Opinion
Rehearing Granted March 19, 1929
Appeal from Superior Court, City and County of San Francisco; John J. Van Nostrand, Judge.
Action to rescind contracts for the sale of shares of corporate stock by Emil Hogberg against P.E. Landfield, doing business as an individual, and also under the fictitious name of Edward Marvin Company, and also under the name and style of P.E. Landfield Company, and another. From the judgment, plaintiff appeals. Affirmed in part, and in part reversed, with directions. COUNSEL
Everette C. McKeage, of San Francisco, for appellant.
John Ralph Wilson, of San Francisco, for respondents.
OPINION
NOURSE, J.
Plaintiff sued to rescind two separate contracts for the sale of shares of corporate stock. A separate judgment was asked against the defendant Maryland Casualty Company as the surety upon Landfield’s bond as a stockbroker. Each contract was pleaded in a separate cause of action. Judgment went for plaintiff and against defendant Landfield on his first cause of action only and judgment went for the surety company in both causes. The plaintiff has appealed from the portions of the judgment denying him relief on his second cause of action and denying any relief against the surety company. The appeal is presented on typewritten transcripts.
On August 15, 1924, plaintiff paid Landfield $2,650 under the first contract for shares of stock of the New Dominion Copper Company, and on October 24, 1924, paid him $960 for additional shares in the same company. Both sales were made by Landfield while acting as a duly licensed stockbroker, and both sales were accomplished through the false and fraudulent representations of Landfield. The bond of the surety company was given under the terms of sections 5 and 6 of the Corporate Securities Act (St.1917, p. 673, as amended), and was in full force during the time when the acts complained of were done.
The trial court found that all the representations pleaded in the complaint were made by Landfield, that they were false, that said defendant knew them to be false, that he made the representations for the purpose of inducing plaintiff to enter into the contracts, that he knew plaintiff believed and relied on said representations, and that plaintiff did so rely to his injury. It was also found that the stock was practically worthless, and that, within due time, plaintiff gave notice of rescission of both contracts on the grounds of fraud and failure of consideration. Upon these findings the trial court made the conclusion of law that plaintiff was not justified in relying upon these representations when the second contract was made, and recited in the judgment that this second contract had not been rescinded. This recital is directly contrary to the finding that notice of election to rescind in due form was given. When such notice is served the rescission is complete and the court should so find. American Type Founders’ Co. v. Packer, 130 Cal. 459, 62 P. 744; Prewitt v. Sunnymead Orchard Co., 189 Cal. 723, 732, 209 P. 995.
The conclusion that appellant was not justified in relying upon the representations is contrary to the findings of fact and to the settled rule of law that a party is justified in relying upon representations concerning existing facts not within his knowledge or his means of knowledge, but within the knowledge of the party making the representations. For these reasons this part of the judgment must be reversed.
The appeal from the judgment in favor of the surety is controlled by Blumenthal v. Larson, 79 Cal.App. 726, 248 P. 681, and Mitchell v. Smith (Cal.Sup.) 267 P. 540. In the Blumenthal Case it was held that a similar bond given by a broker under the Corporate Securities Act, conditioned upon the faithful compliance "with the provisions of law," bound the surety upon the broker’s noncompliance with the provisions of the Corporate Securities Act only. The case was affirmed in the Mitchell Case. There the brokers were charged with fraudulently inducing an owner to part with stock which the brokers falsely promised to sell for him. They then absconded with the stock, and the owner sought to hold the surety for his loss, but the Supreme Court held that this was not a violation of the Corporate Securities Act, and denied relief. There is no essential difference between the act of a broker in fraudulently obtaining stock from an owner for purposes of sale to another, and in fraudulently obtaining money from a party in the purchase of worthless stock. Immediately following the Blumenthal decision the Legislature amended the Corporate Securities Act so as to include cases of this nature, but the amendment came too late to afford this appellant any relief. We are impressed with the able argument of appellant in his endeavor to distinguish the two cases cited, but we must treat them as determinative of the liability of the surety in cases arising prior to this amendment.
It is also argued that, notwithstanding the rule of those cases, the surety here is liable because of the trial court’s finding that at the time of the sale Landfield "did exhibit to the plaintiff a typewritten letter purporting to be a statement of the financial condition of the New Dominion Copper Company signed by some person in the city of New York," and stating that the company was a fine, going concern. The respondent points out that this finding has no support in the evidence. This is conceded by the appellant, but he argues that, as the respondent has not appealed, he cannot attack the finding. There is no competent evidence in the record to support this finding. The appellant testified that some one purporting to have come from Mr. Landfield’s office showed him "a paper, evidently from New York, showing that the stock had been up to four dollars"; and "they showed me a little letter— a typewritten letter *** it was that the New Dominion Copper Company was a fine going concern, from somebody in New York." The paper or letter was not produced, and no further effort was made to offer competent testimony of its contents. No evidence was offered to prove that the contents of the letter were untrue, and neither the exhibition of the letter nor the falsity of its contents were pleaded in the complaint or made an issue in any manner. As this finding is wholly without the issues and is admittedly unsupported by evidence, it would be a miscarriage of justice to reverse the judgment merely because the surety company did not appeal or otherwise attack the finding. We feel that this is a case such as contemplated by section 956a of the Code of Civil Procedure (added by St.1927, p. 583), authorizing an appellate court to make findings contrary to those made by the trial court "based on the evidence adduced before the trial court either with or without the taking of evidence by the court of appellate jurisdiction." Therefore, upon the undisputed evidence adduced before the trial court in this record, we find that there is no proof that defendant Landfield issued, circulated, or published any false or misleading advertisement, pamphlet, prospectus, or circular, concerning the securities sold, within the meaning of section 14 of the Corporate Securities Act.
The portion of the judgment in favor of the Maryland Casualty Company is affirmed. The portion of the judgment in favor of Landfield on the second cause of action is reversed, with directions to the trial court to enter judgment on the findings in favor of appellant and against Landfield on that cause.
We concur: KOFORD, P.J.; STURTEVANT, J.