Holmberg v. Marsden

• Decision Date: 07 October 1952
• Citation: 39 Cal.2d 592,248 P.2d 417
• Court: California Supreme Court
• Parties: , Blue Sky L. Rep. P 70,191 HOLMBERG v. MARSDEN et al. S. F. 18645.

Page 417

248 P.2d 417

39 Cal.2d 592, Blue Sky L. Rep. P 70,191

HOLMBERG v. MARSDEN et al.

S. F. 18645.

Supreme Court of California, in Bank.

Oct. 7, 1952.

Desmond N. Bonnington, Oakland, for appellant.

James W. Harvye and Dorothy E. Handy, San Francisco, for respondents.

SCHAUER, Justice.

Plaintiff seeks to recover from defendants $5,000 furnished by plaintiff for a one-third interest in a business enterprise. He claims that payment of his money into the business before a permit had been secured for issuance of his one-third share of stock in a corporation which all parties agreed was to be formed, constituted a sale by defendants of securities in violation of the Corporate Securities Act (see Corp.Code, § 25000 et seq.). Judgment was rendered in defendants' favor by the court, sitting without a jury, and plaintiff appeals. We have concluded that the evidence supports the trial court's finding that no such sale occurred, and that the judgment must be affirmed.

The evidence appears to be without substantial dispute. In 1948 defendants Robert G. Marsden and Robert W. Marsden, father and son, were as partners operating a lumber business in Emeryville, under the name of West Coast Export Materials. In November of that year they were negotiating for purchase of a kiln in Oakland for the drying of lumber, but lacked sufficient capital to handle the undertaking. On November 16, 1948, Robert W. telephoned to his friend, plaintiff, who then lived in Seattle, and proposed that plaintiff join in the venture with the two Marsdens by furnishing some $4,000 or $5,000 and also taking an active part in operating the business, which would belong to the three men in equal shares, and that plaintiff 'come on down and look the thing over.' Plaintiff testified that during the telephone conversation 'I said * * * 'I am not interested in any partnership, Bob, because I have known too many people become lost their friendship through partnership * * * If I did venture into any business, it would have to be on a corporate basis.' He said, 'Well, certainly, that is the way we feel. We would want it incorporated also.' I said, 'That is the only was for protection for everybody concerned.' He said, 'What we do is incorporate it, and we will all put up equal shares of money, each have a third of the business and have equal shares of stock. '' At plaintiff's suggestion Marsden wrote plaintiff a letter the same day, setting forth in some detail the anticipated income and expenses of the proposed venture, the amount of capital needed and the purposes (chiefly for advance rent and for down payment on equipment) for which it was needed. Also included was a statement that a purchase contract or order had been received for three carloads of lumber, that further orders were expected from the same source, and that 'you will have an equal share of stock as we do ( 1/3 interest now). We have or want and must file corporation papers as soon as possible as it is all made out in Dads and my name now. In other words, we have gone ahead in fact have the first charge of lumber in the kiln now * * *'

A few days later plaintiff made a trip to Emeryville and personally investigated the project, and in conversations with the Marsdens it was agreed that if plaintiff 'desired to come in' he need not resign from his Seattle job until the end of the year (1948) in order to protect 'the bonus setup that I had with my company' (this was at plaintiff's request), and 'that the corporation papers would be sent up to me * * * (and) would be sent back signed with the money that we agreed would be placed up by each party, which at that time was $5,000. * * * (T)he interest in the corporation * * * would be one-third interest, and equal shares to each.' Plaintiff returned to Seattle; articles of incorporation using the corporate name of Cal. Kiln & Lumber, Inc., and naming plaintiff as one of the incorporators, were prepared and mailed to plaintiff; and plaintiff signed the articles as an incorporator and returned them to defendants with plaintiff's check for $3,000 payable to the order of Cal Kiln & Lumber, Inc. The check was endorsed 'Cal Kiln & Lumber Inc., R. G. Marsden, for deposit only,' and the proceeds were used by defendants in part payment for the dry kiln being purchased. The articles of incorporation were submitted to the Secretary of State for filing, but were rejected because the proposed corporate name conflicted with that of an existing corporation. The name of M. & H. Kiln & Lumber, Inc. (the M. & H. stands for Marsden & Holmberg) was then agreed upon, new articles were prepared and filed in which an office employe of the business rather than plaintiff was named as the third incorporator inasmuch as plaintiff was still in Seattle, and a certificate of incorporation was issued. Plaintiff testified that he would not have contributed money to the venture 'on any other basis' than 'that a corporation would be formed.'

On January 1, 1949, plaintiff came to Emeryville to locally participate in the business, his name was substituted for that of the office employe as a director and he was also made secretary-treasurer of the corporation, and took 'charge of practically all of the outside work in the yard, the supervising of the * * * three or four men * * * working out in the yard.' He was authorized to sign checks for the business, and on two occasions signed with one of the Marsdens on promissory notes for money borrowed from the bank on behalf of the business. All three men worked at the yard 'every working day of the week,' and each day...