Court Opinion

ID: 9745459
Source: CourtListenerOpinion
Date Created: 2023-08-26 22:58:55.831806+00
Date Added: 2024-06-11T07:25:01.222915
License: Public Domain

MR. JUSTICE ENGLISH, dissenting: I believe tbe chancellor’s decree regarding ownership of the 276 shares of Chillo Corporation should be reversed and Mackie should be declared to be their owner. It should be borne in mind that plaintiff has the burden of proving that there was no consideration for the issuance of the Mackie shares. In this, plaintiff has failed in two ways: no witness testified that Mackie performed no services for the corporation; while, on the other hand, there is testimony throughout the record that Mackie actually did render such services. Mackie was an officer and director of the corporation during the entire period in question except for about six months when he was in the army. While the real estate owned by the corporation was actively managed by others, Mackie assisted in the negotiation of some leases; was present during negotiation of other leases; consulted with the building managers in regard to the negotiation of still other leases; executed leases on behalf of the corporation; attended, and during some years presided at, meetings of the board of directors; consulted and advised with the managers of the properties concerning repairs; arranged and did all preliminary work in the selling of electric current to the tenants of both properties, which resulted in an income increase in excess of $2,500 per year; at the outset of this arrangement, Mackie handled the billing of electricity to the tenants for several months before turning it over to Mintz and Lurie, and, after that, reviewed the electric account from time to time. Mackie audited the Lurie records submitted to Chillo Corporation, which had no auditor other than Mackie; he also made an internal check of the Mintz figures which were audited independently; Mackie was consulted with respect to loans made by Chillo and at various times handled such loans on behalf of the corporation; he made or directed entries in the books of tbe corporation; he prepared tbe corporation’s income tax returns during* tbe entire period in question, and consulted with plaintiff in regard to them until tbis suit was filed in 1944. As secretary-treasurer from 1936 to 1942, as president from 1944 to 1946, and as secretary after 1946, Mackie’s signature appears numerous times in tbe corporation’s minute book. In bis individual income tax returns throughout tbe period in question, Mackie declared tbe value of tbe shares as income received by bim. In each of tbe years 1936 through 1945, tbe Cbillo board of directors adopted a resolution directing tbat Mackie be paid a specified sum of money for bis services rendered during* tbat year. Tbe amounts ranged from $2,000 to $4,000, and averaged less than $3,000. Tbe compensation thus authorized was paid to Mackie each year by tbe issuance to bim of Cbillo stock at par value, representing, in tbe aggregate, tbe 276 shares which are tbe subject of tbis dispute. Thus, both tbe minute book and tbe stock record book of tbe corporation indicate tbat tbe shares were issued to Mackie at full par value for tbe amounts each year declared by tbe board of directors to have been the value of bis services. Section 18 of tbe Business Corporation Act therefore becomes pertinent. (Ill Rev Stats, c 32, § 157.18.) It reads in part as follows: Tbe consideration for tbe issuance of shares may be paid, in whole or in part ... in labor or services actually performed for tbe corporation. . . . In the absence of actual fraud in the transaction, the judgment of the board of directors ... as to the value of the consideration received for shares shall be conclusive. (Emphasis supplied.) From tbis it is apparent tbat tbe extent of tbe services rendered, or tbe value of tbe consideration thereby paid, are matters which, may not properly be the subject of inquiry by either the chancellor or this court in the absence of actual fraud, a charge which has not been made in this case. It is not enough, therefore, to find that the services rendered were of insufficient value to support the issuance of the shares in question. Yet that seems to be at the base of the conclusion reached by the master and accepted in the majority opinion. As there quoted, the master found that “Nowhere in the record do we find any great activity on the part of anyone in connection with Chillo.” Great activity is not required to support the directors’ determination of value; only some activity by Mackie. Plaintiff’s brief, likewise, fails to recognize this principle. There it is conceded, for example, that “Mackie may have signed (the $60,000 mortgage) as secretary of Chillo”; that Mackie’s assertion of participation in setting up the electricity billings to tenants “gets pretty thin when it is spread back to 1936 and forward through 1945”; that Mackie’s testimony that he made his own internal audits of the Mintz and Lurie accounts “is pretentious”; etc. I deem it indisputable that the multiple services of Mackie to the corporation, as outlined above from the record, had some value. That being the case, the conclusion that he paid no consideration for the shares must fall, because both statute and case law make it clear that a court is not permitted to substitute its judgment for that of the directors on the issue of consideration. (Elward v. Peabody Coal Co., 9 Ill App2d 234, 247, 132 NE2d 549, and cases there cited.) Unless, of course, there is “actual fraud in the transaction,” but here, as mentioned, there was neither charge nor proof of fraud. For these, and other reasons based on laches, estoppel, and general principles of equity, I believe the majority reaches an incorrect conclusion as to the Mackie stock. As to the basic litigation, I agree with the master who found that the 1912 partnership was brought to an end by the written “Partnership Dissolution Agreement” of May 15, 1931.* This contract between the two brothers contained the following paragraph: The partnership heretofore existing between the parties hereto is hereby declared to be dissolved and terminated as of the 15th day of May, A.D. 1931. It surpasses my understanding that a man of plaintiff’s business experience and qualifications, after signing such an agreement, could have been a partner in a multi-million dollar enterprise for 23 years without knowing it. Yet, during the 13 years following the dissolution agreement, and at the commencement of this litigation in 1944, he made no such claim of continuing partnership; during the master’s hearings extending over a period of some eight years, at which plaintiff was represented by highly competent counsel, he made no such claim; when the master filed his original report, plaintiff filed no objection or exception to the master’s finding that the partnership had ended in 1931; and, during two years of further hearings on re-reference, he made no claim of a continuing partnership. Then, on September 23, 1954, such a claim was made for the first time when plaintiff sought, and obtained, permission to file his amended complaint and proceed on that theory. In view of the late date at which this extraordinary claim of a continuing partnership was first asserted, it is interesting to note that after 1931 there was no partnership business, designated as such; there was no transaction with, any person in the name of a partnership; neither brother ever signed any contract or other document on behalf of a partnership, nor did either one ever represent to anyone that a partnership existed; there were no partnership books, bank accounts or tax returns; neither brother ever made or demanded a partnership accounting until plaintiff filed his amended complaint in 1954; plaintiff operated a real estate business of his own, acquired various real properties in his own name, and purchased shares of South Parkway stock for his own account, all without accounting or offering to account to his brother; and so on. A full review of the evidence in this voluminous record, for the purpose of reciting the facts as I view them, would so enlarge this opinion as not to seem justified, under all the circumstances. I shall only conclude, therefore, that the accounting to be made should, in my opinion, be based upon a dissolution of the 1912 partnership in 1931.   The master reached this conclusion in both his reports; on the original reference (1944-1952), and on the re-reference after filing of the Amended Complaint (1954-1959).