Gormly v. Dickinson

• Decision Date: 17 February 1960
• Citation: 178 Cal.App.2d 92,2 Cal.Rptr. 650
• Parties: , Blue Sky L. Rep. P 70,464 H. James GORMLY, Jr., also known as H. James Gormley, and Phyllis Gormly, Plaintiffs and Respondents, v. John L. DICKINSON, Terry G. Cox, Defendants. John L. Dickinson, Appellant. Civ. 23840.
• Court: California Court of Appeals Court of Appeals

Page 650

2 Cal.Rptr. 650

178 Cal.App.2d 92, Blue Sky L. Rep. P 70,464

H. James GORMLY, Jr., also known as H. James Gormley, and Phyllis Gormly, Plaintiffs and Respondents, v. John L. DICKINSON, Terry G. Cox, Defendants John L. Dickinson, Appellant.

Civ. 23840.

District Court of Appeal, Second District, Division 3, California.

Feb. 17, 1960.

Richmond & Smith, Pasadena, for appellant.

Hahn & Hahn and Loren H. Russell, Pasadena, for respondents.

FORD, Justice.

This is an appeal by defendant John L. Dickinson from a judgment in favor of the plaintiffs. The action arises out of a sale of shares of stock in a corporation known as Waterwear Corporation.

On February 14, 1958, pursuant to stipulation, the motion of the plaintiffs to amend their original complaint was granted. The first cause of action of the amended complaint was based upon a document of November 21, 1955, under which the defendant Dickinson was to purchase from plaintiff H. James Gormly the shares of corporate stock. That document is set forth hereafter in footnote 2. The third cause of action was based upon the allegation that at the time of the transaction on November 21, 1955, involving the sale of stock to Mr. Gormly, no permit with respect to such stock had been issued as required by the California Corporate Securities Law. On May 12, 1958, the court granted permission to the plaintiffs to file another amended complaint. Such second amended complaint was filed on May 19, 1958. The third cause of action contained an allegation that no permit, as required by law, had been issued at the time of the transaction on November 21, 1955, but the cause of action was also founded on allegations of express fraudulent misrepresentations.

The judgment in favor of plaintiffs was with respect to the third cause of action of their second amended complaint. The findings of fact of the trial court pertinent thereto were as follows: 1. That on November 21, 1955, and for several months prior thereto, the defendant Dickinson participated in a scheme and plan to cause the sale to plaintiffs of corporate stock in a proposed corporation to be known as Waterwear Corporation. 2. That Dickinson personally solicited and procured the sale to plaintiffs of such stock in exchange for the payment by plaintiffs of $10,000 on November 21, 1955. 3. That on November 21, 1955, and at all times prior thereto, no permit to issue, sell, solicit, or offer the sale of such stock had been issued under the California Corporate Securities Act. ¹ 4. That on and prior to November 21, 1955, Dickinson fraudulently represented to the plaintiffs that he and those persons connected with him in the said scheme had valid and legal authority and right to offer, solicit, procure and obtain the sale of said corporate stock to the plaintiffs in exchange for the payment of $10,000 by the plaintiffs to the proposed corporation. 6. That Dickinson fraudulently represented to the plaintiffs that in exchange for the payment of $10,000 they would receive good, legal and valid corporate stock. 7. That the representations so made were false and that Dickinson at the time of making them had no reasonable ground to believe that they were true, and that in making the representations Dickinson did not act upon information sufficient to justify a reasonable man in concluding that a permit was not required to offer, solicit, and sell the stock to the plaintiffs. 8. That, in furtherance of his plan and scheme Dickinson fraudulently represented and promised on and before November 21, 1955, that upon payment by plaintiffs of the $10,000 for the stock, the entire amount so paid would not be used, expended or appropriated in any way by Dickinson or by Waterwear Corporation or those persons associated with Dickinson until such time as plaintiffs received the corporate stock, but that that representation and promise was false and that Dickinson, at the time of making such representation and promise, had no reasonable ground to believe that said representation was true and had no intention of performing that promise. 9. That in furtherance of the plan and scheme, on and prior to November 21, 1955, Dickinson fraudulently promised and represented to the plaintiffs that he would purchase from them at par value any corporate stock in Waterwear Corporation which they held one year from that date, but that Dickinson had no intention that such promise would be performed. 10. That each of such representations and promises was material and was made by Dickinson with the intention and for the purpose of having the plaintiffs rely thereon and, in such reliance, pay $10,000 for the corporate stock. 11. That the plaintiffs did rely thereon and, in such reliance, did pay the sum of $10,000 in exchange for the stock in Waterwear Corporation. 12. That subsequent to March 22, 1956, the plaintiffs did receive from Dickinson a stock certificate dated March 22, 1956, issued by Waterwear Corporation, representing the shares of corporate stock for which the plaintiffs had paid $10,000 on November 21, 1955. 13. That the stock certificate and the corporate stock represented thereby was and is worthless and void, and that the plaintiffs have been damaged by Dickinson in the sum of $10,000, together with interest thereon from November 21, 1955.

