APPEAL from the Circuit Court of La Salle County; the Hon. C.
HOWARD WAMPLER, Judge, presiding.
MR. JUSTICE ALLOY DELIVERED THE OPINION OF THE COURT:
Rehearing denied March 25, 1981.
These consolidated actions, involving charged violations of the Illinois Securities Law of 1953 (Ill. Rev. Stat. 1977, ch. 121 1/2, par. 137.1 et seq.), arise out of the formation and sale of securities of the SlaBurCo Development Corporation, an Illinois corporation. Due to the complexity of the case and issues raised on this appeal, it will be useful to set forth the factual background of relevant events, after which the various issues raised on appeal by the parties will be noted and addressed.
Sometime in 1971 or 1972, Dr. Paul Burman, an Ottawa, Illinois, chiropractor, became acquainted with Dr. Conrad Matz, Jr., a Pennsylvania chiropractor. They met at a professional seminar in Pittsburgh, and during conversation Dr. Matz informed Dr. Burman of a profitable business venture in which he owned a substantial interest. The venture discussed was that of growing vegetables hydroponically, which is done in greenhouses and provides year-round production of vegetables. Dr. Matz had such greenhouses established in Florida and Nassau. Dr. Matz discussed the hydroponic system of vegetable growing with Dr. Burman, explaining to him the processes and costs involved in such operations. Later, when Dr. Burman returned to Ottawa, he and two other men decided to form and promote a corporation for the purpose of raising tomatoes and other vegetables year-round, by the hydroponic method. The other men who initially joined Burman in the enterprise were Richard Clemmons and Donald Slater.
Articles of incorporation for the SlaBurCo Development Corporation were filed with the Secretary of State's Office of the State of Illinois on March 14, 1973. The articles filed with the Secretary of State authorized the issuance of 100,000 shares of common stock with no par value, of which 32,000 shares were to be issued at $1 per share, to the promoters, while 68,000 shares were to be issued to outsiders at $10 per share. Shares certificates, dated April 6, 1973, were issued to the following named persons: Dr. Paul Burman (16,000 shares), Richard Clemmons (12,160 shares), Dr. Conrad Matz (2,240 shares), Carolyn Borys Buchanan (125 shares). Donald Slater, an original promoter, for unspecified reasons, had either withdrawn or had been ousted as a promoter by the time of the stock issuance.
According to the findings of the trial court, supported in the record, Dr. Matz' shares were issued to him without his knowledge, at the direction of Dr. Burman. Matz never received the share certificate nor did he receive any notice of the issuance of the shares until after the sales, which form the dispute in these cases, had been made. The certificate relating to Dr. Matz' shares was kept by Dr. Burman at his office in Ottawa, which was also the corporate office for SlaBurCo Corporation. The 125 shares issued to Carolyn Borys Buchanan, Dr. Burman's receptionist-secretary, are dated April 6, 1973. However, the record reveals that the share certificate for her stock was actually issued in March or April of 1974. At that time, the directors of the corporation determined to repay Carolyn Buchanan for secretarial services she had rendered to the corporation from March 1973 to March 1974 by issuance of 125 shares to her, backdated to April 6, 1973.
The record also reveals that despite the $1 per share value set for the shares in the articles of incorporation, no consideration was received by the corporation for the issuance of any of the first 30,525 shares, which were to have been purchased at $1 per share. The only money to come into the corporation at the outset of its existence was that contributed by George Froehlich, a plaintiff-appellant and defendant-cross-appellant in these actions. Froehlich had been solicited by Dr. Burman to invest in the corporation on or about March 26, 1973. At that time, which was shortly after the filing of the articles of incorporation, Froehlich was informed of the original stock plan, with the 32,000 shares to be issued for $1.00 per share and the remaining 68,000 shares at $10.00 per share. Dr. Burman persuaded Mr. Froehlich to invest in the corporation, and Froehlich paid $27,000 to the corporation for 2,750 shares of stock. Froehlich's secretary, Faye Durbin, who had been the contact between him and Burman, was given 500 shares, in consideration of Froehlich's investment. These shares were later assigned to Froehlich. On March 17, 1973, George Froehlich signed a statement agreeing to serve as a director of SlaBurCo Development Corporation.
