Wise v. H.M. Byllesby & Co.

• Decision Date: 20 April 1936
• Docket Number: Gen. No. 38699.
• Citation: Wise v. H.M. Byllesby & Co., 285 Ill.App. 40, 1 N.E.2d 536 (Ill. App. 1936)
• Parties: WISE v. H. M. BYLLESBY & CO. ET AL.
• Court: Appellate Court of Illinois

285 Ill.App. 40

1 N.E.2d 536

WISE

v.H. M. BYLLESBY & CO. ET AL.

Gen. No. 38699.

Appellate Court of Illinois, First District, First Division.

April 20, 1936.

Appeal from Superior Court, Cook County.

Mandamus proceeding by Benedict S. Wise against H. M. Byllesby & Company and others.Judgment for plaintiff, and defendants appeal.

Affirmed.Cummins, Hagenah & Flynn, of Chicago (James F. Burns and Francis E. Donnelly, both of Chicago, of counsel), for appellants.

Rosenthal, Hamill & Wormser, of Chicago (Willard L. King and George W. Gale, both of Chicago, of counsel), for appellee.

MATCHETT, Justice.

On August 5, 1935, Wise filed a petition against H. M. Byllesby & Co. and certain of its officers, praying a writ of mandamus to compel them to permit petitioner and his duly authorized agents and attorneys to examine at reasonable and appropriate times the books, records, etc., of the corporation.The petition was based on section 45 of the Business Corporation Act(Smith-HurdAnn.St. c. 32, § 157.45, Ill.Rev.Stat.1935, c. 32, par. 45, p. 857).It was averred in the petition that for at least six months prior to July 13, 1935, and continuously since that date, petitioner was a stockholder of defendant corporation; that during that time he was the owner of 475 shares of Class A and 25 shares of Class B stock therein; that defendant corporation was organized under the laws of the state of Delaware, but for many years had been authorized to do business in Illinois; that its principal office and place of business was in the city of Chicago, and that the minutes of the meetings of its board of directors and other records were kept at 231 South La Salle street, Chicago, and were in the control of some of the defendants; that July 13, 1935, pursuant to section 45, petitioner demanded the right to examine the books, records, etc.The demand, a copy of which is set up in the petition, was in writing and stated the purposes of the examination to be “to determine the true value of the company's capital stock; its prospective ability to pay its secured debt due in July, 1935, its ability to pay any other matured or maturing debts or obligations; the dealings between the corporation, its officers and directors, and subsidiary affiliated and controlled corporation, their officers and directors; and whether there are any liabilities to the corporation by the officers and directors thereof, or by others, in connection with its affairs.”The notice further stated that in default of such opportunity to examine, an application would be made to a court for relief.

The petition also averred that petitioner's duly authorized agents appeared at the principal office of defendant company at 231 South La Salle street on August 1, 1935, during regular business hours, and demanded the privilege of making such examination, which was refused; that he now wishes to examine the books and records for the purposes above set forth.

August 17th defendants filed a demurrer to the petition which on August 26th the court struck from the files and entered an order, giving defendants 20 days to plead.September 15th defendants filed a motion to dismiss the petition for insufficiency on the ground that section 45 was not applicable to foreign corporations, such as defendant company.This motion was denied September 23d, and September 28th defendants filed their answer, in which they admitted certain facts alleged in the petition but upon information and belief denied that the notice served was in accordance with and pursuant to section 45 of the Business Corporation Act.They admitted that the representatives of plaintiff went to the office of defendant corporation on August 1, 1935, and demanded the right to examine the books and records, as alleged, and that their demand was refused, but denied that the refusal was wrongful and contrary to the provisions of section 45; averred that they have no knowledge upon which to form a belief as to allegations made as to the alleged purposes for which petitioner desired to have the examination made; but denied the allegation that the corporation or its officers and agents knew the purposes of the examination desired, or that the purposes were proper, as required by law.As a further defense they averred that section 45 was not applicable to Byllesby & Co., because it is a foreign corporation organized and existing under the laws of the state of Delaware.As a further defense, the answer avers that during all the time in which petitioner has been a stockholder, defendant company has issued full and complete reports from time to time to all of its stockholders, and that copies of these reports have at all times been mailed and have been available to petitioner; that said reports have correctly stated the true condition of the business and affairs of defendant company; and that at no time have defendants been requested by petitioner to furnish him any information regarding the affairs of the defendant corporation prior to the time of the filing of the request for inspection which is made the basis of the action.

The petition and the answer to it were duly verified.

October 2, 1935, petitioner moved to strike the answer as insufficient in law for the reason that it contained no averment of any fact or facts constituting a defense to the action, and that the answer did not deny any material facts alleged in the petition.This motion was overruled.The evidence was heard, and on the day of the hearing, October 3d, the court entered its judgment, granting the writ as prayed.The order finds the facts as stated in the petition with reference to the ownership of stock in the corporation by petitioner; that the corporation was organized under the laws of Delaware but has been duly qualified and authorized to do business in the state of Illinois; that its principal place of business is in Chicago and the records are kept at 231 South La Salle street; that the persons defendants are officers of the defendant company; that demand was made on July 13, 1935, by petitioner in accordance with and pursuant to section 45 of the Business Corporation Act; that the authorized agents of petitioner went to the principal office of the corporation at 231 South La Salle street on August 1, 1935, during the regular business hours, and demanded of persons in charge the right to examine the books and records of accounts, etc.; that the demand was refused; that petitioner desired and now desires to examine such records, etc., in order “to determine (1) the true value of said corporation's capital stock; (2) its prospective ability to pay its secured debt due in July, 1935, whether said debt has been paid, and if unpaid the conditions thereof and of the collateral securing the same, and the agreements relating thereto; (3) its ability to pay any other matured or maturing debts or obligations; (4) the dealings between said corporation, its officers and directors and subsidiary, affiliated and controlled corporations, their officers and directors; and (5) whether there are any liabilities due to the corporation from the officers and directors thereof, or from others in connection with its affairs; and that said corporation and its officers and agents in control of its said books and records of account, minutes, and record of shareholders knew that such were the purposes of the examination sought by the petitioner; that each of said purposes was and is a proper purpose.”It was therefore adjudged that the writ issue, and from this judgment defendants prosecute this appeal.

It is urged as reason for reversal that the trial court erroneously ruled that section 45 of the Business Corporation Act gave petitioner an absolute right to examine the books and records of the corporation regardless of his purpose or the effect thereof on the corporation or other stockholders, and Miller v. Spanogle, 275 Ill.App. 335, is cited.There was an extended colloquy between court and counsel, in which the trial judge explained his reasons for granting the prayer of the petition.We do not understand that the court proceeded upon the theory that the right of examination was absolute or that section 45 had not changed the law as heretofore announced in cases of which Venner v. Chicago City Ry. Co., 246 Ill. 170, 92 N.E. 643,138 Am.St.Rep. 229,20 Ann.Cas. 607;Furst v. W. T. Rawleigh Medical Co., 282 Ill. 366, 118 N.E. 763, are illustrative.

The averments of the petition conform to the requirements of the statute concerning the necessary qualifications of a stockholder entitled to make a demand and sue and the purpose for which such examination is desired.At the trial petitioner appeared as a witness and gave evidence tending to support these averments.He was cross-examined at length, but the cross-examination did not disclose unworthy motives.Although perhaps he was not required so to do, petitioner assumed the burden of proof and established a prima facie case, which was not contradicted.It is true, we think, that under the statute the right of examination is not absolute but qualified and limited to the class of stockholders, whose interests are such as described in the statute and who desire an examination for a purpose which is not...