Osborne v. Durham, 157 N.C. 262 (1911)

Nov. 22, 1911 · Supreme Court of North Carolina
157 N.C. 262


(Filed 22 November, 1911.)

1. Principal and Agent — Fraud—Misappropriation of Funds — Cash Transactions — Evidence—Directing Verdict.

Upon an issue in an action brought by the principal against his agent for embezzlement, or wrongful conversion and fraudulent misapplication of the proceeds from the sale of the plaintiff’s stock, it is proper for the trial judge to direct a verdict in defendant’s favor where all the evidence, both of plaintiff and defendants, tends to show that the defendants, though instructed to sell for cash, could not do so, and sold the stock for stock in another corporation in part and accepted for the balance cash orders on the corporation issuing the stock, this being deemed by them best for the interest of the principal under the circumstances, and 'they having received no benefit from the transaction.

*2632. Same — Worthless Stock — Measure of Damages.

An agent acting for the interest of his principal in the sale of stock in a corporation which turned out to be insolvent, in violation of an understanding between them that the sale was to he for cash, is not liable to the principal for the cash he was instructed to receive therefor when it appears that the stock could not be sold for cash, and that, acting for the principal as. he deemed for his best interest under the circumstances, he took in payment for the stock a promissory note for the face value of the stock, which, without the agent’s fault, proved to be worthless, the damages recoverable, at most, being confined to the value of the stock the agent was instructed to sell, which in this case turned out to be valueless.

3. Same — Notice—Wajver.

An owner of stock in a corporation, which subsequently proved to be valueless, requested D, the secretary of the corporation, and W, who had charge of the certificates, to sell it for him, which they undertook to do, with the understanding that the transaction was to be for cash. It proved that cash could not he obtained, and acting for the best interests of the principal, the agents negotiated a sale, which resulted in .D giving his note for the full face value of the stock and taking a transfer of the certificates to himself, upon which the plaintiff still owed a large balance. The note thus taken was sent to the principal, who, after the corporation had gone into a receiver’s hands, instructed the agent to prove his claim against it, which he did. Thereafter he instituted this action upon the note, after the maker had become insolvent, against him and the other agent, alleging, as to both, excess of authority and a fraudulent misappropriation of funds, etc.: Held, the plaintiff could only recover upon the note, as it appeared that he was benefited by transaction, being released from his stock subscription, and the circumstances were such as to put a prudent man upon notice that the stock had not been sold for cash, and further, that his subsequent conduct was a ratification of the act of his agents, which released, them from liability.

Appeal by plaintiff from Lyon, J., at 'March Term, 1911, o£ STANLEY.

R. L. Smith and J. R. Price for plaintiff.

F. I. Osborne for defendant.

*264Walker, J.

Action to recover tbe sum of $1,200, alleged to be due by tbe defendants, as agents of tbe plaintiff, on account of a certain stock transaction.

In tbe year 1905 tbe plaintiff subscribed for sixty shares of tbe capital stock of tbe Vermont Mills, eacb share being of tbe par value of $100, on which be paid $1,200 in cash, and consequently owed $4,800. Tbe plaintiff was an officer in tbe Vermont Mills, but desired to remove from Bessemer City, where tbe mills were located. He wished to sell out bis interest in tbe stock, and requested S. J. Durham, one of the defendants in this case, who was treasurer of tbe mills, to make tbe sale for him, and Durham agreed to dó so. S. J. "Wilkins, tbe other defendant, bad charge of tbe certificates of stock belonging to tbe plaintiff. Tbe plaintiff authorized S. J. Wilkins to sell tbe stock for him, and S. J. Wilkins did sell it to one Coble. Wilkins, in payment for tbe stock, did not receive any money from Coble, but two notes, one for $500 and one for $400, on tbe Odell Mills. He further received an order for $300 on tbe Vermont, Southern, and Whetstone Mills, and another order for $300 to pay up tbe assessment due on tbe stock. After receiving these orders, be canceled tbe notes due by tbe plaintiff, and took the $500 and tbe $400 notes with tbe orders and presented them to S. J. Durham, who was tbe treasurer of tbe Vermont Mills. Durham asked for indulgence from Wilkins as to tbe payment, and Wilkins wrote to tbe plaintiff on 18 October, 1906, asking tbe plaintiff to make a draft of $1,200 on tbe Vermont Mills through tbe First National Bank at Gastonia at ten days sight, and stating that Durham bad promised to pay tbe same. Tbe plaintiff drew tbe draft, which was not paid at tbe end of ten days, because of tbe insolvent condition of tbe Vermont Mills, and Durham sent bis individual note for $1,200, payable in sixty days, which tbe plaintiff accepted.

