Strangman v. Arc-Saws, Inc.

California Court of Appeal Mar 2, 1954 No. Civ. 19833Published

Before: Shinn

AI Brief

AI-generated · verify before citing

Holding. The court affirmed a judgment against an attorney and a corporation for constructive fraud and violation of the Corporate Securities Act, holding that the attorney's breach of fiduciary duty and participation in an illegal securities transaction warranted liability despite his lack of dishonest motive. The court further held that the defendants were estopped from asserting the statute of limitations due to the plaintiff's reasonable reliance on the attorney's misrepresentations.

Issues

Whether the transaction constituted the issuance of a security under the Corporate Securities Act.
Whether the defendants were estopped from asserting the statute of limitations as a defense.
Whether the attorney's negligent misrepresentation regarding the necessity of a permit constituted constructive fraud.

Disposition. affirmed

Quotations verified verbatim against the opinion

“The transaction clearly involved the issuance of a security as that term is defined by section 25008, Corporations Code.”

“The court concluded that the corporation and Duke were estopped to rely upon the defense of the statute of limitations.”

“Liability was imposed for breach of duty Duke owed to plaintiff as his attorney and confidential advisor and for his active participation in an illegal transaction.”

SHINN, P. J.

Plaintiff recovered judgment against Arc-Saws, Inc., a corporation, and George L. Duke in the sum of $10,000 plus interest, and defendants appeal.

The court found the following material facts: Defendant Duke, an attorney at law, was in the month of January, 1947, and ever since has been an officer and director of defendant corporation; he was then attorney for plaintiff, who reposed the utmost confidence and trust in him; in January, 1947, the corporation, being in need of additional capital, undertook to solicit funds from the public; Duke solicited funds from plaintiff and recommended that plaintiff invest money in the corporation, promising that he would act as his attorney in the transaction; Duke promised plaintiff that if he would invest $10,000 he would be repaid from profits of the corporation and would receive 10 per cent of certain stock therein ; Duke concealed from plaintiff the fact that he was a director and officer and interested in the corporation; by reason of the representations, promises and concealments of Duke plaintiff invested the sum of $10,000 delivering the same to Duke

[622]

as secretary of the corporation; plaintiff received a writing reading as follows :

“ ‘February 13, 1947

“Mr. Walter J. Strangman 1120 South Main Street Los Angeles 15

“Dear Mr. Strangman:

“We wish to express our sincere thanks for the confidence you have evidenced in the persons composing this company and in the future of our enterprise.

“This acknowledges the receipt from you of the sum of Ten Thousand Dollars as a loan to the corporation. This will be repaid to you from the profits of our operation upon a pro rata basis with the others who have advanced funds for the same purpose.

‘ ‘ The interests of all the individuals interested in Arc-Saws, Inc., are the same, and we assure you that everything possible will be done to accomplish an early and complete success.

Tours very truly,

Arc-Saws, Inc.

Strangman v. Arc-Saws, Inc.

AI Brief

SHINN, P. J.

More from California Court of Appeal

Related research

AI Brief