Sousa v. First Cal. Co.

• Decision Date: 29 December 1950
• Citation: 225 P.2d 955,101 Cal.App.2d 533
• Court: California Court of Appeals Court of Appeals
• Parties: SOUSA v. FIRST CALIFORNIA CO. Civ. 14484.

Page 955

225 P.2d 955

101 Cal.App.2d 533

SOUSA v. FIRST CALIFORNIA CO.

Civ. 14484.

District Court of Appeal, First District, Division 2, California.

Dec. 29, 1950.

Hearing Denied Feb. 26, 1951.

Bronson, Bronson & McKinnon, San Francisco, for appellant.

Thomas, Beedy, Nelson & King, San Francisco, for respondent.

NOURSE, Presiding Justice.

This is an appeal by defendant from a judgment on a verdict granting plaintiff $35,000 damages for the breach by defendant of an alleged oral agreement to purchase from plaintiff all the capital stock of Pacific Box Company, a California corporation, for $550,000.

Evidently to show satisfaction of the statute of frauds, § 4 of the Uniform Sales Act adopted into our law in §§ 1724 and 1624a, Civil Code and § 1973a of the Code of Civil Procedure, the complaint alleges that pursuant to the oral agreement defendants deposited in escrow the sum of $25,000 'for and on account of said purchase price.' Further allegations of the complaint intended as basis of an estoppel to plead the statute have lost relevancy because at the trial the point with respect to estoppel was expressly withdrawn by plaintiff's attorney and no estoppel is argued on appeal.

Appellant urges that as a matter of law the negotiations of the parties had not yet resulted in an oral agreement; that even if such agreement had been concluded it would be unenforceable under the statute of frauds; that no contract with plaintiff alone, who owned only part of the stock of Pacific Box Company was proved but, if any, a contract in behalf of all four stockholders of said company whereas there was no written authorization of plaintiff to act for the other three, and finally that there was no proof of damage.

On May 17, 1946, a conference of the parties and their attorneys was held in which were present among others the plaintiff, his attorney, Mr. John B. King, Mr. H. Th. Birr, Jr., executive vice-president of defendant, Mr. Roy A. Bronson, a director and attorney of defendant, and Mr. Harold R. McKinnon, another member of the attorney's firm representing defendant. The conference was held in the offices of said firm. Defendant, whose business is the underwriting of security issues, had for some time prior to the above date been negotiating the acquisition of all the stock of Pacific Box Company for the purpose of bringing it on the market. Plaintiff was president of that company and one of its four stockholders; plaintiff and a partnership of which he was a partner owned the two large holdings, and two friends personally connected with the business of the company owned the small ones. Defendant's representatives and auditors had been investigating the business of Pacific Box Company in detail and an offer to sell at the price of $550,000 had been made by plaintiff. Meanwhile plaintiff had become interested in the purchase for Pacific Box Company of certain interests in Canada which would provide it with an additional source of supply of lumber. When a few days earlier plaintiff had asked defendant's intention as to both transactions the answer had been in substance that defendant intended to proceed with the purchase of the Pacific Box stock but was not interested in the Canadian transaction. In the conference of May 17, 1946, agreement was reached as to the principle that if the assets of Pacific Box Company on May 31, 1946, would be below a certain level agreed upon (there is some discrepancy in the evidence as to the description of that level) the price of $550,000 would be adjusted downward accordingly and that seller (or sellers) would assume responsibility for any undisclosed liabilities or additional tax assessments. Then plaintiff declared that he wished a decision as to the definitive character of the agreement because he had to decide on the Canadian transaction by that same evening and wished to accept it if defendant would not take over the Pacific Box Company stock. Until this point there is little essential conflict in the evidence. However with respect to the answer then given by the representatives of defendant the conflict is as sharp as possible; plaintiff and his attorney testified that Mr. Birr and one of his attorneys declared it was a deal, an agreement, whereas the representatives and attorneys of defendant testified that the answer given was that there could not be a definitive deal so long as there was no written contract containing also provisions with respect to different points not yet agreed upon. (Defendant mentions as such the manner in which the assets would be evaluated, the warranties to be given by sellers, the changing of the capital set-up of the corporation so as to provide for a large number of marketable low priced shares and the obtaining of permits from the commissioner of corporations for the sale of said shares to the public.) However the verdict must be considered as an implied acceptance of the position of plaintiff in this respect.

