inc., or for damages if rescission could not be had. The defendants had judgment, and the plaintiffs appeal. This appeal is grounded upon the single issue whether the evidence supports the judgment. The majority opinion is based upon a statement of facts drawn chiefly from the testimony of a witness for plaintiffs, as to which testimony the trial judge openly expressed a doubt. It will be necessary here to give the other side of the story, accrediting to the integrity of the trial judge the inferences properly drawn from all the evidence in line with the established practice.

Defendant Ex–Cell–O Corporation (hereinafter called Ex–Cell–O) is a manufacturer of machines designed for the fabrication of cardboard milk containers, known as “Pure–Pak.” Plaintiffs were stockholders in a Washington corporation known as Gold Star Creameries operating in Everett, Washington. Zinn conceived the idea of installing one of Ex–Cell–O's machines in the factory of Gold Star Creameries, and of obtaining an exclusive agency from Ex–Cell–O for marketing their machines on the Pacific Coast. In San Francisco Zinn approached officers of Fibreboard Products Co., who are manufacturers of cardboard products on the Pacific Coast, and suggested to them an exclusive contract for the manufacture of cardboard blanks which are used to make the milk containers, upon condition that Fibreboard would purchase stock in a corporation to be formed by Zinn to handle the Ex–Cell–O agency. In these negotiations Fibreboard expressly refused to take any part either in the management of, or as a stockholder in, any corporation engaged in the distribution of the machines. Zinn then went to Detroit to negotiate a distributing contract with Ex–Cell–O. In these negotiations he falsely represented to Ex–Cell–O that he was the official representative of Fibreboard and desired for them an exclusive contract to manufacture the cardboard blanks in connection with the distributor's contract for the Pacific Coast. He also falsely represented to Ex–Cell–O that he had $1,000 in Seattle to be used in the interest of the distributors and that Fibreboard had agreed to take fifty per cent of the stock of a distributor's corporation. It is important to note these circumstances as supporting the trial court's opinion that the testimony of this witness could not be accepted as in all respects true. A representative of Ex–Cell–O contacted plaintiffs Zinn, Kemp, and Ellis, and Malkson in October, 1937, and made a tentative agreement with them to give them the exclusive coast agency to promote the sale, lease and installation of the machines upon a commission of 10% on sales and 12 1/2% of royalties collected by them. The agreement was declared inoperative if rejected within fifteen days by an officer of Ex–Cell–O. Such rejection was conveyed in writing to Zinn et al., and on October 30, 1937, Ex–Cell–O entered into a new and different contract with Zinn, Kemp, and Malkson for distribution of the Pure–Pak machines on the coast. This is the contract under which the parties operated until its termination in 1938. These individuals then incorporated Sealed–Pure Systems, Inc. (hereinafter called Sealed–Pure) with a capital stock of 10,000 shares of no par value. Six thousand shares were subscribed and paid for by Malkson––the remaining four thousand were held to be used to raise additional capital. Five hundred shares were taken by Ex–Cell–O, which was given the right to name one director. The distributor's contract was thereupon transferred to Sealed–Pure, with the consent of Ex–Cell–O, and one machine was placed in Gold Star Creameries at Everett, Washington, a concern of which Zinn was the general manager and director, and the plaintiffs Kemp and Nelson were officers and directors. The activities of these plaintiffs in Gold Star Creameries are of importance since the only Ex–Cell–O machine placed by the individual efforts of these plaintiffs in pursuance with their contract was placed in this, their privately owned plant, at a time when the Gold Star Creameries was insolvent, as it had been almost from its incorporation in 1934. The agency contract with Ex–Cell–O required Sealed–Pure “to place three machines in said territory within ninety (90) days from the date hereof and within six (6) months from this date to have installations in three (3) individual dairies, one in Seattle, one in Los Angeles and one in Oakland or San Francisco”; the agency undertook to maintain trained operators in charge of all installations, and, at its own expense, to service and keep the machines installed in first class condition. It was stipulated that none of the machines were to be sold by the agency, but were in all cases to be leased under Ex–Cell–O's standard lease–royalty contract. For its services “as such distributors” Sealed–Pure was to receive as commission 12 1/2 “of all rental payments received by Second Party under any standard lease–royalty agreement obtained by First Parties. * * *”

