Trump v. Badet

• Decision Date: 15 July 1958
• Docket Number: No. 6393,6393
• Citation: Trump v. Badet, 327 P.2d 1001, 84 Ariz. 319 (Ariz. 1958)
• Parties: , Blue Sky L. Rep. P 70,391 Frederic J. TRUMP and Juliann S. Trump, husband and wife, Appellants, v. H. S. BADET, Jr., Appellee.
• Court: Arizona Supreme Court

Page 1001

327 P.2d 1001

84 Ariz. 319, Blue Sky L. Rep. P 70,391

Frederic J. TRUMP and Juliann S. Trump, husband and wife, Appellants, v.H. S. BADET, Jr., Appellee.

No. 6393.

Supreme Court of Arizona.

July 15, 1958.

Darnell, Holesapple, McFall & Spaid, Tucson, for appellants.

Nolen L. McLean, Tucson, for appellee.

GORDON FARLEY, Superior Court Judge.

H. S. Badet, Jr., plaintiff-appellee, sought to recover monies which he paid for the purchase of stock in two corporations upon the ground that the sales of such stock to him were in violation of the Arizona Securities Act.Frederic J. Trump et ux., defendants-appellants, contend that the plaintiff purchased a fifty per cent interest in a business, rather than shares of stock as such, and that consequently the Securities Act has no application.The lower court determined that the Securities Act had been violated and entered judgment in favor of plaintiff, and this appeal followed.

The parties originally came in contact with each other through Attorney Frank E. Murphy, Jr., who was engaged by the defendants who, according to the terms of the employment contract:

'* * * being in need of additional capital for said corporation and also in need of additional executive assistance and desires to retain an attorney to locate same and to handle the transactions involved in obtaining new stock subscriptions, handling the various agreements and stock transfers attendant thereto, * * *.'

As a result of the attorney's efforts the plaintiff became interested, and to consummate the transaction the parties entered into a subscription agreement on April 20, 1953, which was subsequently modified orally, whereby the plaintiff agreed to acquire fifty per cent of the stock in two corporations known as Life Laboratories and Life Sales, both of which were originally incorporated by the defendants.

By the terms of the subscription agreement as orally modified, plaintiff acquired from defendants:

150 shares of stock in Life Laboratories for $15,000

15 shares of stock in Life Laboratories from one Fred Patterson for $1,500, and

60 shares of stock from Life Laboratories, a corporation, for $6,000, and

75 shares of stock from Life Sales, a corporation, for $7,500.

Neither of the corporations nor Patterson were made parties, but nevertheless the trial court rescinded the sale of all the foregoing stock, and directed the entry of a money judgment against the defendants for all of the stock purchased by plaintiff.

By defendants' first proposition it is urged that the parties were negotiating for the sale of fifty per cent interest in the business of the corporations, and merely chose the modus operandi of a stock transfer to effectuate the sale of the one-half interest in the business.It is admitted that plaintiff wanted to acquire at least a one-half interest in the business, but nevertheless plaintiff urges that the agreement which the parties concluded was a stock subscription agreement.Testimony was offered to show that Murphy was employed to sell an interest in the business and to interest a purchaser who would assume some of the managerial duties, but the lower court apparently gave little weight to such testimony in the light of the language contained in Murphy's employment agreement to procure additional capital and in obtaining new stock subscriptions, as well as the agreement of April 20, supra, whereby plaintiff subscribed for shares of stock and wherein repeated reference is made to the subscription of stock by plaintiff, without mention of a business interest as such as distinguished from shares of stock therein.The language of both agreements with respect to the subject matter is clear and unambiguous, and the trial court was justified in disregarding the oral testimony as to an interest in the business being the subject matter of the sale to the plaintiff.

The case of Zugsmith v. Mullins, 81 Ariz. 33, 299 P.2d 629, is cited by defendants as authority for defendants' position, but the distinction between the facts in that case and the instant case is clearly apparent.Therein it was stated:

'Under the contract alleged plaintiff did not agree to sell any stock for defendants * * * .'[Emphasis supplied.]

Here the evidence clearly supports the trial court's finding that Murphy undertook to find a purchaser for stock in the corporation, and plaintiff subscribed for stock.

Defendants' second proposition is that plaintiff participated as an officer of Life Laboratories and Life Sales in the issuance of the stock which he acquired from the corporations, and as a consequence he is in pari-delicto and cannot recover from defendants for his own wrong in offering such stock for sale.The answer to that contention is simply that the transaction was outlined in the original subscription agreement, and that the bona fide acts of the purchaser of stock in compliance with the terms of the original agreement do not impute illegality to such purchaser in effectuating the terms of such an agreement.

In their third propositiondefendants urge that

'3.A purchaser of stock has no cause of action under the Arizona Securities Act for a rescission of the sale and recovery of the money paid for stock from one who received none of the consideration and was not a party to the sale.'

Generally speaking that is a correct statement of law but not applicable to the facts in this case.The plaintiff was induced by defendants in the original subscription agreement to acquire the stock of Life Laboratories and Life Sales from those respective corporations although the actual sale to plaintiff occurred on May 22, the date he became an officer of the companies.Defendant Trump asserts that he was not a party to the actual transfer of stock and that he cannot be held liable in an action to rescind the sale.

Ordinarily that position would be tenable were it not for the language of A.R.S. § 44-2003 which provides:

'An action brought under §§ 44-2001 or 44-2002 may be brought...