Court Opinion

ID: 879786
Source: CourtListenerOpinion
Date Created: 2013-06-04 23:42:52.967405+00
Date Added: 2024-06-11T15:45:32.664211
License: Public Domain

No. 88-283

                 IN THE SUPREME COURT OF THE STATE OF MONTANA

NORTHWEST PLATING CO., a corporation,
and K. H. HOEN,
                   Plaintiff and Appellant,
          -vs-
IRENE H. HOFFMAN, in her capacity as
Personal Representative of the Estate
of Ralph MacLaren Hoffman, THE ESTATE
OF RALPH YACLAREN HOFFMAN and MURRAY
MANUFACTURING COMPANY,
                  Defendants, Respondents and
                  Cross-Appellants.

APPEAL FROM:      District Court of the Thirteenth Judicial District,
                  In and for the County of Yellowstone,
                  The Honorable G. Todd Baugh, District Judge.
COUNSEL OF RECORD:
          For Appellant:
                   Pierre L. Bacheller, Billings, Montana
          For Respondent :
                   Bruce E. Lee, Billings, Montana

                                              -

                                     Submitted on Briefs: Sept. 23, 1988
                                       Decided:   October 20, 1988
     C3
Filed:
     E
Mr. Chief Justice J. A. Turnage delivered the Opinion of the
Court.
      Plaintiffs appeal a judgment entered in the Thirteenth
Judicial District, Yellowstone County, and defendants
cross-appeal.
      Plaintiffs are K. H. Hoen and Northwest Plating (North-
west), a corporation owned in equal shares by Hoen and defen-
dant Ralph Hoffman, deceased. Defendants are Irene Hoffman
as personal representative for the estate of Ralph Hoffman,
her deceased husband, and Murray Manufacturing Co., a busi-
ness solely owned by decedent Ralph Hoffman. Hoen and Hoff-
man incorporated their business (Northwest) in 1958 and were
the only shareholders in the corporation until January 1984
when Hoffman died. This cases arises out of their business
relationship and the settling of Hoffman's estate.
      The issues on appeal and cross-appeal are numerous:
      1. Did the District Court abuse its discretion in
finding that Hoffman converted corporate money?
      2. If not, then did the District Court err in applying
a three-year statute of limitations for conversion, when
plaintiffs urged that their claim was for breach of a verbal
agreement bearing a five-year statute and defendants urged
the proper limitation for conversion was two years?
      3. If the conversion finding is proper, are Hoen's
claims still barred by his acquiescence and laches?
      4. Did the District Court err in finding that plain-
tiff Hoen's promissory note was cancelled?
      5. Did the District Court err in determining the
buyout price for a deceased shareholder in Northwest Plating
Company on January 1, 1984, was $55,000 rather than the
alleged $28,000?
      6. Did the District Court err in failing to find an
oral modification of the written sublease agreement, and if
not, are Hoen's claims to recover the excess rent barred, at
least in part, by the two-year statute of limitations?
      We affirm in part and reverse in part.
      Hoen and Hoffman met in the late 1940s and became close
friends. In 1949 they formed a business partnership and went
into the industrial hard chrome plating business in Billings,
Montana.   The year before that, Hoffman's business, Murray
Manufacturing Company (MMC) leased a parcel of property from
Northwestern Improvement Company, a subsidiary of Northern
Pacific Railroad. Hoen and Hoffman located their new busi-
ness on that property.
      In 1958 Hoen moved to Salt Lake City, Utah. At that
time, Northwest was incorporated and a shareholder's agree-
ment was signed by both parties designating Hoffman as busi-
ness manager. Likewise, an employment contract was drawn up
detailing Hoffman's powers, duties and his compensation for
performance of his duties. Hoffman's complete compensation
as outlined in the contract was to be a salary, car and
airplane lease payments and reimbursement for fuel and oil
expenses incurred in business travel.
      Hoffman's duties included sole managerial control over
Northwest, being responsible for the day-to-day operation,
purchases, financial affairs, bookkeeping, and records.
Hoffman was only limited in carrying out these duties in that
any purchase over $10,000 required prior director's approval.
      About this same time, Northwest began leasing its space
from MMC as a sublessee on the primary lease from Northern
Pacific.    Hoffman and Hoen reached an agreement whereby
Northwest would pay to MMC one-half of the rent as estab-
lished by Northern Pacific.
      Hoffman died Ja-nuary 1, 1984, from injuries sustained
in a plane crash.
      Hoen discovered after Hoffman's death that in managing
the business, he caused Northwest to pay the entire 100
percent of the rent on the M 4 lease to Northern Pacific.
                              lC
Hoen made a claim with Hoffman's estate for that portion of
the rent allegedly wrongfully paid.
      Hoen also made claims for numerous expenditures by
Hoffman during the course of business which were of a person-
al nature.   These included among others, payments for club
dues, flowers and magazine subscriptions. The rent claim,
along with Hoen's other claims against the estate, were
denied by Irene Hoffman. Litigation of the matter ensued and
a bench trial was had August 3 , 1987.    The District Court
found Hoffman to have converted corporate money in the amount
of $22,865.34 in personal expenditures and $3,925.00 in
excess lease money paid.    That amount for excess rent was
also subject to prejudgment interest.    Both parties appeal
this award and dispute the applicable statute of limitations.
      Additionally, testimony was had at trial that in April
1981 Hoffman executed a promissory demand note in favor of
Hoen in the amount of $9,087.54. The original note is lost.
Its whereabouts were disputed at trial, and no one was able
to produce it.     Hoen testified that it should have been
placed with Northwest's attorney, Sid Kurth, for safekeeping
and that is where Hoen assumed it to be.
      Kurth testified that he did not have the note, that he
could not locate the Northwest file, and that he had no
recollection of the note being placed in his possession.
      Hoen came to trial with a carbon copy of the note which
was signed as an original. However, the signature had been
physically cut off with scissors.     Hoen testified that he
intentionally cut off Hoffman's signature so that Hoen's wife
could not unfairly make demand on Hoffman.      Hoen further
testified that since he believed the original to be with
Kurth, he did not think that removing the signature on his
copy would affect its enforceability.
      The District Court refused to enforce the note.     It
found the note to be cancelled by Hoen's intentional mutila-
tion of the document by removing the signature of the party
to be charged. Hoen assigns this as error.
      Lastly, Hoen disputes the correct dollar amount of a
buyout of a deceased shareholder's stock in the Northwest
company. The buyout price, which changed over the years, was
based on several documents.     The court found the $55,000
price stated in the 1976 written agreement controlling.
Plaintiff assigns that decision as error. This Court affirms
on all but one issue.
      A District Court's ruling on these issues will not be
overturned when it is based on substantial credible evidence
and is not an abuse of discretion. Marriage of Watson (Mont.
1987), 739 P.2d 951, 44 St.Rep. 1167. Substantial evidence
is any which a reasonable mind would accept as adequate to
support a conclusion. State v. Lamb (19821, 198 Mont. 323,
696 P.2d 516.