All three of tbe mills, together with tbe Odell Mills, failed shortly after tbe sending of tbe note, and their affairs were placed in tbe bands of a receiver. Durham failed, too, about tbe same time, inasmuch as be was interested in all of them. Tbe plaintiff claims tbe right to recover $1,200 for tbe following reasons:

*2651. That defendants disobeyed Ms instructions, express or implied, and sold tbe stock on credit, whereas they should have sold it for cash, and by reason of their conduct in the transaction they are liable to him for its value.

2. That they made false and fraudulent representations to him as to the manner in which they had disposed of the stock, and he was led to believe by them that they had received cash for the same.

3. That they fraudulently converted the stock or the proceeds of it, and are thereby liable to him for the value thereof.

Defendants denied their liability upon any of the said grounds, and averred that, on the contrary, they had acted, not only prudently, but wisely, as it turned out, and that plaintiff had been greatly benefited by what they had done in his behalf. The court, at the close of the testimony, overruled defendants’ motion for a nonsuit, and instructed the jury to answer the first two issues “Yes” and the fourth issue “No,” according to the agreement of the parties, and upon the evidence to answer the third and fifth issues “No” and the sixth issue-“Yes; S. J. Durham, in the sum of $1,200, with interest from 17 November, 1906.” The jury thereupon returned the following verdict:

1. Did the defendants, or either of them, agree with the plaintiff to sell for him his twelve shares of stock in the Yermont Mills, Incorporated, at the price of $1,200 and remit the same to him ? Answer: Yes.

2. Did defendants, or either of them, under said agreement, sell plaintiff’s twelve shares of stock in the Yermont Mills, Incorporated, at the price of $1,200 ? Answer: Yes.

3. Have the defendants or either of them received $1,200 on account of said twelve shares of stock? Answer: No.

4. Have the defendants, or either of them, remitted or paid to the plaintiff the sum of $1,200 on account of said'twelve shares of stock? Answer: No.

5. Have the defendants, or either of them, and if so, which one, embezzled, converted, or fraudulently applied or misapplied the proceeds from the sale of the plaintiff’s stock? Answer: No.

6. In what amount, if any, are the defendants, or either of them, indebted to the plaintiff? Answer: Yes; S. J. Durham, in the sum of $1,200 and interest from 17 November, 1906.

*266Judgment was entered upon tbe verdict in favor of tbe defendants, .and plaintiff appealed.

Tbe material issues seem to be tbe third and fifth. As to tbe third issue, all tbe evidence goes to show that Coble did not pay any money at all for this stock — that is, that tbe defendants did not receive any money from him; so there could be but one answer to this question. Coble was a witness for tbe plaintiff and testified that be bad paid for tbe stock as stated above.

As to tbe fifth issue, it is specifically charged in tbe eleventh paragraph of tbe complaint that these defendants received $1,200 as tbe proceeds of tbe sale of tbe stock, and this fifth issue is directed to that paragraph in tbe complaint and tbe answer to it, denying tbe same. Tbe proceeds were alleged to have been received in cash, and inasmuch as no money was received, it could not have been fraudulently appropriated or embezzled; but giving to tbe fifth issue its broadest meaning, so that it will embody the question as to whether or not tbe defendants converted or fraudulently applied or misapplied any proceeds, whether money or not, realized from tbe sale of tbe plaintiff’s stock, tbe defendants then contend that there was no evidence of such fraudulent conversion. Tbe proceeds were two notes due by tbe Odell Mills and tbe orders set forth in the above statement of facts. These notes were carried to Durham, who was tbe treasurer of tbe mills, by Wilkins, and so were tbe orders, and Durham did not pay them, because tbe Vermont Mills did not have 'the money at that time with which to make tbe payment.

It is true that tbe sale, as contemplated by Osborne, tbe plaintiff, evidently was to be a cash transaction, and be undoubtedly thought so at tbe time, but Wilkins could not obtain tbe cash, and, as appears from tbe evidence, sold tbe stock in tbe manner which seemed to him best. There is no charge in tbe complaint, nor is there any issue with reference to such a charge, that Wilkins fraudulently disposed of tbe stock for bis'own benefit. Tbe charge is that be, with tbe other defendant, converted, embezzled, or fraudulently applied tbe proceeds from tbe sale of the stock. There does not seem to be tbe slightest evidence that they made any such conversion or were guilty of any kind of fraudulent conduct.

*267The plaintiff, however, insists that he is entitled to a judgment against Wilkins, as well as Durham, for the $1,200. He did recover a judgment against Durham for $1,200 on the note which Durham gave him for his stock. The defendant Wilkins sent the paper to the plaintiff for $1,200, but did not receive any $1,200, and he had due authority to sell for the plaintiff, and received what, at the .time, he thought was worth $1,200 and presented the claims to the proper party in order to collect them. They turned out to be of no value. If the plaintiff should be entitled to recover anything from Wilkins, it would be, at most, the value of his stock, that Wilkins disposed of for him; and from all the evidence, that turned out to be thoroughly worthless, as the Yermont Mills was at that time an insolvent institution. Neither one of these defendants realized a dollar in the transaction, and, as will appear by the. entire evidence, were acting in the matter solely for the accommodation of the plaintiff.

