Christopher v. General Computer Systems, Inc.

• Decision Date: 31 August 1977
• Docket Number: No. 19238,19238
• Citation: 560 S.W.2d 698
• Parties: Charles S. CHRISTOPHER, Appellant, v. GENERAL COMPUTER SYSTEMS, INC., Appellee.
• Court: Texas Court of Appeals

Page 698

560 S.W.2d 698

Charles S. CHRISTOPHER, Appellant,

v. GENERAL COMPUTER SYSTEMS, INC., Appellee.

No. 19238.

Court of Civil Appeals of Texas, Dallas.

Aug. 31, 1977.

Rehearing Denied Nov. 15, 1977.

R. L. McSpedden, Collie, McSpedden & Roberts, Dallas, for appellant.

Dean Carlton, Dallas, for appellee.

GUITTARD, Chief Justice.

This suit was brought by General Computer Systems, Inc., a supplier of computer equipment, against Surety Industries, Inc. and Charles Christopher, Surety's president and sole stockholder, for misappropriation of funds alleged to have been collected by Surety as agent for General and diverted by Christopher for his personal use. After a verdict favorable to General, the claim against Surety was severed, and judgment was rendered against Christopher on the verdict for $117,190.97 actual damages and $150,000 exemplary damages. On this appeal Christopher's principal contentions are that the pleadings and evidence are insufficient to support the findings of damages, that the exemplary-damage issue was improper, and that the court erred in admitting evidence of appellant's conviction of a crime which, he asserts, did not involve moral turpitude. We affirm.

The evidence shows that General from time to time sold equipment to Surety, which leased it to various customers, and that General provided maintenance service for the lessees. The parties did business under a "Master Sales Agreement," which provided as follows:

SURETY agrees that it will collect, as agent for GENERAL monthly maintenance payments, without fee whatsoever to SURETY. SURETY will pay such maintenance payments to GENERAL within five (5) days after receipt, without any deduction whatsoever.

General alleged that under the above provision of the contract, Surety had collected maintenance payments from lessees which it had failed to pay over to General, that these funds were trust funds which Surety had commingled with its own funds, that Christopher and the other officers of Surety had caused the funds to be dissipated and had appropriated them to their own personal and business purposes, and that more than $500,000 of such funds had been lent or given to defendant Christopher.

In response to special issues, the jury found (1) that the amount of maintenance funds collected by Surety and not paid to General was $117,190.97, (2) that such collections were made by Surety as agent for General, (3) (not pertinent), (4) that maintenance funds so collected were commingled with Surety's general funds, (5) that such commingled funds or a part thereof were diverted by Christopher, and (6) that Christopher diverted more than $125,000 of such commingled funds. Other findings, including those concerning exemplary damages, will be noticed later in this opinion.

1. Funds Collected as Agent

We consider first appellant Christopher's attack on the answer to special issue number one as without sufficient support in the evidence. By this answer the jury found that Surety collected $117,190.97 of maintenance funds which it failed to pay over to General. After review of the evidence, we conclude that there is sufficient evidence to support this finding.

The basic problem of proof was that neither General nor Surety had adequate records of the maintenance fees collected by Surety. The evidence shows that lessees of the equipment made monthly payments to Surety covering both the rentals owing to Surety and the maintenance fees collected by Surety for General. When Surety received these payments, it deposited them with its general operating funds and failed to keep a careful record of how much of each of such payments was from maintenance as distinguished from rental. Christopher testified that the maintenance fees went into several accounts and that Surety had no policy or established method of accounting for them. He admitted that it was difficult to allocate these collections between funds owed to Surety and funds owed to General. Surety's accountant Willke testified concerning a summary he had made from Surety's records of maintenance fees collected, but his testimony based on these summaries cannot be taken as conclusive in view of other testimony concerning the inadequacy of Surety's records. Christopher testified that Surety sometimes had difficulty determining which funds belonged to it and which to General. General's accountant, Harry Greenberger, had been permitted to make an extensive investigation of Surety's books, and he testified concerning the summaries he had made, which did not agree with Willke's summaries. Greenberger also testified that he was unable to verify all the book entries from original documents or entries made at the time of the transactions and that in some respects the records he examined were inconsistent. He also testified that Surety's records, particularly its general ledger for 1974, were not kept in accordance with normal bookkeeping practices.

