Everly Enterprises, Inc. v. Altman

• Decision Date: 31 October 1960
• Citation: Everly Enterprises, Inc. v. Altman, 54 Cal.2d 761, 8 Cal.Rptr. 455, 356 P.2d 199 (Cal. 1960)
• Court: California Supreme Court
• Parties: , 356 P.2d 199 EVERLY ENTERPRISES, INC. (a Corporation), et al., Respondents, v. George T. ALTMAN, Appellant. George T. ALTMAN, Appellant, v. EVERLY ENTERPRISES, INC. (a Corporation), et al., Respondents. L. A. 25429.

Page 455

8 Cal.Rptr. 455

54 Cal.2d 761, 356 P.2d 199

EVERLY ENTERPRISES, INC. (a Corporation), et al., Respondents, v. George T. ALTMAN, Appellant.

George T. ALTMAN, Appellant, v. EVERLY ENTERPRISES, INC. (a Corporation), et al., Respondents.

L. A. 25429.

Supreme Court of California, In Bank.

Oct. 31, 1960.

Rehearing Denied Nov. 30, 1960.

Lawrence William Steinberg, Beverly Hills, for appellant.

Joseph M. Wapner, Los Angeles, for respondents.

SCHAUER, Justice.

In these two causes, consolidated for trial and for appeal, George T. Altman appeals from an adverse judgment granting plaintiffs-respondents ¹ declaratory relief against him and denying his sought for rescission and cancellation of certain instruments. We have concluded, for reasons hereinafter stated, that, although the trial court correctly decided that Altman is entitled to no relief against plaintiffs, the judgment should be modified to provide that Altman may retain, rather than be divested of, the security evidenced by the fourth trust deed described in the pleadings and judgment, and, as so modified, affirmed.

Prior to April 25, 1956, Altman was the owner of 50 shares, which comprised all the outstanding capital stock, of Everly Enterprises, Inc., a California corporation, hereinafter called Everly. The corporation owned a ranch in Riverside County which had proved unprofitable and was in need of costly improvements. Altman, a practicing attorney and not a farmer, was interested in making a deal whereby someone would furnish the money necessary to rehabilitate the ranch and make it into a profitable holding. He contacted plaintiffs Clark and Morales, who as partners doing business under the name of Specialty Products Co., hereinafter called Specialty, were engaged in producing and marketing 'organically grown' crops. They became interested in the property, and a deal was made whereby they agreed to purchase half (25 shares) of Altman's stock in Everly, with an option to buy an additional 40 per cent (20 shares), and to take a five-year lease of the ranch land for Specialty. But they required and received an agreement from Altman that there should be no personal liability upon the promissory note executed by Specialty for the $12,250 unpaid balance of the purchase price of the stock, which balance was to be and was secured by the above-mentioned fourth trust deed upon Everly's ranch land, running in favor of Altman as beneficiary. That is to say, the deed of trust was executed by Everly as a lien upon its land to secure the debt owing to its vice president and stockholder, Altman. The sale of the stock was effected through escrow and the five-year lease was thereafter executed. The two partners in Specialty were not farmers and they assigned the lease (which contained no covenant against assignment) to Max Guttman and Betty Lee Morales, who in turn (in June, 1956) subleased (or assigned) to Raymond R. and Russell Rummonds, doing business as Rummonds Bros. Ranch. In February, 1957, Altman learned of the transfer to Rummonds Bros. Ranch and thereupon gave notices to Specialty, declaring an attempted rescission of the stock purchase and option contract and also purporting to rescind the lease which had been made by Everly to Specialty. The notices in general terms claimed misrepresentations.

In May, 1957, Everly, Speciality and Guttman filed a declaratory relief action (No. 679,618) against Altman, seeking among other things cancellation of the trust deed securing the balance due from Specialty to Altman on purchase of the 25 shares of Everly stock, and a determination of the continuing efficacy of the option to buy more stock from Altman. Altman answered and counterclaimed, alleging fraud in securing from him the sale and option to purchase of the Everly stock and in obtaining the lease from Everly to Speciality, and asking that plaintiffs be denied relief, that he, Altman, be declared owner of the 25 shares of stock he had sold to Specialty, and that the option be declared rescinded. Simultaneously Altman filed action against Everly, Specialty and Guttman (No. 689,130) seeking cancellation of the lease from Everly to Specialty and of the assignment thereof to Morales and Guttman, an accounting, appointment of a receiver, and general damages.

The two cases were consolidated and after trial without a jury the court found that there was no fraud in the transaction, that Altman was not entitled to rescind, that Everly received no consideration for the trust deed securing the Specialty promissory note to Altman, that reconveyance under said deed of trust be made, that 'In lieu of said note (secured by the deed of trust), plaintiff Specialty Products should be ordered to execute a new note for $12,250.00, payable to defendant George T. Altman on the same terms and conditions as contained in the original note of $12,250.00, save and excepting that the same need not be secured.' Judgment was entered accordingly, including an order to Altman to 'sign a request for reconveyance' under the deed of trust and an order to Specialty to execute a new $12,250 promissory note to Altman 'containing the same terms and conditions' as did the previous note 'saving and excepting that the same need not be secured.' This appeal by Altman followed.

Altman in his opening brief declares that he 'specifically abandons' his appeal 'insofar as * * * directly against Everly Enterprises. This appeal is solely against Morales and Clark, individually and as Specialty copartners, and Guttman and not against Everly Enterprises.' Upon the premise that invalidity of the deed of trust, as declared by the judgment, is thus finally established, Altman argues that there has been a failure of consideration to him in that he has been deprived of the security for the unpaid balance of the purchase price of the 25 shares of Everly stock; that he therefore was entitled to rescission, which was wrongfully denied to him by the trial court.

In the first place, however, it appears that inasmuch as the deed of trust was made with the express consent and active participation of all the stockholders, directors and officers of the corporation, it was valid, and the trial court erred...