119 Ky. 731 | Ky. Ct. App. | 1903
Opinion op the court by
Reversing.
Appellant prosecutes this appeal from a verdict and judgment convicting and sentencing him under a charge of embezzlement. He and four others, in May, 1900, organized, as corporators, the Industrial Mutual Investment Company. Its authorized capital stock was $5,000, of which each one of the incorporators subscribed $1,000. They then paid in on their several subscriptions the sums of $50 each, executing their notes to the company for the balance. Whether
It may be here stated that the corporation never in fact did any other business, so far as the record shows, than issuing the membership certificates alluded to.
These certificates of membership were sold to the public. Exactly what relation the holders then bore to the corporation does not seem to have been -clearly understood by the incorporators or the dealers. The incorporators insist most earnestly, and back their contention by the opinion of counsel procured before they embarked in the enterprise, that the certificate holders were in no sense members of the corporation, and were not entitled in any event to share in its profits or net accumulations. By a statement contained in the charter, limiting the corporation’s indebtedness to $5,000, it is indicated that they were not regarded as’ creditor# either. It may be as well to say now that their relation was that of creditors of the corporation. The contract represented by the “membership certificate” was as follows:
*735 “Certificate of Membership.
“The Industrial Mutual Deposit Company.
“Lexington, Kentucky.
“These Presents Witnesseth, that-of-, State of-, has filed an application, which is a part of this contract, and has paid the Industrial Mptual Deposit Company, of Lexington, Ky., (a corporation) the sum of-Dollars, it being for one week's installments on-coupons numbered serially from - which coupons are a part hereof.
“Now, in consideration .of said payment and the further-agreement of the holder thereof, on or before of each Monday of each week, from the date of the issuance of these coupons, to pay at the office of the Company, or to some duly authorized agent thereof, five cents, upon each redeemed coupon made a part hereof, as said before, and so on, continuing until all of said coupons shall be redeemed by said company.
“The said Industrial Mutual Deposit Company promises and agrees to pay to said--or to his or her heirs, personal representatives, or assigns upon the redemption of each of said coupons, one dollar and sixty cents ($1.60) on every dollar ($1.00) paid to keep same in force to the date of redemption less ten cents (10c) on each coupon when redeemed.
“The terms and conditions printed on the back hereof, and in the application for same are made a part of this certificate as fully as if recited over the signatures hereto, affixed.
“In Testimony Whereof, The Industrial Mutual Deposit Company has caused these presents to be executed by its*736 President and Secretary, and its corporate seal to be affixed, in the City of Lexington, Kentucky, this the July 28,1900.
A. P. Taylor, President
“(Seal.) Frank Gilmore, Secretary.
“(Conditions.)
(1) If any installment of weekly dues be not paid on Monday of any week, then the coupon upon which default is made shall be marked void for that week, and shall not be entitled to participate in the Redemption fund for said week; and if such default continues for four consecutive weeks, then this contract shall become void, and of no effect, and the holder thereof shall forfeit all money paid on same to the Company.
“(2) The coupons hereto attached shall not be eligible for Redemption until eight weekly installments of dues shall have been paid thereon.
“The Company reserves the right to redeem said coupons, or any of them, at any time, in the manner provided for by the By-Laws of said Company, and upon the payment of the amount hereinbefore promised, and binds itself to redeem all coupons, within one hundred and four weeks upon which one hundred and four weekly payments have been made.
“(3) The weekly collections on dues are divided into eight funds namely:
“(a) General Redemption Fund, — which consists of 20 per cent, of weekly collections on dues, and is used to redeem coupons that are eight or more weeks old, and are in force by a fixed mathematical rule, numeral apart system, which is determined each week by the number and value of each eligible coupon in force; and by the amount of money in said fund.
“(b) Mortuary-Fund, which consists, of 10 per cent, of the weekly collections on dues and is used to pay off death
“(c) Special Bedemption Fund, which consists of 10 per cent, of collections «on weekly dues, and is used to redeem every tenth eligible coupon in force each weekly Bedemption.
“(d) Grand Special Bedemption Fund, which consists of 15 per cent, of the collections on weekly dues, and shall' be used to redeem the oldest coupon in force on the Begister consecutively.
“(e) Cash Surrender Fund, which consists «of 10 per cent, of the weekly collections on dues, and is used the 30th week and each week thereafter, to pay cash surrender claims. If there are no such claims at the 30th week or thereafter, this fund shall be added to the Grand Special Bedemption Fund, and shall be used for the same purpose. Up to thirty weeks this fund shall be added to the Grand Special Bedemption Fund and every other week thereafter unless there be a cash surrender claim. Thus increasing the Grand Special Bedemption Fund to 25 per cent, of weekly collections on dues, said increased fund to be used as above set forth.
