author: Mr. Justice Mack

text:
    Nash-Wright Company, Appellant, v. Daniel C. Wright, Appellee.
    Gen No. 14,771.
    1. Contracts—what illegal option. The illegal contract for an option the so-called “option contract” which the legislature of this State has branded with illegality irrespective of the intent of the parties is one wherein A for a consideration gives B an option binding upon A, under which B has the right,- as he may please to buy or not to buy from A within a specified time, a certain quantity of grain.
    2. Contracts—what essential to- make illegal as gambling in nature. To make contracts for the purchase and sale of grain gambling in nature and illegal there must have been a mutual gambling intent; an intent to settle on differences, which must have existed at the time the contracts were made; a subsequent settlement on differences is only evidence of the prior intent; and so, too, the fact that no grain is actually received by a purchaser, or that prior to the time for the receipt thereof, he sells an equal quantity through the same broker and is paid the profit or pays the loss does not of itself compel the conclusion that the transaction contemplated a mere gambling on differences and was therefore illegal.
    3. Contracts—when eannot be enforced notwithstanding absence of mutual intent to gamble. A party who makes a contract with a gambling intent cannot enforce it even though such gambling intent is not participated in by the other party to the transaction. This is not because the contract is in itself illegal (mutual illegal intent is necessary for this) but because it is against a sound public policy to permit one who has entered into a transaction with an illegal intent to recover thereon.
    4. Contracts—what does not render illegal. The law does not prohibit a man from entering into a contract for the purchase of property to be delivered to him in the future or from ordering an agent to enter into such a contract even though he may expect under certain contingencies to sell his rights before maturity and to take his profit or suffer his loss. Such a transaction is legitimate business speculation.
    5. Contracts—when indemnities in grain valid. If an insurable interest exists contracts of indemnity in grain are valid.
    6 Contracts—when indemnities in grain invalid. If no actual interest in grain exists which bona fide it is sought to insure against on the rise and fall of the market, contracts of so-called indemnity are mere options and illegal under the" Criminal Code.
    7. Assumpsit—recovery upon account stated. If any part of the consideration entering into an account stated is illegal, there can be no recovery of any part of the claim under the count of account stated.
    Assumpsit. Appeal from the Municipal Court of Chicago; the Hon. Mancha Bruggemeyer, Judge, presiding.
    Heard in the Branch Appellant Court at the October term, 1908.
    Affirmed.
    Opinion filed June 3, 1910.
    Harvey Stricicler and Fyffe & Adoock, for appellant.
    Barnes & Magoon, for appellee.
   Mr. Justice Mack

delivered the opinion of the court.

Appellant brought suit to recover a balance due it on an account stated and on a promissory note. Defendant pleaded the general issue, illegality, want of consideration and a set-off. Under the common counts defendant claimed by way of set-off damages for breach of an alleged contract to give defendant brokerage work under which he would earn at least $2,000 annually for two years and an account stated showing moneys due him. The jury returned a verdict for defendant. As defendant’s claim on the account stated, irrespective of the brokerage claim, exceeded plaintiff’s demand, it is clear that the verdict of the jury was based not on an allowance of any of the claims of either side, but on the rejection of all of them.

Appellant seeks a reversal on the grounds that the verdict is against the weight of the evidence and that the court erred in admitting and excluding evidence and in giving and refusing certain instructions.

The facts briefly stated are as follows: Appellant, a corporation, and appellee were members of the Board of Trade of Chicago. Appellant was, but appellee was not, a member of the Board of Trade Clearing House. Appellee made numerous contracts personally with the various other members of the Board in the trading pits on the floor of the Board during the session of the Board and in the manner in which business is transacted there. When appellee had made a contract for the purchase or sale of grain he would place a memorandum of the contract upon what are called trading cards. The memoranda were always brief and simply indicated the amount sold, the- month in which delivery must be made, the price and the name of the other party to the purchase or sale. The card ivas headed by the name of appellant, and each card was dated. At the close of the day’s business on the Board, appellee would turn the cards so made and the contracts so entered into by him over to appellant, and the trades were cleared for the appellee through the appellant; i. e.j it assumed entire responsibility for all trades entered into originally by the appellee, and turned over by him to it. The other party to the contract would place upon his card the name of appellant, the FTash-Wright Company.

Appellant, after the receipt of trading cards from appellee, would enter the various contracts thereby indicated upon the books and would send to appellee what were called confirmations. Thereupon appellant would assume entire charge of the trades or contracts so originated and there was evidence introduced tending to show that at times the appellant would receive and pay for grain delivered on contracts so originated by appellee, or would deliver grain and receive pay for the same from the other parties to such contracts. Appellee had upon the books of the appellant company a ledger account showing the regular ledger statement of the amounts due him or owing from him from time to time, and monthly statements, being transcripts of this monthly account, were rendered by appellant. These monthly statements, however, did not include any statement of open trades then being carried by appellant for appellee.

Appellee téstified as to his intention not to deliver any grain contracted for by him or to receive any grain, and to settle all of his trades on the market differences. He further testified that he made numerous contracts for the purchase or sale of grain and that he subsequently closed these contracts out before the time for the delivery of the grain, the subject-matter of the contract, and settled the contracts in all instances by the difference in the market prices at the date of the entering into of the contract and at the date of the closing out of the contract. The process by which a contract of this kind was closed out was that appellee, having theretofore contracted for so many thousand bushels of grain at the market price, deliverable under the rules of the Board of Trade at any time during the month in which the grain was to be delivered, would, at some subsequent time, at his own convenience and choice, go upon the Board of Trade floor and make a contract for the sale of grain, deliverable by him under his contract in the same month in which the first grain was to be delivered. Both these contracts would be assumed by the appellant, Hash-Wright Oompany.

The appellee testified that he instructed Hash-Wright Company not to receive or deliver grain on his account. This statement is specifically denied by the various members of the corporation to whom Wright said he gave such instructions. The evidence is undisputed that some grain was delivered to the house of Hash-Wright Oompany on trades originated by Wright.

Appellee lived at Varna, Illinois, but spent most of his time in Chicago for several years prior to the suit. He was a farm owner. His dealings had been continuous and had assumed very large proportions, amounting to millions of bushels, both through the firm which preceded appellant’s incorporation and through appellant.

A dispute arose between the appellant and the appellee in the fall of 1905 as to the condition of their respective ac-, counts. Thereupon the appellant sued the appellee for $30,000 in the Circuit Court of Kankakee county. This suit was settled by the payment of $15,000 to the Kash-Wright Company by the appellee. Then their former relations were renewed and the appellee again commenced trading upon the Chicago Board of Trade in the same manner as before through the appellant. This trading continued as before until the fall of 1906, when, on August 2 of that year, as appellee claims, the appellant company, becoming pressed for ready means, and cramped for the lack of banking accom-modations, applied to the appellee to give to the appellant the appellee’s note for $10,000, that it might use the note as collateral to strengthen its credit at the bank. This note was given at that time and is the note sued on in this case. At that time, appellee had a balance due him from appellant on closed deals, but there were open deals which appellant claims would if then closed have shown appellee indebted to appellant. Appellant claims the note to have been given on general account and not at all for accommodation. The note was credited as of August 7 in the appellee’s account on the appellant’s books. On September 29, 1906, the appellant’s indebtedness to the appellee, as shown by its statement rendered to the appellee as of that day, amounted to $25,146.70, excluding, however, the open trades. The transactions ended in Hay, 1907, at which time appellant rendered appellee an account showing nearly $20,000 in addition to the $10,000 note to be due appellant from appellee. Later the account dated July 31, 1907, showing the balance to be $20,091.18 was given to appellee. While it is true appellee denies having received these statements, the evidence, in our judgment,clearly sustains the appellant on this point.

While the trial court seemed to consider evidence that the note was given for accommodation to have been admissible under the general issue, we are of the opinion that as the special plea to the count on the note sets up not only the de-. fense of illegality but also, though informally, the defense of want of consideration, the evidence of accommodation was, in any event, admissible under this special plea. But as to this defense, the evidence clearly preponderates in favor of appellant. Appellee’s version of the transaction, unsupported either by witnesses or by any of the surrounding circumstances, is directly contradicted by several witnesses for appellant.

The set-off cláimed by appellee was properly rejected by the jury. The monthly statement rendered in September, 1906, is clearly shown to have been only a transcript of the •ledger account on closed deals, and while an admission of the indebtedness on these deals, it is not an account stated, in the light of the proof that there were many deals still open on which, if then closed, the balance would have been. reduced or on the other side. Evidence of the true state of the accounts at the time of the rendition of this earlier statement should have been received in .support of the defense to the set-off. Inasmuch, however, as the jury rejected defendant’s claim the errors in relation thereto afford no ground for reversal.

As to. the claim for brokerage, not only was appellee’s unsupported statement directly contradicted by several witnesses, but it was inconsistent with the written memorandum of settlement made at the time the Kankakee suit was disposed of, as a part of which settlement appellee claimed he was to receive brokerage work thereafter. The memorandum contains no reference to any such agreement.

The main controversy, however, between the parties turns upon the alleged illegality of the transactions and the appellant’s knowledge thereof.

The transactions of appellee were of two kinds: 1st: contracts with third persons or in some instances with appellant itself, to buy or to sell grain for future delivery; and 2nd: so-called ups and downs or indemnities.

