Faulds v. Yates

• Decision Date: 30 September 1870
• Citation: 57 Ill. 416,11 Am.Rep. 24,1870 WL 6647
• Parties: JOHN FAULDSv.WILLIAM YATES et al.
• Court: Illinois Supreme Court

57 Ill. 416

1870 WL 6647 (Ill.)

11 Am.Rep. 24

JOHN FAULDS

v.WILLIAM YATES et al.

Supreme Court of Illinois.

September Term, 1870.

OPINION TEXT STARTS HERE

WRIT OF ERROR to the Circuit Court of Iroquois county; the Hon. CHARLES H. WOOD, Judge, presiding.

Messrs. DENT & BLACK, and Mr. EDWARD H. BRACKETT, for the plaintiff in error.

Mr. W. BUSHNELL, and Mr. J. C. CHAMPLIN, for the defendants in error.

Mr. JUSTICE THORNTON delivered the opinion of the Court:

The Chicago Carbon and Coal Company, a corporation organized under a special law, issued certain shares of stock. A majority of the shares were purchased by plaintiff in error. The company owned a large amount of lands, valuable for coal, and had leased them to one Kirkland until May 1st, 1866, with the privilege of a renewal for three years, in consideration of 15 cents per ton for each ton of coal mined, until the opening of certain new mines by the company. After that he was to pay $5000 per year as rent for the demised premises. Kirkland assigned this lease to Faulds, Yates and Bunn, and this transfer was approved and consented to by the company, by a resolution entered upon its minutes, on the 31st of January, 1866. They assumed, by an indorsement on the lease, all the responsibility and liability which Kirkland was subject to by virtue thereof.

On the 1st of February, 1866, Faulds, Yates and Bunn executed articles of co-partnership, in which the stock owned by Faulds was valued at $60,000, and Yates and Bunn agreed to purchase two-thirds of it for $40,000, and Faulds was to superintend the mining operations, and Yates and Bunn to furnish two capable men to sell coal, and generally manage the financial affairs of the concern; and it was expressly understood that each party was to be equally interested in the business. These parties embarked their money, in equal proportions, in the purchase of this lease, for the purpose of prosecuting mining operations, and the development of the mineral resources of the Chicago and Carbon Coal Company. The written agreement constituted essentially a partnership. It was a voluntary contract, between persons, to place their money in a lawful business, and to share the profits and loss in equal proportions.

The shares of stock purchased by defendants in error were paid for, and after the formation of the partnership the mining operations commenced, and continued until December, 1866. During this time the defendants in error furnished to Faulds over $19,000, which were used by him in carrying on the business. This amount was expended by him, and yet no profits were realized by Yates and Bunn; and Faulds failed to pay his share, or indeed any part, of the expenditures.

After the formation of the partnership, Faulds purchased the “Sanger tract” of land, as it is known in the record, for $8,000, but represented to Yates and Bunn that he had paid for the same $9000; that this tract was essential to their successful operations; and induced them to purchase two-thirds of the tract at $6000, which they paid, but received no deed to the land. The agreement was, that a deed should be made.

In December, 1866, Faulds abandoned the work, and wholly failed to perform his part of the agreement, and soon after, Yates and Bunn commenced their suit in chancery, for a dissolution of the partnership, and an account and the conveyance to each of them of the undivided one-third of the “Sanger land.”

The bill charges fraud and misrepresentation in regard to the sale of the shares of stock. The misrepresentation is fully proved, but was prior to the formation of the partnership. The representations, in regard to the value and cost of the stock, were proved to be untrue; but they were made, as recited in the written contract between the parties, before its execution.

It may fairly be deduced from the evidence that the “Sanger tract” was purchased by Faulds with the design that it should constitute a part of the partnership property.

The court below decreed that the plaintiff in error convey to each of the defendants in error the one undivided third of the “Sanger tract,” and pay to them $666.67, the excess paid by them for the Sanger land, and the one-third part of $19,259.16, the amount advanced by defendants in error in the mining operations.

A reversal of this decree is asked for, upon the following grounds: 1st. That the agreement between the parties is void, as against public policy. 2nd. That there can be no chancery jurisdiction arising out of the Sanger tract of land, and that there was full remedy at law. 3d. That the evidence does not sustain the allegations of fraud.

There were 1300 shares of stock of the Chicago Carbon and Coal Company, not owned by Faulds, Yates and Bunn. They did, however, own more than one-half of the shares; and it was provided in the agreement between them, that they would elect the directors of the company; that they would determine among themselves as to the officers and management of the company, and that if they could not agree, they would ballot among themselves for the directors and officers, and that the majority should rule, and their vote be cast as a unit, so as to control the election.

It is contended that these parts of the agreement were intended for dishonest and fraudulent purposes, and were in conflict with the interests of the other stockholders, and absolutely void.

It should be remembered that the lease, by virtue of the assignment and renewal of which these parties obtained possession of the property, was made in 1863; and hence its terms and conditions were determined three years before Faulds, Yates and Bunn purchased any stock. The old board of directors approved the renewal of the lease, and then these parties, and two others, were elected directors.

The record wholly fails to disclose any injury to the other shareholders--any waste of the property; but, on the contrary, it appears that Bunn and Yates furnished for the improvement of the property over $19,000. There was no fraud in the agreement, which has been so bitterly assailed in the argument. There was nothing unlawful in it. There was nothing which necessarily affected the rights and interests of the minority. Three persons, owning a majority of the stock, had the unquestioned right to combine, and thus secure the board of directors and the management of the property. Corporations are governed by the republican principle, that the whole are...