Marshall v. Keach

• Decision Date: 18 April 1907
• Parties: MARSHALL v. KEACH.
• Court: Illinois Supreme Court

227 Ill. 35

81 N.E. 29

MARSHALL

v.KEACH.

Supreme Court of Illinois.

April 18, 1907.

Appeal from Circuit Court, Clark County; E. R. E. Kimbrough, Judge.

Bill by Charles T. Marshall against L. H. Keach for specific performance of a contract for an exchange of property. From a decree dismissing the bill, complainant appeals. Reversed and remanded.F. K. Dunn and J. H. Marshall, for appellant.

H. A. Neal, for appellee.

On February 14, 1906, a contract was entered into between appellant and appellee whereby the latter agreed to trade his farm of 160 acres, in Clark county, Ill., for 100 shares of stock of the Marshall Warehouse Company and $8,800 additional, making the total consideration for the farm $20,000. Appellant owned all but two shares of stock of the said warehouse company, which was located in Charleston, Coles county, Ill. The contract contained, among others, the following provisions: Appellant agrees ‘to deliver to second party [appellee] the entire one hundred shares of the capital stock of the Marshall Warehouse Company (inc.) at a consideration of $11,200, first party to have ten days in which to secure the acceptance of a loan of $8,800, at five per cent. per annum, from three to five years on the one hundred and sixty acres hereby traded for, and in case of failure to secure said loan the second party has right until April 1, 1906, to secure said loan and first party to pay one per cent. commission for said loan, and in case neither party can secure said loan then this agreement is null and void; said $8,800 to be paid said second party and first party to assume said mortgage of $8,800.’ In consideration of the agreements on the part of first party, second party agrees to convey, by warranty deed, the farm in question at a consideration of $20,000, ‘subject to oil and gas lease to Ohio Oil Company, which second party shall use best efforts to have released on record, and in case of failure to get released, agreement to be void at option of first party without any damage or cost on either party, provided if one hundred and forty acres of said one hundred and sixty acres is released then agreement to stand. Second party to furnish abstract title in him, subject to above oil lease and also subject to mortgage of $8,800, which second party is to pay off and release. Second party to make said deed also subject to farm lease to Sim White; each party to pay the taxes for 1905 on property now owned by him. Earnings on warehouse to belong to first party until March 1, 1906, afterward to second party. First party is to be responsible for all goods and merchandise now in warehouse until checked over to second party, $500 forfeit to be put up by each party with Lucien Wheatly. All deeds and papers to be passed and this negotiation closed as soon as terms of this agreement can be complied with. Time is declared to be of the essence of this agreement.’

The parties proceeded to act under the agreement. There was some delay in procuring the loan mentioned, but neither party made any point of it at the time. Appellant finally procured a loan of $7,000 (instead of $8,800, as provided) from the Northwestern Mutual Life Insurance Company, and appellee executed a mortgage to said company on said farm, and accepted the $7,000, in the form of a draft, as part payment of the additional consideration of $8,800 provided for; the payment of the remaining $1,800 being held in abeyance until the final settlement of the trade.

Appellant's warehouse was located on land belonging to the Big Four Railroad, and by that company leased to him; the last lease being dated July 5, 1901, and running for one year from January 1, 1901, since which time the same rental had been paid and the same conditions obtaining as during the term of the written lease. The lease contained provisions that it might be terminated on 60 days' notice, and there were certain other reservations of rights to the lessor or licensor.

