Nature of the Case
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Facts
Leasco (P) had acquired Louis Berger, Inc. (Berger, Inc.). In July 1969, P engaged appellant D as vice president and counsel to Berger, Inc. D became involved in the efforts of Berger, Inc. to acquire the assets of McCreary-Koretsky Engineers, Inc. (MKE), a California corporation engaged in civil engineering and consulting work. In late 1969 and early 1970, D was asked to investigate MKE. A wholly owned subsidiary of Berger, Inc., McCreary-Koretsky International, Inc. (MKI), was able to acquire the contracts and personnel of MKE as part of a reorganization agreement. MKI had been incorporated specifically for the purpose of acquiring the assets of MKE. The reorganization agreement was closed on September 16, 1970, effective as of April 1, 1970. D became a vice president of MKI. His task was to keep Leasco informed about MKI's activities, including its financial condition. P began to consider divestiture of its entire Berger division. D offered to purchase MKI. D estimated that MKI's pre-tax earnings for 1971 would be about $200,000. Pursuant to the reorganization agreement with MKE, MKI was required to transfer approximately 50% of its profits to MKE. At ten times earnings less have P asked for $1,000,000. D suggested $625,000 cash combined with a release by D of P's guarantee of an outstanding loan of $375,000 to MKI from The Bank of America. P agreed. On February 26, 1971, an agreement was entered into for the sale of MKI to D. The price for MKI was $625,000, plus D's release of Leasco from its guarantee to The Bank of America of its outstanding loan of $375,000 to MKI. The contract specifically stated that P made no other representations or warranties with respect to MKI, other than those included in the contract. The February financial statement for MKI disclosed a net loss of $4,702. A design error had caused a substantial carry-back loss which accounted for the income loss reflected in the February financial statement. This error also resulted in net losses for the months of March and April. D refused to accept the stock tender or to perform as required under the contract. P sued seeking specific performance or damages. D claimed the agreement was rescinded based on mutual mistake and misrepresentation of material fact. The court ordered specific performance and when D failed to perform entered judgment for $669,000. D appealed.
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