Watson v. Commonwealth Insurance of New York

This is an action for damages for the conversion of 2,500 shares of corporate stock by the defendant insurance companies. The charges of conversion grow out of an attempt to salvage the corporation of Watson & Taylor, an insurance agency which had acted as general agent for the defendant companies for a period of years. Except for a qualifying share held by each of the three directors, the plaintiff Kenneth Watson, Churchill Taylor and J. E. Barry, the entire stock of the corporation was owned by the former partners, Watson and Taylor, the ownership being evidenced by certificate No. 5 for 4,997 shares, issued to Watson and Taylor and held in escrow ever since the organization of the corporation by direction of the corporation commissioner.

In December of 1930 Watson & Taylor was indebted to the defendant companies in an undetermined sum representing the balance due on back premiums. The insurance companies demanded payment and in January, 1931, threatened suit. Meetings and conferences were had and negotiations begun between Watson, Taylor, A. T. Bailey, manager and vice-president of several of the defendant corporations, and J. C. Griffiths, president of another of the defendant companies, and, at some meetings, Barry, director of and attorney for Watson & Taylor, and Thornton, attorney for defendants were present. Testimony on behalf of the defendants is to the effect that Watson and Taylor undertook to raise the money and individually promised to pay the indebtedness. Watson denies that be personally undertook to raise the money for the discharge of these obligations (later found to be approximately $106,000), but concedes that Taylor gave his individual promise to pay. At a meeting on January 23, 1931, according to the defendants’ evidence, the following agreement was reached: Watson and

The documents evidencing the transactions are three. The January 23, 1931, “agreement and bill of sale” was executed by Watson & Taylor by K. Watson and C. Taylor, by Bailey for Commonwealth Insurance Company of New York and Pennsylvania Insurance Company of Philadelphia and by Griffiths for the California Insurance Company of San Francisco. It recited the general agency of Watson & Taylor, its indebtedness to the named defendants and that the object of the agreement was the liquidation of the indebtedness and provided that Watson & Taylor does “hereby sell, assign, transfer and set over” to the companies named all the portion of the general insurance business conducted by it as general agents for those companies, including the good will and rights to renewals, and all papers and records in connection therewith and agreed to “endorse and deposit with H. A'. Thornton, as trustee, the entire capital stock of the party of the first part, to be held by such trustee until such time as the indebtedness” was “paid or released”; not to “transfer or permit to be transferred, except as hereinabove set forth, any of the shares of the capital stock”; that the transfer to Thornton should “carry with it the right to vote said shares of stock at any and all meetings of the stockholders or directors” and that “in the event that said indebtedness is not liquidated and paid within five days from the date hereof, said trustee may, and he is hereby empowered to sell said stock, or such portion thereof as may in the opinion of the parties of the second part be necessary to liquidate such indebtedness”. The defendant companies which were party to the document agreed to extend the time of payment of the indebtedness five days and that, upon liquidation of the indebtedness within that period, they would cause the trustee to reconvey the capital stock to Watson & Taylor.

The “bill of sale and agreement” of March 19, 1931, is essentially the same, the parties being Watson & Taylor and Car and General Insurance Company, Ltd., State Assurance Company, Ltd., and Provident Fire Insurance Company, represented by G. T. Forbush. The general agency

The third document is a resolution passed by the board of directors of Watson & Taylor on April 7, 1931, that “all notes, stocks and securities in any way belonging to or standing in the name of Watson & Taylor, a corporation, or in the names of any of the individuals, officers or directors of said corporation, which of right belong to or in which said corporation may have any interest, direct, contingent or otherwise, shall be endorsed to and assigned to II. A. Thornton, as Trustee, for the use and benefit of said corporation and the creditors thereof, with full power to hold, sell or otherwise dispose of the same, and to apply them or the proceeds thereof to the indebtedness of said corporation in such manner as in the judgment of the said H. A. Thornton shall be to and for the best interests of all concerned” and, 'in particular, that certificate No. 5, held in escrow, be endorsed by Watson and Taylor and transferred to Thornton “for the benefit of whom it may concern”, subject to the approval and order of the corporation commissioner, and Watson and Taylor were directed to endorse the certificate in conformity with the resolution. At this meeting Watt was informed that certificate No. 5 had already been endorsed in blank but it was later discovered that Watson had not endorsed it and Watt wrote asking him to do so on June 26, 1931, but Watson failed to comply.

The defendants deny the conversion and Watson’s ownership of any stock on September 2, 1931, and, by cross-complaint, ask for reformation of the contracts to express the true intent of the parties, which was that Watson as an individual agreed to endorse and transfer his stock, and for specific performance of the contract as so reformed, by the execution of an assignment and endorsement to Thornton, as trustee, for the benefit of the defendants.

We do not consider it necessary to determine the nature of the transaction of January 23, 1931. Assuming that it was, as the plaintiff contends, merely a security transaction, it nevertheless gave the trustee full power to sell the stock “or such portion thereof as may in the opinion of the parties of the second part be necessary to liquidate the indebtedness” in the event the indebtedness was not paid within the five-day period. Thereafter, it appears that the trustee and Richards and Rhorer took control of the management and it appears from the testimony that, at the March 31, 1931, meeting, at which the amount of the indebtedness was fixed, Watson and Taylor were told that efforts to dispose of the agency to other insurance businesses had been unavailing and that the best disposition that could be made was an agreement with Richards and Rhorer to take over the agency with the understanding that if they were successful in paying off the indebtedness the agency would be theirs. Thereafter the resolution of April 7, 1931, was passed, which, assuming the transfer to Richards and Rhorer to have been wrongful, must be taken as a ratification thereof in that, with knowledge of the working agreement with Richards and Rhorer, the resolution gave Thornton “full power to hold, sell or otherwise dispose of” or apply to the indebtedness all notes, stocks and securities belonging to the corporation or standing in the names of any of the individuals, officers or directors of the corporation in which the corporation had any interest and, in particular, directed the transfer of certificate No. 5. Further evidence of ratification and acquiescence in this plan of reorganization is the cancellation of the existing contracts on the same date by mutual consent and the subsequent execution of a new contract with Watson & Taylor by Richards as president and Watt as secretary.

It follows, therefore, that the judgment should be and it is hereby affirmed.

Shenk, J., Curtis, J., Edmonds, J., Waste, C. J., Seawell, J., and Langdon, J., concurred.

Rehearing denied.