We shall consider these separately. As to the first class, which were made in the pit in the manner hereinabove stated, appellee contends that these purchases and sales were all option agreements and therefore, irrespective of intent, illegal. But, as appears by the evidence, the word “option” is used in two different senses. It is used among the members of the Board of Trade usually coupled with the name of the month in which grain is deliverable, as a trade name, and when so used, the sole option in the matter is the option which the seller has to deliver the grain purchased at any time during such specific month. Contracts contemplating actual delivery in the future, in which the only option feature is an option to specify on which particular day of a named month delivery must be made and received, are in no sense contracts for an option and are illegal only if both parties intend that the actual contract shall not represent their real agreement ; if, despite provision for an obligatory future delivery, the parties intend that there shall be no such obligation, but only a settlement on differences in market values.

The illegal contract for an option, the so-called “option contract” which the legislature has branded with illegality, irrespective of the intent of the parties, is one wherein A for a consideration gives B an option, binding upon A, under which B has the right as he may please, to buy or not to buy from or to sell or not to sell to A within a specified time, a certain quantity of grain. Such contracts are by our law illegal.

The appellee’s testimony implies that his contracts of the first class were illegal options, but if the explanations given of the use of this word and the specific testimony in the record as to the performance of the contract, the actual deliveries made under such contracts and the general method of doing business, be considered, there can be no question but that the contracts of future purchase or sale of grain, the first class, here in question were not contracts to give an option to sell or buy within the meaning of the statute.

To make such contracts of the first class illegal there must have been a mutual gambling intent—an intent to settle on differences, which must have existed at the time the contracts were made; a subsequent settlement on differences is only evidence of the prior intent. And so too the fact that no grain is actually received by a purchaser, or that prior to the time for the receipt thereof, he sells an equal quantity through the same broker and is paid the profit or pays the loss, does not of itself compel the conclusion that the transaction contemplated a mere gambling on differences and was therefore illegal. ■

There is no evidence in this record of the intention of the third parties,—the other parties to the contracts of appellee, assumed by appellant,—to justify a finding that both parties intended to settle on differences only, and these contracts are therefore not in themselves illegal. They would have been enforceable against appellant, who stood in appellee’s place as to the other parties. It does not, however, follow that Wright could have enforced them; in fact the law is clearly settled that the gambling intent on his part, even though not participated in by the other side, would prevent him from suing on the contract. This is not because the contract is in itself illegal; mutual illegal intent is necessary for this; but because it is against a sound public policy to permit one who has entered into transactions with an illegal intent, to recover thereon.

In Higgins v. McGrea, 116 U. S. 611, 685-6, the court says:

“If the defendant had withdrawn his counterclaim and docketed it as a separate suit against the plaintiffs, as permitted to do by the code, it needs no discussion to show that his action must have failed. His rights are not changed by the fact that the two causes go on pan passu, that are tried at the same time. We do not see on what ground a party who says in his pleading that the money which he seeks to recover was paid out for the accomplishment of a purpose made an offense by the law, and who testifies and insists to the end of his suit that the contract on which he advanced his money was illegal, criminal and void, can recover it back in a court whose duty it is to give effect to the law which the party admits he intended to violate.

“In the present case the plaintiffs alleged and insisted that their transactions with the defendant were Carried on with no unlawful purpose. On the other hand, the defendant alleged and insisted that in the same transaction he intended to violate the law. We see no reason why in such a case the plaintiffs might not, if they had not cancelled the contracts. recover the money paid by them for the defendant, while at the same time the defendant could not recover the money advanced to the plaintiffs for what he intended to be an unlawful purpose.

“In Holman v. Johnson, Cowper, 341, 343, it was said by Lord Mansfield that 'the objection that a contract is immoral or illegal as between plaintiff and defendant sounds at all times very ill in the mouth of the defendant. It is not for his sake, however, that the objection is ever allowed; but it is founded on general principles of policy, which the defendant has the advantage of, contrary to the real justice as between him and the plaintiff, by accident, if I may so say. The principle of public policy is this ex dolo malo non oritur actio. No court will lend its aid to a man who founds his cause of action upon an immoral or illegal act. If from the plaintiffs’ own stating, or otherwise, the cause of action appear to arise ex turpi causa, or the transgression of a positive law of this country, there the court says he has no right to be assisted. It is upon that ground the court goes not for the sake of the defendant, but because they will not lend their aid to such a plaintiff. So if the plaintiff and de- . fendant were to change sides and the defendant was to bring his action against the plaintiff, the latter would then have the advantage of it; for when both are equally in fault potior est conditio defendentis.’

“If, therefore, the defendant intended to embark his money in an illegal and criminal venture, we do not see how this case is helped by the fact that the purpose of the plaintiffs was to invest the money so advanced in what they understood to be a lawful and innocent transaction.

“The paragraphs of the charge of the court excepted to amounted in substance to this, that if the plaintiffs, in making the contracts for the defendant, contemplated and intended an actual purchase, and an actual sale, but the defendant did not, but, on the contrary, meant to engage in a gambling venture, the contract would, nevertheless, be binding on both parties, and if the plaintiffs cancelled the contracts, the defendant, notwithstanding his intention to violate the laws, could recover from the plaintiffs the money advanced by him to carry out his unlawful purpose. We think this charge was erroneous. Upon the case made by his counter-claim, the defendant was not entitled to recover, and the fact that the plaintiffs were innocent of any unlawful purpose did not enure to the benefit of the defendant, who confessed that the money which he sought to recover had been paid by him to promote an illegal and criminal venture.”

Appellant claims that inasmuch as an illegal intent' of the third parties has not been proven, the defense set up in the pleadings has not been sustained. It is true that in each of the pleas, appellee -alleges that all parties to the transaction had an illegal intent, but in so far as the intent of third parties may be immaterial, the allegations as to them may be treated as surplusage. Each of the pleas does allege knowledge by appellant of appellee’s illegal intent and a participation therein by appellant.

The relation between appellee and appellant was in one sense that of agent and principal; in another that of customer and broker. If appellee had not been a member of the Board of Trade, but had been merely a customer of appellant ordering the purchase and sale of grain through it, appellant could not in all cases recover from appellee for moneys paid out on contracts of purchase and sale made by appellant on appellee’s account. Even though such contracts might be entirely valid, as between appellant and the third party, because they had been entered into strictly in accordance with the rules of the Board of Trade prohibiting gambling contracts, and with the intention on the part of both of the parties thereto, the Board of Trade members, to carry them out, nevertheless the right of the broker to hold his client liable would depend upon their mutual intent. If, as between themselves, it was agreed or understood that there should be no actual deliveries, no right to call for the acceptance of grain purchased but only a settlement of the difference between the market price at the time the broker bought and at the time he should be ordered to sell, neither could hold the other liable for such difference. Weare Commission Co. v. People, 209 Ill. 528. But if, on the other hand, there was no such understanding, then the mere fact that the client had bought with the expectation, in case the market were favorable, of reselling before the time of delivery should arrive and that the broker knew this, would not render their transaction illegal. The law does not prohibit a man from entering into a contract for the purchase of property to be delivered to him in the future or from ordering an agent to enter into such a contract, even though he may expect under certain contingencies, to sell his rights before maturity and to take his profit or suffer his loss. Such a transaction is legitimate business speculation.

In Christie Grain Co. v. The Board of Trade, 198 U. S. 236, the court said:

“The plaintiff’s chamber of commerce is, in the first place, a great market, where, through its eighteen hundred members, is transacted a large part of the grain and provision business of the world. Of course, in a modem market contracts are not confined to sales for immediate delivery. People will endeavor to forecast the future and to make agreements according to their prophecy. Speculation of this kind by competent men is the self-adjustment of society to the probable. Its value is well known as a means of avoiding or mitigating catastrophes, equalizing prices and providing for periods of want. It is true that the success of the strong induces imitation by the weak, and that incompetent persons bring themselves to ruin by undertaking to speculate in their turn. But legislatures and courts generally have recognized that the natural evolutions of a complex society are to be touched only with a very cautious hand, and that such coarse attempts at a remedy for the waste incident to every social function as a simple prohibition and laws to stop its being are harmful and vain. * * *

“When the Chicago Board of Trade was incorporated we cannot doubt that it was expected to afford a market for future as well as present sales, with the necessary incidents of such a market, and while the State of Illinois allows that charter to stand, we cannot believe that the pits, merely as places where future sales are made, are forbidden by the law. But again, the contracts made in the pits are contracts between the members. We must suppose that from the beginning as now, if a member had a contract with another member to buy a certain amount of wheat at a certain time and another to sell the same amount of wheat at the same time, it would be deemed unnecessary to exchange warehouse receipts. We must suppose that then as now, a settlement would be made by the payment of differences, after the analogy of a clearing house. This naturally would take place no less that the contracts were made in good faith for actual delivery, since the result of actual delivery would be to leave the parties just where they were before. Set-off has all the effects of delivery. The ring settlement is simply a more complex case of the same kind. These settlements would be frequent, as the number of persons buying and selling was comparatively small.

