Farrell

This is an action to rescind a contract on the ground of fraud. In 192'6, Gilbert F. Stevenson and his wife owned certain real property in Santa Monica upon which were situated a hotel and an apartment house. A corporation was formed, at their initiation, under the name of Miramar Hotel Company, Limited. The real property, subject to a mortgage of $500,000, was conveyed to the hotel company, as said corporation will be hereinafter designated. The consideration for this transfer was 799 shares of the capital stock thereof, issued under permit from the corporation commissioner. The corporation commissioner also gave permission to the hotel company to sell to the public 701 shares of its capital stock for the purpose of obtaining funds necessary for construction of an addition to its building. All money so realized was to be impounded until released by the commissioner. At the time of the formation of the hotel company, another corporation was organized under the name of Miramar Club of California. This corporation was formed for the purpose of conducting a “beach club” in conjunction with the hotel. The Stevensons were the owners of substantially the entire outstanding stock of both…