text:
    Chalmers & Williams, Appellee, v. Walter Bledsoe & Company, Appellant.
    Gen. No. 24,976.
    1. Sales, § 15

      —when contract is valid and binding. A contract between two parties whereby one agrees to buy and the other to sell all of the former’s “consumption requirements” of coal for a period of 2 years and that the former may have an option of renewing the contract for a period of 2 years, is valid and mutually binding upon the parties.
    2. Sales, § 15*—when contract is void for want of mutuality. If, in a contract between two parties whereby one agrees to buy and the other tp sell all of the former’s “consumption requirements” of coal for a certain period, the term “requirements” is construed as meaning “needs” and not requiring the former to buy any coal if its plant is shut down or so altered that coal is not needed, the contract is void for want of mutuality.
    3. Sales, § 333*—when contract is breached. Where by a contract between plaintiff and defendant by which the former agrees to buy and defendant to sell all of plaintiff’s “consumption requirements” of coal for a certain period it was the intention of the parties that the amount of coal covered by the contract should be plaintiff’s requirements in the ordinary course of its business as established during previous years and existing when the contract was entered into, by abandoning the ordinary course of its business through changing from steam to electricity as a motive power, thus materially reducing its coal requirements, plaintiff breached the contract.
    4. Appeal and ehbor, § 1306*—when facts pleaded will be assumed to be true. On appeal by a defendant whose affidavit of merits was struck from the files on defendant’s motion, the facts must be taken to be as set forth in such affidavit.
    5. Sales, § 180*—what is effect of contract for coal to be consumed. A contract whereby plaintiff agreed to buy and defendant to' sell all of plaintiff’s “consumption requirements” of coal for a certain period held, under the facts recited, to have been entered into with the contemplation and intention of the parties that plaintiff’s requirements for coal would continue the same during the life of the contract as they had been established in the years previous to the execution of the contract and would not be diminished by a radical change, such as the substitution by plaintiff of electricity for steam as the motive power in its plant.
    Taylor, J., dissenting.
    Appeal from the Municipal Court of Chicago; the Hon. Hush J. Kearns, Judge, presiding. Heard in the Branch Appellate Court at the March term, 1919.
    Reversed and remanded.
    Opinion filed June 2, 1920.
    Lloyd D. Heth and Edward Monson, for appellant; Lloyd D. Heth, of counsel.
    Tenney, Harding & Sherman, for appellee.

      See Illinois Notes Digest, Vola. XI to XV, and Cumulative Quarterly, SA.ue topic and section number,

   Mr. Presiding Justice Thomson

delivered the opinion of the court.

The plaintiff, Chalmers & Williams, is a corporation engaged in the manufacture of machinery and the defendant is a corporation engaged in the business of mining and selling coal. The plaintiff brought this action on a. contract, under which it was provided that the plaintiff would buy and the defendant sell all of the plaintiff’s “consumption requirements” of coal for a period of 2 years, from May 1, 1914 to May 1, 1916, and that the plaintiff might have an option of renewing the contract for an additional period of 2 years, thus extending it to May 1, 1918. In its statement of claim the plaintiff alleged that it x had exercised its option and had made demands on the defendant for coal during the period from November, 1916, to April, 1918; that the defendant refused to sell or deliver the coal, as thus demanded; and that the plaintiff was thus obliged to purchase the coal required,on the open market, as a result of which the plaintiff - was put to additional cost in the sum of $2,974.24.

In its amended affidavit of merits the defendant set up the following matter by way of defense: (1) It admitted the execution of the contract and the exercise of the option by the plaintiff extending the contract to May 1,1918. (2) It denied any breach by the defendant and charged a breach by the plaintiff. (3) It alleged that at the time of the execution of the original contract the plaintiff was, and for a long period prior thereto had been, engaged in the manufacture of certain kinds of machinery; that for the purpose of supplying the motive power for the manufacture of such machinery, the .plaintiff maintained, and for a long period prior thereto had maintained, a power plant of its own, wherein it generated steam power through the exclusive use of coal; that in order to maintain that power plant throughout the year and also heat its buildings during the winter, the plaintiff had for a number of years required 60 to 70 cars of coal per year in nearly equal monthly instalments of 4 to 6 cars, or approximately 300 tons, throughout the year. (4) It alleged that, as a result of their prior dealings, the defendant knew of the character and magnitude of the plaintiff’s coal requirements as above set forth, and that their nature was fully discussed and understood by the parties at the time of the execution of the original contract, and that the contract was executed in contemplation of a continued existence of the known facts and circumstances therein set forth, and in contemplation that the plaintiff would continue to generate its motive power by the exclusive use of coal in its own power plant, in the same way it had in the past. (5) It alleged that some time in the early part of 1916, without its knowledge, the plaintiff discontinued the use of its power plant and entirely abandoned the use of steam as a motive power with which to run its machinery and substituted electrical power in lieu thereof; that ever since that time the plaintiff had not required or used any coal whatsoever for the purpose of generating power but used coal for heating purposes only; that because of said substitution of electrical power for steam, the plaintiff, although often requested by the defends ant to take the coal contracted for, neither ordered nor used any coal from April 1, 1916 until October 19, 1916; that because of said substitution of electrical power for steam, the plaintiff used and required, during the period of the contract as extended by the ex-, ercise of the option from May 1, 1916 to May 1, 1918, only 38 cars of coal, whereas during the 2 years preceding, from May 1, 1914 to May 1, 1916, the plaintiff used and required 132 cars of coal, and that it had required this in approximately equal monthly instalments throughout that period. (6) It alleged .that the defendant did not know of the said substitution of electrical power for steam until on or about October 1, 1916. (7) It alleged that at no time before it acquired the knowledge of the substitution of electrical power for steam did it refuse to sell any coal to the plaintiff. (8) It alleged that ever since it acquired knowledge of the substitution of electrical power for steam the defendant refused to sell the plaintiff any coal under the contract. (9) It alleged that at all times after such substitution the plaintiff continued its business as usual. (10) It admitted that plaintiff bought coal in the open market during the period referred to in the statement of claim and that plaintiff was compelled to pay more for such coal than it would have been obliged to pay for the same coal under the contract but that such additional cost amounted to $2,332.58 and no more. (11) It alleged that by virtue of the facts thus set forth there was no sum due to the plaintiff from the defendant.

On motioíí of the plaintiff the court struck from the files all of the matter set forth in the amended affidavit of merits except that contained in paragraph 10. The defendant thereupon elected to stand upon its amended affidavit of merits, following which the court found the issues for the plaintiff and assessed its damages in the sum of $2,332.58, from which judgment the defendant has perfected this appeal.

