Copper Cellar v. Miller ( 1997 )

IN THE COURT OF APPEALS OF TENNESSEE
FILED
THE COPPER CELLAR CORPORATION, ) C/A NO. 03A01-9607-CV-00239
) April 29, 1997
Plaintiff-Appellant, )
) Cecil Crowson, Jr.
) Appellate C ourt Clerk
) APPEAL AS OF RIGHT FROM THE
v. ) KNOX COUNTY CIRCUIT COURT
)
)
)
JOHN F. MILLER, )
) HONORABLE WHEELER A. ROSENBALM,
Defendant-Appellee. ) JUDGE
For Appellant For Appellee
DUDLEY W. TAYLOR EDWIN L. TREADWAY
DAVID H. JONES MARK S. DESSAUER
The Taylor Law Firm Hunter, Smith & Davis
Knoxville, Tennessee Kingsport, Tennessee
OPINION
AFFIRMED AND REMANDED Susano, J.
1
The Copper Cellar Corporation (Copper Cellar)1 sued
John F. Miller (Miller)2 to recover the proceeds from a $550,000
cashier’s check that Copper Cellar had originally delivered to a
financial advisor, Joseph C. Taylor (Taylor), for investment
purposes. Rather than investing the corporation’s funds, and
unbeknownst to Copper Cellar, Taylor negotiated the check, which
was payable to Taylor’s company, to Miller. The trial court
granted Miller summary judgment, rejecting Copper Cellar’s
theories of recovery against him. The corporation appealed,
raising various issues. We affirm.
I. Facts
The material facts are undisputed.3 Between August,
1994, and November, 1995, Miller made numerous investments
through Taylor. One transaction took place on October 11, 1995,
when Miller gave Taylor $2,000,000 to purchase bonds that were,
according to Taylor, scheduled to mature eight days later. In
subsequent meetings, Taylor informed Miller that there would be a
delay in securing the proceeds from the sale of the bonds.
Taylor finally promised that he would pay Miller $2,000,000 on
November 2.
1
This suit was filed by Copper Cellar and a second plaintiff, Kenneth R.
Davis. Davis initially appealed the trial court’s adverse decision as to him,
but later dismissed his appeal.
2
The estate of Joseph C. Taylor was originally named as a defendant.
The plaintiffs subsequently took a voluntary non-suit as to the estate.
3
Copper Cellar argues in its reply brief that there are disputed facts
making summary judgment inappropriate. It relies upon the affidavit of its
president, Mr. Chase. We disagree. In reaching our conclusions in this case,
we have assumed that all of the factual statements in Mr. Chase’s affidavit
are true.
2
In the meantime, Taylor spoke with Michael D. Chase
(Chase), President of Copper Cellar, and recommended that the
corporation purchase some stock options. Chase agreed to
purchase the stock options and delivered to Taylor a cashier’s
check in the amount of $550,000. The cashier’s check reflects
Copper Cellar as the remitter and is payable to “Taylor and
Associates.”
On November 2, 1995, Taylor delivered eighteen
cashier’s checks, including the one from Copper Cellar, to
Miller, ostensibly in payment of the bond investment and other
debts. In his deposition, Miller testified that Taylor explained
that the cashier’s checks were “cash”, and that Taylor needed
only to endorse them to transfer that “cash” to Miller. Taylor
then endorsed the checks, and Miller deposited some of the
checks, including the cashier’s check from Copper Cellar, in his
savings account.
At the time of these transactions, Miller had never
been involved in any business or other dealings with Copper
Cellar or Mr. Chase. Miller and Chase did not know each other.
In his affidavit, Miller states that he was unaware of any
investment relationship between Copper Cellar and Taylor.
Taylor committed suicide on November 3, 1995. Copper
Cellar, not having received its stock options, shortly thereafter
filed suit against Miller, seeking to recover its $550,000, as
well as treble damages for Miller’s alleged inducement of breach
of Copper Cellar’s contract with Taylor. After the trial court
3
granted Miller summary judgment, Copper Cellar appealed,
advancing the following theories of recovery: fraud and
conspiracy to defraud; conversion; unjust enrichment;
constructive trust; resulting trust; inducement to breach
contract; and liability under T.C.A. § 35-2-104.
II. Elkins v. Miller
The facts in this case are similar to the facts in the
recently-decided case of Elkins v. Miller, C/A No. 03A01-9607-CV-
00227, 1996 WL 599704 (Tenn. App., E.S., filed October 21, 1996,
Inman, Sr. J.), perm. app. denied by Supreme Court. In that
case, the plaintiff Harold E. Elkins sued the same defendant,
Miller, under similar theories, seeking to recover an amount he
had remitted to Taylor in the form of three cashier’s checks. As
in the instant case, the cashier’s checks at issue were obtained
by Taylor for the stated purpose of investing the money on behalf
of Elkins, but were instead delivered over to Miller.
