Court Opinion

ID: 9467913
Source: CourtListenerOpinion
Date Created: 2023-08-05 01:59:34.710829+00
Date Added: 2024-06-11T17:40:35.468858
License: Public Domain

HUG, Circuit Judge,
concurring:
I concur in the opinion of Judge Markey and add these comments.
Under the basic agreement of December 31, 1975, among Roy Stinnett, Damson, and Subsidiary, unless Subsidiary exercised its option “to rescind the acquisition of the property,” Roy Stinnett was entitled to receive consideration in form of shares of Damson stock, a 5% royalty, and expense money. This option had been set forth in the Repurchase Agreement that had been executed the same day between Mobil and Subsidiary. The essential question is whether the action taken by Subsidiary amounted to an exercise of the option “to rescind the acquisition of the property”.
I consider it highly probative that the agreement of April 9,1976, between Subsidiary and Mobil provided that the consideration for the reduced price for the property was Subsidiary’s waiver of its “right to rescind the purchase of the property”. Subsidiary then proceeded to retain the property for a reduced price. It is difficult for me to discern how the actual retention of the property by Subsidiary, coupled with the express waiver of its “right to rescind the acquisition of the property”, could possibly constitute an exercise of its option to “rescind the acquisition of the property”.
The dissent argues that Subsidiary exercised its option to “rescind the acquisition of *584the property” simply by giving notice, regardless of its later determination not to require Mobil to repurchase the property in accordance with that notice. Surely this would be a triumph of form over substance. The December 31 agreement did not discharge Damson’s obligation to pay the consideration simply if a notice was sent to Mobil, but only if Subsidiary exercised its option “to rescind the acquisition of the property”. The transaction with Mobil was not an executory contract that a notice could serve to rescind. It was the actual acquisition of property, and it would appear to me that the acquisition could be rescinded only by retransferring the property. Subsidiary had acquired the property; it retained the property; it did not require Mobil to repurchase the property; and thus, in my view, it did not “rescind the acquisition of the property”.
A second factor is highly probative to me. Subsidiary was the entity that acquired the property under the December 31 agreement and was also the entity that retained the property after paying the reduced price. On December 18, 1975, Subsidiary was incorporated and the stock was issued, with 99 shares going to Roy Stinnett and one share to Damson. Concurrently with the transfer of the property to Subsidiary on December 31, Mr. Stinnett transferred all of his stock in Subsidiary to Damson. This device was used to avoid a delay of three and one-half months in obtaining a new consent to the assignment of a lease from the City of Los Angeles. The December 31 agreement among Roy Stinnett, Damson, and Subsidiary provided that if the option to rescind the acquisition of the property were exercised that “Damson shall sell to (Roy) Stinnett all of the shares of common stock of (Subsidiary) for the sum of $100”. Damson did not sell or tender the stock to Roy Stinnett.
It is highly unlikely that Damson would have intended its negotiations to result in an obligation to do so. If we follow Damson’s reasoning that the transaction was a rescission, then there was a clear obligation to transfer the stock. Roy Stinnett would thus have been entitled to reacquire all of his 99 shares and Damson’s one share in Subsidiary, which would then own the property purchased for $200,000 and would also owe the United California Bank $200,000 on the loan made to the corporation for the purchase.1 The benefit of the bargain, which was negotiated by Damson with Mobil, would thus flow to Roy Stinnett through his ownership of all the stock in Subsidiary. It is difficult to believe that this would have been Damson’s intent.
Under the terms of the December 31 agreement there is no way that Damson could have accomplished a rescission and still have used the Subsidiary to hold the property. The rescission would have been accomplished and the property purchased by Damson. To do so the Repurchase Agreement between Subsidiary and Mobil could have been fully executed, with repurchase by Mobil, and the transfer of stock in Subsidiary to Roy Stinnett by Damson, thus completely eliminating Subsidiary from the picture. This would have been a true exercise of the option to rescind the acquisition of the property. Damson, in its own name, then could have entered into a new agreement with Mobil to purchase the property. Damson chose not to do this, quite possibly because it would have required the consent of the City of Los Angeles and would have occasioned new arrangements with the United California Bank. The property thus remained in the Subsidiary.
Damson is faced with the strong argument that if it intended a true rescission, then it incurred the responsibility to transfer all of the stock in Subsidiary to Roy. Stinnett and thus lose the benefit of its bargain. It is completely unreasonable to attribute this intent to Damson. Therefore, I conclude that there was no exercise of the option to “rescind the acquisition of the property”.2 Roy Stinnett is thus entitled to *585the consideration set forth in the December 31, 1975 agreement.

. The original loan of $800,000 was made by United California Bank to Subsidiary. Mobil paid $600,000 on the loan, leaving a balance of $200,000 due from Subsidiary to the bank.

. The actions of the parties and the wording of the documents are not in dispute. There are conflicting signals in this circuit as to whether, under the circumstances, the interpretation of a *585contract and the determination of the effect of the actions of the parties is a conclusion of law, which is freely reviewable by this court, or is a finding of fact subject to review under the clearly erroneous standard. See Kittitas Reclamation v. Sunnyside Valley Irrigation District, 626 F.2d 95 at 98 (9th Cir. 1980) (conclusion of law); Libby, McNeill & Libby v. City National Bank, 592 F.2d 504, 512 (9th Cir. 1978) (conclusion of law); United States v. Iron Workers Local 86, 443 F.2d 544, 549 (9th Cir.) cert. denied, 404 U.S. 984, 92 S.Ct. 447, 30 L.Ed.2d 367 (1971) (finding of fact); Lundgren v. Freeman, 307 F.2d 104, 113-15 (9th Cir. 1962) (finding of fact). In this case, under either standard, the judgment must be reversed.