Court Opinion

ID: 6966164
Source: CourtListenerOpinion
Date Created: 2022-07-24 01:54:19.384765+00
Date Added: 2024-06-11T16:08:37.528325
License: Public Domain

Mr. Justice Baker delivered the opinion of the court: We think that the opinion of the Appellate Court aptly and accurately states both the facts and the law of the case. In the brief and argument for appellant filed in this court, it is claimed that the reasons given by that court for the affirmance of the judgment are not satisfactory. The gist of this contention, as we understand counsel, is, that the judgments below are in direct antagonism to the plain provisions of a contract entered into by and between individuals in all respects fully competent to act in relation to the matter involved, and that to declare the contract void in this collateral proceeding is to impair the rights of contracting parties fully capable of contracting as between each -other, and plainly in derogation of legal principles. The several contracts here involved were not contracts between natural and individual persons, but all contracts to which the corporation was a party. The by-laws were established by the- corporation itself, acting as a corporate body. The proposition of Moran and Denny to subscribe stock, and to transfer the already constructed railroad owned by them to the Toledo, Peoria and Western Railway Company, was made to said company after its organization under the laws of the State, and was accepted by the board of directors and the incorporators and stockholders of that company, acting for and as that company; and the trust deed, bonds and certificates of stock, which are the instruments under and by virtue of which the bondholders claim the right to vote at the meetings of the stockholders, are all instruments that were executed, issued and delivered by the railway company. The supposed contract right to vote is based upon and grows out of instruments and contracts made by the company as a corporate entity, and not otherwise. It is claimed by counsel that in Lorillard v. Clyde, 86 N. Y. 38-1, a like agreement with that here in question was held by the court to be valid. That case was wholly unlike this in many respects. The corporation was, not a party to the contract there in suit. The agreement of June 14,1874, was made prior to the organization of the corporation, and was made between the plaintiff, Lorillard, and the firm of Wm. P. Clyde & Co., and provided for a consolidation of business and property, and for the formation of a corporation and a corporate management of the consolidated business. It also contained numerous other provisions, and it was for a breach of some of these other provisions of that contract that the suit was brought. Another very material difference between the cases is, that there nothing was provided for in the agreement that was “inconsistent with the provisions of the statute or immoral in itself,” while here, that which was provided for in the contract was explicitly prohibited both by the statute and the constitution of the State. An agreement to do an act forbidden by statute is not binding. (Penn v. Bornman, 102 Ill. 523; Cincinnati Mutual Health Ass. v. Rosenthal, 55 id. 85; Rockhold v. Canton Masonic Benevolent Society, 129 id. 440, and 26 Ill. App. 152.) And it would be absurd to say that either persons or corporations can abrogate such a statute, upon the theory of an estoppel, by simply contracting to do the prohibited act. It is urged that Messrs. Moran and Denny received and held the stock of the company in terms subject to the right of the bondholders to vote, and that the relator herein, with full knowledge of the provision inserted in both bonds and certificates of stock, was enabled to purchase his stock at the depreciated value which it had by reason of the fact that it was taken and held subject to the right of the bondholders to vote; that the stock is subject to certain fixed conditions, which constitute an infirmity attached to the stock itself, and that when he purchased the stock he assumed and agreed to take and hold it subject to the right of the bondholders to vote at the meetings of the stockholders. And in the same connection it is also urged that Messrs. Moran and Denny sold these bonds upon the market; that the stipulation in question undoubtedly gave the bonds a market value which they otherwise would not have had, and that they, Moran and Denny, received whatever enhanced value they were enabled to obtain by reason of the provision for the protection of the bondholders and the conservation of the capital invested by them in the enterprise, and that therefore Moran and Denny, as holders of the stock and the assignees of such stock, with knowledge of the provision inserted in the certificates of stock, should hold the stock subject to such provision. This seems to us to be a partial and incorrect view of the matter. Both the constitution of the State and the statute under which the railway company was organized make provision for the election of the directors or managers of all such companies by the stockholders, and further provide that “such directors or managers shall not be elected in any other manner.” It is therefore to be presumed that the relator, when he purchased his stock, knew that the stipulation and provision in question were' directly contrary to the constitution and statute, and consequently void, and for that reason was willing to pay, and did pay, a larger consideration for the stock than he otherwise would have paid. And the bondholders are also chargeable with notice of the requirements and restrictions of the public statute under which the corporation was formed, and were therefore bound to know, and did know, when they received or purchased their bonds, that the stipulation giving them the right to vote at any and every meeting of the stockholders was in palpable and absolute conflict with the prohibitions of that statute, and necessarily null and void. The sections of the statute that are quoted at length in the opinion of the Appellate Court, indicate quite clearly that it is a part of the public policy of the State that the corporate business and affairs of railroad companies shall be managed and controlled by directors who are not only stockholders themselves, but who are likewise elected by the votes of those who are also stockholders. It is for the interest of the State and of the public that railroad companies be successfully managed, so that they will well and promptly perform the public duties that devolve upon them, and afford all necessary facilities for the safe transportation of persons and property. The interest of the shareholders depends upon the success of the corporation, and the public is interested in having railroad corporations managed and controlled by those who will profit by keeping up the property and by careful management, rather than by bondholders, whose interest, frequently, with a view to foreclosure and future ownership, lies in a depreciation in the condition and value of the property, and in a shrinkage in the revenues of the company. It would seem that a contract which annuls these statutory provisions is 'against public policy, and a fraud upon the statute under which the corporation is organized and from which it derives all its powers. The judgment of the Appellate Court is affirmed. Judgment affirmed.