The contract in question was a valid contract, mutually binding upon the respective parties. National Furnace Co. v. Keystone Mfg. Co., 110 Ill. 427; Minnesota Lumber Co. v. Whitebreast Coal Co., 160 Ill. 85; Fred Allen Automobile Supply Co. v. H. W. Johns-Manville Co., 211 App. 217.

The real issue in this case is, did the plaintiff breach the contract when it changed its motive power from steam to electricity and thus reduce its “requirements” for coal from approximately 66 cars a year, distributed nearly equally throughout the year, to approximately 19 cars a year, for use in heating their plant only, in the cold months of the year.

The plaintiff contends that the defendant was the one who broke the contract when it refused to deliver the coal ordered by the plaintiff in the fall of 1916. Apparently plaintiff’s contention is that it did not breach the contract when it ceased operating its steam power plant and changed its motive power to electricity. Counsel for plaintiff admit in their brief that plaintiff “was bound to carry out its contract no matter what changes it made in its plant, even if it sold its plant.” But it also seems to be plaintiff’s contention that the contract would be carried out on its part if it bought of defendant during the contract period, all the coal it “needed” in connection with the operation of its plant. On this theory the contract would be fulfilled on plaintiff’s part if all the coal it “needed” during the contract period was (for example) 500 tons a month to be used for heating purposes, although at the time the contract was entered into, its “requirements” were, and for some time had been, 2,000 tons a month, for use in its power plant, as well as for heating purposes, this average monthly requirement running throughout the year. The inconsistency of plaintiff’s position is shown by the last phrase of its admission as we have quoted it. It is admitted plaintiff was bound to carry out its contract, ‘1 even if it sold its plant.” What interpretation should be placed upon the term “requirements” under' this contract in such an event? Certainly not the plaintiff’s needs for it would have none at all.

Of course, plaintiff “was bound to carry out its contract,” as counsel admit. The question is, what was its contract? -It was, to buy its “requirements” in coal, for a given .period, from the defendant. What does that mean? If “requirements,” as that term is used in this contract, means “needs” in the sense that if plaintiff’s plant is shut’ down or so altered that it needs no coal at all to operate it, then plaintiff is not obliged to order or buy any coal, then the contract must be held void for want of mutuality. But if the “requirements” of plaintiff is to be given such a meaning as will make the contract valid and a mutually binding agreement, then that term must be given the meaning the parties may be shown to have had in mind when they executed the contract. In National Furnace Co. v. Keystone Mfg. Co., 110 Ill. 427, a manufacturer of pig iron contracted to furnish a manufacturer all the pig iron he should need during a given period.: In construing this contract, the court said: “It is true that appellee was only bound by the contract to accept of appellant the amount of iron it needed for use in its business; but a reasonable construction must be placed upon this part of the contract, in view of the situation of the parties. Appellee was engaged, in a large manufacturing' business, necessarily using a large quantity of iron in the transaction of its business. It is not to be presumed that appellee would close its business and need no iron, but, on the contrary, the reasonable presumption would be that the business would be continued, and appellee would, necessarily- need the quantity of iron which it had been in the habit of using during the previous years.” In Minnesota Lumber Co. v. Whitebreast Coal Co., 160 Ill. 85, the lumber company made a contract for its “requirements” of coal for a given period. The court said: “Contracts should be construed in the light of the circumstances surrounding the parties, and of the objects which they evidently had in view. The circumstances, which both parties had in view at the time of making the contract, may be referred to for the purpose of determining the meaning of doubtful expressions. Courts will seek to discover and give effect to the intention of the parties; so that performance of the contract may be enforced according to the sense in which they mutually understood it at the time it was made. * * * The word ‘requirements’ * * # evidently meant the amount or quantity of coal, which appellant would need in its business for the specified season. * * * The plea avers that defendant was engaged in the purchase, use and sale of coal in its business, and that its requirements therein for that season were very large, and that such facts were well known to the plaintiff (the seller of the coal). The parties will be presumed to have contracted with reference to the knowledge which they then had upon that subject, and upon the supposition that appellant would need the same quantity of coal, which it had theretofore been in the habit of using. The word ‘requirements’ evidently has the same meaning as the word ‘needs.’ The amount of coal which was ‘required’ for the business of that season was the amount of coal which was ‘needed’ in the business of that season.” The court held that the demurrer to the plea should have been overruled.

Plaintiff seems to construe this case to mean that if one who has contracted to buy his “requirements” of coal for a given period, orders and pays for whatever his “needs” are for that period, without any regard to any changes he may make in his business, though they may reduce his “needs” materially, he has fulfilled his contract. The court does not so hold. It clearly construes the term “requirements” as contemplating that the buyer will continue his business so that his “needs” in the way of coal will be ap-■ proximately the same as they were when the contract was made.

Some of the very cases that plaintiff relies on to sustain its position are such as to show that the use of the term “requirements,” in such a contract as is involved here, means the party’s needs “in the regular course of his business.” Russell, Burdsall & Ward v. Excelsior Stove & Mfg. Co., 120 Ill. App. 23; Wells v. Alexandre, 130 N. Y. 642. In the latter case the defendants agreed to buy of the plaintiffs their requirements of coal for certain steamers for the year 1888. During that year they sold the steamers and refused to take any more coal under the contract, claiming they, had no further need of it. The court said: ‘ ‘ The fact that'the defendants deemed it best to sell the steamers cannot be permitted to operate to relieve them from the obligation to take the coal which the ordinary cmd accustomed use of the steamers required for the provisions of the agreement did not'admit of a construction that it was to terminate in the event of a sale or other disposition of them by the defendants.”

In our opinion plaintiff’s contention that their theory of the case is supported by Fred Allen Automobile Supply Co. v. H. W. Johns-Manville Co., 211 Ill. App. 217, is not tenable. In that case plaintiff agreed to purchase from defendant within 12 months from the date of their contract all plaintiff’s requirements of Bed Seal batteries. The court pointed out that “the contract contains this significant provision, —that plaintiff will ‘devote their best efforts in promoting the sale of the same,’ meaning the Bed Seal batteries in the contract described,” and held that under that language, the plaintiff “was to establish its requirements by procuring as many orders for the batteries as it could by the use of its best efforts; no reference to past sales in the previous year was made; no looking backward but a going forward for one year to sell all the batteries which it could in the exercise of its best efforts.” In that case the meaning of the term “requirements” was set forth in the contract itself and the court held that the language was clear and therefore the intention of the parties could not be determined by evidence aliunde, but must be fixed by the language employed in the contract itself.

