Wheeler v. Pullman Iron & Steel Co.

• Decision Date: 31 October 1892
• Citation: 32 N.E. 420,143 Ill. 197
• Court: Illinois Supreme Court
• Parties: WHEELER et al. v. PULLMAN IRON & STEEL CO. et al.

143 Ill. 197

32 N.E. 420

WHEELER et al.

v.PULLMAN IRON & STEEL CO. et al.¹

Supreme Court of Illinois.

Oct. 31, 1892.

Appeal from appellate court, first district.

Bill by Francis T. Wheeler and Lucius G. Fisher against the Pullman Iron & Steel Company, the Pullman Palace Car Company, the Pullman Loan & Savings Bank, George M. Pullman, and others, for the dissolution of a corporation. The bill was dismissed on demurrer, and this decree was affirmed by the appellate court. Complainants appeal. Affirmed.Ullmann & Hacker, for appellants.

Runnells & Burry, for appellees.

The other facts fully appear in the following statement by SHOPE, J.:

Appellants filed their bill in the superior court of Cook county against the Pullman Iron & Steel Company, the Pullman Palace Car Company, the Pullman Loan & Savings Bank, George M. Pullman, and others, alleging, in substance, that in October, 1883, Frank B. Felt, James P. Perkins, George M. Pullman, and John W. Doane were equal owners of a certain patent for the making of railway spikes. That such persons, for the purpose of manufacturing under said patent, organized and incorporated under the laws of Illinois the Pullman Iron & Steel Company, with a capital of $500,000, divided into 5,000 shares, of $100 each. That said capital stock was ostensibly paid in full, by the transfer to the company of said patent, and certain experimental machinery, which was of no value. Certificates of full-paid stock were issued, $125,000 to each of said parties, one half of which, that is, $62,500 by each, was returned to the company, to be sold, and the proceeds to be used as a working capital. Of this stock, 1,625 shares ($162,500, face value) were sold, from which was realized $100,000 in money; of which stock Fisher and Wheeler, complainants, each purchased, and still own, $5,000. The company erected works costing $116,000, being $16,000 in excess of cash realized from sale of stock, and to meet the deficit, and provide operating capital, bonds of the company, to the amount of $100,000, were issued, secured by mortgage upon its property, etc. Of these bonds, $25,000 were sold at par. It was found that the manufacture of spikes, to a limited extent only, was practicable, and was substantiallyabandoned, and the principal business of the company was changed to the manufacture and sale of bar iron. The company borrowed of the Pullman Loan & Savings Bank (of which George M. Pullman was and is president and principal stockholder) from time to time considerable sums of money, there remaining unpaid thereof, at the filing of the bill, $56,500. In December, 1886, by resolution of the board of directors of the company, the remaining $75,000 of the bonds of the company were ordered to be delivered to the said bank, which now claims to hold the same as collateral to such indebtedness of the company. That in September, 1885, the company owed said bank about the same amount that it owed it at the filing of the bill, and, its affairs being in a desperate condition, Pullman caused the Pullman Palace Car Company, another corporation, of which he was and is also president, to give the iron and steel company a line of credit, whereby it was enabled to purchase material, and to continue in operation, and which has continued to the filing of the bill. That by virtue thereof the iron and steel company has been enabled to make large purchases of iron and other material, and to build large additions to its works, for the manufacture of iron required by said Pullman Palace Car Company. That George M. Pullman, as the controlling stockholder of the iron and steel company, and the president of the Pullman Palace Car Company, ‘directed and ordered the entire business of the iron and steel company almost solely for the benefit of the palace car company, and dictated prices at which the iron and steel company should furnish its product to the car company which prices were so low that little or no profit was realized.’ It is also alleged that, if the iron and steel company had been allowed to manufacture bar iron and sell to the trade at market prices, it would have realized large profits, and been enabled ‘to discharge or largely reduce its indebtedness,’ but that ‘it is irretrievably and hopelessly’ insolvent, with liabilities in excess of $300,000, about $180,000 of which is claimed by its officers to be due the palace car company. It is then alleged that at the annual meeting of stockholders of the iron and steel company, held in 1886, and again in 1887, George M. Pullman (being the owner of a majority of the stock of the company) directed the election of certain persons who are named as directors of said company, and who were either officers or employes of the palace car company; and by like direction certain of the persons so chosen directors were elected president, secretary, and treasurer of the company. That ‘the whole management of the company is under the control of the Pullman Palace Car Company, and George M. Pullman as its president. That none of the officers or directors of the iron and steel company have any pecuniary interest therein, but hold their positions by direction of Pullman, and subject to his absolute control and direction.’ That the stock held by them is held for and in fact owned by Pullman. That the patent transferred to the company in ostensible payment for the subscriptions to its capital stock is worthless, and has been abandoned, and that the only value paid for any stock was the $100,000 received in payment for the 1,625 shares before mentioned as sold, which has been totally lost in the business. That, at the annual meeting in 1887, a statement showing the financial condition of the company was prepared, from which it appeared that the assets, including plant, amount to $279,618.19, and liabilities, $302,256.07; thus showing, as alleged, that its liabilities exceeded all assets over $20,000. That at the next annual meeting, being the one held next before the filing of the bill, the like statement shows assets, $290,046.60, and liabilities, $302,179.11; an excess of liabilities over assets of over $12,000. It is then alleged that, in order that justice be done, an account should be taken between the iron and steel company and the said palace car company and said bank, and charges that after the said iron and steel company shall have been given proper credits for the product of its manufacture sold to said palace car company, on the basis of what such product was reasonably and fairly worth in the market at the times of such sales, it ‘will be found to be indebted to said Pullman Palace Car Company in a sum greatly less than the amount now claimed by said palace car company.’ The prayer is that the corporation be dissolved, and its business closed up; that a receiver be appointed; that an accounting be had between ‘the parties aforesaid growing out of the matters and things aforesaid;’ that the assets of the corporation be marshaled and its liabilities ascertained, and the liability of its stockholders, to the corporation or to its creditors, be found, and they be decreed to pay the same, and, after the payment of liabilities of the corporation, the balance, if any, be divided pro rata among the stockholders, etc. A demurrer was interposed to the bill, and sustained, and the bill dismissed. On appeal to the appellate court this decree was affirmed, and complainants prosecute this further appeal.

SHOPE, J., ( after stating the facts.)

Without pausing to consider the ground of objection that the bill is multifarious, we are of opinion that the demurrer thereto was, on other grounds, properly sustained, and, complainants electing to stand by their bill, it was properly dismissed. It is insisted that the bill may be maintained upon either of two grounds: First, as a bill to dissolve the corporation, wind up its affairs, and distribute its assets; and, second, as a bill for an accounting between this corporation and the Pullman Palace Car Company and other creditors. In the absence of statutory authority, courts of chancery had no jurisdiction to decree a dissolution of a corporation, by declaring a forfeiture of its franchise, either at the suit of an individual or of the state. Verplanck v. Insurance Co., 1 Edw. Ch. 84;Doyle v. Petroleum Co., 44 Barb. 239;Folger v. Insurance Co., 99 Mass. 274;State v. Merchants' Ins. & T. Co., 8 Humph. 235;Attorney General v. Bank of Niagara, 1 Hopk. Ch. 354;Denike v. Lime, etc., Co., 80 N. Y. 605. The mode of enforcing a forfeiture of the charter at common law was by scire facias or quo warranto in courts of law only, and at the suit only of sovereign. The judgment in such cases, at law, relates...