Court Opinion

ID: 7006308
Source: CourtListenerOpinion
Date Created: 2022-07-24 03:51:03.887061+00
Date Added: 2024-06-11T16:10:02.919730
License: Public Domain

Mr. Justice Freeman delivered the opinion of the court. The agreement upon which the controversy in this case arises is stated by appellant’s counsel to be “stripped of all immaterial incidents * * * in substance as follows: “ ‘Appellant had subscribed for all the stock of the corporation. Hone of the stock had been issued. He agTeed with certain of the appellees (who were acting for themselves and all future purchasers of the stock of the corporation) that he would, and did, release all his right to any of the stock subscribed for by him, except ten shares, and further agreed with said certain number of appellees that the coiporation should issue to each of them'ten shares at par, and to such other persons respectively as the board of directors might thereafter permit to become stockholders of said corporation, in lots of ten shares each, and at not less than par, and as much more as the directors should determine from time to time until the entire capital stock of said corporation should be thus issued; and that, in the meantime, the subscribed and unissued stock should continue to stand in the name of appellant. Ho time was liked during which this agreement should remain in force, except that it should continue until all of the" subscribed stock should have been issued.’ ” Appellant Hladovee was an original subscriber to two-thirds of the stock of the Josef Hladovee Brewing Company organized in 1891, and he subsequently acquired the rights of the other two subscribers. That corporation began business, but evidently the business was not successful, for it was shortly thereafter abandoned and the plant disposed of, Whether or not the capital or any of it was paid in does not clearly appear. It is said that the corporation acquired a brewery plant ¿nd carried on the business of manufacturing and selling beer, “with means provided by the said Josef Hladovee.” How this “means” was provided, whether by a loan from Hladovee to the corporation or by payment into the treasury of the company in whole or in part of the amount subscribed by Hladovec and two fellow subscribers, does not appear. ¡Nor does it clearly appear whether certificates of stock were or were not then issued.» The bill alleges that Hladovec subsequently released his rights as an original subscriber and does not in terms state that any of the stock of the company under the original corporate name was issued. At the time, however, when the agreement in controversy was made, the company had gone out of business. Its charter seems to have been its only asset. When Hladovec with others formed the plan of organizing a new corporation, the stockholders of which should all be retail dealers in beer, the purpose being primarily to manufacture for themselves the beer for their own retail trade, the old corporation and its charter had no place in their plans or purposes. It was after the essential features of the plan had been formulated that Hladovec himself suggested the existence of the old charter and offered and agreed to eliminate all his interest of every name and nature and that of the other original subscribers growing out of their subscriptions to the capital stock. It would appear that this interest was merely nominal at best. The corporation had no assets, no business. As a going corporation it was defunct. According to the bill, appellant agreed to release to his new associates and stockholders and did release to them all rights to any of the stock subscribed for by him or any one else prior to that time, except the ten shares which by. the agreement he was to receive and hold on the same terms and conditions as other incoming stockholders. He authorized and empowered the directors elected by the new stockholders, himself included, absolutely to control thereafter the issue by the corporation of all the capital stock to such persons as they might deem proper to admit as stockholders, in lots of ten shares each at not less than par and as much more as the directors might from time to time determine. This power the directors were to exercise until the entire capital stock of the corporation should be thus issued. This contract was made with certain of the appellees “acting for themselves and all future purchasers of the stock.” Under that contract all the present stockholders including Hladovec himself acquired the ten shares of stock which each of them holds. For three years, as a stockholder and as a director, appellant Hladovec acquiesced in and ratified this agreement in every way. Meanwhile the corporation which under his former management had been a failure became under the new regime a remarkable success. Its stock doubled in value. More than half of it had been sold and the money received therefor, $88,500, was paid with his full concurrence into the treasury of the association. After all this he now discovers that the agreement under which all the parties have acted was illegal and that it is his duty to claim for himself the 720 shares of stock remaining unsold, worthless at the time he made the agreement, now valued at more than twice their full par value, that ‘is more than $144,000. He demands that these undisposed of shares shall be issued to him upon his paying their par value of $72,000. The ground of this claim is that he is personally liable to the corporation or its creditors for the amount of his original subscriptions to the unissued stock. He asks now to be allowed to repudiate his own agreement, that he may possess himself of a small fortune, to which in equity and good conscience he has no more claim than at least seventy-eight other stockholders. The first of the alleged legal grounds upon which appellant’s counsel urges that the decree against him should be reversed is that the effect of the agreement between appellant and the forty-one other persons who constituted with him the first stockholders under the reorganization, was to release appellant from his liability to the corporation on his original subscription and to relieve