Stone v. Martin

355 S.E.2d 255 (1987)

Ada Pearl STONE and Cecil Glynn Jernigan, Individually and as Shareholders of Creekside Enterprises, Inc.
v.
R.L. MARTIN, Jr. and Larry G. Sanderford and Creekside Enterprises, Inc.

No. 8610SC973.

Court of Appeals of North Carolina.

May 5, 1987.

Brenton D. Adams, Raleigh, for plaintiffs.

Hunter, Wharton & Howell by John V. Hunter III, Raleigh, for defendant R.L. Martin, Jr.

George R. Barrett, Raleigh, for defendant Larry G. Sanderford.

ORR, Judge.

I.

Defendants first contend that the trial court violated their privilege against self-incrimination when it compelled them to answer discovery requests and when it admitted the answers to the discovery requests into evidence at trial.

This Court previously held that the order compelling the discovery in this case did not violate defendants' constitutional right against self-incrimination. Stone v. Martin, 56 N.C.App. 473, 289 S.E.2d 898, disc. rev. denied, 306 N.C. 392, 294 S.E.2d 220 (1982). Our decision in the previous appeal constitutes the law of the case. See Transportation, Inc. v. Strick Corp., 286 N.C. 235, 210 S.E.2d 181 (1974). Therefore, defendants' contention is without merit.

Defendants next contend that the trial court erred in denying their motions for a directed verdict because the evidence was insufficient to raise an issue of punitive damages. We do not agree.

N.C.G.S. § 55-35 states:

Officers and directors shall be deemed to stand in a fiduciary relation to the corporation and to its shareholders and shall discharge the duties of their respective positions in good faith, and with that diligence and care which ordinarily prudent men would exercise under similar circumstances in like positions.

The jury found that Martin and Sanderford wrongfully coverted to their own use money belonging to the corporation. The conversions constituted a breach of the fiduciary duty that defendants, as officers and directors of Creekside Enterprises, Inc., owed to the corporation and its shareholders.

Fraud exists when there is a breach of a fiduciary duty. See Miller v. Bank, 234 N.C. 309, 67 S.E.2d 362 (1951). Punitive damages are available for fraud. See Newton v. Insurance Co., 291 N.C. 105, 229 S.E.2d 297 (1976).

Defendants argue that North Carolina law requires proof of malice or other aggravating factor in addition to the breach constituting fraud before punitive damages may be awarded. In Oestreicher v. Stores, 290 N.C. 118, 225 S.E.2d 797 (1976), our Supreme Court stated, "`Punitive damages are never awarded, except in cases when there is an element either of fraud, malice,... or other causes of aggravation in the act or omission causing the injury.'" 290 N.C. at 136, 225 S.E.2d at 808 (citations omitted).

Punitive damages are available for fraud. Defendants committed fraud by breaching their fiduciary duty. Since fraud is present in the case sub judice, additional elements of aggravation are unnecessary. See Newton v. Insurance Co., 291 N.C. 105, 229 S.E.2d 297. We find that the conversions which constituted the breach support an award of punitive damages in this case. Therefore, we hold that the trial court properly denied defendants' motions for a directed verdict since the evidence sufficiently raised an issue of punitive damages.

Defendants also contend that the trial court erred in admitting evidence of Martin's net worth when there was insufficient evidence to raise an issue of punitive damages. Defendants concede that evidence of a defendant's net worth is relevant and admissible in punitive damages cases. Having determined that the evidence in this case sufficiently raised an issue of punitive damages, we hold that the trial court did not err in admitting evidence of Martin's net worth.

Defendants next contend that the jury's award of punitive damages "exceeded permissible bounds and should have been reduced or a new trial should have been awarded." We disagree.

It is for the jury to determine (1) whether punitive damages in any amount should be awarded, and if so (2) the amount of the award. Hinson v. Dawson, 244 N.C. 23, 92 S.E.2d 393 (1956). These questions are determinable by the jury in its discretion. Id.

We are aware that the award of punitive damages significantly exceeds the award of compensatory damages in the present case. However, because defendants were fiduciaries and in view of the fact that the purpose of punitive damages is to punish, we find no evidence of an abuse of discretion by the jury.

Defendants further contend that "it was error to assess a statutory penalty against the defendants for allegedly refusing to allow the plaintiffs to see the books and records of the corporation, where the evidence on this score showed no such refusal." We disagree.

In its findings of fact, the trial court found that defendants refused to allow plaintiffs to see the books and records of the corporation. After reviewing the record, we hold that the trial court's findings of fact are supported by the evidence. Therefore, the trial court properly assessed the statutory penalty.

Defendants finally contend that "the trial court's cancellation of the shares of the stock of the defendant Martin was not justified by the evidence and was legally erroneous." We do not agree.

N.C.G.S. § 55-46 sets out the consideration required for the issuance of shares in a North Carolina corporation. It states in part that shares may be issued for "[m]oney or property, tangible or intangible," or "[l]abor or services actually rendered."

Martin argues that his testimony, that he made various payments which inured to the benefit of the corporation and that he rendered labor and services to the corporation, is sufficient evidence of consideration. The jury rejected Martin's testimony and found that he did not pay any cash for the stock.

Martin is correct in pointing out that labor and services may constitute sufficient consideration for the issuance of stock. However, N.C.G.S. § 55-46(f) requires that before stock is issued in consideration for labor and services, "the board of directors shall state by resolution their determination of the fair value to the corporation of such consideration." There was no evidence that such a resolution was ever enacted by the Board of Directors.

The trial court rejected Martin's testimony and specifically found as fact that Martin paid no consideration for the stock and caused a dilution of the shares of the other shareholders. N.C.G.S. § 55-53 provides cancellation as a remedy for the dilution of shares. Therefore, the trial court properly cancelled defendant Martin's shares.

II.

In their sole assignment of error, plaintiffs contend that the trial court erred "in failing to hold the defendants Martin and Sanderford jointly and severally liable for the combined verdicts of compensatory and punitive damages against both of them when the evidence showed that the defendants Martin and Sanderford were the controlling parties of the corporation and that they acted in concert with respect to the wrongs perpetrated upon the plaintiffs." We disagree.

In the case sub judice, the jury determined the separate and individual liability of Martin and Sanderford for compensatory and punitive damages. Although the issue of joint and several liability could have been submitted to the jury, it was not. The issues were submitted without objection, and plaintiffs have lost their right to object to them on appeal. Wesley v. Lea, 252 N.C. 540, 114 S.E.2d 350 (1960). Therefore, we hold that the trial court did not err in failing to hold Martin and Sanderford jointly and severally liable.

No Error.

MARTIN and GREENE, JJ., concur.