Precision Extrusions, Inc. v. Stewart, Gen. No. 48196

• Decision Date: 28 March 1962
• Docket Number: Gen. No. 48196
• Citation: 183 N.E.2d 547,36 Ill.App.2d 30
• Parties: PRECISION EXTRUSIONS, INC., Plaintiff, Appellee, v. Philip B. STEWART, II, Belton E. Hall and Samuel H. Duhl, Defendants, Third-Party Plaintiffs, Appellants, Wyckoff-Anderson, Inc., Third-Party Defendant, Appellant.
• Court: United States Appellate Court of Illinois

Page 547

183 N.E.2d 547

36 Ill.App.2d 30

PRECISION EXTRUSIONS, INC., Plaintiff, Appellee, v. Philip B. STEWART, II, Belton E. Hall and Samuel H. Duhl Defendants, Third-Party Plaintiffs, Appellants Wyckoff-Anderson, Inc., Third-Party Defendant, Appellant.

Gen. No. 48196.

Appellate Court of Illinois, First District, Third Division.

March 28, 1962.

Rehearing Denied and Opinion Modified April 26, 1962.

Bell, Boyd, Marshall & Lloyd, Chicago, Ill., Charles E. Herzog, Thomas R. McMillen, Chicago, of counsel, for defendants-appellants.

Peterson, Lowry, Rall, Barber & Ross, Chicago, Ill., Henry P. C. W. Barber, John

W. Gilligan, Chicago, of counsel, for third party defendant-appellant.

Miller, Gorham, Wescott & Adams, Chicago, Ill., John F. Arnold, Chicago, of counsel, for plaintiff-appellee.

McCORMICK, Presiding Justice.

A summary judgment in the sum of $12,500 was entered in the Superior Court of Cook County in favor of Precision Extrusions, Inc. (hereafter referred to as plaintiff) against Philip B. Stewart II, Belton E. Hall, and Samuel H. Duhl (hereafter referred to as defendants). It was alleged that the three defendants were directors of Stewart-Hall Corporation at the time it had purchased 1,275 of its own common shares from Monogram Glass Co., Inc. in alleged violation of sections 6 and 42 of the Business Corporation Act. The judgment for plaintiff was predicated on its second amended complaint, as amended. The trial court denied the defendants' motion to dismiss, and afterward they filed an answer and a counterclaim alleging setoff. No reply to the answer and no answer to the counterclaim were filed by the plaintiff. The court denied a petition for summary judgment in favor of the defendants.

The defendants' theory, as stated in their brief, is that the second amended complaint, as amended, did not state a cause of action; that the trial court should have sustained defendants' motion to dismiss; that the court erred in entering a summary judgment on plaintiff's motion because there existed disputed material issues of fact; and that the court erred in denying summary judgment in favor of the defendants.

The plaintiff contends that its second amended complaint, as amended, stated a good cause of action; that the summary judgment entered on plaintiff's amended motion for summary judgment was properly granted; that the court in entering the summary judgment on the motion had a right to and did consider defendants' answer to plaintiff's second amended complaint, as amended, defendants' counterclaim and affidavit of Stewart attached to the answer, together with the affidavits of John F. Arnold, Simon H. Alster and Roy H. Johnson in support of the motion for summary judgment, together with exhibits attached thereto, and in addition portions of the discovery deposition of Stewart, plaintiff's request for admissions, and defendants' answer thereto.

The plaintiff contends that the court properly entered a summary judgment since there were no disputed material issues of fact.

The plaintiff in its second amended complaint, after the formal allegations with reference to the adjudication in bankruptcy of the Stewart-Hall Corporation (hereinafter referred to as Stewart-Hall) and the assignment by the trustee, pursuant to order of the referee, of the chose in action (the basis of the present suit), alleged that the defendants were directors of Stewart-Hall and in such capacity on December 22, 1954 unanimously voted that Stewart-Hall purchase from Monogram Glass, Inc. (hereinafter referred to as Monogram) 1,275 shares of Stewart-Hall capital stock at the price of $10 per share and that Stewart-Hall should hold such shares in the treasury as treasury stock; that Stewart-Hall gave its check to Monogram for $12,750 as consideration for the purchase of said shares; that Monogram cashed the check and assigned and delivered to Stewart-Hall the certificate for the said stock. The complaint further alleges, in paragraph 5, that 'on said date, the net assets of Stewart-Hall Corporation were less than the sum of its stated capital, its paid-in surplus, any surplus arising from unrealized appreciation in value or revaluation of its assets and any surplus arising from surrender to Stewart-Hall Corporation of any of its shares.' In paragraph 9 it is alleged that 'said purchase was not for the purpose of eliminating fractional shares, collecting or compromising claims of Stewart-Hall Corporation, or securing any indebtedness to Stewart-Hall Corporation previously incurred, paying dissenting shareholders entitled to payment for their share in the event of a merger or consolidation or a sale or exchange of assets, or effecting the retirement of its redeemable shares by redemption or by purchase.' Paragraph 10 in the second amended complaint, as amended, alleged that such purchase was in violation of section 6 of the Business Corporation Act of the State of Illinois and, by reason thereof and by reason of the provisions of section 42 of the said Act, Stewart-Hall suffered damages in the amount of $12,500 and the defendants became liable to the said corporation therefor; and that plaintiff as the assignee of the aforesaid trustee in bankruptcy of Stewart-Hall is entitled to have and recover of the defendants the damages suffered as aforesaid.