“The fact that contracts are satisfied in this way by set-off and the payment of differences detracts in no degree from the good faith of the parties, and if the parties know when they make such contracts that they are very likely to have a chance to satisfy them in that way and intend to make use of it, that fact is perfectly consistent with a serious business purpose and an intent that the contract shall mean what it says. There is no doubt, from the rules of the Board of Trade or the evidence, that the contracts made between the members are intended and supposed to be binding in manner and form as they are made. There is no doubt that a large part of those contracts is made for serious business purposes. Hedging, for instance, as it is called, is a means by which collectors and exporters of grain or other products, and manufacturers who make contracts in advance for the sale of their goods, secure themselves against the fluctuations of the market by counter contracts for the purchase or sale, as the case may be, of an equal quantity of the product, or of the material of manufacture. It is none the less a serious business contract for a legitimate and useful purpose that it may be set-off before the time of delivery in case delivery should not be needed or desired.

“Purchases made with the understanding that the contract will be settled by paying the difference between the contract and the market price at a certain time (Embrey v. Jemison, 131 U. S., 336; Weare Commission Co. v. People, 209 Ill., 528), stand on different ground from purchases made merely with the expectation that they will be satisfied by set-off. If the latter might fall within the statute of Illinois, we would not be the first to decide that they did when the object was self-protection in business and not merely a speculation entered into for its own sake. It seems to us an extraordinary and unlikely proposition that the dealings which give its character to the great market for future sales in this country are to be regarded as mere wagers or as ‘pretended’ buying or selling, without any intention of receiving and paying for the property bought, or of delivering the property sold, within the meaning of the Illinois act. Such a view seems to us hardly consistent with the admitted fact that the quotations of prices from the market are of the utmost importance to the business world, and not least to the farmers; so important indeed, that it is argued here and has been held in Illinois that the quotations are clothed with a public use. It seems to us hardly consistent with the obvious purpose of the plaintiff’s charter, or indeed with the words of the statute invoked. The sales in the pits are not pretended, but, as we have said, are meant and supposed to be binding. A set-off is in legal effect a delivery. * * *”

The illegal deal is the one in which there is nothing but a Avager on the fluctuations of the market, one in which broker and customer intend that as to one another the customer shall not be obligated to take the goods even though, as to the seller, the broker as the apparent principal may be so obligated. Wright, however, was a member of the Board of Trade, and could therefore have entered into contracts with other members in his oAvn name, either for himself or for customers. He was not, however, a member of the clearing house, and for that reason it was more convenient, if not necessary, for him to make the contracts in appellant’s name. In some instances, he was employed by appellant to make such contracts in appellant’s name, but for other customers of appellant. These do not enter into this controversy. In most instances, however, though the contract was made by him, not in his OAvn name but in appellant’s name, thereby making appellant the apparent principal in so far as the other party was concerned, he himself was appellant’s customer, for whose use the contract was entered into. He was, as to third persons, not the apparent but the undisclosed principal; as to them, he was, apparently, only appellants agent. In this relation, his personal intention to' gamble could not have been to gamble with the third persons, but only to gamble with appellant. It is conceivable that he, as appellant’s agent, intended that appellant should gamble with the other party to these contracts, but there is no proof in this record either that appellant, itself or through its agent Wright, did so intend. Every contract of this first class made by Wright for appellant with a third party purported to be a legal contract of purchase and sale, and it must be deemed legal for the purpose of this case, as between appellant and the third party.

But as between appellant and Wright, the relation of broker and customer existed. While appellant was bound by these contracts to third parties, Wright was bound, as customer, to appellant, provided that, as between them, there was no illegal intent. In some of the contracts made by Wright, appellant was itself the other party. As to these, the relation between the parties was that of purchaser' and seller.

Appellant’s right to recover from Wright for the balance of payments made by it for him on purchases from and sales to third persons and for the losses incurred by him when appellant was his purchaser or seller, depends therefore upon whether or not appellant intended or knew that Wright intended that the transactions should, not as between it and the third party but as between it and Wright, be settled solely by the payment of differences.

Wright’s own testimony that he himself so intended would, as hereinabove shown, bar him in any event on his claim of set-off, but his illegal intent would not of itself make the contracts between him and appellant illegal or bar appellant from recovering. Only mutual illegal intent rendering the contract as between broker and customer void or appellant’s illegal intent rendering it unenforceable on its behalf could prevent a recovery. We need not, however, now consider in detail the evidence relating to appellant’s knowledge of Wright’s intention and its own intention as to these contracts for future delivery. Suffice it to say that the evidence in this record is in irreconcilable conflict. Much proper evidence was excluded on the theory that appellant was confined to strictly rebuttal testimony. The plea of illegality put the burden on Wright to prove it and after his testimony to sustain this plea was admitted, appellant was entitled to sustain its traverse of the illegality as fully as if there had been no plea of the general issue. Its testimony was not in rebuttal, but was its original testimony on this issue.

In view, however, of the result reached by us as to the second class of deals made by appellee, it is unnecessary to consider in detail the errors either as to testimony or as to instructions.

This second class is the so-called “ups and downs” or “indemnities.”

According to the testimony of Williams S. Crosby, one of appellant’s witnesses and a- member of the Board of Trade, the indemnity contract was invented by him. In form the transaction is this: After the close of trading hours to-day, not on the floor of the exchange, but in the indemnity room, A pays B $1.00 per 1000 bushels of wheat for a contract indemnifying A against loss above e. g. $1.08 a bushel on a contract under which A is to buy from B 100,000 bushels of wheat deliverable in July, at the close of to-morrow’s market if the market closes above $1.08. This is called an up. If, on the other hand, the payment is for an indemnity against loss below e. g. $1.04 a bushel, on a contract under which B is to buy from A if the market closes below $1.04 to-morrow, it is called a down. Whether an up or a down is purchased two contracts, it is alleged, are entered into,-—the one a contract made to-day by B in consideration of the $1.00 cash paid by A, to indemnify A for losses that he may incur on a certain specific contract, which, in the event that the market reaches a certain point, both A and B obligate themselves to make; the other, a mutual promise to enter into that contract at the close of to-morrow’s market, for the purchase and sale of 100,000 bushels of wheat deliverable in July, at the price at which to-morrow’s market may close, provided it closes, in the case of an np, above $1.08 or in the case of the down under $1.04. The price fixed in the up or down is from a half cent to several cents higher and lower respectively than the close of to-day’s market. If to-morrow’s market in July wheat should close at a price less than the up or more than the down, no contract of purchase and sale would be made and no loss therefore would have been suffered by A, so that no indemnity would be due him. If, however, in. the case put, A had bought the up and the market to-morrow closed at $1.09, A and B would then enter into a contract for delivery in July by B to A of 100,000 bushels of wheat from the so-called regular elevators in Chicago at $1.09 per bushel to be paid on delivery and B would then in addition pay A $1,000, his loss above $1.08 per bushel because of his having obligated himself to-day to buy 100,000 bushels at tomorrow’s closing price if it exceeded $1.08.

Crosby and appellant call this indemnity contract, insurance; insurance loss on a contract. To make an insurance contract valid and not an illegal wager the insured must have an insurable interest in the subject-matter insured. That insurable interest must be a real one. If A owns 100,000 bushels of wheat, he may insure their safety from damage, destruction or deterioration; if he has entered into a contract to sell them to B, or if he has no wheat but has contracted to buy from B, he may insure B’s solvency or his performance of the contract; and if on the contract of sale he has a profit, he may insure against loss not merely for the cost but for the selling value, including the profit. More than this: his ownership or absolute contract to purchase would give him such an interest therein that he could insure himself against a decline in the market value of his property. Such a contract is not a mere wager on the fluctuations of the market. There is nothing illegitimate in seeking such protection against loss in the market value of one’s property or of one’s rights. The legitimate interest in the subject-matter justifies the insurance and differentiates the agreement from a mere wager. And so too if A, a Chicago grain dealer, has cabled an offer to London to sell 100,000 bushels of wheat at a certain price, Avhich offer may ripen into a contract by acceptance in London before A can effectually withdraw it inasmuch as a contract is complete on acceptance unless notice of Avithdrawal of the offer is received before the acceptance is given, A would be fully justified in insuring himself against the actual loss that he would suffer in case his offer should be accepted, due to a rise in the market before he had covered. His offer, in the regular course of business, gives him a legitimate and insurable interest against loss from the market fluctuations. And therefore in these indemnity contracts, if the loss insured against were such as Avould be suffered by A in the example given, no valid objection to them could be urged.

The indemnities involved in the present case, however, cannot be upheld as insurance contracts. What they attempt to insure against is not loss on some prior legitimate business transaction or on some property or property right, but against loss on the very contract the making of which by the parties is obligatory only if there be a loss by the insured in the making of it. It is evident that their purpose was not to protect a legitimate interest; the conditional contract of purchase and sale Avas added in order to give an apparent interest which they hoped might be deemed such an interest as could be protected by the insurance. In this ¡case, moreover, there is not the slightest proof that Wright bought indemnities to protect himself from losses, on goods either on hand or contracted or offered to be bought or sold; on the contrary, it is clear from the whole evidence that he had no such interest, so that even if they could be treated as insurance contracts, Wright had no insurable interest.

If then, these indemnities are not insurance contracts, Iioav are they to be classified ? Are they in any Avay to be distinguished from contracts for an option, which are declared illegal by sec. 130 of the Criminal Code?

