Kendall v. Mattison

SHINN, P. J. These actions were consolidated for trial and both plaintiffs appeal in a consolidated appeal. Both actions were suits to collect on promissory notes made by defendant Mattison. The notes were given as partial payment for the escrowed sale of corporate stock owned by Kendall and Nathason. Baron has no interest in the note given to Kendall which was assigned to Baron for collection and reassigned to Kendall. Mattison filed a cross-complaint charging Kendall and Nathason with fraud in the transaction, and with violation of the Corporate Securities Law. The court found against him in the fraud issue but held the transaction illegal and gave Mattison judgment against Kendall and Nathason jointly for $10,000 they had received in the sale and for $200 paid on the notes.

Kendall and Nathason each owned 51,108 shares of Automation-Engineering Corporation, which was about 48 percent of the outstanding stock. They were promotional shares received as payment for services rendered in the organization of the corporation. As a condition of issuance they were tó be held in escrow as ordered by the Corporations Commissioner. (Corp. Code, § 25508.) Since 1956 the Bank of America had been the escrow holder for these shares of stock. Kendall and Nathason advertised the stock for sale and entered into negotiations with Mattison to sell him their shares. An agreement was signed April 21, 1959, and an escrow established to expedite the sale. The agreed price was $31,000 to be paid as follows: $10,000 cash and the $21,000 balance in the form of three promissory notes in the amounts of $5,500, $9,500 and $6,000. The money and notes were put into the escrow by [786]Mattison. Kendall and Nathason put in certain documents including the shares of stock and a ‘1 consent to transfer” signed by the Corporations Commissioner. Each side complied with the terms of the escrow. The $10,000 in cash and the $5,500 note were delivered from the escrow to Kendall. Nathason received the $9,500 note and the $6,000 note and Mattison received the escrowed shares.

Nathason commenced an action in the superior court to collect on the $6,000 note, which matured first. A settlement was reached in that action when Mattison gave Nathason a new note for $15,500 in exchange for the $6,000 note and the $9,500 note. It is on this new note that Nathason is suing. Kendall sues on the $5,500 note.

Kendall and Nathason were the bona fide owners of the stock and the sale was made solely for their own accounts as permitted by section 25152 of the Corporate Securities Law.1