Bowden v. Robinson

• Decision Date: 02 March 1977
• Citation: 136 Cal.Rptr. 871,67 Cal.App.3d 705
• Court: California Court of Appeals Court of Appeals
• Parties: , Blue Sky L. Rep. P 71,371 Richard BOWDEN, Plaintiff and Appellant, v. Daniel N. ROBINSON et al., Defendants and Respondents. Civ. 15749.

Page 871

136 Cal.Rptr. 871

67 Cal.App.3d 705, Blue Sky L. Rep. P 71,371

Richard BOWDEN, Plaintiff and Appellant, v. Daniel N. ROBINSON et al., Defendants and Respondents.

Civ. 15749.

Court of Appeal, Fourth District, Division 2, California.

March 2, 1977.

Paul Augustine, Jr. and Marvin B. Kapelus, Newport Beach, for plaintiff and appellant

Eadington, Thompson, Richman & Van Wert and Gary D. Vestermark, Irvine, for defendants and respondents.

OPINION

MORRIS, Associate Justice.

Plaintiff-appellant, Richard Bowden, brought an action for common law fraud, fraud under the corporate securities act, and money had and received against defendants-respondents. After defendants filed their answer, both parties made motions for summary judgment and submitted declarations in support and in opposition thereto. The trial court granted defendants' motion for summary judgment.

Judgment reversed.

Statement of Facts

The complaint, filed on March 4, 1975, as later amended, alleged that defendants Daniel N. Robinson, Ronald Compton, Norman Compton, Caroline Robinson, Edward Hutton and Edgar Hutton, were all officers, directions and employees of G COMP, INC., a Maryland corporation. The first cause of action alleges that the defendants, on or about September 1, 1972, represented to plaintiff that G COMP, INC. was qualified to issue stock in California; that this representation was false and was known by each of the defendants to be false; that G COMP, INC. was not qualified to issue stock in California; that no application for a permit to issue stock had been made to the California Division of Corporations and that G COMP, INC. was not exempt from the Corporate Securities Act of 1968; that plaintiff, believing the represetation to be true and relying thereon, paid $10,500 to defendants for $15,000 shares of G COMP, INC. common stock; that no share certificates were delivered; that as the direct and proximate result of defendants' acts, plaintiff was damaged in the sum of $10,500 plus interest from September 1, 1972; and that defendant's acts were willfull, malicious, fraudulent and deliberate, entitling plaintiff to exemplary damages of $500,000.

The second cause of action incorporates all of the allegations of the first cause of action, and alleges that the defendants' acts violated section 25401 of the California Corporations Code; and that the taking of consideration for the purchase of the G COMP, INC. stock violated sections 25110 and 25500 of the California Corporations Code.

The third cause of action merely states a common count, alleging: 'That within two years last past, the defendants, and each of them, became indebted to the plaintiff in the sum of $10,500.00 for money had and received by defendants, and each of them, for the account of plaintiff.'

The fourth cause of action alleges that defendant D. N. Robinson, on or about June 3, 1974, offered to transfer and attempted to transfer 3,500 shares of stock in STANDARD LOGIC, INC., a California corporation, to plaintiff; that these actions were in violation of California Corporations Code section 25110, the stock in question not being exempt from section 25110 or the provisions of the Securities Act of 1933; that by a written instrument dated March 15, 1974, defendant D. N. Robinson promised to pay the sum of $10,500 to plaintiff on or about August 31, 1974; and that no part of this sum has been paid, the whole thereof being due, owing and unpaid from said defendant to plaintiff.

On April 23, 1975, defendants answered, denying most of the material allegations in the complaint, and asserting that the complaint failed to state facts sufficient to constitute a cause of action; that plaintiff's first and second causes of action were barred by the statutes of limitation found in the Corporations Code; that on or about April 10, 1974, and after plaintiff's 'loan' to G COMP, INC., upon which plaintiff's causes of action were based, plaintiff and defendant D. N. Robinson entered a novation whereby plaintiff would accept 3,500 shares of STANDARD LOGIC, INC., owned by D. N. Robinson and that this agreement was intended to extinguish the obligations created by the agreements upon which plaintiff's complaint was based and substitute the new agreement in their place, releasing D. N. Robinson from all obligations other than delivering 3,500 shares of common stock in STANDARD LOGIC, INC.; and that plaintiff's first, second and third causes of action were barred by subdivision 2 of Civil Code section 1624 (i.e., statute of frauds with respect to a promise to answer for the debt of another).

