Branham v. Prewitt

• Decision Date: 09 June 1982
• Docket Number: No. 16629,16629
• Citation: 636 S.W.2d 507
• Parties: Ronald C. BRANHAM and Glenn Foster, Inc., Appellant, v. Larry Wayne PREWITT and Gary Lynn Prewitt, Appellees.
• Court: Texas Court of Appeals

Page 507

636 S.W.2d 507

Ronald C. BRANHAM and Glenn Foster, Inc., Appellant, v. Larry Wayne PREWITT and Gary Lynn Prewitt, Appellees.

No. 16629.

Court of Appeals of Texas, San Antonio.

June 9, 1982.

Rehearing Denied June 28, 1982.

Roger W. Wooldridge, A. W. Worthy, San Antonio, Kip Eddy, for appellant.

Joseph Chacon, Jr., San Antonio, for appellee.

Before CADENA, C. J., and KLINGEMAN and ESQUIVEL, JJ.

OPINION

KLINGEMAN, Justice.

This is a conversion suit brought by Larry and Gary Prewitt against Ronald C. Branham, Glenn Foster, Inc., and Kip Eddy. Judgment was in favor of the Prewitts in the trial court against all three defendants; however, only Branham and Glenn Foster, Inc. have perfected appeals to this court. ¹

The controversy herein involves the formation of a corporation, Classic Coachworks, Inc., by Ronald C. Branham, Kip Eddy, and Gary Prewitt. Gary Prewitt owned and operated an automobile repair business, the Corvette Shop, when he, Branham, and Eddy decided to form the corporation in the first part of 1977. The corporation was for the purpose of repairing and buying and selling exotic automobiles. Prewitt agreed to put the assets of his repair business and his time into the corporation for a 50% ownership interest of the corporation. Branham agreed to contribute $50,000 for a 25% share and Eddy agreed to manage the business for a 25% share. The parties also agreed to carry Gary Prewitt's interest in the corporation in the name of Larry Prewitt, Gary's brother, because Gary owed some money to the Internal Revenue Service. The business began functioning as Classic Coachworks, Inc. sometime in February, 1977. The corporate certificate, however, was filed March 15, 1977. Prewitt also assigned his interest in the existing lease to the corporation. During February, 1977, Branham negotiated for a corporate loan for $50,000 from Glenn Foster, Inc. Charles Eldridge of Glenn Foster, Inc. visited the place of business of Classic Coachworks, Inc. and was given a list of the assets of the business. Eldridge approved the loan to the corporation and Glenn Foster, Inc. took a security interest in the assets located on the premises. Mr. Eldridge met Gary Prewitt when he visited the premises, but the negotiations concerning the loan were with Branham only. Only Branham and Eddy signed the security agreement, Prewitt not taking part in the loan transaction. Prewitt and Eddy also personally guaranteed the loan from Glenn Foster, Inc. Prewitt testified that he did not know that Branham borrowed money by using the business assets as collateral and that he was not even aware of the loan transaction until months after it was made. It is Brenham's contention that the corporate loan, secured by the business assets, was a part of the agreement made between the parties when the corporation was first formed and that Prewitt was fully aware of the transaction.

The business was operated for several months, but at one point, sometime in May or June of 1977, Eddy withdrew from the business and left town. Branham and Eddy contend that the parties had all agreed, before Eddy left town, to change the structure of the corporation, with each party owning a 1/3 interest. Prewitt does not agree with such contention. The corporation eventually began losing money and in September, 1977, Branham began liquidating the assets of the corporation. Branham argues this was his privilege under the initial agreement. Prewitt, however, urges there was no such agreement and that he allowed Branham to continue the liquidation only because of threats of bodily harm made by Branham to Prewitt. Branham sold most of the tools located on the business premises, the corporation's leasehold on the premises, and three motor vehicles.

The Prewitts then instituted this suit, alleging Branham had converted their business assets including the automobiles and leasehold interest, by liquidating such assets in order to pay off the loan to Glenn Foster, Inc. Further, the Prewitts alleged Glenn Foster, Inc. was liable for conversion by attempting to take a security interest in such assets. We need not be concerned with the conversion allegations against Kip Eddy because he did not perfect an appeal. The jury found all three defendants liable for conversion. Based upon the verdict, the trial court rendered judgment in favor of the Prewitts. The issues pertinent to Branham's appeal are different from those involved in Glenn Foster, Inc.'s appeal. Therefore, we will discuss the two separately.

GLENN FOSTER, INC.

Appellant Glenn Foster, Inc. asserts twelve points of error. The controlling question in Foster's appeal, however, is whether the mere taking of a security interest can constitute conversion absent further affirmative acts with regard to the property involved.