I.   CONVERSION
      The District Court specifically found that Hoffman's
compensation was limited to that which was outlined above in
the employment contract. Many of Hoffman's expenditures were
scrutinized after Hoen received the corporate books.   Hof f-
man's estate urged that they were all legitimate business
expenditures.   Hoen argued that they were compensation in
excess of that authorized by Hoffman's employment agreement
and constituted a breach of contract. The court found the
purchases to be personal in nature and a conversion of North-
west's assets. We agree.
      Testimony at trial revealed that one of the questioned
expenditures was Hoffman's authorization for Northwest to pay
all of his health insurance costs. The largest bill was for
accumulated airplane repair, fuel and hangar rental.      Al-
though their agreement authorized Northwest to lease the
airplane from Hoffman, he continued to use the plane for his
own personal and MMC use as well. He then reimbursed himself
with Northwest money for the fuel, repair and storage costs.
These are clearly unauthorized corporate expenditures for
personal expenses. They were made without director's approv-
al and without Hoen's knowledge or consent.
      The District Court properly found these expenditures to
be a conversion and had ample evidence on which to base such
a finding.
      The court award.ed compensation for Hoen's creditor's
claim against the estate for these expenditures for the years
1981, 1982 and 1983, but barred earlier claims. We disagree
with the award for the year 1981 and reverse on this issue.
      The District Court made a specific finding of conver-
sion.    However, conversion is a tort bearing a two-year
statute of limitations. Thus, the claim for damages in the
year 1981 is barred, and it was reversible error for the
judge to allow it. We reverse on this issue and remand for a
new determination of damages allowing only for the years 1982
and 1983.
      Mrs. Hoffman additionally asserts that these claims are
barred by laches or by Hoen's acquiescence.     We disagree.
      The equitable doctrine of laches was fully explained by
this Court in Schantz v. Minnow (1966), 147 Mont. 228, 411
P.2d 362, 372-373.   See also Clayton v. Atlantic Richfield
Company (Mont. 1986), 717 P.2d 558, 561, 43 St.Rep. 717, 720.
It bars recovery to one who knows of an injury done to him
but del-ays asserting his rights so as to prejudice or injure
the other party.   It is based on the concept of knowledge and
delay. Laches does not apply in this case.      There was no
evidence that Hoen had knowledge of any of these unauthorized
expenditures prior to Hoffman's death.      Upon learning of
them, Hoen made a detailed creditor's claim with Hoffman's
estate within the allotted time, thus defeating the element
of delay.   Likewise, Hoen could not have acquiesced to con-
duct of which he had no knowledge.       Based on the trial
record, Mrs. Hoffman's assertion of laches and acquiescence
must fail.