The plaintiff in Elkins sought recovery on the theories
of, among other things, conversion, unjust enrichment, and
constructive trust. As in the instant case, Miller’s motion for
summary judgment in the Elkins case was granted. The only
significant factual difference between the two cases is that the
cashier’s checks in the Elkins case were payable directly to
Miller, while in the instant case the cashier’s check was payable
to Taylor’s company.
4
III. Standard of Review
We review the trial court’s grant of summary judgment
against the standard of Rule 56.03, Tenn.R.Civ.P., which provides
that summary judgment is appropriate where
the pleadings, depositions, answers to
interrogatories, and admissions on file,
together with the affidavits, if any, show
that there is no genuine issue as to any
material fact and that the moving party is
entitled to a judgment as a matter of law.
Since the material facts are not in dispute, our review only
involves a question of law, and therefore no presumption of
correctness attaches to the trial court’s judgment. Gonzales v.
Alman Constr. Co., 857 S.W.2d 42, 44 (Tenn. App. 1993).
In view of the striking similarities between the
instant case and Elkins, we find that Copper Cellar’s theories of
recovery common to both cases are controlled by Elkins.
Accordingly, we hold, based on Elkins, that the trial judge was
correct in granting Miller summary judgment as to Copper Cellar’s
theories of conversion, unjust enrichment, and constructive
trust. These three theories were advanced by the plaintiff in
Elkins and rejected by the holding in that case.
Copper Cellar’s remaining theories of recovery were not
addressed in Elkins. We will discuss each in turn.
5
IV. Fraud and Conspiracy to Defraud
Copper Cellar contends the facts show that Miller is
guilty of fraud or conspiracy to defraud. It insists that,
because of the designation of Copper Cellar as remitter, and the
fact that Miller was aware that Taylor was in the investment
business, Miller either knew or should have known that Copper
Cellar had furnished the cashier’s check to Taylor for investment
purposes only. Copper Cellar argues that this “uncontroverted
evidence” establishes that Miller knowingly participated in
Taylor’s fraudulent activity.
The elements of fraud are: 1) an intentional
misrepresentation as to a material fact; 2) knowledge of the
representation’s falsity; 3) that the plaintiff reasonably relied
on the misrepresentation and suffered damage; and 4) that the
misrepresentation relates to an existing or past fact. Oak Ridge
Precision Indus. v. First Tennessee Bank, 835 S.W.2d 25, 29
(Tenn. App. 1992); Stacks v. Saunders, 812 S.W.2d 587, 592 (Tenn.
App. 1990). A conspiracy by two or more persons to defraud
means a common purpose, supported by a
concerted action to defraud, that each has
the intent to do it, and that it is common to
each of them, and that each has the
understanding that the other has that
purpose.
Dale v. Thomas H. Temple Co., 208 S.W.2d 344, 353-54 (Tenn.
1948).
6
We believe that the facts before us suggest neither
fraud nor conspiracy to defraud on the part of Miller. It is
clear that Miller made no representations, false or otherwise, to
Copper Cellar. Oak Ridge, 835 S.W.2d at 29; Stacks, 812 S.W.2d
at 592. Furthermore, there is no proof of any “common purpose”
or “concerted action to defraud” involving Miller and Taylor.
Dale, 208 S.W.2d at 353-54. In short, there is no evidence to
allow even an inference of fraudulent intent on the part of
Miller. Id.
The fact that Miller knew that Taylor was in the
business of investing other people’s money does not charge him
with knowledge of the nature of every transaction conducted by
Taylor. By the same token, the designation of Copper Cellar as
remitter on the cashier’s check is of little consequence. Taylor
told Miller that the cashier’s checks, including the one from
Copper Cellar, were “cash” that belonged to Taylor, and that once
Taylor endorsed the checks, they would be Miller’s. None of the
checks reflect that Taylor’s right to the funds was conditional
or otherwise restricted. Copper Cellar, as the remitter,
certainly had the wherewithal to indicate on the face of the
instrument any desired restrictions on its negotiability. It
made no such effort. For all that Miller knew, the Copper Cellar
check simply represented payment due Taylor in his individual
right. Miller had no knowledge, or reason to know, that Taylor
could not dispose of that “cash” as he saw fit.
Copper Cellar relies on the case of Dale v. Thomas H.
