Friday, November 22, 2013

DeBaun v. First Western Bank and Trust Co. case brief

DeBaun v. First Western Bank and Trust Co. case brief summary
46 Cal.App.3d 686 (1975)

Petitioner appealed the judgment of the Superior Court of Los Angeles County (California) awarding respondents damages and attorney fees for breach of duty to the corporation.

Respondents, shareholders, brought an action against petitioner controlling shareholder to recover damages caused by petitioner's sale of stock, resulting in the corporation's insolvency, and a derivative action on behalf of the corporation pursuant to Cal. Corp. Code § 834. The court found for respondents and awarded attorney fees. Petitioner appealed.


  • The court affirmed, holding that petitioner had a duty as controlling majority shareholder to exercise good faith and fairness in selling its stock. 
  • Petitioner breached that duty because it was aware that the potential buyer had numerous liens, judgments, and bankruptcies against it, indicating that he going to loot the corporation. 
  • Petitioner failed to conduct a reasonable investigation prior to selling the stock. 
  • The court's findings of facts that were immaterial were not significant because the material findings were supported by substantial evidence. 
  • There was substantial evidence for the court's measure of damages.

The court affirmed, holding that petitioner breached its duty as controlling majority shareholder by not conducting an adequate investigation of a potential buyer when circumstances should have raised petitioner's suspicion that buyer intended to loot the corporation.

Recommended Supplements for Corporations and Business Associations Law

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