Court Opinion

ID: 3985988
Source: CourtListenerOpinion
Date Created: 2016-07-06 10:42:09.068637+00
Date Added: 2024-06-11T13:55:57.444009
License: Public Domain

The plaintiff corporation *Page 499 
never, by any act of its directors or otherwise, authorized the use of its funds to purchase the stock of defendants. No claim is made that the corporation ever authorized such expenditure, nor is there any proof to support such a claim. Whether plaintiff's funds were so used, and whether defendants knew that the money they were receiving in payment for their stock belonged to the corporation, are, in my judgment, material questions. Findings on these questions would be determinative of the liability of the defendants to pay the amount sought to be recovered. That the defendants knew that the money they were receiving was the property of the plaintiff was alleged in the complaint, and this allegation was denied in the answer. It became, therefore, an issue made by the pleadings, and a material issue in the case. The testimony in the record is conclusive that the money received by the defendants was the money of the plaintiff corporation. Everything in the record, all the circumstances, in additon to the testimony of Mr. Murphy, is all but conclusive that the defendants knew that the money they were receiving was the money of the plantiff. We have, then, this situation: These defendants have $25,000 of the plaintiff corporation's money, admittedly obtained without any authorization of its board of directors. The plaintiff corporation is denied a recovery by reason of the fact that the complaint alleged, under paragraph 4, that defendants sold their stock to the plaintiff. Just what negotiations were had or artifices devised by Murphy and the defendants to take the money from the corporation and give it to the defendants is, as I view this record, very largely immaterial. The fact that the defendants received money that belonged to the corporation and that they knew such fact, are issues fairly presented by the pleadings, and upon which the court should have made findings. It should be kept in mind that there is no pretense that the corporation ever authorized any such use of its funds. The allegations of the fourth and fifth paragraphs of the complaint are set out in full in the prevailng opinion. The right of the *Page 500 
plaintiff to recover against the defendants grows out of the allegations of the fifth paragraph, and not of the fourth. The trial court apparently was of the opinion that the plaintiff failed to establish that the defendants had sold their stock to the corporation, and hence that there was no right of recovery on the part of the plaintiff, and no liability on the part of the defendants. The trial court, in my judgment, was in error in taking this narrow view of the issues presented by the pleadings, or that a finding that the sale of defendants' stock was made to Murphy and not to the plaintiff company would defeat plaintiff's right of recovery. The gist of the plaintiff's right to recover is the fact that the defendants obtained the funds of the corporation without any authorization on its part. In other words, the claimed inducements stated under the fourth paragraph of the complaint ought not defeat the corporation's right to recover, where, as here, other facts are charged in the complaint that state a cause of action against the defendants upon which the plaintiff is entitled to recover. Neither ought the defendants be permitted to hide behind their ignorance of the financial condition of the plaintiff company and plead that they did not know whether it was solvent or insolvent. If the corporation was insolvent, then in that event it held the corporate assets as trustee for the benefit of its creditors. If by the withdrawal of its funds to pay for the defendants' stock the corporation became insolvent, in that event the withdrawal of its funds for that purpose was a fraud, not only upon the creditors, but upon the stockholders. If the corporation was insolvent, or became insolvent by the withdrawal of these funds, then in that event it is entitled to judgment to recover these funds for the use and benefit of its creditors and of its stockholders.
The cause should be remanded to the district court, with directions to make findings upon the issues presented by the pleadings, and, if need be, permit the parties to amend the pleadings and determine the case upon its merits. *Page 501