Hiles v. C. A. Hiles & Co.

Mr. Presiding Justice Ball delivered the opinion of the court. The demurrer admits that the properly pleaded facts of the bill are true; and if, from those facts, it appears that appellant is entitled to equitable relief, the demurrer should have been overruled, and the bill should not have been dismissed. Women’s Catholic Order v. Haley, 86 Ill. App. 330; Langlois v. McCullom, 181 Ill. 195. It is admitted by counsel for appellees that, if the acceptance of the proposition of a sale was a consolidation, and not a purchase and sale, then the statute was not complied with, and, therefore, unless there was a ratification by the Hiles Company or laches updn the part of appellant, the bill was not demurrable. It does not require the citation of authorities to establish the proposition that after appellant had appeared at the meeting of the stockholders of the Hiles Company and had voted and protested as a stockholder and as a director against the action of the majority of the stockholders and directors there assembled, he will not be heard to say that such meeting was irregularly called. The meeting of June 15, 1903, was adjourned until the 18th day of the same month. It is alleged that at such adjourned meeting a majority of the stock of the Hiles Company was not represented. An adjourned meeting of a regular meeting may transact lawful business without reference to the number of those who attend. Tt is true that many times in the bill the transaction complained of is called a consolidation. But calling it a consolidation does not make it so. Its character must be determined by the facts appearing upon the face of the bill. Appellant alleges that at the June 1, 1903, meeting, the proposition for a consolidation of the two corporations was rejected. Following that rejection, and at the meeting of June 18, 1903, the American Saw & Knife Works made to the Hiles Company a proposition, which appellant alleges was a proposition “ to "sell the machinery, tools, implements, good-will and the entire business of the American Saw & Knife Works to the said C. A. Hiles & Company.” It will be noted that this proposition does not include the sale of the stock of the American Saw & Knife Works, nor does it purport to be a consolidation proposition. It is manifest that if carried out, the latter company is stripped of its tangible property, but it would still have on hand the consideration received as an equivalent for its property and business. In the case of C., S. F. & C. Ry. Co. v. Ashling, 160 Ill. 373, cited by appellant, the main contention was whether or not the St. Louis Railway Company had been consolidated with the Santa Fe Company. In considering this question the court say: “ The resolutions and deed of conveyance provided that in addition to the consideration of one dollar to be paid by the Santa Fe Company and the assumption and payment of the bonded indebtedness of the St. Louis Company, the Santa Fe Company should issue its stock to the stockholders of the St. Louis Company, dollar for dollar, in exchange for their stock in the latter company. The effect of this part of the transaction was to incorporate 'in the Santa Fe Company the stockholders of the St. Louis Company, combining all the stockholders of each company in one. This was an act of consolidation, and not by any means necessary to a mere purchase and sale. If the transaction could be distinguished from a consolidation as a mere purchase and sale, to be regarded as a fair one (and it should be so regarded for the purpose of this arguliraent), the St. Louis Company itself, and not its individual llstockkolders, should have received all the consideration for jlthe property conveyed, so that it would have the equivalent of the property sold with which to meet the obligations and liabilities which it had created or incurred. * * * By the transaction the St. Louis Company was left without property, corporate rights or franchises of any kind, and without stockholders. All of these were transferred bodily to the Santa Fe Company, and became united, respectively, with the property rights, franchises and stockholders of the latter company. Why was this not a consolidation of the St. Louis Company with the Santa Fe Company? There is no magic in words. Merely calling the transaction'a purchase and sale would not prevent it from being a consolidation. It cannot be supposed, from the nature of this transaction, that it was expected that the St. Louis Company should continue its active corporate existence ‘ after divesting itself of all its property, corporate rights ' and franchises and stockholders.” In the case at bar the sale was of the tangible assets notes and accounts receivable, and the good-will of. the American Saw & Knife Works. After this contract was executed there remained with and in the latter company its franchise, its stockholders and assets to the par value of ' $10,000 of the stock of the purchasing company. It continued to exist as a corporation, and could not be dissolved, had its stockholders so desired, until such assets had been legally distributed. Gulf, C. & St. F. Ry. Co. v. Newell, 73 Tex. 334. Further, the consolidation for the purchase, as in the bill alleged, went to the selling company, and not to its stockholders. Tested by the rule indicated in the Ash-ling case, supra, this transaction was a sale and not a consolidation. If it was a purchase, and made in good faith, it must stand. Looking at the offer as made and accepted, it appears that no price was fixed. The value of the tangible property was to be ascertained by an appraisement, which was to be made by the buyer and seller, with a proviso that if they could not agree they might call in a third person, whose decision in that regard should be final. In this appraisement' there was nothing to be allowed for intangible property. That appraisement price could be paid either in cash or in the stock of the Hiles Company at its par value. And it was further agreed that the bills and accounts payable of the selling company should not exceed its guaranteed bills and accounts receivable by more than $1,500. We find nothing in this offer nor in its acceptance by the Hiles Company, which is unfair to that company, or by which appellant was legally damaged. Nor is it controlling that the purchase as made embraced the entire assets of the selling company. The statute (R. S. Hurd, 1903, sec. 5, ch. 32, p. 472) contains no prohibition forbidding a corporation from purchasing goods in the line of its business, either at wholesale or at retail. In the absence of such limitation the Hiles Company had the right to enter into this contract. Treadwell v. Salisbury Mfg. Co., 7 Gray, 404. The fact that the consideration price of this contract was paid in the stock of the Hiles Company is immaterial. A corporation may receive any property it may lawfully purchase in exchange for its stock. 1 Cook on Corpn’s., secs. 18 and 22; 26 Am. & Eng. Ency., 840, 2nd ed. Appellant contends that this contract is illegal and void, because at the time it was entered into, the two corporations had a director in common. We do not so understand the law. Where, as we have found in this case, the contract was a fair one, the court will sustain it, even though one of the directors was common to both corporations. 2 Cook on Corporations, secs. 658, 662. But if this were not the law, the bill does not allege that the directors of the Hiles Company passed upon the acceptance of this contract. In the absence of such an allegation the question here attempted to be raised is not before us. The fact, as the bill alleges, that this purchase turned out to be a losing one for the Hiles Company, and caused a loss to appellant and to the other stockholders of that corporation, is immaterial in this controversy. While it may impeach the wisdom of the purchase, it does not touch the power to enter into it. Believing that the bill of complaint sets up no equitable ground for relief, we affirm the decree of the Circuit Court. Affirmed.