Court Opinion

ID: 8807510
Source: CourtListenerOpinion
Date Created: 2022-11-26 14:52:00.281177+00
Date Added: 2024-06-11T17:04:09.458188
License: Public Domain

Me. Peesiding Justice Thompson delivered the opinion of the court. The theory of appellant is that the directors of the corporation have wrongfully appropriated the funds of the corporation by voting themselves stock and income certificates at half price as pay for work done by them in promoting the company and for responsibility claimed to have been assumed by them in buying the lands now owned by the company, and in paying commissions to themselves for the sale of the stock and income certificates when neither the laws under which the corporation is organized, nor the laws of this state, nor the by-laws of the company, provide for any compensation to the directors or officers. The proof clearly shows, without any claim contra, that the appellant bought his five stock and income certificates through one of the directors on his statement that no one made anything out of it but the stockholders. Officers of a corporation occupy the position of trustees for the stockholders with respect to the business and property of the corporation, and cannot have or acquire any pecuniary interest in conflict with their duties as such trustees. Hooker v. Midland Steel Co., 215 Ill. 444. The voting of the stock by the directors to themselves as compensation for services in promoting the company after the work was done, was voting back pay to themselves and is illegal. “It is the same as giving away the assets of the company.” Cook on 'Stock and Stockholders, sec. 657; Brown v. DeYoung, 167 Ill. 549. The acts of the directors in illegally voting stock to themselves could not be ratified by a majority of the stockholders as against a dissenting stockholder or one who had no knowledge of such fraudulent action. It is urged that this suit cannot be maintained because of the time that elapsed between the acts complained of and the beginning of the suit. The record shows that the directors, while they reported other matters to the stockholders, never made any report of their actions concerning the stock issued to themselves, and the appellant had no reason to suspect such irregularities. The first notice that appellant had of the directors each having secured thirty shares of stock and income certificates at half the price that other investors paid was in October, 1904; this he obtained from the report of an auditing committee appointed by the stockholders. Immediately thereafter a correspondence between appellant and the secretary of the company was begun, and as early as January 3, 1905, the secretary wrote to appellant giving a variety of excuses for his delay in answering appellant’s letter. From that time to the beginning of the suit there was a controversy between appellant and the directors, the appellant insisting that the directors should either pay for their special stock the same amount as other parties paid or that they should cancel such stock. The directors from the time appellant questioned the propriety of their actions endeavored to find some way of compromising or arbitrating the matter. The appellant is not to be charged with having ratified the acts of the directors or with laches in bringing this suit, when he has sought to have the irregularities corrected continuously from the time he learned of them. Cratty v. Peoria Law Library, 219 Ill. 516. The proof clearly shows that the directors who are defendants each received thirty shares of stock and accompanying income certificates at $150 per share while other parties paid $300 or more. The directors voted this to themselves as they claim for responsibility assumed in buying 3200 acres of land at ten dollars per acre. The notes for the purchase of the land were neither signed nor endorsed by any director, but executed by the company alone. If their theory be correct then they subscribed for and voted to themselves $27,000 for verbally guaranteeing the payment for the land for which the total purchase price was $32,000, when over $190,000 of certificates had been sold, not including the directors’ special stock. These facts are convincing that the claim of the defendant directors that this special stock was for guaranteeing the payment of the notes for the land, is a mere subterfuge. The claim that the directors’ special stock was for promoting the company does not appear to have been made in good faith, for the reason that at the first meeting of the directors in Illinois they pretended to pay themselves for their work and responsibility by the issuing of the first ten shares to each, and six months later they again pay themselves for the same work and responsibility by voting twenty additional shares to each of themselves on the same terms. The law will not permit such action by directors with the property they are in control of as directors. The only remaining question is, should the directors account with complainant for the commissions received by them? Section 14 of the by-laws provides that “The secretary shall be secretary of the board of directors and of the standing committees. He shall be general sales agent of stock and income certificates.” At the first meeting of the directors in Joliet, Illinois, they elected themselves each to some office, and passed a resolution, “That commission on sales of income certificates be limited to ten per cent of such sales,” and that of this commission $5 be paid to the secretary and $25 “to general agent or director making sale.” The total commissions paid by the company prior to June 1, 1903, was $2244.56 of which the secretary received $756.40 and the remainder was all paid to the Joliet directors. From June, 1903, to June, 1904, the company paid $5304.21, in commissions for sales of stock, etc., of which the secretary received $1103.60 and $4200.61 was paid to the remaining Joliet directors. The answer admits the payment of $24,700 commissions to the secretary and other directors on the sale of 1261 shares of stock and income certificates. On 180 of these directors’ special stock and certificates, no commission was paid. The resolution fixing the commissions to be paid was passed by the directors before any of the income certificates were sold. When a director by his own vote and the votes of others representing his interests in the board votes himself an exorbitant compensation for services to be performed such action is voidable. Harris v. Lemming, Harris Agr. Works, 43 S. W. Rep. 869, Tenn. The resolution allowing a commission to the secretary and other directors passed by themselves was voidable. Fritze v. Equitable B. & L. Soc., 186 Ill. 183; Adams v. Burke, 201 Ill. 395. However, the record shows that appellant was present at the annual stockholders’ meeting in 1903 and 1904 at which reports of the payment, of commissions on the sale of income certificates were made, and appears to have taken no exception thereto. Appellant claims not to have remained during the entire meetings, but from the evidence he had an opportunity to know what was being done in paying commissions on sales of stock and he must be held to have ratified the action of the directors in paying commissions so far as the same were reasonable. The secretary was clerk of the Joliet School Board and assistant superintendent of schools, and only devoted such time to the duties of the office as was not taken up with his school duties. Another of the directors was a principal in one of the Joliet public schools. The others were business men in Joliet. They would appear to have been quite liberal in the payments of each other from the funds of the Joliet Tropical Plantation Company, but appellant has not offered any proof that such payments were excessive or not earned, and we are not permitted to guess they were such, notwithstanding their appearances. We therefore hold the appellant is not entitled to an accounting regarding the commissions. This suit was begun in behalf of the appellant and all other stockholders who might choose to come in and avail themselves of the benefits of this suit. No other stockholders have taken advantage of their right to be made parties to this suit and the appellant can only maintain it in his own behalf. Brown v. DeYoung, supra. This cause will be reversed and remanded to the Circuit Court, with instructions to that court to take an account between the individual defendant directors and the company, and to charge each of the said directors with the full price of each share of stock and income certificate taken by him at half price, and with the dividends on said certificate received by him on said stock and income certificate and half the dividends paid to him, and the court will decree that each defendant director pay to the appellant such proportion of the amount found due from such director as the number of shares and income certificates owned by appellant shall bear to the total number of shares and income certificates sold, decreeing the balance to such director under the rule announced in Brown v. DeYoung, supra. Reversed and remanded with directions.. Mr. Justice Dibell took no part in the consideration of this case.