McKenna v. Edwards

KNIGHT, J.

Defendants appeal from an adverse judgment entered pursuant to a verdict by a jury in an action to recover a balance due for services rendered by the plaintiff Mrs. Mary L. McKenna. The cause of action was pleaded in a common count, the allegations thereof being that defendants became indebted to plaintiffs in the sum of $2,634, that $1,063.45 thereof had been paid, and that there was a balance due of $1591.36. The answer consisted of a general denial. Defendants contend as sole ground for reversal that the earnings sued for constituted broker’s commissions for the sale of defendants’ corporate stock, and that therefore Mrs. McKenna was entitled to recover nothing for her services because admittedly she was not licensed as a stock broker by the commissioner of corporations. In our opinion the earnings cannot be so classified.

The evidence, although conflicting on some points, establishes the following facts: At the time these transactions took place, the defendants L. P. Edwards and his wife, Clara P. Edwards, were the owners of practically all the corporate stock of the San Jose Title and Abstract Company. The business was operated under Edwards’ management; and Mrs. McKenna was the company’s secretary and bookkeeper. She had been so for twenty-three years, and during the last fifteen years of her employment she officiated also as Edwards’ private secretary. Edwards was indebted to a third party on a secured promissory note for $120,000, which matured at the end of the year 1934. In May of that year he informed Mrs. McKenna that he was fearful the holder of the note would demand payment at maturity and foreclose unless the indebtedness was liquidated; and in view of that

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situation he promised Mrs. McKenna that if she would negotiate a loan for him for $100,000, to be secured by the corporate stock in the abstract company belonging to himself and his wife, he would pay her $5,000 for her services. Relying on said promise, Mrs. McKenna immediately contacted several people financially able to make the loan, the last of whom was Martin E. Ray, who was associated with a Mr. Kamb in the management of several investment companies. Ray informed her that a loan was not feasible, but suggested that Edwards sell a block of his stock sufficient to liquidate the indebtedness; that he would still own the controlling interest in the abstract company; and that if he decided to do so the investment companies represented by Kamb and himself would be interested in purchasing the stock. Mrs. McKenna laid Ray’s suggestion before Edwards, who stated that he would discuss the matter with his wife. After having done so he told Mrs. McKenna they had concluded to act upon Ray’s suggestion; whereupon Mrs. McKenna arranged for a conference between Edwards, Ray and Kamb, which took place in the Masonic Temple in San Jose. Mrs. McKenna was not present at any time during the conference, nor did she participate directly or indirectly in any of the negotiations which took place between the parties. As the result of these negotiations between the parties, and on July 25, 1934, Edwards and his wife entered into a written agreement with Ray and Kamb, in the preparation of which Mrs. Mc-Kenna had no part, whereby Edwards and his wife agreed, among other things, to sell to Ray and Kamb 375 shares of their stock for the sum of $112,500. As part performance of the agreement thirty-three and a third shares of the stock and $10,000 in cash were at once deposited in escrow; and as provided by the terms of the agreement Ray and Kamb agreed to pay the balance of the purchase price, amounting to $102,500, on or before December 31, 1934, at which time the remainder of the stock was to be delivered. The agreement went much further, however, than providing merely for a sale of the stock. It embodied a new setup for the future operation of the abstract company. In this regard it provided for a stock “voting trust agreement”, the insuring of the life of Edwards, who was to continue as the executive of the company, a limitation upon the amount of dividends to be paid on stock, the fixing of salaries of its officers,