Opinion
Opinion filed September 18, 1933.
1. CORPORATIONS — when testimony sufficient to establish incorporation and nature of concern in action under Securities Act. In an action under the Illinois Securities Act, Cahill's St. ch. 32, ¶¶ 254-296, to recover an amount paid for corporate stock, together with attorney's fees, brought on the theory that the act had not been complied with so as to permit the lawful sale of the stock, testimony by plaintiff, standing alone and undisputed, was sufficient to establish that the concern in question was an Illinois corporation, engaged in the business of selling motor cars, and that it was an ordinary mercantile concern, since because of his interest as a stockholder he must be considered as having had some knowledge of the character and nature of the business for which the company was chartered.
2. CORPORATIONS — when corporate stock is Class "D" security. Common stock in a corporation organized to sell automobiles which does not qualify in Class "A" or "B," and which is also excluded from Class "C" because the corporation was not in existence the specified two years prior to the issuance of the stock, necessarily must be classified as a Class "D" security within the meaning of the Illinois Securities Act, Cahill's St. ch. 32, ¶¶ 254-296.
3. EVIDENCE — when certificate of officer no longer holding office is admissible. In an action to recover the amount paid for corporate stock allegedly issued without compliance with the Securities Act, Cahill's St. ch. 32, ¶¶ 254-296, a certificate of noncompliance with the law was not inadmissible as evidence because the secretary of state certifying to the facts therein stated had gone out of office after the execution of the certificate.
4. CORPORATIONS — when person suing under Securities Act is without right to recover contingent attorney's fee. Under the Illinois Securities Act, Cahill's St. ch. 32, ¶ 290, giving a purchaser of stock issued in violation of the act a right to recover the consideration paid or its value, together with reasonable attorney's fees, a purchaser of stock unlawfully issued is not entitled to recover any attorney's fee where he has contracted with his attorney, who has successfully prosecuted suit for him, that the latter shall be paid for his services a percentage of any recovery in the case, as the attorney's fees contemplated by the statute are those actually paid by the purchaser or the amount which he has become obligated to pay for his attorney's services.
Appeal by defendant from the Circuit Court of Madison county; the Hon. HENRY G. MILLER, Judge, presiding. Heard in this court at the May term, 1933. Affirmed upon remittitur; otherwise reversed and remanded. Opinion filed September 18, 1933.
HARRY FAULKNER and HENRY B. EATON, for appellant.
WESLEY LUEDERS, for appellee.
Hope Motor Company, having its place of business in Granite City, was incorporated October 1, 1928. Thirteen months later, or on October 28, 1929, appellee purchased 10 shares of its common stock for $1,000. Appellant, John Frangoulis, was then its president, and signed the stock certificate. On February 27, 1931, the circuit court of Madison county, in a proceeding brought for the purpose, declared the corporation insolvent, and entered a decree for its dissolution and winding up its affairs.
September 14, 1932, appellee brought suit against appellant under the Illinois Securities Act, Cahill's St. ch. 32, ¶¶ 254-296 (being secs. 96 to 137, ch. 121 1/2, Smith-Hurd R. S. 1931), to recover the $1,000 paid for the stock, together with the attorney's fees provided for by section 132 thereof. The suit was based upon the proposition that the stock involved was of the character defined by the act as Class "D" and that appellant, or the corporation, had not, before selling same, complied with the statute in the matter of filing in the office of the secretary of state, the required documents, statements and information.
Appellant pleaded the general issue; there was a trial before the court and a jury. At the conclusion of appellee's case, appellant not offering any evidence, the court directed a verdict for appellee in the sum of $1,250, being the $1,000 expended for the stock, and $250 which was claimed as an attorney's fee, under the statute. From the judgment rendered on the directed verdict, appellant has perfected this appeal.
The chief ground relied upon for reversal is that the proof of appellee fails to show that the stock was Class "D."
The statute defines four classes into which the securities are divided, "A", "B", "C" and "D". Section 99, Cahill's St. ch. 32, ¶ 257, designates what securities shall be of Class "A". Section 100, Cahill's St. ch. 32, ¶ 258, does likewise concerning those of Class "B". Section 101, Cahill's St. ch. 32, ¶ 259, defines and states those which shall constitute Class "C"; while section 103, Cahill's St. ch. 32, ¶ 261, provides that all securities other than those falling within Classes "A", "B" and "C" shall be known as securities in Class "D".
