Schreiber v. San Joaquin Exploration Co.

MUSSELL, J.

This is an action to foreclose a chattel mortgage and an assignment of an oil and gas lease given as security for the payment of a promissory note in the sum of $24,000 payable to the plaintiffs and executed by the defendant corporation. The execution and nonpayment of the note was admitted by defendant and special defenses of failure of consideration and usury were alleged. Defendant also filed a cross-complaint in which it sought a cancellation of the note, mortgage, lease and assignment of an overriding royalty agreement.

[172]

The trial court limited the amount of recovery on the principal of the note to $16,000, holding that there was a failure of consideration for the sum of $8,000 included in the amount sought to be recovered.

Plaintiffs appeal from the judgment only insofar as it fails to award them the $8,000 deducted and defendant appeals from the whole of the judgment except that part thereof denying plaintiffs the right to recover the said sum of $8,000.

Plaintiffs each owned 7,500 shares of stock in defendant corporation. On December 6,1948, they and each of them transferred this stock to Albert Sanders, who became president of defendant corporation on or about said date. The consideration for each of these transfers was the sum of $5,000. Each plaintiff received $1,000 in cash and a promissory note executed by Sanders in the sum of $4,000. Apparently these notes were dated November 20, 1948, were payable on or before May 20, 1949, and were secured by pledge of 15,000 shares of stock in defendant corporation. The record shows that this stock was transferred to Sanders, with consent of the Division of Corporations in December of 1948.

On April 27, 1950, the defendant corporation executed a promissory note in the sum of $16,000, payable to the Bank of America National Trust and Savings Association. On October 1, 1950, a special meeting of the defendant corporation was held to discuss the financing of the operations of the company. At this meeting Sanders, who was president, stated that the corporation did not have sufficient funds to pay its note to the bank and that this obligation would have to be refinanced; that plaintiffs had offered to take up said note for the company and give the company until May 31, 1951, to pay the same, providing the company would repurchase from them the stock which they held in the company for the sum of $8,000; that plaintiffs each held 7,500 shares in the company stock which he, Sanders, had agreed to purchase and that he had defaulted in the purchase contract. The following resolution was then adopted by the defendant corporation: