Opinion
Page __
__ Cal.App.2d __ 288 P.2d 98 BING CROSBY MINUTE MAID CORPORATION, Plaintiff, Appellant and Cross-Respondent, v. Wallazz B. EATON, Sr., Defendant, Respondent and Cross-Appellant. Civ. 5137. California Court of Appeals, Fourth District Sept. 28, 1955Hearing Granted Nov. 23, 1955.
Opinion vacated 297 P.2d 5.
Luce, Forward, Kunzel & Scripps, San Diego, by Edgar A. Luce, Jr., San Diego, for plaintiff, appellant and cross-respondent.
Sloane & Fisher, San Diego, by H. G. Sloane, San Diego, for defendant, respondent and cross-appellant.
SHELL, Justice pro tem.
This cause of action, prosecuted in the Superior Court, was based upon Corporations Code, §§ 1110, 1300 and 1306, which provide as follows:
'§ 1110. The value of the consideration to be received by a corporation for the issue of shares having par value shall be at least equal to the par value thereof, except that:
'(a) A corporation may issue par value shares, as fully paid up, at less than par, if the board of directors determines that such shares cannot be sold at par. [288 P.2d 99] '(b) A corporation may issue securities convertible into fully paid shares having par value at a price less than the par value of the shares issuable on conversion if the board of directors determines that such securities cannot be sold unless made convertible into par value shares at the price fixed, less than par.
'(c) A corporation may issue securities with an option to purchase fully paid shares having par value at a price less than the par value of the shares issuable on the exercise of such option, if the board of directors determines that such securities cannot be sold without the option to purchase par value shares at the price fixed, less than par.'
'§ 1300. Every subscriber to shares and every person to whom shares are originally issued is liable to the corporation for the full consideration agreed to be paid for the shares.'
'§ 1306. No action shall be brought by or on behalf of any creditor to reach and apply the liability, if any, of a shareholder to the corporation to pay the amount due on his shares unless final judgment has been rendered in favor of the creditor against the corporation and execution has been returned unsatisfied in whole or in part, or unless such proceedings would be useless.
'All creditors of the corporation, with or without reducing their claims to judgment, may intervene in any such creditor's action to reach and apply unpaid subscriptions, and all or any shareholders who hold partly paid shares may be joined in such action. Several judgments may be rendered for and against the parties to the action or in favor of a receiver for the benefit of the respective parties thereto.
'All amounts paid by any shareholder in any such action shall be credited on the unpaid balance due the corporation upon his shares.'
The theory of the plaintiff is that under those sections a stockholder is liable to a judgment creditor of a corporation for the difference between the par value of the stock he receives and the fair value of the consideration paid.
The evidence establishes that plaintiff was a judgment creditor of Eaton Frozen Foods, Inc.; that the balance remaining unpaid on plaintiff's judgment was $15,042.08; that defendant, Wallazz B. Eaton, Sr. had for several years prior to April, 1950, been engaged in the frozen foods business in San Diego; that said business was incorporated in April, 1950; that on June 8, 1950, the Commissioner of Corporations issued to Eaton Frozen Foods, Inc., upon its application therefor, a permit authorizing said corporation to sell and issue an aggregate of not to exceed 4,500 of its shares to Wallazz B. Eaton, Sr., Wallazz B. Eaton, Jr., Charlotte P. Butler, Barbara B. White and George H. Nebeker, but conditioned said permit on the requirement that 1,022 of said 4,000 shares should be deposited with an escrow holder; that none of said shares so required to be deposited in escrow nor any interest therein might be sold or transferred until the written consent of the Commissioner of Corporations be obtained; and the further condition that said 1,022 shares should not be sold or issued unless and until the persons named in said permit should have executed an agreement in writing with the corporation and filed it with the Commissioner of Corporations, waiving all rights of said persons to participate in any distribution of assets of the corporation until all other shareholders shall have received the return of the full amount of the purchase price thereof, and any unpaid accumulated dividends thereon, and waiving their right to receive any dividends thereon until all other shareholders shall have received accumulative dividends equal to five per cent per share per annum.
On June 21, 1950, Wallazz B. Eaton, Sr., executed a bill of sale transferring and assigning to Eaton Frozen Foods, Inc. all of the assets of his business, together with the name and good will of such business. The consideration expressed in the bill of sale was the issuance of 4,500 shares of $10 par value stock of the corporation. In the bill of sale the liability of the business [288 P.2d 100] so transferred was stated not to exceed $36,499.51, and the net worth of said business was stated to be 'in excess of $34,780.00'.
The stockholders' ledger of the corporation shows that on July 5, 1950, the corporation transferred to defendant Wallazz B. Eaton, Sr., 3478 shares of its stock, and shows that on July 10, 1953, there was transferred to Wallazz B. Eaton, Jr., 1,160 shares, to William B. Eaton, 1,159 shares and to Barbara E. White, 1,159 shares. The total number of shares so transferred aggregates 3,478 shares, the same number as were issued to defendant Wallazz B. Eaton, Sr., on July 5, 1950.
