Sime v. Malouf

• Decision Date: 14 December 1949
• Citation: 212 P.2d 946,95 Cal.App.2d 82
• Court: California Court of Appeals Court of Appeals
• Parties: SIME v. MALOUF et al. Civ. 16847.

Page 946

212 P.2d 946

95 Cal.App.2d 82

SIME v. MALOUF et al.

Civ. 16847.

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

Dec. 14, 1949.

As Amended on Denial of Rehearing Jan. 13, 1950.

See 213 P.2d 788.

Jennings & Belcher; Morris Lavine, Los Angeles, for appellants.

E. C. Pyle, George Acret, Los Angeles for respondents.

SHINN, Presiding Justice.

This is an appeal by defendants A. B. Malouf, W. B. Malouf, B. B. Malouf, Bertrand L. Ball, Sperry Lawson, Ben Mar Hills Corporation and Ben Mar Hills Apartments, Inc. from a judgment against them in the amount of some $77 000 for fraud and conspiracy to defraud. The complaint originally named various other defendants among whom were five individuals who were directors of Edgerton, Riley and Walter, a dissolved corporation, at the time of its dissolution, Paul T. Sunday and Zack J. Farmer. Sunday died during the pendency of the action and a nonsuit was granted in favor of his personal representative who had been substituted as a party defendant. The court rendered judgment in favor of defendant Farmer and the above mentioned directors. Except as otherwise indicated, the word 'defendants' will be used herein to refer collectively to the Maloufs, Ball, and Lawson.

Edgerton, Riley and Walter (herein referred to as E. R. & W.) was a corporation, now dissolved, which in 1937 was engaged in bond and stock brokerage business in Los Angeles. There were only nine shareholders all of whom, with the exception of Mr. Cecil B. DeMille, who was the majority stockholder, took an active part in the company affairs. Mr. DeMille's interests were represented through Mr. Treacy. Plaintiff, Harry Sime, had been employed by E. R. & W. prior to 1937 as a salesman of securities. In 1937 plaintiff and E. R. & W. entered into an agreement evidenced by a letter under date of November 18, 1937, signed by J. E. Edgerton as President, and J. D. Flora as Assistant Secretary of E. R. & W., bearing the corporate seal, which letter was endorsed 'accepted' by plaintiff. The court found this agreement had been duly executed and also that it had later been ratified by E. R. & W. The material portions of the letter read as follows: 'This is to confirm our agreement relative to bonds acquired by the undersigned company in the City of Burbank in the district commonly known as Ben Mar Hills. We agree to furnish necessary capital for the purchase of any outstanding bonds or property in said section of said city and provide any and all necessary working capital to effect a liquidation of our bond holdings in said city either by acquisition and sales of properties or any other legal means to result in disposing or liquidating our bond holdings at a profit. You are to represent us in dealings with other bondholders and in our dealings with the City of Burbank, all contracts or agreements, however, in which we shall become a party are subject to our approval before the same may become effective. These bonds and the liquidation as contemplated shall be on a joint basis between us, all specific and out-of-pocket expenses to be charged to the joint account of yourself and ourselves, profits and/or losses to be divided equally between us, the profits to be distributed at such dates as are mutually agreed upon between us. It is understood, however, that all costs and expenses incident hereto advanced by us pursuant to this agreement are to be deducted before any distribution of profits is made to either of us. It is further agreed that you may at your option at any time acquire one-half of the bonds held by us against property in said section of said City of Burbank by paying to us our costs thereof plus one-half of the expenses herein advanced by us.' Evidence was presented at the trial tending to prove that the purported contract was not actually executed until more than a year after its date; however, there was other evidence that the instrument did truly reflect the oral agreement under which the parties had been operating since 1937. Pursuant to the agreement Sime and his associate, Tad Travers, engaged in continuous and successful efforts to acquire certain delinquent improvement bonds of the City of Burbank from the bond owners; negotiated for and secured execution of a contract with the City of Burbank under which the bonds could be used to bid upon and thereby acquire various delinquent parcels of real property in the Ben Mar Hills section; and obtained a release of certain tax liens, penalties and interest charges against the property on account of the delinquent street assessments. Sime also performed various other substantial services for the furtherance of the project which need not be recounted in detail.

