Goodman v. Global Industries

182 P.2d 300, 80 Cal. App. 2d 583, 1947 Cal. App. LEXIS 995
CourtCalifornia Court of Appeal
DecidedJune 27, 1947
DocketCiv. 13287
StatusPublished
Cited by12 cases

This text of 182 P.2d 300 (Goodman v. Global Industries) is published on Counsel Stack Legal Research, covering California Court of Appeal primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Goodman v. Global Industries, 182 P.2d 300, 80 Cal. App. 2d 583, 1947 Cal. App. LEXIS 995 (Cal. Ct. App. 1947).

Opinion

GOODELL, J.

The appellant sued in seven counts on behalf of himself and six of his assignors for $6,750 and interest.

On December 21, 1944, when appellant negotiated with respondent, he was given the following letter:

“Mr. George Goodman and Bill Sousa and Jack Mayfield

In re: Global Industries Stock subscriptions and payments thereon

Gentlemen:

This is to certify that I am the comptroller of Global Industries, a California corporation, and that the funds you are turning over to Global Industries . . . will be credited on the books of the corporation for stock subscriptions receivable and that any person you have given a receipt for money included in the above sum and request same returned to them will be refunded by Global Industries immediately.

Yours very truly,

Lester O. Wisler

Comptroller, Global Industries

Written with the advice and consent of the president of Global Industries.”

The complaint alleges that the letter was given to induce appellant and his associates to subscribe for stock in the corporation and that they would not have paid in the money but for such promise. In each count it is alleged that in February, 1945, an offer was made to return the respective certificates of stock which had been issued, and a demand for the return of the money paid, which offers and demands were refused.

In each count it is alleged that respondent was incorporated on January 5, 1944 “and has not, at any time been, and is not now, engaged in the transaction of any lawful business” also, that it owns and controls cash assets in excess of $40,000 and that its total liabilities, exclusive of money unpaid by appellant and his associates, do not exceed $5,000.

The court made findings in favor of the defendant corporation and from a judgment entered thereon this appeal was taken on the judgment roll alone.

*585 The only question presented for decision is whether the case falls within the provisions of section 342 of the Civil Code. That section was enacted in 1931, as part of the new general corporation law, and amended in 1933. This discussion will be simplified by a review of the law leading up to its enactment.

“It was formerly, that is prior to 1929, the rule in California that a corporation was not authorized to purchase its own shares, with some minor exceptions such as collecting a debt or saving itself from loss.” (“Drafting a Modern Corporation Law” by Henry Winthrop Ballantine, 19 Cal.L.Rev. 465, 479.)

The authorities held that contracts for the retailing by a corporation of its own shares were illegal and void as in violation of section 309 of the Civil Code which prohibited directors from dividing, withdrawing or paying to the stockholders any part of the capital stock, or from reducing or increasing the capital stock except as provided in the section (Bank of San Luis Obispo v. Wickersham, 99 Cal. 655, 661 [34 P. 444]; Vercoutere v. Golden State L. Co., 116 Cal. 410 [48 P. 375]).

In 1913, the case of Schulte v. Boulevard Gardens Land Co., 164 Cal. 464 [129 P. 582, Ann.Cas. 1914B 1013, 44 L.R.A.N.S. 156] was decided, wherein the court pointed out that the plaintiff was “seeking to enforce a part of an entire contract under which the stock was originally issued to him” and held that “The right to return the stock and to receive the sum agreed to be paid upon such return was a material and indivisible part of the consideration upon which the plaintiff agreed to become a stockholder. . . . The sale to plaintiff was conditional. He never became a stockholder except subject to the qualification that he might return his shares upon the stipulated terms.” For these reasons, and because the contract “was of the well recognized class, known as a contract of ‘sale or return’ ...” the court held (in line with Dickinson v. Zubiate Mining Co., 11 Cal.App. 656 [106 P. 123]) that the corporation was bound to take back its shares.

The Schulte case therefore reaffirmed this exception to the rule laid down by the earlier cases.

It is the appellant’s position that the transaction now in litigation was a conditional sale only, and that this case, for the reasons given in the Schulte decision, is not subject to the provisions of section 342 of the Civil Code.

*586 The rule based on section 309 (to which the Dickinson and Schulte cases were exceptions) was the result of ease law and not of legislation. There was no statute on the subject which prescribed limitations or conditions (as does § 342) respecting the acquisition by a corporation of its own shares. The “minor exceptions” of which Professor Ballantine speaks in his article in 19 California Law Review 465, 479, were not found in the code, but had been written into the law by judicial decision (he there cites Ralston v. Bank of California, 112 Cal. 208 [44 P. 476] and Mancini v. Patrizi, 87 Cal.App. 435 [262 P. 375]).

In 1929, however, the Legislature (Stats. 1929, p. 1270) wrote into the enumeration of corporate powers contained in section 354 of the Civil Code, subdivision 7: “To admit stockholders or members, and to sell their stock or shares for the payment of assessments or installments; provided, that a corporation shall not, in issuing shares or taking subscriptions therefor, agree to repurchase such shares, or give to the subscriber a right to surrender or resell the same to the corporation; ...” (Emphasis added.)

This amendment remained on the statute books for two years only. In 1931, when the new general corporation law was enacted the “Powers of Corporations” were put into what has since been section 341 of the Civil Code. In 1933, subdivision 5 thereof was amended to read as follows:

“(5) To purchase or otherwise acquire its own bonds, debentures or other evidences of its indebtedness or obligations, and subject to the provisions of this title, to purchase or otherwise acquire its own shares(Emphasis added.)

Thus for the first time the power of a corporation to acquire its own shares was declared in positive terms. The lawmakers were careful, however, to surround it with limitations. This they did in section 342. That section opens with the declaration that “A corporation may not purchase directly or indirectly any shares issued by it or by any corporation by which it is controlled, except as follows. ’ ’ The first seven subdivisions enumerate recognized instances where purchase is permitted. Appellant’s case falls within none of them. Subdivision 8 then provides for all other cases as follows:

“(8) Subject to any limitations contained in its articles, out of earned surplus.

“Shares may be acquired either out of stated capital or from any surplus under subdivisions (1) to (5) inclusive of this section. Purchases from earned surplus under subdivi *587

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182 P.2d 300, 80 Cal. App. 2d 583, 1947 Cal. App. LEXIS 995, Counsel Stack Legal Research, https://law.counselstack.com/opinion/goodman-v-global-industries-calctapp-1947.