Illinois Pneumatig Gas Co v. Berry

• Decision Date: 02 February 1885
• Parties: ILLINOIS PNEUMATIG GAS CO. v. BERRY and another
• Court: U.S. Supreme Court

113 U.S. 322

5 S.Ct. 525

28 L.Ed. 1003

ILLINOIS PNEUMATIG GAS CO. v. BERRY and another.

February 2, 1885.

W. H. Smith and C. W. Holcomb, for appellant.

Erwin Palmer, for appellees.

FIELD, J.

This case comes before us on appeal from the decree of the circuit court for the Eastern district of Michigan. The facts, so far as necessary to present the point of our decision, are as follows:

In 1869, and previous to March of that year, several persons interested in a patent for the manufacture of illuminating gas, and gas-machines known as 'Rand's Patent,' for the states of Michigan, Wisconsin, Illinois, and Lowa, agreed to unite their interests, obtain an act of incorporation from the legislature of Illinois, and do business in Chicago. They accordingly applied to the legislature of the state, and, on the twenty-fourth of March following, obtained an act duly incorporating them and their associates and successors under the name of the Illinois Pneumatic Gas Company. By its third section the corporation was invested with power to manufacture and sell illuminating gas, to be made from petroleum or its products under the patents owned or to be owned by the company, or in which it may have any title or interest, issued or to be issued to A. C. Rand; also to manufacture and sell the works and machine y, with all needed materials and appliances for such manufacture, and to make assignments and grant licenses under the patents in the same manner and to the same effect as if the corporation were a natural person.

In September, 1869, the corporators organized under the act of the legislaure, adopted a set of by-laws for the management of the affairs of the company, and, pursuant to them, elected a board of nine director, with full control of its property and franchises, and a president, secretary, and treasurer and general manager. The defendant Joseph H. Berry was chosen as one of the directors, and Mahlon S. Frost was chosen treasurer and gereral manager. From this time until the first of June in the following year, 1870, the company carried on at Chicago the business of manufacturing gas-machines But the business was not profitable, and the company ran in debt and became embarrassed. Judgments were recovered against it, upon which executions were issued and levied upon its property. It was without money or credit, or any available means of raising funds, and the forcible sale of its whole property was imminent. Under these circumstances the general manager, Frost, consulted the defendants as to the course which should be pursued, and, as the result of the conference, the defendants entered into an agreement with him to the effect that if he would take the property of the company and continue its business under his personal supervision and management, they would advance sufficient money to pay its outstanding debts and to carry on the business already obtained, and to develop and increase it. Having this agreement with the defendants, Frost made a proposition to the board of directors of the company to take its property and franchises for two years from June 1, 1870, continue its business for that period at his own expense, pay its existing liabilities, and at the end of two years return to the company the property received, and transfer to it the right to manufacture gas with a machine known as the 'Maxim Gas-machine,' and the right to sell the same in Illinois. This proposition was accepted by the directors and embodied in a written agreement, executed by the company through its president and secretary, bearing date on that day. This agreement is, in fact, a lease by the company to Frost, for the period of two years, of the good-will of its business, of its right to manufacture gas and gas-machines, of its franchises, machinery, implements, tools, and fixtures, and a sale of its gas fixtures then on hand, and machines then in process of being made, and its stock and materials, notes, book-accounts, claims, and demands. And the agreement provided that, in consideration of the lease and sale of the property, Frost should pay all the then liabilities of the company as the same matured, excepting the amount then due to him, (which was to continue a liability as though the agreement had not been made,) procure the right to vend the patented 'Maxim Gas-machine' for the state of Illinois, and at the end of the lease return to the company all the property received from it, and the business which he had built up or acquired. Frost was then a director of the company, and, upon the execution of the agreement, he took...