Oakdale Village Group v. Fong

• Decision Date: 12 March 1996
• Docket Number: No. C018874,C018874
• Citation: 43 Cal.App.4th 539,50 Cal.Rptr.2d 810
• Court: California Court of Appeals Court of Appeals
• Parties: , 96 Cal. Daily Op. Serv. 1736, 96 Daily Journal D.A.R. 2888 OAKDALE VILLAGE GROUP, Plaintiff and Appellant, v. Daniel FONG, Defendant and Respondent.

Page 810

50 Cal.Rptr.2d 810

43 Cal.App.4th 539, 96 Cal. Daily Op. Serv. 1736,

96 Daily Journal D.A.R. 2888

OAKDALE VILLAGE GROUP, Plaintiff and Appellant, v. Daniel FONG, Defendant and Respondent.

No. C018874.

Court of Appeal, Third District, California.

March 12, 1996.

Certified for Partial Publication. ^*

As Modified on Denial of Rehearing April 10, 1996.

Review Denied June 19, 1996.

[43 Cal.App.4th 541] Bill C. Asakawa, Sacramento, for Plaintiff and Appellant.

Hoseit & Koelewyn, H.L. Koelewyn and Norman J. Scott, Sacramento, for Defendant and Respondent.

RAYE, Associate Justice.

Plaintiff Oakdale Village Group (Oakdale), a partnership, sued defendant Daniel Fong, Oakdale's escrow company, and a title company alleging conversion and conspiracy in the purchase of a note, and requesting imposition of a constructive trust. In a previous decision we affirmed the trial court's grant of summary judgment in favor of the title company. Following a court trial, the court found in favor of Fong, finding no conversion in the sale of the note or disbursement of the proceeds. Oakdale appeals, arguing the court erred in finding in favor of Fong on the conversion and money had and received causes of action, and the court erred in failing to impose a constructive trust. We shall reverse the judgment and direct the trial court to enter judgment in favor of Oakdale on the cause of action for conversion.

FACTUAL AND PROCEDURAL BACKGROUND

Oakdale is a California general partnership comprised of the following partners: Franklin and Lily Chinn, Florence and Stanley Quon, Kenneth and Sydney Wang, and Group Management, Inc., a California corporation. Oakdale owned a shopping center which was not financially successful.

Kenneth Wang advanced the partnership over $385,000. Eventually the partnership repaid some of its debt to Wang. Wang claims the partnership repaid $95,920.06; the partnership states it paid all but $26,965. A referee's report, adopted by the trial court, states "[t]he partnership was indebted to Kenneth Wang in the amount of $26,965.00 immediately prior to the sale of the note in question."

Eventually, Oakdale filed for bankruptcy and, with the bankruptcy court's approval, sold the shopping center. A portion of the purchase price was paid by a note for $370,000 secured by the property.

Prior to the bankruptcy, Wang entered into a partnership with Daniel and Phyllis Fong to purchase a property known as Sunrise Creek. Fong and Wang purchased Sunrise Creek for a downpayment and a $330,000 note secured by a deed of trust.

When the Sunrise Creek note came due, Fong gave Wang the $330,000 needed to pay off the note. Wang failed to make the payment, and instead spent the money. Wang arranged an extension on the note, but when the note eventually came due, Wang again failed to make the payment. Facing foreclosure, Wang told Fong he and Group Management were partners in Oakdale. According to Wang, Oakdale owed Wang over $200,000. Wang assigned to Fong the money he claimed Oakdale owed him. Wang also told Fong about the $370,000 note held by Oakdale, and assured Fong that he had authority to sell the note. According to Wang's domino-like theory, if Oakdale sold the note, Oakdale could repay Wang and Fong introduced Wang to his daughter and son-in-law, the Burrises, who purchased the $370,000 note for the fair market value of $295,000. Two Oakdale partners, Stanley Quon and Franklin Chin signed the Irrevocable Escrow Instructions authorizing the sale of the note. Wang and Fong opened an escrow account with Stewart Title. $200,000 of the proceeds from the sale of the Oakdale note was transferred into the escrow account, and later used to pay off the Sunrise Creek note. Oakdale owed no money to Fong; the debt repaid was the personal debt of Wang.

Wang could repay Fong, who in turn could pay off the Sunrise Creek note.

Oakdale filed suit against Fong, Stewart Title and the Burrises alleging conversion and conspiracy in the purchase of the note, and seeking imposition of a constructive trust. ¹ Oakdale did not sue Wang, who had declared bankruptcy.

In the trial court, the matter was submitted upon the parties' offers of proof and trial briefs. The trial court entered judgment for Fong.