Under the contract of October 30, 1937, plaintiffs placed one machine with Gold Star Creameries, at Everett, Washington, and this ended their activities under the agency and was not even a substantial compliance with the requirements of the contract to place one machine in Seattle, one in Los Angeles, and one in San Francisco or Oakland. Long prior to that transaction Gold Star Creameries had been, and still was, in financial difficulties. Having installed the machine in the Gold Star plant in an effort to rehabilitate their failing interests in Gold Star, the plaintiffs represented to Ex–Cell–O that it would be a reflection on the prospects of the milk packaging machines if the first one installed in the territory should prove a failure because of the failure of Gold Star. As a result of these representations the acquiescence of Ex–Cell–O was obtained to loans from Sealed–Pure to Gold Star. Thereafter additional loans were made until these plaintiffs had milked Sealed–Pure of all its assets and Gold Star went into bankruptcy without payment to Ex–Cell–O of any part of the sums due upon the machine installed in Everett. Other troubles arose between these plaintiffs and Malkson, who had advanced the greater part of the funds to Sealed–Pure. A representative of Ex–Cell–O went to Seattle to endeavor to settle the dispute. He arranged with plaintiffs that Malkson should go to San Francisco as general manager for Sealed–Pure and that Zinn should devote his attention exclusively to Gold Star Creameries. The other plaintiffs devoted their time to other interests and didlittle or nothing under the agency contract.

Zinn continued to devote the funds of Sealed–Pure to the protection of his investment in Gold Star Creameries and left Malkson in San Francisco without funds to pay his office rent, or office help. Malkson appealed to Ex–Cell–O and secured from it an advance of $1,250 to meet these necessary expenses. Because of the friction among the plaintiffs and their complete failure to make any progress in their agency contract with Ex–Cell–O, the defendant Bixby, at the request of Malkson, came to San Francisco in July, 1938, and these two succeeded in securing a contract with “Lucerne” in Oakland to install one machine on ninety days' trial, with option to purchase it for $32,500, and the option to purchase additional machines prior to December 31, 1939, for $37,500 each. The material portions of these contracts are set forth in the findings as follows: “ ‘It is expressly understood that we (Safeway Stores, Inc., and/or Lucerne Cream and Butter Company) are to have free use of this machinery for a period of ninety days after installation. If for any reason we decide not to keep this machine we will properly crate same and return it to your plant at Detroit. We are to pay the cost of shipping both ways. If we do not notify you that we are to return the machine within ninety days after installation we are to promptly make payment of $32,500. This price is f.o.b. your plant at Detroit, Michigan.’

“At the same time, and as a part of the same transaction, Safeway Stores, Inc., and Ex–Cell–O Corporation executed an agreement, reading as follows:

“ ‘July 25, 1938

“ ‘Ex–Cell–O Corporation,

“ ‘1200 Oakland Boulevard,

“ ‘Detroit, Michigan.

“ ‘Gentlemen:

“ ‘We are enclosing our purchase order No. 4972 covering one complete paper milk bottling machine at a cost of $32,500.00.

“ ‘Any future machines ordered before December 31, 1939, we agree to pay you $37,500.00 for each machine upon the same conditions as outlined in the attached purchase order.

“ ‘Very truly yours,

“ ‘Safeway Stores, Inc.

“ ‘A. D. Kirkland

“ ‘ADK:SD

While in San Francisco Bixby told Malkson that Ex–Cell–O intended to cancel the Sealed–Pure agency because of its failure to make any progress under the contract. Malkson told him that he was sorry that a cancellation would be made because of his holdings in Sealed–Pure, but suggested that he be engaged as Pacific Coast agent if the contract should be cancelled. Upon this plaintiffs base their charge of conspiracy against Malkson. Following the execution of the contracts with Lucerne Bixby went to Seattle and met plaintiffs Zinn, Kemp, and Nelson. He informed them that he intended to cancel the agency because of Sealed–Pure's failure to place machines in the territory. They agreed with him that he had a right to cancel the contract and made no objection as to time or sufficiency of notice. The plaintiffs urged a settlement in lieu of a complete cancellation and Bixby told them he would endeavor to get them one dollar a share for their stock in Sealed–Pure, but that they would have to assume the notes of Gold Star Creameries which Ex–Cell–O held. Zinn then said to Bixby in the presence of the others, “How do I know that you haven't already got an order in your pocket or have made some deal that we don't know anything about?” Bixby replied, “If I had an order in my pocket or had made any deal, I would tell you about it.” These are the representations upon which plaintiffs' charge of fraud is based, and which the trial court found were made as alleged and were untrue. But, before this statement was made the plaintiffs had concurred that the agency contract must be cancelled because of failure to perform any of its terms.

