Peck v. Roberts

Lively, Judge: This appeal brings up for review a decree of the Circuit Court of Kanawha County entered on the 20th day of September, 1919, which reversed a decree of the Court of Common Pleas entered on the first day of July, 1919, disrmsKtng — 203 — tbe plaintiff’s bill. Tbe decree of tbe circuit court, under review, entered a judgment for tbe plaintiff for tbe sum of $1,032.00 witb interest from the 9th day of March, 1913, and directed sale of tbe interest of defendant Roberts in certain real estate for payment thereof. In tbe year 1911 W. S. Roberts, defendant, formed a corporation, known as tbe Kanawha Auto Truck Co., for tbe purpose of manufacturing and selling a truck of bis special design, and interested R. G. Quarrier, J. L. Sydenstrieker, Geo. Gates and others. Tbe capital stock was $50,000.00 and tbe par value of each share was $1.00. For bis design of tbe truck, services and time expended in forming tbe corporation be was voted bonus stock amounting to $5,000.00. He was elected president of tbe company and was tbe acting manager and moving spirit. Tbe business of tbe corporation was unsuccessful and at a later date tbe corporate name was changed to tbe Elk Auto Truck Co., and tbe shares of stock thereafter issued were at $100.00 per share par value. About the time of the reorganization S. A. Moore was selected as tbe president of tbe corporation and Roberts was selected as vice-president. On tbe 22nd day of September, 1913, tbe reorganized corporation made an assignment to tbe plaintiff, A. J. Peck, trustee, of all its property and assets for tbe benefit of its creditors. It does not appear at what date Roberts severed his connection witb tbe corporation but it does appear that be left this state on tbe night of tbe 14th of July, 1913. Tbe plaintiff, Peck, trustee, discovered on tbe records of tbe company that Roberts bad used tfie sum of $1,032.00 of tbe funds of tbe company on tbe 8th day of March, 1913, when tbe company was in failing circumstances, for tbe payment of a note given by him and endorsed by R. G. Quarrier for $1,000.00, which bad been negotiated at tbe Kanawha Valley Bank; and conceiving that this constituted a diversion of tbe funds of tbe company for tbe payment of an individual debt, instituted this suit against 'W. S. Roberts and R. G. Quarrier and attached tbe interest of defendant Roberts in certain real estate situate in Kanawha County. Roberts answered tbe bill and depositions were taken. In tbe meantime the suit had1 been transferred to the docket of tbe Court of — 204 — Common, Pleas, and that court found for the defendant Roberts and dismissed the bill; and, as above stated upon appeal, the Circuit Court of Kanawha County reversed the Court of Common Pleas and directed a sale of the property attached in satisfaction of the debt. Roberts’ defense is based on the theory-that this note which he negotiated to the Kanawha Yalley Bank on the 30th day of April, 1912, and which was signed by him and endorsed by Quarrier, was made and used for the purpose of raising funds for the corporation and was not his individual debt. On the other hand the plaintiff asserts that this note was the individual obligation of Roberts ánd that he had ho right to use the funds of the corporation for its payment. It appears that Quarrier had made a written subscription for stock in the corporation, amounting to $2,000.00, on which he had paid at various times an aggregate of $1,000.00. On April 30th, 1912, defendant Roberts approached him for the purpose of getting more money, as he then claimed, for the unpaid balance of stock. Quarrier took the position that the understanding between himself and Roberts was that he should pay only $1,000.00 on his subscription and the other $1,000.00 was to be given to him by Roberts out of the $5,000,-00 bonus stock which had been voted to Roberts for his plans, services, etc. Roberts then seemed to agree with Quarrier but stated that the stock was good and he would like to have it; thereupon, according to the testimony of Quarrier, the latter proposed that he would Assist Roberts in getting the money to pay for the stock, if he so desired, and the note was then executed by Roberts, which Quarrier endorsed. Roberts’ theory, as outlined in his evidence, is to the effect that this note was for the purpose of raising money for pressing financial needs of the company and that the stock of $1,000.00, then under discussion, would afterwards be sold and the proceeds used to pay off this note. He testified, using his own words: “It was my understanding that if we could get this banking accommodation with the nóte and sell some additional stock that we would relieve Mr. Quarrier, if we could, of his subscription for the other thousand.” — 205 — The result of this case depends largely upon the testimony of these two witnesses and their testimony is totally divergent. It is' therefore necessary to closely scan and consider the acts of the parties at that time and afterwards, to-' gether with the records of the company and the facts and circumstances surrounding the parties. Roberts was the president of the company and was acting as general manager and the books were kept in the office of the Triple State Electric Co. of which Roberts was general manager. It appears from the evidence of Sydenstricker, the bookkeeper, that an entry was made on the subscription account of Quarrier as of the 30th day of April (the date on which this note was given) which closed the subscription account of Quarrier, and on March 18, 1913, the date on which the note was paid out of the company funds, there is an entry, which Sydenstricker testifies to be in Roberts’ handwriting, “Unsubscribed stock, K. Y. Bk. R. G. Quarrier 51, $1000.00 dis. & int. $32.00.” On August 1, 1912, a general statement of the assets and liabilities of the company was made up and sent to the stockholders, which showed that the unpaid stock subscriptions amounted to the sum of $761.00. No account seems to be taken in this statement of the $1,000.00 note, either as an asset or as a liability. So far as the corporation was concerned, at that time it had no knowledge of this outstanding note. At least it was not treated as an obligation. In that statement the accounts receivable in the assets amounted to $680.09 and the bills payable in the “liabilities” amounted to $500.00, only. When the corporation was reorganized and its name changed to the Elk Auto Truck Co. and the par value of the stock changed to $100.00 per share, a certificate for 10 shares