Court Opinion

ID: 8806903
Source: CourtListenerOpinion
Date Created: 2022-11-26 14:50:13.528487+00
Date Added: 2024-06-11T17:04:08.085797
License: Public Domain

Mr. Justice Holdom delivered the opinion of the court. The errors assigned are encompassed within one ruling—the sustaining of the several demurrers and the dismissing of the bill as amended for want of equity. This one ruling, however, demands a searching of the whole pleading, in order that we may determine whether such ruling is erroneous or not. This demand has been fully met with painstaking care. The extensive briefs of the several counsel have received like scrutiny and consideration. The bill as amended is unusual from the fact that it sets out very largely the evidential facts relied upon as justifying the granting of the relief sought and invites a demurrer to settle that question. Appellant’s counsel say in the introductory part of their brief, “The amended bill as amended is intentionally so drawn as to challenge and invite the raising upon demurrer of the contentions that were advanced and ruled upon by the trial court, that laches and the bar of limitations precluded the appellant from obtaining relief as to some of the matters complained of.” We may enlarge somewhat this admission by holding that the demurrers interposed sufficiently, in our opinion, present for decision, as matter of law, the right of appellant to relief as to any of the matters complained about in the bill as amended. We have concluded that the demurrers are well taken in law and that the bill as amended does not state a case entitling appellant to any of the relief prayed, and that the decree sustaining the demurrers and dismissing the bill as amended for want of equity is without error. The doctrine of laches, the statute of limitations, ratification of acts, now complained about, by the Company, the settlement contract between, the Farwells and Babcock of January 30, 1896, the lack of power in appellant, in virtue of her stockholdings to attack the actions of the Company, its contracts and other dealings with the Farwells, or third parties, prior to her becoming such stockholder, the insufficiency of charges of acts and conduct of the Company subsequent to appellant’s becoming a stockholder—are some of the insuperable barriers in the way of obtaining the relief prayed. At the threshold of the cause we are confronted with the challenge that the Illinois courts have no jurisdiction to administer the relief sought, because the Capitol Company is a corporation existing in virtue of the statutes of the British Parliament. It is contended that the Illinois courts have no jurisdiction over the internal affairs of a foreign corporation or to adjudicate upon disputes between its stockholders in regard to the conduct of its affairs, or to entertain complaints against the corporate management, nor to construe the acts of Parliament under which the corporation was created, interpret its by-laws, construe the charter contract, so-called, of June 1, 1885, and those subsequently made in virtue of it; also for the added reason that the charter contract provides that questions and disputes arising under it shall be settled in England, under the English Arbitration Act. Acquiescence by the court in this contention would necessarily end this cause, without regard to any other of the many questions injected into it. We, however, refrain from deciding this contention, more as a matter of expediency than for any other reason, and because we regard other questions raised as controlling upon the merits of the case made by the pleadings and decisive of the rights of the parties in any jurisdiction to which the case might be taken. By retaining jurisdiction'—against which appellant will hereafter be es-topped to complain—the rights of the parties will be finally settled and the quarter century of litigation ended, as it is meet and right that it should be. Appellant became a stockholder in the Company in December, 1903, when Parlin, who held 15,196 shares of stock as Trustee for Babcock, under the settlement agreement assigned it to her. Appellant grounds her right to relief upon the right of the Company to demand the same relief for which she prays. She further predicates her right to such relief upon the fact of her stockholdings, for, lacking ownership of stock, she would have had no standing in court to demand relief. She would have been regarded as an intermeddler, unless she came into court in a representative capacity, which she did not. If Babcock were alive and seeking the relief prayed by appellant, if entitled to prevail it would not be in virtue of his right as a stockholder, but because of his rights under the several contracts attacked for fraud. Such rights, it is well settled, are personal to the defrauded party and are not assignable. The authorities to this effect are numerous. We will cite but two—Bell v. Johnson, 111 Ill. 374; Brock v. Rogers, 184 Mass. 545. And it is just as firmly settled that a stockholder cannot complain of corporate acts done prior to his becoming a stockholder, upon the theory that such acts do not affect such stockholder’s rights, as he is presumed to have become a