Court Opinion

ID: 6992199
Source: CourtListenerOpinion
Date Created: 2022-07-24 03:26:55.384077+00
Date Added: 2024-06-11T16:09:39.152887
License: Public Domain

Lacey, J. The main point urged by appellants for reversal is as follows, to wit: Because the original plan of reorganization was contrary to the law and void; because the original plan of reorganization long prior to the year 1881 had been abandoned with the knowledge and consent of appellee; because the conveyance from Cushman to the I. I. & I. R. R. Co. was made with the knowledge and consent of the appellee ; that appellee had agreed to put in his bonds on the same basis as the appellant Harvey; because the charge of fraud made in the bill against appellants in making the sale was not sustained; because appellee agreed to and requested, in case of sale of the P., K. & P. road, that he should have from the purchasers just what the other bondholders would get; because the court erred in permitting the appellee to elect to abide by the sale in part and disaffirm it as to the consideration received for the property; because the demand made for the bonds was made after the fixing of the original and amended bills, and the sale and transfer of the road to the I., I. & I. R. R. Co. took place before the filing of those bills; because the relief granted could not be had under the prayer for general relief. We will consider these objections in the order named. And first, we do not regard the plan of reorganization void under our constitution. ' The question appears to be settled by the Supreme Court in the case of P. & S. S. R. R. Co. v. Thompson, 103 Ill. 187. In that opinion the court gave construction to the provision of the constitution which provides that “Bo railroad corporation shall issue any stock or bonds except for money, labor or property actually received and applied to the purpose for which such corporation was created,” and that “all stocks, dividends and other fictitious increase of the capital stock or indebtedness of such corporation shall be void.” And it was there held, in substance, that the bonds may be sold by the railroad company for money to build a road or effectuate other lawful objects, and that railroad companies have a right to dispose of their bonds for a present consideration and for a corporate purpose, and, in such case, if the railroad company should subsequently divert the proceeds of the bonds to other than corporate purposes, the purchaser of such stock or bonds who has acted in good faith in the matter can not be affected by the subsequent misappropriation of the company. We find no proof in this case, under this view of the law, that would render void the appellee’s bonds; besides it comes with bad grace from the appellant Harvey, who has received §150,000 for bonds similarly issued and partly in consideration of appellee’s bonds, to make such a point against appellee. He has received value for appellee’s bonds and should respond to him for the amount. As to the point that the original plan of organization had been abandoned, we can only say that while that may be so in one sense, yet as long as appellant Gush man held the title to the original railroad property, purchased in as the trustee of appellee, who was to have a certain share in it proportioned to the bonds he held, the appellant could not be heard afterward to say that the appellee had no interest in the property, and sell it for the benefit of Harvey and himself, and, in fact, in all his transactions and dealings with the trust property, up to the time of the sale in July, 1881, he never attempted to repudiate in his correspondence with appellee the interest that appellee had in it. As to the contention of appellants that the appellee knew of the intended conveyance to the 1.1. & I. R. R. Co. in July, 1881, and gave his consent to it, and agreed to put in his bonds on the same basis as Harvey, we think it is not sustained by the proof. We think, clearly, that so far from the complainant having knowledge of it, the appellants took great pains to conceal the fact of the sale and the terms of it from appellee. And this brings up the question as to whether the appellants acted fraudulently in making the sale complained of, and we think of this fact there can be but little doubt. It appears quite clear that Harvey, who was the holder of two hundred and fifty of the bonds, intended, when he made the purchase from Cushman of the property in question, for the benefit of a railroad company tobe organized, and with whom the Western Air Line Construction Co. was to make a contract for construction, in which construction company he was chief stockholder, procured by the sale of the property held by Cushman, to appropriate the whole benefit and profits arising from the completion of the road to his own individual use, to the entire exclusion of appellee. And it further appears that Cushman was well aware of this intention and was aiding and abetting Harvey in carrying it out. It further appears from the contract of indemnity taken by Cushman from Harvey and others, and other proof, that it was the intention to compel appellee to accept §50 on the thousand for the bonds which he held. The letters received from Cushman and Harvey by appellee after the contract for