The matter set up by the defendant in its affidavit of merits was proper and made out a good defense. If the facts were as therein set forth (and we must take them to be such in view of the motion to strike), it was the intention of the parties that if the option was exercised, the plaintiff was bound to buy coal from the defendant at the terms therein specified, and the defendant was bound' to sell it "to plaintiff at these terms for the further period provided for by the option, the amount of coal covered by the contract to be plaintiff’s “requirements” in the ordinary course of their business as established during the previous years and existing at the time the option was exercised. That being the case, plaintiff breached the contract when it abandoned the ordinary course of its business by the change from steam to electricity and thus materially reduced its requirements and ceased to buy coal from defendant under the contract, as it was under obligation to do by its terms.

Plaintiff has called our attention to that part of the contract providing that, “it is understood that this contract is to cover the entire consumptive requirements of the party of the first part (plaintiff), and it is also understood and agreed that should the party of the first part so desire, in the fall of the year to lay aside a pile of coal against any contingencies through the winter, it will be furnished in accordance with the terms of this contract. ’ ’ In our opinion there is no merit to plaintiff’s contention that this language in the contract negatives the theory that prior dealings or past requirements were in contemplation of the parties as defining the amount of coal covered by the contract.

For the reasons stated, the trial court erred in allowing plaintiff’s motion to strike the paragraphs of defendant’s amended affidavit of merits. referred to and in entering judgment for the plaintiff and therefore the judgment of the municipal court is reversed and the cause is remanded to that court for further proceedings not inconsistent with this opinion.

Reversed and remanded.

Mr. Justice O’Connor concurs. Mr. Justice Taylob dissents.


source: Caselaw Access Project

author: Mr. Presiding Justice Thomson

license: Public Domain

text:
    Eugene L. Garey, Appellant, v. George A. Trude et al., Appellees.
    Gen. No. 24,985.
    1. Appeal and error, § 1184

      —what questions will be considered when case is submitted on pleadings. On appeal from a decree dismissing a bill to foreclose a trust deed which was, by stipulátion of the parties, heard on the bill and answers filed, the matters set up in the answers are to be regarded as true and the only question is whether or not such matters are sufficient in law to constitute a defense to the suit.
    2. Principal and surety, § 66*—to what extent surety will be protected. As a general rule, a surety who pays his principal's debt will be protected by a court of equity by being given the benefit of all the remedies and securities that the creditor had against the principal.'
    3. Subrogation, § 5*—when doctrine of subrogation will not be enforced. The doctrine of subrogation will not be enforced vwhere the facts are such that it would be inequitable to do so or would work an injustice on others having equities prior to or higher than those in the position of the one seeking the application of the doctrine.

      4. Subrogation, § 16

      —when assignment is not necessary for surety’s protection. Where a surety is entitled to subrogation, no formal assignment of the securities held by the creditor is necessary.
    5. Subrogation, § 16*—what is extent of surety’s right of subrogation. Where one who has executed a trust deed on property subsequently executes a warranty deed conveying his equity therein to another, which does not recite that it is subject to the incumbrance, but, as a part of it and as a part consideration for the purchase the grantor agrees to discharge the incumbrance, upon his subsequently paying a judgment recovered on the notes secured by the trust deed and taking an assignment thereof he cannot, in equity, hold such deed as a lien against his grantee under the warranty deed nor against subsequent purchasers from his grantee; if he did not pay the judgment on the notes but appealed therefrom and the judgment was affirmed, the surety on his appeal bond will be held to have looked to his personal responsibility and not to the property to which such trust deed related, and while he will be permitted, under the doctrine of subrogation, to acquire any rights which he may, by being placed in the shoes of the principal, he will not be subrogated to the rights of the judgment creditor against one claiming under a conveyance from the grantor of the warranty deed executed before he became surety on the bond.
    Appeal from the Superior Court of Cook county; the Hon. Denis E. Sullivan, Judge, presiding. Heard in the Branch Appellate Court at the March term, 1919.
    Affirmed.
    Opinion filed June 2, 1920.
    Rehearing denied June 16, 1920.
    A. J. Deutschman, for appellant; Earl J. Garey, of counsel.
    Benjamin B. Kahane, for appellees.

      See Illinois Notes Digest, Vole. XI to XV, and Cumulative Quarterly, same topic and section number.

      See Illinois Notes Digest, Vols. XI to XV, and Cumulative Quarterly, same topic and section number.

   Mr. Presiding Justice Thomson

delivered the opinion of the court.

This is an appeal from a decree of the superior court of Cook county, dismissing the bill filed by the complainant Garey, by which he sought to foreclose a certain trust deed. On stipulation of the parties the cause was set down for hearing on the bill and answers filed. For the purposes of this appeal, the matters set up in the answers are therefore to be regarded as true and the only question presented for our decision is whether or not such matters are sufficient in law to constitute a defense to the suit and a bar to the relief prayed for by complainant in his bill.

The trust deed in question was executed by one Fulton in 1912. In 1913, Fulton conveyed his equity in the property to one Reilly, executing a warranty deed which did not recite that it was made subject to the incumbrance of the trust deed. At the time of this transaction and as a part of it and as part consideration for the purchase of the property, Fulton expressly agreed that within a certain time he would discharge the incumbrance and release it of record. Reilly subsequently sold the property and by successive . conveyances the equitable title came to be in Fitz Simmons, one of the defendants. Shortly before the maturity of the notes secured by the trust deed in question they were purchased by the defendant Trude. When the notes matured Fulton did not pay them and therefore his agreement to discharge the incumbrance and have it released of record was not carried'-out. Trude did not seek to foreclose the trust deed but he instituted an action at law against Fulton on the notes and procured a judgment. From that judgment, Fulton perfected an appeal to this court and the complainant Garey became surety on his appeal bond. Upon the affirmance of the judgment and the failure of Fulton to pay it, Trude brought an action against Garey on the appeal bond and recovered judgment in that action, which judgment Garey paid. Garey then filed this bill, claiming to be subrogated to the rights of Trude in the trust deed in question, as against Fitz Simmons the owner of the property.

As a general rule, a surety who pays his principal’s debt will be protected by a court of equity, by being given the benefit of all the remedies and securities that the creditor had against the principal, but this doctrine of subrogation, being designed to permit justice as a creature of equity, will not be enforced in any case where the facts are such that it would be inequitable to do so or where it' would work an injustice on others having equities prior to or higher than those in the position of the one seeking the application of the principle. Brandt on Suretyship and Guaranty (3rd Ed.), sec. 336; Stearns on Suretyship (Ed. 1915), 429; Makeel v. Hotchkiss, 190 Ill. 311. Where a surety is entitled to subrogation, no formal assignment of the securities held by the creditor is necessary.

