# FILED

June 9, 1997 Cecil Crowson, Jr

. App ellate C ou rt Clerk IN THE COU RT OF A PPEA LS OF TENN ESSEE EASTERN SECTION A T KNOXVILLE

PACIFIC PR OPERTIES, ) SEVIER CIRC UIT ) Plaintiff/Appellee ) NO. 03A01-9701- CV-00020 ) v. ) HON. WI LLIAM R. HOLT, JR. ) JUDGE HOME FEDERAL BANK ) OF TENNESSEE, ) ) Defendant/Appellant ) ) v. ) ) MICHAEL S. S TALCUP, ) ) Third-Party

Defendant ) AFFIRMED

W. W . Davis, Jr., Knox ville, for Appellant. John B. Waters, III, Knoxv ille, for Appel lee.

O P I N I O N

INMAN, Se nior Jud ge This action for conversion was submitt ed to a jury which returned a gener al verdict for the plaintiff, thereby implicitly finding that the fact-driven principal def ense of the Statute of Limitati ons was not well-t aken. Home Feder al appeals and presents for review issues w hich, as paraph rased, quest ion the propri ety of the submission of the case to the jury , whether t he defense of Statute of Limitat ions was well-t aken, as a matter of law, w hether requested jury instruction s should have been given and whether the drawer of a c heck adequatel y instr ucted the drawee Bank as to its dispos ition. Pacific Proper

ties [Pacific] is a Cali fornia general partnership created in 1969. Its princi pals are Edmund S. Wilkinson and his daughter , Chris Wilkinson. I t has multi-state investments in real estate , generally utilizing the limited partnership concept.1 Scant proof was off ered about this voucher, and the parties do not accord it

much significance or attenti on. 2 In 1987, Wilkinson and his br other-in-l aw, Stalc up, who was a resident of Tennessee, agreed to form a limited p artnership und er the sty le of Wilkinson Properties, Ltd. In the Cer tificate of Limited P artnership dat ed February 1, 1988, Stalcup was named the Gene ral Partner with Pacific as the limited partner. Pacif ic was to re ceive all net distri butions until it recouped i ts entire i nvestment w ith interest ; thereafter, the pr

ofits were to be divi ded equally . The stated purpos e of Wilkinson Prop ertie s, Lt d. was the o wners hip a nd re ntal of va cati on ch alet s in Se vier Co unty, Tennessee. Pacific loaned the limited partnership $21,000.0 0 to purchase a building lot in Gatlinburg , and about one month l ater made an additi onal loan of $79,000.00 t o enable the partner

ship to purchas e acreage i n Pittman Center , Sevier County. Constructio n funds were required, and Wilkinson and Stalcup met w ith officers of Home Federal to discuss the f inancing of the proposed chalets. W ilkinson believed that a deposit-relationsh ip with Home Federal would establish a bank ing relat ionship and facil itate the loan pr ocess. Ten days before the meeting w ith Home Federa l officials, he dr ew a check

on Pacific, dated May 13, 1988, for the amount of $100,000.0 0 payable to H ome Federal w ith an accompanying voucher w hich read: “to purchase $ 100,000.00 CD to b e pledged to construction l oans for Wilkinson Properties, G atlinburg rentals.” This voucher 1 was removed by Wilkinson before the ch eck was de livered to Home Federal. The check alone was handed to Stalc up by Wilkinson wi th instruction s to deliver it to Home Federal, w hose officials were not instr ucted concerning the purpose of the funds. Wilkinson testified that an offici al of Home Federal , Steve Jones , told him that “if we move the CD back here [from a Cali fornia bank] and est ablished a CDat Home Federal, t hey woul d definitely make us a constr uction loan.”2 A “CD acco unt” is a con tradiction i n terms. Altho ugh both brie fs refer to the

deposited fund s as a Certificate of Deposit, it is appa rent, and the parties so conceded duringargument, that the funds were intended to be deposi ted in an ordinary saving s account. No

Certificate of Deposit was issued.

3 The evidence is confusing as to when, an d precisely how, the funds were lost to Pacific, but t he parties ag ree that even tually thefunds were appl ied in payment of Stalcup ’s person al borrowin g.