The case against Foster is based solely on the jury's affirmative answer to special issue number ten which reads as follows

Do you find from a preponderance of the evidence that by the preparation of the instruments known as Plaintiffs' Exhibit No. 56 and Defendant Foster's Exhibit No. 2 by Glenn Foster, Inc., Defendant Glenn Foster, Inc., converted the property therein described?

In connection with this question you are instructed that to constitute a conversion, it is not necessary that there be a manual taking of the property in question, nor is it necessary for a person to have had, at any time, actual possession of the property to be held liable for the conversion thereof. Any unauthorized and wrongful assumption and exercise of dominion and control over the personal property of another to the exclusion of or inconsistent with the owner's rights is in law a conversion. Answer "It did" or "It did not."

WE, THE JURY, ANSWER: It did.

Plaintiff's Exhibit No. 56 and Defendant Foster's Exhibit No. 2 are U.C.C. forms under the terms of which Classic Coachworks Corp. or Classic Coachworks, Inc. granted to Glenn Foster, Inc. a security interest in

All shop tools, equipment, machinery, molds, furniture and fixtures and all inventory of new and used parts whether listed hereon or not together with all accessions, additions, replacements and substitutions thereto and therefor, located on the premises at 11403 San Pedro, San Antonio, Bexar County, Texas.

The evidence shows that Glenn Foster, Inc., represented by Charles Eldridge, attempted to take a security interest in the assets of this automobile repair business. Glenn Foster, Inc. filed financing statements with the Secretary of State and the Bexar County Clerk and executed a security agreement, obtaining the signatures of Branham and Eddy only. The security agreement was executed February 24, 1977. Glenn Foster, Inc. never took possession of the property covered in the security agreement, nor did it foreclose or even threaten to foreclose on such property.

The central issue as far as Glenn Foster, Inc. is concerned is whether the mere taking of a security interest can constitute conversion, absent further affirmative acts taken with regard to the property. We have found no cases in Texas relating to this question. Therefore, we must look to the general rules of conversion and attempt to apply them to the facts of this case.

Conversion is the wrongful exercise of dominion and control over another's personal property, to the exclusion of or inconsistent with the rights of the owner. Waisath v. Lack's Stores, Inc., 474 S.W.2d 444 (Tex.1971); McVea v. Verkins, 587 S.W.2d 526 (Tex.Civ.App.-Corpus Christi 1979, no writ); Beam v. Voss, 568 S.W.2d 413 (Tex.Civ.App.-San Antonio 1978, no writ); Adam v. Harris, 564 S.W.2d 152 (Tex.Civ.App.-Houston (14th Dist.) 1978, writ ref'd n.r.e.); American Cotton Co-op Association v. Plainview Compress & Warehouse Co., 114 S.W.2d 689 (Tex.Civ.App.-Amarillo 1938, writ dism'd); ² American Surety Co. v. Hill County, 254 S.W. 241 (Tex.Civ.App.-Dallas 1923), aff'd, 267 S.W. 265 (1924). To constitute a conversion, it is not necessary that there be a manual taking of the property in question. Waisath v. Lack's Stores, Inc. supra; Beam v. Voss, supra; Sharkey v. Hollums, 400 S.W.2d 353 (Tex.Civ.App.-Amarillo 1966, writ ref'd n.r.e.). The gist of a conversion is not the acquisition of the property by the wrongoer, but the wrongful deprivation of a person of property which he is entitled to possess. Ligon v. E. F. Hutton & Co., 428 S.W.2d 434 (Tex.Civ.App.-Dallas 1978, writ ref'd n.r.e.).

In American Surety Co. v. Hill County, supra, the court stated:

... conversion is an offense against the possession of the property alleged to have been converted. It also follows that it is not necessary that there be an actual manual taking of personal property to constitute a conversion, but there must be such active interference with the owner's right of property or control as will deprive him of its free use and enjoyment. Nor is it necessary that the property be applied to the use of the one charged with conversion, nor even of a third person; the element of controlling influence being the owner's loss and not the wrongdoer's benefit. Bowers on Law of Conversion, § 2.

It must also be remembered that every taking of property from the possession of the owner, or the one entitled to possession, is not necessarily a conversion of the property. One person might hold possession of the property of another not inconsistent with the rights of the owner. Generally, before there can be a conversion of property, there must be an act of malfeasance and not a mere nonfeasance; a positive wrong and not the mere omission of what was right. This act of malfeasance may be committed by a tortious detention of the property from the owner, or by a destruction of the property, or by an exclusion or defiance of the owner's right, or the withholding of possession under a claim of title inconsistent with that of the owner.

Id. at 246.

We have found no cases in Texas holding that the mere filing of a lien or other claim of title constitutes...