stockholder with knowledge of conditions existing at the time of purchase. Dimpfell v. O. & M. Ry. Co., 110 U. S. 209. The ruling in Brown v. De Young, 167 Ill. 549, would bar this suit even upon the theory that appellant succeeded to the rights of her deceased husband as a stockholder at the time of his death, because he must be held to have ratified both impliedly and expressly the transactions now sought to be attacked. Appellant did not take her stock by devolution of law, but by gift, which is equivalent to purchase. She took the stock subject to the ratification by the settlement agreement of the contracts now attacked, through and under the terms of which the stock of appellant was, with other shares, acquired by Parlin as trustee for her husband. The inherent difficulty in appellant’s cause centers in the fact that all the persons having personal knowledge of the transactions assailed by appellant are long since dead. She has had no assistance, at any time, of any persons having actual knowledge of the Capitol Company’s affairs, or that of the “Syndicate” or the operations of the Farwells in the building of the Texas State capítol, or the managing of the ranches on the immense tract of land granted by the State of Texas as compensation for the construction of its capítol building. She had the aid of her son and her able counsel in searching through a mass of documents and writings of various kinds, covering a period of many years, to discover evidence upon which to bring an action to sustain a more or less well-grounded suspicion that Babcock had been dealt with unfairly. It is no marvel, therefore, that no cohesive, consistent,. tangible cause for relief is presented, and that the attempt to attack the contracts, agreements and dealings of the Company and the Farwells and Taylor proves abortive, and the attempt to upset the contracts, dealings and understandings of the parties and the Company, treated as settled for many years past, must fail, and that all rights vested in faith of these dealings unchallenged for so long a time, cannot now be disturbed. It appears from the averments of the bill as amended, that auditors annually examined the accounts and transactions of the Company both in this country and in England, as provided by its by-laws, that notices that the accounts were correct were sent to the stockholders as directed by the by-laws, five days previous to each annual meeting; that such reports were read at each meeting and approved by the stockholders; that such approval under the by-laws was conclusive as to the correctness of the accounts, unless errors were discovered within three months of their approval, and that after the lapse of that time they became conclusive and not open to attack. Among the matters shown by these annual accounts of the auditors and approved by the stockholders, were the leases of July 29, 1892, and July 12, 1894, containing the items of claims between the Company and the syndicate, which were cancelled on the Company’s books, and the reduction in number of the cattle to be returned under the lease from 150,000 to 120,000 head. These were all certified to by the auditors in compliance with the bylaws. Consequently in force of these circumstances, under the by-laws, these accounts are conclusively settled and not the subject of attack, nor can they again be questioned. None of these transactions was challenged at any subsequent meeting of the stockholders. They had the same power to approve as to reject, and having approved them, such action is binding alike upon the stockholders and the Company, and likewise upon appellant. Hawes v. Oakland, 104 U. S. 450. Furthermore the charge that the Directors were imposed upon is inconsistent with the contention that they acted fraudulently, and in no event could the actions of the Company, acting consciously through the Directors be impeached, except for the fraud of the latter, and then not for constructive fraud, but for actual fraud. This is forcibly in point as to the lease of July 12, 1894, for the averment concerning- it -is, that the Directors approved it reluctantly, which at least implies that they acted discreetly and with due deliberation and circumspection. Babcock was interested in the Texas land scheme from its inception. He was interested in the contract for constructing the “State House.” His original contract required him to pay ratably, according to his proportionate interest in the scheme, the cost of building the “State House.” This he failed to do; that he made no financial contribution toward exploiting the scheme is admitted. Still it fairly appears that he was an active participant in all that was done to forward the project, and it necessarily follows that he either had actual knowledge, or could have had such knowledge, so that constructively at least he is chargeable with knowledge of all the varied transactions by which the enterprise was carried forward in all its many and at times involved stages. This knowledge extends to the actions of the Company and Directors in all matters shown by its records and involved in the contracts and agreements to which he was a party, and to all the matters entering into his