Rankin v. Bankey

• Decision Date: 30 October 1961
• Citation: 16 Cal.Rptr. 721,196 Cal.App.2d 554
• Parties: , Blue Sky L. Rep. P 70,558 James N. RANKIN and W. D. Myers, Respondents and Plaintiffs, v. Fred BANKEY and Frebank Company, Defendants and Appellants. Civ. 25544.
• Court: California Court of Appeals Court of Appeals

Page 721

16 Cal.Rptr. 721

196 Cal.App.2d 554, Blue Sky L. Rep. P 70,558

James N. RANKIN and W. D. Myers, Respondents and Plaintiffs, v. Fred BANKEY and Frebank Company, Defendants and Appellants.

Civ. 25544.

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

Oct. 30, 1961.

Crowley & Rhoden and Ben Levin, Hollywood, for defendants and appellants.

Paul S. Crouch, Los Angeles, for respondents and plaintiffs.

Plaintiffs Rankin and Myers sought a declaration that since November 14, 1952, each is the owner of 33 1/3 shares of defendant Frebank Company, and each is entitled to 133 1/3 shares of the 800 shares of stock issued by Frebank as a stock dividend to shareholders of record on April 5, 1957. Defendants Bankey and Frebank Company appeal from a judgment in plaintiffs' favor. Appellants now contend that the certificates representing plaintiffs' stock, and the agreement between them to issue the same, were void, and that plaintiffs are not stockholders of record.

Viewing the evidence in a light most favorable to respondents the following facts were established. In 1949, plaintiff Rankin, a brother-in-law of defendant Bankey, and plaintiff Myers, a long-time friend, each gave to Bankey $7,250 to invest in the W. S. Freely Co. As a result, each plaintiff acquired a 1/4 interest in the company, Freely had the remaining 1/2 interest, and Bankey operated the business under a profit-sharing agreement. Thereafter, W. S. Freely Co. was sold; Bankey told plaintiffs he had $10,900 which represented their interest and which belonged to them. Plaintiffs, each of whom made his living in other businesses, told Bankey to keep the $10,000 and reinvest it for them in a new venture; thus, he kept the same and divided the remaining $900 equally between plaintiffs. During this time Bankey and one Rockwell were in the process of incorporating Frebank Company; in it Bankey invested, on their behalf, the plaintiffs' $10,000. Thereafter, Bankey told them that for 'convenience' he intended to have the stock issued by the Corporation Commissioner to just two persons, Bankey and Rockwell, that this would be more 'simplified' than having all of their names on the corporation books, and that when the application was granted and the permit issued he would receive 100 shares which he would later divide three ways, in equal shares to himself, Rankin and Myers. On February 23, 1951, the Corporation Commissioner issued a permit to Frebank Company to issue to Bankey and Rockwell, or either of them an aggregate not to exceed 200 shares for $50 per share cash; accordingly, the stock was issued--100 shares to Bankey, represented by certificate No. 1, and 100 shares to Rockwell. In 1950 or 1951 Bankey asked plaintiffs for their proxies. For over a year and a half, to November 14, 1952, Bankey held the 100 shares in his name; then on November 14, 1952, he surrendered to Frebank Company certificate No. 1, representing his 100 shares, and caused to be issued in lieu thereof, certificate No. 7 in the name of Rankin representing 33 1/3 shares (Exhibit 1), certificate No. 8 in the name of Myers representing 33 1/3 shares (Exhibit 2), and certificate No. 9 in his own name representing 33 1/3 shares. Bankey then offered Rankin certificate No. 7, but inasmuch as Rankin was then unmarried and had no fixed place of abode, he asked Bankey to hold it for him and keep it in his strong box. Myers had 'many, many times' demanded the stock; finally on November 14, 1952, Bankey gave him the certificate.

At no time during the period in question did either Myers or Rankin ever lend Bankey any money, and in particular, they never lent him $7,250 or $5,000. The money plaintiffs gave him was for investment purposes only; it was never considered by them, nor did they ever intend it, to constitute a loan to Bankey; nor did Bankey during the time in question or thereafter, until he contemplated the within action, ever consider the money to have been given to him as a loan.

