Goodrich v. Malowney

• Decision Date: 06 November 1963
• Docket Number: No. 3289,3289
• Citation: 157 So.2d 829
• Parties: Harold S. GOODRICH, Forrest O. Hobbs and Don M. Six, individually and as trustees, Appellants, v. George R. MALOWNEY, Appellee.
• Court: Florida District Court of Appeals

Page 829

157 So.2d 829

Harold S. GOODRICH, Forrest O. Hobbs and Don M. Six, individually and as trustees, Appellants, v. George R. MALOWNEY, Appellee.

No. 3289.

District Court of Appeal of Florida, Second District.

Nov. 6, 1963.

Rehearing Denied Dec. 11, 1963.

Forrest O. Hobbs and Robert F. Nunez, Tampa, for appellants.

Thomas A. Clark (of Mabry, Reaves, Carlton, Fields & Ward), and Emmett J. Comiskey, Tampa, for appellee.

KANNER, Judge.

Seeking to recover damages for alleged conversion of 233 shares of stock in Hallmark Apartments, Inc., plaintiff-appellee, George R. Malowney, sued defendants-appellants, Harold S. Goodrich, Forrest O. Hobbs, and Don M. Six 'individually and as trustees.' Verdicts of $8,356.70 compensatory and $3,000 punitive damages were returned by the jury against appellants. The judgment consequent upon the verdicts is assailed on the appeal.

Hallmark Apartments, Inc., was initiated in 1960 by Malowney for construction of a co-operative apartment building. He became a director, the corporation's first president, and its largest shareholder. One John Williams was vice-president, later being replaced by appellant Six; Goodrich was treasurer; and Hobbs ultimately became secretary. All three appellants were directors and stockholders. The total stock subscription, at $100 per share, was about $110,300. Of this, Malowney acquired 233 shares, or approximately 20 per cent, representing an investment of $23,300. Construction costs for the apartment building were almost $200,000.

Malowney placed with the Marine Bank and Trust Company of Tampa his 233 shares of stock which are the subject of this controversy. This was required by the bank as collateral security for a loan of $15,000 to Hallmark Apartments, Inc., which loan had been authorized through corporate resolution passed by the board of directors and July 26, 1960. Williams, the corporation's vice-president, also assigned as additional security for this loan his 50 shares of stock; both signed the note personally and Malowney also signed in his official capacity. Some months previously, on April 22, 1960, Williams had negotiated a personal loan to himself of $3,500 from the same bank. Malowney cosigned this note; the corporation was in no way involved in the transaction.

At a meeting of the stockholders held on November 3, 1960, Williams resigned as vice-president and Six was elected to replace him. Two weeks later, on November 17, 1960, Six, as vice-president, executed a warranty deed attested to by the corporation's secretary, Hobbs, conveying the total assets of Hallmark Apartments, Inc., except office equipment, to himself, Goodrich, and Hobbs as trustees for the corporation. There was no notice to nor any meeting of the directors or stockholders to authorize this and it was not until considerably later that Malowney learned about the trust deed.

On January 20, 1961, appellants as trustees acquired possession of Malowney's 233 shares of stock and the 50 shares of Williams. This came about upon execution by them as trustees and by the corporation under signature of Six as vice-president, attested to by Hobbs as secretary, of a mortgage to the bank for $18,694.29 on certain vacant business lots of the corporation as security, this sum being used to pay the $15,000 loan which had been made to the corporation and the Williams personal loan of $3,500 which Malowney had cosigned, plus interest on both notes. In doing this, appellants utilized no personal funds. Malowney did not learn of the mortgage nor of the assignment by the bank of his pledged shares of stock until early March of 1961.

On February 20, 1961, appellants convened a stockholders' meeting attended by no one other than themselves, no others having been notified. They adopted a new set of by-laws, voted to discharge the board of directors, including Malowney, and elected a new slate, consisting of themselves, along with two others. They, as directors, next called a meeting of the new board, still with only themselves notified or present; the officers of the corporation were then removed; and appellants were re-elected, along with one new officer. For this purpose, appellants utilized certain proxies and voted Malowney's 233 shares of stock.

