RESCISSION - CONSTRUCTIVE TRUSTS - TRACING MISAPPROPRIATED FUNDS

Authors

Eugene T. Kinder, University of Michigan Law School

Abstract

Defendant, president of plaintiff corporation, misappropriated over $1,000,000 in corporate funds, investing $79,000 thereof in government bonds. With the proceeds from these bonds, defendant set up two corporations, all the capital stock of which was owned by defendant's son and was purchased with plaintiff's money. One Greenslade was hired by defendant, and paid with a part of the misappropriated funds, to experiment with locomotive staybolt testing devices. As a result of the experimentation, Greenslade invented and patented several devices, transferring ownership thereof to one of the two corporations. In a prior action, brought without knowledge of the disposition of the funds, plaintiff recovered a personal judgment against defendant for the amount of the misappropriation. After satisfaction of this judgment to the extent of $4,500 only and a discovery of the above investments, plaintiff brought an action to impose a constructive trust on the patents and inventions. Held, plaintiff was entitled to the patents and inventions on the ground that defendant was a trustee ex maleftcio of the misappropriated funds and all the assets of the two corporations were "but the fruit of the proceeds of the trust funds." Flannery v. Flannery Bolt Co., (C. C. A. 3d, 1939) 108 F. (2d) 531.

Recommended Citation

Eugene T. Kinder, RESCISSION - CONSTRUCTIVE TRUSTS - TRACING MISAPPROPRIATED FUNDS, 39 Mich. L. Rev. 340 (1940).
Available at: https://repository.law.umich.edu/mlr/vol39/iss2/24