As to the evidence bearing upon the question, it appears that appellee, while testifying, was asked the question: "Who was Hope Motor Company; was it an individual or a corporation?" Answer: "It was incorporated in Illinois." Also the further question: "Generally, what was their line of business; what were they incorporated for?" To which answer was made: "To sell automobiles." No objection was made to these questions; neither was there objection to the answers, nor motion to strike. The proof further showed that the place of business was in Granite City.
This testimony, by a stockholder of the concern, who, because of his interest in same, must be considered as having some knowledge of its character and the nature of the business for which it was chartered, standing alone and undisputed, was sufficient to establish that Hope Motor Company was an Illinois corporation, engaged in the business of selling motor cars, and was in fact an ordinary mercantile concern.
A close and careful study of the many enumerations of securities, designated in sections 99 and 100, Cahill's St. ch. 32, ¶¶ 257 and 258, relating to securities belonging to Classes "A" and "B", will reveal that the common stock of the Hope Motor Company, a corporation engaged in selling motor cars, and whose stock was sold in the usual course of business to divers persons, did not possess a single element that would warrant its being considered as securities of either Class "A" or Class "B".
Section 101, Cahill's St. ch. 32, ¶ 259, provides that "those issued by a person, corporation, . . . owning a property, business or industry which has been in continuous operation not less than two years, and which has shown during a period of not less than two years prior to the filing of the statement herein provided for, average annual net profits," etc., shall be regarded as securities in Class "C".
Here the corporation was chartered October 1, 1928. The stock was sold October 28, 1929, and no required statement on file in the office of the secretary of state. The Hope Motor Company had not been "in continuous operation not less than two years"; hence, obviously, its common stock could not be a Class "C" security.
It appearing that the stock (not coming within the statutory designations of Classes "A", "B" or "C") can only be, as provided by said section 103, Cahill's St. ch. 32, ¶ 261, known as belonging to Class "D"; and as aptly stated in Abrams v. Love, 254 Ill. App. 428, at p. 434, "since there is nothing to show that the securities belong to either Class 'A', 'B' or 'C', there is no other place for them to lodge, except as Class 'D' securities."
We are of opinion that the evidence of appellee, undisputed, was sufficient to justify the inference that the securities in question were of Class "D".
It is contended that the court erred in admitting the secretary of state's certificate of noncompliance, for the reason, among others, that the secretary of state who certified to the facts had gone out of office at the time the case was tried. The certificate appears to be in proper form, and was signed by the official who occupied the position at the date of its execution. We do not think it necessary that the certificate be attested by the officer who happened to be the incumbent at the time the instrument was offered. We think the ruling of the court was right.
Other objections to evidence have been argued. However, in view of the record, we do not think it necessary to consider them. In our opinion there was sufficient to justify the finding that appellee had a cause of action for the $1,000 paid for the stock, and that the judgment to that extent is right.
There was a stipulation of record, to the effect that appellee had contracted with his attorney to pay him 50 per cent of any recovery he might have in the case. Appellant asserts that this agreement bars appellee's right to attorney's fees, and with this we are in accord.
Said section 132, Cahill's St. ch. 32, ¶ 290, provides that where a purchaser of securities shall prevail in a suit, such as this, the judgment shall be "for the amount paid, the consideration given or the value thereof, together with his reasonable attorney's fees in any action brought for such recovery."
It seems clear to us that the attorney's fees contemplated by this section are those which the purchaser of the securities either has paid to his attorney for the service or the amount which he has become obligated to pay therefor, and does not refer to situations like the present case, where the client has not paid, nor engaged to pay, the attorney for the service rendered, but has agreed to give him therefor a portion of what he may recover, it being contingent upon his prevailing in the suit, without any personal liability of appellee. We think this portion of the judgment was wrong, and that same should be remitted.
If appellee will file in the office of the clerk, within 15 days, a remittitur in the sum of $250, the judgment will be affirmed in the sum of $1,000; otherwise reversed and remanded.
Affirmed upon remittitur; otherwise reversed and remanded.