Pursuant to the contract of July 25, 1938, Lucerne purchased the trial machine on December 5, 1938, and later purchased five additional machines. On August 16, 1938, Jersey Maid Milk Products Co. of Los Angeles procured a lease of a machine which was subsequently converted into a sale. However, the sale of plaintiffs' stock in Sealed–Pure, upon which their cause of action is based, did not take place until after some or most of these machine sales were made. Inasmuch as the trial court found that the plaintiffs acquiesced in the cancellation of the agency contract and the dissolution of the Sealed–Pure Corporation these dates are important: July 25, 1938, conditional sale and option contract with Lucerne; July 29, 1938, agreement to sell stock of Sealed–Pure and disincorporate; August 7, 1938, written notice of cancellation of agency contract received by plaintiffs; August 16, 1938, lease of one machine to “Jersey Maid”; September 16, 1938, sale of two machines to Lucerne; November 29, 1938, sale of three machines to Lucerne; and December 5, 1938, purchase of the floored machine by Lucerne. For six or seven months prior to July 29th, 1938, plaintiffs knew that Safeway and Lucerne were definite prospects to take a machine “on a trial basis.” In August, 1938, plaintiffs knew that a machine had been installed, or “floored” with Lucerne. In the same month a mechanic employed in plaintiffs' Gold Star plant at Everett, Washington, was sent to San Francisco to make the trial installation with Lucerne and he so informed Zinn; August 27, 1938, Zinn wrote to Bixby stating that he knew of the California deal with Safeway. On August 30, 1938, plaintiffs completed negotiations for the sale of their stock in Sealed–Pure, but continued as stockholders until its dissolution. September 1, 1938, Bixby wrote to Zinn admitting the fact of the Lucerne deal; in the same month other plaintiffs learned these facts from publications in the commercial press; on October 17, 1938, the plaintiffs, either individually or by proxy, attended a meeting of Sealed–Pure and adopted a resolution for the voluntary dissolution of the corporation; on November 5, 1938, plaintiffs Zinn and Kemp attended a directors' meeting and voted for a resolution of dissolution. All those actions were taken by plaintiffs without any protest that their actions had been induced by the then known fraudulent representations.

Upon this evidence the trial court found that the charges of conspiracy with Malkson were not true, and there is no evidence in the record which would have supported a contrary finding. It also found that the representations made to plaintiffs by Bixby in reference to the placing of machines under the agency contract were untrue; that he intended to recommend to Ex–Cell–O the cancellation of the agency contract in which event plaintiffs' holdings in Sealed–Pure would be worthless; that at the time these representations were made the contract with Safeway Stores had been executed, and that this fact was withheld from the plaintiffs; that the defendant Malkson had no knowlege of these representations at the time and had no part in the negotiations for the sale of plaintiffs' stock; that Sealed–Pure had defaulted in its agency contract, but that Ex–Cell–O had taken no steps to cancel it; that it was not true that, at the time the representations were made, Sealed–Pure had contracted for the sale of five machines or had made any contract other than the option agreement of July 25, 1938; that plaintiffs at all times knew that these prospects were possible for the purchase or lease of one or more machines; that it was true that plaintiffs believed and relied upon the false representations “except to the extent that they personally and directly acquired knowledge” of the transactions above noted; that on August 30, 1938, they agreed to sell their stock in Sealed–Pure to Ex–Cell–O; but that it was not true that if they had known that said misrepresentations were untrue they “would have rejected said offer and would have refused to sell said stock;” that, on July 28, 1938, Sealed–Pure was in default on its agency contract; that plaintiffs believed that Ex–Cell–O had the right to forfeit the agency contract; that Ex–Cell–O did have such right and exercise it on August 7, 1938; that the effect of such cancellation was to render the stock of Sealed–Pure valueless. It was also found that Sealed–Pure was entitled to notice of cancellation and a reasonable time to comply but that both the corporation and these plaintiffs waived these rights, and acquiesced in the cancellation of the agency contract.

