McGlynn v. Schultz, s. A--1008

• Decision Date: 14 June 1967
• Docket Number: A--1011,Nos. A--1008,s. A--1008
• Parties: Roger H. McGLYNN, Receiver of Neptune Center Associates, Plaintiff-Respondent, v. Mortimer L. SCHULTZ et al., Defendants, and David H. Jackson et al., Defendants-Appellants, and Jack E. PORTIS et al., Defendants-Respondents.
• Court: New Jersey Superior Court — Appellate Division

Page 412

95 N.J.Super. 412

231 A.2d 386

Roger H. McGLYNN, Receiver of Neptune Center Associates, Plaintiff-Respondent, v. Mortimer L. SCHULTZ et al., Defendants, and David H. Jackson et al., Defendants-Appellants,

and

Jack E. PORTIS et al., Defendants-Respondents.

Nos. A--1008, A--1011.

Superior Court of New Jersey

Appellate Division.

Argued April 24, 1967.

Decided June 14, 1967.

Pitney, Hardin & Kipp, Newark, for appellant, David H. Jackson (S. Joseph Fortunato, Newark, of counsel).

Richard L. Amster, Newark, for appellant, Gerald I. Lebau.

D. F. Moore Craig, Newark, for appellant, Alexander C. Greyson (Bracken & Walsh, Newark, attorneys).

Saul J. Zucker, Newark, for appellant, Thomas H. Vaughn (Kristeller, Zucker, Lowenstein & Cohen, Newark, attorneys).

Waldor & Hochberg, Newark, for appellant, Norman R. Berson (George S. Hochberg, Newark, of counsel).

Albert G. Besser, Newark, for respondent, Roger H. McGlynn, receiver of Neptune Center Associates (Hannoch, Weisman, Stern & Besser, Newark, attorneys, James J. Shrager, Newark, on the brief).

Before Judges GOLDMANN, KILKENNY and COLLESTER.

The opinion of the court was delivered by

KILKENNY, J.A.D.

Defendants David H. Jackson, Gerald I. Lebau, Alexander C. Greyson, Thomas H. Vaughn and Norman R. Berson appeal from a judgment in favor of plaintiff receiver, imposing liability against them individually in the amount of $388,900. The basis of liability was that they had, as directors of Office Buildings of America, Inc., (hereinafter 'O.B.A.'), a corporation of New Jersey, ratified and acquiesced in the conversion by the corporation for its own uses and purposes of trust funds in the possession of the corporation belonging to the investors in Neptune Center Associates (hereinafter 'N.C.A.'), a limited partnership, of which plaintiff had been appointed receiver.

We affirm essentially for the reasons expressed by Judge Mintz in his opinion, reported in 90 N.J.Super. 505, 218 A.2d 408 (Ch.Div.1966).

Defendants argue that the investors' funds were not trust funds; that Judge Mintz erroneously confused a conversion by the corporation with a conversion by these defendants, and that reliance by these defendants upon the advice of counsel precludes a finding of personal liability against them.

We agree with the conclusion reached by Judge Mintz (at page 516, 218 A.2d at page 414) that the 'limited partners were not aware nor did they intend to make payments that were to be used by O.B.A. to meet the general obligations of that corporation. They intended to contribute toward a fund to be utilized for the specific purpose of purchasing Neptune City Shopping Center. Under these circumstances this fund was a trust fund and O.B.A. owed N.C.A. a fiduciary duty 'on the equitable principle that once moneys have been received or allocated for a certain purpose such moneys become impressed with a definite trust to be disbursed for that purpose only.' National Surety Corp. v. Barth, 11 N.J. 506, 514, 95 A.2d 145 (1953).'

It is clear that these trust funds were diverted for general corporate purposes unrelated to the particular purpose for which they were being held and to which alone they were to be applied. Thus, they were converted to O.B.A. purposes, as Judge Mintz properly found. The pretrial order described the action as one 'against corporation officers and directors for knowingly or negligently permitting and ratifying the illegal, wrongful dissipation of fiduciary funds, of which the corporation was the trustee; * * *.' The finding by the trial court that the corporate trustee 'converted' the trust funds to its own use was consistent with the above claim of liability. The evidence supports the finding of such a conversion.

As we said in Sensale v. Applikon Dyeing & Printing Corp., 12 N.J.Super. 171, 79 A.2d 316 (App.Div.1951):

'A director or officer of a corporation does not incur personal liability for its torts merely by reason of his official character, but a director or officer who commits the tort or who directs the tortious act to be done, or participates or cooperates therein, is liable to third persons injured thereby, even though liability may also attach to the corporation for tort.' (at p. 175, 79 A.2d at p. 318)

In brief, any officer or director who aids, instigates or assists in a conversion by his corporation becomes personally liable. 3 Fletcher Cyclopedia Corporations (perm.ed.1965), § 1140. See, too, 18 Am.Jur.2d, Conversion, § 127, p. 235 (1965). It does not matter that the conversion was for the benefit of the corporation and that the individual directors did not personally receive any of the misappropriated moneys. Hirsch v. Phily, 4 N.J. 408, 73 A.2d 173 (1950). There the Supreme Court said:

'* * * the officers of a corporation are personally liable to one whose money or property has been misappropriated or converted by them to the uses of the corporation, although they derived no personal benefit therefrom and acted merely as agents of the...