To determine this Ave must first consider the nature and function of a contract for an option. In form it is an agreement whereby for .a consideration B e. g. agrees to-day to contract to-morrow at A’s option to sell to A 100,000 bushels of wheat at $1.08. Its legitimate function is to enable A, the Chicago grain dealer who in the example heretofore given has offered to sell wheat to London, not merely to insure himself against loss if the offer is accepted, but also to secure the grain that would then be needed, to carry out the contract. Its illegitimate function is to enable parties to gamble on the fluctuations of the market.

While a wagering contract was not illegal under the English common law, it is illegal at common law in Illinois and generally in the United States. Such a contract for an option, or in fact any contract any of the essential terms of which are dependent upon market fluctuations, if made as a subterfuge for gambling, would therefore be illegal at common law; but, on the other hand, if made for a legitimate business purpose, it would be entirely legal at common law.

In Ferguson v. Coleman, 3 Rich. L. (S. C.) 99, a contract to pay “$902.50 if cotton should rise to 8 cents by ¡November next and if not to pay $500,” given as the consideration in the purchase of land, the value of which depended upon the market price of cotton, was upheld against the objection that it was a mere wager because it was apparent that the parties intended a legitimate business transaction. This, too, is the real basis of the decision in Wolf v. Bank, 178 Ill. 85.

But, in Illinois, contracts for options are not to be adjudged legal or illegal under the rules of the common law; they have been declared void by statute. The legitimate business interest which, at common law, is a basis for upholding some option contracts, has been sacrificed to the greater public interest in uprooting gambling, by declaring even those option contracts which might be legitimate but which because of their form are particularly well adapted for use as mere subterfuges for gambling, to be illegal.

In Schneider v. Turner, 130 Ill. 28, the court, in considering the effect of sec. 130 of the Criminal Code, said:

“ * * * it is insisted that by the prohibition of the statute, the legislature only intended to make unlawful such option contracts as contemplate a settlement by differences; that to come within the inhibition of section 130 the contract must be a gambling contract; that the option here meant is the option or right to elect whether to accept or deliver the stock or other commodity, or pay the difference between the contract price and the market price when the same should be accepted or delivered under the terms of the agreement. The language of the section, so far as applicable to this question, is as follows: ‘Whoever contracts to have or give to himself or another the option to sell or buy, at a future time, any grain or other commodity, stock of any railroad or other company, * * * shall be fined, * * * and all contracts made in violation of this section shall be considered gambling contracts, and shall be void.’
“The first question which suggests itself in considering the construction of this statute contended for by appellants is, if their construction is the true one, why was the statute enacted at all? Nothing is more clearly and firmly established by the common law, than that all gambling contracts are void.. It is equally well settled that all contracts for the purchase and sale of property with the understanding or agreement of the parties (whether that agreement is expressed on the face of the contract or exists by secret understanding) that the property is not to be delivered or accepted, but the contract satisfied by an adjustment of the difference between the contract and market prices, are mere wagers, or gambling contracts, and void. (3 .Am. and Eng. Ency. of Law, p. 873, and cases cited in note 1; Cothran v. Ellis et al., 125 Ill. 496.) Long prior to the passage of this statute it had been repeatedly so decided by this court. Therefore the section, as construed by counsel for appellants, serves no purpose whatever. If their construction is correct, when the legislature declared that all contracts made in violation of section 130 should be considered gambling contracts, and void, it only condemned contracts which were already gambling contracts, and void. Certainly more than this was intended. It must be presumed that the object of the legislature was to declare that unlawful which theretofore had been lawful. Prior to this act it was lawful to contract to have or give an option to sell or buy, at a future time, grain or other commodity. Such contracts were neither void nor voidable at the common law. The statute makes them unlawful and void in Illinois. * * * * *
“We agree fully with counsel for appellants as to the object of the statute. It manifestly is to break down the pernicious practice of gambling on the market prices of grain and other commodities. How is this object sought to be accomplished? There was and is nothing illegal or even immoral in an option contract, within itself. The evil aimed at, nevertheless, grew out of such contracts. * * * In this case the parties might have intended, if appellants called for the stock, to settle on differences. The contract could have been made the disguise for gambling on the future price of stock of the North Chicago City Railway. The question is not, did they so intend, but, did not the legislature regard such contracts as lying at the root of the evil aimed at, and strike at them. The treatment is heroic, but the evil was most malignant.”

After the legislative enactment was thus given its full effect and puts and calls, theretofore indulged in, were abolished by the Board of Trade as illegal, other attempts were made to accomplish a similar object. The courts, however, will not be blinded by forms; the real kernel of a transaction, not its outer shell, will determine its nature and legality.

In Bates v. Woods, 225 Ill. 126, the parties assumed to make two separate deals—the one a mere offer, not a binding contract, to sell at a certain price at the close of the next day’s market; the other a contract based on a valuable consideration, to hold the offer open until that time. The court, however, -found no difficulty in holding that the two were intended to be and were essentially one and that one, a binding contract for an option,—a mere device which it held would not be permitted to circumvent the law. It said:

“To say that the statute does not prohibit contracts such as the one now before us is to hold that the evils sought to be remedied by its enactment may be continued by the use of a mere device, whose plain object is to avoid the provisions of the statute. *****
' “That portion of the statute which renders void, contracts made in violation thereof, is remedial in its character and should be liberally construed.
“In People v. Harrison, 191 Ill. 257, we said: CA thing within the intention is regarded as within the statute though not within the letter * * * The intention is to be gathered from the necessity or reason of the enactment, and the meaning of words enlarged or restricted according to the true intent.’ A contract such as the one in this case is clearly within the mischief which the statute was intended to remedy, and should, we think, be regarded as within the enactment.”

While apparently under these indemnities two contracts are made, one to indemnify and the other conditionally to contract for the purchase and sale of grain, in effect and in fact, there is but one transáction. On an up deal B e. g., in consideration of $100 paid to him by A, agrees, if tomorrow the market shall close above $1.08 to sell to A 100,-000 bushels July wheat at $1.08; the transaction to be consummated by A paying B at to-morrow’s market rate, $1.09, on the delivery in July and B paying A the difference of 1 cent per bushel to-morrow. If the market closes at $1.08 or lower, A has lost $100; if it closes above that at $1.09 he has won $1,000 less the $100.

That these alleged two contracts are really interdependent and essentially one is apparent when they are analyzed. A has not in truth agreed to buy from B at to-morrow’s market if the market which to-day is $1.05 goes above $1.08 to-morrow; he has so agreed, provided B pays him the difference between $1.08 and the market; in other words they have agreed to contract at $1.08, but only if the market is above that figure; if it is not above, then no contract is to be made. To induce B to make the deal, A pays him the consideration. There is to be a contract or no contract dependent upon the market fluctuations just as there will or will not be a contract, on the same contingencies, under an “option” purchase.

In an indemnity deal, it is true, the parties are obligated to enter into a contract if the market reaches a certain point, whereas in an option deal they are not so obligated. But is this more than a difference in form? If A had paid $100 for the contract for an option to buy at $1.08, B would have been bound to sell, but A would not have been bound to buy; in order, however, to get the very thing he was after—the profit—he would of course have exercised his option, if the market closed at $1.09. Instead of being privileged, as in a put or call, to get his profit by making a contract, in the up or down deal, he binds himself to make a contract if he can thereby earn a profit. Under neither form is he bound, in the absence of a profit. There is, in our judgment, no substantial difference, in a Board of Trade deal, between the right to enter into a contract under the market price and thereby through a resale to make a profit represented by the difference between the market and contract, prices and the obligation to make such a contract at the market price coupled with the right to the payment of the same difference.

The one as well as the other could be uséd for legitimate business purposes; but as the Legislature has subordinated this interest to a higher public interest, and as the very evils aimed at are accomplished in practically the same manner by each, as the two are in effect and in substance the same, we hold that the indemnity contracts fall under the option ban and are illegal,, irrespective of any intent to consummate or not to consummate the conditional contract of purchase and sale, and irrespective of an intent to protect thereby some legitimate interest. These indemnities are in substance nothing but the illegal puts and calls clothed in a new but in a no less vulnerable armor.

Ordinarily when Wright sold an indemnity the premium was paid direct to him and sometimes when he bought one it was paid by him. ¡Frequently, however, such payments were made for him and received for his credit by appellant. Whenever an indemnity materialized, that is, whenever the market closed above or below the fixed price on the purchase or sale of an “up” or “down” respectively, the contract for future delivery would be made by appellant with the other party for appellee, and where appellee sold the indemnity the loss incurred by him would also be paid by appellant for and charged to him. Such payments were with full knowledge hy appellant of the character of the deal, therefore, as we must hold, with full knowledge of its illegality. Moreover appellant knew that Wright entered into them without having any legitimate interest to protect. The so-called premiums were advanced by appellant for Wright to bring about an illegal transaction; the indemnities were paid, not merely as a loan to him by appellant without reference to or intent to further an illegal transaction, but, viewing what the parties call two contracts as in effect one, it was a payment necessary to induce the completion of the agreement. Without it, the winner- would not have been obligated to enter into the contract for future delivery. The contract for future delivery might, viewed alone, be a valid contract if actual delivery was in fact contemplated; but viewed, as we think it must be, not as a contract separate and distinct from the indemnity, but as a part of the single contract for indemnity and for future delivery, the illegality of which pervaded every part of it, it was illegal. Moreover in the present case, not only did appellant consummate for Wright these deals, known by it to be illegal, but the evidence is clear that it as well as at least one of its officers made such illegal deals direct with Wright contrary as well to the rules of the Board as to the law of the land. The payments made by appellant for appellee on and m furtherance of such illegal transactions, enter into the account and note sued upon.

