### IN THE COURT OF APPEALS OF TENNESSEE AT NASHVILLE April 12, 2000 Session H & M ENTERPRISES, INC. v. KATHY L. MURRAY, ET AL 

### .

Appeal from the Circuit Court for Wilson County No. 10325 Clara W. Byrd, Judge

No. M1999-02073-COA-R3-CV - Filed April 17, 2002

This appeal involves a spouse’s liability for money that the other spouse embezzled from her employer. When the

employer

disc overed the embezzlement, it filed suit in the Circuit Court for Wilson County against the embezzler and her spouse to recove r $196 ,231.69 . After hearing the evidence without a jury, the trial court awarded the employer a judgment against the embez zler and her spous e for $1 96,231.69 and also awarded the employer a $78,500 judgment for punitive dama ges against the embezzler. The

e mbezzler’s spouse asserts on this appeal that the evidenc e preponderates against the trial court’s determination that he should be jointly and severally liable for the embezzled

funds. We agree and, therefor e, reverse the judgment

against the embezzler’s spouse. Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Reversed In Part

W ILLI AM C. K OCH , J R ., J., delivered the opinion of the court, in which B EN H. C ANTRELL , P.J., M.S., and P ATRICI A J. C OTTRELL , J., joined.
Richard J. Brodhead, Lebanon, Tennessee, for the appellant, Larry D. Murray. Brody N. Kane and Frank Lannom, Lebanon, Tennessee, for the appellee, H & M Enterpr ises, Inc. through it s preside

nt, David Marks.
OPINION

I. Kathy L. Murray began working as the secreta ry, bookkeeper, a

nd of fice manager of H & M Enterprises, Inc. in October 1990. H & M Enterprises is a gene ral co ntractor speci alizing in excavation work as well as commercial and residential building. Ms. Murray was responsible for paying the

company’ s bills and r

econcil ing the co mpany’s b ank state ments, and, accordingly, she had unsupervised acce ss to th e company’s checkbook. Beginning in January 1994, Ms. Murray began embezzling funds from H & M Enterprises by forging checks and converting the company’s money to her own use.-2-

H & M Enterp

rises lea rned of M s. Murray’ s embezzlement in t he fall of 1997 when the chief of the Lebanon Police Department received an anonymous letter stating that Ms. Murray “had been doing some stealing” from H & M Enterprises. It eventually determined that Ms. Murray h ad embezzled

$169,231.69. In addition to pursuing c

riminal charges a

gainst Ms. Murray, H & M Enterprises filed suit in December 1997 in the Circuit Court for WilsonCounty against Ms. Murray and Larry D. Murray, her husband, seeking to recover the embezzled funds and

punitive d amages. Following a trial in June 1999, the trial cou rt found t hat the Mu

rrays we re jointly and seve rally lia ble for converting $169,231.69 belonging to H & M Enterprises and accordingly awarded a $169,231.69 judgmentagainst th

e Murra ys. It also awarde d a $78,50 0 judgment against Ms. Murray for punitive damages

. Mr. Murray filed a motion for new trial asserting that the evidence did not support the judgmenta ga inst him. Af ter the tr ial cour t denied h

is motion, Mr . Murray

perfected this ap

peal. Ms. Murray has not appealed.

II. S TANDARD OF R EVIEW
Mr. Murray’s sole argument on appeal is that the evidence prepon de rates against the trial court’s conclusion that he someh ow parti cipated in or benefitted from Ms. Murray’s fraudule nt conversion of funds belonging to H & M Enterprises. The standard this court use s to review the results of bench

trials is well-settled. With regard to a trial court’s findings of fact, we will review the record de novo a

nd will pre sumethat the findings of fact are correct “unless the preponderance of the evidence is otherwise.” We will also give grea t weight to a trial court’s factual findings that rest on determinations of credibility. In re Estate of Walton , 950 S.W.2 d 956, 959 (Tenn. 199 7); B & G Constr., Inc. v. P

olk , 37 S.W.3d

462, 465 ( Tenn. Ct. App. 2000). However, if the trial judge has not made a specific finding of fact on a particula r matter, we will review the record to determine where the preponde rance of the evide nce lieswithout em

ploying a p

resumptio n of corr

ectness

. Ganzevo ort v. Russ ell , 949 S.W.2d 293, 296 (Tenn. 1997). Reviewing findings of fact under Tenn. R. App. P. 13(d) requires an appellate court to weigh the evidenc e to dete

