Weber v. State , 190 Wis. 257 ( 1926 )

Doerfler, J.

The defendant is charged in the information with embezzlement of $2,000 on November 4, 1922, being the amount paid to the company on that date, upon the theory that this sum was paid to the company, and that Weber, as secretary and treasurer of the company, received it, deposited it to the credit of the company on its open checking account in a Sheboygan bank, and that thereafter he caused it to be checked out for the benefit of the company in the regular course of its business.

Weber at the time of the trial was twenty-seven years of age. He first became connected with the company in 1916, and was employed as a stenographer and as office help. In recognition of his ability and industry he was promoted from time to time, and in March, 1922, became the secretary and treasurer of the company, having special charge of the loaning and investment business. For his services as such secretary and treasurer he was paid a salary of $150 per month, and with the exception of such salary his interest in the business was merely nominal: His reputation, as disclosed by numerous prominent business men from Sheboygan who testified as character witnesses, was beyond reproach, and this reputation so established was not assailed' or deprecated by an iota of testimony of the State. In November, 1922, he was an officer of the company, but' while he held the office of sécretary and treasurer he acted moré in the capacity óf a salaried employee. Ordinarily, an officer of such high rank in a corporation is the owner óf a substantial amount of 'the stock of the same. It was not so with the defendant. But, whether acting as officer or as employee, his services belonged to the company, and to it alone he was bound to be loyal.

Sec. 4418 of the Statutes is known as the embezzlement statute, and in its broad and comprehensive language covers substantially the entire field of embezzlement. Embezzlement was not known to the common law, and the crime is of statutory origin. As defined in statutes generally, and particularly by sec. 4418 of our Statutes, it involves a violation of a trust or fiduciary relationship. On November 4, 1922, the defendant, as an officer of the company, under the provisions of the statutes, occupied a position of trust in the company, and as to the company he was a fiduciary. Any fraudulent misappropriation of the assets of the company, either for his own benefit or for the benefit of others, would constitute an embezzlement. The defendant occupied no fiduciary relationship to Failley and was not the agent of the latter. Had he acted as the agent of Failley, such act might be incompatible with the duty that he owed the company. This was recognized by both Prescott and Failley, for when the agreement of November 4, 1922, was executed it was not signed by Weber individually, but by the company through Weber as its secretary and treasurer. If an agency was created at that time the company was constituted the agent, and not the defendant. No motive existed for the conversion of Failley’s money to the benefit of the company, for the reason that the only interest the defendant had in the company consisted in the monthly salary that was paid him. Under these facts and circumstances it is difficult to perceive how the defendant could be held to have violated a trust relationship to Failley wffiich under the provisions of sec. 4418 of. the Statutes would constitute embezzlement.

The defendant was not charged in the information, nor was he convicted by the jury, of embezzling the property of the company, but on the contrary of embezzling the property of Failley for the benefit of the company. Counsel for the respective parties have not brought to our attention a single case where a defendant was charged and convicted of embezzlement under circumstances similar to those appertaining to the instant case, and a careful review of the authorities has revealed none to us. By far the vast majority of transactions in modern times are performed through the instrumentality of agents, and this is especially and necessarily so in business transacted by corporations; and yet, when we consider that an embezzlement statute substantially like our own has been enacted in nearly every state of the Union, it is, to say the least, remarkable that no case similar to the one before us has been cited. The State has not even referred to or commented upon, in its brief or argument, the case of Milbrath v. State, 138 Wis. 354, 120 N. W. 252, which bears some slight similarity in its facts to the instant case, and which is cited with approval in many of the text and reference books. The Milbrath Case has become one of the leading cases in the country, and the able and exhaustive opinion of the court, written by that profound jurist, Mr. Justice Timlin, has extended the liability of an officer of a corporation to a greater extent than appears in any reported case coming to our notice. But the law laid down and established in the Milbrath Case is based upon the peculiar facts involved therein. We do not recede one iota from the law as pronounced in that opinion, for in that case the writer of the opinion interpreted the spirit of the law, and went beyond mere matters of form.