Primarily the appellants attack the finding that, if they had known the truth, they nevertheless would have sold their stock at the price received; their contention is stated: “Does not the evidence show without conflict that the Safeway contracts gave the shares of stock a value much greater than the price received for them?” Stripped of all the surplus matter in the briefs, this is the only issue involved in the controversy. If the evidence “without conflict” shows that the shares of stock had a greater “actual value” at the time the sale was made than the defendants paid for them, the plaintiffs would be entitled to recover the difference between the “actual value” and the price they received. Section 3343 of the Civil Code. On the other hand, if the evidence fails to show that the “actual value” was in excess of the price received, the plaintiffs would not be entitled to recover here, unless they had proved some “additional damage” within the code section and for this they do not contend.

I am satisfied from a review of the record that appellants not only failed to prove the actual value of the shares of stock, but that they failed to prove any facts from which this court could hold that the trial court erred in not finding that the actual value was greater than that which they received. I am reminded of the undisputed evidence of the total failure of the plaintiffs to make any progress in fulfillment of the agency contract, of their constant troubles and bickerings among themselves, of their dissipation of all the assets of the Sealed–Pure Corporation and their use of these funds to protect their independently operated Gold Star Creameries.

These facts stand as either conceded or not open to successful attack––the agency contract was cancelled prior to appellants' sale of their stock; appellants conceded their failure to perform and that good grounds existed for the cancellation; no attempt had been made at anytime to rescind, or avoid, the act of cancellation, but such act was confirmed and the right to attack it was forever waived by the voluntary dissolution of the Sealed–Pure Corporation, which was the contracting party; such cancellation, as of the date of August 7, 1938, rendered the stock of Sealed–Pure worthless, except for its speculative value in the interest in sales or options then made. These facts account for the findings of the trial court that the appellants had failed to comply with the terms of the agency contract, and that, though they believed and relied upon the false representations (except as to their knowledge of the trial installations), they would have accepted the offer to sell their stock notwithstanding. Though at first glance these findings seem inconsistent, they are not necessarily irreconcilable. There is nothing wrong with the theory of the trial court that a party may believe and rely upon fraudulent representations to sell his property, but may suffer no damage because he would have sold at the same price, or less, if the misrepresentations had not been made. The effect of the findings, taken as a whole, in substance is that, though the representations were false and misleading, and though appellants believed they were true, and so acted upon them, nevertheless, appellants were in such unfavorable financial difficulties that they were willing to accept the offer of one dollar a share for their stock in Sealed–Pure and were not induced by the representations to make the sale. Since they are unable to rescind this sale because the corporation has been dissolved and they cannot be restored to their former rights, they are now reduced to an action for damages based upon these fraudulent inducements, and in such action they are confined to the plain rules of an action at law uncontrolled by the equities as in a case of rescission.

Explanatory of the unsatisfactory state of the evidence to prove recoverable damages I quote from the opinion of the learned trial judge filed before the findings of fact and conclusions of law were signed:

“I am also convinced, from the evidence, that in order to soften the blow to Sealed–Pure Systems and its stockholders (the cancellation of the agency contract) he (Bixby) did misrepresent the situation as it existed in California. However, had he made no representations of any kind in regard to conditions in California I have concluded, after a careful consideration of the testimony and the correspondence covering this most important phase of the case, that the result, insofar as the cancellation of the contract is concerned, would have been the same. That is to say, in my opinion, the contract held by Ex–Cell–O Corp. would still have been cancelled and plaintiffs would have acquiesced in such cancellation, and would have contented themselves with doing as they actually did, namely with attempting to salvage some part of their original investment. They had appreciated for a long time that the sword of Damocles was hanging over their company and were not surprised when it finally fell. Moreover it must be borne in mind that when Bixby represented to Zinn and his associates, as I believe he did, that no sales had been consummated in California, and that the company had no immediate prospects for consummating sales, the plaintiffs then knew that Safeway and Jersey Maid were possible customers and that Malkson was still working on them.