“(f) Beserve Fund, which shall consist «of 20 per cent, of the weekly collections on dues, and income derived from the investment of said fund and! such other sums as the Board of Directors may add, and shall be used to guarantee the payment of all matured obligations of the company by. reason of the issuance of certificates?
“'At no time shall the reserve exceed by 20 per cent, the entire amount paid in on unredeemed coupons.
“When amount at any time shall exceed said sum it shall be passed to the General Bedemption Fund.
“(g) Surplus Fund, which shall consist of five per cent.
“(h) Expense Fund, shall consist of ten per cent, of the weekly collections on dues and of the transfer fees, and shall be used for the current expenses of the company, and for such other purposes as the Directors may direct.
“(4) All coupons are numbered consecutively.
“(5) Death Options. In the event of the death of the holder of this certificate, his or her heirs or personal representatives may accept the following options, to-wit: (First) accept in cash all money paid in on unredeemed coupons less ten per cent, on each coupon.
“(2nd) May continue this contract, for the benefit of the decedent’s estate. The payment of death claims shall be from the Mortuary Fund and are to be paid in the order of their applications for same.
“(6) Borrowing Option. After 24 or more weekly dues have been paid the holder ma.y borrow all the money in the reserve fund that has been placed there from the weekly dues by said holder. Said loan to be applied to the payment of dues on said coupons, and said coupons shall be assigned to the Trustees of Reserve fund as collateral for said loan. Said loan shall bear six per cent, interest per annum and shall be paid out of the first maturing coupons.
“(7) Surrender Cash Options: After 30 or more weekly dues have been paid, the holder may surrender this contract and receive in cash ninety per cent, of all money paid in on unredeemed coupons hereto attached. Cash Surrender option to be paid out of cash surrender fund in the order of application for same.
“(8) Application for any option: — offered in this contract to be effective must be made hr writing within two
“(9) These Coupons are only transferable on the books of the Company, and for such transfer one-half cent will be charged on each coupon.
“(10) All remittances, for credit on coupons are sent at the risk of the sender or holder thereof.
“No receipt for dues is official, nor will any be accepted, unless signed by an authorized agent.
“(11) The Company, will be bound only by such statements as are contained in this contract.
“No agent, General or Special, of this Company has any right to vary or change in any way any part of this contract.
“(12) The holder by acceptance hereof, admits he has read and understands this contract.
“The above contract with its conditions' as recited above is hereby made and becomes a part of the By-Laws of this corporation.
“(Form of Coupon.)
“Coupon No.---.
“The Industrial Mutual Deposit Company, Agrees to redeem .this Coupon, according to the conditions named in the contract of which this is a part.
A. P. Taylor, President.
Frank Gilmore, Secretary.”
The “numeral apart” system referred to in the contract was this: A certain per cent., say 1 per cent., of the coupons in force, was taken as a basis of distribution. If 1 per cent, of the coupons in force when a distribution occurred was, for example, 50, then every fiftieth coupon that was eight weeks old, or oldeiv, would be redeemed at the rale
It is perfectly patent that the scheme attempted was impossible of execution honestly, so as to perform all the contracts. The most charitable view to take of it is that it was a species of lottery. It took the money paid in by new “members” in one week to “redeem” the coupons sold to others more than eight weeks before. If the theory of the appellant and his associates be adapted, that the 10 per cent, of each certificate sold should go into an “expense fund,” and 5 per cent, into a “surplus fund1,” neither of which could-in any event be enjoyed by or divided among the holders of the certificates, then it was mathematically certain that, out of the remaining 85 per cent, of all the money paid in, the corporation could not in two years pay back, to those who paid it in, 150 per cent., as it had no other resources or income. If the articles of incorporation had contemplated only the character of business above alluded to, we would have some doubt whether it would have to become a corporation in fact, as we are not prepared to say that pei’sons may avail themselves of corporate powers to do an illegal business, even to the extent of becoming a de facto' corporation. So far as the manifest purposes of this corporation are concerned, they do not appear to have been illegal. That the directors subsequently adopted a method that made their transactions violative of law cannot affect the fact that the corporation’s existence was lawful. If their contracts were void because mutually engaged in by the parties with the understanding on both sides that the corporation was con
As to how the “surplus” and “expense fund” provided for in these contracts were liable to distribution by the corporation becomes a material inquiry in this case. The provisions of the contract — which are identical with the by-laws of the company on that subject-are repeated here for convenience: “(g) Surplus fund, which shall consist of five per cent, of the weekly collections on dues, and shall be used or invested as the Directors may elect for the best interest of the company, (h) Expense fund, shall consist of ten per. cent, of the weekly collections on dues and of the transfer fees and shall be used for the current expenses of the company, and for such other expenses as the directors may direct.” It is the argument on behalf of appellant that these two 'funds were, by the express terms of the contract, set apart to the uses of the corporation proper, as distinct from certificate holders, and that it was contemplated by the contracts that the corporation might do with these funds what it pleased; that in no event or contingency were the cer
