delivered the opinion of the court:
It is assigned as error, that the trial court refused to hold as law certain propositions submitted by the plaintiff below, the appellant here. By the propositions so submitted, the court was asked to hold, as matter of law, “that the resolution declared on is a resolution to pay McNulta an amount equal to two and one-half per cent on all stock to be issued in addition to the §100,000.00 past issued', and that the whole per cent was to be due upon the sum of §200,000.00 at the end of two years, whether the stock was issued or not; that it was competent for the directors of the Corn Belt Bank to pass the resolution sued on at the date of its passage, and to bind the corporation by such passage; that at the meeting of December 2, the record of which is in evidence, it was competent for the bank directors to approve and adopt the resolution declared on, and with the assent of the stockholders to bind the corporation by the terms of the resolution; that the approval of the resolution sued on by the directors at their meeting of December 2, and the approval of the same by the stockholders at the same date, was not ultra vires.”
The subject, presented for consideration by the assignments of error, relates to the construction and validity or invalidity of the resolution referred to, which is set out in full in the statement of facts preceding this opinion.
The resolution provides for the payment of both a salary and a bonus. The salary of appellant as president of the board of directors, or his compensation for services as such president, was fixed at §100.00 per year payable in semi-annual installments. Salary is a “reward or recompense for services performed, and is usually applied to the reward paid to a public officer for the performance of his official duties.” (21 Am. & Eng. Ency. of Law, p. 443, note 3, and cases cited). The Banking act of this State provides, that the directors elected by the subscribers to. the capital stock “may proceed to organize by the election of one of their number as president, and may appoint the necessary officers and employees and fix their salaries.” (Rev. Stat. chap. 16a, sec. 4; 3 Starr & Cur. Stat. p. 107). If this confers upon the board of directors the authority to fix the salary of their president, their power is confined to fixing a recompense or reward to be paid to him for performing such services or duties, as are appropriate to, and required by, his office as president. But the resolution provides,' that he should receive an “additional” sum, that is, a sum besides and beyond his salary, as a consideration for accepting the office of president, and that this additional sum should be equal to two and one-half per cent" on all stock to be issued. To pay a man for accepting an office is not to pay him for performing the duties of an office after it has been accepted. An amount equal to two and one-half per cent upon all stock to be issued would appear to be a very large consideration to be given for the mere act of accepting the office of president of the bank, if the words, “acceptance thereof,” were understood in their ordinary meaning. But the second paragraph of the resolution shows, that, by the acceptance of the office, appellant agreed to take all of the stock to be issued at a certain price, at a certain time and upon certain terms, and to sell the same in a certain way. What was to be done under the agreement involved in the acceptance of the office was not necessarily or appropriately embraced in the services or duties required of the president of a bank. Hence, the “additional sum” specified in the resolution is a bonus and not a salary.
It is very evident, that the resolution contemplated the payment of the bonus of two and one-half per cent upon the whole $300,000.00 of stock, although it is so drawn that it can be construed either as providing for two and one-half per cent upon $300,000.00, or as providing for two and one-half per cent upon the $200,000.00 to be issued after the payment of the original capital stock. Certain it is, that the appellant and those associated with him interpreted the resolution as applying to the original §100,000.00 of capital stock, because the bonus of two and one-half per cent was paid upon the original capital stock, as appears from the statement of the facts herein. The resolution uses the words, “making $300,000.00 in all that is to he issued,” thus treating the original §100,000.00 of stock as part of the stock to be issued, upon which the two and one-half per cent was to be calculated. The resolution was originally passed on November 21, 1891, and at that time the original §100,000.00 had only been subscribed for, and not paid in, so that the words, “paying therefor in cash par value with his own funds whenever the board of directors shall find responsible persons agreeing to purchase the same,” etc., would, upon that day, apply as well to the first §100,000.00 as to the second §200,000.00. The resolution was re-adopted on December 2,1891, after the §100,000.00 in currency had been counted by the Auditor’s representative. Considered as of the latter date, the resolution would only apply to the §200,000.00 to be issued, because it does not stand to reason that there would be an agreement to subscribe for, and take at par value, and pay for in cash, stock which had already been subscribed for and taken and paid for.
Appellant contends, that he was to have the bonus of two and one-half per cent upon all the stock, whether it was actually issued or not; that he was not to have a percentage upon the stock, but a sum equal to two and one-half per cent upon the stock which it was the purpose of the bank to issue in the future, in addition to the original capital stock; and that as the designation of a percentage of two and one-half per cent was merely a mode of expressing what sum total he was to have, it was immaterial whether the stock was issued or not. Whether the resolution is capable of this construction or not, it is not such a resolution as entitles the appellant to a recovery in this case under the views hereinafter expressed. It is quite clear from the terms of the resolution, that the additional sum, equal to a percentage on all stock to be issued, was only “payable at the time fixed for such issues;” and, as the times fixed for the issuance of increases in the stock could only be determined by the action of the bona fide stockholders when circumstances would justify such increases, that part of the resolution, which attempts to fix in advance the amount of the increase óf the stock, and the time when such increase should take place, was invalid.
