Kerr v. Smith

WOOD (W.J.), J. In his complaint plaintiff alleges that he is a stockholder in defendant corporations and that the corporations have been defrauded by the acts of the individual defendants. He alleges that “this action is brought by plaintiff for and on behalf of .said corporations and its stockholders after demand was made upon the corporation to bring the action.” He asks that various funds and properties be returned to the corporations and that he be allowed attorney fees in the sum of $20,000. He is prosecuting this appeal from a judgment in favor of defendants.

The trial court found that plaintiff is not and was not at the time of the commencement of the action the owner of any stock in the corporations. This finding is supported by substantial evidence.

A gas heater business which had been conducted by Eva A. Sproat was in 1930 purchased by one Henry H. Nelson, who is not a party to this action, for the sum of $75,000. Plaintiff had been employed in the business and continued as an employee after the purchase by Nelson. In July, 1930, plaintiff and Nelson entered into written contracts wherein it was provided that Nelson should pay to plaintiff the sum of $100 per week for his services for the period of three years. Provision was made for submission of differences to arbitration. The business was conducted under the name of Ward Heater Co. Ltd., a corporation. In one of the contracts between plaintiff and Nelson it was provided that Nelson should set aside 4,000 shares of the capital stock of the corporation, being 20 per cent of the total shares, to be issued in the name of plaintiff and endorsed by him in blank and placed in escrow for delivery to plaintiff whenever Nelson should receive the sum of $75,000 with interest from the net profits of the business. It was also provided in the contracts that if [563]Nelson desired to sell his stock plaintiff should have the right to purchase it on the same terms as would be offered by any other party, and that if plaintiff failed to purchase the stock Nelson could at his election sell not only his own stock but the stock of plaintiff, provided the price and terms upon which plaintiff’s stock be sold should be identical per share with the price and terms upon which Nelson’s stock should be sold. Plaintiff agreed “not to sell his shares or transfer any interest therein or the right to receive said shares or any benefit thereof to any person whomsoever until said shares are released from the escrow and the party of the first part has been repaid the sum of Seventy-five Thousand Dollars ($75,000.00), with interest as hereinabove provided.” Nelson discharged plaintiff from the service of the corporation on January 13, 1931. The differences between plaintiff and Nelson were submitted to arbitration in accordance with the terms of their contract and thereafter plaintiff commenced an action in the superior court against Nelson for the enforcement of the award of the arbitrators. In the judgment in that action plaintiff was awarded a sum of money for his wrongful discharge. In its judgment the court ordered that the corporation stock mentioned in the contracts between plaintiff and Nelson be impounded with the clerk of the court and be “delivered to said plaintiff upon order of the court when said Henry H. Nelson shall have received from the net proceeds of the Ward Heater Company, Ltd., as provided in said contract, Exhibit A, the sum of . . . $75,000.00 . . . with interest at . . . 6% per annum from January 16, 1930, or until the dissolution of the Ward Heater Company, Ltd., and the cancellation of said stock. ...” The court also enjoined Nelson from disposing of the stock “during said time.” The judgment was dated July 7, 1932. An appeal having been taken, the judgment was affirmed. (Kerr v. Nelson, 7 Cal.2d 85 [59 P.2d 821].)