Interlocutory appeal from the Circuit Court of Cook County,
Chancery Division; the Hon. DANIEL A. COVELLI, Judge, presiding.
MR. PRESIDING JUSTICE DRUCKER DELIVERED THE OPINION OF THE COURT.
Defendant appeals from an order temporarily restraining him from voting shares of stock in the plaintiff corporation of which he is a director.
Plaintiff (an Illinois corporation) brought an action against Francis S. Wilson and Earl Johnson, two of its directors, and alleged in its complaint (1) that the defendants purchased 24,164 shares of the plaintiff corporation in breach of their fiduciary duties as directors and (2) that the plaintiff will be irreparably damaged unless the defendants are temporarily restrained and enjoined from voting the aforesaid shares pending a final hearing. Plaintiff prayed that the court issue the preliminary injunction and also that the court enter an order requiring the defendants to convey the shares in question to the plaintiff at the price for which they were purchased. After a hearing on the motion for the preliminary injunction the court entered an order that defendant Wilson be temporarily enjoined from voting 24,164 shares of stock of the plaintiff corporation, *fn1 from which defendant Wilson appeals. The aforesaid order also dismissed Earl Johnson as a defendant and no appeal has been taken from that part of the order.
Since Earl Johnson was dismissed, we must examine the complaint as it relates to the remaining defendant, Wilson. There is no denial of the allegations that the plaintiff, acting through its president, George L. Hudson, and Earl Johnson (a brother of Arnold Johnson, and a director and officer of plaintiff corporation) negotiated with the Continental Illinois National Bank and Trust Company of Chicago (hereinafter referred to as "Bank") *fn2 for the purchase of plaintiff's common stock and that on November 3, 1964, Hudson and Johnson formally offered $5 a share for 9,823 shares but that this offer was rejected. However, the following charges of the complaint were denied by defendant's answer: (1) that plaintiff continued to be interested in the purchase of 24,000 shares and that negotiations continued until July 1965; (2) that defendant was aware of said negotiations and participated in discussions with Hudson, wherein it was agreed that it would be advantageous to plaintiff to purchase said shares; (3) that in July 1965 the Bank, through Johnson, informed plaintiff that the Bank was willing to sell the 24,000 shares to plaintiff at $7 per share and defendant, knowing of plaintiff's continuing interest and ability to purchase said shares and in violation of his fiduciary obligation as a director, did not inform plaintiff of said offer but instead with others purchased the shares.
The court heard extensive testimony during the hearing on plaintiff's motion for a temporary injunction. George Hudson testified that on April 18, 1963, the Board of Directors authorized the purchase of 25,943 shares of the plaintiff's common stock at $4 per share; that the Bank rejected the plaintiff's offer to purchase the shares at that price; that the Board voted on February 26, 1964, to offer $4.50 per share for 25,000 shares; that Earl Johnson was instructed to convey the offer and to keep in touch with the Bank; that the offer was turned down; and that on November 3, 1964, plaintiff offered to purchase 9,823 shares from the Bank at $5 per share but this offer was also rejected. Hudson further stated:
The Northwestern procedure as regards investments is that the investments are determined by the Executive Committee and after the Executive Committee decides to make an investment, every Director must approve of the investment. If any Director rejects the investment or vetoes, we do not go ahead and make the investment.
Northwestern offered $4 a Share; then $4.50; and then $5. The price of $7 a Share for the 24,000 Shares at the Bank was never discussed by the Northwestern Board. . . . The Board never adopted a resolution authorizing the purchase of those Shares at $7 a Share. The purchase of those 24,000 Shares at $7 a Share was never discussed at any Meeting of the Northwestern Executive Committee. The Executive Committee never adopted a resolution authorizing the purchase at $7 a Share.
I came to a conclusion that Northwestern should purchase these Shares at $7 a Share when I discovered they had been purchased for $7. August 6, 1965 was the first date I knew the purchase had been made.
I would reach such a conclusion from some Northwestern report. The last report preceding May was the one dated April 20, 1965. I may have based it on a report which I would figure out for myself from market quotations as to the Northwestern Holdings. I might have done this on May 5, 1965. Actually, I have picked the date of May 5, 1965 out of the air.
After reaching my conclusion in the middle of May, 1965, I communicated it only to Earl Johnson. I told him that, in view of the increased value of the underlying stocks [owned by plaintiff], we probably should be setting a price of about $7 on any stock we buy in.
After I reached my decision in May, 1965 that the Stock was worth $7, I did not communicate this to the Bank. I did consult with Mr. Lannan [a principal stockholder].
I also communicated this conclusion to Mr. Wright [a director]. I also communicated it especially to Mr. Fox [then attorney for the ...