At any rate it was agreed that the attorneys of defendant would draft a written contract to be signed by the parties, which would not be ready the same day. Plaintiff then demanded a part payment on the purchase price and told Mr. Birr, according to plaintiff's testimony that he 'had to have some tangible evidence that they were actually sincere in their desire to buy * * *.' Mr. Birr and his attorneys objected but when plaintiff insisted they finally obtained from defendant's office a check for twenty-five thousand dollars to the order of plaintiff. Plaintiff testified about what happened then substantially as follows: The check was laid on Mr. Roy Bronson's desk. I asked about paying the check to me. 'Mr. Birr and Mr. McKinnon both objected at the time to releasing the check * * *. I suggested inasmuch as Mr. Roy Bronson was not very active in all these discussions, if they did not want to release the check to me without any agreement at that time, it be left in Mr. Roy Bronson's possession * * * [u]ntil the agreement Mr. Birr and Mr. Mason [read Mr. McKinnon] promised was to be completed in 24 hours was reduced to writing.' Defendant introduced in evidence a letter dated May 17, 1946, from defendant to Mr. Roy Bronson, instrucing him to deliver the check to plaintiff if and when a contract for the purchase of the Pacific Box Company stock would be entered into and to return the check to defendant if said agreement would not be executed before May 25, 1946, on which letter Mr. Roy Bronson acknowledge receipt of the check under the same date. The witnesses for defendant testified that said exhibit was dictated and signed in the conference but plaintiff an his attorney testified that such had not taken place in their presence and that its content was unknown to them. No escrow instructions in writing were given by plaintiff.

A few days after the conference, before a draft contract was submitted, defendant withdrew from the transaction. Plaintiff did not institute any action against Mr. Roy Bronson for the delivery of the check, but brought this action against First California Company originally for the full purchase price of $550,000, later amended to a lower amount of damages.

On the basis of the above facts the judgment cannot be sustained. Even if we assume in support of the verdict, without so deciding, that there was substantial evidence, that in the conference of May 17, 1946, the parties reached an oral agreement as to the stock to be sold and the price to be paid for it, that they at the same time expressly stated their intention that the oral agreement would be definitive, notwithstanding the fact that a written agreement containing more detail would be prepared by the attorneys and signed, that said oral agreement was not so uncertain or incomplete as to make it necessarily invalid contrary to the expressed intention of the parties, and that plaintiff concluded said agreement solely in his own name as alleged (relying on his capacity to dispose also of the part of the stock not owned by him), then still the agreement would be unenforceable under the statute of frauds as cited before, which reads in part: 'A contract to sell or a sale of any goods or choses in action of the value of five hundred dollars or upwards shall not be enforceable by action unless the buyer shall * * * give something in earnest to bind the contract, or in part payment * * *.'

It is solely on this part payment clause that respondent relies to show satisfaction of the statute. Appellant contests the applicability of that clause not on the ground that a check does not constitute part payment but on the ground that the check was not given to or received by plaintiff. Plaintiff demanded part payment, but obtained a deposit in escrow which, as will be shown, is not part payment under the statute.

An instrument is 'deposited in escrow' when in accordance with an agreement to that effect it is deposited with a third person to be delivered to the other party to the agreement on the performance of a specified condition. § 1057, Civil Code; Cannon v. Handley, 72 Cal. 133, 140, 13 P. 315; Bailey v. Security Trust Co., 179 Cal. 540, 548, 177 P. 444. Until that condition is fulfilled the escrow holder does not hold as agent of the vendor alone but as agent or trustee for both parties and his power to transfer and obtain title for each of them is limited by the validly given instructions of both. McDonald v. Huff, 77 Cal. 279, 282, 19 P. 499; Shreeves v. Pearson, 194 Cal. 699, 707, 230 P. 448. Only after strict compliance with the condition imposed can there be transfer of title and does the escrow holder begin to hold for the party thereby entitled. Los Angeles High School Dist. v. Quinn, 195 Cal. 377, 383, 234 P. 313; Promis v. Duke, 208 Cal. 420, 425, 281 P. 613; Shreeves v. Pearson, supra. A recognized exception to the preceding rules in case of an escrow until an event certain to occur like the death of the grantor, see Whitney v. Sherman, 178 Cal....