Hladovec v. Paul
78 N.E. 619
Ill.
1906
Check Treatment
Mr. Justice Hand

delivered the opinion of the court:

The first contention made by the appellant is, that a court of equity is without jurisdiction to grant to the appellees the relief prayed for in the bill filed herein, on the ground that they have a complete and adequate remedy at law, in this: that the grounds averred in their bill for equitable relief can be pleaded as a defense to the action of mandamus, wherein the officers of the corporation were sought to be coerced by appellant to issue to him said unissued shares of stock, if the grounds of relief averred in the bill have a valid existence in law. The stockholders of the corporation who are the complainants in this bill were not parties to the mandamus suit, and their rights in the unissued stock of said corporation, if any, could not be set up by them in said suit, neither could the appellees require the officers of said corporation to set up their rights in said unissued stock as a defense to the relief sought in said mandamus suit. The interest of the appellees in the unissued stock, if any, grows out of a contract with appellant to which the corporation was not a party, and we think the appellees can maintain a bill, as against appellant, to establish their interest in said stock and prevent the stock being issued to him by the corporation.

It is next contended that the agreement of the appellant to transfer to the appellees and other vendors of beer his subscription to said stock, and that the stock might be issued to them instead of to him, was upon the consideration that he should be released from liability to the corporation upon his subscription for said stock, and that as said agreement to release him from such liability was void, the consideration for the agreement to transfer his subscription for said stock to appellees and other vendors of beer who might desire to take stock had failed, and he was not bound to carry out his agreement with the appellees or such vendors of beer as might desire to take stock in said corporation, and that he was entitled to have said stock issued to him by the corporation upon the payment to it of the amount of his original subscription for said stock. The bill does not aver that appellant was to be released by the corporation from liability upon said subscription in consideration of the release to appellees or other stockholders of his subscription to said stock, and, as we understand the averments of the bill, the release of appellant from liability upon said stock subscription was not the consideration moving from appellees and other persons taking stock, to the appellant for the release to them of said subscription, but the consideration was that the appellant and appellees, and other vendors of beer, would form a corporation of which they should be stockholders, the object of said corporation being the manufacture and sale of beer, which should be mainly sold to its stockholders at prices below the general wholesale prices at which beer could be purchased from other manufacturers of beer, and that upon the suggestion of appellant the charter of the Josef Hladovec Brewing Company was used to effect such organization, with the understanding that Hladovec controlled the subscriptions to all the stock, and that the stock should be issued so that the original and subsequent stockholders of the reorganized corporation should each hold ten shares of said stock and no more, and that in the consummation of said plan nothing was said or agreed upon as to the liability of appellant to the corporation as an original subscriber for said stock. This conclusion must necessarily follow from a . consideration of all the averments of the bill, as from these averments it nowhere appears that the corporation was a party to the plan of re-organization, but that the contract with reference to the re-organization was a contract made between Hladovec and the appellees, and that the only part the old corporation played in the re-organization scheme was, that its charter was used to effect the re-organization. We think the mutual agreements of the parties to form a new corporation, and the subsequent agreement to use the charter of the old corporation «and to invest the moneys of the new stockholders in the enterprise, were a sufficient consideration moving from the appellees to the appellant to support the agreement of the appellant that the stock of the old corporation which he controlled should be issued to the new stockholders if the old charter should be used, in such manner that each stockholder should be the holder of ten shares and no more, and that the parties to the re-organization, and the subsequent stockholders who joined the enterprise, can not be deprived of the benefits of the re-organization on the ground that the promise of the appellant to release the right to the stock which he acquired by the original subscription was void for want of a consideration.

• It is finally contended that the agreement of the parties that, each stockholder should have issued to him ten shares of stock, and no more, is void, as it is said such agreement is in restraint of the free sale and transfer of the stock of said corporation, which is in contravention of public policy. It has been held that a by-law of a corporation which clogs the sale and transfer of the stock of a corporation is void, (McNulta v. Corn Belt Bank, 164 Ill. 427,) as being contrary to public policy. Here, however, we are not dealing with a by-law of a corporation, but a contract made by appellant with appellees, and which was to inure to the benefit, not alone of appellees, but such other persons as might thereafter become stockholders of said corporation, to which the corporation was not a party. We see no reason why a number of persons in trade, such as vendors of beer, may not engage in manufacturing the beer they sell their customers, and to that, end each contribute an equal portion of the capital used in the manufacture thereof, and share equally in the management of the business and the profits and losses incident to the business. Such an arrangement would make the parties to the enterprise partners and the enterprise a partnership undertaking. If parties can thus agree to carry .on such an enterprise as a partnership, why may not they incorporate under the statute and carry the business on through the medium of a corporation ? While an agreement limiting the number of shares which should be issued to each stockholder would not be binding upon the corporation, we know of no reason why it would and should not bind the parties to the agreement.

In Kantzler v. Bensinger, 214 Ill. 589, a very similar contract to the one now under consideration was before this court, which was sustained. In that case shareholders of a corporation entered into a contract whereby it was provided that certain persons should be elected to the offices of the corporation for a fixed period, and it was contended, as here, said contract was contrary to public policy and void. The court, in discussing such contention, on page 598, said: “The contract was entered into by all the stockholders of the corporation, and while it might not have bound the board of directors afterwards elected, we think there is no reason in law why it should not be held to be binding upon the defendants and enforceable against them. The entire stock of the corporation was held by the plaintiffs, and in making a contract with the defendants whereby the latter were to obtain at once six-tenths of said stock, it was open to the parties to make any arrangements with regard to the management of the company mutually agreeable to them. The price to be paid for the stock was a_ matter to be determined by them, and by them only. They owned all the property represented by the stock, and the mere fact that it was represented by corporate stock could make no difference. No other person had any interest in it and no one else could complain. Instead of paying a different price than that agreed on for the stock not then to be transferred, it was mutually agreed that the plaintiffs should continue in their old official positions for five -years, with an increase of salary.”

In this case the appellant, according to the averments of the bill, induced the appellees to invest their money in the shares of stock of the said corporation on the ground that he controlled the subscriptions to all its shares of stock and would release the right to have the same issued to himself, and that the same might be issued in blocks of ten shares to the appellees, and such other persons as might become stockholders, and at such prices as the board of directors might determine. It appears the business of the corporation has been successful. Seven hundred and eighty shares of stock have been issued and $88,500 paid therefor into the treasury of the corporation. Three years after the re-organization, and when the remaining seven hundred and twenty shares are of the value of $144,000 cash, the appellant seeks to repudiate the agreement he made with appellees and require said unissued shares to be issued to him at one-half their value. The position of the appellant is inequitable, and we are of the opinion the Appellate Court properly held he was not entitled to have said seven hundred and twenty shares of stock issued to him.

The judgment of the Appellate Court will be affirmed.

Judgment affirmed.