Bing Crosby Minute Maid Corp. v. Eaton

46 Cal.2d 484, 297 P.2d 5 (1956)

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Bing Crosby Minute Maid Corp. v. Eaton

California Supreme Court
46 Cal.2d 484, 297 P.2d 5 (1956)

Facts

Wallazz Eaton (defendant) formed a corporation to acquire one of his businesses. The corporation issued a number of shares to Eaton directly, in exchange for which Eaton transferred assets to the corporation worth approximately the total par value of the shares. The corporation also issued another quantity of shares and placed them in escrow. Despite the escrow arrangement, Eaton claimed the distribution and voting rights associated with both quantities of shares. Bing Crosby Minute Maid Corporation (BCMM) (plaintiff) extended credit to Eaton’s corporation. This corporation became insolvent and unable to repay BCMM in full. BCMM secured a judgment against the corporation that also went unpaid. BCMM then sued Eaton in his capacity as a shareholder of the corporation on a theory that he owned the shares held in escrow and that those shares were watered. The trial court issued a ruling for BCMM, finding that Eaton did hold watered stock, but the court did not address whether BCMM had relied on the corporation’s stated capital when it initially extended credit to the corporation. Eaton moved for a new trial, arguing that BCMM was required to show such reliance in order for him to be liable to it as a holder of watered stock. The trial court ordered a new trial. Both parties appealed.

Rule of Law

Issue

Holding and Reasoning (Shenk, J.)

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