settlement agreement and referred to in it. Aside from all other considerations, such knowledge not only bound Babcock, but is just as binding on all parties claiming under him as holders of stock given to Parlin as Trustee for Babcock, and we think Parlin must, by parity of reasoning, be held to have possessed all the knowledge imputable to Babcock. Appellant has assumed contradictory positions in this litigation. In the Texas bill she asked that the lease of March 27, 1889, be set aside as fradulent, and claimed that the Company was guilty of fraud in not yielding to her demand by bringing suit to set it aside. In the case at bar she seeks to have the lease enforced as to the payment of rent and the number of cattle to be delivered by the syndicate to the Company at its expiration, but to avoid and cancel it as to the right to receive the benefits flowing to the other parties, and forming the consideration for its execution by them. Waiving the effect of the change of attitude by appellant, this lease cannot be so treated. It cannot be ratified in part and enforced in part. If rescinded at all, it must be as to the whole. To do the latter, the moving party must act promptly after discovering the fraud. Sleeping upon such claimed right will not be tolerated; and further, the party seeking rescission must restore the status quo. Neither of these has appellant done, and as to putting all parties in interest in statu quo, not only was it not done, but it is clearly not within the power of appellant to do. A failure promtly to disaffirm will be treated as an affirmance. There can be no partial rescission of a contract. If it is to stand at all, it does so in all its parts. Bollnow v. Novacek, 184 Ill. 463; Kellogg v. Turpie, 93 Ill. 265. We cull and adopt from the brief of Mr. Munroe the fair and convincing summary of ultimate fact contained in it, and the doctrine of the law announced thereon as controlling: “By the settlement contract of January 30, 1896, Mr. Babcock accepted $15,000 in money and 10,000 ordinary shares and 10,000 deferred ordinary shares from the Farwells in satisfaction of all his claims against the Farwells, Farwell & Co. and Mr. Taylor, and in consideration of this money and these shares, waived all objection he might have to every contract theretofore made between the Company and the Syndicate, and assigned and released to the Farwells all interest he had in every such contract. Mr. Babcock at the time of making that settlement contract knew of the June 1, 1885, contract, his assignment of September, 19, 1885, the lease of March 27, 1889, the contract of July 29, 1892, the draft agreement of February 6, 1894, which was the same in substance as the contract of July 12, 1894, and knew that the Farwells had extinguished the one-eighth Babcock interest in the Texas contract acquired by them by the assignment of September 19, 1885, and that the Company had issued the entire 199,993 shares of stock and 600,000 pounds of debentures to the members of the syndicate or their assignees. Upon this state of facts Mr. Babock was estopped, and appellant, as his successor in ownership of the stock now owned by her, is estopped, to claim that the Company has any equity as against the Far-wells on account of the purchase from Babcock of his one-eighth interest in the Texas contract. The law is that a stockholder who has participated or aided in the issue of stock as paid-up stock for less than its par value, or in doing any voidable or illegal corporate act, or, having knowledge of such act, has ratified or acquiesced in it, is precluded from complaining of such act, is bound by it and cannot recede from it, and that an assignee of such a stockholder, even without knowledge of the irregular, voidable or illegal act or ratification or acquiescence, stands in the shoes of the assignor, and is likewise bound.” Many authorities are cited, from which we are content to cite these: Wells v. Northern Trust Co., 195 Ill. 288; Same v. Columbia Co., 75 Fed. Rep. 936; Clark v. American Coal Co., 86 Iowa 436; Barr v. N. Y., L. E. & W. Ry., 125 N. Y. 263. Laches and the statute of limitations are clearly in-vocable as a bar to the aid of a court of equity, for the relief sought, and as the facts constituting such bar appear from the averments of the bill as amended, the demurrers filed are sufficient to present the whole subject for the judgment of the court. From what has already been said, knowledge of conditions, now sought to be impeached, is at least imputable to Babcock, whatever the fact may be as to actual knowledge on his part. No sufficient reason is alleged to excuse him from acquiring such knowledge. Neither could he, were he living, nor can appellant, escape the binding force of the mutual release of claims contained in the lease of July 12, 1894. - This was twelve years prior to the filing of the bill in this case. Delays extending from at least twenty-one to ten years were suffered to intervene between claimed rights and the pursuing of a remedy to enforce them in this action. The statute of limitations, as well as laches, are, therefore, invocable as a complete defense. The Farwells purchased a half interest in Babcock’s one-quarter