The real issue presented for our consideration on this appeal is, -whether, on the facts here involved, the equities are such that the complainant is entitled to subrogation. It seems clear that if Fulton had not appealed from the judgment which Trade secured against him but had paid the judgment and taken an assignment of the trust deed and note, he could not have foreclosed the trust deed against the property in the hands of Fitz Simmons. Under the facts as we have given them above, Fulton could not, in equity, have held the trust deed as a lien against his grantee under the warranty deed or subsequent purchasers from his grantee. Lanphier v. Desmond, 187 Ill. 370.; 1 Jones on Mortgages, sec. 867. When the complainant Garey became surety on Fulton’s appeal bond, he must be held to have looked to the responsibility of Fulton personally and not to the security of the property in question) for the record then showed that Fulton had previously conveyed all his interest in the property, by warranty deed, not subject to the mortgage, and the judgment which had been obtained against Fulton was a personal judgment at law on the notes.

The interest which Fitz Simmons acquired in this property was by deed dated February 24. 1916, and subsequent to that time the complainant became surety for Fulton on his appeal bond. The interest of Fitz Simmons in the property in question, was therefore acquired previous to the complainant’s undertaking as surety. Although Garey in this situation would be entitled to be subrogated to all the rights of Trade as against the person and property of the debtor Fulton, we hold that inasmuch as he had no connection with the original deed or the notes secured .thereby, but first came into the situation as a surety on an obligation incidental to the prosecution of the action at law on the notes against the debtor personally, he is not entitled, on the ground of the equitable principles of subrogation alone, to stand in the place of the creditor Trade, as to the prior interest of Fitz Simmons but as to that interest he must stand in the place of his principal Fulton. 27 Amer. & Eng. Encyc. of Law (2nd Ed.) 218; Brandt on Suretyship and Guaranty (3rd Ed.), see. 240; Patterson v. Pope, 5 Dana (Ky.) 241.

There is much discussion of the ease last cited in briefs of counsel filed in this court. The principle laid down in that case, which we are here following, was specifically followed by this court in Powell v. Allen, 11 Ill. App. 129, where- a number of decisions, including that of Patterson v. Pope, were referred to. On appeal to the Supreme Court the case of Powell v. Allen was reversed but on another ground. (108 Ill. 584.)' It was there held that the right which the complainant was claiming was enforceable, not on the doctrine of subrogation but by reason of the fact that when the complainant had paid the indebtedness in that case he had taken a formal assignment of the note and mortgage and also a decree which had been entered thereon. In Schmitt v. Henneberry, 48 Ill. App. 322, this court again had occasion to consider the question of subrogation and the rule laid down in Powell v. Allen, 11 Ill. App. 134, was applied and followed. This was some years after the decision of the latter case in the Supreme Court and it is apparent that this court did not then consider that the decision of the Supreme Court had overruled this court so far as its decision had involved the question of the rights of the complainant based solely on the doctrine of subrogation. Counsel for complainant have called our attention to the case of Pence v. Armstrong, 95 Ind. 191. There would seem to be a clear distinction between that case and the case at bar, in that in the case cited the interest acquired by deed, in the property involved, prior to the obligation entered into by the complainant surety was subject to the mortgage that had previously been executed, whereas in the case at bar, the prior interest secured by Fitz Simmons and his grantors was expressly made not subject to the incumbrance of the trust deed, here sought to be foreclosed.

We are further of the opinion that the interest of Fitz Simmons in the property to which he now holds the equitable title was not only prior to the complainant’s undertaking but was an interest which may be said to be higher than the equitable interest which the complainant claims was acquired when he paid the judgment. The original debt was the personal debt of Fulton and when the latter conveyed the property in question he agreed to pay that debt and release the incumbrance. The complainant assumed his obligations as surety for Fulton at the latter’s request and solely for his benefit, on the appeal from a judgment against him in an action in which the court found that Fulton was personally obligated to pay the debt. The debt in question was Fulton’s, not only legally, but equitably. The judgment against Fulton having been affirmed on appeal and still not paid, and judgment having been obtained against the complainant Garey, as surety for Fulton, we can perceive no equitable reason why Garey should be given any rights against the present owner of the property in question, beyond such as he might acquire by being placed in the shoes of his principal Fulton. We are unable to see that the fact that Garey may have known nothing of Fulton’s agreement with his grantee that he would pay the incumbrance, or the fact that Trude may have testified in his action at law against Fulton that he did not know who owned the property on which the notes were secured, to which complainant has called our attention, have any effect upon the rig'hts he seeks to enforce here, although it would appear from statements in the brief filed for defendants in the case at bar that the purchase of the notes by Trude was for the purpose of protecting Fitz Simmons and forcing the payment of the indebtedness by Fulton in accordance with the agreement entered into by him as part consideration for the purchase of the property by his grantee.

We find no error in the record and therefore the decree of the superior court is affirmed.

Affirmed.

Mr. Justices Taylor and O’Connor concur.


text:
    Anderson & Lind Manufacturing Company, v. Walin Construction Company et al., Appellants. George J. Berresheim, Trustee, and Fred W. Brummel, Appellees.
    Gen. No. 25,066.
    1. Statutes, § 155

      —what is effect of repealing act re-enacting former provisions. Provisions of a repealing act which are reenactments of provisions of the repealed act will be considered as continued in force and not as new enactments.
    2. Statutes, § 184*—what is effect of Torrens Act as repealing Lien Act. Since the Torrens Act (J. & A. If 2284 et seq.), which was enacted after the Mechanic’s Lien Act of 1895 (J. & A. 1f 7139 et seq.), expressly recognizes the latter and contains no section enacted to repeal it, it must be understood that the legislature intended the two acts to be interpreted with reference to each other and that such interpretation should be, placed upon them to render both effective, if possible, and that neither was intended to be repugnant to the other.
    3. Mechanics’ liens, § 93*—wlien contractor may enforce lieri improperly filed. Notwithstanding a general contractor seeking to establish a mechanic’s lien on property, the title to which was registered under the Torrens Act (J. & A. if 2284), failed to 'comply with the requirements of section 89 .of that Act (J. & A. If 2365), as to filing a statement of claim, where he did comply with the requirements of the Mechanic’s Lien Act (J. & A. if 7145), he is entitled to enforce his lien as against the owner and as against the trustee under a deed of trust and the holder of notes secured thereby who acquired their interest in the property prior to the making of the general contract but failed to make such interest effective by filing the trust deed with the registrar until after the general contract was made.
    Appeal from the Superior Court of Cook county; the Hqn. Charles M. Foell, Judge, presiding. Heard in the Branch Appellate Court at the March term, 1919.
    Reversed and remanded with directions.
    Opinion filed June 2, 1920.
    Max M. Grossman, for appellants.

      Albert H. Meads, for appellees.

      See Illinois Notes Digest, Vols. XI to XV, and Cumulative Quarterly, game topic and section number.

   Mr. Presiding Justice Thomson

delivered the opinion of the court.