Temple Co., 208 S.W.2d 344 (Tenn. 1948). We do not find Dale
7
applicable. In that case, the court found that a preponderance
of the evidence “disclosed a knowing and intentional
participation” of the alleged co-conspirators with those who
perpetrated the actionable fraud. Id. at 353. In the instant
case, there is no evidence or reasonable inferences from proven
facts to indicate that Miller was aware of Taylor’s fraudulent
investment activities. We do not agree with Copper Cellar’s
assertion that it is a reasonable inference from the proof “that
the money . . . Taylor remitted to [Miller] by virtue of the 18
cashier’s checks, was money that . . . Taylor diverted from other
individuals.” As pertinent to this case, Taylor gave Miller a
cashier’s check that was payable, without condition or
restriction, to Taylor. There was nothing about the check to
indicate that the funds represented by it did not belong
absolutely to the payee, Taylor. The fact that an individual
handles investments for others does not mean that he or she
cannot possess his or her own funds. Handling money for others
and participating in investments or “deals” for one’s own account
are not mutually exclusive concepts.
Given the foregoing, we find that Miller was entitled
to summary judgment as to Copper Cellar’s theories of fraud or
conspiracy to defraud.
V. Resulting Trust
Copper Cellar next contends that a resulting trust
should be imposed for its benefit on the $550,000 in Miller’s
possession. A resulting trust is a judge-formulated means by
8
which the court may “reach an interest in property belonging to
one person yet titled in and held by another.” Wells v. Wells,
556 S.W.2d 769, 771 (Tenn. App. 1977). This court has cited with
approval the definition of a resulting trust found in Gibson’s
Suits in Chancery, § 382 (Inman, 7th ed. 1988):
Resulting trusts are those which arise where
the legal estate is disposed of, or acquired,
without bad faith, and under such
circumstances that Equity infers or assumes
that the beneficial interest in said estate
is not to go with the legal title. These
trusts are sometimes called presumptive
trusts, because the law presumes them to be
intended by the parties from the nature and
character of their transactions. They are,
however, generally called resulting trusts,
because the trust is the result which Equity
attaches to the particular transaction.
Id. (Emphasis in original). See Estate of Wardell ex rel.
Wardell v. Dailey, 674 S.W.2d 293, 295 (Tenn. App. 1983).
Proof of a resulting trust must be “clear, cogent and
convincing.” Bowman v. Bowman, 836 S.W.2d 563, 570 (Tenn. App.
1991)(quoting Sanderson v. Milligan, 585 S.W.2d 573, 574 (Tenn.
1979)); see also, Estate of Wardell, 674 S.W.2d at 295 (“[a
resulting trust] must be sustained by proof of the clearest and
most convincing character.”).
Copper Cellar relies primarily on the case of Sliger v.
Sliger, 105 S.W.2d 117 (Tenn. App. 1937). In that case, a
borrower violated his agreement with a bank by loaning part of
the loan proceeds to a third party who had earlier been refused a
loan by the same bank. The court imposed “a constructive or
9
resulting trust” on a mortgage that the third party had made to
the borrower as security for the unauthorized loan. Id. at 120.
Copper Cellar insists that, as in the Sliger case, a
resulting trust should be imposed on the funds in question. We
do not agree. The trust in Sliger was imposed on a mortgage that
was executed by the third party to the defendant in that case.
In other words, the mortgage existed for the benefit of the
defendant, who had violated his loan agreement. We view these
circumstances as very different from those in the instant case.
Specifically, the funds on which Copper Cellar seeks to impose a
resulting trust were transferred to a third party, Miller. Once
Taylor negotiated the cashier’s check to Miller, the former lost
ownership interest in those funds. In contrast, the borrower in
the Sliger case, as mortgagee, continued to own an interest in
the wrongly-obtained funds, upon which the court imposed a trust.
Therefore, by imposing a trust on the mortgage, the court reached
an interest still owned by the guilty party. In the instant
case, Copper Cellar would have the court impose a resulting trust
on funds that no longer belong to Taylor, the perpetrator of the
fraud. Because of this distinction, we believe that Sliger does
not control the result in the instant case.
Furthermore, resulting trusts are generally imposed
only “in accordance with the actual or assumed intention of the
parties.” Burleson v. McCrary, 753 S.W.2d 349, 352-53 (Tenn.
1988). Nothing in the record indicates that the parties intended
to create any kind of trust. It appears that Miller had no
intention other than to recover his investment and other funds
10
that Taylor owed him. We therefore hold that this case does not
involve the proper circumstances for the imposition of a
resulting trust.