Section 2 of the Banking act provides, that the application to the Auditor for permission to organize shall state the amount of capital. The application here stated the capital stock to be $100,000.00, and while it also stated that there was a purpose to thereafter increase the capital stock to $300,000.00, such statement of a mere purpose or intention had no effect in the matter of increasing the capital stock.
The Banking act provides a mode in which the capital stock may be increased. By section 12 of that act, it is provided that, whenever the board of directors may desire to increase the capital stock, they may call a special meeting of the stockholders for the purpose of submitting to a vote of such stockholders the question of such increase of capital stock; that such meeting shall be called by giving to each stockholder either in person, or through the mail, a thirty days’ notice, signed by a majority of the directors, stating the time, place and object of the meeting, and also by publishing a general notice of such meeting for three successive weeks in a newspaper; that, at such meeting, each stockholder shall have one vote for each share of stock held by him, and votes, representing two-thirds of all the stock, shall be necessary for the adoption of the proposed increase; that, at such special meeting, or at any regular meeting, the proposition for an increase may be submitted to a vote, and, if it is carried by such, two-thirds vote, a certificate thereof, verified by the president’s affidavit and under the corporate seal, shall be filed in the Auditor’s office, and in the office of the recorder of deeds of the county where the principal office of the bank is located; that, upon the filing of such certificate, the change proposed and voted for as to such increase of stock shall be declared accomplished in accordance with such vote; and that the" bank shall, upon filing such certificate, cause a notice of such “change of organization” to be published for three successive weeks in a newspaper in the county where its principal office is located. (3 Starr & Curtis’ Stat. pp. 110, 111).
As the appellee was organized under the statute of this State, already referred to, it could only accomplish an increase of its capital stock in the mode prescribed by that statute. It is well established, that a corporate body, having only a statutory existence, can only exercise its franchises and powers in the manner prescribed by the law under which it is organized. (Fridley v. Bowen, 87 Ill. 151). An increase or reduction of the capital stock of a corporation is a fundamental change in its affairs, and must be authorized by the shareholders at a corporate meeting. (1 Cook on Stockholders, sec. 285). It is, in the language of the statute, a “change of organization.” Even where the charter of a corporation fails to state by whom the power to increase its capital stock is to be exercised, its board of directors have not, merely by virtue of their position as directors, the authority to increase the capital stock without the assent of the shareholders. (Eidman v. Bowman, 58 Ill. 444). The policy of a corporation is always under the control of a majority of its stockholders, and the lawful exercise of its franchise and business must be regulated and governed by a majority of its stockholders. (Wheeler v. Pullman Iron and Steel Co. 143 Ill. 197). By the terms of the law under which appellee was organized, an increase of its capital stock could only be effected by a vote representing two-thirds of all the stock. The question of the increase is required to be submitted to the vote of the stockholders. The submission of the question of the increase of the stock to their votes involves and implies the exercise on their part of their own free and independent judgment as to the policy and advisability of making such increase. It involves the right to determine, in their discretion, not only whether the stock should be increased, but when such increase is to be made. In accomplishing it, the mode prescribed by the law must be followed.
It is manifest from what has been said, that a resolution passed by a board of directors, who are the mere agents and trustees of the stockholders, charged with the duty of faithfully managing their affairs, cannot fix in advance the time for increasing the capital stock of the corporation without reference to the action of the stockholders, or the methods prescribed by the statute. This is what the resolution here under consideration attempts to do by stating, that “at least $100,000.00 par value of the stock is to be issued within one year after the opening of said bank for business, and another additional $100,000.00 * * * within two years from that date." In this respect the resolution was wholly invalid.- Its attempt to keep the matter of increasing the stock under the control of the original board of directors is further manifest from the provision, which it makes for the sale of the stock to the persons and in the amounts designated by the board, “with only the restrictions in transfer in use at the time of the commencement of business.” The restrictions thus referred to are contained in section 4 of article 6 of the by-laws. That section provides: “That all of the stock of this bank sold or transferred shall be with the express condition and understanding that it will be voted in favor of all propositions submitted by the board of directors to increase the capital stock of this bank from time to time, not exceeding $50,000.00 at any one time or within a period of sixty days, until its capital stock reaches §300,000.00. * * * That the provisions of this article and the by-laws of this corporation shall become a part of every contract for the transfer of any stock of this bank, and shall operate as a reservation of a limited ownership of the stock transferred, to the extent of the provisions hereof, made binding on the transferee by the acceptance thereof,”
This by-law is illegal and void, not only because it seeks to keep the future action of the stockholders in reference to the increase of the stock in subjection to the will of the original directors who passed the by-law, but also because it attempts to limit the right to sell or transfer stock by imposing unreasonable conditions. Shares of stock in a corporation are as transferable as any other kind of personal property; and all unreasonable attempts to restrain the right to transfer such shares are void as being against public policy. (1 Cook on Stock and Stockholders and Corp. sec. 331). The right of a stockholder to sell and transfer his stock cannot be restrained by a by-law, which makes such sale and transfer subject to the consent of the directors, or refuses to permit the same unless the directors are satisfied. (Id. sec. 332).
