Englert v. Ivac Corp.

• Decision Date: 20 April 1979
• Citation: 92 Cal.App.3d 178,154 Cal.Rptr. 804
• Parties: Jerry F. ENGLERT, Plaintiff and Cross-Appellant, v. IVAC CORPORATION, Defendant and Appellant. Civ. 16586.
• Court: California Court of Appeals Court of Appeals

Page 804

154 Cal.Rptr. 804

92 Cal.App.3d 178

Jerry F. ENGLERT, Plaintiff and Cross-Appellant, v. IVAC CORPORATION, Defendant and Appellant.

Civ. 16586.

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

April 20, 1979.

Hearing Denied July 25, 1979.

Luce, Forward, Hamilton & Scripps and Robert G. Steiner, San Diego, and Macdonald, Halsted & Laybourne, and James J. Slaby, Jr., H. Stephen Cranston, and Judith R. Gandel, Los Angeles, for defendant and appellant.

Wiles, Circuit & Tremblay, and Maurile C. Tremblay and Glenn A. Davis, LaJolla, for plaintiff and cross-appellant.

EHRENFREUND, ^* Associate Justice.

Ivac Corporation (IVAC) appeals the judgment after special jury verdicts found Jerry F. Englert was entitled to 26,000 ¹ shares of IVAC stock on payment of $32,500. We affirm the judgment.

Englert sought specific recovery of his stock certificates alleging IVAC had wrongfully retained them.

Facts

On June 26, 1969, Englert entered into an employment agreement with IVAC, ² which included the issuance to Englert of 150 shares of IVAC stock at $125 per share. IVAC held the shares as collateral for Englert's promissory note of $18,750. If Englert voluntarily left his employment at IVAC, the company had the right to repurchase the stock; if he involuntarily left the company, Englert had "ninety (90) days after written notice served upon him . . . by IVAC to pay the unpaid balance . . . and . . . release . . . all shares pledges (sic) . . . as collateral." On August 27, 1969, the parties executed a second identical contract. On December 4, 1969, Englert signed a letter from Richard Cramer, president of IVAC, confirming the mechanics of payment on the notes at termination.

On March 3, 1971, the parties replaced the original note dated June 26, 1969, with three notes payable on June 26, 1970, June 26, 1971, and June 26, 1972; likewise the note dated August 27, 1969 was replaced with three notes due on August 27, 1970, August 27, 1971, and August 27, 1972. The total face amount of all the notes was $37,500 secured by 300 shares (later 30,000 shares after a stock split) in six stock certificates held by IVAC.

Englert voluntarily resigned from the company effective January 2, 1972. On March 23, 1972 Englert, at Cramer's request, returned to IVAC's payroll as a marketing consultant. In a letter dated April 25, 1972, Cramer confirmed Englert's resignation and told him the 90-day period to pay off the note and acquire the stock started running that day. About July 10, 1972, Englert contacted Earl Mortensen, IVAC's treasurer, asking how to pay off his notes. On July 19, 1972, Mortensen sent Englert a letter that he had paid off the note due June 24, 1970 and part of the sum due August 27, 1970 and that 4,000 shares would be released to him. However, Englert, according to Mortensen's letter, retained no right in the remaining shares because he had not paid off the rest of the notes.

On October 12, 1972, Englert sent a letter to IVAC asking how he might pay the notes. He was refused. Englert filed suit on January 29, 1973. In April 1973, IVAC sent Englert an offer to compromise under Code of Civil Procedure section 998. It was never accepted. The stock certificates in question were cancelled on June 29, 1973.

Specific Shares of Stock May Be Subject of Replevin Action

IVAC claims the judgment is erroneous as a matter of law because under both Delaware and California law shares of stock are considered intangible personal property and cannot be replevied (Bush v. Hillman Land Co. (1938)22 Del.Ch. 374, 2 A.2d 133, 135-136; Ashton v. Heydenfeldt (1899) 124 Cal. 14, 16, 56 P. 624). However, one must distinguish between shares of stock, a person's intangible ownership interest in a company which cannot be replevied, and the tangible certificates of stock which represent those shares and which can be replevied. Here in his complaint Englert asks that IVAC "redeliver the pledged collateral," that is, the share certificates. In its answer IVAC says it has refused to deliver any pledged shares, which must refer to certificates, to Englert. The action for possession of personal property is proper.