In this situation, General's principal reliance is on circumstantial proof. Greenberger testified concerning the amount of maintenance fees billed by General to Surety, representing amounts payable by lessees to Surety as General's agent. In order to establish what part of these billings had been collected, he undertook to determine from Surety's records which of the monthly rentals had not been received. Apparently, Surety did keep a record of rentals past due. Greenberger then inferred that if the rental was not collected in a particular case, the corresponding maintenance fee for that month was not collected, and that if the rental was collected, the maintenance fee was collected. He then totaled the uncollected maintenance fees so determined and subtracted that amount from the total billings for maintenance fees to obtain a figure for the maintenance fees actually collected. On that basis, after taking into account certain credits to which Surety was entitled according to a stipulation of the parties, and, allowing for other adjustments not in controversy, Greenberger arrived at a net amount owing to General of $117,190.97, the amount found by the jury in answer to issue number one. This figure is less than the amount owed to General as evidenced by Greenberger's summaries of Surety's records.

Appellant attacks this computation by challenging Greenberger's inference that Surety's record of the rentals not collected was proof of the maintenance fees collected. By itself, of course, it did not constitute such proof. There was other proof, however, which we find circumstantially sufficient to support Greenberger's inference. The maintenance fees, like the rentals, were paid monthly by the lessees to Surety. Christopher admitted that the maintenance fees and rentals were billed to the lessees on the same invoices and were collected together. There is no evidence of an instance when one was received without the other. Since Surety had the duty as General's agent to collect and pay over the maintenance fees, it is in no position to assert that when a payment was insufficient to cover both, that payment should be credited to the rental rather than to the maintenance fee. Christopher, as Surety's chief executive officer, is in no better position.

Moreover, Surety, as General's agent, had a duty to keep and maintain the maintenance funds as a separate and identifiable account for the benefit of General. Searle-Taylor Machinery Co. v. Brown Oil Tools, Inc., 512 S.W.2d 335, 338 (Tex.Civ.App. Houston (1st Dist.) 1974, writ ref'd n. r. e.). According to Christopher's own testimony, Surety did not comply with that duty. Neither Surety nor Christopher offered any evidence tending to show that rentals were received from lessees who did not at the same time pay also the corresponding maintenance fee. Under these circumstances we conclude that the evidence provides a rational basis for accepting Greenberger's computation, at least as prima facie proof of the amount of maintenance funds collected by Surety and not paid over to General. A contrary holding would permit Surety and Christopher to take advantage of the inadequacy of Surety's own records to avoid accountability for funds collected and held as General's agent and diverted by Christopher to his own personal use.

Appellant attacks Greenberger's figures on the additional ground that they include amounts collected before March 1975 when, according to a letter from General's lawyer, all accounts were settled and Surety gave a note for the agreed amount due, which was subsequently paid. We are unable to determine from this letter and the testimony relating to it whether it had anything to do with maintenance funds collected by Surety. The amount of $383,473.03 stated as the "outstanding balance" is apparently based on other transactions between General and Surety. At least, Greenberger and the jury might properly have so regarded it, so far as the present record shows. Consequently, we cannot say that this letter established conclusively the inaccuracy of Greenberger's figure of $117,190.97.

2. Diversion of Commingled Funds

We next consider appellant's attack on the jury's finding in answer to issue number five that appellant diverted the commingled funds or a part thereof. In support of this attack, appellant argues that the effect of the suit is to hold him as a shareholder liable for the corporate debts because he received money from the corporation. He insists that this cannot be done unless the corporation has become insolvent and has ceased doing business, or unless the stockholders have "denuded" the corporation of its assets, and that these facts are neither alleged nor proved.

We cannot accept this analysis because the maintenance funds were not simply a debt that Surety owed to General. Under the express provision of the "Master Sales Agreement" above quoted and also under the jury's finding in answer to issue number two that the maintenance funds were collected by Surety as agent for General, these...