The stockholders' ledger also shows in the column headed 'Transferred To' under date of July 5, 1950, the name of Wallazz B. Eaton, Sr., 1,022 shares, preceded by the word 'Escrowed'. $By written order, dated June 26, 1950, the Commissioner of Corporations had approved Mr. George H. Stone, attorney for the corporation, as escrow holder of the 1,022 shares of stock, and the certificate evidencing the same was duly deposited with the escrow holder on July 10, 1950. This stock was never released from escrow by the Commissioner of Corporations, and was in the possession of Mr. Stone at the time of his death.
The corporation executed an assignment for the benefit of its creditors generally on September 1, 1953, to the San Diego Whole-sale Credit Men's Association, a corporation.
Upon the trial the trial court found in favor of plaintiff and entered judgment for plaintiff in the sum of $10,219.17 against the defendant Wallazz B. Eaton, Sr. only.
Defendant moved for a new trial on the following grounds:
1. Insufficiency of the evidence to justify the decision and judgment;
2. Said judgment is against the law;
3. Error in law occurring at the trial and excepted to by the defendant.
The trial court granted the motion for new trial and in its order granting a new trial did not specify the insufficiency of the evidence. Hence under section 657 of the Code of Civil Procedure it must be conclusively presumed that the order was not based upon that ground. We have examined the transcript of the record of the trial proceedings and find no evidence of errors of law occurring thereat. This leaves for our consideration, insofar as the order granting a new trial is concerned, only the question of whether the trial court was justified in the conclusion that the judgment was against the law. We therefore must determine whether the act of the corporation by deposit in escrow of the certificate purporting to evidence the ownership of 1,022 shares of stock, by order of the Commissioner of Corporations, was a sufficient delivery of said certificate to effect the passing of title in said stock to the defendant Wallazz B. Eaton, Sr.
Corporations Code, § 2466, indicates that the Legislature, by the enactment thereof, intended to provide that title to a stock certificate and to the shares represented thereby can be transferred only by delivery of the certificate.
The deposit of an instrument in escrow does not generally pass title. The title does not pass to the grantee until the determining event. Generally, it is only 'on delivery by the depositary' to the grantee, if in accordance with the escrow instructions and without fraud, that the deed conveys legal title to the grantee. 18 Cal.Jur.2d p. 340, sec. 24; Civ.Code, § 1057; Fitch v. Bunch, 30 Cal. 208, 211, 212; Heney v. Pesoli, 109 Cal. 53, 59, 41 P. 819; In re Reed, 204 Cal. 119, 123, 266 P. 948.
While an actual or manual delivery of an instrument evidencing title is not always necessary to invest the grantee with title, and while it may be said that constructive delivery thereof is made the moment the condition has been performed, or the event has happened [288 P.2d 101] upon which the grantee is entitled to possession, Cannon v. Handley, 72 Cal. 133, 141, 13 P. 315, we find no support in the law for a theory that constructive delivery may be assumed to have taken place when the condition has not been performed, nor the event happened upon which the grantee would be entitled to possession of the instrument.
The corporation and the defendant must be presumed to have had in mind at the time of the transaction between them the provisions of Corporations Code, § 25500, prohibiting the sale of any security of the corporation without first securing a permit from the Commissioner of Corporations authorizing such sale, and of Corporations Code, § 25508, that the Commissioner may impose conditions requiring the deposit in escrow of such securities, limiting the expense in connection with the sale thereof, the waiver of assets and dividends by the holders of promotional securities, and such other conditions as he deems reasonable and necessary or advisable for the protection of the public and the purchasers of the securities.
Pursuant to these provisions of the law, and of the permit issued by the Commissioner of Corporations, the corporation issued, but did not deliver to the defendant the certificate for 1,022 shares of its stock, which, if delivery had been made, would have passed title of the stock to the defendant.
The conditions imposed by order of the Commissioner were conditions over which the defendant could have no control. They were contingencies which might never occur, and in fact did not occur. While such certificate remained deposited in escrow the defendant could have none of the benefits which would have accrued to him had unconditional delivery of the certificate been made to him.
It seems to be apparent that plaintiff could recover, if at all, under the stockholder's liability to creditors contemplated by Corporations Code sections 1110, 1300 and 1306, only if the stockholder has failed to deliver to the corporation adequate consideration equal to the par value of stock received by him. 3,478 shares of stock of the par value of $10 per share were actually delivered to the defendant. In its finding No. V, the court found the value of the consideration given by defendant to the corporation was $34,780.83. The judgment was for $10,219.17, which was the approximate difference between the value of 4,500 shares of stock at $10 per share, and the value of the 3,478 shares of stock actually delivered to defendant, and represents the approximate value of the 1,022 shares placed in escrow. There can therefore be no question but that the trial court rendered its judgment against defendant in favor of plaintiff in the belief that liability of the defendant stockholder to the creditor accrued under the theory that defendant had received title to the 1,022 shares of stock placed in escrow. Upon the hearing of the motion for new trial the court concluded that the conclusion of law theretofore arrived at was in error, and that the judgment was against the law. We agree with the trial court in its final conclusion. Entertaining this view, it is unnecessary to consider further defendant's appeal from the judgment.
The order granting a new trial is affirmed. The appeal from the judgment is dismissed.
GRIFFIN, Acting P. J., and MUSSELL, J., concur.