the corporation from obligation to issue such stock to him or his assigns. It is said that such agreement to release appellant from stock liability is illegal and void. We do not understand the agreement to have had such effect any more than in case of any sale or transfer of unpaid stock. It is doubtless true as argued by appellant’s counsel that the subscriber to capital stock of a corporation is liable to the corporation for the amount of such subscription and that such liability may be enforced for the benefit of stockholders. The express agreement here was, however, as appellant’s counsel states, that “until the entire capital stock of said corporation should be thus issued, * * * the subscribed and unissued stock should continue to stand in the name of appellant.” But the effect of the agreement was that while the unissued stock was to stand nominally in appellant, he held it thereafter in trust for the other stockholders and as the agreement provides under the control of the directors of the corporation. While as to the corporation, his liability as a subscriber for unpaid stock continúes under the statute (R. S. chap. 32, sec. 8) he shares such liability with the other stockholders whose trustee he has become. His agreement with the other stockholders expressly provides that the management of the trust fund consisting of the unissued shares shall be in the directors of the corporation, and this control appears to have been exercised as agreed upon. By the agreement appellant in effect made an equitable assignment and transfer of the unissued stock to the other parties to the agreement, the nominal right only as original subscriber remaining in appellant. His liability and that of the stockholders was and is we think the joint liability imposed by statute on original subscribers to capital stock not fully paid which has been transferred to a subsequent holder, —both parties remain liable until the stock is paid for. (R. S. chap. 32, sec. 8 supra.) The agreement thus made, acted upon and ratified by all the parties thereto, is binding upon all alike. Neither the directors nor the corporation itself were parties to the agreement, and while apparently the directors have issued stock when called upon as the agreement provides, they have not undertaken to release appellant or anyone else from statutory liability, under the subscription. It is doubtless true as appellant’s counsel asserts that “a corporation has no legal capacity to release an original subscriber to its capital stock from payment to it in whole or in part, and that any arrangement with him by which the company, its creditors or stockholders, shall lose any part of that subscription is ultra vires and a fraud upon creditors and the co-subscribers.” Morgan v. Struthers, 131 U. S., 246-254; Coleman v. Howe, 154 Ill., 458-467. In the case at bar no such arrangement has been made. We do not agree with counsel that the agreement is an option agreement nor that it would be void as such. See Kantzler v. Bensinger, 214 Ill., 589—596. Under the facts in the case at bar McNulta v. Corn Belt Bank, 164 Ill., 427, cited by appellant’s counsel, is not in point. Bor do we concur in appellant’s contention that the agreement is not binding upon appellant equally with the other stockholders, for want of consideration. The obligations and benefits were mutual and furnished to each party a consideratipn for the agreements of the other. Finally it is argued the agreement is not obligatory because it fixes no time within which the unissued shares shall be sold or disposed of, because the ownership by any one person is limited to a fixed number of shares, and because the corporation it is said “remains meanwhile in substantial ownership of its subscription to its own stock.” We find no difficulty such as counsel seems to discover. If the corporation should need the money and demand that the unissued stock be paid for and taken, such demand will probably be made upon appellant and the other stockholders for whom he holds in trust the rights of a subscriber. While it is true that as between themselves the stockholders have agreed that the stock in controversy shall be issued in lots of ten shares at par, the corporation is not a parly to such agreement nor so far as we can discover bound by it. Beither does the corporation own the shares in dispute. The agreement does not purport to limit in any way the transfer of the stock after it has once been issued to and held by any stockholder. If it did, and was as appellant contends unlawful in that it sought to limit the ownership of the number of shares of stock to be held by any one person, appellant would thereby gain no additional rights to the stock in controversy. We need not follow counsel in argument relating to matters not properly pertaining to the actual controversy here involved. The main purpose of the bill is to restrain appellant from asserting at law or otherwise his alleged claim to have the remaining unissued 120 shares of stock issued to himself or for his benefit. The injunction properly restrains him in this respect. The decree is correct also apparently in its findings as to T'opinka and Hodek. It is evident, however, from what has been said, that it is erroneous in finding that appellant has no interest in the stock which' he holds as trustee nor any interest other than to the ten shares actually issued and standing in his name. He has the same interest in the unissued stock as the other individual stockholders, no more and no less. So far also as the decree undertakes to release and discharge appellant from liability to the corporation or any person claiming by, through or under it on account of his subscriptions to the capital stock, which remain unpaid, or relieves him from the statutory liability, imposed upon a subscriber in common with those to whom he has transferred his beneficial interest, to the extent of the amount that may be unpaid, it is likewise erroneous. The decree of the 'Circuit Court will therefore be reversed and the cause remanded with directions to enter a new decree in conformity with this opinion. Reversed and remanded with directions.