Columbia Engineering Co. v. Joiner

• Decision Date: 25 January 1965
• Citation: 231 Cal.App.2d 837,42 Cal.Rptr. 241
• Parties: , Blue Sky L. Rep. P 70,658 COLUMBIA ENGINEERING COMPANY, a co-partnership consisting of Donald E. Stem, Alma J. Stem, Robert Wayne Stem, Linda Carol Stem and Donald E. Stem, Jr., Plaintiffs and Appellants, v. Ernest V. JOINER, Louise Bell Joiner and Joiste Publications, a California corporation, Defendants and Respondents. Civ. 21734.
• Court: California Court of Appeals

Page 241

42 Cal.Rptr. 241

231 Cal.App.2d 837, Blue Sky L. Rep. P 70,658

COLUMBIA ENGINEERING COMPANY, a co-partnership consisting of Donald E. Stem, Alma J. Stem, Robert Wayne Stem, Linda Carol Stem and Donald E. Stem, Jr., Plaintiffs and Appellants, v. Ernest V. JOINER, Louise Bell Joiner and Joiste Publications, a California corporation, Defendants and Respondents.

Civ. 21734.

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

Jan. 25, 1965.

As Modified on Denial of Rehearing Feb. 19, 1965.

Hearing Denied March 24, 1965.

George B. White, San Francisco, Spridgen, Moskowitz, Barrett & Achor, Santa Rosa, for appellants.

Dermott, Maxwell & Hood, Santa Rosa, for respondents.

BRAY Justice. ^*

Plaintiff appeals from judgment in favor of defendants entered pursuant to section 631.8, Code of Civil Procedure.

QUESTIONS PRESENTED

1. Do sections 2236-2238, Corporation Code, apply to this type of action?

2. The validity of the election of corporate directors. This requires determination of whether the issuance of certain shares of corporate stock is valid, and whether laches, waiver and estoppel will lie to prevent a stockholder from attacking void stock.

Plaintiff Columbia Engineering Company (hereinafter referred to as plaintiff) is a copartnership comprised of the members of the family of Donald E. Stem. Prior to December 31, 1961 The Sebastopol Times and the Guerneville Times, weekly newspapers, were owned by defendants Ernest V. Joiner and Louise Bell Joiner (hereinafter referred to as defendants).

In March 1962, plaintiff and defendants obtained from the Commissioner of Corporations the right to form a closed corporation to be known as Joiste Publications, and a permit to issue stock therein. John Kaufhold, a certified public accountant selected by the parties, after examining the books and records of defendants' business, had prepared a balance sheet dated December 31, 1961. This showed defendants' business to have a net worth of $31,471.66 and liabilities of $27,170.75. The Corporation Commissioner's permit provided that 510 shares of the Joiste Publications stock was to be issued to defendants 'for the assignment and transfer heretofore made of the business and assets described in its said application, subject to liabilities of $27,170.75 as of December 31, 1961.' The stated value of each share of the capital stock was $61.70. The permit permitted the issuance to plaintiff of 162 shares of stock for the cancellation of Joiste Publications' indebtedness to plaintiff in the sum of $10,000 and the issuance to plaintiff of 328 shares on payment therefor at the price of $61.70 per share.

The stock was issued pursuant to said permit, 510 shares (51 per cent of the issued stock) to defendants and 490 shares (49 per cent of the issued stock) to plaintiffs. The parties agreed that the corporation would be considered to have commenced business as of January 1, 1962.

After the corporation had been operating for one and one-half years and in July 1963, plaintiff requested a special meeting of the shareholders for the purpose of electing a new Board of Directors. The meeting was held August 1. Donald E. Stem, vice president and director of the corporation, on behalf of plaintiff challenged the right of defendants to vote 197 shares of stock on the ground that those shares had not been issued in conformity with the Commissioner's permit. Thereupon defendants moved to adjourn the meeting to August 8. Defendants voted their 510 shares in favor of the motion; plaintiff voted its 490 shares against the motion. The president, defendant Ernest Joiner, declared the motion carried and adjourned the meeting to August 8.

Donald E. Stem stated that he deemed the motion to adjourn defeated and that the business of the meeting would continue. Defendants withdrew. Then, with Stem presiding, the meeting continued and Donald E. Stem, Alma J. Stem and Mildred Wooley were nominated and elected as directors of the corporation by a vote of 490 shares each. The newly elected directors, at a special meeting, elected Donald E. Stem, president; Alma J. Stem, vice president and Mildred Wooley, secretary.

