Court Opinion

ID: 9609730
Source: CourtListenerOpinion
Date Created: 2023-08-22 03:30:42.007833+00
Date Added: 2024-06-11T18:02:52.014002
License: Public Domain

Dolliver, J.
(dissenting) — While the facts as outlined by the majority need not be repeated, it should be added that the plaintiffs, as pointed out by the Court of Appeals, were *889offered an opportunity to rescind the transaction and dissolve the partnership but refused. Golberg v. Sanglier, 27 Wn. App. 179, 187, 616 P.2d 1239 (1980). I would affirm the Court of Appeals and, thus, dissent.
The courts of this state have consistently refused to enforce illegal contracts (State v. Northwest Magnesite Co., 28 Wn.2d 1, 26, 182 P.2d 643 (1947)) or contracts which grow immediately out of and are connected with an illegal act. Waring v. Lobdell, 63 Wn.2d 532, 533, 387 P.2d 979 (1964). The Court of Appeals in refusing to enforce the partnership agreement (1) found it violated "the spirit and policy of [RCW 21.20.010(2)] to deter less than full disclosure of material facts" and (2) was contrary to RCW 21.20-.010(3). Golberg v. Sanglier, supra at 195.1 agree.
RCW 21.20.010(2) makes it unlawful for any person in connection with the purchase of any security
[t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading . . .
Sanglier represented to Motors Holding the status of his investment as being his '"own funds, free and clear of any present or future right, claim or interest of any kind."' Golberg v. Sanglier, supra at 192. The majority recognizes "that Sanglier's representation as to the status of his funds was 'material' to the transaction" but argues that the representation was in fact true. Majority opinion, at 879. I believe it is clear that the funds were encumbered and that Sanglier clearly violated RCW 21.20.010(2) in that the facts disclosed were untrue and that the facts omitted were necessary to make the statement made by Sanglier "not misleading". While it is true as found by the trial court that there is "no provision for repayment, or interest on the money invested, and in the event the business failed, neither Sanglier nor the partnership had an obligation to repay plaintiffs' investment”, there were restrictions placed on the use of the money. Sanglier was not free to do what he wished with the funds. In the words of the Court of *890Appeals:
[Sanglier's] interest, represented by stock, was required by the partnership agreement to be placed in escrow at the offices of the partnership's attorney or in a safety deposit box held by the partnership. An escrow is a trust, Restatement (Second) of Trusts § 32, comment d (1959), and once an instrument is deposited in escrow, it passes beyond the depositor's control, Lechner v. Hailing, 35 Wn.2d 903, 912, 216 P.2d 179 (1950). The funds were encumbered, i.e., they were subject to the partners' charge upon them, see Black's Law Dictionary 908 (4th rev. ed. 1968).
Sanglier, at 192-93.
Furthermore, there were clauses governing the sale of the partnership, the procedures to be followed in the event of the death of a partner, and a provision for the return of the investment should Sanglier fail to obtain the dealership. In explanation of these provisions, Mr. Golberg's attorney, in a letter, states:
2. . . . [Tjhroughout the agreement it has been treated to the effect that John Sanglier has taken a loan from the three contributing partners and that this money shall remain a loan until John Sanglier completely eliminates Motors Holding from Sanglier Cadillac, Inc., at which time he will devote the stocks and notes he holds ... to the partnership in return for his 25% interest in the profits. If John Sanglier should not be able to complete the Motor Holding Plan for any reason involved, including disqualification or death, his stocks would immediately again be devoted for partnership reasons. This gives some degree of security to the contributing partners.
(Italics mine.) The partnership agreement provides:
All stock and notes of Sanglier Cadillac Oldsmobile, Inc. purchased by John Sanglier shall be placed in escrow
(Italics mine.) From this language, the majority somehow concludes that it applies only to future profits and does not operate as an encumbrance on the invested funds. I disagree. The provision states all stock. This would include 937 shares of class B common stock and 313 shares of pre*891ferred stock purchased by Sanglier with the investment funds. This reasoning is strengthened by further provisions in the letter from Mr. Golberg's attorney in explaining the above provision:
5. This is an extension of the idea that John Sanglier has been loaned the money, which is the case presently, and that he will enter into the contract individually with Motor Holding Division and upon completion of purchasing Motor Holding's interest ... he will devote the property to partnership purposes. . . . The protection for the money investing partners will be the escrow of the stock and our offices.
