Koenig v. Leas, 29918

• Decision Date: 14 March 1960
• Docket Number: No. 29918,29918
• Parties: Otto W. KOENIG, Receiver for Aldrich-Williams, Inc., Appellant, v. Fay W. LEAS, Appellee.
• Court: Indiana Supreme Court

Page 134

165 N.E.2d 134

240 Ind. 449

Otto W. KOENIG, Receiver for Aldrich-Williams, Inc., Appellant, v. Fay W. LEAS, Appellee.

No. 29918.

Supreme Court of Indiana.

March 14, 1960.

Rehearing Denied April 26, 1960.

Rothberg, Gallmeyer, Doermer & Strutz, Fort Wayne, for appellant.

Dunten & Arnold, Fort Wayne, for appellee.

LANDIS, Judge.

This case comes to us on transfer from the Appellate Court pursuant to Burns' § 4-215 (1946 Replacement), ¹ the Appellate Court's opinion appearing in 157 N.E.2d 846.

Appellee filed claim in the rceeivership proceedings of Aldrich-Williams, Inc., asking that appellant who is the receiver thereof, be ordered bo pay over to appellee the sum of $5,295 as a preferred claim against said receivership and prior to the payment of general claims growing out of the alleged conversion of appellee's assets by the corporation.

Appellant receiver filed answer in bar and a second paragraph alleging appellee opened a checking account in the name of the corporation and over which he had authority to write checks; that appellee deposited $1,500 therein (which is part of the money he claimed was converted) and thereafter funds of the corporation from another bank were transferred to this account and were commingled with the funds in this account. That appellee was not entitled to the preferred status he claimed.

Reply to the answer was filed and upon the issues submitted the court entered a finding and judgment for appellee-claimant in the amount of $5,155.72 and that said sum was held in trust for the benefit of said appellee.

Appellant's motion for new trial alleging the decision was contrary to law and not sustained by sufficient evidence, was overruled. He appeals from the judgment.

The facts necesary for a consideration of this case follow.

Appellee-claimant was a practicing attorney of Fort Wayne, Indiana, for thirty years. In June 1955, W. R. Aldrich went to see appellee-claimant as an attorney and thereafter frequently consulted with him with reference to difficulties he (Aldrich) was having with B. K. Williams in the management of Aldrich-Williams, Inc., an automobile agency. Aldrich was Vice President-Secretary, and Williams was President-Treasurer of the corporation. The corporation had a capital stock of $24,000, of which amount Aldrich had invested $2,500, Williams $1,500, and twelve other investors the remaining $20,000. There were no stockholders or directors meetings called or held, no by-laws were prepared or adopted, no resolutions were entered of record, nor were any stock certificates issued.

Appellee-claimant suggested to Aldrich sometime in June of 1955 that he would invest $5,000 in the corporation if Williams would withdraw, the corporate books were brought up to date and the other stockholders would approve. This was submitted to Williams who was agreeable to the proposition and appellee-claimant prepared an instrument called a 'separation agreement' providing for Williams to withdraw from the corporation in consideration for which Aldrich agreed to pay Williams $1,600 to satisfy all claims Williams might have. The agreement provided an additional $5,000 would be paid Williams when all adjustments were completed. The agreement was signed by Aldrich and Williams on July 11, and a check for $1,600 was delivered by Aldrich to williams.

On July 16, 1955, appellee-claimant and Aldrich opened a new checking account in the name of Aldrich-Williams, Inc. Appellee-claimant deposited $1,500 to this account, signed a bank signature card at the Dime Trust and Savings Bank with appellee-claimant designating himself as Treasurer and Aldrich as Secretary of the corporation. Appellee-claimant suggested the corporation should transfer its operating account from the Lincoln National Bank and Trust Company to the Dime Bank. The Dime Bank account was thereafter used by Aldrich and the bookkeeper as the general operating account for the business.

On July 18, 1955, appellee went on a trip to Florida in a new Packard company car and left his 1954 Cadillac with Aldrich for sale. On his return a week later he learned his Cadillac had been sold for $3,795, $2,100 of which was cash and the balance represented by a 1951 Cadillac. The $2,100 was deposited by the bookkeeper in the Dime Bank and the 1951 Cadillac placed on the company's used car lot.

