Borg v. Illinois Terminal Co.

• Decision Date: 25 February 1927
• Docket Number: No. 3808.,3808.
• Citation: 16 F.2d 988
• Parties: BORG et al. v. ILLINOIS TERMINAL CO.
• Court: U.S. Court of Appeals — Seventh Circuit

16 F.2d 988 (1926)

BORG et al. v. ILLINOIS TERMINAL CO.

No. 3808.

Circuit Court of Appeals, Seventh Circuit.

December 22, 1926.

Rehearing Denied February 25, 1927.

Nathan G. Moore, of Chicago, Ill., for plaintiffs in error.

A. M. Fitzgerald, of Springfield, Ill., and E. J. Verlie, of Alton, Ill., for defendant in error.

Before ALSCHULER, EVANS, and PAGE, Circuit Judges.

PAGE, Circuit Judge.

This action was for damages for breach of a written contract between plaintiffs, a committee holding for foreclosure prior lien mortgage bonds of the Chicago, Peoria & St. Louis Railway Company, then in default, and defendant. A general demurrer to plaintiffs' declaration was sustained, and judgment entered thereon.

The terms of the contract, so far as here material, are: That plaintiffs should bring to a judicial sale the property covered by the mortgage, and, if no bid was made at such sale satisfactory to plaintiffs, they would cause the property to be purchased in their behalf by a nominee, such nominee to convey the property to a new corporation, to be organized for the purpose of acquiring and operating said property; that defendant was given the right and was to do certain things touching the new corporation: (a) Designate the state under the laws of which the new corporation was to be chartered; (b) specify the corporate powers thereof; and (c) fix the number of shares of its capital stock. The new corporation was to (a) issue $2,180,000 first mortgage bonds; (b) issue its capital stock, the bonds and one-fourth of the capital stock to go to plaintiffs, who were to cause the other three-fourths of the capital stock to be issued or assigned to defendant. Various payments of money were to be made by defendant. It was also provided that defendant, "due corporate action first having been had," would indorse an unconditional guaranty upon each of the bonds, in a form satisfactory to plaintiffs. While plaintiffs were proceeding to perform under the contract, but before any sale, the breach occurred.

The defenses are: That the contract is ultra vires, because defendant had no power to purchase the stock or guarantee the bonds; that the contract cannot be enforced, because not approved by either the Illinois Commerce Commission or the Interstate Commerce Commission.

Plaintiffs contend: (a) That the transaction was to be a lawful sale and purchase through foreclosure proceedings; (b) that what was said in the contract to be a guaranty was in fact not a guaranty, but an act for defendant's own benefit and within its implied powers; (c) that if it was a stock purchase, it was an act within defendant's general authority to conduct a railroad business, there being no limitation upon such authority, except the Illinois constitutional inhibition against one railroad acquiring parallel or competing lines; and (d) that the time for submission to either commission had not arrived.

Of the many questions raised, we deem it necessary to consider but one. Under the holding of this court in East St. Louis Connecting Ry. Co. v. Jarvis, 92 F. 735, the effect of what defendant undertook to do was to consolidate its road with the corporation which was to take the title to the property under the proposed foreclosure. Both companies were Illinois corporations, subject, so far as any consolidation might be concerned, to the Public Utilities Act of Illinois. See definitions, section 10, and intercorporate relations, section 27, Cahill's Ill....