## Facts

- Glendon E. Johnson was married to Bobette Johnson.
- During the marriage, Glendon acquired 132,563 shares of Terracor, Inc.; record title to the shares was in Glendon’s name alone.
- Ian M. Cumming was Terracor’s president and a member of Terracor’s executive committee.
- Terracor and certain individuals, including Glendon and his brother Franklin Johnson, were defendants in litigation that threatened substantial liability.
- Cumming and the Johnsons reached an oral arrangement under which Cumming would personally provide funds and financial resources to resolve the litigation, and in exchange Glendon (and Franklin) would transfer their Terracor shares to Cumming.
- While the litigation was pending, Terracor’s executive committee sent Glendon and Bobette a letter stating Terracor would indemnify them for liabilities arising from the litigation; the letter was addressed to both spouses.
- Glendon permitted Cumming to proceed with settlement using Cumming’s own money and property, and Cumming completed the settlement efforts contemplated by the arrangement.
- After receiving the benefit of the settlement, Glendon refused to transfer his Terracor shares to Cumming.
- Cumming sued in federal district court, seeking enforcement of the oral stock-transfer agreement; Glendon resisted on multiple grounds, including the statute of frauds and Bobette’s claimed community-property rights.

## Issues

1. Did the district court properly exercise diversity jurisdiction (complete diversity and amount in controversy)?
2. Did the statute of frauds, including California’s U.C.C. provision governing contracts for the sale/transfer of securities, bar enforcement of the oral stock-transfer agreement?
3. Did Bobette Johnson’s community-property interest and joint-management rights prevent enforcement of Glendon’s promise to transfer stock held in his name?
4. Did the indemnification letter addressed to Bobette give Cumming actual or constructive notice that required denial of relief or otherwise affected enforcement?
5. Were there reversible trial errors (including evidentiary rulings, jury instructions, and verdict form issues) requiring reversal or a new trial?

## Decision

- The Ninth Circuit affirmed the judgment for Cumming.
- The district court had diversity jurisdiction because the parties were completely diverse and the value of the stock interest sought (or its equivalent monetary value) satisfied the jurisdictional amount.
- The oral agreement was not defeated by the statute of frauds/U.C.C. securities-writing requirement on the facts found at trial, given the performance and reliance shown and the purpose of the statute to prevent, not aid, fraud.
- The community-property defense did not bar enforcement of Glendon’s contractual obligation; Bobette’s nonparticipation did not invalidate the judgment entered against Glendon based on his promise.
- The defendants did not show prejudicial error in the district court’s conduct of the trial, instructions, or verdict procedures.

## Legal Principles

- In diversity cases, the amount in controversy is measured by the value of the right the plaintiff seeks to enforce; post-trial valuation can confirm that the jurisdictional minimum is met.
- California’s statute of frauds for securities (U.C.C. § 8-319 as then in effect) does not automatically preclude relief where the evidence and findings support enforcement based on recognized exceptions and equitable limits on using the statute to avoid obligations after accepting the other party’s performance.
- A spouse’s community-property interest in stock does not, by itself, nullify a contract made by the title-holding spouse with a third party; enforcement may proceed against the contracting spouse’s obligation and interest without adjudicating the noncontracting spouse’s separate rights in her absence.
- Notice arguments based on surrounding documents (such as a corporate indemnification letter) do not defeat enforcement unless they establish a legally meaningful bar under the governing community-property rules and the relief awarded.
- On appeal, challenges to jury instructions, evidentiary rulings, and verdict forms require a showing of prejudicial error; instructions are reviewed in context as a whole.

## Conclusion

Cumming v. Johnson affirmed enforcement of an oral agreement under which Cumming financed settlement of litigation in exchange for Glendon Johnson’s Terracor shares. The Ninth Circuit held that diversity jurisdiction was satisfied, the statute of frauds/U.C.C. writing requirement did not bar relief on the trial record, and the asserted community-property interest of Johnson’s wife—despite an indemnification letter addressed to her—did not invalidate judgment enforcing Johnson’s obligation, nor did alleged trial errors warrant reversal.


Cumming v. Johnson, 616 F.2d 1069 (1979)