Appellee contends that as this case was tried solely on the count declaring on the account stated and the count on the note, there can be no recovery if any part of the transactions which make up the account and form the consideration for the note is illegal. We are of the opinion that there is no difference in this respect between an account stated and a promissory note, each embracing numerous transactions. In each, the former transactions are merged in the new obligation. Throop v. Sherwood, 4 Gilm. 92, 98. In each, the action is based, not on the original transactions but on the new promise. That this is express in the case of the note,. and may be only implied in the case of the account stated, seems to us to be immaterial. Our Supreme Court has expressly held that at common law there can be no recovery on a note or on any other promise any part of the consideration for which is illegal. Douthart v. Congdon, 197 Ill. 349; First Natl. Bk. v. Miller, 235 Ill. 135; Ramsay v. Whitbeck, 183 Ill. 550. That this same principle prevails as to the implied promise arising out of an account stated is held in Kennedy v. Broun, 13 C. B., n. s., 677, at 741.

The case might have been tried on the other common counts and proof made of each transaction that entered into the account. If that had been done, a recovery for so much of the indebtedness, if any, as might be found to be legal, would have been justified. But plaintiff’s case was rested on proof of the delivery of the statement of the balance due and defendant’s failure to object thereto,—proof only of an account stated. Moreover the fact that the account rendered was not of the final balance but began with the balance due April 30, 1907, and then itemized the transactions of May and ended with the final balance due May 31, 1907, would not, in this case, justify a recovery on the legal transactions, if any, during the month of May. The failure of Wright to object to the statement when delivered to him, might evidence not only an assent to the balance and therefore support the count of an account stated, but also an assent to the correctness of the items enumerated, and therefore support the count of money advanced. But the parties tried the case solely on the count declaring on the account stated and they cannot now urge that there is evidence which would support another count of the declaration. The right of examination and cross examination would have been very different if the case had been tried on the other counts. As the court says in Dick v. Zimmerman, 207 Ill. 636, at 638:

“This suit was tried on the part of the plaintiff upon that count of the narr. declaring upon an account stated. He testified in his own behalf to interviews with the defendant in which the account was presented to the defendant, * * * On cross-examination counsel for defendant sought to examine plaintiff regarding the correctness of certain items included in the account. The court sustained an objection, saying, 'There is nothing to dross-examine him about except these interviews he has testified to and these letters,’ and it is urged that the right of cross-examination was thereby improperly limited, * * *. The ruling was correct. Plaintiff was not asking to recover upon the original account, but upon the alleged agreement or account stated, by which the amount due was fixed.

'In an action upon an account stated, the original form or evidence of the debt is unimportant, for the stating of the account changes the character of the cause of action, and is in the nature of a new undertaking. The action is founded, not upon the original contract, but upon the promise to pay the balance ascertained.’ Throop v. Sherwood, 4 Gilm. 92.

“Plaintiff had testified only in reference to the interviews, resulting, as he said, in an agreement fixing the sum due, and in relation to the letters, and the cross-examination was properly confined to the same matters. The remark of the court was a terse and accurate statement of the law applicable to the situation * *

Inasmuch, therefore, as the court would have been justified for the reasons herein set forth in directing a verdict for the defendant, the judgment in his favor must be affirmed.

'Affirmed.


source: Caselaw Access Project

license: Public Domain

text:
    John Marchese, Appellee, v. The Aurora, Elgin & Chicago Railroad Company, Appellant.
    Gen. No. 14,970.
    1. Verdicts—when not disturbed. A verdict will not be set aside on review as against the weight of the evidence unless clearly and manifestly so.
    2. Instructions—when as to determination of facts not erroneous. An instruction on this subject as follows approved:
    “The jury are instructed that they, under the instructions of the court, and from the evidence are the sole judges of all the questions of fact in this case, and the court does not by any instruction given to the jury in this case, intend to instruct or indicate to the jury how they should find any question of fact.”
    3. Instructions—when refusal will not reverse. The action of the court in refusing a mere cautionary instruction not applicable to the evidence in the case will not reverse. |
    Action in case for personal injuries. Appeal from the Superior Court of Cook county; the Hon. Egbert W. Wright, Judge, presiding.
    Heard in the Branch Appellate Court at the October term, 1908.
    Affirmed.
    Opinion filed June 3, 1910.
    Hopkins, Peppers & Hopkins, for appellant.
    Charles M. Foell and Earl J. Walker, for appellee.
   Mr. Justice Mack

delivered the opinion of the court.

This is an action on the case to recover damages for personal injuries sustained by appellee while a passenger on an interurban train operated by appellant.

The accident happened at the Lombard station on appellant’s line, between 9 and 10 o’clock P. M., on August 19, 1906. Appellee boarded the train at the Fifth avenue station in Chicago with the intention of getting off at Lombard, which was about one hour’s ride west of Chicago. He sat in the smoking compartment on the west end of the first car of the train, on the south side of the car and in the first seat facing west. His ticket to Lombard was accepted by the conductor in charge of the car. ;

There are three stations in Lombard, East Lombard, Lombard proper, where this accident happened, and West Lombard. All tickets sold for these three stations read to “Lombard.” East Lombard and West Lombard are flag stations and after the train leaves Lombard passengers desiring to get off at West Lombard, 2,000 feet distant, frequently get up and start for the rear of the car to be ready to get off when the car stops.

The train in question reached Lombard at 9:31 P. M., and stopped for a length of time estimated at from one minute to five minutes.

Appellee’s version of the facts is that when the train reached Lombard the conductor called out the station, the car came to a stop, appellee, who was in his shirt sleeves, put his coat on his arm, walked briskly through the car to the rear platform, passed by the conductor, who was on the platform, down the steps and was just about to step to the station platform when the car suddenly started forward and he was thrown down, sustaining injuries.

Appellant contends that appellee had been sleeping; that the car had started slowly after leaving Lombard station when appellee, discovering this, rushed through the car, past the conductor who endeavored to check him, pulling the bell at the same time to stop the car, and jumped off while the car was moving.

Each of the parties is supported by several credible disinterested witnesses. We have carefully examined their testimony and are unable to say, despite the numerical majority in favor of appellant, that the verdict for the plaintiff is against the clear preponderance of the evidence.

Complaint is made of the following instruction:

“The jury are instructed that they, under the instructions of the court and from the evidence, are the sole judges of all the questions of fact in this case, and the court does not by any instruction given to the jury in this case, intend to instruct or indicate to the jury how they should find any question of fact.”

The instruction held erroneous in C., B. & Q. R. R. Co. v. Greenfield, 53 Ill. App. 424, a case relied upon by appellant, reads:

“The jury are instructed that the questions of care or want of care, and the negligence or want of negligence of the defendant and of the deceased, are questions of fact for the jury to decide under all the evidence in the case and all facts and circumstances as shown by the evidence.”

The court said of this instruction:

“It is true that the questions whether the deceased exercised ordinary care and whether the defendant was negligent, were questions of fact to be decided by the jury in the case, but they were to be decided under the guidance of the court in its instructions according to the established rules of law regulating the rights and duties of the parties and defining care and negligence.”

The instruction in the present case does not make the jury the sole judges of the facts independent of the guidance of the court, but only “under the instructions of the court.” See too South Chicago Ry. Co. v. McDonald, 196 Ill. 203.

The refusal to give an instruction reading:

“The court instructs the jury that if you believe that any witness in this case has testified to any matters which the physical facts in evidence render impossible to be true, that then such testimony may be disregarded by you,” is also complained of.

As we view the testimony, this instruction was not applicable to the evidence in this case, and it is at the best cautionary.

As we find no reversible error, the judgment will be affirmed.

'Affirmed.


text:
    The T. E. Hill Company, for use of William A. Bither, Assignee, Defendant in Error, v. Contractors Supply & Equipment Company, Plaintiff in Error.
    Gen. No. 15,863.
    1. Malicious peosecutioít—what essential to establish at common law. At common law a plaintiff is not liable for bringing any suit, civil or criminal, or for causing the seizure through a judicial order of the person or property of another, if the court has jurisdiction of the subject-matter and the parties, unless he acts maliciously and without probable cause.

      2. Bankruptcy—section 8, subsection 3, fixing . liability for obtaining receiver construed. This section creates no rights distinct from and independent of the remedy. In actions for malicious prosecution the common law rule still prevails, and malice and want of probable cause must be established.
    3. Bankruptcy—what does not establish laclo of jurisdiction to appoint receiver. An adjudication that a corporation does not come within the class which may be declared bankrupts, does not operate to nullify all intermediate orders of the courts.
    4. Jurisdiction—what essential to, of subject-matter. A bankruptcy court has jurisdiction over the subject-matter of a cause irrespective of whether it correctly or erroneously dismisses the petition because of its finding that the alleged bankrupt corporation does not come within the class that, by the act, may be adjudicated bankrupt.
    Trespass on the case. Appeal from the Circuit Court of Cook county; the Hon. John A. Gray, Judge, presiding.
    Heard in the Branch Appellate Court at the October term, 1909.
    Reversed with finding of facts.
    Opinion filed June 3, 1910.
    Johk A. Bloomingston, James H. Wilkerson, and Dudley Taylor, for plaintiff in error; Musgrave & Lee and James H. Wilkerson, of counsel.
    Buell & Abbey and Fred W. Bektley, for defendant in error; William A. Either, of counsel.
   Mr. Justice Mack

delivered the opinion of the court.