On February 1, 1939, an action was filed by one William E. Smith, a resident of the City of Burbank, to enjoin the performance of the terms of the contract between the city and E. R. & W. Smith had no interest in the action and it was in fact instigated by one B. W. Marks, who later became associated with the Maloufs and Lawson in the enterprise. The litigation was thereafter financed by the Maloufs and Lawson. In July 1939 the Maloufs and Lawson formed a copartnership which later became the corporate defendants. In November 1939 Ball, acting as an agent of the Maloufs and Lawson, purchased from Mr. DeMille, and held in his name for his principals, control of E. R. & W. Shortly thereafter Ball, representing that he was the owner of the majority shares, caused E. R. & W. to be reorganized with himself as President and a director and Lawson and one R. E. McGinnis, as additional directors. Ball also informed Sime that he would not recognize Sime's contract with E. R. & W. and told Sime he was discharged. On December 29, 1939, Ball obtained from the Board of Directors of E. R. & W. a resolution authorizing him to sell on or before 5 p. m. January 8, 1940, the corporation's interest in the Burbank project for $50,000 or more, and providing further that Ball should be paid a 5 per cent commission if a sale was consummated. On January 8th Ball reported to the Board that he had closed a sale with Zack J. Farmer whose cashier's check he held in the sum of $50,000. Unbeknown to Sime, Farmer was an agent of the Maloufs and Lawson in whose behalf he was making the purchase.

On January 12, 1940, Paul T. Sunday, who had acquired and owned a 50 per cent interest in the Burbank project together with E. R. & W. and Sime, commenced an action entitled Sunday v. Edgerton, Riley and Walter et al., to enjoin the sale on the ground that E. R. & W. had no right to sell without his consent. Sime, who had been named as a defendant in the Sunday action, filed a cross-complaint to enjoin the sale as being invalid as to his interest. Shortly after the filing of the cross-complaint Ball attempted to induce Sime to sell out his interest for $7,000 but Sime refused. This offer was later repeated and although Sime again refused he agreed to permit Sunday, who was trying to sell his own interest, to carry on negotiations in an effort to settle the entire matter. About February 13, 1940, Sunday told Sime that Farmer would pay $12,500 for Sime's interest in the payment and E. R. & W. would cancel Sime's indebtedness to it amounting to about $3,100. Sime accepted the offer. Pursuant to his agreement with Sunday, Sime and Travers and their respective wives executed a release of all claims against E. R. & W., Sunday and Ball; executed instruments of transfer; and Sime dismissed with prejudice his cross-complaint. Sunday and E. R. & W. executed an identical release in favor of Sime and Travers. Sime and Travers received a joint check for $25,000, which they divided equally; and Sime's debt to E. R. & W. was duty cancelled. Although Sunday told Sime that the offer of a net price of about $15,600 for Sime's interest was not disproportionate to what he was receiving for his interest, it was shown that Sunday, in fact, received more than $100,000. The settlement was handled through an escrow but none of the escrow papers disclosed that the Smith litigation was controlled by the Maloufs and Lawson or that Ball was not the owner in his own right of the majority shares of E. R. & W. The Smith litigation, in which an appeal from an adverse judgment had been perfected by the plaintiffs therein, was voluntarily dismissed by them on June 17, 1940 after the aforesaid settlement had been consummated and Farmer had been put in possession of all of the assets of the Burbank project. Subsequently, certain of the minority stockholders of E. R. & W. filed an action entitled Ben A. Walter et al. v. Paul T. Sunday et al., against the same defendants as in the present action, in which a judgment for fraud arising in part out of the same facts as are here involved was recovered in the amount of $225,000 on December 30, 1943. By stipulation, the judgment was subsequently vacated and a settlement reached. Shortly after this judgment was rendered Sime, who had not participated in the action, read the findings of fact therein and learned for the first time that the Maloufs and Lawson controlled the Smith litigation, Ball was their agent and had no personal interest in E. R. & W., Farmer also had acted as their agent in the purchase, and Sunday had received more than $100,000 in the settlement. The present action was commenced on February 3, 1944.

The foregoing statement summarizes the essential features of the complaint as incorporated by reference in findings made by the trial court after a trial covering some 140 trial days, the proceedings in which are presented to this court in the form of 51 volume reporter's transcript of more than 16,000 pages. The court also made findings to the effect that the defendants conspired to fraudulently deceive plaintiff and acted in concert in acquiring plaintiff's interest in the project; defendants stood in a fiduciary relationship to plaintiff at the time they purchased his interest; plai...