Golberg v. Sanglier

• Decision Date: 15 January 1982
• Docket Number: No. 47422-2,47422-2
• Citation: 96 Wn.2d 874,639 P.2d 1347
• Parties: Robert W. GOLBERG and Peggy L. Golberg, husband and wife, and Miriam Pierce, Petitioners, v. John SANGLIER and Jane Doe Sanglier, husband and wife; Nick Carras and Jane Doe Carras, husband and wife; Sanglier Cadillac-Oldsmobile, Inc., a corporation; and George Platis and Jill Platis, husband and wife, Respondents.
• Court: Washington Supreme Court

Page 874

96 Wn.2d 874

639 P.2d 1347

Robert W. GOLBERG and Peggy L. Golberg, husband and wife, and Miriam Pierce, Petitioners, v. John SANGLIER and Jane Doe Sanglier, husband and wife; Nick

Carras and Jane Doe Carras, husband and wife; Sanglier

Cadillac-Oldsmobile, Inc., a corporation; and George Platis

and Jill Platis, husband and wife, Respondents.

No. 47422-2.

Supreme Court of Washington, En Banc.

Jan. 15, 1982.

Note: Also See 647 P.2d 489. Shidler, McBroom, Gates & Baldwin, James R. Irwin, Seattle, Creighton & Associates, Gordon L. Creighton, Redmond, for petitioners.

Edwards & Barbieri, Malcolm L. Edwards, Charles K. Wiggins, Seattle, John M. Woodley, Bellevue, for respondents.

UTTER, Justice.

Petitioners Robert Golberg and Miriam Pierce seek review of the Court of Appeals reversal of the trial court's judgment in their favor and its dismissal of petitioners' claim against their former partners, respondents John D. Sanglier and Nick Carras. Petitioners received an award of damages based on the trial court's finding that the sale of their partnership interest to the remaining partners was induced by fraud. The Court of Appeals reversed the trial court and dismissed petitioners' case with prejudice, finding the partnership agreement was illegal and thus unenforceable. We review that decision here, reversing the Court of Appeals and reinstating the trial court's judgment for petitioners.

Respondent John D. Sanglier applied to General Motors in 1973 for a Cadillac dealership. Sanglier had been general sales manager for Carras Cadillac, Inc., which voluntarily terminated its franchise early in 1974. The Motors Holding and Cadillac divisions of General Motors required Sanglier to provide 25 percent of the franchise capital requirements, $100,000 in unencumbered funds. In return, Motors Holding would provide the remaining 75 percent of the initial capital requirements and become majority stockholder and only voting stockholder.

In March 1974, Sanglier contacted petitioner Golberg, who eventually agreed, along with petitioner Pierce, to put up the $100,000 needed by Sanglier in return for a three-way partnership. In April 1974, the three met in a Tacoma attorney's office to discuss forming a partnership. They agreed that the two investors would each have a 25 percent interest in the partnership and that Sanglier, who was to make no capital investment, would be the dealer and have a 50 percent interest in the partnership. Eventually, Nick Carras also joined the partnership: Carras, Golberg and Pierce each provided $33,333.33.

The next month the group met at the office of their Tacoma attorney and conferred with his partner. They discussed nondisclosure to Motors Holding and Cadillac of the true source of Sanglier's funds, and that Sanglier had already represented to Cadillac, and would represent to Motors Holding, that the funds were a gift from his mother-in-law. The attorney advised the group that Sanglier's statements might be a misrepresentation.

Motors Holding decided that an Oldsmobile franchise would have to be teamed with the Cadillac franchise which called for a further investment by Sanglier of $25,000. Pierce, Golberg, and Carras each contributed their pro rata share of the $25,000, bringing the total capital investment of each to $41,666.

Motors Holding and Sanglier entered an agreement to buy the Carras Cadillac real property, buildings, and equipment, and in August 1974, Motors Holding formed Sanglier Cadillac-Oldsmobile, Inc., a Delaware corporation. Sanglier acknowledged, as was required by the Cadillac and Motors Holding divisions, that the $125,000 investment was his own money free and clear of any present or future right, claim, or interest of any kind. Motors Holding came up with another $645,000, part of which represented a loan to the dealership. The rest was taken in preferred and common stock. Motors Holding took all the voting stock. Sanglier was retained as president of the dealership.

In December, the four partners-Sanglier, Carras, Pierce and Golberg-executed a document entitled "Partnership Agreement", which provided the partnership should remain undisclosed and that none of the profits would be shared until Motors Holding was paid in full. Sanglier would devote his dividends and one half of his salary bonus to paying Motors Holding, but he could retain his salary. Stock and notes he purchased would go into escrow for the partnership, to be transferred when Motors Holding was paid in full. From that point, each partner would share 25 percent of the partnership profits and losses.