The complainant, Anderson & Lind Manufacturing Company, filed its bill against the Walin Construction Company, one Bassett, the owner, and certain mortgagees and mechanic’s lien claimants, in which it sought to establish a mechanic’s lien for the sum of $429.70 against certain premises, title to which is registered under the Torrens Act. •

The defendant, Walin Construction Company, filed an answer in the nature of an intervening petition in which it alleged that it had entered into a contract with the owner, Bassett, to furnish labor and materials for the carpenter work on the building in question; that it fully completed the work; that a balance of $950 is due said Construction Company, on said contract, and remains unpaid and that a balance of $429.70 remains due and unpaid to complainant for materials furnished. The Construction Company further alleged that it completed the contract on or about December 20, 1916, and -that on January 30, 1917, it caused to be.filed in the office of the clerk of the circuit court of Cook county a notice of mechanic’s lien in due form of law.

The cause was referred to a master who found that the allegations set up by the Construction Company in its intervening petition were true. The master further found that the Construction Company did not file “a statement of its claim in the office of the registrar of titles of Cook county, as required by section 89 of the Torrens Act (J. & A. fí i2365),” by reason whereof it was not entitled to a mechanic’s lien on the premises in question for the moneys found to be owing it.

The master further found that the complainant Manufacturing Company and certain other mechanio’s lien claimants were entitled to the liens sought by them and recommended that they be allowed.

The chancellor entered a decree confirming the master’s report and dismissing the intervening petition of the Construction Company for want of equity, from which decree the Construction Company has perfected this appeal. The owner of the property has not appeared in this court. The only appellees are George J. Berresheim and Fred W. Brummel, the former being trustee under a trust deed and the latter the holder of the note secured thereby, said trust deed being dated July 1, 1916, and registered in the office of the registrar of titles, January 6, 1917. These appellees acquired their interest in the- property previous to the making of the contract by the appellant Construction Company. The rights of subsequent purchasers, creditors or other lienors are, therefore, in no way involved in this case.

Although the Construction Company did not file the statement of its claim' for lien in the office of the registrar of titles, it appears that a record or memorandum of the filing of its statement of claim, in the office of the clerk of the circuit court of Cook county, appears to have been entered on the register of the certificate of title to the premises in question in the registrar’s office. We do not deem this important, however, for in our opinion, assuming that the Construction Company failed to comply with the provisions of the Torrens Act but did comply with the provisions of the Mechanic’s Lien Act, it would be entitled to enforce its lien as against the owner of the property and it would also be entitled to enforce its lien against the mortgagee appellees because they acquired their interest in the property in question prior to the making of the general contract (at which time the mechanic’s lien attached under the provisions of the Lien Act), but they failed to make their interest effective by filing their trust deed with the registrar (as required by the Torrens Act) until after the making of the general contract.

In support of their contention that the Construction Company has no lien because it failed to comply with the statute as to filing a memorial with the registrar of titles, appellees call our attention to Hacken v. Isenberg, 210 Ill. App. 120. In that case certain lien claimants sought to enforce their liens against property, title to which was registered under the Torrens Act, and the rights of subsequent purchasers, creditors or other lien claimants were not involved, the owner of the property being the only party in interest, other than the claimants. We there held that inasmuch as the property against which it was sought to enforce the liens was property which had been registered under the Torrens Act, the lien claimants must have 'complied with the requirements of the Torrens Act as to mechanics’ liens in order to successfully prosecute their claims for liens. ’ We certified that case to the Supreme Court on a" certificate of importance and the decision of that court has been rendered since tire appeal in the case at bar was perfected and the briefs filed. The decision of this court in the case cited was reversed by the Supreme Court on a point not in any way involved here. The ruling of this court on the point above referred to was modified by the Supreme Court, which held that the owner could not defeat the action of the lien claimants even though they may not have complied with the provisions of sections 89 and 90 of the Torrens Act (J. & A. ff 2365, 2366) provided they had complied with the provisions of the Mechanic’s Lien Act, inasmuch as the rights of subsequent purchasers, creditors or other lien claimants were not involved. Hacken v. Isenberg, 288 Ill. 589.

In their decision of that case the Supreme Court held (as did this court) that while the Mechanic’s Lien Act of 1903 repealed the Act of 1895, still many of the provisions of the Act of 1903 were re-enactments of the provisions of the Act of 1895 and therefore were to be considered as continuing in force and not as new enactments; that'such is the ease as to practically all of the provisions of section 7 of the two acts; that the Torrens Act, enacted after the Mechanic’s Lien Act of 1895 (J. & A. ft 7139 et seq.), in express terms recognizes that act and contains no section enacted with a view to repeal any section of the Mechanic’s Lien Act; that it must therefore be taken that “the legislature intended both acts to be interpreted with reference to each other, and that such a construction should be put upon them that both acts would be effective, if possible, and that neither of them was intended to be repugnant to the other. ’ ’ The court further held that the main object of the Torrens Act “is to compel the * * * party interested in the title of the record owner to register his title or interest in the registrar’s office, in order that subsequent purchasers or parties dealing with the title may have notice of such title or interest. A careful examination of the whole act will clearly disclose that sections 89 and 90 of our Torrens Act, when considered with the provisions of the Mechanic’s Lien Act, were particularly enacted in the interest of parties who might become purchasers or otherwise interested in the land of the owner of the registered title after mechanics’ liens had attached. They were not intended to enable any record owner to defeat a lien given bv the Lien Act. ’ ’

The Supreme Court, assuming that the lien claimants had never complied with the sections referred to by filing their claims or notice of their liens in the registrar’s office, although they had filed a notice of lis pendens under the provisions of section 84 of the Torrens Act (J. & A. 2360), held that “appellants’ defense under the Torrens law could not be sustained.,” as petitions for liens were filed within the 2 years mentioned in section 7 of the Lien Act.

The record of the case at bar presents much the same situation.

The intervening petitioner filed its petition within the period prescribed in section 7 of the Lien Act. No rights acquired after the making of the contract are involved here, but the only interest involved on this appeal, other than that sought to be established by the intervening petitioner, is the interest of the owner and that of the mortgagees under the mortgage dated July 1, 1916, and recorded in the office of the registrar of titles on January 6, 1917. The intervening petitioner entered into its contract with the owner on or about July 21, 1916. Under the provisions of section 1 of the Liens Act (J. & A. 73.39) its lien attached as of that date and is therefore prior to that of the appellees which, under the provisions of section 54 of the Torrens Áct (J. & A. ft 2337), did not become effective until January 6, 1917, the date they registered their trust deed.

For the reasons stated the decree of the trial court is reversed and the cause is remanded to that court with directions to enter a decree as prayed for in the intervening petition of appellant, the Walin Construction Company.

Reversed and remanded with directions.

