Kaufman v. Liss

Markell, J., delivered the opinion of the Court. This in an appeal from an order overruling a demurrer to the bill. The bill, filed by receivers for a corporation (plaintiffs, appellees), purports to seek recovery of money “improperly and illegally paid” to the defendant ⁶³⁶ (appellant), a director. The question presented is whether the bill states facts which would entitle the plaintiffs to relief.

The bill, filed July 3, 1942, alleges in substance that: On July 3, 1942, by orders of the lower court, plaintiffs were appointed receivers for Chesapeake Liquidating Corporation and were authorized to file this bill. Defendant associated himself with Herbert Kaufman, one Friedman and one Losinsky to purchase the remaining assets of the Chesapeake Bank. “Pursuant to said agreement” these four purchased the assets of the Bank, and Chesapeake Liquidating Corporation was formed to take them over. Before the formation of the corporation it was agreed “between the parties” that all of them were to pool their efforts for the collection of the assets purchased, and that any profits realized were to be equally divided between them. Examination of the books, records and business methods of the corporation reveal that although it “is in form a corporation,” its business was always operated as if it were a partnership, “as evidenced” by the Income Tax returns filed by the corporation as a partnership return, and by the facts that the funds of the corporation were deposited as partnership funds in the name of two of the “members of the association,” that there was no “stock issued” by the corporation, and no minutes were kept of meetings “except in a few isolated instances”; and as a result of these and other facts (to be produced at the hearing) plaintiffs believe and therefore aver that though the corporation “is a corporation in name,” it was and is “an equal co-partnership” between the four parties.

At the time the charter was issued and since, “there was no agreement as to payment of fee or charges by any member of the association other than that each of the parties was to receive an equal distributive share of the profits realized.” On October 15,1941, defendant presented to “an alleged Board of Directors of the corporation,” consisting of defendant, Friedman and Losinsky, a bill for $3,000 “for alleged services rendered.” At the same time Friedman ⁶³⁷ presented a bill for $1,000 for services alleged to have been rendered by him. The alleged Board, without the consent and knowledge of Herbert Kaufman, “one of the parties in interest,” thereupon illegally and improperly authorized payment of the bills presented by defendant and Friedman and defendant and Friedman executed checks to themselves for $3,000 and $1,000 respectively, drawn on the funds of the corporation. Plaintiffs have made demands upon defendant for the return of the money received by him, but he has refused. The sum of $3,000 received by defendant “was improperly and illegally paid” because [1] the said sum “was not due for services rendered,” [2] the alleged board of directors did not have authority to authorize the payment, [3] the corporation was operated as, and is in fact, a partnership and [4] said withdrawal of funds by