Ellis v. Navarro

WOOD (W. J.), J.

A judgment in the sum of $10,332.24 was entered in favor of plaintiff Ellis and against defendants Frank B. Navarro, Jean Minthorne and Norman E. Glover. The two defendants first named have appealed.

Prior to July 7, 1941, plaintiff and defendant Glover were partners doing business under the name, Rite Products Co. They owned coin operated phonographs which they placed in various locations throughout Southern California under arrangements whereby the income from the machines was divided between the owners of the locations and Rite Products Co. Defendant Navarro was engaged in the same kind of business, which he conducted in direct competition with Rite Products Co. In addition to the phonograph business referred to, Rite Products Co. owned and operated marble game machines which were placed in various locations under arrangements similar to those under which the phonographs were operated. Rite Products Co. also owned a retail record store.

[757]

A contract in writing was signed on July 7, 1941, by Ellis, Glover, Navarro and Minthorne by which it was agreed that the phonograph business which had been conducted by Rite Products Co. should be transferred to Beacon Music Co., a corporation which had previously been organized by Navarro and Minthorne for some other purpose. No stock in Beacon Music Co. theretofore had been issued and the corporation was not engaged in any business. By the terms of the contract 150 shares of the capital stock of Beacon Music. Co. were to be issued to Navarro, 150 shares to Minthorne and 150 shares to Ellis. It was set forth in the contract that Ellis and Glover had “an equity” in the phonographs, records and other personal property, an inventory of which was attached to the contract; that the property described in the inventory was incumbered by contracts upon which there was a balance due of approximately $14,500, and that the reasonable loan value of the equity of Ellis in the personal property described in the inventory was estimated to be $14,500. The 450 shares of stock were to be issued “to the extent of the reasonable loan value of the equity of Ellis. . . .” It was provided in the contract that Navarro and Minthorne should arrange for the refinancing of the existing indebtedness on the personal property and should procure a loan from the Morris Plan Bank of San Francisco for this purpose, they agreeing to guarantee the loan if necessary. It was provided that the salaries to be drawn from the corporation by Navarro, Minthorne and Ellis were to be equal but that none of them should be required to devote full time and attention to the business of Beacon Music Co. The exemption of the marble game business of Rite Products Co. from the contract was recognized by a provision that Ellis could occupy a portion of the premises of the corporation for his marble game business and pay one-third of the rent therefor. The contract recognized the fact that Navarro was engaged in a similar business for his own account and a provision was inserted therein that he should “not take any of the business or spots of the Beacon Music Co. and the Beacon Music Co. will not take any of the business or spots of Navarro.”