rmine in w

hich par ty’s fav or the we

ight of the aggrega ted evide nce falls. There is a “reasonable probability” that a proposition is true when there is m

ore evid ence in its favor than there is agains tit. Thus, the prevailing party is the one in whose favor the evidentiary sc ale tips, no matter how slightly. Parks Pro

ps. v. Mau ry County , ___ S.W.3d ___, ___, 2001 WL 935324, at *4 (Tenn. Ct. App. Aug. 17, 2001) ; Realty Shop, Inc. v. RR Westminster Holding, Inc. , 7 S.W.3d 581, 596 (Tenn. Ct. App. 1999). Tenn. R. App. P. 13(d)’s presumption of correctness requiresappella te court s to defer to a trial court’s findings of fact. Fell v. Rambo , 36 S.W.3d 8 37, 846 (Tenn. Ct. App. 2000 ). Beca use of the presumption, an appellate court is bound to leave a trial court’s finding of f a ct undisturbe d unless it determines that the ag greg ate weight of the evidence demonstrates that a finding of f act other than the one found by the trial court is more probably true. Parks Pro ps. v. Mau ry County , ___ S.W.3d at ___, 2001 WL 935324 , at *4. Th us, for the evidence to preponderate a gainst a trial-3-

court’s finding of

fact, it m ust suppor

t another finding of

fact wit h greater convincing effect. Walker v. Sidney Gilreath & Assocs. , 40 S.W.3d 66, 71 (Tenn. Ct. App. 2000).

The presumption of correct ness i n Tenn. R. App. P. 13( d) applie s only to findings of f act, notto conclusions of law. Accordingly, appellate courts review a trial court’s resolution of legal issues without a

presumption of correctness and reach their own independent conclusions regar ding these issues. Johnson v. Johnson , 37 S.W.3d 892, 894 ( Tenn. 200 1); Nutt v. Champion Int’l Corp. , 980 S. W.2d 365, 367 (Ten n. 1998); Knox County Educ. Ass’n v. Knox County Bd. of Educ. , 6 0 S.W.3d 65, 71 (Tenn. Ct. App. 2001); Placenc ia v. Plac encia , 48 S.W.3d 732, 734 (Tenn. Ct. App. 2000). Appellat

e courts review a trial court’s finding of fact a s a legal matter in one circumstance. When a fin ding of fa

ct is base d on undisputed evid ence tha t can re asonably

support on

ly on e conclusion, we will review that finding on appeal without Tenn. R. App. P. 13(d)’s presumption of
correctness. Realty Shop, Inc. v. RR Westminster Holding, Inc. , 7 S.W.3d at 596; Hamblen C ounty Educ. Ass’n v. Hamblen County Bd. of Educ. , 892 S.W.2d 428, 431 (Tenn. Ct. A pp. 1994) ; Tennessee Farmers Mut. Ins. Co. v. American Mut. Liab. Ins. Co. , 840 S.W.2d 933 , 936 (Te nn. Ct. App. 1992).

III.

H & M Enterprises’ claim against Mr. Murrayis essentially one for conversion. It asserted that Mr. Murr ay should b e held jointly and seve rally lia ble for th e embez zled funds becau se he had either conspiredor personally assisted his wife in embezzling the funds or because he had “[ratified] the intentional and fraudulent actions of his wife . . . so as to establish an agency re lationship,” making her his agent in embezzling the company’s funds. Thus, to recover from Mr. Murray, H & M Enterpr

ises had t he burde n of proving each

of the el ements of

a conve rsion cla im

. Nunley v. Nunley , 925 S.W.2d 538, 541 (Tenn. Ct. App. 1996).
A.

Conversion is the appr o priation of tangible property to a party’s own use in exclusion or defianceof the owner’s rights. Barger v. Webb , 216 Tenn. 275, 278, 391 S.W.2d 664, 665 (1965); Lance Prods., Inc. v. Commerce Union Bank , 764 S.W.2d 207, 21 1 (Te nn. Ct. App. 1988). Conversion is an intentional tort, and a party seeking to make out a prima f acie ca se of conversion must prove (1 ) the app

ropriati on of ano ther’s p

roperty to one’s o wn use

and benefit, ( 2) by the intentional exercise of dominion over it, (3) in defiance of the true owner’s rights. Kinnard v. Shoney’ s, Inc. , 100 F. Supp . 2d 781, 79 7 (M.D. Te nn. 2000) ; Mammoth Cave Prod. Credi t Ass’ n v. Oldham , 569 S.W.2d 833, 836 (Tenn. Ct. App. 1977).1 “Dispo ssess” means to i ntentional ly t ake t angibl e pers onal pr opert y without the owner ’s c onsent

and includes obta ining poss ession by fr aud . Restate me nt (Se con d) o f To rts § 22 1.