The plaintiff was the gainer in the end,, for he was indebted to the Yermont Mills in the sum of $4,800 for his unpaid subscription to the stock, and had it not been surrendered and canceled, the receiver could and would have obtained judgment against him to the full amount of the notes, for the benefit of the creditors of the Yermont Mills. By the transaction, these notes were canceled and the plaintiff ceased to be .the debtor of the Yermont Mills, and Coble took his place and became responsible for the debt which plaintiff had owed for the stock.

Considering the whole case, we can find no evidence of any fraudulent conduct of the defendants in their dealings with the plaintiff’s stock. The undisputed facts show that the defendants were not acting for themselves, with the view of benefiting by the transaction, but finding that they could not sell the stock for cash, and perhaps suspecting what subsequent events proved to be true, that the Yermont Mills were on the verge of insolvency, they did the best they could do to save the plaintiff, their principal, from the wreck, so that he would not suffer any pecuniary loss by the failure of the mills, and disposed of the stock to Coble. It was not very long before the wisdom of their course was justified by the real facts in the case. Durham *268came to tbe plaintiff’s rescue, as far as be could do so, aud gave bis own note for tbe $1,200, wbicb tbe plaintiff accepted. Misfortune overtook tbe defendant Durham when tbe mills failed, as be was largely interested in them and lost heavily, and be was unable to pay tbe note. Plaintiff has a judgment against him for tbe debt, and that is all to wbicb be is entitled, notwithstanding tbe allegations of fraud, wbicb bave not been established.

There is another reason why tbe plaintiff is not entitled to recover anything more'than tbe judgment of tbe court allows him. In tbe first place, tbe fact that Durham and Wilkins, bis agents, bad notified tbe plaintiff to draw on tbe Vermont Mills for tbe $1,200, wbicb be did, tbe nonpayment of tbe draft and tbe taking of Durham’s note were all circumstances reasonably calculated to put a prudent man upon notice that tbe sale bad not been made for cash and to stimulate inquiry. It is a fact established in tbe case that Durham and Wilkins did not sell for cash, and Durham virtually so stated in bis letter to plaintiff of 17 November, 1906. But after tbe latter bad become fully acquainted with tbe fact that tbe Vermont Mills was bis debtor, be agreed to accept Durham’s note and to prove bis claim against tbe insolvent mills and thus to get payment for bis stock. This is shown by bis letters of 11, 12, and 16 February, 1907, to Durham. These letters, wbicb speak for themselves, are as follows:

Letter of 11 February, Osborne to Durham :

“I was under tbe impression that I held no claims against tbe Vermont Mills, but as you say in your letter dated 4th inst., that I bave a claim, since I bold a note against you, I have no objection to you taking said claim in your bands and collecting what you can and crediting same on your note. If you wish me to file a claim against the mills, please notify me, and I will do so at once, and collect what I can and credit same on your note.”

Letter of 12 February, Durham to Osborne:

“Tour letter received. On receipt of your special-delivery letter, I certified and filed your claim as your attorney. I so understood your request. If the mill does not pay you in full, *269my note stands for tbe balance, as yOu state in your letter. Please let me know if I did as you wish in filing your claim.”

Letter of 16 February, Osborne to Durham:

“Beplying to your letter of recent date, will say that it is satisfactory to me, your putting in tbe claim as you have. I hope things will come out O. K. in our favor.”

In tbe letter of 16 February be requests Durham to advance him $75 or $100, which he will credit on his note. This part of the correspondence, with other facts and circumstances, show a complete ratification, which, under the law, requires no new consideration. An act may be ratified by any words or conduct indicating an intention on the part of the person in question to adopt the act as his own. If ratification is made with knowledge of the facts, it invests principal and agent, as a rule, with the same rights and duties as if the transaction had been previously authorized, and when it takes place the agent is absolved from all responsibility on account of the unauthorized act or conduct, whether he exceeded or departed from his instructions, or was a mere volunteer. Tiffany on Agency, pp. 60, 86, and 87.

We will not again consider the fact that the stock was really valueless at the time it was'sold to Coble. It was not only worthless, but its continued ownership would have subjected the plaintiff to a heavy loss, and even if the defendants violated instructions, he has lost nothing by their delinquency.

Our conclusion is that, in any view of the facts, the plaintiff was not entitled to recover any more than he did, and a substantial instruction of the court to this effect was correct.

No error.