Cancellation of Share Certificates Does Not Make Judgment Erroneous

IVAC claims the judgment is erroneous because the share certificates were cancelled before trial. The California courts, IVAC continues, have no control over the internal affairs of a Delaware corporation and cannot direct it to issue stock. However, the suit to recover the certificates was filed January 29, 1973. The certificates were stamped cancelled and the entry on the share register was cancelled on June 29, 1973, some five months later. The notes for which the certificates served as collateral were never cancelled. If IVAC had left the certificates uncancelled, there would be no argument now about their reissuance. In short, IVAC knowing Englert was seeking the return of his collateral, is trying to frustrate his claim by merely cancelling the certificates saying the courts cannot make it issue any more. Such a ploy is against public policy and would allow IVAC to take advantage of its own wrong (Civ.Code, § 3517). It is not inappropriate to require IVAC to issue new certificates. (Thompson v. Toland (1874) 48 Cal. 99, 116).

IVAC says the court's finding that none of the shares were destroyed nor disposed of is contrary to the evidence since the shares were cancelled. However, cancellation of shares is not the same as destroying or disposing of shares. The finding the shares were not destroyed or disposed of is not

incompatible with the fact the certificates were marked cancelled.

Judgment Is Not For Specific Performance of Obligation But For Recovery of Personal Property

IVAC claims the court, by ordering it to issue shares, has in effect, ordered specific performance of an employment contract. IVAC presumably is suggesting that specific enforcement of the contract contravenes Civil Code section 3390 which states that an obligation to render personal service or an obligation to employ another in personal service cannot be specifically enforced. However, Englert is not trying to enforce an employment contract; rather, he is trying to recover securities which he pledged for a debt and which allegedly are being wrongfully withheld from him.

IVAC argues Englert has an adequate remedy at law and thus no right to specific performance. Stock is stock, it continues, and since IVAC shares were publicly traded, an award of money damages was required. To support its claim IVAC cites Morrison v. Land (1915) 169 Cal. 580, 586, 147 P. 259. In this case the court added to the plain words of the statute the requirement there be an inadequate legal remedy before specific performance is granted under Civil Code section 3384 ³ after this requirement had been deleted when the statute was amended in 1873-1874. IVAC argues by analogy that Civil Code section 3380, ⁴ Specific Delivery, which was amended at the same time should be interpreted in the same way. However, under section 3380 deletion of the requirement there be an inadequate remedy at law has been said to broaden its scope (Harrison v. Woodward (1909) 11 Cal.App. 15, 24-25, 103 P. 933; see Law v. Title Guarantee & Trust Co. (1928) 91 Cal.App. 621, 627, 267 P. 565). In addition, Englert is not seeking specific performance of an obligation. Rather, the stock he seeks is being held as a pledge for a debt. Englert alleges IVAC is wrongfully refusing to return his stock after he offered to repay the debt. On repayment he wants the pledged stock returned, not money damages. Section 3380 recognizes "that the right to recover damages is not a full and adequate remedy for deprivation of personal property" (Steele v. Marlborough Hall Corp., 100 Cal.App. 491, 496, 280 P. 380, 382).

IVAC says the shares of stock are not unique and are not the proper subject for a decree of specific performance. However, there is no contract of sale under which Englert is seeking specific performance. (Gilfallan v. Gilfallan (1914) 168 Cal. 23, 25, 141 P. 623.) Rather, stock he owns is being held as a pledge; Englert claims he has properly tendered or is properly excused from tender and IVAC has wrongfully refused to return his personal property. Thus, he properly seeks merely its return.

Hoese's Testimony Was Properly Excluded

When Englert returned to work on March 23, 1972, Cramer extended the date when payment had to be made on the notes to 90 days after Englert left his employ this second time. IVAC claims that witness Hoese should have been allowed to testify before the jury that this was a variation of the permit to issue stock which had to be amended, was not amended and cannot be enforced because it is an illegal contract (Tevis v. Blanchard (1954) 122 Cal.App.2d 731, 737, 266 P.2d 85). However, what constitutes a variation of the permit necessitating an amendment involves interpreting the documents and the Corporations Code questions of law for the court not questions of fact for the jury. Hoese's testimony was properly excluded. All Cramer did was extend the time for payment of the note while IVAC merely held the stock as collateral. This was not a stock option in which the date of issue was changed. In addition, if IVAC acted illegally in extending Englert's time to pay, it cannot profit from its own wrongdoing by now saying Englert did not pay off the note in time and thus, has no right to the stock.

Application of California Uniform Commercial Code Not Error

The court concluded that:

"Defendant (IVAC) has violated plaintiff's (Englert's) right to the return of his collateral pursuant to (California Uniform Commercial Code) section 9506 and is therefore liable for 'any loss' caused by its failure to comply with the provisions of Chapter 5, Division 9 of the California Code, Code of Civil Procedure (Commercial Code) Section 9507."

These sections provide for damages if the secured party fails to comply with statutory...