Upon demand, defendants refused to surrender the control and records of the corporation to the new officers and continued as directors and officers of the corporation to exercise powers, duties, authority and control of the corporation. On August 8, defendants held the purported adjourned meeting of shareholders. Donald E. Stem attended this meeting announcing that he attended on behalf of plaintiff, solely to protest the meeting and to protect plaintiff's interests. He again challenged defendants' right to vote 197 of said shares. His protest was overruled and defendants voted their 510 shares in favor of defendants Ernest Joiner, Louise Joiner and Donald E. Stem as directors. Stem, under protest and to protect plaintiffs' rights, voted plaintiff's 490 shares in favor of himself, Alma Stem and Mildred Wooley. President Ernest Joiner declared himself, Louise Joiner, and Donald E. Stem duly elected as directors.

It is the validity of these two different elections that this action was brought to determine.

At the trial, at the completion of plaintiff's evidence, ¹ defendants' motion for judgment was granted pursuant to section 631.8, Code of Civil Procedure. The court made findings of fact and conclusions of law. Judgment was entered in favor of defendants.

Where, as here, the appeal is from a judgment entered pursuant to motion for judgment made under section 631.8, after findings of fact and conclusions of law are made, the rules applicable to a motion for nonsuit, among others, that the reviewing court must view the evidence in the light most favorable to the appellant, are not applicable. As said in Estate of Sharff (1963) 219 Cal.App.2d 128, 132, 33 Cal.Rptr. 52, 55: 'Unlike a motion for nonsuit, where on appeal all intendments are in favor of the appellant, the court, in acting on a motion under section 631.8, 'shall weigh the evidence' and its findings are entitled to the same respect as are any other findings of a trial court.'

The purpose of the adoption in 1961 of section 631.8 was to enable the court, at the completion of the plaintiff's case, if it found that plaintiff's evidence was not sufficient to justify requiring the trial to continue further and defendant to produce evidence in defense, to weigh the evidence and make findings of fact as in other trials. As said in Wooliscroft v. Starr (1964) 225 A.C.A. 808, 810, 37 Cal.Rptr. 570, 571, concerning findings and judgment pursuant to section 631.8, 'Insofar as evidentiary support of a finding made by the court is concerned we must therefore treat the court's finding and judgment here as though it were a finding made and judgment granted after a trial where evidence had been produced in support of both sides. An appellate court cannot substitute its judgment on the facts for that of the trial court if the findings of the trial court are supported by any competent and substantial evidence, properly in the record. When a finding of fact is attacked as being unsupported, the power of the appellate court begins and ends with a determination as to whether there is any substantial evidence, contradicted or uncontradicted, which will uphold the disputed finding. (Estate of Bristol, 23 Cal.2d 221, 143 P.2d 689; Berniker v. Berniker, 30 Cal.2d 439, 182 P.2d 557.)'

1. Sections 2236-2238, Corporations Code apply to this type of action.

Plaintiff's complaint brought pursuant to the above sections alleges the holding of the election for directors of the defendant corporation, and the voting of the shares claimed to be owned by defendants. Incorporated in the complaint, is an exhibit which sets forth the challenge made by plaintiff at the election meeting and the reasons plaintiff contends that certain shares of stock voted by defendants were not validly issued and therefore void. These reasons are hereinafter set forth. Despite defendants' contention to the contrary the complaint states a cause of action.

Defendant contends that the summary proceeding established by those sections was never intended by the Legislature to apply to a proceeding, such as here, which includes questions of accounting, estoppel, laches, waiver, and the determination of the legality of the issuance of stockholder's shares. To determine this question it is necessary to review the history of former section 315, Civil Code, the predecessor of these sections.

Section 315, Civil Code was originally enacted in 1872, (Stats.1872, Mar. 21) and provided 'Upon the application of any person or body corporate aggrieved by any election held by a corporate body, or any proceedings thereof, the District Judge of the district in which such election is held must proceed forthwith summarily to hear the allegations and proofs of the parties, or otherwise inquire into the matters of the complaint, and thereupon confirm the election, order a new one, or direct such other relief in the premises as accords with right and justice. Before any proceedings are had under this section, five days' notice thereof must be given to the adverse party, or those to be affected thereby.'

Subsequently the section was amended without substantial changes in the provisions that any shareholder could obtain court action to determine the validity of any election or appointment of any corporate director and that the action should be heard within five days of the filing of the complaint unless for good cause a later date was fixed. In 1947 (Stats.1947, ch. 1038, pp. 2347, 2348.) Section 315 was codified into the Corporations Code and broken up into three parts which became sections 2236, 2237 and 2238 of the Corporations Code.

Section 2236 provides in pertinent part, 'Upon the filing of an action therefor by any shareholder, the superior court shall try and determine the validity of any election or appointment of any...