In the fall of 1975, the partners met to discuss the possible sale of the partnership to another dealer. Late that fall or early the next year, Sanglier told Golberg the deal was off, though he actually continued to negotiate and eventually entered into an option agreement, taking $165,000 in option money. Carras knew about this deal, and with this money Sanglier bought Carras' share of the partnership, paid off some debts to Carras, and used the rest for personal reasons. Carras also agreed to assist Sanglier in buying out the other two partners who were not told about any of these transactions.

Between July and December 1976, Carras attended four partnership meetings, pretending he was still a partner. He told Pierce and Golberg that Sanglier was mismanaging the business, not acting in the best interest of the partnership, drinking and gambling excessively, and that they would be lucky to get their initial investment back.

In mid-December, Sanglier with Carras cosigning, borrowed $85,000 from a bank. On December 20, Sanglier bought out the interests of petitioners Golberg and Pierce by giving each a check for $41,666, the amount of their capital investment. Carras, whose interest had already been purchased by Sanglier, was also given a check which he had agreed in advance to tear up. Golberg and Pierce were not told about the loan that Carras cosigned. The parties signed a document drafted by Carras that purported to "terminate, dissolve and wind up" the partnership created on December 1, 1974.

In March 1978, Golberg and Pierce found out about Sanglier's option agreement to sell the dealership. Sanglier orally offered to let them back into the partnership if each would return the $41,666, pay a pro rata share of his start-up costs and premiums, and sign on the contingent liability of the dealership that he was personally guaranteeing. They declined.

The option agreement was never consummated and Sanglier repaid the $165,000 to the prospective purchaser in May 1978.

In March 1978, Golberg and Pierce commenced this action, seeking damages under the partnership agreement based on fraud, breach of the partnership agreement and fiduciary duties, and violation of RCW 21.20.010 of the Washington securities laws. The plaintiffs sought to rescind the sale of their partnership interests or, in the alternative, to be awarded damages.

The trial court held in favor of petitioners, awarding each $261,917.32, their shares of the fair market value of the dealership/partnership as of the date they discovered Sanglier's and Carras's breach of their partnership duties. The Court of Appeals reversed the trial court and dismissed the complaint with prejudice. The appellate court held that the defendants Sanglier and Carras had standing to raise the defense of illegality of the partnership, and that such defense defeated any claims Golberg and Pierce had under the partnership agreement. This court granted Golberg's and Pierce's petition for review.

I

If a contract is illegal, our courts will leave the parties to that contract where it finds them. State v. Northwest Magnesite Co., 28 Wash.2d 1, 26, 182 P.2d 643 (1947). The same rule applies if the contract grows immediately out of and is connected with an illegal act. Waring v. Lobdell, 63 Wash.2d 532, 533, 387 P.2d 979 (1964). The Court of Appeals refused to entertain petitioners' claim based on the partnership agreement because the agreement had the effect "of deceiving Motors Holding ... contrary to RCW 21.20.010(3) and the public policy underlying RCW 21.20.010(2) ..." Golberg v. Sanglier, 27 Wash.App. 179, 195, 616 P.2d 1239 (1980).

We will analyze each of the Court of Appeals findings of illegality.

A. RCW 21.20.010(2) states that it is unlawful for any person in connection with the purchase of any security

To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading ...

The Court of Appeals found that Sanglier violated this part of the act in his misrepresentation to Motors Holding that the funds constituting the 25 percent capital investment were his " 'own funds, free and clear of any present or future right, claim or interest of any kind.' " Golberg v. Sanglier, supra at 192, 616 P.2d 1239. The Court of Appeals determined these funds were not free and clear but were encumbered in that "(t)he dealer's interest, represented by stock, was required ... to be placed in escrow ..." Golberg v. Sanglier, supra at 192, 616 P.2d 1239.

Although we do not doubt that Sanglier's representation as to the status of his funds was "material" to the transaction, we must question the Court of Appeals conclusion that such representation was "untrue." The escrow requirement, upon which the Court of Appeals relied for its finding of untruthfulness, did not relate to the initial capital investment Sanglier was required by Motors Holding to provide. It related only to the profits from the dealership, and Motors Holding did not require that the profits of the dealership be unencumbered. They required only that the 25 percent investment be unencumbered. Thus, the Court of Appeals did not provide a valid basis for reversing the trial court and finding that the capital contribution provided by Sanglier was encumbered....