City of Kiel v. Frank Shoe Mfg. Co.

• Decision Date: 14 April 1944
• Parties: CITY OF KIEL v. FRANK SHOE MFG. CO. et al.
• Court: Wisconsin Supreme Court

245 Wis. 292

14 N.W.2d 164

CITY OF KIEL

v.FRANK SHOE MFG. CO. et al.

Supreme Court of Wisconsin.

April 14, 1944.

Appeal from a judgment of the Circuit Court for Manitowoc County; Henry A. Detling, Judge.

Affirmed in part; reversed in part.

Action commenced July 7, 1941 by the city of Kiel against Frank Shoe Manufacturing Co., George Frank, Gordon A. Frank and Fred Froede, directors thereof, to recover the sum of $12,000 paid the defendant corporation. From a judgment for the plaintiff and adjudging that defendants pay the sum of $14,275 to plaintiff, defendants appeal.

The complaint alleges that the defendants conspired together to induce the mayor and city council of the plaintiff to pay over and deliver to said Frank Shoe Manufacturing Co. a large sum of money of said plaintiff without consideration and without authority of law and in furtherance of said conspiracy said defendants, Frank Shoe Mfg. Co., George Frank, Gordon Frank and Fred Froede made false and misleading representations to the mayor and city council in order to induce the city to pay the sum of money.

The answer denies that any conspiracy to seceive the city of Kiel existed and alleged as a separate defense that plaintiff had fraudulently and falsely induced defendant to enter into the agreement by which defendant corporation was to move its plant to Kiel, by representing that the city had a fund for industrial development of $12,000 and that by reason of having moved to the city of Kiel in reliance upon such representations defendant had suffered damages to the extent of $50,000.

The trial was to the court and it was found among other things that the defendants, George Frank, Gordon A. Frank and Fred Froede took an active part in the negotiations and discussions leading up to the execution of the alleged cofntract; that thereafter the agreement was approved and signed by city officials pursuant to a resolution of the city council and by the defendant company by its officers, they having been authorized to do so; that the contract was entered into in good faith by all interested parties and was an agreement which all believed would be to the advantage and in the interests of the company and city.

As conclusions of law, the court held:

‘That by the aforesaid transaction $12,000 of the moneys and property of the city of Kiel was unlawfully converted to the use of the defendant Frank Shoe Manufacturing Company, and that each of the defendants actively and knowingly participated in the acts producing that result, a conspiracy within the accepted definition of that term. Good faith is no defense, nor is it necessary to show a wrongful intent in order to hold the defendant company and the defendant individuals liable.’

The court thereupon entered judgment for plaintiff against defendant corporation and the directors thereof.

Nash & Nash, of Manitowoc, Clarence Ehrle, of Milwaukee, and Walter J. Clark, of Manitowoc, for appellants.

W. A. Martin, of Kiel, and Hougen, Brady & Murphy, of Manitowoc, for respondent.

FAIRCHILD, Justice.

When the parties to this appeal were here on demurrer to the complaint, City of Kiel v. Frank Shoe Co. 240 Wis. 594, 4 N.W2d 117, 118, we decided that the arrangement attempted to be made on behalf of the city of Kiel with the appellants was beyond the power of the city ‘and for that reason illegal and void, therefore not in any legal sense a contract,’ citing Wendlandt v. Hartford Accident & Indemnity Co. 222 Wis. 204, 268 N.W. 230. And because the complaint alleged that the individual appellants had knowingly and fraudulently procured the payment of the money, it was then ruled that a cause of action was sufficiently pleaded as against them. The situation as it appeared on the trial is considerably different from the one described in the allegations in the complaint. Evidence showing that the individual appellants did not play the part the complaint charged they did has caused the trial court to exonerate them from any finding of fraud or false representation.

So far as the corporation is concerned, the judgment against it is good. As the respondent city did not have the legal right or power to make the engagements its officers sought to make and as the acts of all concerned did not result in a receipt of benefit by the city and had not proceeded so as to create special circumstances which place the case within the rule of Ellefson v. Smith, 182 Wis. 398, 196 N.W. 834, there is nothing to do other than to hold that the money paid under the plan belongs in the treasury of the city. Because the law is that ‘a contract beyond the scope of the corporate power is void.’ 1 Dillon, Municipal Corporations § 447, 4th Ed. Vol. II, § 777, 5th Ed. See also Hanrahan v. Janesville, 145 Wis. 457, 130 N.W. 482;Shulse v. Mayville, 223 Wis. 624, 271 N.W. 643;Waisman v. Wagner, 227 Wis. 193, 278 N.W. 418;Egaard v. Dahlke, 109 Wis. 366, 85 N.W. 369;Chippewa Bridge Co. v. Durand, 122 Wis. 85, 99 N.W. 603,106 Am.St.Rep. 931. There is no difficulty in seeing that the obligation to return the funds rests upon the appellant corporation. The protection thrown around public founds by requiring contracts to be let in a certain manner or prohibiting the use of the credit of the city, gives the respondent, in the absence of sufficient equities, a good cause to recover the money from the person or corporation to whom it was delivered.

The judgment, however, is not only against the corporation. It is also against the directors, individually.

The court below held that the activity of the directors in participating in the bringing about of the transfer of the sum of $12,000 to the appellant corporation in some way constituted a conspiracy to deprive the respondent city of that amount. However, the findings of fact specifically absolve the appellants from any charge of bad faith. There must be an element of willfulness and an intent to commit an act amounting to a conspiracy before it can exist. The act in the absence of such intent is not transformed into a conspiracy simply because the transaction later was discovered to be invalid.

‘The test for determining the lawfulness of the combinantion is the motive for combining, or the nature of the object to be attained as a consequence of the act. The carrying out of * * * such...