Wann v. Mount Diablo Finance Corp.

PULLEN, P. J.

Plaintiffs, husband and wife, brought this action to rescind the purchase of stock in defendant corporation on two separate grounds; first, failure of consideration in that the stock in question was purchased upon am express agreement and representation by certain officers of defendant that the funds of the corporation to the extent of $25,000 were to be held and used exclusively as a deposit with the state of California, to qualify the Mount Diablo Mutual Benefit and Life Association as a legal reserve insurance company, which plan was abandoned; and secondly, on the ground of fraud in that it was promised to R. C. Wann that he would, upon the purchase of stock in defendant corporation, be elected a director and vice-president therein, which promise was not performed.

Judgment was rendered for plaintiffs, from which judgment defendant prosecutes this appeal.

The testimony discloses that at the time plaintiffs became interested in defendant corporation it was operated exclusively as a personal loan company. The directors of the defendant corporation were also directors of Mount Diablo Mutual Benefit and Life Association, and it was represented to plaintiffs at the time of their subscription to the stock that the money they would pay into the defendant corporation, together with other funds, would be accumulated to loan solely to the life association in order that it

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might be deposited with the state as a legal guarantee required by law, thus permitting the life insurance company to qualify as the legal reserve insurance company, to the profit and advantage of defendant corporation.

The evidence shows that the fund instead of being built up as agreed, was loaned to individuals, repayable in ten-month periods. Also a new corporation was formed under the laws of Nevada, which omitted plaintiff ft. C. Wann from the management thereof and which changed the general purposes of the Mount Diablo Finance Company and abrogated the plan of the defendant corporation to accumulate a fund of $25,000 for the purposes above mentioned. Plaintiff consented to this reorganization upon the assurance that he was to be a director and officer in the Nevada Holding Company, the new company, but this was not done, and upon the discovery that he was neither an incorporator, director nor officer of the Nevada company, he promptly rescinded. The fact that the fund of $25,000 was not built up does not of itself give plaintiff cause for complaint, for many reasons might arise whereby the accumulation of that amount might be legally impossible, but he may properly protest against the voluntary abandonment of the project without his consent, and on that ground rescind. It is true he consented to the abandonment of the first plan, but conditionally and upon the failure of the proper parties to perform the promised conditions, his original consent to the abandonment was without consideration and could be revoked and he restored to his original status.