Nakashima v. Muth

California Court of Appeal Aug 31, 1970 No. Civ. No. 25562Published

Before: David

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Holding. The court held that the sale of corporate interests between the parties was a private transaction exempt from the permit requirements of the Corporate Securities Law, and that the underlying promissory note was enforceable.

Issues

Whether the sale of corporate interests without a permit violated the Corporate Securities Law, rendering the promissory note unenforceable.
Whether the transaction qualified for an exemption under the Corporate Securities Law as a private sale or a joint venture interest.

Disposition. affirmed

Quotations verified verbatim against the opinion

“The facts disclose, and the trial court held, that this sale by Nakashimas, bona fide owners of the interest, was on their own account; and was not made, directly or indirectly, for the benefit of the issuer or an underwriter”

“Where a corporation has not sought to secure a permit to issue stock, and has not done so, the associates in the venture as between themselves may be considered joint venturers.”

Opinion

DAVID, J,* appeal from plaintiff’s judgment on a $60,000 promissory note. Due execution, delivery and nonpayment were admitted; but it is contended that both the note and the transaction in which it was given were void, violating Corporations Code sections 26100 and 26103 prohibiting the sale of any corporate security without the permit of the Corporations Commissioner. The trial court found that the permit requirement was inapplicable, under the exceptions of Corporations Code section 25152, subdivision (a) (repealed, 1968, now covered by § 25104, subd. (a)). This conclusion was amply supported by the evidence, and the law, including further applicable sections 25100, subdivision (m), and 25102, subdivision (c). The judgment therefore will be affirmed.

In 1958 or 1959, three promoters caused the Lake Alhambra Development Corporation to be formed (called “Alhambra” herein). Plaintiff Nakashima and his wife conveyed an Antioch subdivision to the corporation, for which they were to receive 70 percent of the stock, each of the promoters having 10 percent. Although formally incorporated, Alhambra never applied for a permit to issue stock, nor did it. It perhaps is not unusual for corporate venturers to claim the benefits of limited liability and tax advantages, without completing the corporate procedure. In September 1960, Nakashima was the president of Alhambra; and was also president of the Houston Land and Development Corporation. Its function was building homes on the Alhambra subdivision. Defendant Muth was the vice-president of Houston, and as a building contractor was building the homes.

Alhambra borrowed $60,000 on its note from the Sumitomo Bank in San Francisco, and plaintiff Mitsuteru Nakashima and his wife Mikiye Nakashima guaranteed the note.

The note upon which judgment was given herein was made jointly by defendant Muth and Alhambra, payable to Nakashima.

[970]So far as the corporation was concerned, neither note was invalid. Corporations Code section 25102, subdivision (c), provided that the Corporate Securities Law does not apply to “Promissory notes, whether secured or unsecured, and any guarantee thereof, where the notes are not offered to the public, or are not sold to an underwriter for the purpose of resale.” We are not concerned here with the more inclusive definitions of section 25018 as amended in 1968. (Cf. People v. Davenport (1939) 13 Cal.2d 681 [91 P.2d 892].)

Nakashima v. Muth

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