Mr. Justices Táylob and O’Connob, concur.


author: Mr. Justice O’Connor

text:
    William C. Niblack, Receiver, Appellant, v. Charles A. Munday et al., Appellees.
    Gen. No. 24,873.
    1. Banks and banking, § 43

      —When receiver cannot recover deficiency from directors. On a bill by the receiver of a State bank against the directors thereof which seeks to recover the capital and surplus of the bank, where the Supreme Court has held in another case that any deficiency in this regard must be paid by a certain trust company defendant in that case, and the Appellate Court has held in another phase of such case that the trust company cannot recover from subscribers to the stock of the bank any amount that such trust company should be required to pay under the Supreme Court’s decision, the receiver cannot recover in such suit against the directors on account of any deficiency in the capital and surplus of the State bank.
    2. Banks and banking, § 43*—what is extent of director’s liability. The liability of directors of a State bank is not limited to that fixed by section 10 of the State Bank Act (J. & A. If 682), but they are also liable under the common law for losses sustained by the bank as a result of their negligence.
    . 3. Receivers, § 44*—when court order is not necessary for suit. If a receiver is authorized generally to sue, it is not necessary in every case to have an order specifically authorizing the bringing of a particular suit.
    4. Receivers, § 21*—when receiver may be controlled by court. If a receiver improvidently prosecutes a suit, the matter can be brought to the attention of the court appointing him.
    5. Receivers, § 43*—-what remedies receiver may use in actions. A receiver, who represents not only the bank, of which he is the receiver and its stockholders, but also its creditors, in seeking to recover of the fourteen directors moneys alleged to have been lost by the bank through their negligent act, is not restricted to an action at law, but may bring a suit in equity.
    6. Receivers, § 42*—when receiver of bank may sue even though bank is prevented. The receiver of a bank who represents the creditors as well as the corporation and its stockholders may bring a suit against the directors to recover money of the bank alleged to have been lost through their negligent acts, notwithstanding the bank itself, because of its acquiescence in the acts complained of, could not sue.

      7. Banks and banking, § 43

      —when action for negligence of directors is premature. As to claims of creditors which have been filed with the receiver of. the bank but not yet allowed, a suit by the receiver against the directors of the bank to recover money of the bank alleged to have been lost through their negligence is premature.
    8. Banks and banking, § 43*—what is extent of director’s liability as to negligence of codirectors. While a director of a bank may be held liable for damage caused by his own negligence, he cannot be held liable for the negligence of his codirectors or any of them.
    9. Banks and banking, § 43*—when bill to enforce liability of directors is demurrable. A bill by the receiver- of a bank to recover of the fourteen directors, of a bank money of the bank lost through their alleged negligent acts, which charges that the affairs of the bank were' managed and conducted by two of the directors, aided by four other directors, the latter being dominated and controlled by such two, and charges against the nonactive defendant directors that they took no part in the management or supervision of the bank and made no investigation or inquiry into its affairs but negligently permitted the two dominant directors to dissipate its assets, falls short of alleging that the losses were caused by the negligence of the nonactive directors and is properly demurrable since it seeks to hold each nonactive director liable not only for his own negligence, but also for that of each of the other nonactive directors.
    Taylor, J., dissenting.
    Appeal from the Superior Court of Cook county; the Hon. Denis E. Sullivan, Judge, presiding. Heard in • the Branch Appellate Court at the March term, 1919.
    Affirmed.
    Opinion filed June 2, 1920.
    Rehearing denied June 17, 1920.
    Hiram T. Gilbert, for appellant.
    Rice, Lowes & O’Neil, for appellee Thomas McDonald ; Francis M. Lowes, of counsel.
    Moses, Rosenthal & Kennedy, C. Van Alen Smith and Delbert A. Clithero, for appellees James E. Bennett, George O. Gunderson and Joseph Hock; Walter Bachrach and Henry Jackson Darby, of counsel.

      See Illinois Notes Digest, Vols. XI to XV, and Cumulative Quarterly, same topic and section number.

      See Illinois Notes Digest, Vols. XI to XV, and Cumulative Quarterly, same topic and section number.

   Mr. Justice O’Connor

delivered the opinion of the court.

By this appeal complainant seeks to reverse a decree of the superior court of Cook county sustaining demurrers to and dismissing for want of equity his amended bill of complaint. Complainant, as receiver of the La Salle Street Trust and Savings Bank, sought to recover moneys lost by the bank through the alleged negligent acts of defendants who were its directors. The only question to be determined is whether the amended bill stated a cause of action.

