Shipley v. Meadowbrook Club, Inc.

Henderson, J., delivered the opinion of the Court. The appellant instituted an action at law on June 17, 1953, claiming the value, with interest, of four shares of the preferred stock of the appellee, which the appellee had agreed to issue and deliver to him in 1948, 1949, 1950 and 1951, as a ¹⁴⁶ part of an oral contract of employment; but had wrongfully failed and refused to issue. The appellee filed a general issue plea and a plea of limitations as to the two shares alleged to have been deliverable at the end of the years 1948 and 1949. It also filed two counterclaims, alleging (1) that the appellant borrowed $3,000 upon his promissory note dated October 12, 1947, payable to the corporation without interest one year after date and secured by three shares of preferred stock issued to the appellant on August 1, 1947, and that the appellant wrongfully converted said note and said shares when his employment was terminated on January 31, 1952; and (2) that the appellant wrongfully appropriated certain materials, utilized the services of a workman employed by the appellee, and made certain charges against the corporation for personal telephone calls.

The appellant filed a replication to the plea of limitations, general issue pleas to both counterclaims, and a special plea of limitations to the first, insofar as it related to the promissory note. The case was tried by the court without a jury on June 10, 1954, but a decision was not rendered until January 19, 1956. In a memorandum filed on that date, the trial court found that the appellant was entitled to the value of the four shares, which he fixed at $4,000. The court also found that the three shares of stock were converted by the appellant, and that the appellee was entitled to set off their value, even though limitations had run upon the note.

The court allowed interest for four years upon the balance of $1,000, amounting to $240, and allowed damages of $800 on the second counterclaim without interest. Accordingly, judgment was entered for the appellant in the sum of $440. Cross appeals were entered by both parties. The appellant was employed as general manager of the Meadowbrook Swimming Pool in February, 1945, by Mr. Roberts and Mr. Stieber.

Mr. Roberts and Mrs. Stieber owned all of the stock of the appellee corporation. The appellant testified that under the terms of the oral contract of employment he was to receive $4,100 a year in cash, plus one share of the preferred stock of the corporation at the end of each year. The swimming pool was only kept open from ¹⁴⁷ April 1 until November 1 in each year, and it was understood that during the winter months the appellant was free to seek other employment. In the late summer of 1947 the appellant bought a house and Mr. Roberts and Mr. Stieber agreed to lend him $3,000.

He gave his note and agreed that the three shares previously issued to him should be pledged as collateral. Mr. Roberts testified: “He had the stock before that.” He gave the appellant his check for $3,000. The appellant testified that the stock certificate was issued to him at the time he signed the note. He placed both the note and certificate in the safe at the pool, where they remained until his employment was terminated.

The certificate was not endorsed. The appellant testified that he asked that additional shares be issued to him at the end of each succeeding year, but Mr. Stieber always put him off with the statement that it would “be taken care of”. In January, 1952, he was notified that his services were terminated, and again demanded that the four shares of stock be issued to him. When this was refused, he took from the safe the note and certificate for three shares.

He testified that no demand was made for the note or shares until September, 1952. At that time Mr. Roberts wrote him a letter suggesting that he return them, to which he replied that he was willing to return the note, but that Meadowbrook owed him four shares. Mr. Roberts testified that he was not present when the appellant was employed, that any matters of that kind were “strictly up to Mr. or Mrs. Stieber”. Mrs. Stieber was president of the corporation, but Mr. Stieber represented her.

Mr. Roberts was treasurer of the corporation. He admitted that three shares were issued to the appellant in 1947. He did not know of any demands for stock by the appellant. Mr. Stieber admitted that the appellant was employed at a salary of $4,100 a year.

As to the issuance of the three shares in 1947, “for the first few years he was there, we felt as though we were justified in giving him those shares as a bonus.” He agreed that the shares should be pledged to secure the loan of $3,000. “There was never any firm agreement” to give the appellant one share of preferred stock at the end of each year. The stock was given in 1947 as “a friendly gesture. Mr. Shipley ¹⁴⁸ had performed satisfactorily for the first three years”. The appellant never asked for the four shares until his employment was terminated.

The reason for the termination was because he thought the appellant was not spending enough time at the pool. The testimony in support of the second counterclaim may be summarized as follows: It is admitted that lumber costing $250 was billed to the corporation. The appellant denied using any part of this for his home, and was corroborated by the witness Townsend. The witness Smith testified that he took a truck load of lumber to the appellant’s house in 1948.

He told Mr. Stieber about it a week later. The appellant admitted that he had some plumbing tools belonging to the corporation, “possibly half of them, possibly 60%” which originally cost $195. He admitted using “about $5 worth of grass seed.” Smith testified he used about 50 pounds, or $25 worth. He admitted that he owed the corporation an item of $189.48 for pipe.

He admitted that he used Smith occasionally to help him remodel his house during the winter months in 1947 and 1948 when the pool was closed, and sometimes to cut grass in summer. Mr. Stieber knew this, but never raised any objection. The item of telephone calls totaled $9.40, and most of these he identified as business calls. The chief contention of the appellee in his cross-appeal seems to be that the appellant is not entitled to any recovery because of his “disloyalty” to the appellee by reason of this appropriation of materials and the labor of a workman employed by the corporation, and the alleged conversion of the note and certificate of stock.

We accept the general principle that an agent who is guilty of fraud upon his principal, particularly where there is a conflicting interest, concealment, or a wilful and deliberate breach of his contract, may be denied compensation for his services. Johnson & Higgins v. Simpson, 163 Md. 574 ; Lewis v. Fisher, 174 Md. 41 ; Nagel v. Todd, 185 Md. 512 ; Hansen v. Barnard, 270 F. 163 (C. C. A. 2d); Lamdin v. Broadway Surface Advertising Corp., 5 N. E. 2d 66 (N. Y.); Restatement, Agency, § 469. We do not find that the appellant’s conduct in the instant case calls for ¹⁴⁹ the application of this rule. It is undisputed that the affairs of the corporation were loosely handled, and that, from time to time, the appellant advanced money to meet current bills, and charged items to the corporation which he later repaid.

The mere fact that at the time the employment was terminated for other reasons, there was a dispute as to the balance due the corporation, does not amount to disloyalty within the rule laid down in the cases cited. Mr. Stieber and Mr. Roberts were both aware of the use of the handy man, Smith, at times when his services were not required at the pool, but they never objected. There was no concealment as to this, or as to any of the items claimed. We think the evidence shows that the irregularities were waived or condoned.

Nor does the fact that the appellant retained possession of the note and certificate of stock, under a claim that the corporation had wrongfully refused to issue additional shares to him, amount to such disloyalty as to bar a recovery of compensation, even if we assume for present purposes that it amounted to a conversion. The question of disloyalty was not mentioned in the court’s opinion, although the point was raised in a memorandum