2 Recei ving a c hatt el means to ac cept it from an int ermediar

y, who is not an agent, with the intent t o acquire it away from the owner. Resta tem ent (S eco nd) of T orts § 229 ; see, e.g. , Hu ffma n v. H ugh lett , 79 Tenn. 54 9, 555 (188 3).
-4- Property may be co nverted

in three ways. Fir st, a per son may pe rsonally disposses s 1 another of tangible personal ty. Restatement (Second) of Torts § 223(a) (1965). Second, a pe rson may disposses s another of tangible property through the active use of a n ag ent. See, e.g. , McCall v. Owens , 820 S.W.2d 748, 751 (Tenn. Ct. App. 1991); 1 Stuart M. Speiser et al., The American Law of Torts § 3.4 (1983) (“ The American Law of Torts ”) (stating that “those who ratify and adopt ac ts of a wrongdoer done for their benefit” ma y be liable). Third, under certain circumstance s, a person who played no

direct p art in dis possessing another of property, may nevertheless be liable f or conversion for “receiving a chattel.” 2 Restatement (Second) of Torts § 223(d).

Two or more p ersons ma

y be held jointly and severally liable for damages in tort when they intentional ly u nite in the wrongful act causing the injury. Hale v. Kn oxville , 189 Tenn. 491, 502, 226 S.W.2d 265 , 269 (194 9). Joint a nd se veral liability may be imp osed on a ll (1) who actively particip atein the tortious acts, (2) who intentionally aid the acts, or (3) who ratify and adopt tortious acts done for

their be nefit. Hux v. Butler , 339 F.2d 696, 699 (6th Cir. 1964); 1 The American Law of Torts § 3:4. In appropriate circumstances, joint and severa l liability isappropr

iatefor conversion claims. See , e.g. , Breede n v. Elliot t Bros. , 173 Tenn. 382, 386-87, 118 S.W.2d 219, 220 (1938).

B.

The record contains no direct evidence t hat Mr. M urray assisted his wife in embezzling
m oney from H & M E

nterpris es or eve

n that he k

new wha t she was d

oing. It is e ssentiall y uncontrad icted that he has a serious drinking problem and that Ms. Murray had exclusive c ontrol over the family’s finance s. Mr. Mur ray conc eded tha

t “I have never lo oked at a

bank statement . .

. [and] I don’t ever see the bank book . She [Ms. M

urray] wouldn’t t

rust me with it to begin with.”

A bulk of the

checks t hat Ms. Mur

ray for ged appe ar to be f

or perso nal it ems bought fo r herself or to defray credit card bills run up by her personal spending. While it is true that $99,810.46 of the checks forged by Ms. Murray were made payable to “La rry Dale Murray,” there is no evidenc e that he knew of or end

orsed the se chec

ks. In fa ct, it is es sentially

undisputed that Ms. Murray never presented these ch ecks to Mr. Murray and that she forged his endorsement on the checks before depositin g the embezzled f unds in the

Murrays ’ joint ac count.
The trial cou

rt found ( 1) that Ms. Murray a lone embezzle d the money fr om H & M Enterprises, (2) that “there is no evidence that Mr. Murray either intentionally misrepresented any existing facts or that he had any direct knowl edge of t he mis conduct by his wife,” and (3) that “[t]here’s no evidence that Mr. Murray intended to defraud the company in any way.” The evidence fully supports these findings, and, therefore, Mr. Murray ca nnot be held liable for conversion on the theory that he was personally involved with embezzling H & M Enterprises’ f unds. Accordingly,3 De spite having eighteen mo nths to pre pare its case agai nst Mr. Murray, H & M Enter pris es coul d pres ent no

direct evidence that

Mr. Murray spent or benefit ted dir ec tly f

rom the e mbezzled money. The best that the c ompany
cou ld do was wring a conc ess ion from Mr. Murray that he must have helped spend s ome of the embezzled money bec ause it was in the M urra ys’ jo int acc oun t. -5- to hold Mr. Mu

rray lia ble for c onversio n, H & M Ente rprises m ust prove either that

Ms. Murray was acting as Mr. Murray’s agent or that Mr. Murray r atified Ms. Murray’s embezzlement.