It is alleged that the La Salle Street National Bank of Chicago was organized May 7, 1910, with a capital and surplus of $1,250,000; that thereafter it carried on a banking business in Chicago until its dissolution, October 21, 1912; that for 6 months before it ceased doing business its capital stock and surplus had been entirely lost, and that its liabilities exceeded its assets by at least $200,000. The bill then sets up the organization of the La Salle Street Trust & Savings Bank and the taking over by it of the assets and liabilities of the national bank. These facts are stated in the bill substantially as found by the Supreme Court in the case of Golden v. Cervenka, 278 Ill. 419, so that it will be unnecessary to restate them here at large. For the purposes of this opinion it is sufficient to say that the amended bill of complaint alleges that the Trust and Savings Bank was organized and began doing business October 21, 1912, and continued to so operate until June 10, 1914, when complainant was appointed receiver by ‘the circuit court of Cook county in a bill filed in the name of the People of the State of Illinois on the relation of the Auditor of Public Accounts against the Trust and Savings Bank and its stockholders; that the bank was dissolved and the receiver ordered and directed to wind up its affairs, collect and distribute its assets among the parties entitled thereto. It is alleged that the bylaws of the Trust and Savings Bank provided that the affairs of the bank be administered by a board of fifteen directors, five of whom should constitute 'a quorum for the transaction of business; that the business of the bank was managed and conducted entirely by William Lorimer, its president, and Charles B. Munday, its vice president, aided by Charles G. Fox, Thomas McDonald, Charles E. Ward, and L. L. Bacchus; that Fox, McDonald, Ward and Bacchus were dominated and wholly controlled by Lorimer and Munday, all of whom were directors of the bank; that Bennett, Hock, Gunderson, Hanecy, Hanney and Huttig, who were also directors “took no part in the management or supervision of said business and made no investigation or inquiry whatsoever into the same, but carelessly and negligently permitted the said William Lorimer and Charles B. Munday, without any supervision whatever, or attempted supervision, or investigation or inquiry, or attempt at investigation or inquiry, by the other members of the said board of directors, or either of them, to carry on the said business and to fraudulently misapply the assets of said Trust and Savings Bank and to cause great, losses to said Trust and Savings Bank” by failing to exercise ordinary care in the management and supervision of the business of the bank, and particularly in permitting Lorimer and Munday to make loans of the bank’s money aggregating $1,781,722.43, to individuals, firms and corporations who were insolvent; that such loans were unsafe and imprudent transactions; that moneys of the bank aggregating $562,735 were invested in stocks, bonds and other securities which,- at the respective times the investments were made, were of little or no value as Lorimer and Munday well knew, and are now worthless; that there came into the possession of the bank through Munday certain items which were designated “transit items”; that these items, amounting to $311,200, for which the bank’s money was paid out, were uncollectible and worthless; that all of these transactions were unsafe and imprudent as well known to Lorimer and Munday “and all of which was known to the other defendants, or would have been known to them had they exercised ordinary care and diligence in the performance of their duties as directors.” It is further alleged that long prior to the times when Munday obtained the bank’s money for the transit items, the other directors well knew, or by the exercise of ordinary care should have known, that Munday was fraudulently misapplying the money and property of the bank to his own use and that he was then insolvent and unfit to be trusted with the management, and business of the bank, but that notwithstanding such knowledge, or means of knowledge, the other directors carelessly and negligently permitted him to continue to have the management of the bank and to fraudulently misapply its moneys until the bank suspended. It is also alleged that claims aggregating- $3,450,000, have been-presented to the receiver, and that of such claims more than $2,700,000 have been allowed. The bill further sets up orders entered by the circuit court in the proceeding in which complainant was appointed receiver, wherein complainant was authorized and empowered “to institute and prosecute, either in the name of the said Trust & Savings Bank or in his own name as such receiver, any and all suits at law and in equity which he may deem necessary or advisable for the collection of moneys now due or which may hereafter become due said La Salle Street Trust and Savings Bank, or for the recovery of other property belonging thereto, or otherwise protecting the rights of said La Salle Street Trust & Savings Bank”; that the assets of the bank be converted into money and after the payment of costs and expenses distributed among the creditors of the bank, and if any sum remain, that it be distributed among the stockholders; that the receiver be directed with all convenient speed to convert into money the property and assets of the bank, ‘ ‘ to make such sales of such property and assets as may from time to time be authorized by the court, and to institute and prosecute in his own name as receiver, or otherwise, all such suits and proceedings either at law or in. equity as he may deem necessary, proper or advisable for the collection of money now due or which may hereafter become due” the bank.

From a consideration of the allegations of the amended bill, we think it clear that the most that can be said as to the nonactive director defendants, Bennett, Gunderson, Maguer, Hock, Gardner, Hanecy, Hanney and Huttig, is that they were charged only with negligence and inattention to their duties as directors, for it is alleged that they carelessly and negligently permitted Lorimer and Munday, without any supervision, investigation or inquiry, to misapply the assets of the bank.

Counsel for complainant does not argue that the bill stated a good cause ■ of action at least against Lorimer and Munday and, therefore, their demurrer should not have been sustained even if the demurrers of the nonactive directors were properly sustained. But he argues the case on the theory that he has stated a good cause of action against all of the defendants, and that if this is not. true the amended bill was properly dismissed. We shall, therefore, consider the case only as against the nonactive directors. We think it clear from a consideration of the allegations that complainant in the instant case is seeking to recover the capital and surplus of the state bank amounting to $1,250,000. The Supreme Court in Golden v. Cervenka, supra, held that any deficiency in this regard must be paid by the Central Trust Company of Illinois, and we held in another phase of the same case (Golden v. Cervenka, 216 Ill. App. 397) that the Central Trust Company could not recover from the stock subscribers of the Trust & Savings Bank any amount that it, the Central Trust Company, should be required to pay under the decision of the Supreme Court. It follows, therefore, that complainant would not be entitled to recover in this case on account of any deficiency in the capital and surplus of the Trust & Savings Bank.

The defendants first contend that the amended bill was properly dismissed for the reason that complainant cannot maintain any suit against the directors of such bank on account of their negligence because the State Bank Act covers the entire subject-matter, and the only liability of State bank directors is that fixed by section 10 of that Act (sec. 10, ch. 16a, Rev. St., J. & A. jf 682), which provides that the total liability of any person or corporation to any State bank for any money borrowed shall at no time exceed 15 per cent of the capital stock of the bank; that every director who violates the law or who participates in or assents to such violation, or who permits any officer or agent of the bank to violate such law, shall be personally liable for all damage to the bank in consequence of such violation. In support of this, it is argued that under section 5, article XI of the Constitution, no act of the Gfeneral Assembly, or amendments thereto, concerning State banks shall go into effect unless the same is approved by a vote of the people and, therefore, the defendant directors are not liable under the common law or rules of equity but under the statute only. We think the argument is untenable and are clearly of the opinion that the directors of a bank are liable under the common law for losses sustained by the bank as the result of their negligence. Wallach v. Billings, 277 Ill. 218; Briggs v. Spaulding, 141 U. S. 132. In the Billings case the court - was considering the liability of Billings as a director of a national bank by reason of his negligence and inattention to the affairs of the bank. The court said (p. 233): “Liability of directors of a bank for losses to the bank, so far as any rule can be deduced from the various authorities and based on the facts of individual cases outside the question of proper parties, can be stated as follows: Where the directors of a corporation are guilty of a breach or neglect of duty and the proximate result of such breach or neglect of duty is a loss to the bank, there may be a recovery from such directors.” In the Spcmlding case the Supreme Court of the United States said (p. 165): “We hold that directors must exercise ordinary care and prudence in the administration of the affairs of a bank, and that this includes something more than officiating as figure-heads. They are entitled under the law to commit the banking business, as defined, to their duly authorized officers, but this does not absolve them from the duty of reasonable supervision, nor ought they to be permitted to be shielded from liability because of want of knowledge of wrong-doing, if that ignorance is the result of gross inattention.” There is nothing in the State Bank Act so at variance with the provisions of the National Banking Act that would render these authorities inapplicable here.

It is further argued that the orders entered by the circuit court in which the receiver was appointed did not direct him to institute this suit against the directors, and that the receiver can only bring such suits as he is authorized to do, and there being no authority for the bringing of this suit, the bill was properly dismissed. It is true that the order authorized the receiver to bring such suits as be may deem advisable for the collection of money, and while the case of Simmons v. Taylor, 106 Tenn. 729, holds that the absence of an allegation that the receiver has been authorized to institute the suit may be taken advantage of by demurrer, we think it is not necessary in every case to have an order specifically authorizing the bringing of a particular suit. It is sufficient if the receiver be authorized generally. At least we hold in this case that if the receiver is improvidently prosecuting this suit, the matter can be brought to the attention of the court appointing him. And that the order of the circuit court is not void.