4 Three years after deliver ing of the check to Stalcup. 3 On May 26, 1988 Stalcup deposi ted the check w ith Home Federa l into a $100,000.00 “CD account” 2 in the name of W ilkinson Properties, Ltd. Shortly thereafter, constr uction began on Lot 5, and the accou nt was ple dged as coll ateral for loans to W ilkinson Properties, Ltd. to fina nce the costs of constructio n, not only on Lot 5 but also on Lot 10. When construction was completed, per manent loans were made by

Home Federal t o Wilkinson Properties, Ltd. which executed deeds of trust on the l ots as securi ty, thereby “freeing up”

the account, but Stalcup continu ed to borrow

against i t and the account w as soon dissi pated. 3 In the Spring of 1991, 4 Wilkinson learned, accor ding to his

testimony, that the “CD account

had not been proper ly set up. ” On July 17, 1992, his att orney enq uired of Home Federal about the status of the “ CD,” and Wilkinson say s he discovered that the Pacific chec k payable to Home Federal w

as deposited in a “CD accou nt” held by Wilkinson Properties, Lt d. and that it had been pledged to fina nce construct ion costs of the chalets . Kim Huf f, an e mployee of Hom e Federa l, testif ied tha t during a meeting w ith Darry l Roberts, a Home Federal officer, and Stalcup, she was instructed by Roberts to “set up” an account in the name of W ilkinson Properties, Ltd. Home Federal seemingly violated its in-house rules respecting partne rship accounts. A Par

tnership Cer

tification form was required to be execut ed, but the procedure was not follow ed. Had this form been completed, the identity of the partners, thei r addresses, which par tner(s) could bind the par tnership, the t ax ID number and pertinen t addresses w ould have been r

eadily av ailable. Wilkinson testified that the fir st indicati on to him that the “ CD account”was not properly handled by H ome Federal occ urred in the S pring of 1991 w hen he received a box of documents fro m Stalcup, followed shortly by a communication from the4

Tennessee State Bank t hat Wilkinson Properties, Ltd. had loans out standing of which he w

as likely unaware. Wilkinson thereupon engag ed counsel to i nvestig ate, who req uested that Home F ederal advi se with r espect to the “ CD account.” By letter dated July 2 0, 1992, Home Feder al responded to t he request and revealed th at Pacific’s che ck had been deposi ted to an account i n the name of Wilkinson Properties, Ltd. The appellant arg ues that the tri al court shoul d have dire cted a verd ict on the issue of the Statute of Limitations. We respectfully disagree. As the parties seemingly recognize, the manner of the handling of Pacific’s funds was somewhat singular. Home Federal accep ted for deposit Pacif ic’s check drawn on a C alifornia bank, payable to its elf, and then deposited the funds to a different account sol ely upon the i nstructions of Stalcup, and w ithout reference t o the drawer. In light of the testimony of W ilkinson concerning hi s earliest knowledg e of the mishandling of the funds, the issueof the accrual of the Statute of Limitatio ns was for the j ury, w hose verdi ct may const itutionally be set aside onl y if there i s no material ev idence to suppor t it. Sands v. Evans, 635 S.W .2d 377 (Tenn. 198 2). T. C. A. § 28-3-105 requires actions fo r conversion to be commenced within three year

s from the accrual of the cause of action, which means from the time w hen the plaintiff knew

or reasonably

should have known that a cause of action ex isted. Stone v. Hinds

, 541 S.W.2d 598 (Tenn. App. 1976). The burden of provi ng the affirmative defense of the Statute of Limi tations was upon Home Federal. See, Prescott v . Adams, 627 S.W.2d 134 (Tenn. Ct. App. 1981). Appellant recognizes this principle, and argues tha t after proof of this defense has be en proffered the burden shifted to Pacific to prove that the Statu te did not begin to accrue until after April 29, 199 0, citing Smith v. Southeastern Properties, Ltd., 776 S.W.2d 106 (Tenn. Ct. App. 1989). We have no quarrel w ith this argument since the ge neral rule r especting th e accrual of the S tatute of Limitations in cases of this kind i s as stated in Stone, supra. But appellant s ays that Pac ific failed to present evidence that

Home Federal’ s actions prevented discovery of the misdirected deposit, and that this omissi on was fatal t o its case. We cannot agree.5 It was the duty of the jur y to w eigh the ev idence direct ed to the questi on of when Wilkinson reasonabl y should hav e known that Home Federal had converted his funds. Reason able minds coul d differ on this is sue, and we cannot interfere w ith the jury function. We acknowledge th at there is muc h about this cas e that jars t he sensibilit ies, but appell ate review is restr icted and w e are not free to i nterfere wi th the findings of the ju ry. The Cou rt of Appeals does not rewei gh the evi dence or reevaluate witnesses ’ credibil ity in an appeal from a jury verdict