Bankruptcy proceedings were begun against The T. E. Hill Company, a corporation, by Contractors Supply and Equipment Company, a corporation. Pending a hearing on the defense that the Hill Company was not principally engaged in manufacturing, trading, printing, publishing, mining or mercantile pursuits as required by the Bankruptcy Act Section 4 b, on the application of the Contractors Company, a receiver was appointed in accordance with the provisions of the act, section 3 e, and a bond was given on which suit was later brought in the Municipal Court of Chicago. In that suit, judgment was rendered for defendant and a writ of error issued from this court in case General Humber 14,932.

The District Court finally determined that the Hill Company did not come within the specified classes of corporations and dismissed the petition. This ruling was affirmed by the United States Circuit Court of Appeals in In re Hill Co., 148 Fed. R. 832.

After the proceedings were dismissed, the District Court allowed receiver’s fees out of the fund. This ruling was also affirmed by the Circuit Court of Appeals in In Re Hill Co., 159 Fed. R. 73.

In view of the conclusions reached by us, it is unnecessary to detail the alleged damages suffered by the Hill Co. or its assignee through the appointment of the receiver, to recover which this action was brought.

The praecipe in this case is trespass on the case. The declaration alleges malice in procuring the appointment of the receiver, but fails to allege, either directly or indirectly, that there was no probable cause for procuring such appointment. If it had contained such an allegation it would have set out a good cause of action. But, without it, it sets out no cause of action in trespass on the case.

At common law a plaintiff is not liable for bringing any suit, criminal or civil, or for causing the seizure through a judicial order of the person or property of another, if the court has jurisdiction of the subject-matter and the parties, unless he acts maliciously and without probable cause. Stewart v. Sonneborn, 98 U. S. 187; Outlaw v. Davis, 27 Ill. 466.

By a statute a plaintiff may be deemed to act at his peril in procuring such an order. He may be made liable by statute for the damages resulting therefrom in case he fail to maintain his suit, irrespective of the probable cause and lack of malice. Such provisions are common in statutes regulating attachments and injunctions. Such statutes creating new rights may provide either new methods of enforcing them or they may leave the aggrieved party to the ordinary common law remedies, and they make the former either exclusive or concurrent with the latter. The provisions of the bankruptcy act bearing upon this subject are section 2, subsection 3; section 3e, and section 69. These are as follows:

The Court is authorized to

“(2) Appoint receivers or the.marshals, upon application of parties in interest, in case the courts shall find it absolutely necessary, for the preservation of estates, to take charge of the property of bankrupts after the filing of the petition and until it is dismissed or the trustee is qualified;”
“(3e) Whenever a petition is filed by any person for the purpose of having another adjudged a bankrupt, and an application is made to take charge óf and hold the property of the alleged bankrupt, or any part of the same, prior to the adjudication and pending a hearing on the petition, the petitioner or applicant shall file in the same court a bond with at least two good and sufficient sureties who shall reside within the. jurisdiction of said court, to be approved by the court or a judge thereof, in such sum as the court shall direct, conditioned for the payment, in case such petition is dismissed, to the respondent, his or her personal representatives, all costs, expenses, and damages occasioned by such seizure, taking and detention of the property of the alleged bankrupt.
If such petition be dismissed by the court or withdrawn by the petitioner, the respondent or respondents shall be allowed all costs, counsel fees, expenses and damages occasioned by such seizure, taking or detention of such property. Counsel fees, costs, expenses and damages shall be fixed and allowed by the court, and paid by the obligors in such bond.”
“69. Possession of Property. A judge may, upon satisfactory proof, by affidavit, that a bankrupt against whom an involuntary petition has been filed and is pending has committed an act of bankruptcy, or has neglected or is neglecting, or is about to so neglect his property that it has thereby deteriorated or is thereby deteriorating or is about thereby to deteriorate in value, issue a warrant to the marshal to seize and hold it subject to further orders. Before such warrant is issued the petitioners applying therefor shall enter into a bond in such an amount as the judge shall fix, with such sureties as he shall approve, conditioned to indemnify such bankrupt for such damages as he shall sustain in the event such seizure shall prove to have been wrongfully obtained. Such property shall be released, if such bankrupt shall give bond in a sum which shall be fixed by the judge, with such sureties as he shall approve, conditioned to turn over such property, or pay the value thereof in money to the trustee, in the event he is adjudged a bankrupt pursuant to such petition.”

A new right is created by section 3 e. Without this provision, no damages could be recovered on the dismissal of the petition, unless malice and lack of probable cause appeared. The statutory right, however, is not dependent upon the existence of either malice or lack of probable cause. But the statute creating the right also provides a specific remedy; indeed it creates no right distinct from and independent of the remedy. The language is not, that plaintiff shall be entitled to damages which may be allowed by the court, but that he shall he allowed his damages and that these shall be fixed and allowed by the court. This clearly does not mean by any court, but by the bankruptcy court. In other words, the' new right is not to sue for damages, but to have damages allowed in the bankruptcy proceedings by the bankruptcy court.

It follows, therefore, that as the allegations necessary at common law for a valid cause of action in a suit for malicious prosecution or seizure of property are lacking, and that as no statutory right enforceable in an independent action is provided, the declaration, as one in trespass on the case, would have been demurrable.

Moreover the evidence fails to show either malice or lack of probable cause. As to the latter, the fact that two circuit courts of appeals reached different conclusions on the only point that was in question, viz., whether such a corporation could legally be said to be engaged principally in manufacturing so as to be capable of being adjudged a bankrupt, would, so far as this question is concerned, negative the want of probable cause for the original proceedings, and it is not seriously disputed .that if the Federal Court in these proceedings had followed the decision in the 8th circuit, the adjudication of bankruptcy would have followed and the receivership could not have been questioned. Moreover, since the Circuit Court of Appeals decided that this company could not be adjudicated a bankrupt as chiefly engaged in manufacturing, and despite the denial of a writ of certiorari therefrom, the Supreme Court of the United States has expressly held that such a corporation is engaged principally in manufacturing. Friday v. Hall & Kaul Co., 30 Sup. Ct. Rep. 261 (decided February 21, 1910).

Had this' decision been rendered several years ago, the situation that now confronts us would never have been created.

But, despite the praecipe and the allegations of malice in the declaration, the plaintiff now claims that his action is not and was not intended to be in case; that it is an action of trespass, pure and simple, and that the right to bring trespass arises from tho absolute nullity of the order appointing the receiver due to the court’s lack of jurisdiction. He contends that while this lack of jurisdiction was not apparent until the court determined that it had no jurisdiction, nevertheless when it did so determine, the decree had the retroactive effect of nullifying the entire proceedings, rendering the orders void and making, at least the active participants therein, trespassers as at common law. If the court was entirely without jurisdiction and its orders therefore nullities, trespass would lie and perhaps the allegations of malice might he disregarded and this declaration be deemed as stating a cause of action in trespass.

Was the court without jurisdiction ? It may be conceded that despite the Supreme Court decision in the Friday case, the decision of the Circuit Court of Appeals in the Hill bankruptcy proceeding determines conclusively, as between these parties, that the Hill Company could not have been adjudged a bankrupt in that proceeding. But does it follow from this that the court had no jurisdiction? That it had jurisdiction of the subject matter so far as was necessary to enable it to determine the question of whether or not the company did come within the meaning of the words “corporation engaged principally in manufacturing” is admitted.

Does an erroneous final adjudication, or even a correct adjudication, that the alleged bankrupt does not come within the class, operate to nullify all- intermediate orders of the court, and does it determine that the court had no jurisdiction of the subject matter? The decision of the Circuit Court of Appeals allowing receiver’s fees in this very case, after it had ordered the proceedings dismissed, would be a sufficient answer in the negative to these questions, and whether right or wrong would be as conclusive upon these parties as is its decision that this company is not to be adjudged a bankrupt.

The Court said, 159 Fed. R. 73, at page 76:

“Upon the filing of the petition for an adjudication of bankruptcy against the corporation and service of process, jurisdiction over parties and subject-matter was established (Denver First National Bank v. Klug, 186 U. S. 202, 204, 22 Sup. Ct. 899, 46 L. ed. 1127, and cases cited), and was complete for the hearing and determination of all the issues involved, whatever the ultimate conclusions of the court upon such issues. In re First National Bank of Belle Fourche, 152 Fed. 64, 68, 81 C. C. A. 260; Columbia Ironworks v. National Lead Co., 127 Fed. 99, 101, 62 C. C. A. 99, 64 L. R. A. 645. So, under section 2 (3) of the Bankruptcy Act, Act July 1, 1898, c. 541, 30 Stat. 545 (U. S. Comp. St. 1901, p. 3421), the power and duty of the court, in such case, is unquestionable, to appoint a receiver, when found necessary for preserving the estate in controversy, ‘to take charge of the property * * * after the filing of a petition and until it is dismissed, or the trustee is qualified.’ ”

So, too, in Columbia Iron Works v. National Lead Company, 127 Fed. 99, the court said:

“There can be no question in respect to the jurisdiction of the District Court over the subject matter, and it seems quite clear that it also had jurisdiction to determine whether the corporation was principally engaged in such business as that it could be adjudged a bankrupt.”