As the bonus to be paid to appellant was in consideration of his contemplated action in carrying out unlawful provisions for the future increase of the stock and unlawful provisions for controlling the transfer of the stock, he is not entitled to the recovery of such bonus.
This conclusion is further warranted by the fact, that the resolution, which was passed for the benefit of the appellant, was the product of his own influence. It must be remembered that appellant owned nine-tenths of the stock, he having §90,000.00 and the other stockholders only §10,000.00. When the §100,000.00 was brought over to the appellee bank from the First National Bank of Bloomington, and counted by the Atiditor as paid in upon the subscriptions to the capital stock, appellant was not only held out to the Auditor as a stockholder who had paid his subscription of §90,000.00, but the other stockholders were represented as having paid their subscriptions of §10,000.00. This sum of §10,000.00, submitted temporarily to the inspection of the Auditor, was not furnished by the stockholders, but by appellant for them. Appellant was president of the board of directors. The eleven directors were the eleven stockholders, so that whether there was .a meeting of directors or a meeting of stockholders, appellant, as owner of nine-tenths of the stock, had the controlling interest and was the predominant influence. On December 2, 1891, when the board of directors met and re-adopted the resolution of November 21, 1891, fixing appellant’s salary and giving him the bonus already mentioned, the minutes recite, that all the members voted in favor of the resolution; and, of course, all the members included the appellant. On the same day, when the eleven stockholders met, all the stock was represented and all the members and shares voted to confirm the previous proceedings, including the passage of the resolution; and, of course, if the minutes are correct, appellant must have voted to approve the adoption of the resolution and by-laws, which conferred upon him such large compensation. The law is, that, where a salary or compensation is voted to a director, the vote is illegal, if it is carried only by including the vote of the director who receives the pay or salary. (1 Cook on Stock, etc. sec. 657)-. Where the chief stockholder, who is president, induces the directors to vote a large salary to him, the corporation may defeat the officer’s action at law to recover it. (Ibid; also, Miner v. Ice Co. 93 Mich. 97). Directors cannot vote a salary, much less a large bonus or compensation in addition to a salary, to one of their number, as president, when he takes part in the proceeding, or his vote is essential to the adoption of the resolution. (Wickersham v. Crittenden, 93 Cal. 17, and cases cited; Gridley v. L. B. & M. Ry. Co. 71 Ill. 200).
It is claimed, that the resolution was ratified by a meeting of the stockholders. The meeting of the stockholders held on December 2, 1891, was composed of the same men, eleven in number, who constituted the board of directors, by whom the resolution was originally passed. The same men merely sat as stockholders to approve what they had just done as directors. They were not really bona fide stockholders. They paid nothing for their stock, as appellant merely obtained §100,000.00 in currency, and put it in the bank for a few hours, until the Auditor counted it; and it was thus made to appear, that they were stockholders, whose stock had been fully paid for.
Section 5 of the Banking act provides that “when the directors have organized * * * and the capital stock of such association shall have been all fully paid in and record of the same laid before the Auditor, he shall * " * make a thorough examination into the affairs of such association, and if satisfied the authorized capital has been paid in, and that the association has the full amount dedicated to the business, * * he shall give them a written or printed certificate under seal authorizing them to commence the business,” etc. (3 Starr & Curtis’ Stat. p. 108). The stockholders, who, under the statute, would have the power to ratify the previous acts of the directors done before the stock was paid for, were such bona fide stockholders as owned stock “all fully paid in” and “dedicated to the business” of the association. Here, however, there was no actual payment, as the money was withdrawn as soon as counted by the Auditor. The association did not have the full amount of its capital stock dedicated to the business. Stockholders, claiming to be such by the means thus designated, were not bona fide stockholders. (Bates v. Great Western Tel. Co. 134 Ill. 536; Terwilliger v. Great Western Tel. Co. 59 id. 249). Consequently, their ratification amounted to nothing.
