Watson v. Commonwealth Insurance of New York

THOMPSON, J.

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

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Taylor were, on their request, given five days’ extension of time in which to attempt to raise the money and if they were unsuccessful the defendants were to cancel existing contracts and close the agency. Thornton testified that he was called into this meeting and the situation outlined as stated, in the presence of both Watson and Taylor; that he was instructed to draw up a bill of sale to three of the defendant companies which was signed that evening; that by the bill of sale the assets were assigned to him as trustee at the suggestion of Watson and Taylor instead of to Bailey and Griffiths, as originally planned; that several meetings were had thereafter and, Watson and Taylor reporting that they could not raise the money, the accountants having been called in and it having been discovered that there were other outstanding obligations of Watson & Taylor, including an overdraft at the bank, and that the bonding companies were asking for a receiver, more time was refused and another “agreement and bill of sale” to the remaining defendant companies was executed on March 19, 1931. Thereafter, the defendants attempted to interest various insurance agencies in taking over the firm of Watson & Taylor, but were unable to do so and, finally, about March 31, 1931, Watson and Taylor were told that the only arrangement the defendants had been able to make was to turn over the agency to Richards and Rhorer, former employees of Watson & Taylor, with the understanding that if they paid off the indebtedness the agency was to belong to them. Watson and Taylor were to be allowed a drawing account of $200 a month each, which was in fact paid to them for several months. The existing agency contracts were then canceled by mutual consent (April 7, 1931) and new contracts drawn (dated April 21, 1931) with the agency as then constituted but in the old name of Watson & Taylor. In September, 1931, the corporate name was changed to “Richards & Rhorer”, the resolution of amendment having been passed September 2, 1931. The certificate of amendment filed with the Secretary of State recited the ownership of all the stock of Watson & Taylor by Richards, Thornton and Watt, the latter an attorney associated with Thornton and one of the new directors. It is the passage of this resolution to change the name of the corporation to which the plaintiff points as the act of conversion in that it was the exercise of dominion