Pyle v. Shipman

DEVINE, P. J.

Appellant brought this action to recover $9,000 as the balance alleged to be due from respondents

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on an agreement of sale of 1,100 shares of stock of Gene-Roger Corporation. This was the entire number of shares which appellant had planned would be issued, and issued to him alone. Appellant represented, in the written agreement of sale with respondents dated December 20, 1962, that an application for permit to issue the shares had been filed and that he

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would transfer the shares to respondents on issuance, and he agreed to bring about the resignation of the officers and directors of the company. Respondents paid $2,000 on account of the agreed price of $11,000. The sole asset of the corporation was a coffee shop. As originally written, the agreement provided that possession of the corporation’s leased premises and assets would be delivered within 48 hours after permit to issue the securities had been obtained. But a handwritten change was made to provide that possession would be delivered on January 1, 1963.

Appellant’s application to the Commissioner of Corporations to issue 1,100 shares, which had been filed on December 24, 1962, was ordered abandoned on February 5, 1963, by reason of failure to file requested information. But the application was renewed on February 15, 1963, accompanied by a balance sheet and profit and loss statement in which there appears, as one item among the liabilities, a loan of $11,000 payable to Eugene Pyle for stock purchases. On March 1, 1963, a permit was granted to issue 1,100 shares to Eugene L. Pyle in consideration of cancellation of the corporation’s indebtedness to Pyle in the amount of $11,000.

Possession of the premises was transferred on January 1, 1963. On January 6, 1963, fire occurred at the coffee shop. On January 7, 1963, respondents gave notice of rescission of the contract, based on asserted fraudulent concealment of defective condition of the premises. This alleged fraud is set up as an affirmative defense to the present action.

But the sole defense upon which the court acted is that the contract is in violation of the Corporate Securities Act and is therefore void and unenforceable. The court sustained this defense, rendered judgment against appellant and also denied relief to respondents on a counterclaim for the $2,000 down payment plus certain expenses, on the proposition that respondents are in pari delicto. Respondents have not cross-appealed.