McBreen v. Iceco, Inc.

• Decision Date: 19 November 1956
• Docket Number: Gen. Nos. 46629,46951
• Citation: 12 Ill.App.2d 372,139 N.E.2d 845
• Parties: , Blue Sky L. Rep. P 70,335 E. Thomas McBREEN et al., Appellees, v. ICECO, Inc., a corporation, and Clemens J. Tafel, Appellant.
• Court: United States Appellate Court of Illinois

Page 845

139 N.E.2d 845

12 Ill.App.2d 372, Blue Sky L. Rep. P 70,335

E. Thomas McBREEN et al., Appellees, v. ICECO, Inc., a corporation, and Clemens J. Tafel, Appellant.

Gen. Nos. 46629, 46951.

Appellate Court of Illinois, First District, First Division.

Nov. 19, 1956.

Winston, Strawn, Black & Towner, Chicago, Edward J. Wendrow, Alexander J. Moody, Thomas A. Reynolds, Jr., Chicago, of counsel, for appellant.

Powers & Boyd, Chicago, for appellees.

BURKE, Judge.

On July 24, 1953, twelve plaintiffs filed a complaint under the Illinois Securities Law of 1919 against Iceco, Inc., an Illinois corporation, and Clemens J. Tafel and prayed that judgment be entered for each plaintiff for the amount paid for the stock of the corporation and attorneys' fees in the action. On October 28, 1953, a judgment aggregating $92,500, including $8,500 attorneys' fees, was entered in favor of the twelve plaintiffs and against the corporation in default of an answer. There was no appeal from this judgment. On February 11, 1954, an amended complaint was filed against Tafel. On October 22, 1954, a similar judgment was entered against Tafel on the amended complaint and his third amended answer. On November 17, 1954, the court denied defendant's motion to vacate the judgment and for leave to file his tendered answer instanter. Tafel, hereinafter called the defendant, appeals from the judgment and the order denying his motion to vacate the judgment. Subsequent to the filing of the briefs the defendant moved to reverse the judgment. From the suggestions and counter suggestions accompanying the motion it appears that on June 10, 1954, plaintiffs, as petitioning creditors, filed an involuntary petition under Chapter 10 of the Bankruptcy Act against the corporation in the United States District Court for the Northern District of Illinois, Eastern Division. The petition stated that plaintiffs were creditors of the corporation in the amount of $92,500 by virtue of the default judgment. The petition was subsequently approved as filed in good faith and an order was entered retaining the debtor-in-possession of its properties and business. By authority of an order entered on September 8, 1954, a trustee operated and managed the affairs of the corporation from September 13, 1954 to and including June 30, 1955. A proposed plan of reorganization submitted by the trustee was approved by a sufficient proportion of the stockholders and creditors. Three of the plaintiffs did not sign acceptances of the plan. Each of the remaining nine filed an acceptance 'without prejudice' to his rights as against Clemens J. Tafel in the then pending case.

On June 20, 1955, the District Court entered an order confirming the trustee's plan. The order directed the judgment creditors (plaintiffs) to turn over to the trustee each and every certificate of stock of the debtor upon which their judgments were based and instructed the trustee to cancel the certificates upon consummation of the plan and directed the trustee to cause to be issued to the judgment creditors promissory notes of the reorganized company. Pursuant to the order of the District Court the plaintiffs turned over to the trustee all of their stock in the corporation, and pursuant to the plan of the reorganization the trustee canceled the stock certificates and issued to plaintiffs $92,500 of promissory notes of the reorganized company, known as Schwartz Carbonic Company. Defendant urges that plaintiffs have no lawful right to collect on their judgment against him because they are no longer able to turn over to him the stock originally sold to them, but only promissory notes of a reorganized company; that the fact that the common stock was found to be worthless in the reorganization proceedings does not excuse plaintiffs from making a valid tender; that even if it be assumed that the alleged worthlessness of the common stock would excuse its tender, the preferred stock was not worthless and can no longer be tendered; that the contract must be rescinded in toto and cannot be rescinded in part; and that plaintiffs by accepting promissory notes in the reorganized company in exchange for their judgment against it and surrendering the common and preferred stock which formed the basis of the default judgment against it, have elected to collect and have collected their judgment from the corporation and cannot now collect their judgment against defendant because in legal effect it has also been satisfied.

Plaintiffs brought their action under Section 37(1) of the Illinois Securities Act of 1919, Ill.Rev.Stat.1953, c. 121 1/2, § 132(1), which provides:

'Every sale and contract of sale made in violation of any of the provisions of this Act shall be void at the election of the purchaser, and the seller of the securities so sold, the officers and directors of the seller, and each and every solicitor, agent or broker of or for such seller, who shall have knowingly performed any act or in any way furthered such sale, shall be jointly and severally liable, in an action at law or in equity, upon tender to the seller or in court of the securities sold, to the purchaser for the amount paid, the consideration given or the value thereof, together with his reasonable attorney's fees in any action brought for such recovery.'

It will be observed that this statute conditions liability upon tender to the seller or in court of the securities sold. In the instant case the seller is the corporation. The liability of the defendant is predicated on his position as an officer and director of the corporation. There is no requirement that there be a tender to the defendant. The tender had theretofore been made to the corporation. After the tender to the corporation, as disclosed in the complaint, the plaintiffs had the right to do any acts with respect to the stock certificates reasonably necessary to protect their interests. The issue as to tender should be made up and decided with the entry of the judgment. In our opinion it was unnecessary to tender the stock to the defendant. It had theretofore been tendered to the corporation. What plaintiffs did with the stock was all to the advantage and best interest of the defendant. Plaintiffs now hold notes of the reorganized corporation. Should there be a judgment against the defendant, he will receive credit for whatever amount plaintiffs receive in payment of the notes. Therefore, the motion of the defendant to reverse the judgment on account of the occurrences after the entry of the judgment is denied. Because of an inquiry by the court during the oral argument of the case, the defendant filed a petition in the Circuit Court in the nature of a writ of audita querela to vacate the judgment or in the alternative for a permanent stay of execution. The motion was based on the facts above recited. The court denied the motion. The defendant appealed from that order. That appeal was consolidated with the first appeal. The judgment of the Circuit Court in the second appeal (46951) is affirmed.

We turn to a consideration of the points urged in the appeal from the judgment for $92,500 entered on October 22 1954. The defendant insists that the amended complaint fails to allege causes of action and cannot support the judgment because it does not allege that the sales of stock were made to plaintiffs in this state. There is no right of action under the statute unless the sale complained of took place in Illinois. People ex rel. Brundage v. Hill Top Metals Mining Co., 300 Ill. 564, 133 N.E. 303; People, for Use of Moore v. J. O....