Common Wealth Ins. Systems, Inc. v. Kersten

Decision Date30 July 1974
Citation115 Cal.Rptr. 653,40 Cal.App.3d 1014
CourtCalifornia Court of Appeals Court of Appeals
Parties, 15 UCC Rep.Serv. 133 COMMON WEALTH INSURANCE SYSTEMS, INC., a California corporation, Plaintiff, Thomas J. Cribbs et al., Plaintiffs and Appellants, v. Paul J. KERSTEN, Defendant and Respondent. Carl E. DONAHUE and Bruce B. Betz, Plaintiffs and Appellants, v. PEARSON, SCOTT AND COMPANY, a corporation, et al., Defendants and Respondents. Civ. 13390.

Baum & Fenster and Stephen M. Fenster, Beverly Hills, for plaintiffs and appellants.

Dillon, Boyd, Dougherty & Perrier and H. Morgan Dougherty, III, Palm Springs, for defendant and respondent Paul J. Kersten.

John P. Carroll, Indio, and John P. Carroll, Palm Desert, for defendant and respondent Pearson, Scott and Co.

Schell & Delamer and Mark B. Pepys, Los Angeles, for defendant and respondent Western Surety Co.


TAMURA, Associate Justice.

This is an appeal from a judgment in consolidated actions involving a $25,000 loan from defendant Paul J. Kersten to Common Wealth Insurance Systems, Inc. (Common Wealth).

The $25,000 loan was evidenced by a promissory note 1 executed by Charles Wimberly, as President of Common Wealth and as an individual, and by three of the principal shareholders of Common Wealth (Thomas J. Cribbs, Carl E. Donahue and Bruce B. Betz). The loan transaction was consummated through an escrow company (Pearson, Scott and Company). Under the terms of the escrow, the note was to be secured by a pledge of shares of stock in the Santa Cruz Veneer Products Company (Santa Cruz) standing in the name of Wimberly and his wife (Peggy Wimberly). An affidavit was to be deposited in escrow as proof of such stock ownership. Two of the purported affidavits of stock ownership deposited in escrow were notarized by Joyce A. Gilbert, whose surety on her official bond was Western Surety Bond Company (Western).

The first action (Common Wealth et al. v. Kersten, Superior Court No. 98266) was for declaratory relief whereby Cribbs, Donahue and Betz sought an adjudication of nonliability on the note, Cribbs alleging that his purported signature on the note was a forgery and Donohue and Betz alleging that they were accommodation makers and, as such, were exonerated when one of the conditions under which the shares of Santa Cruz stock was to be pledged was modified without their knowledge and consent. Kersten cross-complained for the unpaid balance due on the note ($18,833.33 at the time of trial) and for foreclosure of the collateral.

In the second action (Donahue et al. v. Pearson, Scott and Company et al., Superior Court No. 98416), Donahue and Betz sued the escrow company, the notary public, and the surety on her official bond for indemnity for any sums which might be awarded against them on Kersten's cross- Following a consolidated, nonjury trial, the court found in favor of defendant Kersten in the first action and in favor of the escrow company, the notary and her surety in the second action.

complaint. The complaint alleged the escrow company breached their duty by accepting a modification of the terms of the stock pledge without their consent and by failing to require a proper affidavit of stock ownership of Santa Cruz. The complaint sought indemnity against the notary fr negligent and fraudulent notarization of a forged affidavit of the President of Santa Cruz (Dan Whitehead).

Viewing the evidence in the light most favorable to the parties prevailing below, as we are compelled to do on appellate review, the pertinent facts are as follows:

In March 1968 Wimberly made a written application to a loan broker for its services in obtaining a $25,000 loan for Common Wealth. Pursuant to the application, the broker arranged the Kersten loan. On March 29, 1968, a loan escrow was opened with Pearson, Scott and Company. Under the terms of the escrow agreement, the promissory note evidencing the loan was to be executed by Common Wealth (by Charles Wimberly as President) and by Wimberly, Cribbs, Donahue and Betz as individuals and was to be 'additionally secured by an Assignment of Stock Certificates covering the 2/3rd interest of CHARLES L. WIMBERLY and his wife, Peggy Wimberly, in the SANTA CRUZ VENEER PRODUCTS CO., a corporation, . . .' The instructions required the borrower to deposit the following documents into escrow:

'a. Sworn Affidavit of Santa Cruz Veneer Products Co. a corporation that 2/3 of Stock of said corporation stands in the names of Charles L. Wimberly and Peggy Wimberly, his wife.

'b. Certificates covering said 2/3 interest in said corporation Stock.