On September 2, 1975, plaintiff filed a notice of motion for summary judgment. On October 15, 1975, defendants filed a notice of motion for summary judgment or for an order specifying issues without substantial controversies. On February 2, 1976, the trial court entered its order denying plaintiff's motion for summary judgment and granting defendants' motion for summary judgment. It is from this judgment that plaintiff appeals.

Discussion

Both parties agree that a primary issue in the trial court was whether the allegations in the complaint state sufficient facts to constitute a cause of action. Although this question should have been addressed in the context of a general demurrer under Code of Civil Procedure section 430.10, subdivision (e), or on a motion for judgment on the pleadings, such defect is not waived by the failure to raise it by demurrer and may be considered in the context of a motion for summary judgment or on appeal. (See 3 Witkin, Cal.Procedure, Pleading, §§ 808, 854, pp. 2418, 2456; 4 Witkin, Cal.Procedure, Proceedings Without Trial, § 161, pp. 2816--2817.)

Summary judgment on the first cause of action could only have been granted if the trial court found that plaintiff had failed to state facts sufficient to constitute a cause of action for common law fraud; or that the affidavits indicated there was no triable issue of material fact (Code Civ.Proc., § 437c); or that the Corporate Securities Act of 1968 had replaced and superseded the common law cause of action. (See Corp.Code, § 25000 et seq.) Since the affidavits were insufficient to remove all triable issues of material fact, and since the statute of limitations for common law fraud had not run, it is apparent that the court must have concluded that the Corporate Securities Act has superseded the common law cause of action for fraud. (See 3 Witkin, Cal.Procedure, Pleading, § 572 et seq.; Code Civ.Proc., § 338.)

Therefore, the primary issue on this appeal is whether or not the Corporate Securities Act of 1968 supersedes all other claims previously cognizable at common law relating to transactions in securities. Prior to the Corporate Securities Act of 1968, the availability of a common law action for fraud in corporate security cases was firmly established. (Mary Pickford Co. v. Bayly Bros., Inc., 12 Cal.2d 501, 519--526, 86 P.2d 102; Walton v. Anderson, 6 Cal.App.3d 1003, 86 Cal.Rptr. 345; Gormly v. Dickinson, 178 Cal.App.2d 92, 2 Cal.Rptr. 650.)

The Corporate Securities Act of 1968 created an entirely new area of statutory liability dealing with fraudulent practices in securities transactions. (Olson, The California Corporate Securities Law of 1968, 9 Santa Clara Lawyer, 75, 98 (hereinafter Olson); Corp.Code, §§ 25400, 25401, 25402.) Respondents assert that these fraud provisions when viewed in light of the sections requiring qualification and providing remedies and limitations thereto, indicate the Legislature's intent to repudiate the common law fraud actions based upon representations that the stock being offered for sale is properly qualified. (Corp.Code, § 25100 et seq.; Olson, Supra, at pp. 75--100; compare with Mary Pickford Co. v. Bayly Bros., Inc., supra, 12 Cal.2d 501, 86 P.2d 102.) In view of the clear expression of the legislative intent, we disagree.

I. Qualification Violations

Section 25110, 25120 and 25130 make it unlawful to offer or sell any security without qualifying the security or transaction, unless it is exempt under Corporations Code sections 25100 et seq. Corporations Code section 25503 imposes liability upon a person violating section 25110 (issuer transactions) and section 25130 (non-issuer transactions) providing in pertinent part that the violator 'shall be liable to any person acquiring from him the security sold in violation of such section, who may sue to recover the consideration he paid for such security with interest thereon at the legal rate, less the amount of any income received therefrom, upon the tender of such security, or for damages, if he no longer owns the security, or if the consideration given for the security is not capable of being returned. Damages, if the plaintiff no longer owns the security, shall be equal to the difference between (a) his purchase price plus interest at the legal rate from the date of purchase and (b) the value of the security at the time it was disposed of by the plaintiff plus the amount of any income received therefrom by the plaintiff. ( ) Damages, if the consideration given for the security is not capable of being returned, shall be equal to the value of that consideration plus interest at the legal rate from the date of purchase, provided the security is tendered; and if the plaintiff no longer owns the security, damages in such case shall be equal to the difference between (a) the value of the consideration given for the security plus interest at the legal rate from the date of purchase and (b) the value of the security at the time it was disposed of by the plaintiff plus the amount of any income received therefrom by the plaintiff. . . .'

Sections 25110, 25130 and 25503 create liability affording the immediate purchaser several specific remedies. None of the above sections require scienter, negligence, or plaintiff's reliance. (2 Ballantine & Sterling, Cal.Corporation Laws (4th ed. 1976) § 463.02(2), pp. 932.37--932.38.)...