So, also, In re First National Bank of Belle Fourche, 152 Fed. Rep. 64, the court said, page 68:

“The contention that the fact that the Widell Company was principally engaged in manufacturing conditioned tlie jurisdicttion of the court and the validity of the adjudication, that the judgment is a nullity because this fact did not exist, and that its invalidity may be shown at any time by collateral attack, or otherwise by proof that the Widell Company was not engaged in any pursuit which subjected it to adjudication in bankruptcy, disregards the fundamental distinction between the fads essential to the jurisdiction of a court over the subject-matter and the parties, and those requisite to establish the cause of action. Jurisdiction of the subject-matter and of the parties is the right to hear and determine the suit or proceeding in favor of or against the respective parties to it. The facts essential to invoke this jurisdiction differ materially from those essential to constitute a good cause of action for the relief sought.”

If the court had been without jurisdiction, either originally or from the time that it ordered the petition dismissed, and that too, either with or without retroactive effect, it could not have adjudged costs or have ordered fees to be paid to the receiver. Citizens Bank v. Cannon, 164 U. S. 319.

If a bankruptcy proceeding against a corporation not within the class that can be adjudged bankrupt, or against one who is finally determined to be a wage earner, were like the proceeding in People v. Weigley, 155 Ill. 491, no contempt proceedings could be maintained against one who interfered with the receiver’s possession.

Whether a corporation is or is not principally engaged in manufacturing, and whether or not a man is a wage earner, are not questions of law but questions of fact. The right of the court to proceed with the administration of the estate depends upon the facts; its jurisdiction, however, does not depend upon the correctness of its determination of the facts. The subject-matter over which the United States District Court has jurisdiction is bankruptcy—not the acts of specified individuals and corporations provided that they constitute acts of bankruptcy.

A decision adjudicating bankrupt a corporation which in fact is not principally engaged in manufacturing but which the court erroneously finds to be so engaged would nevertheless be binding until reversed; if reversed, it would be because of the erroneous finding of fact, not because of lack of jurisdiction. And so, too, if the court correctly or erroneously determines that the corporation is not principally engaged in manufacturing, the petition is dismissed, not because the court never had jurisdiction to hear and determine the facts and to do everything permitted by the statute prior to adjudication, but because, on the facts, it would be error to go on with the proceedings.

As in our judgment the court had jurisdiction of the parties and subject-matter of the bankruptcy proceedings and was by statute specifically vested with power to appoint receivers therein, no action of trespass lies against the party at whose instigation the receiver was appointed.

It is therefore unnecessary to consider the other questions raised by plaintiff in error and it follows that the judgment must be reversed with a finding of facts.

Reversed with finding of facts.


author: Mr. Justice Smith

text:
    Thomas W. Prindeville et al., Appellees, v. Richard Curran et al., Appellants.
    Gen. No. 15,001.
    1. Appeals and errors—when freehold involved. A freehold held, not involved in an action where the issues presented by the appeal were those of fraud practiced in obtaining the satisfaction of a judgment and the dismissal of a bill in the nature of a creditor’s bill.
    2. Practice—when section J¡5 of act does not apply. A judgment of respondeat ouster should not be rendered pursuant to section 45 of the Practice Act where the court has jurisdiction of the person of the defendant.
    3. Parties—effect of lacle of complainant upon power of court to enter decree. There is no importance to be attached to the position "of parties in an equity suit as complainants or defendants provided the proper pleadings are filed as a foundation for relief. The rights of the parties will be determined regardless of their positions as complainants or defendants.

      4. Masters in chancery—when reference improper. It is not proper to refer a cause to a master to report to the court the proper decree to be entered; such a practice when followed, however, will not reverse, but the propriety thereof may well be raised upon motion to retax costs.
    Bill in chancery. Appeal from the Circuit Court of Cook county; the Hon, Charles M. Walker, Judge, presiding.
    Heard in the Branch Appellate Court at the October term, 1908.
    Affirmed.
    Opinion filed June 3, 1910.
    Edward Maher and Egbert F. Kolb, for appellants.
    McArdle & McArdle, for appellees.
   Mr. Justice Smith

delivered the opinion of the court.

The Decorators Supply Company filed the original hill in this record setting forth the recovery of a judgment for $469.07 and costs against Eichard Curran, the issue of execution and levy thereof upon the real estate in question in this suit, and charging amongst other things that Curran, the judgment debtor, had caused the legal title to valuable real estate and interests in real estate to he vested in persons other than himself, and transacted his business, so far as the same related to real estate and interests in real estate, through the medium of said persons, making mortgages, loans and contracts in their names, and naming the defendants, Isabella Curran and Samuel E. Hurford, and others as the persons through whom Curran acted. The bill further shows that the real estate of the defendant Eichard Curran, standing of record in the names of Isabella Curran and other persons, was that described in this record.

The bill avers that Curran is in fact the owner of the real estate, and that the same is held in trust for him. The bill was filed in behalf of the complainant and all other creditors of Curran who might become parties thereto and contribute to the expense thereof. It shows that Thomas E. Bishop at the same term of court at which the complainant sued out its writ of attachment, sued out an attachment writ against Curran and levied the same on the real estate described in the bill. The bill makes Eichard Curran, Isabella Curran, Thomag B. Bishop, Samuel B. Hurford and others parties defendant, and prays that by its decree the court may order and decree that the several parcels of real estate described in the bill, and every part and parcel thereof, be subject to the complainant’s judgment, and for general relief. The Currans answered the bill.

The attachment suit of Bishop v. Curran, referred to in the bill, ripened in due course into judgment for $1,192.41, and Bishop answered the bill, setting forth the facts, his attachment and judgment, issue of execution and levy thereof on the real estate of the defendants Curran, and praying the benefit of the proceeding for the collection of his judgment. He afterwards filed his petition to be made a party complainant, and made his answer on file a part of the petition. Other judgment creditors of Bichard Curran also intervened, and before any other proceedings were had in relation to the claim of Bishop, Curran undertook to settle all the claims in the suit. He succeeded in settling all of them except Bishop’s, and for a time it was believed that Bishop’s claim had been settled; and on May 23, 1905, an order was entered in this suit upon the stipulation of parties, whereby the cause was dismissed out of court without costs.

The signature of Bishop’s attorneys to the stipulation upon which this order-was entered was obtained by gross fraud, and under circumstances which are the subject-matter of this court’s opinion in Prindeville v. Curran, 132 Ill. App. 162.

That opinion was rendered in an appeal by appellees herein from a decree sustaining a demurrer to an amended bill filed in another cause in the Circuit Court attacking the stipulation of the parties and the order of court above mentioned as having been procured by fraud, and to correct a mistake in a deed represented by Bichard Curran to be a deed of Isabella Curran to'some lots in South Chicago and given by him to Prindeville in settlement of Bishop’s judgment, and after Curran and his wife had come in, and in response to the prayer of the original bill in that case, an answer under oath being demanded, and in response to special interrogatories propounded by the complainant, answered that the deed by appellant Isabella Curran was not her deed and had never been executed by her, and praying that the satisfaction of the judgment and the order of the dismissal of this suit be set aside. The facts in that case up to the entry of the decree therein from which the appeal was taken sufficiently appear in the opinion of this court.

After the decree was reversed and the cause remanded, it was redocketed in the Circuit Court, and proceeded to a hearing and decree which set aside the satisfaction piece and stipulation to dismiss this cause on the ground of fraud, and ordered this cause reinstated and that it proceed in the same manner as if no dismissal had been had. The decree in that case also directed that appellee Thomas W. Prindeville and the McArdles be subrogated to all the rights of Bishop in his said judgment against Curran in case 258,806 in the said Circuit Court and in this cause, and that said deed purporting to be executed by Isabella Curran and her husband conveying lots described in the bill to Prindeville was not executed by Isabella Curran and was not her deed, and that the deed was fraudulent and void.

IJpon the entry of that decree in Prindeville v. Curran this cause was reinstated in the Circuit Court and redocketed. Thomas W. Prindeville, Thomas it. Bishop, Edward J. McArdle and Patrick L. McArdle filed a supplemental bill by leave of court, setting up in substance the original bill and the proceedings in the case of Prindeville v. Curran, above referred to, and the proceedings in the case of Kennard v. Curran, General Humber 266,124, and the decree therein; also the proceedings in the case of Bishop v. Curran, General Humber 258,806 in the Circuit Court, and the facts in relation to the obtaining of the dismissal of this cause and of the fraudulent satisfaction of the judgment in Bishop v. Curran, and the setting aside of the deed given in satisfaction of the Bishop claim, and the pleadings and proceedings in this cause prior to the filing of the supplemental bill, and setting forth in haec verba the decrees in Prindeville v. Curran and in Kennard v. Curran and the affirmance of the decree in Kennard v. Curran by this court in June, 1909, the subrogation of the complainants in the supplemental bill to the rights of Bishop, and. that no part of the Bishop judgment had been paid, and that the same was in full force and effect, and that there was then due thereon $1,792.41 and interest from Hay 1, 1905, and that the defendant Hurford at the time of filing the supplemental bill had in his possession and held title to certain property described therein for Bichard Curran, and as security for $14,990.25 and interest, and claiming that said judgment is subject to the lien of the Bishop judgment, and averring that Hurford acknowledges and admits, and the bill charges it to be a fact, that Hurford at the time of the filing of the bill had, and still has, in his possession, and holds title in trust to said real estate for Bichard Curran, and that during the pendency of the case of Prindeville v. Curran, No. 167,982, there was on April 4, 1907, a deed of conveyance recorded from Isabella Curran to John F. Gavin of certain property described in the bill, and avers that Gavin is a relative of Curran’s, and holds" whatever title to said real estate passed to him by said deed for Bichard Curran.

