Wishnick v. Frye
| Decision Date | 24 June 1952 |
| Citation | 111 Cal.App.2d 926,245 P.2d 532 |
| Court | California Court of Appeals Court of Appeals |
| Parties | WISHNICK v. FRYE et al. Civ. 18633. |
William C. Stein, William H. Levit, Los Angeles, for appellant.
Milton Wichner, H. H. Cholodenko, Los Angeles, for respondent.
Plaintiff brought an action to recover damages for fraud and deceit as against defendants Frye, Newmark and the Frye-Newmark Paper Company. From a judgment in favor of plaintiff for $14,180 defendant Newmark alone appeals.
The testimony discloses that plaintiff, a retired jeweler 61 years of age, advised his attorney, Mr. Mosk, that he desired to invest in a business that would provide him with both an income and employment suitable to his physical condition. Shortly thereafter Mr. Mosk introduced plaintiff to defendant Frye and appellant Newmark, who were the controlling directors, officers, and majority stockholders in the Frye-Newmark Paper Co., a corporation engaged in the business of paper jobbing. Frye and Newmark were interested in obtaining capital to undertake the manufacture of paper boxes, which would insure them a constant supply for their jobbing business. Negotiations were commenced with the owners and operators of a small paper box manufacturing company, a Mr. Barron and a Mr. Hirshon, as the result of which plaintiff, defendants Frye and Newmark, and Mr. Barron and Mr. Hirshon agreed to become associated in the organization of a corporation known as the State Container Corporation, its business purpose being the manufacture of paper boxes. During the preliminary negotiations, which eventuated in the formation of the State Container Corporation, plaintiff was represented by his attorney, Mr. Mosk, in all the significant phases of the transaction. Defendant Frye was authorized by appellant Newmark to act as his agent in arranging the deal.
The essence of the written agreement which was finally signed by the parties on January 11, 1949, provided that plaintiff was to invest $20,000 for 'the establishment and initial operation of the State Container Corporation,' of which $14,000 was a loan to the corporation and $6,000 was for the plurchase of the stock allocated to plaintiff and defendants. Plaintiff was to get one-third of the stock issued, one-third was to go to Barron and Hirshon, and the remaining third to Frye, Newmark and Mr. B. Weiner, and officer of the Frye-Newmark Paper Co. The assets of the small company belonging to Barron and Hirshon were to be transferred to the new corporation, which Barron and Hirshon would manage and of which plaintiff would be an employee at a salary of $100 per week. It was agreed that Frye-Newmark Company would channel to the State Container Corporation substantially all of its business that fell within the plant capacity and price range of the new corporation.
It was understood that the new corporation would have to be equipped with a substantial amount of machinery, which it was originally estimated would cost between $9,000 and $12,000, to be purchased with the money provided by plaintiff. He was concerned about the need for operating capital to enable the new plant to produce its product, but he was assured by defendant Frye that the equipment, which Barron was to purchase in the east, would be financed, so that sufficient operating capital would be available out of plaintiff's investment. Frye also advised plaintiff that if the machinery could not be financed at the place of purchase it would be financed by a local bank or, if need be, by a cousin of his in the factoring business. Barron eventually found that he was obligated to pay cash for the machinery, which cost between $13,000 and $15,000, including crating and freight charges to Los Angeles. This equipment was placed in operation in March, 1949, but from the outset the State Container Corporation found itself unable to fill or accept all the orders placed with it because of insufficient working capital. Meanwhile, the Frye-Newmark Paper Company suffered financial difficulties in April, 1949, and made a formal assignment for the benefit of creditors on June 2, 1949, at which time it was indebted to the State Container Corporation for between $3,267 and $3,865. The operations of the State Container Corporation continued until June 1, 1949, when it discontinued business because of a lack of operating capital; it made an assignment for the benefit of creditors on July 21, 1949. Plaintiff filed a claim amounting to the sum he had invested with the assignee of the State Container Corporation and received a dividend of $2,820. The judgment in the sum of $14,180 comprises the $20,000 invested by plaintiff less the dividend noted, less the $3,000 paid for the plurchase of plaintiff's share of the stock.
In bringing this action for damages caused by defendants' deceit, plaintiff alleged that he had been induced to invest his $20,000 in the paper box venture because of a series of fraudulent misrepresentations knowingly made by defendants with intent to deceive. Among such representations are the following: (1) the Frye-Newmark Paper Company was in a sound financial condition, with a sufficient backlog of orders for paper boxes to keep the State Container Corporation operating at capacity for one year with this business; (2) Frye-Newmark had enough orders on hand for the State Container Corporation to enable it to repay plaintiff's proposed loan in less than a year; (3) defendants Frye and Newmark controlled most of the paper box requirements of the local garment industry, which amounted to a volume sufficient to keep the new corporation's plant working at full capacity; (4) defendant Frye had a commitment from Ohrbach's to supply all their local requirements for paper boxes; (5) defendants Frye and Newmark would deliver to plaintiff a written guarantee against any loss up to $10,000. In its treatment of the representations hereinbefore enumerated, the court found that virtually all of them were false, but refused to predicate liability thereon because of its various findings that as to certain of the representations there was no justifiable reliance on plaintiff's part, as to another that it was a mere expression of opinion, and as to the remainder that they were not the proximate cause of any damage to plaintiff.
Judgment for plaintiff is based upon his allegation that defendant Frye falsely, knowingly and with intent to deceive, represented to him that the $20,000 which plaintiff was to invest was sufficient both to purchase machinery for the new corporation and provide the enterprise with adequate working capital and that Frye had arranged for a loan secured by the machinery in the event that the equipment required cash payment. As to this allegation the trial court found that ...
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