From the time Bankey invested plaintiffs' $10,000 in Frebank Company, Bankey paid to Rankin around $3,300 in sums of $450, $1,000, $500, $500, $500, $100, $100 and $83.34; with the exception of the $450, which is not here material, and the $1,000 which was paid to him in 1953 as a 'return of investment,' each time Bankey gave him money, he told Rankin that it was a 'gift' because they (the Company) were doing so well or 'he was having a good year and he was declaring a little cheer.' On each occasion the amount was paid in cash or by Bankey's personal check, and Rankin said to Bankey: 'Fred, I would rather that we had dividends instead of gifts.' Finally Rankin asked him why he was receiving money from him and not from the corporation, and why he was not receiving dividends; Bankey replied that if he paid dividends he would have to pay one-half of them to McCoy (who then owned Rockwell's share) which he did not want to do, and that he was able to do it this way because he told McCoy he had a little expense money he could 'divie up from time to time.' In the meantime, around 1954, Rankin began asking Bankey for his stock certificate and from then on asked him 'many, many times,' perhaps a dozen; each time Bankey put him off and finally in the summer of 1956 it was given to him.

Myers received approximately $2,083.33 in the same manner; Bankey gave him various amounts either in cash or by his check, as 'gifts'; he repeatedly asked Bankey for dividends of the Corporation instead of 'gifts,' but Bankey told him the company could not afford it and what he was paying came out of his expense account. In the meantime, plaintiffs asked for yearly financial statements; one year Bankey sent them one. In 1957 or 1958 he asked for the return of their proxies, also to see the books; Bankey told them they were so entitled. In late 1957 or early 1958 each plaintiff received a check for $83.34 in a letter from Bankey saying, 'The company has declared a $2.50 per share dividend.' On April 5, 1957, a permit for Frebank Company to issue 800 dividend shares to its shareholders of record was granted by the Commissioner of Corporations. These shares were issued.

The issue presently before this court--that the stock is void because the agreement to purchase the same was entered into prior to the granting of a permit by the Commissioner of Corporations--is presented for the first time on this appeal. The defense proceeded in the trial court on the theory that plaintiffs loaned Bankey the $10,000, and that the monies thereafter paid to them by Bankey constituted repayment; and that neither plaintiff was ever entitled to a share of stock of Frebank, ever owned one, ever had been issued one, or was ever a stockholder of record. Bankey claimed, as alleged in his answer, that certificates No. 7 and No. 8 issued to Rankin and Myers were obtained by them without consent of the corporation and were signed by him (Bankey) without his consent (Para. II); and that there was collusion between plaintiffs and the secretary of the corporation, and fraud in obtaining his (Bankey's) consent to the signing, as president, of certificates No. 7 and No. 8. (Paras. II and III.) However, Bankey's evidence, in particular his own testimony, is silent on these matters, although throughout the trial he refused to acknowledge either plaintiff as a stockholder. He was vague and evasive concerning the existence of certificates No. 7, 8 and 9 and his part in issuing them, and what happened to certificate No. 1; and continued, without explanation, to deny the issuance and delivery of the certificates to Rankin and Myers. He then insisted that plaintiffs lent him the $10,000 to start a business and that the money was strictly a loan, but he admitted he gave them no notes and paid no interest. He testified that some of the money he gave plaintiffs was repayment on the loan, and that the $83.32 claimed by plaintiffs to be a corporate dividend, was actually 1/6th of $500 divided equally among his four children and Myers and Rankin for Christmas. At the conclusion, the trial judge commented, among other things, that 'someone has committed perjury in this case.'

The trial court found that since November 14, 1952, Rankin and Myers were owners 14, 1952, Rankin and Myers wre owners respectively of 33 1/3 shares of stock of defendant corporation as represented by certificates No. 7 and No. 8; that they have been and now are stockholders in the Frebank Company since that time; that defendant corporation and Bankey have no interest in and to the shares of stock issued to plaintiffs; that on April 5, 1957, there were 200 shares of stock in the corporation issued and outstanding and each plaintiff was the owner of 33 1/3 shares and a stockholder of record; and that on December 31, 1956, defendant Bankey fraudulently caused the records of Frebank Company to be altered as to reflect him to be the owner of 100 shares and plaintiffs as having no shares.

The record clearly supports the fact that no loan of money was involved and that plaintiffs and defendant Bankey intended the $10,000 to be an investment; that Bankey, with another person, organized a corporation, Frebank Company, and did therein invest the $10,000 for plaintiffs; that plaintiffs then believed that they would each receive one-third of Bankey's interest in the company and that this was then the intention of Bankey; and that on November 14, 1952, Bankey turned back to the company his 100 shares and caused the corporation to issue therefrom 33 1/3 shares to each plaintiff, and he intended then and there to do so. Evidence of Bankey's conduct, since 1950, reflects the investment of plaintiffs' money for them his intent to thereafter turn stock over to them, the issuance of the stock and delivery of the certificates to plaintiffs and his treatment of each plaintiff as the owner of 33 1/3 shares.

Appellants predicate the invalidity of the agreement to issue plaintiffs' stock in ...