In addition to this, the unlawful character of the contract with appellant as embodied in the resolution appears upon the face of the resolution itself. • By it appellant agrees to subscribe for, and take at par value, all the stock, and pa'y for it in cash par value with his own funds, not absolutely and unconditionally, but only when “the board of directors shall find responsible persons agreeing to purchase the same from him,” etc. His own funds are to be at once replaced by money to be furnished by purchasers of stock to be found by the directors. The resolution contemplates only the temporary use of moneys to be supplied by appellant for the purpose of taking the stock at its par value. Courts will construe a contract in the light of the circumstances surrounding the parties, and of the objects which they evidently had in view. (Torrence v. Shedd, 156 Ill. 194). So construing the present resolution, it contemplates the doing of that which was actually done, that is to say, the temporary supply of funds for the purpose of having them counted by the Auditor, and thus illegally accomplishing an organization of the bank with authority to proceed to business, and to dispose of stock apparently paid up in full. The bonus or compensation, which appellant was to receive, was.to be paid to him for doing that which was in direct contravention of the statute, because the statute requires the capital stock to be fully paid in and dedicated to the business of the association. The agreement embodied in the resolution is an agreement to do an act forbidden by the statute, and therefore. is not binding. (Penn v. Bornman, 102 Ill. 523; Davis v. Old Colony Railroad Co. 131 Mass. 258; Miner v. Ice Co. supra).
The effect of the resolution, and of what was done under it, was to release the original subscribers to the capital stock from the obligation to pay their subscriptions. When the $100,000.00 was paid in, the subscriptions appeared to be thereby discharged, but when it was taken out nothing remained in the bank to show payments of the subscriptions. Until sales were made of the stock, the bank had no funds whatever, all pretended payments upon the subscriptions being withdrawn. “It has been settled by very numerous decisions, that the directors of a company are incompetent to release an original subscriber to its capital stock, or to make any arrangement with him by which the company, its creditors, or the State, shall lose any of the benefit of his subscription. Every such arrangement is regarded in equity, not merely as ultra vires,” but as unjust to the other stockholders, to the public and to the creditors of the company. (Burke v. Smith, 16 Wall. 390; Melvin v. Lamar Ins. Co. 80 Ill. 446; Bedford Railroad Co. v. Bowser, 48 Pa. St. 29; Osgood v. King, 42 Iowa, 478).
It is claimed by counsel for appellant that, even if the contract embodied, in the resolution is ultra vires, the appellee cannot avail itself of the defense of ultra vires, where the contract has been in good faith performed by the other party to it, and the corporation has had the benefit of the contract and of the performance. It is true, as a general rule, that a corporation cannot avail itself of the defense of ultra vires, when a contract, not immoral in itself nor forbidden by any statute, has been in good faith fully performed by the other party, and the corporation has had the full benefit of its performance. (Kadish v. Garden City, etc. Building Ass. 151 Ill. 531). But while the rule is, that the executed dealings of a corporation under such a contract will be allowed to stand, yet the rule is otherwise where the contract ultra vires remains executory. (Thomas v. Railroad Co. 11 Otto, 71; Kadish v. Garden City, etc. Building Ass. supra.) In the latter case, courts will oftentimes interfere to prevent its enforcement. (Ibid). Here, the object of the suit is to recover what is claimed to be due upon the unexecuted part of the contract. Appellant is suing to recover a bonus of two and one-half per cent upon §150,000.00 of stock, which has never been issued, under a contract which is clearly ultra vires, so far as it attempts to control the increase of the capital stock in a .manner not authorized by the statute. If this be regarded as a contract merely ultra vires, that is, a contract not within the power conferred upon the corporation by the act of its creation, the defense of ultra vires is here allowable, as the present action is brought to enforce the executory part of the contract. (Thomas v. Railroad Co. supra). So far as the executed part of it is concerned, that is to say, so far as appellant has been paid his bonus upon the original issue of $100,000.00 of the stock and upon the second issue of $50,000.00, appellee cannot recover back the amounts thus already paid under the plea of set-off, if the contract be treated as merely ultra vires in the sense already stated.
But the resolution here sued upon, regarded as a contract between appellant and the appellee corporation, is a contract which is illegal in its character, and contemplates action which is forbidden by the statute. Such a contract is not merely ultra vires, but it is void as against public policy, and will not be enforced in favor of either party to it. Where parties concerned in illegal agreements are in pari delicto, the law will not aid either, but will leave them without remedy against each other. (Bishop v. American Preservers’ Co. 157 Ill. 284).
We are, therefore, of the opinion that appellant is not entitled to recover the bonus claimed by him upon the unissued stock, and that, under its plea of set-off, appellee is not entitled to recover back what has already been paid to appellant. It follows, that there was no error in refusing to hold as law the propositions submitted by the appellant to the trial court.
The j udgments of the Appellate and circuit courts are affirmed.
.Judgment affirmed.