McCormick v. Unity Co. , 142 Ill. App. 159 ( 1908 )

Mr. Justice Smith

delivered the opinion of the court.

It appears from the records of The Unity Company, appellant, that said company was organized in March, 1891, by John P. Altgeld, with a capital stock of $1,000,000, consisting of 10,000 shares of $100 each. Ford, Lanehart, Altgeld and Kuebler subscribed for one share each and Kimball, the attorney who drew the papers at Altgeld’s request, subscribed for 9,996 shares, but shortly afterwards assigned 9,993 of the shares to Altgeld on the subscription book of the Company. The five subscribers were elected directors for one year, and the first officers were Lanehart, president ; Ford, treasurer; and Kimball, secretary.

The record shows that on June 15, 1891, Altgeld and wife transferred to the Company the 99-year lease of the premises on which the Unity Building was after-wards built. Kimball, who always had been and still is secretary of the Company, testified that at the time he transferred the 9,993 shares to Altgeld, the latter stated that if the Company would issue to him the stock he would put up the building and transfer the building and leasehold over to the Company, subject to such mortgage as they might determine to place upon the property. Kimball also testified that there was a general conversation among the directors at the time that the funds raised from the $400,000 of first mortgage bonds should be deposited to John P. Altgeld’s credit, and that he would check out of those funds and out of any of his own funds to pay the bills for constructing the building.

The witness Oliver testified that Altgeld told him in the spring of 1891, at the time when Altgeld was borrowing money of Oliver to aid in the construction of the building, that he, Altgeld, had organized the Company and was going to turn over his leasehold to it, and that the Company was going to make a bond issue of $400,000, and that he, Altgeld, was to build the building and was to get all the capital stock and bonds. In 1904, when Oliver was trying to buy some of the second mortgage bonds, Kimball told Oliver that the Company’s record book had been lost and that before the transfer of the lease there had been an agreement between Altgeld and the Company whereby Altgeld was to assign the lease and build the building, and as a consideration therefor was to receive all the stock, together with a bond issue of $400,000.

Kimball testified that he had always supposed there had been such an agreement set out in the lost minute book, but after the minute book had been found he noticed that it had not been set out therein, and that this surprised him very much, as he had supposed the Company had in fact held all the meetings they should have held.

On June 17, 1891, a meeting of the stockholders was held authorizing the acceptance of an offer made by the Jennings Trust Company, now The Equitable Trust Company, to make a loan of $400,000 on the leasehold, for the purpose of constructing the building, and on the same day the board of directors of appellant Company authorized the issuance of the first mortgage bonds for that amount.

On June 27, 1891, an agreement was made with the Jennings Trust Company whereby it undertook to purchase all of the proposed $400,000 of first mortgage bonds at 95 cents on the dollar.

After the mortgage and bonds were executed under date of July 1, 1891, Altgeld went ahead and built the building, and he did this in his own name. Kimball testified that Altgeld attended to all the financial affairs and never made any report to the directors and was not called upon for any; that Altgeld and Lane-hart attended to everything and had full authority to pay all bills; that Altgeld’s personal checks paid for the building, that the Company itself never paid anything; that he, Kimball, did not know when the Company first had a bank account in its own name, and had nothing to do with any money received during the first year of the Company’s existence; that the proceeds of the first mortgage bonds were used in constructing the building; that as such proceeds were received Altgeld deposited them in his own bank account and then paid the bills as he could—a thing which Lanehart knew, because Lanehart had charge of Alt-geld ’s bank account in the latter’s absence; that Alt-geld expended on the building more than the avails of the first mortgage bonds, and personally put into the building all the additional money that was expended; that Altgeld’s course in erecting the building and paying all the bills was in pursuance of the arrangement whereby he was to do so and received the stock and bonds as consideration' therefor, and that the proceeds of the first mortgage loan was turned over to him under that arrangement and with the knowledge of the directors. Oliver testified that the $70,000 which Altgeld borrowed from him in 1891 went into the construction of the building, as did $350,000 of Altgeld’s personal fortune.

In August, 1891, Altgeld was elected president in place of Lanehart. Of the four directors Lanehart was Altgeld’s brother-in-law; Ford was also his brother-in-law, Kuehler was the bailiff in the court of which Alt-geld was judge, and he had a little grocery business in Palestine, Illinois; and Kimball, the secretary, was a young attorney who drew the organization papers and who, after the building was finished, had only the duties of writing up the minutes of the meetings and collecting delinquent rents. No stock was ever issued to Ford or Kuebler, under their subscriptions. It appears from stubs of the only stock certificate book that the Company had, that from the time of the Company’s organization down to the time of Altgeld’s death, in 1902, Altgeld held of record 9,740 shares; the Sextons 150 shares; Lanehart 105 shares, and Kimball 5 shares of the 10,000 shares constituting the entire capital stock of the Company.

The Company never had any by-laws, and no stockholders’ or directors’ meetings were held except those which had to do mainly with the authorization of the two bond issues.

It appears that before McCormick, appellee, purchased the 93 bonds of the Company, he employed as his attorney Mr. A. M. Pence, who examined the records of the former foreclosure suits, and that it was upon his advice that appellee McCormick purchased the bonds. The record contains no evidence showing or tending to show that at the time appellee McCormick purchased the bonds he had any knowledge of how the bonds were originally put in circulation. No evidence was offered that either McCormick or Adsit at the time of their acquisition of the bonds held by them, had any knowledge or notice of any claim by the Company or any of its officers, directors or stockholders that the bonds were wrongfully issued, or that any defense to them existed.

