CASES DETERMINED AT THE August Term, 1906. PETERSEN, Appellant, vs. ELHOLM, Respondent. September 15-December 4, 1906. Compromise and settlement: Failure to plead: Failure to object to evidence on that ground: Appeal and error: Evidence: Corporations: Power of stockholders to settle corporate claims. [1. Whether in a civil action against a corporate officer for fraudulent conversion of corporate funds, seeking an accounting and judgment for the amount found to have been converted, the plaintiff cannot recover if the conversion was not fraudulent, i. e. if it did not amount to embezzlement, not determined.] 2. Although where a defense of compromise and settlement is not pleaded, and objection is made on that ground, evidence thereof is not admissible, yet where the evidence on both sides is received without objection as to its admissibility, and that question has been fully tried out, on appeal such question must be considered as having been litigated by consent. 3. In an action against a corporate officer for fraudulent conversion of corporate funds, seeking an accounting and judgment for the amount found to have been converted, the evidence, stated in the opinion, is held to sustain a conclusion that enumerated transactions were intended to be a full settlement of defendant's liabilities. 4. A stockholder, in that capacity alone, cannot settle and discharge corporate claims. 5. Although two persons own all the stock of a corporation they do not thereby become the corporation, and their individual action in settling a claim of the corporation against one of them does not bind the corporation. VOL. 130-1 Petersen v. Elholm, 130 Wis. 1. 6. In such case, however, where one was, and continued to be, an officer of the corporation and superintendent of its business, and a settlement arranged between the two was afterwards brought to the notice of the corporation, acquiescence in the transactions and acceptance of the benefits thereby secured bind the corporation. 7. On a motion for rehearing, a statement in the original opinion that, while no defense of settlement was pleaded, the evidence of settlement was received without objection on that ground, and hence the question must be considered as having been litigated by consent, is held supported by the record. APPEAL from a judgment of the circuit court for Racine County: LAWRENCE W. HALSEY, Judge. 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, and Dunphy each took fifty 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 Petersen v. Elholm, 130 Wis. 1. and records, and perform according to modern business methods all duties in that regard. 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 intrusted 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 wilfully 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 discrepan Petersen v. Elholm, 130 Wis. 1. cies 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 defendant 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. For the appellant there were briefs by Eaton & Eaton, attorneys, and W. W. Rowlands, of counsel, and oral argument by Mr. L. K. Eaton and Mr. Rowlands. Wallace Ingalls, for the respondent. The following opinion was filed October 9, 1906: WINSLOW, J. 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 Petersen v. Elholm, 130 Wis. 1. of the entries made by defendant in the corporation books which were attacked by plaintiff was fully admitted, but as to a considerable number the defendant claimed that they were correct. Testimony was introduced pro and con upon the disputed entries, but the referee made no finding upon them and stated no account, but filed a brief opinion stating that he had considerable doubt as to some of the items of alleged conversion, but that he was "unable to hold that the defendant stole or embezzled the moneys as charged, which is what would have to be found in order to report a decision in favor of the plaintiff." Apparently on this account alone he concluded that the defendant was entitled to judgment, and requested defendant's counsel to prepare the findings which he afterwards signed and which are summarized in the statement of the case. The proposition seems to be that in a civil action against a corporate officer claiming fraudulent conversion of corporate funds and seeking an accounting therefor and judgment for the amount found to have been converted, the plaintiff cannot recover if the conversion was not fraudulent, i. e. if it did not amount to embezzlement. We are not referred to any authority in support of this view, and we should hesitate greatly before giving assent to it; however, as we find it unnecessary to decide the question on account of considerations now to be stated, we express no opinion upon it. The referee found as a fact that Petersen, acting for the corporation, settled with the defendant for all corporate claims against him, and that the settlement so made was fully carried out. Of course, if this was the fact and the settlement be not impeached for fraud or mistake it closed the controversy. It is true there was no defense of settlement pleaded, and had objection been made to the evidence it would not have been admissible as the pleadings stood, but no such objection was made. The evidence on both sides upon the question was received without objection as to its admissibility on this ground; the question |