The defendants had filed a motion to strike the first amended complaint of the plaintiff, which motion was by order of court ordered to stand against the second amended complaint, as amended. In the portions of that motion applicable the defendants have alleged that section 6 of the Business Corporation Act 'constitutes a penalty' and an action under that section is barred by the two-year statute of limitations; that section 6 does not create an action for damages against the director or officers of the corporation; that the trustee in bankruptcy had no cause of action which he could assign to the plaintiff since it appears from the amended complaint that the defendants did not receive the proceeds of the transaction complained of, and even if the trustee had a cause of action against the defendants it was not assignable under Illinois law.

The court overruled defendants' motion to strike, and the defendants thereupon answered the complaint.

It is, of course, the rule that a party pleading over after an adverse ruling on his objection to a complaint waives the right to object to the pleading or the ruling on the motion. However, this rule does not apply where the complaint totally fails to state a cause of action, and under such circumstances it is open to attack even though the defendant has pleaded over. 30 I.L.P. Pleading § 236; People ex rel. v. Powell, 274 Ill. 222, 113 N.E. 614; Wright v. F. W. Woolworth Co., 281 Ill.App. 495. The rule in subsection (5) of section 48 of the Practice Act, Ill.Rev.Stat.1961, c. 110, § 48(5), providing that pleading over after a denial by the court of a motion under the section does not waive any error in the decision denying the motion, is not applicable here.

In the instant case the defendants on appeal contend that the second amended complaint, as amended, failed to state a cause of action. The complaint is based upon paragraphs 157.6 and 157.42 of chapter 32, Ill.Rev.Stat.1953, which chapter contains the Act commonly known as the Illinois Business Corporation Act. Section 6 provides that a corporation shall have power to purchase its own shares provided 'that it shall not purchase, either directly or indirectly, its own shares when its net assets are less than the sum of its stated capital, its paid-in surplus, any surplus arising from unrealized appreciation in value or revaluation of its assets and any surplus arising from surrender to the corporation of any of its shares, or when by so doing its net assets would be reduced below such sum. Notwithstanding the foregoing limitations, a corporation may purchase [or otherwise acquire] its own shares for the purpose of: (a) Eliminating fractional shares. (b) Collecting or compromising claims of the corporation, or securing any indebtedness to the corporation previously incurred. (c) Paying dissenting shareholders entitled to payment for their shares in the event of a merger or consolidating or a sale or exchange of assets. (d) Effecting, subject to the other provisions of this Act, the retirement of its redeemable shares by redemption or by purchase at not to exceed the redemption price.' Section 42(a) provides: 'Directors of a corporation who vote for or assent to the declaration of any dividend or other distribution of the assets of a corporation to its shareholders shall be jointly and severally liable to the corporation for the amount of such dividend which is paid or the value of such assets which are distributed if, at the time of such payment or distribution, the corporation is insolvent or its net assets are less than its stated capital.' Section 42(b) provides that if a declaration of a dividend or distribution of assets of a corporation renders the corporation insolvent, etc., the directors who vote for or assent to such action shall be jointly and severally liable. Section 42 further provides that a director shall not be liable under either subparagraph (a) or (b) of this section if he relied and acted in good faith upon a balance sheet and profit and loss statement of the corporation represented to him to be correct by the president or the officer of such corporation having charge of its books of account, or certified by an independent public or certified public accountant or firm of such accountants to fairly reflect the financial condition of such corporation, nor shall he be so liable if in good faith in determining the amount available for any such dividend or distribution he considered the assets to be of their book value.

Under the law as it existed in Illinois before the adoption of the statute a corporation had the right to purchase its own shares where the purchase...