105 Wash. App. 80 | Wash. Ct. App. | 2001
At issue is whether the trial court erred by imposing personal liability for a corporate loan on the corporation’s officers for conversion and misrepresentation. Because there was no conversion of loan proceeds and no misrepresentation, we reverse.
Dmitri Shtikel is president of Commonwealth Enterprises, Inc., and Anatol Ionis is its treasurer. In May 1997, Shtikel, as president of Commonwealth Enterprises, Inc., entered into a loan agreement with Pegasus Aviation Company, Ltd. Pegasus loaned $550,000 to Commonwealth for the expressly stated purpose of financing the purchase and resale of a specific shipment of manganese ore produced by a Ukrainian factory. Under the agreement, Commonwealth agreed to a “one-time flat interest” payment of $200,000, due 11 days after signing. Commonwealth also agreed to make an “additional payment” of $170,000 and to repay the entire principal amount within one month. Pegasus disbursed the funds to Commonwealth by wire transfer.
For reasons not apparent in the record before us, Commonwealth was unable to purchase the manganese ore identified in the agreement. Instead, it invested the loan proceeds in various banking transactions without first advising Pegasus of the inability to fulfill the original purpose of the loan. Those investments failed, and Commonwealth lost the $550,000. It has not repaid Pegasus any of the amounts due under the loan agreement. Apparently, there is no security for the loan.
Pegasus commenced an action against Shtikel and Ionis, seeking to hold them personally liable for the loan.
Shtikel and Ionis appeal.
Conversion
Shtikel and Ionis argue that the trial court erred by applying the theory of constructive trust to an alleged conversion of loan proceeds, and by granting summary judgment in Pegasus’ favor on its claim. We agree.
We may affirm an order granting summary judgment if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law.
The tort of conversion is “the act of willfully interfering with any chattel, without lawful justification, whereby any person entitled thereto is deprived of the possession of it.”
Our courts have since reaffirmed this principle.
Here, Shtikel and Ionis do not dispute that they actively participated in the decision to invest the loan proceeds in various banking transactions after the original purpose of the loan was no longer possible. Thus, the critical question is whether Commonwealth converted the loan proceeds. Because Commonwealth’s application of the loan proceeds to an alternative transaction did not constitute conversion, Shtikel and Ionis cannot be personally liable.
Pegasus argues Commonwealth and its officers committed conversion by using loan proceeds for a purpose other than that specified in the loan agreement. But the critical question here is whether the loan proceeds were owned by Commonwealth or Pegasus, not whether Commonwealth used the proceeds for a purpose other than that stated in the loan agreement.
State v. Gillespie
After tracing out the wording of the relevant theft and
Here, as in Gillespie, Commonwealth obtained title to the proceeds upon signing the loan agreement and the disbursal of those proceeds by wire transfer. Although the loan agreement expressly provides that Commonwealth was to sign a promissory note to evidence the debt, counsel at oral argument advised that only the loan agreement is in the record before us. We deem this factual point to be insufficient to distinguish the Gillespie line of cases and the principles stated in the Uniform Commercial Code from this case. The result is the same: Commonwealth owned the funds after signing the relevant documents and the disbursal by wire transfer occurred. Because the proceeds then belonged to Commonwealth, Ionis and Shtikel did not commit conversion when they failed to apply them as specified by the loan agreement. Accordingly, there was no tort for which a court may hold Ionis and Shtikel individually liable.
Shtikel and Ionis also argue that the trial court erred by imposing a constructive trust on the proceeds. We agree.
A constructive trust is an equitable remedy that “ ‘compel [s] restoration, where one through actual fraud, abuse of confidence reposed and accepted, or through other questionable means, gains something for himself which, in equity and good conscience, he should not be permitted to
Washington courts will impose a constructive trust “when there is clear, cogent, and convincing evidence of the basis for impressing the trust.”
In Betchard-Clayton, we imposed a constructive trust to return a real estate down payment to its rightful owner. There, buyers made a $10,000 down payment toward the purchase of a restaurant, and conditioned payment of the entire purchase price on the landlord’s approval of the lease assignment.
Here, unlike Betchard-Clayton, Commonwealth was the rightful owner of the funds when Pegasus disbursed them. In Betchard-Clayton, “[o]n the failure of the contract, the [down payment] reverted to [the purchaser’s] ownership.”
Negligent Misrepresentation
Shtikel and Ionis argue that the trial court erred by granting summary judgment in Pegasus’ favor on its claim that they committed negligent misrepresentation. Because neither Commonwealth nor its corporate officers had a duty to disclose the information allegedly wrongfully withheld, we agree.
Washington has adopted the following elements of negligent misrepresentation described in the Restatement'.
“One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.”[37 ]
Pegasus’ mere reference to “notions of ordinary prudence” is insufficient to establish that Commonwealth or its corporate officers had a continuing duty to disclose that it became unable to invest the loan proceeds as specified by the loan agreement. Having failed to cite any relevant authority to support this argument, we assume that Pegasus has found none. Accordingly, we reject this prong of the argument as wholly unpersuasive.
Pegasus also asserts that Commonwealth and its corporate officers had a continuing duty to disclose based on the warranty provisions contained in the loan agreement. Specifically, Pegasus points to the following provision as evidence of a continuing duty on the borrower’s part to disclose that a change in circumstances made completing the manganese transaction impossible:
Each of the parties represents and warrants to the other that: . . .
(F) It shall enter into and execute any and all further agreements, documents, and acknowledgements as may be necessary or beneficial to carry out the purpose of this agreement....[40 ]
Pegasus, at oral argument, suggested that the provision imposes a duty to speak after the disbursal of funds. There is no case authority to support that proposition, and not
While the above provisions might require a borrower to execute additional documents to carry out the purpose of the agreement, there is no evidence in this record that Pegasus made such a request here. It strains credulity to read this provision to require anything more than execution of additional documents. Because neither Commonwealth nor its officers had a duty to disclose the information allegedly withheld, there was no negligent misrepresentation.