“The most material misrepresentation by Bixby was in regard to the agreement that had been entered into with Safeway, under which that company agreed to purchase a machine under what amounted, for all practical purposes, to an ‘on trial’ basis. But when Zinn gave his deposition he admitted that, when he learned in the latter part of August, 1938, that the Safeway Company was using an Ex–Cell–O Corp. machine, he took no action, not only because of his reliance on the correctness of Bixby's representations made to him on July 28th and 29th, but also because he knew that an offer had theretofore been made to the Safeway Company to install a machine on trial. The implication is clear from his testimony, that even if he had known that Scott had ‘floored’ a machine on trial, as he expressed it, that would not have been a factor of serious moment to him. It will be recalled that in October, 1937, Ex–Cell–O Corp. had offered to allow Safeway to try out a machine for three or four months and to return it if it did not prove satisfactory at the end of that period. Zinn evidently felt in late August, 1938, when informed of the Safeway installation, that if all that had happened was that a machine had been installed by Safeway on trial, the circumstance was of no particular importance. If such an arrangement was considered of no importance by Zinn, I infer that, under all the circumstances, it would not have been considered of any more importance by any of the other stockholders.” And, as explanatory of the finding that it was not true “that if plaintiffs had known that said misrepresentations made by said Bixby as found above were untrue plaintiffs would have rejected said offer and would have refused to sell said stock”, the trial judge, in his written opinion, said that after an “extensive review of the background” that “the stock had no greater value at the time the exchange was consummated than the amount the sellers received for it.”

Reference to the opinion of the trial judge may be had “for the purpose of discovering the process by which the trial judge arrived at his conclusions, or when the opinion furnishes the basis of the court's action in its decision of the case.” Union Sugar Co. v. Hollister Estate Co., 3 Cal.2d 740, 750, 47 P.2d 273, 278; Inskeep v. Bear Creek Co., 54 Cal.App.2d 723, 729, 129 P.2d 401. The opinion requested counsel for plaintiffs to submit a draft of findings in accord with the views expressed in the opinion, and it is fair to assume that the trial court relied upon counsel to submit findings in accord with such request.

When a party sues for damages in a case of this kind it is elementary that the burden is upon him to plead and prove that he has suffered actual harm and to what extent. Fraud which has produced and will produce no injury or harm furnishes no ground for recovery of damages. As was said in Board of Commissioners v. Younger, 29 Cal. 172, 176: “Neither Courts of law nor equity enforce obligations or redress wrongs which are such only in foro conscientiæ, and are followed by no loss or damage.”

What then is the damage suffered by appellants? They sold their stock in Sealed–Pure for one dollar a share, which they now contend would have been worth much more if the agency contract had not been cancelled; if the corporation had not been dissolved; and if all the options had terminated in sales of the machines; and if all the subsequent sales of Ex–Cell–O machines had been negotiated under the agency contract. Since the enactment in 1935 of section 3343 of the Civil Code this State has followed the minority, or “out–of–pocket”, rule as to the measure of damages in cases of this kind. That section provides in part that: “One defrauded in the purchase, sale or exchange of property is entitled to recover the difference between the actual value of that with which the defrauded person parted and the actual value of that which he received, together with any additional damage arising from the particular transaction.” Prior to the enactment of the code section our courts followed the majority, or “benefit–of–the–bargain”, rule. This accounts for the holding in Spreckels v. Gorrill, 152 Cal. 383, 390, 92 P. 1011, and the statement in 25 Cal.Jur. p. 563 and the authorities there cited. Though courts and text writers have criticised the “out–of–pocket” rule, others have defended it on the “common sense” basis that: “a person is not cheated, when that which he gets is worth all that he pays for it. Pittsburg L. & T. Co. v. Northern C. L. Ins. Co., C. C., 140 F. 888, 898. But, whatever the theories as to the equities of the two rules, we are bound here by the statute which expressly declares that the measure of damages shall be the difference between the “actual value” and the price paid. Rothstein v. Janss Inv. Corp., 45 Cal.App.2d 64, 73, 113 P.2d 465; Jacobs v. Levin, 58 Cal.App.2d ––––, 137 P.2d 500; Feckenscher v. Gamble, 12 Cal.2d 482, 500, 85 P.2d 885; 24 Am.Jur. p. 58; Restatement of the Law of Torts, § 549.

Applying the rule to the case here appellants were entitled to recover the difference between the “actual value” of the shares of stock and the price of one dollar a share which they received. In the case of a small business concern like Sealed–Pure, whose stock is not traded in the open market, it may be difficult to reach a value of its shares at any particular time. But, where proof is made essential to recovery the difficulty of producing it does not excuse the entire absence of it.

