Aspelund v. Olerich, 23029-8-I

• Decision Date: 03 January 1990
• Docket Number: No. 23029-8-I,23029-8-I
• Citation: 56 Wn.App. 477,784 P.2d 179
• Court: Washington Court of Appeals
• Parties: Walter E. ASPELUND and Marcia I. Aspelund, husband and wife; and D & V Vending Service, Inc., a Washington corporation, Appellants, v. Leslie W. OLERICH and Leslie E. Olerich, husband and wife, Respondents.

Page 477

56 Wn.App. 477

784 P.2d 179

Walter E. ASPELUND and Marcia I. Aspelund, husband and wife;

and D & V Vending Service, Inc., a Washington

corporation, Appellants, v. Leslie W. OLERICH and Leslie E. Olerich, husband and wife,

Respondents.

No. 23029-8-I.

Court of Appeals of Washington,

Division 1.

Jan. 3, 1990.

Larry R. Schreiter, Curran, Kleweno & Johnson, Kent, Wash., for appellants.

Gary F. Faull, Faull & Banks, Renton, Wash., for respondents.

COLEMAN, Chief Judge.

Appellants brought an action in the trial court seeking rescission of an agreement to purchase D & V Vending from respondents claiming that respondents had violated the anti-fraud provision of The Securities Act of Washington by failing to disclose to appellants that two of D & V's accounts were at serious risk of cancellation. The trial court granted judgment in favor of respondents, holding that (1) The Securities Act of Washington did not apply to the sale of D & V Vending to appellants, (2) that respondents did not intend to deceive appellants and that the respondents did not defraud or misrepresent the status of the corporation and its location to appellants, and (3) that the purchase agreement between appellants and respondents was to remain in full force and effect. We reverse.

On January 11, 1985, Walter and Marcia Aspelund purchased D & V Vending Service, Inc., a Washington corporation, from Leslie W. and Leslie E. Olerich for $180,000. ¹ D & V owned and maintained vending machines at various locations. ² The Aspelunds paid $50,000 in cash and executed a note for the balance to be paid in monthly installments of $1,477.57 for all of the shares of stock in D & V. Mr. Aspelund began servicing the vending machines immediately after the purchase. Mr. Olerich accompanied Mr. Aspelund for approximately 2 weeks after the sale to help him learn the route. After that period of time, Mr. Olerich had nothing further to do with D & V.

In February 1985, the Washington State Liquor Control Board Distribution Center (warehouse), which comprised approximately 10 percent of the gross revenue of D & V, informed Aspelund that he was to remove his vending machines from the warehouse. In August 1986, Aspelund lost another account, Heath Tecna Corporation, which comprised 50 percent of the gross revenue of D & V.

On January 16, 1987, the Aspelunds filed a complaint against the Olerichs alleging that the Olerichs had violated The Securities Act of Washington, the consumer protection act, and had knowingly made material misrepresentations of existing facts. The Aspelunds alleged that the Olerichs had failed to disclose prior to the sale that D & V's significant accounts were at serious risk of cancellation or that actual notice of cancellation had been given. After a 1-day bench trial, the court held that (1) The Securities Act of Washington and the consumer protection act did not apply, (2) that the Aspelunds had failed to establish any intent to deceive, and (3) that the Olerichs did not defraud or misrepresent the status of the corporation and its location to the Aspelunds. This appeal followed.

The issue raised on appeal is whether The Securities Act of Washington, RCW Ch. 21.20, applies to the transaction between the parties.

The term "security" is defined in RCW 21.20.005(12) as follows:

"Security" means any note; stock; treasury stock; bond; debenture; evidence of indebtedness; certificate of interest or participation in any profit-sharing agreement; collateral-trust certificate; preorganization certificate or subscription; transferable share; investment contract; investment of money or other consideration in the risk capital of a venture with the expectation of some valuable benefit to the investor where the investor does not receive the right to exercise practical and actual control over the managerial decisions of the venture; voting-trust certificate; certificate of deposit for a security; certificate of interest or participation in an oil, gas or mining title or lease or in payments out of production under such a title or lease; charitable gift annuity; or, in general, any interest or instrument commonly known as a "security", or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing; or any sale of or indenture, bond or contract for the conveyance of land or any interest therein where such land is situated outside of the state of Washington and such sale or its offering is not conducted by a real estate broker licensed by the state of Washington. "Security" does not include any insurance or endowment policy or annuity contract under which an insurance company promises to pay money either in a lump sum or periodically for life or some other specified period.

The anti-fraud provision of The Securities Act of Washington provides that it is

unlawful for any person, in connection with the offer, sale or purchase of any security, directly or indirectly:

....

(2) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading;

....

RCW 21.20.010. Rescission is available as a remedy under RCW 21.20.430 which reads in part:

(1) Any person, who offers or sells a security in violation of any provisions of RCW 21.20.010 or 21.20.140 through 21.20.230, is liable to the person buying the security from him or her, who may sue either at law or in equity to recover the consideration paid for the security, together with interest at eight percent per annum from the date of payment, costs, and reasonable attorneys' fees, less the amount of any income received on the security, upon the tender of the security RCW 21.20.010 has been interpreted by Clausing v. DeHart, 83 Wash.2d 70, 73, 515 P.2d 982 (1973), to apply to " 'face-to-face' negotiations outside the security markets between private individuals for the sale of the capital stock of a corporation." See also Kaas v. Privette, 12 Wash.App. 142, 150, 529 P.2d 23 (1974). In the instant case, the sale of D & V Vending was accomplished by the transfer from respondents to appellants of all of the outstanding stock of the corporation and involved face-to-face negotiations outside of the security markets between private individuals. Thus, under Clausing the sale of D & V Vending was governed by the anti-fraud provision of The Securities Act of Washington.

We do not accept respondents' argument that the 1979 legislative amendment which added the risk capital definition to the definition of "security" overruled the holding in Clausing and limited the definition of security to only include an investment of money in a common enterprise from which the investor expects to reap profits as the result of the efforts of the promoter or third party.

The purpose of the 1979 amendment was to establish the risk capital definition of security as a part of the Washington law in light of the Washington Supreme Court's opinion in Sauve v. K.C., Inc., 91 Wash.2d 698, 591 P.2d 1207 (1979), which held that definition not to be the rule in Washington. See 92 Wash. Senate Journal 1688 (1979). "The legislature is presumed to be familiar with judicial decisions construing existing statutes." El Coba Co. Dormitories, Inc. v. Franklin Cy. PUD, 82 Wash.2d 858, 862, 514 P.2d 524 (1973). Thus, had the Legislature intended to overrule the holding in Clausing, it would have explicitly done so. We conclude that the amendment in no way affects the holding in Clausing.

We next decide whether rescission is available as a remedy. Under The Securities Act of Washington, rescission is not available as a remedy unless there has been an untrue statement or an omission of a material fact. RCW 21.20.010(2); RCW 21.20.430. A material fact is " 'a fact to which a...