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. Eatón 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

Petersen v. Elholm, 130 Wis. 1.

was apparently fully tried out, and upon very familiar principles it must now be considered as having been litigated by

consent.

The finding is challenged as unsupported by the evidence and this contention requires some consideration. It is undisputed that in February, 1902, Petersen and Elholm be tween them owned the entire stock of the corporation; that Elholm desired to get out of the business; that two persons, Hettrich and Jensen, were considering the advisability of buying two thirds of the business and operating the mill with Petersen; that in view of this contemplated purchase Petersen, Elholm, and one Owens (who was interested as the owner of a large mortgage on the plant) met at the Commercial Bank in Racine with the books of the company and spent considerable time in examination of the books and negotiation as to the terms upon which Elholm was to withdraw; that upon the books it appeared that Elholm owed the concern about $1,200, and that as a result of the meeting Elholm agreed to assume and pay $1,500 of the debts of the corporation (which he subsequently did pay), and surren dered his half of the stock on the condition insisted on by the defendant that whatever was received from Hettrich and Jensen was to go into the treasury of the corporation. It further appears that at the conclusion of this arrangement. Elholm stepped out of the business, leaving Petersen and Owens in charge, and that a few days later Hettrich and Jensen purchased two thirds of the business, paying $5,000 therefor into the corporate treasury, and that the business was reorganized and the plaintiff Petersen became secretary of the corporation and superintendent of the business. As to the purpose of this meeting Petersen testified on crossexamination:

"Elholm left the corporation in February, 1902. I cannot tell the date exactly, probably around the 7th or the 8th. Had a settlement with him at the Commercial Bank. Car

Petersen v. Elholm, 130 Wis. 1.

penter and Owens and myself were there. I brought him to the bank to settle. I found him at the office of Mitchell & Lewis Co. I think it was the 7th of February, 1902."

Owens testified:

"We met at the bank to get Elholm, so as to have the stock transferred, and have some understanding so we could run the concern, and some understanding about his account of $1,200 that appeared on the books. We wanted it settled up. We wanted him to pay what he owed the corporation. There was a great deal of talk there. He agreed to pay $1,500. After that three of us went down to the mill and had the stock transferred. Petersen was at the bank."

The defendant, after relating the transaction in detail, testified:

"My assuming these accounts and transferring my stock was to release me from liability, to pay up all irregularities and differences that existed between Petersen or the company and myself, and was considered on that day by Petersen. and myself."

Mr. Carpenter, the cashier of the bank where the conference was held, testified: "They arrived at some settlement. whereby Elholm was to pay about $1,500.”

In view of these facts we find no difficulty in holding that the transaction in question was intended to be a full settlement of the defendant's liabilities to Petersen or the corporation, and was, in fact, a settlement of such liabilities so far as Petersen, acting individually, could make a settlement. But he could not in his capacity as stockholder alone settle and discharge corporate claims. Although he and Elholm owned all the stock they did not thereby become the corporation, and their mere individual action would not bind it. Button v. Hoffman, 61 Wis. 20, 20 N. W. 667; 2 Cook, Corp. (5th ed.) § 709. However, Petersen was more than a mere stockholder: he was president of the company and superintendent of its business from the start, and it appears that he bought all the merchandise, figured out the contracts,

Petersen v. Elholm, 130 Wis. 1.

collected most of the money, and in fact managed the business, leaving the office duties to Elholm. It might be forcibly contended that these broad powers carried with them the power to make the settlement in question, but we are not compelled to rest our conclusions on any doubtful proposition. It is well understood that where a corporation, with notice of the facts, acquiesces in an unauthorized contract made on its behalf and accepts the benefits thereof it becomes bound by the contract. 2 Cook, Corp., supra. Upon the reorganization of the business of the corporation after Hettrich and Jensen came in, Petersen was elected secretary of the corporation and superintendent of its business. He knew all the facts, and his knowledge was notice to the corporation of which he was the executive officer. Brothers v. Bank of Kaukauna, 84 Wis. 381, 54 N. W. 786.

But it further appears that Hettrich and Jensen, who became respectively president and treasurer of the corporation after their purchase, also had knowledge of the material. facts of the transaction. The books of the corporation were offered in evidence, and upon the daybook which was then in use and continued to be used afterwards, under date of February 11th, appears an entry signed by the defendant, by which it appears that in consideration of a release from liability he assumed and agreed to pay $1,500 of the corporate liabilities. The corporation records also show that Hettrich and Jensen were present at the last meeting of the corporation before reorganization when defendant surrendered all his stock for cancellation, hence they must have known this fact and also the fact that the $5,000 paid by them for their two-thirds interest, of which $3,750 would ordinarily go to defendant for his half of the stock, was all paid into the corporate treasury and actually used to discharge the mortgage indebtedness of the corporation. This would seem to be plenary proof of knowledge on the part of all the officers as well as all the stockholders of the reorganized corporation