11. THE PROMISSORY NOTE
      The District Court found that the promissory note
produced at trial by Hoen was cancelled as a matter of law.
We agree. Hoen testified that he produced a carbon copy of
the original; however, the copy was also signed in ink. The
copy had Hoffman's signature physically cut off the bottom of
the note. It was conceded by all that the original was lost.
Mrs. Hoffman testified that she believed her husband did not
owe Hoen any money on the note. The court took this as some
evidence tending to prove that Hoffman's signature was re-
moved as evidence of cancellation of the debt. Further, Hoen
offered no explanation of his actions in mutilating the note.
He stated that he did not want his wife to make an unfair
demand on Hoffman when Hoen himself had been lenient with
Hoffman. However, we fail to see how one can make an unfair
demand on a demand note.
      Sections 28-2-1702 and -1703,      MCA, control.    These
sections provide that where a contract   or a signature thereon
has been destroyed intentionally, a       cancellation will be
effected. Such is the case here. Had     Hoen fully expected to
make demand on his note and be paid, he should not have cut
off the operative signature from his note.    Hoen fails to
convince this Court that the District Court's ruling on this
issue was an abuse of discretion.

111.   THE BUYOUT
      Originally, the buyout price agreed on by Hoen and
Hoffman in paragraph 15 of the 1958 shareholder agreement was
$28,000. However, in September of 1967, Northwest purchased
a life insurance policy for each Hoen and Hoffman. This key
man insurance policy purchased from Western Life Insurance
Company had a face value of $25,000.
      The proceeds of the policy were dedicated to the buyout
of a deceased shareholder by written agreement in March 1972.
The agreement stated that the $25,000 proceeds would be
payment in full for a buyout.
      In February 1976, Northwest purchased an additional
policy from Equitable Life Assurance Society.      The policy
insured the lives of both Hoen and Hoffman in the amount of
$30,000.
      In March 1976, Hoen and Hoffman signed an agreement
dedicating both policies to the buyout. Thus, $55,000 would
be payment in full for a deceased interest in Northwest.
      Then, on April 27, 1981, Hoen and Hoffman met and added
another addendum to their 1958 shareholders' agreement. In
paragraph 15 during the discussion of a buyout the number
$28,000 is handwritten in and initialed.    Hoen asserted at
trial that this is substantial credible evidence on which to
base a finding that they both intended to reduce the buyout
price to its 1958 original cost of $28,000, thereby rescind-
ing all previous agreements to the contrary.     We disagree.
      Nowhere in the 1981 document are any previous documents
rescinded or even mentioned. Further, the additional $30,000
policy was never cancelled or otherwise dedicated.    Lastly,
at trial, Mrs. Hoffman testified that Hoen advanced her
$5,500 as 10 percent of the buyout and later paid the balance
of $49,500. No formal protest came from Hoen until two years
later when it was mentioned in his amended complaint.
      The evidence is confused even further by Hoen's trial
testimony that he wanted the balance of the $55,000 paid into
the court pending the outcome of the dispute but that his
lawyer inadvertently paid it over directly to Mrs. Hoffman.
      The District Court found that the buyout was $55,000
and the 1976 agreement was not rescinded.       Based on the
foregoing evidence, Hoen fails to persuade us that the lower
court's ruling was an abuse of discretion and not based on
substantial credible evidence. Absent such a showing by the
appellant, this Court will defer to the judgment of the
District Court judge who heard the testimony and sat in a
better position to determine the credibility of the evidence.

IV.  THE SUBLEASE AGREEMENT
      Mrs. Hoffman asserted an oral modification to the
sublease agreement.    Originally, Northwest was required to
pay 50 percent of the lease payments of MMC to Northern
Pacific.   However, Mrs. Hoffman asserts that it was within
Hoffman's corporate discretion to modify the lease, even if
he was negotiating with himself as lessor and sublessee, and
that an oral modification would be valid.    We are not per-
suaded by this argument; nor can we see that was what Hoffman
had in mind when he caused Northwest to pay the full MMC
lease. His conduct bears that out.
      He made no corporate minutes or records of his change,
nor did he tell Hoen about the change.       Rather, without
following any corporate procedure, Hoffman made unauthorized
expenditures by unilaterally causing Northwest to pay his
full obligation under the MMC lease from 1976 through 1983.
The court properly found a breach of an indefinite term
sublease agreement and awarded a 50 percent refund on the
lease payments for those years plus prejudgment interest.
      For the foregoing reasons, we find that the District
Court did not err in deciding the issues raised on appeal and
cross-appeal with the exception of the correct statute of
limitations for conversion.
      We remand for a new determination of damages for con-
version consistent with this opinion and affirm on all other
issues.

                                              L
                                  Chie? Justice

We concur:   /+