"In passing on appellant's contention that the findings are lacking in evidentiary support, the following principles must be observed: 'When a finding of fact is attacked on the ground that there is not any substantial evidence to sustain it, the power of an appellate court begins and ends with the determination as to whether there is any substantial evidence contradicted or uncontradicted which will support the finding of fact. [Citations.] When two or more inferences can reasonably be deduced from the facts, a reviewing court is without power to substitute its deductions for those of the trial court. [Citations.]' Primm v. Primm, 46 Cal.2d 690, 693-694, 299 P.2d 231, 233. Thus we must 'view the evidence in the light most favorable to the respondent'. Estate of Isenberg, 63 Cal.App.2d 214, 216, 146 P.2d 424, 425, and bear in mind that it is the function of the trial court to pass on the credibility of the witnesses and determine the weight to which their testimony is entitled." Gardner v. Rubin, 149 Cal.App.2d 368, 372, 308 P.2d 892, 895.

Applying these principles, the evidence will be examined to determine if there is support for the challenged findings as to misrepresentations which were fraudulent in nature. Mr. Gormly testified that after meeting the appellant, probably in the early summer of 1955, he had a number of conversations with him about the business. The appellant took him to Newport Beach to observe the business. Mrs. Gormly accompanied her husband. A tour was made of the plant. The appellant said that money was needed to expand the business and that it was desired to terminate the present partnership and form a corporation. A second trip of inspection was made and Mr. Gormly took a physical inventory with Mr. Cox, one of the partners, in the presence of the appellant. The appellant said that he was working part time then but was going to quit his job and work full time with the company. Mr. Gormly further testified that, on the return trip, the appellant said that 'if we would invest in the business, he would personally guarantee to repurchase any stock that we would buy from the business at the end of a year, if at that time we no longer thought that we would like to be in the program.' The respondents agreed to invest in the business. As to the use to be made of any money which the respondents might invest, Mr. Gormly testified as follows: 'Mr. Dickinson stated that they needed the money to be able to show that they had money in the bank behind them so that they could get this partner to agree to remove himself from the business and allow a new company to be formed. He also stated that the business was largely operated on credit, and that they wanted to have this money in the bank so they could show that they had backing, had money behind them so that they could carry on their program. * * * Prior to November 21st, I stated that if we were to invest in the business, that our money was not to be touched until we received our stock. * * * He [appellant] said, 'We won't touch it."

Mr. Gormly testified that on November 21, 1955, a meeting was held at the home of Mr. Cox at which the appellant and the respondents were present. Mr. Gormly handed his check for $10,000 to the appellant. The appellant said that the respondents would be given their stock as soon as the corporation was formed. Nothing was said by either Mr. Cox or the appellant which indicated to Mr. Gormly that they did not have the authority and the right under the law to receive the money from Mr. Gormly in exchange for the stock. Mr. Gormly testified, 'I wouldn't have handed my money over, if they had said anything like that.' Mr. Gormly did not then have knowledge that such transaction was prohibited by the Corporate Securities Law. On that occasion, as Mr. Gormly was handing the check to the appellant, he said, 'Now, before I give you this money, you understand that it is not to be used in any way until we receive our stock in the corporation,' and the appellant replied that it would not be touched. If he had not given that answer, Mr. Gormly would not have paid the money over to him. Nor would he have done so if the appellant had not presented to him the document signed by appellant which is set forth in the footnote. ² The check was dated November 21, 1955, and was made payable to Waterwear Corporation. The appellant put the check in his pocket. The check was cashed on the next day. On several occasions thereafter, the appellant told Mr. Gormly that the money had not been touched. After the corporation was formed, the appellant took the office of treasurer. At his own insistence, Mr. Gormly was made a...