A certificate of corporate authority authorizing appellee and Aldrich to sign checks as officers, was prepared at the instance of the Dime Bank and signed by Aldrich as Secretary and attested by appellee as a director. It stated Aldrich was President and/or Secretary and that appellee was Vice-President and/or Treasurer. This was filed with the Dime Bank. Although a formal resolution to that effect was prepared by appellee, no corporate action was ever taken on it.

It further appears that a Mr. and Mrs. Hetzel desired to invest in the new business, and that appellee and Aldrich in discussing the reorganization had considered that a new name for the corporation could be 'Aldrich-Packard, Inc.'. The Hetzels delivered a check in the amount of $1,000 and a receipt was given to them in the name of 'Aldrich-Packard, Inc.'. At appellee's and Aldrich's direction the check was deposited in the Dime Bank account of Aldrich-Williams, Inc.

On August 12, 1955, a meeting was held between Aldrich, appellee, Williams, the bookkeeper and a representative of the Studebaker-Packard Corporation, and the transfer of the franchise was discussed. Williams refused to assign his interest until he was paid the balance of $3,500 provided in the separation agreement. Aldrich left the meeting to raise the money, and telephoned back to say he had borrowed it and was depositing it in the Dime Bank account. The bookkeeper prepared a check payable to Williams for $3,500 and appellee signed it 'Aldrich-Williams, Inc.--Fay W. Leas.' The check was delivered to Williams and honored by the Dime Bank.

Appellee stated that he probably knew prior to this that the corporation's deposits in the Lincoln Bank had been transferred to the Dime Bank.

On August 18, 1955, appellee discovered that two new automobiles had been sold during the months of July and August without paying the Commercial Credit Corporation, which had floor-planned the cars. The purchasers were demanding their titles. Appellee checked into the financial condition of the corporation with the bookkeeper, drawing up a rough balance sheet which indicated the corporation was insolvent. Appellee went to Aldrich's house and they discussed the Commercial Credit Corporation debt and the possibility of a receivership. It was agreed that the corporation would sell at auction several used automobiles in order to pay off Commercial Credit Corporation.

On August 23, 1955, which was the same day as the auction, Aldrich withdrew the funds from the Dime Bank without appellee's knowledge and deposited them in the Anthony Wayne Bank. He then paid off Commercial Credit with money from the proceeds of the auction sale.

On August 26, 1955, the petition for receivership was filed, appellant was appointed receiver and took over all bank accounts and all the stock of automobiles including the 1951 Cadillac.

On September 29, 1955, appellee filed his claim in the receivership proceedings asking for a preference over general creditors because of the alleged conversion of appellee's assets by the corporation giving rise to a trust relationship.

Appellee has conceded in his briefs on this appeal that neither an express nor a resulting trust was created in the case at bar, but the argument has centered instead over the existence of a constructive trust.

This court has heretofore observed that while there is no unyielding rule or formulae for describing a constructive trust with exactness, the following definition from Bogert Trusts & Trustees, ch. 24, § 471, p. 8, is in close conformity with the decisions of this jurisdiction, viz.:

"A constructive trust, or as frequently called an involuntary trust, is a fiction of equity, deivsed to the end that the equitable remedies available against a conventional fiduciary may be available under the same name and processes against one who through fraud or mistake or by any means ex maleficio acquires property of another." See: Brown v. Brown, 1956, 235 Ind. 563, 567, 135 N.E.2d 614, 616.

In order to establish the existence of fraud in this case appellee places considerable reliance on the existence of a fiduciary or confidential relation as a result of which appellee was overreached or taken unfair advantage of by Aldrich. Was there such a fiduciary or confidential relationship here?

The case of Westphal v. Heckman, 1916, 185 Ind. 88, 93, 113 N.E. 299, 301, in an opinion by Lairy, J., discusses the aspects of such a relation, as follows:

'There are certain legal and domestic relations in respect to which the law raises a presumption of trust and confidence on one side and a corresponding influence on the other. The relations of attorney and client, principal and agent, husband and wife, and parent and child belong to this class and there may be others. Where such a relation exists between two persons and the one occupying the superior position has dealt with the other in such a way as to sustain a substantial advantage, the law will presume that improper influence was exerted and that the transaction is fraudulent. Keys v. McDowell, 1913, 54 Ind.App. 263, 100 N.E. 385,...