the sale of the road had been made in New York, in 1881, made misleading and fraudulent statements in concealing the fact of the proposed sale; and for a long time afterward the sale was concealed from appellee, showing, as we think, conclusively, that there was no honest intention on the part of the appellants to give the appellee the benefits of the sale. Nor is it a sufficient excuse for appellants to claim as a reason for concealing the sale from appellee, that he was engaged in building a rival line. Even if the proof showed that appellee would have been hostile to the proposed sale, which we do not think it does, certainly after it had been accomplished, and the deed made out, there could have been no further excuse for any further secretion and tortious conduct on the part of appellants. It is claimed that appellee requested the sale of the P., K. & P. road, and that he should have from the purchasers only what the other bondholders would get. If this were so, it could in nowise excuse appellants from fraudulently selling the road and converting the proceeds to their own use We do not understand that the appellee, in taking his decree in this case, must affirm the sale, so as to compel him to take the stock in the Western Air Line Co. He is proceeding to recover on a different ground, that of the fraudulent conversion of his property. Nor was it necessary to make any demand for bonds; and the fact that he did make a demand at one time did not deprive him of his other legal remedies. The last point raised by the appellants is, that the allegations in appellee’s bill, to authorize him to receive a money decree under the prayer of general relief, are not sufficient. We think there are sufficient allegations in the amended bill upon which to base such decree. It was charged in the amended bill that the appellants conspired to and sold the property, which, the proof shows, cost $750,000, and conveyed it away to the I., I. & I. R. R. Co. and Spies, Holt and Comstock, and the evidence shows appellant Harvey received money, stock and bonds, and property consideration for the sale, which he kept and used, and converted the same to his own use. A cestui que trust is entitled to the value of the property taken by trustee or converted to his own use, or by others, from the trustee, with knowledge of the trust. G. S. & S. R. R. Co. v. Kelly, 77 Ill. 435. It is claimed that the evidence does not show that the value of the property sold by appellant Cushman was $150,000. We think the evidence was abundant to show that it was worth that amount. Appellant Harvey purchased it of Cushman and put it into the Air Line Construction Co., at a valuation of $150,000, and took stock in payment in that company for the amount. The entire amount of the stock- of the Air Line Co. was $1,000,000, and the other stockholders of the company put in cash to the amount of $850,000, and the amount of the work done on the road sold and the money expended was $750,000. We think that appellant Harvey, allowing for all losses and depreciation in the work dome, and money expended on the old road, and from the fact that $850,000 in cash was put into the 'enterprise by other parties, and the stock of the company taken at par, had a right to believe that his stock was also worth par, and since he converted it to his own use we think he ought to be compelled to account to others interested in it for the stock at par, he having accepted it as cash. And the fact, if it be a fact, that it afterward turned out to be of less value, could not be set up as an excuse for not accounting for it at par. The rights of appellee should be fixed at the time of the conversion and not by what afterward happened. Harvey claims the stock has been worthless for some time,' but a hundred and thirteen miles of the road have been completed and dividends earned, and the Air Line Co. has finished its enterprise, divided profits, and it is quite natural that the stock would now be worthless. The evidence does not inform ns on these points. The appellants failed to produce any evidence to show that they did not receive $150,000 on account of the Air Line stock. As Harvey took the Air Line stock for $150,000 on his own account at par and fraudulently converted it, we think, under the circumstances, he should be debarred from denying that it was not worth what he took it at. A point is made that Cushman is not jointly liable with appellant Harvey. - We think clearly he is. He was an aider and abetter in the transaction, violated his trust and engaged in a fraudulent conspiracy to wrong appellee, and besides took an indemnifying bond from Harvey to save and keep himself harmless from any damage that might occur to him on account of violating his trust to other stockholders not considered in the sale. The court below, as we think, did not err in allowing the 84,000 paid by Harvey to extinguish the Hichols title acquired under foreclosure proceedings of a mechanic’s lien. This was brought in for the benefit of the whole title and the appellee should stand his share of the expense. Appellant Cushman was not entitled to any allowance for costs and expense's, he having violated his trust. Seeing no error in the record of the court below the decree is affirmed. Decree affirmed.