of stock of the par value of $1,000.00 was issued to Quarrier and the testimony is that these new' certificates were to take the place of the outstanding stock in the old company. At that time Roberts.was vice-president of the company and still in active charge. It is reasonably clear that Roberts acquiesced in the claim of Quarrier that it was the understanding that he should take only $1,000.00 in stock in the original company. This is evidenced by what was done on the 30th day of April, 1912, and by the subse — 206 — quent acts of Roberts, and the acts of the corporation in issuing the new stock to Quarrier. Another most significant fact appears and that is that after this note had been executed and negotiated, several thousand dollars worth of stock in the original company was sold and paid for. Roberts testified that between seven and eight thousand dollars worth of stock was sold after that time and all paid for with the exception of about $1,000.00 worth. If his theory was correct, that the note was given in order to raise money for pressing financial needs, and that this stock in question was to be sold and the note paid from the proceeds, it is not perceived why he did not take the money from the subsequent sale of stock and pay off this obligation for which he was individually liable. Moreover, it is shown, reasonably clearly, that Roberts treated this note as his personal obligation, because in making the renewals thereof he paid the discounts out of his personal funds; and then when he made up the financial statement as of August 1, 1912, no notice whatever is taken of this outstanding note. It was not treated as an obligation of the corporation. Another circumstance which militates against the claim of Roberts, that this additional $1,000.00 of stock was afterwards to be sold and the proceed's used to pay this individual note, is that several days after the note had been' executed he issued two certificates of stock, each for 1000 sháres in the name of Quarrier and delivered the same to Quarrier. Quarrier’s statement in regard to this is positive, that the additional certificate of stock for $1,000.00, which was handed to him, was for the purpose of securing him as endorser for Roberts on this note and that he had supposed that Roberts would issue the stock in his, Roberts’, name and assign the same to him as collateral security and did not notice that it was issued in his name at the time, or, if he did notice the irregularity in the issuance, he took the stock nevertheless with that understanding. If Roberts’ theory, that he intended to sell this controverted stock in order to pay the note, was correct, it would be most unusual to issue the stock in this way. These circumstances, to our mind, bear out the theory of the plaintiff and the evidence of Quarrier. — 207 — On this conflicting evidence the conrt of common pleas decided for the defendant and the circuit conrt decided for the plaintiff, as above stated. It is at once apparent that the question of preponderance of the evidence is difficult to determine. This court has had much difficulty in arriving at a conclusion. What rule should this court invoke for its aid when these two lower courts, each with concurrent jurisdiction and presided over by able, conscientious and learned jurists, have reached opposite conclusions from the very same facts ? It is insisted that the finding of the court of common pleas should have prevailed in the circuit court, and’ should prevail in this court, under the familiar rule that an appellate court will not disturb the findings of the trial court on questions of fact, unless clearly wrong, where the evidence is conflicting. Every rule of law and procedure is based on some good reason. The reason for this rule is that the trial court has the opportunity of observing the witnesses before it and their manner and demeanor in giving their testimony. This rule applies with special force to trials in the lower court by jury, or when a court at law tries in lieu of a jury; but the rule is not invoked strictly in chancery cases when the evidence is brought in by depositions. In such cases the lower court does not have this opportunity for observing the witnesses. However, it is usual for the appellate court to sustain the lower court in chancery cases on findings of fact where the evidence is conflicting or uncertain, on the theory that the lower court is sitting in the neighborhood where the controversy arises and is closer to the people and may have some peculiar advantage in that regard over the appellate court. Smith v. Yoke, 27 W. Va. 639. That reason does not apply as between the common pleas court and the circuit court. Both courts sit in the same county at the same court house and this cause was heard upon the same depositions. Both courts are equally near to the people, and neither has any special advantage over the other in that regard. The common pleas court was designed to relieve the circuit court of the enormous congestion of business therein and has equal jurisdiction and is made inferior only in order to conform with the Constitution. It could not — 208 — have been created under the Constitution except as an inferior court to that of the circuit court. We conclude that equal weight should be given to the findings of these two lower courts on questions of fact deduced from conflicting depositions in a chancery cause. Neither should have preference over the other. We think the true rule to be followed in this case is that invoked where a commissioner in chancery has made a finding of fact, returning with his report all the evidence on which the finding is based, and the lower court overrules and disaffirms his finding. In such instances the appellate court must determine from the record for itself whether it will sustain the commissioner or the circuit court. Hyre v. Lambert, 45 W. Va. 715; Roots v. Kilbreth, 32 W. Va. 585. In some jurisdictions an appellate court will not review the findings of an intermediate court affirming, modifying or reversing the trial court on controverted questions of fact where there is any evidence to support the findings of the intermediate court, and where it correctly applies the law to the.conclusions of fact. 4 C. J. Sec. 3071. But as above intimated, we do not follow this rule used in other jurisdictions, but will give equal weight to the findings of the common pleas court and circuit court, and will examine the evidence and pass upon the questions of fact. We affirm the decision of the circuit court. Affirmed.