'C. Assignment of said Stock executed by Charles L. Wimberly and Peggy Wimberly in favor of Paul J. Kersten, a married man, as his separate property.'

The escrow instructions and the promissory note purported to bear all of the required signatures. However, Cribbs' name was signed: 'Thomas J. Cribbs by Margo Cribbs pwr atty dtd 5 March 68.' Mrs. Cribbs denied signing the documents and Cribbs denied ever authorizing her or anyone else to sign his name. The only power of attorney he ever gave his wife was in 1949 when he was about to go overseas on military duty.

Cribbs became acquainted with Wimberly while the two were in the Air Force. In December 1965 Cribbs bought 10,000 shares of Common Wealth stock and later acquired an additional 8,000 shares. Cribbs was on active military duty between February 1968 and September 1968 and for most of that period was stationed in Southeast Asia. While on temporary leave in June 1968 he attended an informal shareholders' meeting at which Wimberly reported that the company was in dire financial straits and needed money. On January 2, 1969, Cribbs became an employee of Common Wealth and on April 14, 1969, became its president. Although he had heard of the Kersten loan before he became president, he first became aware of his purported signature on the note on April 15, 1969. He accused Wimberly of forging his signature but Wimberly denied the accusation. He never inquired of his wife, Donahue or Betz whether any of them had signed his name to the note.

Sometime between April and July 1969, Cribbs visited the Kersten home to discuss the loan, but during the conversation he never revealed to Kersten that his signature on the note was a forgery. Cribbs paid $2,000 of a $4,000 installment then due and told the Kerstens he was attempting to get the affairs of the company On April 9, 1968, an amendment to the loan escrow instructions was executed by Kersten and Wimberly (as President of Common Wealth) whereby it was agreed that the shares of the Santa Cruz stock pledged as collateral would 'remain on deposit at the Bank of America, Santa Cruz main office, in the Safe Deposit Box in the name of Dan Whitehead,' instead of being delivered to Kersten. Dan Whitehead was the father of Wimberly's wife. Wimberly testified he discussed the amendment with Donahue and Betz but they denied knowledge of the amendment and testified they would not have approved it.

                straightened out and to bring the Kersten account current.  On September 12, 1969, Cribbs transmitted to Kersten an interest payment on the note with a letter thanking him for his patience and stating 'I am sorry I cannot bring this account up to date, but believe me it is my intention to do so as soon as it is physically possible.' 2  Kersten did not learn of the forgery until Cribbs commenced the lawfuit

In order to comply with the escrow instructions pertaining to proof of stock ownership in Santa Cruz, Wimberly caused three documents to be prepared and deposited in escrow. Each document was in the following form:


'This statement is prepared for those whom it may concern. The principal assets of Santa Cruz Veneer Products Company are approximately five acres of land per legal description attached and 50,000 square feet warehouse being used as an industrial park. Company organization is as follows:

'Dan Whitehead


'Charles Wimberly

'Vice President

'Peggy G. Wimberly (daughter & sole heir of Dan Whitehead)

'Sect. & Treasurer

'The three above named individuals own 100% Of stock in approximately equal shares.'

One of the 'affidavits' purported to be signed by Whitehead, one by Wimberly and one by Wimberly's wife. The 'affidavits' of Whitehead and Wimberly simply bore the notarial stamp and signature of Joyce A. Gilbert; they failed to show that the signers had 'Subscribed and Sworn' to the documents. Wimberly's wife's affidavit was subscribed and sworn to before a different notary.

According to Gilbert, the circumstances under which she notarized the two documents were as follows: While she was visiting at a friend's house, Wimberly appeared and requested notarization of two documents; Wimberly signed his own name to one and signed Whitehead's name to the other; he showed her a notarized document purporting to give him power of attorney to sign Whitehead's name; after she affixed her signature and notarial stamp to the documents she requested Wimberly to sign his name on Whitehead's 'affidavit' to indicate he was signing it pursuant to a power of attorney but he refused to do so, indicating that the document was unimportant.

In a deposition received in evidence, Whitehead testified there were 17,390 shares of common stock of Santa Cruz of which he owned 15,390 and the Wimberlys each owned 1,000; he had never been requested to provide information pertaining to the stock ownership of Santa Cruz; and he never signed or authorized anyone else to sign the 'affidavit' bearing his name.

Prior to trial a written stipulation was entered into by the parties wherein it was agreed that Santa Cruz and Whitehead would deliver to counsel for Mr. Kersten certificates evidencing 2,000 shares of common stock in Santa Cruz standing in the names of the Wimberlys, the certificates to be held in pledge as security for the $25,000 loan to Common Wealth, and that on...

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