I am familiar with the rule that one “whose wrongful conduct has rendered difficult the ascertainment of the precise damages suffered” cannot escape liability because the precise damages cannot be measured with exactness. 15 Am.Jur. p. 412. The rule is referred to in part and its underlying principle applied in Hartman Ranch Co. v. Associated Oil Co., 10 Cal.2d 232, 254, 73 P.2d 1163, and Elsbach v. Mulligan, 58 Cal.App.2d 354, 136 P.2d 651. But, where the one at fault has done nothing to make the proof of damages difficult, recovery cannot rest upon mere conjecture or surmise, but the proof must be made “with such certainty as the nature of the tort and the circumstances permit.” Restatement, Torts, § 912. Thus, where the suit rests upon the tortious interference with a business it is necessary to show “not only a likelihood of profit but also a chance for loss.” idem. p. 579.

It is a fair inference from all the evidence that Sealed–Pure stock was a liability rather than an asset when these parties were negotiating on July 29, 1938. The corporation was then heavily in debt, and burdened with internal dissension. If Lucerne should exercise its option which was executed prior to the cancellation of the agency contract Sealed–Pure would be entitled to some commissions as payments of the purchase price were made. 8 Am.Jur. 1094; 12 C.J.S., Brokers, § 86, p. 200. But there is some uncertainty as to what commissions were payable under the form of contract which was made with Safeway. Under the terms of the agency agreement Sealed–Pure was entitled to a commission of 12 1/2% “on all rental payments” received by Ex–Cell–O “under any standard leaseroyalty agreement” obtained by Sealed–Pure, the commission becoming payable only when rental payments were received by Ex–Cell–O. But it should be noted that the agency contract expressly prohibited a sale and limited the agent to the right to procure a lease upon a standard “leaseroyalty agreement.” The tentative contract executed by the appellants, but not approved by Ex–Cell–O, authorized a sale and fixed the commissions on sales at 10%. When the parties were dealing on July 29, 1938, for the sale of Sealed–Pure stock, had they known at that time the truth of all the transactions Bixby had had with Safeway, they would have been confronted with the possibility of a value to their stock based upon a claim to a reasonable commission for the “sale” of the first machine, and the possibility of a further commission if Safeway should exercise its option on the five other machines. There was the prospect of a commission of $3,250 for the sale of the first machine, and the far more speculative prospect of commissions amounting to over $18,000, payable at some indefinite time. As against these indefinite prospects the parties were confronted with the realities of an outstanding indebtedness of over $6,000 and of the immediate necessity of raising a large sum of money to carry on the agency. The testimony of Bixby is that he estimated that $30,000 was necessary for that purpose, that the appellants did not dispute his estimate, but that they concurred with him that they were unable to finance the venture, or to carry on the agency.

Hence, if no misrepresentations had been made, and if appellants had been given full knowledge of the entire transaction with Safeway, the trial court was given no foundation upon which it might rest a judgment determining the differences between the actual value of appellants' shares and the amount they received for them. If appellants had known all that Bixby and Ex–Cell–O knew on July 29th––that one machine was to be installed with Lucerne on trial and that if “any future machines” were ordered Lucerne or Safeway would pay $37,500 each for them,––it is pure conjecture to say whether their shares in Sealed–Pure were then worth more than one dollar each. Since the code section establishes the measure of damages it became incumbent upon appellants to prove value according to that formula. This principle is well stated in Martin v. Tully, 44 Cal.App.2d 226, 234, 112 P.2d 282, 286, where the court says: “Ordinarily, in an action for damages as the result of fraud in the exchange of property, the method of ascertaining such damages is to present proof of market value. If this is not obtainable, proof may be offered of actual or intrinsic value, which, upon a motion for nonsuit, need not be closely scrutinized if in fact it shows a prima facie case of difference in value from which a reasonable inference may be drawn that a party has been damaged. Peek v. Steinberg, 163 Cal. 127, 124 P. 834. If there is no proof of value, the damage has not been proved.” (Emphasis ours.) This is not a case where the trier of the facts possesses the common knowledge of the values enabling him to determine the amount of recovery––such as a suit to recover the reasonable value of legal services, or to recover for personal injuries. Spencer v. Collins, 156 Cal. 298, 104 P. 320, 20 Ann.Cas. 49; Lundberg v. Katz, 44 Cal.App.2d 38, 111 P.2d 917; Ferrari v. Mambretti, 58 Cal.App.2d 318, 136 P.2d 326.

As to defendant Malkson the appellants did not have a cause of action against him at any time, and judgment in his favor was proper. In my opinion the judgment as to all respondents should be affirmed.

DOOLING, Justice pro tem.

SPENCE, J., concurs.