Petersen v. Elholm

• Decision Date: 09 October 1906
• Citation: 109 N.W. 76,130 Wis. 1
• Parties: PETERSEN v. ELHOLM.
• Court: Wisconsin Supreme Court

130 Wis. 1

109 N.W. 76

PETERSEN

v.ELHOLM.^a1

Supreme Court of Wisconsin.

Oct. 9, 1906.

Appeal from Circuit Court, Racine County; Lawrence W. Halsey, Presiding Judge.

Action by Jacob C. Petersen against George Elholm. From a judgment in favor of defendant, plaintiff appeals. Affirmed.

Action to recover of the defendant moneys of Belle City Sash & Door Company alleged to have been fraudulently diverted by said defendant to his own use. The complaint alleged in substance the following facts: The Belle City Sash & Door Company, a corporation, was organized with plaintiff as president, William Dunphy as vice-president, Alfred Koerner as treasurer, and the defendant as secretary. Prior to such organization, plaintiff and Dunphy were copartners operating a mill for the manufacture of sash doors and other furnishings for buildings. They had considerable material on hand and had unfinished contracts and other assets, and also had liabilities to the extent of $3,000 besides incumbrances on their plant to the amount of $9,000. Plaintiff, defendant, said Koerner & Dunphy each took 50 shares of the capital stock of the corporation, each share being for $100. Koerner and defendant paid for their stock by performing, or agreeing to perform, services for the corporation hereafter mentioned while plaintiff and Dunphy sold their plant and business to the corporation for $20,000, exclusive of unfinished contracts, the corporation assuming $1,200 of liabilities, which it afterwards paid. Defendant, in payment for his stock, agreed to devote one hour's time each day to the business of the corporation, to keep all books and records and perform according to modern business methods all duties in that regard in payment of his stock. Koerner, in payment for his stock, undertook to build up and establish the business and credit of the corporation. Subsequently, the latter sold his stock to defendant and withdrew from the corporation without having performed his agreement, and thereupon, the defendant became the treasurer of the corporation and thereafter acted as such while retaining his office of secretary. As such treasurer, he was entrusted with the receipt and disbursement of funds of the corporation and other duties incident to his office, and while such treasurer and from the month of August, 1901, to February, 1902, both months inclusive, he diverted the corporate funds and money fraudulently, and willfully converted the same to his own use to the amount of $5,000, and has since refused to account for the same. The right to recover such diverted funds was duly assigned to the plaintiff before the commencement of this action. Judgment for $5,000 and costs was demanded. The defendant answered denying all the allegations of fraudulent diversion of funds. The issues raised were sent to a referee to hear, try and determine. He found the facts substantially as alleged in the complaint as to the organization of the corporation, the subscriptions to the capital stock, the manner in which the same was paid for, or agreed to be paid for, the transfer of the Koerner stock to the defendant, the latter's election as treasurer and his duties, and further found that the defendant had not at any time diverted or fraudulently converted to his own use any money of the corporation, and that by agreement of all stockholders about $2,000 of the corporate funds were used to pay the partnership indebtedness of Dunphy and plaintiff, in consideration whereof it was agreed that defendant might withdraw $1,000 from the corporation, which he did; that many irregularities appeared in the bookkeeping and great neglect in the making of proper entries, but that in general the discrepancies and omissions were satisfactorily explained; further, that in February, 1902, plaintiff and defendant, who then owned all the corporate stock, met, and that plaintiff, representing the corporation, made a settlement with the defendant of all claims of said corporation against the defendant by which settlement defendant assumed $1,500 of the corporate indebtedness, and discharged the same; further, that defendant's stock in the corporation was then sold for $3,750 to third parties, and the money paid into the corporate treasury for the benefit of its creditors. On such findings of fact the referee concluded as matter of law that defendant was entitled to judgment. The finding exonerating plaintiff from having fraudulently diverted the corporate funds was based on the decision of the referee that the evidence was not sufficient to show that any funds were diverted as alleged under such circumstances as to render the defendant guilty of the offense of embezzlement. Exceptions were filed to the material findings of fact, and a motion was made by plaintiff for a re-reference of the case, which was denied, as was also a motion to correct the findings by striking out several as not properly conclusions of fact. The referee's report was, on motion of the defendant, confirmed, and judgment was rendered accordingly, and the plaintiff appeals.Eaton & Eaton (W. W. Rowlands, of counsel), for appellant.

Wallace Ingalls, for respondent.

WINSLOW, J. (after stating the facts).

The complaint charged fraudulent conversion by the defendant of the funds of the corporation in various amounts and ways and at various times during a period of seven months. It was evident to the court that a long account was involved, and a reference was ordered. Upon the hearing before the referee, the erroneous character of many of the entries made by defendant in the...