Oakdale moved for a new trial. Following extensive oral argument, the court reaffirmed its judgment in favor of Fong. The court held "by reason of the [Oakdale] partnership agreement, Kenneth Wang had actual and ostensible authority to sell the ... note and no conversion occurred by reason of the sale or disbursement in the escrows involved in this case...."

Oakdale filed a timely notice of appeal.

DISCUSSION

I. ^**

II.

Oakdale argues no evidence exists to show Wang had actual authority to use partnership assets to pay his personal debt to Fong. Although Oakdale agrees Oakdale's Statement of Partnership gave Wang authority to convey title to real property standing in the partnership name, Oakdale contends this authority does not allow Wang to disburse the proceeds for a nonpartnership purpose. The disbursement, according to Oakdale, amounted to conversion.

Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion are the plaintiff's ownership or right to possession of the property at the time of the conversion; the defendant's conversion by a wrongful act or disposition of property rights; and damages. It is not necessary that there be a manual taking of the property; it is only necessary to show an assumption of control or ownership over the property, or that the alleged converter has applied the property to his own use. (Messerall v. Fulwider (1988) 199 Cal.App.3d 1324, 1329, 245 Cal.Rptr. 548; Enterprise Leasing Corp. v. Shugart Corp. (1991) 231 Cal.App.3d 737, 747, 282 Cal.Rptr. 620.)

Conversion is also a strict liability tort. "The foundation for the action for conversion rests neither in the knowledge nor the intent of the defendant. [Instead], 'the tort consists in the breach of what may be called an absolute duty; the act itself ... is unlawful and redressible as a tort.' " (Moore v. Regents of University of California (1990) 51 Cal.3d 120, 144, fn. 38, 271 Cal.Rptr. 146, 793 P.2d 479.) Therefore, questions of good faith, lack of knowledge and motive are ordinarily immaterial.

The trial court held Wang had actual and ostensible authority to sell the note and disburse the proceeds and thus could not be liable to Oakdale for conversion. Accordingly, Fong could not be liable. We disagree.

The Third Amended Statement of Partnership states: "Kenneth Wang and Group Management, Inc. may convey (as defined in Section 15010.5(2) of the California Corporations Code) title to real property standing in the partnership name by a conveyance executed in the partnership name." Corporations Code section 15010.5, subdivision (2) states: "As used in this section and Section 15010, 'conveyance' includes every instrument The note sold by Wang to the Burrises was secured by a deed of trust on real property, the deed to the shopping center. Corporations Code section 15010.5, subdivision (2) includes "every instrument in writing by which any ... interest in real estate is ... encumbered." The Statement of Partnership authorizes Wang to convey title to real property by "a conveyance executed in the partnership name." Such authorization includes the sale of the note by Wang.

in writing by which any estate or interest in real estate is created, alienated, mortgaged or encumbered, or by which the title to any real property may be affected, except wills; 'convey' includes the execution of any such instrument; and 'purchaser' includes any person acquiring an interest under any such instrument."

However, Wang also transferred $200,000 into an escrow account to repay his debt to Fong. The Oakdale Partnership Agreement is devoid of any language to support the use of partnership assets to pay a partner's personal debt. The Partnership Agreement, under the heading "Limitations on the Powers of Partners" states "No partner or manager, without prior written consent or ratifications of all the partners, shall have authority to: ... (2) Do any act which would make it impossible to carry on the ordinary business of the partnership; ... (4) Possess partnership property for other than a partnership purpose." This prohibition bars the use of partnership assets for a nonpartnership purpose absent the consent of all the partners. There is no evidence Wang even informed his fellow partners of the disbursement to Fong. "It may be presumed that the typical partnership agreement will hardly ever contain a provision authorizing misappropriation of funds by a general partner." (Kazanjian v. Rancho Estates, Ltd. (1991) 235 Cal.App.3d 1621, 1626, 1 Cal.Rptr.2d 534.) While the Statement of Partnership gave Wang authority to sell the note, it did not authorize him to convert the sales proceeds from the partnership. Therefore, we find no support in the Statement of Partnership to shield Wang from a cause of action for conversion.

The trial court, in finding no conversion, reasoned since a partner has an ownership share of the partnership property, a partner cannot convert what he partly owns. Though we appreciate the logic underlying the court's decision, we reject it in favor of the rationale set forth in People v. Sobiek (1973) 30 Cal.App.3d 458, 106 Cal.Rptr. 519. The court in Sobiek, in holding a partner may be held liable for embezzlement of partnership funds, examined at length prior case law to the contrary. The court traced the rule's history to states whose statutes omitted the category of partner from a list of persons who could be guilty of embezzlement. (Id. at p. 463, 106 Cal.Rptr. 519.) The underlying rationale for the rule was the theory that since each partner is the owner of an undivided interest in all of the partnership property, and since no one can be guilty of stealing what belongs to him, a...