Chandler Mortgage Co. v. Loring

Mr. Justice Ball delivered the opinion of the court. Beducing the argument of appellant to its plainest terms, it is this: that an innocent bona fide stockholder, bringing a bill in his own behalf and in behalf of others like situated, in which he shows that the officers and directors of his corporation have fraudulently and illegally taken possession of and have converted to their own use all the assets and property of the corporation, is without remedy. It is said that the appellant was organized under the Banking Act; that a court of equity has no power to wind up a corporation except under section 25 of the Incorporation Act, and that said section applies to such corporations only as are created pursuant to that act; and that therefore a court of equity has no jurisdiction of this case. For the purposes of this appeal we must consider the allegations of the bill, so far as they are properly pleaded, to be true. It sets up a good cause of action. It shows that the defendants, who were trustees of the assets and property of the corporation, under the pretense of a sale to themselves, have fraudulently taken the assets and property of the corporation and have converted them to their own use. That a trustee cannot sell the trust estate or any part of it to himself, is a doctrine not only consonant with natural equity, but it is so declared by the English judges, by the Supreme Court of the United States, and by every other appellate tribunal in the Union. Some of the Illinois cases upon this point are Chicago Cab Co. v. Yerkes, 141 Ill. 320; Higgins v. Lansingh, 154 Ill. 301; Green v. Hedenberg, 195 Ill. 147; Hannah v. The People, 198 Ill. 77. When the fact that the trustee has thus violated his trust and is enjoying the fruits of his treachery is either clearly shown or is admitted, we cannot believe that the arm of a court of equity is too short to reach him and too weak after it has reached him to force him to give up his wrongful holdings. While the right to wind up the corporation and to decree its dissolution may exist in the state only, surely a court of equity can compel a fraudulent trustee to account, and if, in so doing, it is necessary to the preservation of the property for the benefit of the parties lawfully entitled thereto, may appoint a receiver. Midland v. Anderson, 63 Ill. App. 51; St. Louis v. Edwards, 103 Ill. 472; Bixler v. Summer-field, 195 Ill. 147. It is not essential to the jurisdiction of the court in this case that it have the power to dissolve the. corporation. It may stop short of that and still give adequate relief as against the wrongful acts of the defendants below. The jurisdiction of the court is not to be determined by the requests contained in the prayer of the bill, but is to be ascertained by a perusal of the facts set forth in the charging part thereof, when the bill contains a prayer for general relief. “ It seems to be well settled that if the agents of the corporation, in whom the authority to control its affairs is vested, are themselves guilty of wrong against the corporation, either by personal conversion of its funds, or being interested in another corporation or business, or fraudulently manage the affairs of the corporation to its detriment and for the benefit of such other corporation or concern, a court of equity will, upon a proper bill filed, interfere, at the suit of a stockholder, to protect his interest in the corporation, without requiring him to first request or demand that the guilty agents proceed, virtually, against themselves,” citing cases. Wheeler v. Pullman I. & S. Co., 143 Ill. 207. In Bixler v. Summerfield, supra, the bill was filed by a minority stockholder, alleging that the defendants were managing the business to their own advantage, and that some of the acts of the corporation were ultra vires. The debts of the company were nominal and were not made the basis of the bill nor of the relief therein prayed. It is there said that under section 25, “ courts of equity are given full power to dissolve a corporation for good cause shown,” and the bill was held to be maintainable. But it is said that this section is limited to corporations created under the general incorporation law, and cannot be applied to a corporation formed under and by virtue of the Banking Act. We find no such limitation in the words of the act, nor do any of the authorities cited by appellant so hold. For example, in Coquard v. Nat. Linseed Oil Co., 171 Ill. 480, the court finds that the only part,of the bill which justified the winding-up of the corporation is that it was a trust. As to this allegation it is said: “ Only the State can complain of injury to the public, or that public rights have been interfered with, and enforce a forfeiture of defendant’s franchise for that reason. * * * The whole power of a court of equity in such cases (to decree a dissolution or to appoint'a receiver) is derived from section 25, chapter 32 of the Revised Statutes. Complainant did not bring himself within any provision of that section, and is not entitled to the appointment of a receiver or dissolution of the corporation.” It will be seen that there is here no statement that the power conferred upon the court of chancery over corporations does not extend to such as are created under the Banking Act. That question was not before the court. The other cases cited by appellant are of the same class. The allegations of the bill are amply sufficient to justify the appointment of a receiver. It is therein charged that the assets and property of the corporation so wrongfully converted by the defendants below £-£ can be traced ” by a. receiver, but that if none be appointed such defendants will make way with them and put them beyond the reach of the court; that the corporation ceased to do business in December, 1899; that said Frank R. Chandler has been discharged' in bankruptcy; that nothing has been paid appellee, and that no accounting has been had. For the reasons stated the order of the trial court appointing the receiver is affirmed. Jffirmed.