Ross v. Sayler

Mr. Justice Windes

delivered the opinion of the court.

For appellants it is claimed that the Woman’s Baking Co. had no power to make the contract between it and appellees for the sale of its stock, and pay them for such sale fifty per cent of the proceeds, and in any event that such contract was an abuse of the power of the corporation and could.not be ratified; also, that the appellees, knowing all the circumstances which made such contract an abuse of power at the time it was made, there could be no estoppel as to the corporation or its assignee.

It is said also, in support of the first proposition, that said contract is void, because it contemplated a violation of the statute, which required all stock in good faith to be subscribed for before the organization of the corporation.

Many authorities are cited in support of the first proposition of counsel, but after careful consideration of them we are of opinion that they do not sustain his contention. It seems unnecessary to review them. Counsel in his brief concedes that the corporation was legally organized. He says “ the legal existence of the corporation is expressly admitted.” In view of this admission he can not be heard to say, as he claims, that the stock was not in good faith subscribed before the corporation was organized. To constitute a legal corporation, that is necessary.

That a corporation may sell its stock at such price as seems to it proper, is well established, if by so doing it does not prejudice its creditors or stockholders. Union, etc., Ins. Co. v. Frear S. M. Co., 97 Ill. 537-47; Winston v. Dorsett P. & P. Co., 129 Ill. 64-68; Bouton v. Dement, 123 Ill. 142-8.

FTeither creditors nor stockholders are here complaining, and we therefore hold that as to the corporation and its assignee, which can assert no right that the .corporation could not (Weir v. Mowe, 182 Ill. 444-50, Republic L. I. Co. v. Swigert, 135 Ill. 150, and Weill v. Zacher, 92 Ill. App. 296, and cases cited), said contract was within the power of the corporation to make, and binds both it and its assignee.

As to the claim that the contract was an abuse of the power of the corporation, it is sufficient to say, that is a question which the. state may raise in a direct proceeding in behalf of the people, but not by the corporation or its assignees collaterally, as is here sought to be done. Rector v. Hartford Dep. Co., 190 Ill. 380-9, and cases cited; Chicago Gen. Ry. Co. v. Chicago City Ry. Co., 87 Ill. App. 17-25 and cases cited; same case affirmed in 186 Ill. 219-23.

In the last case the Supreme Court say that the abuse of chartered powers “ concerns only the public.” In Darst v. Gale, 83 Ill. 136-40, Mr. Justice Scholfield delivering the opinion, the court, in speaking on this question, say : “ It makes no difference in this respect whether it is interposed for or against a corporation.” The same language is quoted with approval in Alexander v. Tolleston Club, 110 Ill. 66-73.

But if we are wrong in our conclusion that the corporation, through its assignee, can not, in this proceeding, be heard to claim the invalidity of its contract with appellees because of the alleged abuse of its corporate power, still we are of opinion that there was in fact no abuse of power in making the contract in question. A corporation may make contracts with promoters to pay them for services in procuring sales of its stock. Rockford Co. v. Sage, 65 Ill. 328, 332; R. R. Co. v. Christy, 79 Pa. St. 54-59; Stanton v. R. R. Co., 59 Conn. 273; Bruner v. Brown, 139 Ind. 600-2, and cases cited; 5 Thompson’s 'Com’s on Corpns., Sec. 5832; R. R. Co. v. Clarkson, 7 Ind. 595.

At most, the contract set out under the allegations of the bill, which must be taken as true for the purposes of this decision, is an unlawful one, and operates as a fraud perpetrated upon the corporation, its stockholders and creditors, by its directors and the appellees; but inasmuch as the corporation acts by its directors, and the contract had been fully executed by the parties to it long before the assignment, however fraudulent the contract may be in its operation, the corporation, having acted by its duly authorized agents, its directors, with full knowledge of what' they were doing, is bound thereby, and, as we have seen, its assignee has no greater right than the corporation. McNulta v. Corn Belt Bank, 164 Ill. 427-51; Darst v. Gale, 83 Ill. 137-41; Hanford Oil Co. v. First Nat. Bank, 126 Ill. 584-90; Republic L. I. Co. v. Swigert, 135 Ill. 150-165; Hinkley v. Reed, 182 Ill. 440-43; Weill v. Zacher, 92 Ill. App. 296-9, and cases cited.

In the Swigert case (p. 165), the court say :

“ It is a rule of extensive prevalence, that a general assignment for the benefit of creditors does not pass to the assignee any interest in property before fraudulently transferred by the assignor, nor any right to impeach or set aside such fraudulent transfer, such right belonging to the creditors only. * * * The assignee, under the above doctrine, is not the representative of creditors, but the agent of the assignor for the distribution of the property assigned. * * * Any interest in property before fraudulently transferred by the assignor was not assigned to the assignee.”

In the Hinkley case (p. 443) the court say:

“ It is well settled that a general assignment for the benefit of creditors does not pass to the assignee any interest in property before fraudulently transferred by the assignor, nor any right to impeach or set aside such fraudulent transfer. Such right belongs to the creditors alone.”

To the same effect is the Weill case, which cites many authorities.

In support of the right of the assignee to maintain this bill, especial reliance seems to be placed by counsel of appellant upon the recent case of Peabody v. Water Works Co., 184 Ill. 625, but we think that case is clearly distinguishable from, the one at bar, in that the fraud relied on in that case took place long after the appointment of the receiver and after the assets of the insolvent had come to his hands, and tended to prejudice and diminish the insolvent estate, which the receiver was at the time closing up. The case is clearly distinguished by these facts from the Swigert case, supra, in which it was said, speaking of the powers of a receiver, which are held to be in substance the same as that of an assignee (Young v. Stevenson, 81 Ill. App. 40-7; Weill v. Zacher, 92 Ill. App. 296-9, and cases cited, including Gottlieb v. Miller, 154 Ill. 44-56):

“ So far as his powers are derived from a statute, or from a lawful decree of court, and the powers do not involve rights which, at the time of his appointment, were vested in such owners, he is not merely their representative, but is the instrument of the law, and the agent of the court which appointed him. Such right and authority as the law and the court rightfully give him he possesses, and in respect to such right he is not circumscribed and limited by the right which was vested in and available to the owners.”

In the W eill case we said:

“ An assignee or receiver can not, as the representative of the insolvent, reach assets of the insolvent which equitably should be subjected to the payment of the insolvent’s debts, but which have been fraudulently placed beyond reach at law.”

We have reached the conclusion that the appellant can have no relief in this case with- great reluctance, and after full consideration of the able and extended arguments of appellant’s counsel. We are not without doubt as to its correctness. There seems to have been perpetrated a most outrageous fraud upon the creditors and certain stockholdérs of this corporation, but relief therefrom can not, in our opinion, be obtained through the assignee in this case. Other questions presented need not be discussed, since the views expressed are decisive of the appeal.

The decree of the Superior Court is therefore affirmed.