Keller v. King

California Court of Appeal Jul 1, 1960 No. Civ. No. 6157Published

Before: Shea

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Holding. The court held that the trial court's finding that the plaintiff failed to meet his burden of proving the corporate assets were worth less than the par value of the issued stock was supported by sufficient evidence. Consequently, the court affirmed the judgment, as the conflicting evidence regarding asset valuation did not warrant appellate interference.

Issues

Whether the trial court erred in finding that the plaintiff failed to meet the burden of proof regarding the valuation of assets transferred to the corporation.
Whether the stock issued by the corporation was void for nonconformity with the permit requirements based on the provided financial statements.

Disposition. affirmed

Quotations verified verbatim against the opinion

“The trial court ruled that the burden of proof was on plaintiff to establish that the assets were not worth the amount fixed by the board of directors and that plaintiff had not met his burden of proof.”

“It is elementary that where the evidence is conflicting, the finding of the trial court will not be changed on appeal.”

“Since the evidence is sufficient to support the judgment, the judgment is affirmed.”

SHEA, J. pro tem.* This appeal concerns one case of several related cases that arose out of the financial failure of the business known as the La Jolla Garage. Four of the cases were consolidated for trial, but this is the only case being appealed.

In his amended complaint plaintiff and appellant sought [382]recovery on a count of rescission for fraud; rescission for breach of contract; damages for money advanced and on the common count. Simply stated, he seeks to recover money paid by him for stock in the La Jolla Garage, which stock he alleges to be void.

It appears that in 1954, defendants Dallas and King owned an automobile sales and service business known as Waldman Motors Company. This was a copartnership, Dallas owning 70 per cent and King 30 per cent. They incorporated the business, and it was thereafter known as La Jolla Garage. On September 30, 1954, they held a directors’ meeting to consider the matter of making an application for the issuance of shares of stock. At this meeting they discussed the value of the partnership assets which were to be transferred to the corporation in exchange for stock.

During the time they had been operating as a partnership they were required, under their dealer’s franchise, to make monthly financial reports showing the current financial condition of the agency. Prior to September 30, 1954, these reports were prepared without audit by Mr. Peterson, a certified public accountant. At the time of the directors’ meeting on September 30, they had available for inspection these monthly financial statements. The material statements which they considered at the meeting, and which were introduced in evidence, showed the net worth of the partnership as follows:

July 31, 1954 ................ $17,930.39

August 31, 1954 ............. 28,974.86

September 30, 1954 .......... 27,771.00.

At the meeting on September 30, the directors, Mr. Dallas, Mr. King and a Mr. Clayton, secretary of the corporation and its attorney, were present. The testimony discloses they discussed the value of the partnership assets as shown by the aforementioned financial statements. Mr. Clayton advised the board that the value of the assets to be transferred to the corporation could not be less than the par value of the stock to be issued. After considering the matter, they concluded that the value of the partnership assets would not be less than $20,000. They then passed two resolutions, one fixing the fair market value of the partnership interest of Dallas at $14,000, the other fixing the fair market value of the partnership interest of King at $6,000. After the meeting, Mr. Clayton prepared an application for a permit to issue stock, including in such application the aforementioned resolutions of value.

Keller v. King

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