The board of directors of the corporation met on May 14, 1901, and declared a dividend >of $2,500 ($500 to each stockholder) payable to themselves; they did the same on June 27, 1901, and repeated it August 5, 1901. On November 4, 1901, they, by resolution, appropriated to themselves each $500 “on account,” and on December 30, 1901, appropriated $300 more to each of themselves “on account.” In March, 1902, ■the affairs of the company were placed in the hands of a receiver, as an insolvent. The grand jury of Fayette county indicted appellant, who was president of the board of directors, on the count of fraudulently converting and embezzling $500 of the funds of the corporation. This $500 was the part of the dividend declared March 14, 1901, that was paid to appellant as one of the five stockholders. The descriptive part of the indictment is in these words: “That the said A. P. Taylor on the third day of May, 1902, in the
We are of the opinion that but one offense was charged, that is the taking of a certain $500 in one fund and at one time. Its ownership was not material, further than that it must be charged and shown to have belonged either to the corporation of which appellant was an officer or agent, or to some person who had entrusted .its possession to that corporation. Section 12S, Cr. Code, appears to us to control this question. It reads: “If am offense involves the commission of, or an attempt to commit an. injury to person or property, or the taking of property, and be described in other respects with sufficient certainty to identify the act, an erroneous allegation as to the person injured or attempted to be injured, or as to the owner of the property taken or injured or attempted to be injured, is mot material.” This court has uniformly held that where the act within this section is particularly and sufficiently described, so that it may be identified as the one which the accused is called upon to answer, whether the owner of the property taken or inujred is correctly named is immaterial. McBride v. Com., 13 Bush, 337; Johnson v. Com., 87 Ky. 189, 10 R. 100, 7 S. W. 927; Olive v. Com., 5 Bush, 376; Hennessy v. Com., 88 Ky. 301, 10 R. 823, 11 S. W. 13. Under the section of the statute quoted, the distinguishing features of the crime of embezzlement are that the official should have come into possession of the property converted by reason of the confidence and trust reposed in. him by virtue of his position, and that he should have converted such property fraudulently; in other words, it is to punish fraudulent breaches of trust when committed by such persons. The indictment contains all necessary averments showing the com
The learned circuit judge, In the exercise of extreme caution, restricted the evidence to rather narrow bounds, as affecting both the prosecution and the defense. Without noticing each feature of it in detail, we will state the principles which, in our opinion, should control the investigation. The argument is presented for appellant that in view of the fact that all the stockholders and directors of the corporation (there being but five of them) concurred in the act of declaring the dividends and in the wrongful appropriation of the money, if it was wrongfully done, a peremptory instruction in behalf of the appellant should have been given to the jury. This argument is predicated upon the theory that the corporation is in fact, and after all, merely- the aggregation of its stockholders, that the stockholders are the actual, or at least the beneficial, owners of its assets; and that it is impossible in law for one to steal his1 .own property. The argument denies the existence of the corporation as a separate legal entity. In a somewhat different form, but no less persuasive in its logical application, this argument has been variously made before. For example, it was once held that a corporation, being an intangible, soulless, fictitious creation, a mere legal and commercial convenience, could not be guilty of negligence, or, indeed, of any tort. Especially was it held that it could not commit willful wrongs involving moral turpitude, such as libel and the like, because it could not have the malicious intent, the wicked mind, whose presence was an essential ingredient to the offense-. Thompson Corp. §§ 6275-6321, 6299, and cases there collated. It was once argued, and in conformity held, that neither could a corporation be guilty of infractions of the statutes and criminal laws, for the same reasons. In
The inquiry in this case, therefore, should have been, first, to learn whether the corporation had 'assets on May 14,1901, which might be lawfully used in paying dividends; that is, a surplus in fact, whether or not in name. If it had, then the motive of the directors in this case in paying the dividend is immaterial. If it had not, the question of motive becomes important and controlling. If the directors be
We find a case very like the one: at bar, in principle, in Reeves v. State (Ala.) 11 South. 158 There, as here, the official came into possession and control of the fund converted, by virtue of his office, and the trust reposed in him by reason of it. Reeves and the other officers of the corporation, under the guise of a legal act, committed a fraud by which they misappropriated the funds of the corporation. We quote from that opinion: “But we do not question that the statute may .be violated by fraudulent transactions under the guise of loans, made with full knowledge of the managing officers or agents of the bank. The distinction is between the making of mere irregular, unsafe, or reckless loans of the bank’s money, which would amount to maladministration only, and pretended loans, made in bad faith, for personal advantage, and with fraudulent intent, the pretended borrower being an officer, agent, clerk, or servant, having control and custody of money of the bank by virtue of his office or employment, which control and custody is shared by those making the pretended fraudulent loan, and who participate in the fraudulent purpose of the pretended