interest in September, 1885, and the purchase in the settlement agreement occurred January 30, 1896, ante-dating the commencement of this suit twenty-one and ten years, respectively. Aside from the binding release in the settlement agreement the statute of limitations inhibits a disturbance of either. But it is urged with much force that the relationship of trustee existed, and consequently the statute of limitations and the doctrine of laches are equally inoperative to work an estoppel as to the ceshii qui trnstent. But this contention is clearly repugnant to the trend of authority. Babcock and the Farwells in their several dealings were acting “at arm’s length.” Bach was endeavoring to conserve the interest which was personal to himself. Bach had knowledge, or at least equal means of knowledge, as to conditions. They must be and are equally bound by the terms of their written contracts. The trust, if any there was, from appellant’s standpoint was one raised by presumption, based upon the relationship of the parties. But it is apparent that for many years Babcock repudiated the trust relationship, if any ever existed, long prior to the settlement agreement, and instituted in the Circuit Court of Cook county a bill in which he attacked all the transactions now sought to be avoided. During the trial of that,cause the settlement agreement of January 30, 1896, was made. This settlement Babcock, who survived three years thereafter, never attacked. It remained for appellant to attack this settlement, which she did by her bill in the Texas forum, which she subsequently abandoned after an adverse decision of the Supreme Court of that state discharging the receivers which she had procured to be appointed on an ex parte application. Upon the hearing, after the reversal, which had not only discharged the receivers, but decided the question of laches and other questions affecting the merits adversely to appellant, on April 8,1902, she dismissed her bill and then waited more than four years before filing the one at bar. Laches is likewise attributable to her for such long-continued delay, without lawful excuse, especially in view of the fact that the sole survivor of the persons who had actual knowledge of the transactions challenged was upwards of 80 years of age, and he has since paid the last penalty of life. The law presumes from such inexcusable delays, that the party seeking relief had some ulterior motive as an incentive, and that the purpose of such delay was to take an ‘ ‘ undue advantage of evidence on one side, no longer capable of explanation on the other.” Hammond v. Hopkins, 143 U. S. 224. The statute of limitations and of laches are equally invocable as defenses where the trust has been repudiated, as in this case. In Benson v. Dempster, 183 Ill. 297, the court say: “When the trust relation is repudiated, or time and long absense has obscured the nature and character of the trust, or the acts of the parties or other circumstances give rise to presumptions unfavorable to its continuance, in all such cases a court of equity will refuse relief on the ground of lapse of time and its inability to do complete justice.” In Melins v. Pabst Brewing Co., 93 Wis. 153, the court say, after announcing a doctrine in accord with the last quotation, “and so, too, where the delay has been great, .or the parties to, or witnesses familiar with, the transaction, as in this case, have died in the meantime.” Penn v. Austin, 168 U. S. 685; Ushhursts Appeal, 60 Pa. St. 290; Fitch v. Miller, 200 Ill. 170; Clegg v. Edmondson, 8 D. E. G. Mac. & G. 756. We think the case of Dempster v. Rosehill Cemetery, 206 Ill. 261, strongly analogous to the facts in the point now under discussion, and we therefore quote the language of the court which we regard as appropriate and forceful here, where the court say: “One important principle involved in the term laches is, that after a long lapse of years, during which testimony is impaired or destroyed, witnesses remove or die, their recollection is dimmed or lost and papers, letters, documents, books, records, etc., are lost or destroyed, or if not lost or destroyed, are in the hands of persons not familiar with their contents, liable to misinterpret them, unable to supply their defects or correct the same or explain them from the memory of living witnesses, the defendant is at the complete mercy of any claimants who may wish to take advantage of the situation. * * * A court of equity therefore finding itself unable to render substantial justice between the parties, asserts the principle of laches on the ground of public policy and for the repose of property rights.” The settlement agreement is binding upon all the parties to it. The release of Babcock and his ratification of actions done and contracts made and his assignment of all his interest in such contracts cannot be repudiated, now he is dead, by parties claiming stock obtained by Babcock as the price and consideration of that settlement. That settlement agreement was carried out in every particular in accord with its provisions and stipulations. The consideration of much value, moving to Babcock, consisting of twenty thousand shares of stock and fifteen