Johnson v. Cormney

• Citation: 596 S.W.2d 23
• Parties: James W. JOHNSON, Appellant, v. K. A. CORMNEY and Ethel Cormney, Appellees.
• Decision Date: 30 November 1979
• Court: Kentucky Court of Appeals

Page 23

596 S.W.2d 23

James W. JOHNSON, Appellant, v. K. A. CORMNEY and Ethel Cormney, Appellees.

Court of Appeals of Kentucky.

Nov. 30, 1979.

Discretionary Review Denied April 15, 1980.

James D. Ishmael, Jr., Brown, Sledd & McCann, Lexington, for appellant.

Wheeler B. Boone, Lexington, for appellees.

Before HOGGE, REYNOLDS and WINTERSHEIMER, JJ.

REYNOLDS, Judge.

This is an appeal by James W. Johnson, one of the judgment defendants against whom a verdict had been rendered by a Fayette Circuit Court jury in an action for fraud and deceit initiated by the sellers of a mechanical vending machine business to the appellant and two associates.

The appellees, Mr. and Mrs. K. A. Cormney, were the owners of a vending machine business (Central Vending Company) which had been in operation for more than fifteen years in the Lexington, Kentucky, area. Their company employed 50-60 people, owned and operated 25-30 motor vehicles and operated between 700-1,000 vending machines ranging in value from $100 to $5,000 each which were located in some 300-400 locations. The company, a functioning enterprise, had at the time the business was sold assets and accumulated depreciation approximating $1,000,000 with annual gross sales and revenue of $1,500,000. At the time of sale the company's indebtedness exceeded $404,000; and it showed a loss of $74,000 for 1971. Mr. Cormney, who desired to sell the business, was contacted by Messrs. Henry, Johnson and Kennedy who were stockholders and officers in a North Carolina company. After preliminary studies and examination of the company records and assets, the parties executed a stock sale and purchase agreement on June 27, 1972, and in conjunction therewith the buyers' North Carolina company assumed indebtednesses owed by Mr. Cormney's company to the Central Bank and Trust Company, with Cormney remaining personally liable to the bank. While Mr. Henry entered into the sales-purchase contract as an officer of the North Carolina company, all contractual rights were thereafter assigned to Mr. Henry, individually, and he became the principal operating officer of the newly-acquired Kentucky corporation.

Under Henry's stewardship, during the summer and fall of 1972, the vending company experienced financial difficulties, and by October of 1972 the business was getting pressure from banks to reduce its indebtedness. On December 23, 1972, at the demand of Central Bank and Trust Company, alternate financing was required, and a new contract was entered into. Therein appellant Johnson and Mr. Kennedy agreed to personally sign an extension agreement as additional security to Central Bank and Trust Company. This agreement contained provisions to the effect that the physical assets of Central Vending would be first applied in the event of default upon the repayment of its loan, that Mr. Cormney would be fully informed so he could protect certain stock that he had pledged as additional security for the loan, and that all proceeds of the sale of used equipment would be applied toward the payment of the debt at Central Bank. On December 28, 1972, appellant Johnson was elected executive vice-president of the company at a directors' meeting and was charged with the financial aspects of the business. On January 2, 1973, a $251,182.90 promissory note to the order of Central Bank and Trust Company was signed by appellant Johnson, Kennedy and Mr. Cormney. Through the spring of 1973 unsuccessful negotiations were conducted with a national vending concern relative to the sale of Central Vending Company.

By early May 1973 the company was a financial wreck. It collapsed and was placed into receivership with only $40,000 to $50,000 worth of equipment on hand and on location, with $450,000 to $500,000 worth of bills and claims from various suppliers and with an indebtedness owing to Central Bank. This litigation was instituted by the appellees as against three original co-defendants, Henry, Kennedy and Johnson, alleging that through their overt and omitted acts they wrongfully, willfully, and maliciously conspired and connived to remove the tangible property, monies and assets of Central Vending Company and to defraud the creditors thereof. Co-defendant Henry was not present at trial and has not appealed. A directed verdict was entered for the co-defendant, Kennedy. The record is replete with substantial evidence that the Central Vending Company's assets were disposed of or sold with an intent to avoid the payment of equipment mortgages, or to cheat, hinder or delay the company's creditors which included appellees.

The appellant Johnson appeals from the $251,182.90 judgment entered against him and co-defendant, Mr. Henry. On this appeal he raises the following issues:

I. Whether the court correctly gave instructions permitting judgment against the appellant on basis that he "condoned" some alleged action, when the allegations of the complaint and amended complaint charged and the opening statement of counsel indicated that proof would show that the appellant "wrongfully, willfully, maliciously, unlawfully, . . . and with a fraudulent intent" committed certain acts against the appellees in an effort to cheat them?

II. Whether there was sufficient proof of any direct involvement by the appellant to support the verdict and judgment on grounds of fraud and deceit?

III. Whether there was sufficient proof on the issue of damages to support the verdict and judgment, or whether the jury was allowed to speculate or guess?

IV. Whether the appellees failed to take appropriate action to prevent their alleged damages in breach of their contractual and legal duties which, under proper instructions, the jury should have had an opportunity to decide?

V. Whether there existed sufficient contacts with Kentucky by the appellant to confer jurisdiction by this court pursuant to KRS 454.210?

On the first issue he maintains that the trial court's Instruction No. 2, Question No. 3 was improper in that it did not correctly set forth the requirements of the law or proof by which his conduct should have been measured. This instruction provided:

Question No. 3: Do you believe from the evidence that subsequent to June 27, 1972, the defendant, James W. Johnson, caused or knowingly participated in or knowingly condoned the taking, selling, or disposing of money or property belonging to Central Vending Company with the intent to avoid the payment of mortgages on such property, or to cheat, hinder or delay the creditors of Central Vending Company, including the plaintiff? (Emphasis added.)

It is appellant's contention that the trial court's use of the word, "condoned," in this instruction erroneously allowed the jury to reach a verdict without its finding that he had wrongfully, willfully, unlawfully and intentionally committed affirmative acts to the detriment of the appellees, contrary to the pleadings and offered proof.

Appellant's tendered instruction as to this issue required the jury to believe from the evidence that he

wrongfully, willfully, maliciously, unlawfully did sell or otherwise dispose of the money and physical assets of Central Vending Company . . . with the fraudulent intent to cheat, hinder . . .

Appellees' complaint, as amended, had alleged omitted as well as overt fraudulent acts by Johnson against the appellees, and in any event proof was introduced at trial as to Johnson's omitted acts during his tenure as executive vice-president of the company without objection. But for the use of the word, "condoned," those instructions tendered by appellant do not differ substantially from those given by the court, and we find no objection by appellant at trial, or tendered instruction, that could be said to make reasonably clear to the trial court what the appellant had in mind as to his objection to the use of the word, "condoned." See CR 51 and Palmore, Kentucky Instructions to Juries, Vol. 2 § 13.11 and § 13.15.

While appellant did not preserve any assignment of error as to this instruction, we determine that the instruction, as given, was not likely to mislead...