When the trade was about to be closed, the parties met on May 28, 1906, in the office of the attorney for appellee, in Charleston, to examine the papers. After such examination, the attorney reported that they were not regular, in that the Marshall Warehouse Company had not filed with the recorder of deeds of the county its certificate of incorporation. Appellant stated that he thought he had filed this paper for record, and, accompanied by appellee, went to the recorder's office, but found no record of incorporation. On their return with this report, appellee's counsel suggested that he could draw up certain papers that would flx it up. Appellant requested that this be done, and appellee seemed to acquiesce in the request-at least he made no objection, although present. Appellee's counsel thereupon drew a deed to be executed by appellant and his wife, and wrote out a resolution to be adopted by the warehouse company authorizing the sale of its stock. Appellant and his wife executed this deed, which was also signed by himself as president of the company and his son as secretary. He also procured the adoption by the stockholders of the company of a resolution drawn by appellee's counsel authorizing the assignment of the certificates of stock to appellee. He also obtained, at the request of appellee's counsel, a certificate of an abstract company that there were no judgments against appellant or the warehouse company. After these papers had all been duly executed in accordance with the request of appellee's attorney, and on the same day that the parties had gathered in reference to closing the trade, appellant came with these papers to the office of appellee's attorney and presented them to appellee in the presence of the attorney. Then for the first time appellee expressed to appellant some doubt about consummating the trade, and suggested that he would let the appellant know positively the next morning what he would do.

At the time of these conferences at the office of appellee's attorney, it seems that the contract in question had not been examined by the latter, and he did not know its contents. Appellee testified that he did not suggest that the papers drawn by the attorney should be drawn, and that he gave his attorney no authority to make the suggestions he did. His attorney testified to the same effect, stating that these suggestions were made by himself before he had seen the contract in question, and without any authority from appellee. Appellee was present at the time the suggestions were made, and raised no objection. The same day that all these conferences took place, appellant, appellee, and another party went to the warehouse of appellant and checked over the grain and other property in the building. The next morning appellant tendered the deed, the stock, and a certified check for $1,800; but appellee said he did not know anything about checks, and refused to accept the offer. Appellant then obtained $1,800 in gold, and again tendered the deed, the stock, and this $1,800 in gold, together with the other papers that had been prepared at the request of appellee's attorney. Appellee refused to accept the tender, saying that he did not consider that he was obligated to proceed with the trade. Up to this time he had made no objection that the trade was not consummated within the time set out in the original contract, nor as to the mortgage on the farm being $7,000, instead of the $8,800 provided in the contract. So far as can be gathered from the evidence, the only objection that he raised was the fact that the certificate of incorporation had not been recorded in the recorder's office. Appellant paid the commission for the loan of the $7,000 from the Northwestern Life Insurance Company. Appellee testified that he intended to pay this, but on inquiry, after the suit was started, he found that appellant had paid it.

On May 30, 1906, appellant filed a bill in the circuit court of Clark county asking for specific performance of the contract. Appellee answered, denying that there was such a corporation as the Marshall Warehouse Company and averring that the pretended certificates of stock were valueless and void. On hearing before the circuit court the bill was dismissed, and an appeal was thereupon prayed to this court.

CARTER, J. (after stating the facts).

The main question in this case is whether, under the terms of the contract, appellant, directly or by implication, warranted that the Marshall Warehouse Company was a corporation de jure. Appellant contends that under the contract in question he gave no direct or implied warranty that the capital stock that he was selling was that of corporation de jure; that the seller of negotiable securities of this kind only warrants that they belong to him, and that they are not forgeries. He also contends that the Marshall Warehouse Company was a de facto corporation, and that the appellee is not in any way injured by the failure to have the certificate of incorporation recorded. This court has held that to create a de facto corporation there must be a law under which said corporation may be created, together with user under the law. American Trust Co. v. Minnesota & Northwestern Railroad Co., 157 Ill. 641, 42 N. E. 153. We have also held that where there was an honest attempt of the corporators to organize a corporation under the laws of the state, and all the necessary steps had been taken except that the final certificate had not been recorded by the recorder of deeds, and that thereafter the necessary officers had been elected, who had proceeded to the transaction of business as a corporate body, these facts would establish a corporation de facto. Bushnell v. Consolidated Ice Machine Co., 138 Ill. 67, 27 N. E. 596. A corporation is a de facto one where the law authorizes such corporation, and where the company has made an effort to organize under that law, and is transacting business in the corporate name. 1 Cook on Stock & Stockholders & Corporation Law ...