thousand dollars in money, were paid and delivered. The suit pending in the Circuit Court, involving substantially the same matters projected into this suit, was dismissed as a part of such settlement. No tangible fact constituting in law or morals a fraud upon Babcock in obtaining the settlement agreement from him, is averred, nor is any such fraud fairly inferable from any other averment found in it. It bound Babcock; it binds appellant. As a settlement it raises a barrier to any further controversy in the forum of the law. Moreover, the money received by Babcock has been expended. Some of the shares other than those held by appellant have been parted with to creditors. Appellant is neither able nor does she offer to restore the statu quo. The attack on the settlement agreement, the attempt to avoid it, is in the nature of a rescission of it. No rescission of a contract can be procured without at least restoring the consideration parted with in virtue of its assumed validity and binding force. There is no legal barrier preventing a majority of stockholders from voting into the directory of a corporation such persons as they may see fit. They have the right to put into the management of property, in which they have a controlling interest, persons who will, in their opinion, manage the corporation property so as best to conserve it and their own interests. The Farwells were majority stockholders, and they made with the company contracts for their personal gain. In authorizing such contracts to be made, the Farwells took no part as representatives of the company; neither did they vote in the directors’ meeting at which they were ordered to be entered into. However, the constitution of the company provided against such a condition being open to attack by declaring that a director might contract with the company, and that by disclosing that fact he should not be liable for any profit made under such a contract. There is neither impropriety nor violation of law in a director of a corporation entering into a contract with it, providing the corporation is represented by independent agents and the contract is otherwise without fraud. L. N. & A. C. Ry. v. Carson, 151 Ill. 444; Flynn v. Brooklyn Rd. Co., 158 N. Y. 493; S. W. Gas Co. v. Fuel Gas Co., 148 Pa. St. 13; McCloskey v. Snowden, 212 ibid. 249. The contention that the contract of July 12, 1894, was strictly of a personal nature for personal service, and terminated upon the death of Taylor and Charles B. Farwell, is not well taken. The question of its personal characteristic must be solved by ascertaining from the contract itself the intent of the parties to it. Smith v. Preston, 170 Ill. 179. A reading of its several provisions impresses us with the conviction that it is in its essence and main features a lease of the ranches and the cattle on them of the company, for a term of years. That personal service necessarily followed in the care of the ranches and cattle under the covenants of the contract may be admitted; but it no more calls for strict personal service than does the covenant in a farm lease to rotate crops and till the land in a husband-like manner. The decision of the Supreme Court of Texas in Farwell v. Babcock, 27 Texas C. A. 162, involved the merits of appellant’s claim. That court held, as we do here, that the contract of July 12, 1894, as well as the other contracts, were, if voidable, not void; that the settlement agreement of January 30, 1896, was a bar to a recovery, and that the allegations of fraud in connection with the latter were impotent to affect its validity, and that appellant not being a stockholder at the time the contracts were made, could not maintain an action to avoid them. With this decision before them, the directors of the company were justified in refusing appellant’s demands to prosecute a suit for the relief here sought by appellant in its name and behalf. It was a matter for the exercise of the sound discretion of the directors as to-whether they would embark in litigation of such magnitude and necessarily involving much cost, with such tangible evidence before them of probable failure. It was evidently the part of wisdom for the directors to refuse to accede to these demands of appellant. Such refusal must be fraudulent in order to permit of a stockholder bringing a suit in his name. Coquard v. National Linseed Oil Co., 171 Ill. 480. Appellant has no right to relief in any event, other than for malconduct since she became a stockholder of the company as provided in the by-laws which occurs when the name of the owner of stock is entered on the “register of members.” No specific charge of fraud or malconduct on the part of the directors or the Farwells is made in the bill as amended since appellant became such stockholder. Appellant has no standing in a court of conscience to disturb the contracts and dealings of the company or the Farwells in relation to the matters about which they contracted and dealt as set forth in the bill as amended, for the reasons already given. The demurrers therefore were sustained, as they should have been, and the decree of the Superior Court dismissing the bill as amended for want of equity is affirmed. Affirmed.