Opinion ID: 1434966
Heading Depth: 1
Heading Rank: 2

Heading: Question: Did the trial court properly set aside the transfer of the liquidating dividend to the shareholders of QCA?

Text: Yes. Defendants' claim is based entirely on the letter agreement of November 20, 1950, and as found by the trial court, that agreement violated the conditions of the permit of October 3, 1950, in that (1) the purported transfer of the 11,000 shares of Eastman's stock represented by certificate No. 34 was made while the certificate was held in escrow, and no order of the Commissioner of Corporations was obtained permitting the transfer, (2) the consideration for the purported transfer passed without an order of the commissioner, and (3) the consideration therefor constituted a selling commission in excess of that allowed by the permit. As a result, the trial court found that the letter agreement did not effect a transfer of the 11,000 shares, that the purported transfer of the shares by QCA as a stock dividend to its shareholders January 14, 1952, created no interest in any of the defendants or their predecessors in interest, and that the issuance of certificates Nos. 109 through 114 created no interest in the persons to whom said certificates purported to be issued. At the time here involved, section 26100 of the Corporations Code provided: Every security of its own issue sold or issued by any company without a permit of the commissioner then in effect authorizing the issuance or sale of the security is void. Every security of its own issue sold or issued by a company with the authorization of the commissioner but which has been sold or issued in nonconformity with any provision in the permit authorizing the issuance or sale of the security is void. Under the circumstances, the transfers were clearly void. ( N.C. Roberts Co. v. Topaz Transformer Products, Inc., 239 Cal. App.2d 801, 815 [49 Cal. Rptr. 209]; Perego v. Seymour, 196 Cal. App.2d 773, 778-779 [16 Cal. Rptr. 831]; Black Point Aggregates, Inc. v. Niles Sand & Gravel Co., 188 Cal. App.2d 375, 379 [1] [10 Cal. Rptr. 761].) Defendants admit that since the required consent of the Commissioner of Corporations was not obtained, there has been a violation of the Corporate Securities Law, but they argue that it was merely a technical violation which should not be allowed to defeat their rights. They say that decedent could not conceivably be in the position of the class designed to be protected by the Corporate Securities Act. His estate, of course, would be in no better position than he would have been. Plaintiff, on the other hand, contends that one of the purposes of the Corporate Securities Law is to protect parties forming corporations, as well as the shareholders generally, from the exaction of commissions by security brokers beyond those allowed by the Commissioner of Corporations and that decedent was therefore in a class designed to be protected by the law. [2] (2) Although undoubtedly the primary purpose of the Corporate Securities Law is to protect innocent investors ( Weinstock v. L.A. Carpet, Inc., 234 Cal. App.2d 809, 815 [5] [44 Cal. Rptr. 852]; Crestlawn Memorial Park Assn. v. Sobieski, 210 Cal. App.2d 43, 51 [9] [26 Cal. Rptr. 421]; Hargiss v. Royal Air Properties, Inc., 206 Cal. App.2d 406, 412 [2, 3] [23 Cal. Rptr. 678]), plaintiff's contention is sound. The restriction on a broker's commission authorized by the law was clearly designed as a protection to those forming corporations, as well as the shareholders generally, against the exaction of excessive commissions by the broker. Accordingly, it appearing that the consideration for the purported transfer of the 11,000 shares by the letter agreement of November 20, 1950, constituted a selling commission in excess of that allowed by the permit, plaintiff, as decedent's successor in interest, is entitled to the protection of the Corporate Securities Law and can have the transfer set aside. Certain cases called to our attention (e.g., Domestic & Foreign Petroleum Co. v. Long, 4 Cal.2d 547 [51 P.2d 73]) are inapplicable here, since in each a party clearly not one to be protected by the Corporate Securities Law sought to set aside a transaction as to a party who was clearly intended to be protected by the act. Such is not the situation in the present case. (3) The trial court properly found that plaintiff was not estopped to assert the claims herein made. As pointed out in Estate of Straisinger, 247 Cal. App.2d 574, 582 [55 Cal. Rptr. 750], `In general, four things are essential to the application of the doctrine of equitable estoppel: first, the party to be estopped must be apprised of the facts; second, he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel had a right to believe it was so intended; third, the other party must be ignorant of the true state of facts; and fourth, he must rely upon the conduct to his injury.' The record shows that none of these elements existed in the present matter. (4) It should be noted, also, that, as found by the trial court, defendants Quincy Cass and Frank Foellmer, for themselves and as agents of [QCA], used their position as officers and directors of [Eastman] to cause the issuance of Certificates 109 through 114, and to cause the issuance of the liquidating dividend to the defendants as hereinabove set forth. By such action, said defendants violated a fiduciary duty they owed to plaintiff. ( Remillard Brick Co. v. Remillard-Dandini, 109 Cal. App.2d 405, 419-421 [241 P.2d 66]; cf. Sheppard v. Wilcox, 210 Cal. App.2d 53, 60 [4] [26 Cal. Rptr. 412].) The judgment is affirmed.