Sarmento v. Arbax Packing Co.
Decision Date | 22 December 1964 |
Citation | 231 Cal.App.2d 421,41 Cal.Rptr. 869 |
Court | California Court of Appeals Court of Appeals |
Parties | , Blue Sky L. Rep. P 70,655 Frank SARMENTO and Nancy Rampone Sarmento, doing business as White Lake Ranch, Plaintiffs and Appellants, v. ARBAX PACKING COMPANY, a partnership, and L. O. Baxter, Defendants and Respondents. Civ. 10799. |
Mazzera, Snyder & DeMartini, by J. Calvert Snyder, Stockton, for appellants.
Daley & Patridge, by Richard B. Daley, Stockton, for respondents.
Arbax Packing Company, a partnership composed of defendants Armanino and Baxter, was in the business of packing and shipping cherry and grape crops. The firm purchased growing crops both for its own account and for resale to speculative buyers. It held a commission merchant's license, a broker's license and a dealer's license, all issued by the State Department of Agriculture. In the spring of 1961 Arbax purchased for $60,000 the entire crop of grapes growing on the Peirano ranch. This crop consisted of Zinfandel, Alicante and approximately 80 acres of Tokay grapes. Generally Arbax did not retain and market Tokay grapes for its own account. In July 1961 it sold the 80 acres of Tokays to the plaintiffs, Mr. and Mrs. Frank Sarmento, for $25,000. In connection with that sale, two contracts were executed. One was a contract of sale, featuring a promise by the sellers (Arbax) to care for the crop at its own expense until it was ready for harvest and an agreement by the buyers (plaintiffs) to harvest the crop at its own expense and to stand all risks of loss. The companion contract was a 'shipping agreement' in which plaintiffs agreed that the crop would be marketed by Arbax at the latter's normal rate of commission.
Shortly before harvest, a heavy rain damaged the crop and the grapes were sold at a loss of $7,069.84 to plaintiffs. Plaintiffs sued defendants on a common count for money advanced. The trial court denied recovery. The sole question on appeal arises from plaintiff's contention that the transaction constituted sale of a 'security' without a permit issued under the Corporate Securities Law. (Calif.Corp.Code, sec. 25000 et seq.)
The trial court made the following finding of fact:
Plaintiffs assail this finding, asserting that it lacks the support of substantial evidence and does not support the judgment. The extent to which Arbax engaged in similar resales of crops is not entirely certain. Baxter, one of the partners, testified that during the summer of 1961 the firm had bought 10 to 20 crops of grapes and had resold 5 to 10 of these crops to speculative buyers. Some of the buyers paid for the entire crop in advance, others paid only one-half the agreed price prior to marketing. Each buyer signed a 'shipping agreement' designating Arbax as the sole marketing agent, thus guaranteeing Arbax a profit in the form of a commission. Some of the buyers harvested the crops themselves, others instructed Arbax to do so.
Section 25008, Corporations Code, defines a security in several ways, among them 'any transferable share, investment contract, or beneficial interest in title to property, profits, or earnings.' This broad definition is designed to embrace speculative schemes to attract risk capital, no matter how ingeniously designed, and the courts will look through form to substance to achieve this end. (Silver Hills Country Club v. Sobieski, 55 Cal.2d 811, 814, 13 Cal.Rptr. 186, 361 P.2d 906, 87 A.L.R.2d 1135; People v. Syde, 37 Cal.2d 765, 768, 235 P.2d 601; 2 Ballantine & Sterling, California Corporation Laws, pp. 904-905; 14 Fletcher, Cyclopedia of Corporations, pp. 179-180; 163 A.L.R. 1052, 1055.) No hard and fast rule fixes that which constitutes a 'security.' Rather, the question is determined on a case by case basis. The crucial question is whether the transaction comes within the regulatory purpose of the Corporate Securities Law. (Silver Hills Country Club v. Sobieski, supra, 55 Cal.2d at p. 814, 13 Cal.Rptr. 186, 361 P.2d 906.) One general standard laid down by the decisions is the following: ...
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