The law does not deem spouses to be each other’s agent for all purposes. See Hammond v. Herbert Hood Co. , 31 Tenn. App. 683, 691, 221 S.W.2d 98, 102 (1948). Accordingly, the marital relation ship alone does not render one spouse liable for the other spouse’s fraudulent acts. Persons seeking to use an agency theory to impose liab ility on one sp ouse for

the actsof the other spouse must prove tha t the pass ive spouse

ratifie d the othe

r’s fra udulent a cts by accepting or retaining the benefit of the acts knowing they were tainted by fraud. Dodson v. Anderson , 710 S.W.2d 510, 512 (Tenn. 1986); Werne v. Sanderson , 954 S.W.2 d 742, 746 (Tenn. Ct. A pp. 1997) ; see also

Ware & Wingate Co. v. Win

gate , 495 So. 2d 1334, 1337 (La . Ct. App. 1 986); Reason v. Payne , 793 S.W.2d 471, 475 (Mo. Ct. App. 1990).

The evidence does not support finding that Ms. Murrayshould be deemed to be Mr. Murray’s agent by ratification. The trial court found that Ms. Murray “concealed” her f raud, and we find that the evidence supp orts conc luding tha t Ms. Murra

y conce aled her

activitie s not only f

rom H & M Enterprises but also from Mr. Murray. Therefore, Mr. Murr ay could not, as a matter of law, ratify Ms. Murray’ s conduc t becaus e he did not use or a ccept th e benef it of the embezzled

funds knowing that they had been embezzled.

Wi th the evidence insufficient to hold Mr. Murray liable on an age ncy theo ry, the onl y remaining theory for holding him liable for his wife’s embezzlement is that he received the money from his wife with an intent to acquire it away f rom its tru e owner . Restate ment (Sec ond) of T orts § 229. This species of conversion imposes liability irrespective of good faith. Mammoth Cave Prod. Credit Ass’n v. Oldham , 569 S.W.2d at 836; see also

1 Dan B. Dodds, The Law of Tort s § 62 (2001). It has been characterized

as strict liability for conv ersion wh

ere leg al culpa

bility does not depend on fault. 1 Fowler Harper et al., The Law o f Torts § 2.10 (3rd ed. 1996); George Clark, The Test of Conversion , 21 Harv. L. Rev. 408, 409 (1908).

For Mr. Murray to be liable under this species of conversion, theremust be some evidence that he knew or reasonably should have known that he was receiving and spending money that was notrightfully his to spend. Colonia Ins. Co. v. City Nat’l Bank , 988 F. Supp. 1242, 1252 (W.D. Ark. 1997); Zell

& Etti nger v. Berglas , 690 N.Y. S.2d 721, 72 1 (App. D iv. 1999) ( refusin g to impose liability for convers ion just bec ause a ma rried c ouple sha

red a joint bank ac count). W hile Ms. Murray deposited the embezzled funds in the parties’ joint bank acc ount, there is little evidence that Mr. Murray s pent any o f these f unds, 3 and there is no evidence that he knew or suspected that the money in the par

ties’ joint account might belong to another. Proof that Mr. Murray used or spent
someof the money in t he bank acc ount he ow ned jointly with Ms. Mur

ray doesnot give r

ise to liability for conv ersion wi

thout some

evidenc e that Mr. Murray k new or should

have known that the-6-

money he w as spending or using was not ri ghtfully

his or his wife’s. There is simply no evidence that Mr. Murray had this knowledge and without it, there is no factual basis for find

ing him liab le to H & M Enterprises using this theory of conversion.

IV.

We r everse the judgment a gainst Mr. Murray a

nd remand the cas e to the tr ial cour t with directions that H & M En terprise s’ conve

rsion cla ims agains t him be d ismissed. We also tax the costs of this appeal to H & M Enterprises, Inc. for which exec ution, if necessary, may issue.

_____________________________ WILLIAM C. KOCH, JR., JUDGE