(Italics mine.) The investing partners wanted and provided for security on their investment; this resulted in an encumbrance upon the funds invested by Sanglier.
What was the purpose of requiring the funds to be unencumbered? Motors Holding wanted the funds free and clear to insure the investor had sufficient self-interest to provide a motivation for the operation's success. See Golberg v. Sanglier, supra at 192. General Motors considered this so important that "[a]ny misrepresentation by Sanglier in applying for the dealership . . . provided General Motors with a ground for terminating the dealership." Golberg, at 192. Because of the arrangements made by the parties, Sanglier had no incentive to insure the business succeeded as he had no financial stake in the company, a position totally contrary to Motors Holding's desires. The money was encumbered, the misrepresentations were material and are violative of RCW 21.20.010(2) since the only purpose of the partnership was to obtain the dealership and share in subsequent profits.
The argument that the trial court did not consider the funds encumbered is ephemeral. While the trial court felt the misrepresentations were not in violation of state law {see conclusion of law No. 12), there is no ineluctable connection between this conclusion and a failure to find that the funds were not encumbered. The majority, however, surmounts this problem by stating that the failure of the *892trial court to make a finding that the funds were encumbered "must be interpreted as a finding that the funds were not encumbered since [defendants] had the burden of persuasion in presenting this defense." Majority opinion, at 880, citing Batten v. Abrams, 28 Wn. App. 737, 626 P.2d 984 (1981). It seems to me, however, that the question of whether something is encumbered is a matter of law which is concluded from the facts. There is no question but that in fact the partnership agreement required all the stocks and notes of Sanglier Cadillac Oldsmobile, Inc., purchased by Sanglier had to be placed in escrow. It is from this undisputed fact that the legal conclusion that the funds were encumbered should have been drawn.
The majority agrees that the partnership agreement violates RCW 21.20.010(3), which makes illegal "any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person." (Italics mine.) See majority opinion, at 881. It then goes on to discuss degrees of culpability. This is beside the point. The statute reads "any act". Once it is established that a violation of that law has occurred, no purpose is served by a calculation of the degree of culpability.
Since the contract is illegal and thus unenforceable, there is no need to engage in the discussion as to whether the parties were in pari delicto. I would only observe that to classify plaintiffs as "unwary investors" and to categorize only Sanglier as the "opportunist" in this venture belies the facts.
One final point should be made: I believe that RCW 21.20.430(5), a statute the majority sees fit only to note (see majority opinion, at 887), has a bearing on the determination of this case. The statute provides in part: *893(Italics mine.) RCW 21.20.430(5). It proscribes the enforcement of any contract violative of any provision of the act (the majority concedes Sanglier acted in contravention of RCW 21.20.010(3)) when the parties have knowledge of the facts that render it illegal. The partnership agreement was made by the plaintiffs, who had knowledge of the facts which made the performance a violation of The Securities Act of Washington. In fact, they were warned of the possible problems. An enforcement here would not "eviscerate" the purposes of the act. The Securities Act of Washington seeks to deter only those who make or engage in the performance of a contract which is in violation of the act, a category into which the plaintiffs surely fall. The majority worries about the "innocent purchaser". When that case arrives, the court can deal with it. That is not the case now before the court.
*892No person who has made or engaged in the performance of any contract in violation of any provision of this chapter ... or who has acquired any purported right under any such contract with knowledge of the facts by reason of which its making or performance was in violation, may base any suit on the contract.
*893I dissent and would dismiss the action.
Brachtenbach, C.J., and Cochran, J. Pro Tern., concur with Dolliver, J.
Reconsideration denied June 23, 1982.