Somers v. AAA Temporary Services, Inc.

• Decision Date: 05 May 1972
• Docket Number: No. 55726,55726
• Citation: 5 Ill.App.3d 931,284 N.E.2d 462
• Parties: Wesley SOMERS, Plaintiff-Appellee, v. AAA TEMPORARY SERVICES, INC., an Illinois corporation, and Lillian Raimer, Defendants-Appellants, Michaelene Kay, Defendant.
• Court: United States Appellate Court of Illinois

Page 462

284 N.E.2d 462

5 Ill.App.3d 931

Wesley SOMERS, Plaintiff-Appellee, v. AAA TEMPORARY SERVICES, INC., an Illinois corporation, and Lillian Raimer, Defendants-Appellants Michaelene Kay, Defendant.

No. 55726.

Appellate Court of Illinois, First District, Fifth Division.

May 5, 1972.

Rehearing Denied June 6, 1972.

Edward W. Barrett, Chicago, for defendants-appellants; Crowley, Barrett & Karaba, of counsel.

Morris Sostrin, Chicago, for plaintiff-appellee; Reinwald & Sostrin, of counsel.

LORENZ, Presiding Justice.

This case involves an action brought to declare invalid the action by the two sole shareholders of a corporation amending the corporate by-laws to reduce the number of directors from three to two. The plaintiff, Wesley Somers, was not a shareholder but was the third director whose position was eliminated by the change in the by-laws. The trial court entered judgment on the pleadings in favor of plaintiff. From that judgment the defendant corporation and Lillian Raimer, one of the Shareholders, now appeal. Defendant Michaelene Kay, the other shareholder, did not file an appearance in the trial court nor is she prosecuting this appeal.

Defendant corporation, AAA Temporary Services, Inc., (hereinafter referred to as the 'corporation') was incorporated under the laws of the State of Illinois on April 29, 1967, for the purpose of furnishing and supplying temporary stenographers, clerical, industrial and other forms of male and female help and assistance. Its issued and outstanding capital stock at the time plaintiff filed his action consisted of 50 shares of common stock. Twenty-five of these shares were owned by defendant Lillian Raimer, who was the president of the corporation; the remaining twenty-five shares were owned by defendant Michaelene Kay, who was the secretary and treasurer of the corporation. Plaintiff did not own any shares at the time he filed his action, nor had he ever owned any of the capital stock of the corporation.

The corporation's articles of incorporation provided that 'The number of directors to be elected at the first meeting of the shareholders is three.' It is undisputed that the first meeting of shareholders was held on May 2, 1967. The three directors elected at that meeting were Lillian Raimer, Michaelene Kay and Wesley Somers. The by-laws were adopted shortly after incorporation and provided in pertinent part that 'Each director shall hold office until the annual meeting of shareholders, or until his successor shall have been elected and qualified.' The by-laws also called for an annual meeting of the shareholders to be held on the second Monday of each year. The by-laws further provided that a regular meeting of the board of directors would be held '. . . immediately after, and at the same place as the annual meeting of shareholders.'

No annual meeting was held on the second Monday in 1968 nor at any time during 1968. The second Monday in 1969 was on January 13, 1969. On that date, defendant Lillian Raimer contends that she and Michaelene Kay, the sole shareholders of the corporation, signed a waiver of notice of the annual shareholders meeting. The meeting was then allegedly conducted for the purpose of, among other things, amending the by-laws of the corporation to reduce the number of directors from three to two. Thereupon, the by-laws were purportedly amended to provide that the 'number of directors shall be two.' The two shareholders then elected themselves as the two directors, signed a waiver of notice for the annual directors' meeting and conducted the directors' meeting.

Plaintiff denies that the annual shareholders' and directors' meetings for 1969 were actually convened or held on January 13, 1969. He further contends that the actions allegedly taken at the meetings by the two shareholders were not discussed until the last several days of January, 1969. Even if it is conceded that such meetings were held, it is appellee's contention that the resolutions adopted by the shareholders were unlawful and not within the power and authority of the shareholders. Accordingly, plaintiff brought an action to declare invalid the action by the shareholders reducing the number of directors from three to two. Upon his motion for judgment on the pleadings, the trial court declared the reduction of directors by the two shareholders to be illegal and void, found the correct number of directors of the corporation to be three not two and held that Wesley Somers is still a director of the corporation. Defendants Lillian Raimer and the corporation appeal from the trial court's judgment on the pleadings.

Opinion

Appellants urge that the principal question presented on appeal is simply whether the two sole shareholders of a close corporation may validly agree that the by-laws of the corporation be amended to reduce the number of directors from three to two and thereupon elect themselves as the two sole directors. We feel that this statement of the issue is somewhat misleading in view of the facts in this case. The question is not whether such an agreement can be made. At issue is whether the shareholders have the power to amend the by-laws where, as here, such power has not been reserved to the shareholders by the Articles of Incorporation.

The Illinois Business Corporation Act provides that the number of directors may be increased or decreased by amendment to the by-laws. Ill.Rev.Stat.1969, ch. 32, par. 157.34. The Act further states that the power to amend the by-laws is 'vested in the board of directors, unless reserved to the shareholders by the articles of incorporation.' Ill.Rev.Stat.1969, ch. 32, par. 157.25. The power to amend the by-laws of AAA Temporary Services, Inc. was not reserved to the shareholders by its Articles of Incorporation. Therefore, this power would rest with the directors. It is clear that the...