To determine whether the company wa® solvent on May 14, 1901, proof of its resources and assets, their solvency and security, should have been allowed, as. well as of the course and nature of its business and the extent of its liabilities. In this connection, proof of the declaration and payment of the other dividends and sums to the directors and.stockholders about the same time, including the transfer to the Germania Company, when the Industrial Mutual Deposit Company sold out to it, and the actual condition of the company at these dates, should have been allowed, as showing or tending to show the motive of the directors, including appellant, in declaring the dividend May 14, 1901. All"the transactions of the stockholders to which appellant was a party, in the way of buying coupons in the names of various syndicates, and borrowing the money of the corporation for that purpose on the security of the coupons, should have-been allowed for the same purpose. The jury should be
As appellant could not have alone voted and declared the dividends in question, and therefore could not by such ¡vote or act have taken or converted the money charged, it is essential/ to constitute his guilt, that all directors, or at least a majority of them voting in the affirmative, including appellant, if he voted or participated in the act, must-have acted in declaring and paying the dividend, and appellant also in receiving it, with the knowledge that their act was illegal, that there were no such funds- belonging to the corporation subject to that purpose, and that they each acted with the fraudulent purpose of converting to their own use, and to the use of each other respectively, the money of the corporation. For if the directors other than the appellant, through an honest belief in their right to- do so, voted the dividend, although it could not have been legally done, thfe act was merely maladministration; it was- not criminal; and, as the act of voting the dividend was the- one- by which that money was set apart to the stockholders, the knowledge or purpose of appellant in receiving it can not alone make him guilty. United States v. Britton, 108 U. S. 193, 2 Sup. Ct. 526, 27 L. Ed. 701; Id., 108 U. S. 199, 2 Sup. Ct. 531, 27 L. Ed. 698; U. S. v. Harper (C. C.) 33 Fed. 471; U. S. v. Yout
Appellant offered to prove, by officers of other investment companies doing business at Lexington, that they had construed similar provisions in their charters as giving the “surplus” and “expense” funds absolutely to the stockholders. This evidence was offered to prove a custom, it is said, as justifying appellant’s like belief and construction. The trial judge, we think properly, refused to permit the testimony. As a matter of law, we decide that the company, had not the right to appropriate these funds to themselves if the company was insolvent, or if such appropriation made it so. The belief or conduct of other people could not affect the matter. Appellant’s belief and that of his co-direetors, in acting in this case, was relevant, and was properly admitted. It was likewise proper that they should have been permitted to state the foundation of their belief— whether it was based upon advice of counsel, or their experience in other similar concerns, or whatever it may have been.
It is insisted for appellant that the Legislature has by statute, by sections 548, 550, Ky. St. 1899, fixed the whole responsibility of directors for wrongfully declaring dividends, and that they can not be otherwise punished for that, act. Section 548, Ky. St. 1899, makes the directors of a corporation liable for all its debts if they should pay any dividends to stockholders while it is insolvent, or that would make it insolvent. This is a civil liability only, and does not
The instructions to the jury did not submit the question of the fraudulent action of appellant’s co-d‘irectoi*s in declaring and paying the dividend. That was error, as is pointed out above.
The instructions permitted a conviction if appellant appropriated the money of the corporation “without right and fraudulently.” The court failed to define to the jury what were the limitations of this “right” and the meaning of “fraudulent,” thus making the jury judges of the law as well as of the facts. This was error. The jury should have been instructed that the directors had the right to declare the dividend in the event that the assets of the company remaining were sufficient to pay its liabilities, including those to the holders of outstanding membership certificates; that the directors had the right to reimburse themselves1 from the “'expense fund” any sums actually advanced or paid out of their own money by them on behalf of the company to procure or extend its business; but the declaration and payment
In defining “fraudulent conversion” and “fraudulent intent,” as used in the instructions, the court should have told the jury that “in this case by fraudulent conversion is meant the deceitful, intentional appropriation, of the property of the corporation, without right and without a belief of right as defined in these instructions; and a fraudulent intent is the intent to effect such appropriations.”
The instructions, in all other particulars, in our opinion, fairly present the law of the case.
The judgment is reversed, and cause remanaed, with directions to set aside the judgment and verdict, and to award appellant a new trial under proceedings not inconsistent herewith.