In sum, this case presents no genuine issues of material fact. And Pegasus was not entitled to judgment as a matter of law, having failed to establish either a conversion of loan proceeds or a negligent misrepresentation. Absent either of these two torts, there was no basis to impose personal liability on the corporation’s officers.
We reverse the summary judgment order.
Becker, A.C.J., and Grosse, J., concur.
Reconsideration denied April 10, 2001.
Review denied at 145 Wn.2d 1003 (2001).
Pegasus assigned its interest in the subject matter of this case to Consulting Overseas Management, Ltd. (COM). On September 19, 2000, a court commissioner granted Pegasus’ motion to substitute COM as the respondent, and we have amended the caption accordingly.
CR 56(c).
Mountain Park Homeowners Ass’n v. Tydings, 125 Wn.2d 337, 341, 883 P.2d 1383 (1994).
Mains Farm Homeowners Ass’n v. Worthington, 121 Wn.2d 810, 813, 854 P.2d 1072 (1993).
Wash. State Bank v. Medalia Healthcare L.L.C., 96 Wn. App. 547, 554, 984P.2d 1041 (1999) (citing Judkins v. Sadler-MacNeil, 61 Wn.2d 1, 3, 376 P.2d 837 (1962)), review denied, 140 Wn.2d 1007 (2000).
Pub. Util. Dist. No. 1 v. Wash. Pub. Power Supply Sys., 104 Wn.2d 353, 378,
See, e.g., Dodson v. Econ. Equip. Co., 188 Wash. 340, 343, 62 P.2d 708 (1936); Grayson v. Nordic Constr. Co., 92 Wn.2d 548, 554, 599 P.2d 1271 (1979); Johnson v. Harrigan-Peach Land Dev. Co., 79 Wn.2d 745, 753, 489 P.2d 923 (1971).
Dodson, 188 Wash, at 342-43.
Dodson, 188 Wash, at 343.
Dodson, 188 Wash, at 343.
Dodson, 188 Wash, at 343.
See, e.g., Betchard-Clayton, Inc. v. King, 41 Wn. App. 887, 893, 707 P.2d 1361, review denied, 104 Wn.2d 1027 (1985); Johnson, 79 Wn.2d at 753.
Betchard-Clayton, Inc. v. King, 41 Wn. App. 887, 893-94, 707 P.2d 1361, review denied, 104 Wn.2d 1027 (1985).
Johnson v. Harrigan-Peach Land Dev. Co., 79 Wn.2d 745, 753, 489 P.2d 923 (1971).
Johnson, 79 Wn.2d at 753.
41 Wn. App. 640, 705 P.2d 808 (1985), review denied, 106 Wn.2d 1006 (1986).
Gillespie, 41 Wn. App. at 641.
Gillespie, 41 Wn. App. at 641.
Gillespie, 41 Wn. App. at 641.
Gillespie, 41 Wn. App. at 642.
Gillespie, 41 Wn. App. at 643.
Gillespie, 41 Wn. App. at 644 (citing the Uniform Commercial Code— Commercial Paper, RCW 62A.3-101 through .3-805 (the transfer of a check vests title in the transferee)). See former RCW 62A.3-102(l)(a), .3-201(1), .3-202(1) (1965); RCWA 62A.3-20K1) Washington Comments (1); 11 Am. Jue. 2d Bills and Notes § 368, at 391 (2d ed. 1963).
Gillespie, 41 Wn. App. at 645.
See State v. Berman, 50 Wn. App. 125, 131, 747 P.2d 492 (1987) (holding it is not embezzlement to default on a loan because title to the proceeds passes when the borrower signs the promissory note), review denied, 110 Wn.2d 1019 (1988).
Scymanski v. Dufault, 80 Wn.2d 77, 88-89, 491 P.2d 1050 (1971) (citations omitted) (quoting Seventh Elect Church v. First Seattle Dexter Horton Nat'l Bank, 162 Wash. 437, 440, 299 P. 359 (1931)).
Manning v. Mount St. Michael’s Seminary of Phil. & Sci., 78 Wn.2d 542, 546, 477 P.2d 635 (1970); Ockfen v. Ockfen, 35 Wn.2d 439, 443, 213 P.2d 614 (1950).
In re Marriage of Lutz, 74 Wn. App. 356, 368, 873 P.2d 566 (1994) (quoting Baker v. Leonard, 120 Wn.2d 538, 547, 843 P.2d 1050 (1993)).
Scymanski, 80 Wn.2d at 89.
Scymanski, 80 Wn.2d at 88-89.
Baker, 120 Wn.2d at 547.
Mehelich v. Mehelich, 7 Wn. App. 545, 551, 500 P.2d 779 (1972) (quoting Scymanski, 80 Wn.2d at 89).
Betchard-Clayton, 41 Wn. App. at 889.
Betchard-Clayton, 41 Wn. App. at 893.
Betchard-Clayton, 41 Wn. App. at 893.
Betchard-Clayton, 41 Wn. App. at 893.
Betchard-Clayton, 41 Wn. App. At 893.
ESCA Corp. v. KPMG Peat Marwick, 135 Wn.2d 820, 826, 959 P.2d 651 (1998) (quoting Restatement (Second) of Torts § 552(1) (1977)).
Colonial Imports, Inc. v. Carlton N.W., Inc., 121 Wn.2d 726, 731, 853 P.2d 913 (1993).
Br. of Resp’t at 13.
Clerk’s Papers at 48.