53 A.2d 143 (Pa. 1947), 3127, Lutherland, Inc. v. Dahlen

Docket Nº:3127
Citation:53 A.2d 143, 357 Pa. 143
Party Name:Lutherland, Inc. et al. v. Dahlen et al., Appellants
Attorney:Charles E. Kenworthey , with him Harold C. Edwards, Gomer W. Morgan and Schnader, Kenworthey, Segal & Lewis, for appellants. Thomas Raeburn White , with him Arlington W. Williams, Howard Engel, I. H. Brand, Julius Lichtenstein, Lichtenstein & Engel and White & Williams , for appellees.
Case Date:May 26, 1947
Court:Supreme Court of Pennsylvania

Page 143

53 A.2d 143 (Pa. 1947)

357 Pa. 143

Lutherland, Inc. et al.


Dahlen et al., Appellants

No. 3127

Supreme Court of Pennsylvania

May 26, 1947

Argued April 15, 1947

Appeals, Nos. 54, 55 and 56, Jan. T., 1947, from decree of C.P., Monroe Co., Sept. T., 1943, In Equity, No. 26, in case of Lutherland, Inc. et al. v. Henry A. Dahlen et al. Decree affirmed; reargument refused June 30, 1947.

Bill in equity. Before SHULL, P.J.

Adjudication filed awarding relief to plaintiffs, opinion by DAVIS, P.J. Exceptions to adjudication dismissed in part and final decree entered. Defendants, except Stroudsburg Security Trust Company, respectively, appealed.

Decree affirmed; costs to be paid one-half by Lutherland, Inc., and one-half by appellants.

Charles E. Kenworthey , with him Harold C. Edwards, Gomer W. Morgan and Schnader, Kenworthey, Segal & Lewis, for appellants.

Thomas Raeburn White , with him Arlington W. Williams, Howard Engel, I. H. Brand, Julius Lichtenstein, Lichtenstein & Engel and White & Williams , for appellees.



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In this action the president of a corporation is charged with having unlawfully and fraudulently appropriated for his own benefit certain contract rights and property belonging to the corporation. The facts are somewhat novel but the controlling principles of equity are clear and well settled.

In 1926 there was incorporated, as a non-profit organization, the Lutheran Conference and Camp Association. Its purpose was to establish a summer resort in the Pocono Mountains for the benefit of members of the Lutheran Church by constructing and operating camps for boys and girls, hotels, and buildings for amusement and recreation, and providing facilities for religious study and devotion. It acquired a large tract of land in Monroe County and leased part of it to a subsidiary corporation which constructed thereon a hotel, lodges, and camps; the principal portion, however, was divided into lots to be disposed of to members of the Association. 1100 of such lots were sold, some for $100 but most of them for $150 apiece; each purchaser was given a so-called lease for a term of 99 years with an option to renew for an additional 99 year period, the premises to be held at all times subject to the by-laws and rules of the Association.

[357 Pa. 146] In order to provide for the expenses of constructing and maintaining the streets,

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water supply, sewerage disposal system, street lighting and other improvements, the Directors of the Association, in pursuance of an authority given them in the by-laws, assessed the lot owners $10 a year for each lot. By 1936 only 378 lot owners had paid these assessments in full and the depression of the early 30's had seriously affected the financial stability of the enterprise. A loan was sought from the Reconstruction Finance Corporation, which, as a condition to granting it, required that a business corporation be formed to take over the property of the Association and the hotel corporation. Accordingly the present plaintiff, Lutherland, Inc., was incorporated in 1936; its purposes were stated to be the acquisition, leasing and sale of real estate and the building and operation of hotels, camps and places of amusement and recreation. An elaborate plan was adopted according to which there were to be issued by Lutherland 5% income bonds to be used principally for exchanging outstanding bonds of the hotel corporation and for effecting settlement with the creditors of the Association. The plan further provided that Lutherland was to issue to the Association or its nominees for each of the lot owners who had paid their assessments in full one share of stock, and, during the succeeding period of one year, one share for each of the lot owners who, although not then in good standing, would pay up within that time all of their assessments in arrears.

Defendant Henry A. Dahlen, who had conceived the original idea of the enterprise and brought it to fruition, was a member of the Board of Directors of the Association and its President from 1926 to 1936; from then until 1942 he was a member of the Board of Directors and President of Lutherland, and also, during part of that time, its general manager. He and his wife are the sole shareholders of defendant Oliver Corporation and defendant Hadlen Construction Corporation. The Secretary [357 Pa. 147] of the Association, and later of Lutherland, was August Scherer. Dahlen largely dominated the Board of Directors, the members, the shareholders, and all the activities and business affairs, first of the Association and later of Lutherland; Scherer accepted and obeyed his instructions without question. Probably because it was operated primarily for a quasi-religious purpose the organization does not seem to have been conducted always on strict business principles, the members relying heavily upon Dahlen for the worldly management of the enterprise.

In the distribution of the 378 shares of the paid-up lot owners Dahlen and members of his family obtained 8 shares. Oliver Corporation received the corporation's income bonds in an approximate amount of $50,000 in exchange for bonds of the hotel corporation it had previously held.

The event which more immediately gave rise to the present litigation occurred in the autumn of 1936, soon after the incorporation of Lutherland. Under date of September 18, 1936 Dahlen wrote a letter to Scherer in which he stated that he "agreed" that, pursuant to Scherer's sending out a letter to all the lot owners of Lutherland then in arrears and securing their consent to sell their lots to Dahlen, he would pay them for whatever equity they had in their lots in the Lutherland income bonds belonging to Oliver Corporation, and would also pay Lutherland all the assessments on such lots then in arrears, the lots to be transferred "direct" from their present owners to Oliver Corporation. Scherer, under date of December 16, 1936, sent out a letter to the lot owners in which it was stated that "We can now make the following proposition to members wishing to surrender their leaseholds. The member to receive in exchange of his leasehold -- 5% Lutherland, Inc. Income Bonds for the amount paid for the leasehold less unpaid assessments, if any. If you are interested in this plan, please return the enclosed copy with your signature.... [357 Pa. 148] Very truly yours, Lutherland, Inc., A. Scherer, Secretary."...

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