Malowney, on or about March 5, 1961, returned to Hallmark's office after an absence of a few hours to find that the furniture had been removed. About three days later he received a copy of the minutes of the February 20, 1961, meeting. In April of 1961, Malowney's attorney through letter to each appellant issued a demand upon them for return of his stock. Appellants refused.

During the pre-trial phase of the litigation, the court below by order dismissed a styled second amended counterclaim which had been filed against Malowney by appellants individually and as trustees, and Hallmark Apartments, Inc. At the conclusion of all the evidence, the trial court granted Malowney's motion for a directed verdict upon the issue of appellants' liability for conversion, leaving to the jury the questions of the amount of compensatory damages and of whether or not punitive damages should be awarded. Appellants' motion for directed verdicts both as to compensatory and punitive damages were denied.

Dismissal by the trial court of the second amended counterclaim is cited as error by appellants. When the counterclaim as amended was filed, although appellants named Hallmark Apartments, Inc., as a party, they had made no application to the court seeking permission to do so. In its order the court, among other things, found that the second amended counterclaim shows that, if a claim exists against Malowney, it would exist in Hallmark Apartments, Inc., and not in defendants-appellants Goodrich, Hobbs, and Six, the parties to the litigation, and consequently would not come within the requirements of Rule 1.13, Florida Rules of Civil Procedure, 30 F.S.A. as being a counterclaim which a third party could assert against Malowney. The court then found that Hallmark Apartments, Inc., had never been made a party to this suit pursuant to Rule 1.17, and consequently could not assert any claim against Malowney. Also in connection with adding Hallmark Apartments, Inc., as a party, see Rule 1.18. Other reasons were given by the court for dismissing the counterclaim, but the order concluded with the court's granting of leave to the corporation or anyone legally representing its rights 'to file such pleadings as it or they may be advised within twenty (20) days.' This prerogative was not elected. We agree that there was adequate basis for the trial court's order of dismissal.

From our study of the case, there are three salient questions which emerge for our determination, 1. Whether there was sufficient evidence to support the trial judge's decision to direct a verdict upon the issue of conversion, 2. Whether the evidence will sustain the jury's award of compensatory damages, and 3. whether or not punitive damages are justified under the facts.

Both in Florida and generally, a conversion has been defined as being an act of dominion wrongfully asserted over another's property inconsistent with his ownership of it. The essence of conversion lies within an unauthorized act which deprives another of his property permanently or for an indefinite time; it is the disseisin of the owner or an interference with legal rights incident to ownership, such as the right to possession. The necessary element of a conversion is wrongful deprivation of the owner of his property. Familiar expressions descriptive of the gist of such a wrong are said to be 'interference with the dominion of the true owner', 'exercise of dominion to the exclusion and in defiance of the plaintiff's right', and 'unauthorized assumption of the powers of a true owner.' Star Fruit Co. v. Eagle Lake Growers, 1948, 160 Fla. 130, 33 So.2d 858; Quitman Naval Stores Co. v. Conway, 1912, 63 Fla. 253, 58 So. 840; 7 Fla.Jur., Conversion, sections 2 and 7, pages 267, 270.

Appellants urge with respect to the issue of conversion that their refusal to return the stock when demanded was not unqualified, this being premised upon the contention that there should be an accounting by Malowney to the corporation for claimed indebtedness to it, including failure of Malowney to tender the $3,500 which was incident to appellants' execution of the mortgage to the bank. Thus, they say, Malowney was not entitled to immediate possession. Additionally, they argue that, having taken an assignment as trustees, they had a right under the by-laws to vote Malowney's stock.

Under the pleadings, the amended complaint is for conversion of Malowney's stock, and its objective is both compensatory and punitive damages. The only defense set up by appellants is simply a general denial; so there is no basis in their defensive pleading either with respect to an accounting or a debt by Malowney to the corporation of $3,500. Nor does the evidence show they ever broached the subject to or informed Malowney of the secretly assumed obligation of $3,500 nor that they mentioned any accounting to Malowney, but the only evidence as to this is Hobbs' testimony...