In' the Milbrath Case, Milbrath was the owner of $24,000 of the capital stock of the company, and his codefendant, Wagnei, owned $6,000 of the stock. When the mortgage debtor, Kafura, paid his debt to Wagner in the presence of Milbrath, the liabilities of the corporation largely exceeded its assets, and that condition continued down to the bankruptcy. At this time Milbrath had overdrawn his account with the corporation to the amount of $31,000, 'while Wagner’s account was overdrawn to the extent of $10,000. The money received from Kafura was put into the cash drawer and mingled with other money of the corporation, and the corporation had the use of the money. The mortgage creditor was not informed that her debtor had paid the mortgage which she held, but in order to allay suspicion the company continued for years to pay her the interest, as though the mortgage was still outstanding and unpaid. Based on this statement of facts the court uses this language:

“If the defendant and Wagner chose to make this insolvent corporation, in which they were the solé and controlling stockholders and of which they were officers, the repository of trust funds collected by them, it had no other effect in the law than if they delivered such funds into the possession of any trustee or subordinate employee controlled by them, whose possession must be deemed their possession and whose acquisition must be deemed their acquisition. The corporation is in such case a mere instrumentality through and by means of which the natural persons in control thereof carry out their acts.”

In speaking of the money of the creditor paid into the corporation the opinion continues':

“It is paid into that which is a mere instrumentality created by him under sanction of law, but as much under his control and as subservient to his will as the furniture of his office or the books of account in which he records his transactions. Under such circumstances there is no room for the legal fiction of separate corporate personality or for distinction between the defendant’s acts as officer of the corporation arid his acts as an independent natural person.”

The distinction between the facts in the Milbrath Case and the instant case is apparent and need be the subject of but little comment. In the Milbrath Case, Milbrath was to all intents and purposes the corporation. He held the controlling stock. He dictated the board of directors. He controlled the meeting of stockholders. He was in all respects, in theory, the corporation itself, and he dealt with the corporation in a manner as though he were the individual owner of all of the assets. He looted the assets of the corporation as though they belonged to him individually. He received the money from the mortgage debtor at a time when the corporation was insolvent, well knowing of such insolvency, and he appropriated the proceeds to the individual purposes of the corporation, which were his own purposes. Knowing that the corporation was insolvent when he received the proceeds of the mortgage, he mingled the same with the moneys of the corporation, and withdrew the moneys to advance his own individual ends. Under such conditions it is said in the opinion that he became a trustee for the creditor.

In the instant case, Weber, as a stockholder, had but a nominal interest in the corporation. He did not control the corporation or the board of directors. Misappropriation of the moneys derived from Failley did not advance his personal interests. While an officer in name, he served the corporation in fact as a mere employee. In the instant case there is not even an intimation in the record that the company was insolvent when it received the $2,000 from Failley. It was a going concern, and not only met, in due course of business, the claims of its creditors, but had advanced thousands of dollars to local investors in Western mortgages negotiated by it, for the payment of defaulted interest. It held and maintained the confidence of the general public; besides, there is no evidence in the case to show that the defendant had overdrawn his account for even a penny. Under these circumstances it is difficult for us to conceive how the defendant could in law be guilty of embezzlement under the provisions of sec. 4418 of the Statutes.

We have gone over the record in this case thoroughly and considered it carefully. Aside from what has been heretofore said, even assuming that the act charged and complained of could in law constitute an embezzlement, nevertheless the agreement above set forth and the testimony of Prescott are so involved in entanglements and uncertainties as to create in our minds more than a robust, reasonable doubt of the guilt of the defendant.

We could devote many pages in extending this opinion, upon the misconceptions of Mr. Prescott as shown by his testimony, but no useful purpose will be served thereby. We will content ourselves by expressing the conclusion that the motion of the defendant at the close of his testimony, for his discharge, should have been granted.

By the Court. — The judgment and sentence of the lower court is reversed, and the cause is remanded with directions to discharge the defendant.

Vinje, C. J., dissents.