Appeal from the Circuit Court of Sangamon county; the Hon.
DeWITT S. CROW, Judge, presiding. Affirmed.
JUDGE REYNOLDS DELIVERED THE OPINION OF THE COURT.
Rehearing denied June 11, 1956.
The plaintiff, Central Standard Life Insurance Company, as holder of 4098 shares of the preferred stock of the Abraham Lincoln Hotel Company, an Illinois corporation, filed suit in chancery in the circuit court of Sangamon county as a class action on behalf of itself and the other holders of preferred capital stock of said corporation, asking the court to direct a sale of the assets of the hotel company and to liquidate the corporation. To the complaint the defendant corporation filed an answer and a separate defense of estoppel. After the suit was started, Charles H. Mitchell intervened and answered the complaint, as an intervening defendant. In addition, the Abraham Lincoln Hotel Operating Company, an Illinois corporation, as lessee of the hotel, and C. Hayden Davis, F.M. Condit and E.E. Nicholson, holders of common capital stock of the Abraham Lincoln Hotel Company named as defendants, filed their answer. The matter was referred to a master in chancery, and on December 3, 1954, the master in chancery, in his report, held that there was no evidence of any dissent by the plaintiff or its predecessor in title to any action taken by the boards of directors or stockholders, and that the actions of the defendants, C. Hayden Davis, F.M. Condit and E.E. Nicholson had not been illegal, oppressive or fraudulent, and that the action should be dismissed. The plaintiff filed objections to the master's report, which were overruled and these objections by agreement of the parties stood as exceptions to the court, and on January 10, 1955, the court overruled the exceptions to the report of the master in chancery and approved the same and dismissed the plaintiff's complaint for want of equity. From that decree the plaintiff appeals to this court.
The Abraham Lincoln Hotel Company was incorporated about May 1, 1924. The corporation acquired real estate and a leasehold interest in certain property for the site of the hotel, and on August 1, 1924, issued $700,000 of first mortgage bonds bearing interest of 6 per cent secured by lien on the fee, leasehold interest and building of the corporation. At that time 7250 shares of preferred capital stock were issued of $100 par value per share, carrying a 7 1/2 per cent cumulative dividend provision. These shares of preferred stock were sold for $725,000. At the same time, the corporation issued 8000 shares of the common stock without par value, which were sold at $5 per share, or a total of $40,000. Of the shares of stock issued, both preferred and common, the plaintiff at the time of the commencement of the suit held 4098 shares of the preferred stock. The others were scattered among approximately 400 owners, and C. Hayden Davis owned 7990 shares, F.M. Condit owned 5 shares and E.E. Nicholson owned 5 shares of the common stock, the three holding all of the common stock.
The Abraham Lincoln Hotel Operating Company, an Illinois corporation, defendant herein, was organized to operate the hotel, and on June 1, 1944, entered into a lease with the Abraham Lincoln Hotel Company for the lease of the hotel. This lease was for 15 years and expires on August 1, 1959. By the terms of the lease the operating company was to pay all general and special taxes, ground rents, certain insurance and other expenses, and one-half of the profits from the operation of the hotel as rent. After the suit was commenced on April 24, 1954, C. Hayden Davis, Mabel E. Davis and John Hayden Davis sold to Charles H. Mitchell for the sum of $1,500,000, 8000 shares of common stock and 127 shares of the preferred stock of the Abraham Lincoln Hotel Company, 4051 shares of the common capital stock and 418 shares of the preferred capital stock of the Abraham Lincoln Hotel Operating Company, together with the fixtures, furnishings, equipment, merchandise and other chattel property of the hotel and the drug store located in the said hotel building. By reason of his interest in the said hotel company and the operating company, Charles H. Mitchell was permitted to file an intervening petition and answer in this cause on May 25, 1954.