From the evidence shown in the record we are of the opinion that when the appellant company was organized by Altgeld it was for the purpose of facilitating the issue and sale of securities upon which he could borrow the necessary funds with which to erect the building upon his leasehold above described. The capital stock of appellant was all subscribed for in Ms interest and was either assigned to Mm or held for him. We think that, notwithstanding the meagre records of the Company and the death of AItgeld and Lanehart, who knew all the facts connected with the organization of appellant company, and the issue and disposition of its securities and the agreement or agreements between the appellant and AItgeld, it clearly appears from what was actually done, and the testimony in the record, that AItgeld organized appellant company for the purpose stated above; and that the agreement and understandmg between AItgeld and the appellant company, through its directors, was that AItgeld was to transfer his leasehold to the company and erect the bmlding thereon in payment for its capital stock, and that the appellant was to issue at least $400,000 in bonds and turn them over to Mm or the proceeds thereof, which were to be used by him in the erection of the building. The record shows, we think, that this agreement was substantially carried out in good faith by AItgeld, and that from the funds borrowed upon the faith of the securities issued by appellant and from his own private funds AItgeld erected the building in question.

The evidence further shows, we think, that the proceeds of the securities issued by appellant were all applied to the erection of the building, and in addition thereto AItgeld contributed for that purpose large sums of money from his private resources. In our opinion the contention of appellant that the bonds in question were unlawfully issued and disposed of for the private and individual benefit of AItgeld, and not for the benefit of appellant, is not sustained by the record.

When The Equitable Trust Company refused to purchase more than 300 of the bonds of the 1891 issue and the remaining 100 were cancelled, AItgeld was deprived of the proceeds of one hundred of the bonds to which he was entitled under the arrangement; and without doubt the intention of the issue of the bonds in January, 1895, under the resolution quoted in the statement preceding this opinion, in which it was provided that 300 of the bonds should be deposited with The Equitable Trust Company for the purpose of exchange for an equal number of the 1891 bonds, was to increase the loan and thereby to deliver to Altgeld the full amount of the securities originally agreed to be issued on the property.

After the building was completed by Altgeld, in the spring of 1892, it was turned over to the appellant company, which, up to that time, had taken no part in the business of constructing the building. It had no bank account, and had paid no money to contractors and material men. Upon receiving possession of the building, the appellant proceeded to rent it and collect the rents and manage the property. It paid interest on the bonds in question for four and one-half years, that is to say, the interest that accrued during 1895, 1896, 1897 and 1898 and the first half of 1899. Appellant opened books of account and a bank account and these payments of interest were duly entered in its books in the regular course of business. The Company received the cancelled coupons and.kept them in the Company’s vault in its office among its papers. During 1895 and 1896 there were five directors living, and unquestionably the active directors: Altgeld, Lanehart and Ford, all of whom died before this bill was filed, knew of the interest payments on these bonds, for they all occupied the offices of the appellant company during those years. Lanehart died in the latter part of 1896, but the vacancy created by his death was never filled. Altgeld certainly, and probably Ford, knew of the interest payments made for the years 1897, 1898 and 1899. The remaining* two directors, Kuebler and Kim-ball, had nothing to do with any of appellant’s disbursements or financial matters. They testify that all these matters were left entirely to Altgeld and Lane-hart.

These facts, in connection with the allegations and issues and the decree in the foreclosure proceedings upon the bonds and trust deed of 1891, appearing in the record, estop appellant, in our opinion, from denying that the bonds held by appellees are valid obligations against it. Ragland v. McFall, 137 Ill. 81, 91; Hartford Deposit Co. v. Calkins, 109 Ill. App. 579, 584. The directors having allowed Altgeld and Lanehart to control and conduct the affairs of the company, without protest or objection, the law presumes that all of them knew of and acquiesced in what was done, and treats such acquiescence as equivalent to formal authority. Smith v. Smith, 62 Ill. 493, 496; 1 Morawetz on Private Corporations, sec. 538; Taylor on Private Corporations (3rd Ed.), sec. 237; 4 Thompson on Corporations, 4883; Martin v. Webb, 110 U. S. 7.

Moreover, the evidence in the record shows that the bonds in question were used for the benefit of the appellant, when they were originally issued. Having received the benefit of these bonds appellant cannot now question their validity or assert that they were wrongfully disposed of by its officers. Pomeroy v. New York, etc., Co. (N. J. Eq.), 48 Atl. Rep. 395.

Hpon a consideration of the record we are of the opinion that the allowance of $7,308 for solicitors’ fees was not unreasonable. We think also that the decree is not erroneous in allowing interest at the rate of six per cent, on the redemption money, for the reason that the first mortgage bonds bore that rate of interest, and further, the party redeeming was obliged to pay that rate upon the amount of the sale. Moshier v. Norton, 83 Ill. 519; Harper v. Ely, 70 Ill. 581; McMillan v. James, 105 Ill. 194, 203.

In our opinion, the decree is just- and without error, and must be affirmed. The cost of the supplemental abstract of record prepared by counsel for appellee must be taxed against appellant.

Affirmed.