VI. Inducement to Breach Contract
As a third theory of recovery, Copper Cellar argues
that Miller’s actions constitute an unlawful inducement to breach
contract under T.C.A. § 47-50-109, which provides as follows:
It is unlawful for any person, by inducement,
persuasion, misrepresentation, or other
means, to induce or procure the breach or
violation, refusal or failure to perform any
lawful contract by any party thereto; and, in
every case where a breach or violation of
such contract is so procured, the person so
procuring or inducing the same shall be
liable in treble the amount of damages
resulting from or incident to the breach of
the contract. The party injured by such
breach may bring suit for the breach and for
such damages.
Copper Cellar argues that an agency relationship, and therefore a
contract, existed between it and Taylor, and that Miller
knowingly induced a breach of that contract by accepting the
cashier’s check from Taylor.
The elements of a cause of action for inducement to
breach a contract are: 1) that there was a legal contract; 2)
that the wrongdoer had sufficient knowledge of the contract; 3)
that the wrongdoer intended to induce its breach; 4) that the
wrongdoer acted maliciously; 5) that the contract was breached;
6) that the act complained of was the proximate cause of the
11
breach; and 7) that damages resulted from the breach. Campbell
v. Matlock, 749 S.W.2d 748, 751 (Tenn. App. 1987); TSC Industries
v. Tomlin, 743 S.W.2d 169, 173 (Tenn. App. 1987).
Even assuming the existence of a contract between
Copper Cellar and Taylor, there is no evidence of several of the
other necessary elements. As stated earlier, Miller was unaware
of any investment relationship between Copper Cellar and Taylor.
The mere designation of Copper Cellar as the remitter of the
cashier’s check is insufficient to establish such knowledge.
Furthermore, there is absolutely no evidence of malice or of any
intent on the part of Miller to induce a breach of contract.
Again, it seems clear that Miller was simply attempting to
recover money that he had invested with Taylor. Thus, Copper
Cellar’s claim of inducement to breach its contract fails as a
matter of law, and we hold that the trial court properly granted
Miller summary judgment as to that theory.
VII. T.C.A. § 35-2-104
Finally, Copper Cellar contends that Miller is liable
to it under T.C.A. § 35-2-104, which provides:
If any negotiable instrument payable or
endorsed to a fiduciary as such is endorsed
by the fiduciary, or if any negotiable
instrument payable or endorsed to the
principal is endorsed by a fiduciary
empowered to endorse such instrument on
behalf of the principal, the endorsee is not
bound to inquire whether the fiduciary is
committing a breach of the fiduciary’s
obligation as fiduciary in endorsing or
delivering the instrument, and is not
chargeable with notice that the fiduciary is
12
committing a breach of the obligation as
fiduciary unless the endorsee takes the
instrument with actual knowledge of such
breach or with knowledge of such facts that
the action in taking the instrument amounts
to bad faith. If, however, such instrument
is transferred by the fiduciary in payment of
or as security for a personal debt of the
fiduciary to the actual knowledge of the
creditor, or is transferred in any
transaction known by the transferee to be for
the personal benefit of the fiduciary, the
creditor or other transferee is liable to the
principal if the fiduciary in fact commits a
breach of the obligation as fiduciary in
transferring the instrument.
(Emphasis added).
We acknowledge that the cashier’s check in this case
constitutes a negotiable instrument that was payable to Taylor,
Copper Cellar’s fiduciary. However, T.C.A. § 35-2-104 only
applies to negotiable instruments “payable or endorsed to a
fiduciary as such.” Id. (emphasis added) The cashier’s check
at issue here was made payable simply to “Taylor and Associates”.
It contained no reference to Taylor’s or Taylor and Associates’
status as a fiduciary of Copper Cellar. Thus, T.C.A. § 35-2-104
is not applicable to the facts of this case, and Copper Cellar’s
claim under that provision is without merit.
VIII. Conclusion
For the foregoing reasons, we hold that the trial court
properly granted summary judgment to Miller as to Copper Cellar’s
theories of fraud, conspiracy to defraud, resulting trust,
inducement to breach contract, and liability under T.C.A. § 35-2-
104. The remaining theories advanced by Copper Cellar are
13
controlled by our decision in Elkins. We find that Miller was
entitled to judgment as a matter of law under the standard of
Rule 56.03, Tenn.R.Civ.P. The judgment of the trial court is
therefore affirmed. Costs on appeal are assessed to the
appellant and its surety. This case is remanded to the trial
court for collection of costs assessed there, pursuant to
applicable law.
__________________________
Charles D. Susano, Jr., J.
CONCUR:
________________________
Houston M. Goddard, P.J.
________________________
Don T. McMurray, J.
14