All of the shares issued by the corporation were signed by Carolyn Borys Buchanan, at the direction of Dr. Burman, for whom she acted as secretary. She, as well as Burman, also applied the seal of the corporation to documents requiring it.
Between March 27, 1973, and August 20, 1973, a number of meetings were held in which corporate business was discussed. Participating in those meetings, which were held either at Dr. Burman's office or at the corporation's principal place of business in Mendota, Illinois, were Dr. Burman, Mr. Clemmons and George Froehlich. While Carolyn Buchanan was present during parts of the meetings held at the office, she did not participate in them and her main duties were confined to getting coffee and running errands. At the meetings held during this time, the general operation of the business was discussed, including matters of hiring and firing at the greenhouse. Also discussed was the financial condition of the corporation. As early as the meetings in July 1973, George Froehlich became concerned about the financial condition of the company. He asked to see a financial statement on the company and he wanted to know what had been done with the moneys that had supposedly been taken in by the corporation as consideration for the issuance of the original shares.
At a meeting around the middle of July 1973, Froehlich was first informed that he was the only shareholder who had actually paid money to the corporation for the purchase of stock. Until that time, Froehlich had believed that the original shareholders had contributed $1 per share for their shares. Upon learning that the others had not contributed their $1 per share as had been represented to him by Dr. Burman, Froehlich became upset. In his testimony at trial he stated that he told them he wanted the money to be contributed. He also stated that he supported further sales of shares in the corporation in order to bring in more capital. At that time, according to his testimony, he still considered the project to be a good one. At one of these meetings it was agreed that new investors should be sought and also that some of the shares held by Froehlich would be repurchased from him by the corporation from the new investment money. Froehlich had purchased an additional $20,000 worth of stock in the latter part of July, when the corporation was in need of additional funds. On August 21, 1973, George Froehlich owned 10,975 shares of stock in SlaBurCo Development Corporation and wanted to get some of his investment returned.
It was also on August 21, 1973, that Frank Vezain, the plaintiff in a subsequent action against Froehlich and the others, purchased his stock. Vezain purchased 1,000 shares of stock for a total consideration of $10,000. Vezain was a patient of Dr. Burman, and had been solicited by Burman to purchase the stock. Vezain received a share certificate covering his 1,000 shares which was signed by Dr. Burman, as president, and by Carolyn Buchanan.
On September 4, 1973, a board of directors meeting was held in the law offices of attorney Louis Olivero in Peru, Illinois. Dr. Burman presided over the meeting and both Carolyn Buchanan and George Froehlich were present. The minutes of that meeting, handwritten by Mrs. Buchanan, indicate that among the topics of discussion was the operation of the greenhouse and the possibility of a stock split. The minutes also indicate that there was again agreement that if any new shareholders invested in the corporation they would buy Froehlich's shares. A shareholders meeting following the board meeting was attended by Burman, Clemmons, Vezain, Froehlich and Buchanan.
In the early part of 1974, various investors purchased shares of stock in the corporation. Plaintiffs Richard and David Hornick bought 200 shares of stock. Plaintiffs Wilbur and Lucille Martin bought 150 shares, and plaintiffs Robert and Irene Washko bought 150 shares. They paid $10 per share for their stock.
In the early part of June 1974, Dr. Paul Burman, the moving force behind the corporation, was killed in an automobile accident. Dr. Conrad Matz, from whom Burman had first heard of the hydroponics operation and who had given technical advice about the growing operation, flew in from Pennsylvania to attend the funeral. It was then that he first met George Froehlich and some of the other shareholders of SlaBurCo. On July 12, 1974, Dr. Matz again came to Ottawa to help Mrs. Burman, Dr. Burman's widow, with the operation of the corporation. On July 20, 1974, a board of directors meeting was held at the law offices of Peter Ferracuti, in Ottawa. Dr. Matz, who was listed as a director in the minutes of that meeting, chaired the meeting and was in charge. Attending the meeting were Mrs. Burman, Ed Simko (newly elected president), Dr. ...