There is no dispute as to certain of the facts. C. Hayden Davis, through his ownership of approximately 8000 shares of the common stock, was in control of the Abraham Lincoln Hotel Company, and by his ownership of practically all of the stock of the Abraham Lincoln Hotel Operating Company, was also in control of that corporation. It is not disputed that no dividends have been paid on the preferred stock of the Abraham Lincoln Hotel Company since 1931. There is a dispute as to the value of the hotel, the plaintiff claiming and submitting evidence to the effect that the hotel is worth approximately $700,000 to $1,000,000. The defendants deny this and claim that the property and net assets of the hotel company is in excess of $2,000,000, and in support of their estimate show the appraisal of the property by Lloyd-Thomas Company showing net value of the property at $2,150,273.77, and the purchase by Charles Mitchell of the stock and merchandise of the hotel operating company for $1,500,000. The plaintiff, who seeks to make this a class action on behalf of itself and the other stockholders, sets up as grounds for its complaint that the acts of C. Hayden Davis and those in control of the hotel corporation are illegal, oppressive or fraudulent; that the corporate assets of the company have been misapplied or wasted and asks the court to order, direct and decree that the assets and business of the hotel company be liquidated; that a receiver be appointed; that the property of the hotel company be sold upon such terms and conditions as to the court shall seem proper, and the proceeds of the sale be applied to extinguish the indebtedness of the hotel company, and that any proceeds from the balance be turned over and delivered to the holders of the preferred stock. The principal question before this court is whether or not a court of equity under the conditions here shown has the authority and right to liquidate the assets and business of a corporation. The other question is whether or not the plaintiff's predecessor in title to the stock of the hotel company acquiesced in the actions of the boards of directors or stockholders and is therefore estopped.
In discussing the right of the minority stockholders to dissolve the corporation, the plaintiff cites the case of Wheeler v. Pullman Iron & Steel Co., 143 Ill. 197. This is an old case, decided long before the enactment of the present corporation act, but the law as laid down then is equally applicable today. In that case, it was said: "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. . . . The mode of enforcing a forfeiture of the charter at common law was by scire facias or quo warrantor in courts of law only, and at the suit, only, of the sovereign. The judgment in such cases, at law, relates solely to the right to exercise the corporate franchise, and operates to extinguish corporate existence. In respect of trade corporations, independently of statutory provision, and notwithstanding the dissolution of the corporation, its assets belong to those who contributed to its capital and for whom it stood as representative in the business in which it was engaged, and are treated in equity as a trust fund, to be administered for the benefit of the bona fide holders of stock, subject to the just claims of creditors of the corporation." And the court in that case continuing, said: "The necessity for invoking the aid of a court of equity after judgment of forfeiture at law, that court alone being competent to reach and administer the fund, has led to statutory enactments vesting courts of equity with jurisdiction to decree a dissolution of the corporation and to wind up its affairs, in given cases, at the suit of an individual beneficiary of the fund. The power to confer such jurisdiction by statute, as one of the powers over corporations reserved by the State, has been uniformly recognized, and nowhere more clearly than in this State . . . and whenever the power of the court of chancery has been properly invoked the jurisdiction has been sustained. Life Ass. of America v. Fassett, 102 Ill. 315; Chicago Life Ins. Co. v. The Auditor, 101 Ill. 82; Mining Co. v. Mining Co., 116 Ill. 170, and cases supra." The court then proceeds to enumerate the grounds set out in the statute for the courts of equity to act in dissolving a corporation. And the court continuing, said: "It is, however, fundamental in the law of corporations, that the majority of its stockholders shall control the policy of the corporation, and regulate and govern the lawful exercise of its franchise and business. . . . Every one purchasing or subscribing for stock in a corporation impliedly agrees that he will be bound by the acts and proceedings done or sanctioned by a majority of the shareholders, or by the agents of the corporation duly chosen by such majority, within the scope of the powers conferred by the charter, and courts of equity will not undertake to control the policy or business methods of a corporation, although it may be seen that a wiser policy might be adopted and the business more successful if other methods were pursued. The majority of shares of its stock, or the agents by the holders thereof lawfully chosen, must be permitted to control the business of the corporation in their discretion, when not in violation of its charter or some public law, or corruptly or fraudulently subversive of the rights and interests of the corporation or of a shareholder."
The present statute providing for the dissolution of a corporation is Chapter 32, Section 157.86 of Illinois Revised Statutes. That section provides as follows:
"(a) In an action by a shareholder when it is made to appear:
"(1) That the directors are deadlocked in the management of the corporate affairs and the shareholders are unable to break the deadlock, and that irreparable injury to the corporation is being suffered or is threatened by reason thereof; or
"(2) That the shareholders are deadlocked in voting power, and have failed, for a period which includes at least two consecutive annual meeting dates, to elect successors to directors whose term has expired or would have expired upon the election of their successors; or
"(3) That the acts of the directors or those in control of the corporation are illegal, oppressive, or fraudulent; or
"(4) That the corporate assets are being ...