. Grissom v. Metropolitan

Gov’t . of Nashvil

le, 817 S.W.2d 679 (Tenn. 1991). The jury chose to accept the testi mony of Wilkinson as to w hen he was aw are of a defalcation, o r when he should have been aware of an impending loss. Appellant nex

t complains of the fail ure of the trial judge to in struct the j ury that “ignoranc e alone cannot tol l the Statute of Limi tations,” because Pacific made no investig ation of the “CDaccount” unti l July, 1992. It is tr ue that mere ig norance and failure of Wilkinson to discov er the exi stence of a cause of act ion is not suffici ent to toll the statu te. Hall v. DeSaussure, 297 S.W .2d 81 (Tenn. Ct. App. 1 956). The jury was inst ructed that: “Now the defendant takes the posi tion, wel l okay, th ose are rules of law, but we have defenses to it and one is the Sta tute of Limitation s, which requi res th at you file an ac tion within thre e year s af ter yo u kno w or should have known by the use of reasonabl e diligenc e that the money has been co nverted, or that you shou ld have know n that during that time period that it had been converted. * * * The plaintiff has the bur den of proving by a preponder ance of the evidence that they are not bound by this Statu te of Limitations. It’s a question of fact f or you to determine, when did the plaintif f have notice or when sho uld a reasonabl e, cautious per son have had not ice if they had acted as a re asonable person u nder the circumstances. In other words , when would or sho uld a reas ona ble, caut ious pers on ha ve known of a conversion under the f acts and circumstances of this case if there was a conversi on. In other words, if there was a conversion, at what point and time did it occur, and w hen did Pacific h ave notice o r should have had notice of it? Did they

file suit w ithin three years of the date they discovered or should have discovered that there was a conversion. If not, they are barred. That’s

what the Statute of Limitations is about.”6 We think this instructi on adequately apprised the j ury that Wilkinson coul d not prevail if he unreasonably failed to investigate the status of his fund s with Home Federal. The court instr ucted the jury that Home Federa l had a duty to enquire i nto the authority of Stalcup when presenting the check for depos it to the accoun t of Wilkinson Properties, Lt d. Appellant argues that thi s instructi on was impr oper because Stalcup h ad apparent authori ty, as a g eneral partner of Wilkinson Properties, Ltd., to depo sit the check. A shor t answer to t his argument is si mply that th e check was payab le to H ome Federal, and dr

awn on the funds of Pac ific. See 10 Am. Jur. 2nd, Banks , § 560. A check payabl e to the order of a bank to whi ch the drawer is not i ndebted precludes its diversion in the absence of instruction s by the drawer. There is no evidence in this record that Home Federal was authorized by the drawer of the che ck to make the funds avail able to a thir d party, keeping in min d the testimony of Kim Huff that a Home Federal officer

instructed h er to “set up” an account in t he name of Wilkinson Properties Lt d. Moreover, the jury was instructed to deter mine whether from all the facts and circumstance s Stalcup had the actual or app arent authority to cause Pacific’s check to be deposite d into an account fo r Wilkinso n Properties, Ltd. This cautionary

instructi on was dir

ected to the pri ncipal defense that Stalcup was author ized to con trol the neg otiati on of thecheck whi ch wo uld exonerat e Home Fede ral. T he ver dict eff ecti vely se ttle d the issue of S talc up’s appa rent auth ority. The appellant nex

t argues that

the trial court erred i n refusing to i nstruct the jury that the taking of a security interest i n personal pro perty does not constitute

conve rsion . Thi s inst ruct ion is irrele vant u nde r the evide nce p rese nted . W e have examined the instructions respectin g conversion; they are in traditional form and are not questioned. The Tennesse e State Bank was originally a defendant in this action . Pacific settled its complaint agai nst this Bank by the purc hase of promissor y notes discounted by $61,000.0 0. Evidence of this disposition was excluded by Motion in Limine based apparently on pr inciples of compar ative fault. We see no error; the point is not crucial.7 Finally, appellant argues that the court erred in charging the jury that Pacif ic was a deposi tor in the Ho me Federal institution becaus e the word “depositor” was misleading. We see no error in this instruction

. The judgment is aff irmed at the costs of the appellant and the case is remanded for all app ropriate purposes.

___________________________________ W illiam H. I nman, Senior Ju dge CONCUR:

_______________________________ Housto n M. Godd ard, Pre siding Jud ge

_______________________________ Charles D. Susano , Jr., Jud ge