The bill avers that the rights of Dewitt T. Kennard and one Day, receiver in the Kennard case, are inferior and subject to the rights of the complainant, and that Prindeville and the HcArdles are assignees and equitable owners of the Bishop judgment and entitled to be subrogated to all his rights as judgment creditor in said judgment as co-complainants in this bill;

To the supplemental bill Samuel B. Hurford filed his answer, admitting that he holds the real estate as found in the decree in Kennard v. Curran, No. 266,724, for the security of an indebtedness to him of $14,990.25, and interest, and that as to all the other allegations of the bill he neither admits nor dénies, but calls for proof, and denies the complainants are entitled to a decree as prayed.

The defendants Bichard Curran, Isabella Curran, John F. Gavin and Thomas J. Kane filed their plea to the supplemental bill, in which they aver that the order of July 19, 1906, in that certain suit then pending in the Circuit Court, entitled Prindeville v. Curran et al., General number 267,-982 (this case) was a final order of said court, and dismissed said suit for want of equity, and the said final judgment has never been reversed and set aside by any court of competent jurisdiction; that the bill of complaint, as the same was dismissed for want of equity by said decree, involves a freehold in that it sought among other things to correct a deed to certain lots, and the Appellate Court in entering its judgment of reversal and remanding said cause to the Circuit Court was wholly without jurisdiction, and the judgment of reversal of the said Appellate Court, together with all subsequent proceedings in the Circuit Court of Cook County, subsequent to entry of the decree dismissing said cause for want of equity, were and are wholly void and of no effect whatsoever. All of which matters and things the defendants aver to be true and plead the same to the whole of said bill.

The complainants filed a replication to the plea averring that the bill of complainant was true and that the plea was untrue, thus taking issue on the question of fact set up in the plea. The plea was thereupon set down for hearing and the court, upon the evidence introduced, found and held that the Appellate Court had complete jurisdiction, that no freehold was involved, and that the proceedings in the cause subsequent to the remanding of the case and the redocketing thereof in the Circuit Court were valid in law, and that the plea was not true and was accordingly overruled as false.

Thereupon the supplemental bill was taken as confessed, and upon the presentation of a draft of a decree and upon the hearing of objections to the draft of the decree as presented, the court referred the draft of the decree, with the objections thereto, to a master in chancery to report,to the court such decree as complainants were entitled to on the pleadings. Upon, the report of the master the court entered the decree appealed from in this cause, declaring and decreeing that Richard Curran is the true and equitable owner of each and every part and parcel of the real estate described therein and ordering Richard Curran to pay to Prindeville and to the McArdles the sum of $1,792.41, with 5 per cent interest from May 1, 1905, together with costs, within five days from the entry thereof, and in default thereof, that certain portions of the real estate be sold, or so much thereof as may be necessary to realize the amount due complainants as found in the decree, together with the costs of suit and the cost of making the sale, and reserving the balance of the real estate for further disposition by the court. The real estate was ordered sold subject to the inchoate dower right of Isabella Curran, and certain real estate was ordered sold subject to the lien thereon of Hurford as found in the decree.

From the above decree Isabella and Richard Curran, Gavin and Kane prosecute this appeal and assign sixteen errors which counsel for appellants say may be reduced to the following points or contentions, for brevity:

1st: The want of jurisdiction in this court and the subsequent proceedings in the Circuit Court.

2nd: The judgment of the court below should have been respondeat ouster.

3rd: That there is not sufficient evidence to support the decree below, and the Decorators Supply Company’s bill and the supplemental bill should have been dismissed for want of evidence.

4th: The cause should not have been referred to a master in chancery.

5th: The court below should not have retained the premises not ordered to be sold.

6th: The court below should not have ordered a master in chancery to execute the decree and pay the costs.

The first point named above presents appellants’ main contentions, namely, that this court had no jurisdiction of the appeal in Prindeville v. Curran, 132 Ill. App. 162, because a freehold was involved. This contention we think is without merit. It is too clear for argument that the issues presented by the bill before this court in that case was the fraud practiced by Curran in obtaining the satisfaction of the Bishop judgment, and the dismissal of this cause by such fraud. Flo assignment of error was presented to this court which involved a freehold, and no such question was presented to the court for consideration. The questions presented to the court arose upon the sustaining of a demurrer to the amended bill in that cause. The court was of the opinion that the bill was good, and that the proposed amendments thereto, which the complainants asked leave to make, should have been allowed, holding that they were presented in apt time, and if allowed would not have unreasonably delayed the defendants. Accordingly the decree of the court below was reversed and the cause was remanded with directions to set aside the order sustaining the demurrer to the amended bill and dismissing the bill, and to overrule the demurrer to the amended bill, permit the complainants to make the amendments which the court had refused to permit to be made, and for further proceedings not inconsistent with the opinion of this court. The record of this court offered in evidence on the hearing on the plea shows clearly that no question of a freehold was presented to this court, by the assignment of errors or otherwise.

The second ground of error urged is that the judgment of the court below should have been respondeat ouster under section 45 of the Practice Act of 1907. This point is necessarily disposed of by what we have said above. If this court had jurisdiction to hear and determine Prindeville v. Cur-ran, supra, the cause was legally remanded. The parties proceeded to a hearing and decree in the Circuit Court. By that decree the dismissal of this cause was set aside and the cause was reinstated, and was pending the same as if no order of dismissal had been entered. The Circuit Court then had jurisdiction of the persons of the defendants; and section 45 of the Practice Act has no application.

We think the evidence offered upon the issue tendered by the plea warranted the finding that the plea was false. The plea was expressly to the whole supplemental bill, and the court did not err in ordering the supplemental bill, and petition of Bishop, to be taken as confessed by the defendants. ¡No evidence was necessary in support of the petition and supplemental bill which presented a full statement of the pleadings in the case, the proceedings in case of Prindeville v. Curran wherein the dismissal of the suit and the release of the Bishop judgment had been set aside together with the final decree therein. The bill also set forth the decree in the case of Kennard v. Curran, another creditor’s bill, which had been affirmed in this court. All the matters and questions of fact had been adjudicated and the defendants were not in a position to litigate further as to those matters in this suit, having had their day in court, and it would have been manifestly improper for the court to allow further delay or litigation with respect thereto. The supplemental bill was therefore properly taken as confessed. The decree follows in its findings the averments of the supplemental bill.

It is urged with apparent earnestness that the court could not enter a decree in this cause without a complainant. We see no merit in this contention as made in this case. There is no importance to be attached to the position of parties in an equity suit as complainants or defendants, provided the proper pleadings are filed as a foundation for relief. The rights of the parties will be determined regardless of their positions as complainants or defendants. Biegler v. Merchants Trust Co., 164 Ill. 197; Lunt v. Stephens, 75 id. 507. The court properly granted leave to complainants in the supplemental bill to file it. When filed they became complainants, and were entitled to prosecute the suit on the Bishop judgment, although the judgment of the original complainant had been satisfied. We think the averments of the supplemental bill, so-called, are sufficient to support the decree.

The decree orders the Becker farm in the possession of defendant Hurford, and two lots in the possession of defendants Kane and Gavin respectively, or so much thereof as may be necessary, to be sold for the satisfaction of the judgment, and reserves jurisdiction of the cause and the parties for such further proceedings as to the balance of the property as justice may require. The record shows that each of these three items of property stands separate and distinct from each other, and from all the other property levied on. Under the bill the decision as to one conveyance would have no bearing upon the decision as to the others and distinct and separate appeals might be taken as to each item of property. Walker v. Montgomery, 236 Ill. 244. We see no objection to the provisions of the decree in this respect. If the proceeds from these three items of property satisfies the judgment, the other property would be relieved of the lien. If appellants do not-wish to have their property held under the lien, they may quickly relieve it by paying the judgment. Complainants are entitled to their lien until the judgment is paid on all the property and property interests of the defendant Richard Curran. Appellants have no ground of complaint because of the reservation in the decree.

We find no material error in the reference of the draft of the decree with the objections thereto to a master to report to the court a proper decree to be entered, although the practice is unusual. Ro objection was made by appellants. Appellants are not necessarily harmed by the reference. They can raise the question as to whether the fees of the master should be taxed against them by a motion to retax the costs, and we must assume that on such a motion the court will rule justly. Such references to a master cannot be justified on any ground appearing in this record. They make litigation so expensive as to amount to a denial of justice, not only by increasing the taxed costs of litigation, but by occasioning large additional expenses to litigants for solicitors’ fees and other expenses.

We find no material error in the record and the decree is affirmed.

Affirmed.