It is further contended that if there is any liability, complainant’s remedy is at law and not in equity. In support of this a number of New York authorities are cited, among them the case of Dykman v. Keeney, 154 N. Y. 483. We think that case and the other New York authorities are in point and sustain defendant’s position, but we are of the opinion that the instant case is clearly one of equitable cognizance. The rule relating to equitable jurisdiction applicable here is laid down by Pomeroy as follows: “Where one party has a common right against a number of persons, the establishment of which would regularly require a separate action brought by him against each of these persons, instead whereof he might procure the whole to be determined in one suit, a bill in equity will lie on the ground that it prevents a multiplicity of suits.” 1 Pomeroy, Equity Juris. (2nd Ed.), sec. 245. See also Briggs v. Spaulding, supra. Complainant would certainly have no adequate remedy if he were required to commence a separate action at law against each of the fourteen directors, and to offer substantially the same evidence in each case. This is particularly true for the further reason that our Supreme Court has held in the case of Golden v. Cervenka, supra, that the receiver represents not only the corporation and its stockholders but also its creditors.

It is also argued that the receiver can only maintain such actions as the bank itself could since he represents the bank, and that the bank could not maintain the instant case because it has “acquiesced in the transactions complained of.” It is sufficient to say that the Golden case, followed by the case of Niblack v. Farley, 286 Ill. 536, held that although the circumstances of the particular case may be such that the bank itself could not have collected certain securities, yet the receiver representing the creditors might do so.

A further point made is that there are filed with the receiver claims aggregating about $700,000 which have not as yet been allowed. As to such claims we think the suit was premature. Green v. Officers and Directors of Knoxville Banking & Trust Co., 133 Tenn. 609.

The principal point in the case, however, is that no cause of action is stated against the nonactive directors for the reason that there is no allegation that any of the losses sustained by the bank, and for which recovery is now sought, resulted from the negligence of such directors. In the Billings case it was held that while a director of a bank may be liable for damage occasioned by his own negligence, yet he cannot be held for the negligence of his codirectors or any of them. Warner v. Penoyer, 91 Fed. 587, which was a suit by the receiver of a bank, against its directors to charge them with liability for losses alleged to have been caused by their negligence, was quoted with approval by our Supreme Court in the Billings case as follows: “They (the directors) are respon-' sible for their own acts or omissions, but not for those of codirectors in which they have not actively or passively participated. * * * As to all these losses, the case of the complainant seems to have been prepared and presented upon the theory that when a bank has failed and it appears that there was a general supineness and looseness of management by the directors, the burden of exoneration for the losses is on the directors. This is not a correct theory. If it were, the cases would be few in which the directors of a bank wrecked by the misconduct of a cashier could not be held accountable for all the losses. The court cannot decree upon conjecture. As against two of the directors, the case for the complainant is predicated upon their failure to attend the semiannual meetings of the board. .Tt is not a necessary or legitimate inference that this omission was a contributory cause of-the losses. It does not follow because a director has failed to attend meetings that he is legally or morally responsible for the disasters that may have befallen his bank. * * * A director who has failed to act is not liable for the thefts or shortcomings of the cashier unless it appears, inferentially at least, that his omission had some proximate relation to the losses.” The Supreme Court there continuing said (p. 233): “It is the theory of appellants, in brief, that all that, it is necessary to show in their bill of complaint is the inattention of Billings as a director and that the bank sustained losses. There is no doubt but that directors of a national bank are liable in some cases for losses to the bank of which they are directors, but it is equally true, that they are not liable for every loss which happens to occur. Such a rule would make a bank director an insurer, which he is not. A director may be guilty of negligent acts which cause a loss or he may be guilty of negligence and inattention to his duties provided such negligence and inattention are the cause of such loss. * * * There are many cases in which directors have been held liable, and many others in which they have been held not to be liable. Decisions of the courts are not of great value as authorities, as each decision is based upon the facts of the particular case decided, and in no two cases are the facts the same. * * * They have not shown by the bill that the losses were caused by the alleged neglect and no such case is made out by their bill.” In that case Billings, who was a director of a national bank, attended no meetings of the directors, nor did he do anything in any way connected with the management of the bank, and it was there held that he was not liable for losses sustained by the bank through his negligence and inattention to duty, for the reason that there was no allegation in the bill that the losses were suffered as a result of his inattention to duty. In the instant case the charge is that the affairs of the bank were managed and conducted by Lorimer and Munday, aided by Fox, McDonald, Ward and Bacchus, the latter four being dominated and wholly controlled by Lorimer and Munday. The charge against the nonactive defendant directors is that they took no part in the management or supervision of the bank, made no investigation or inquiry into its affairs, but negligently permitted Lorimer and Munday to dissipate the assets. We think the bill, like the one in the Billings case, falls short of an allegation that the losses were caused by the negligence of the nonactive directors. For, even if one of the nonactive directors had attended the meetings .of the board, he could not have prevented the worthless loans from being made, as he would have been outvoted by Lorimer and Munday and the other four directors dominated by them.

It is apparent, therefore, that complainant is seeking to hold each nonactive director liable not only for his own alleged negligence, but also for that of each of the other nonactive directors, which cannot be done. The demurrers were properly sustained and the bill dismissed.

The decree of the superior court of Cook county is affirmed.

Affirmed.

Thomson, P. J., concurs.

Taylor, J., dissents.


text:
    Harry Channon, Appellee, v. H. Channon Company et al., Appellants.
    Gen. No. 24,952.
    1. Corporations, § 162

      —what is extent of power of directors as to dividends. As a general rule, the action of the board of directors of a corporation in refusing to declare a dividend is final, and their discretion' in this regard will not be «interfered with by a court of equity in the absence of bad faith or arbitrary or unjustifiable conduct.
    2. Corporations, § 162*—what is extent of power of court to declare dividends. The power of a court of equity to order the directors of a trading corporation to declare and pay a dividend from the unused profits when they have improperly refused to do so is undoubted.
    3. Corporations, § 162*—when declaration of dividends will he enforced. Where the evidence shows that a corporation is transacting a large and profitable business and is amply able to pay the dividend decreed without in any way impairing its financial condition, the refusal of the directors to declare and pay a dividend is arbitrary, and a decree directing the payment thereof will be sustained.
    Appeal from the Superior Court of Cook county; the Hon. Denis E. Suimyan, Judge, presiding. Heard in the Branch Appellate Court at the March term, 1919.
    Affirmed.
    Opinion filed June 2, 1920.
    Willis Melville and Albert N. Powell, for ap- , pellants.
    Morrill, Shannon & Triska, for appellee; Donald L. Morrill and Nahum Morrill, of counsel.

      See Illinois Notes Digest, Vola. XI to XV, and Cumulative Quarterly, same topic and section number.

   Mr. Justice O’Connor

delivered the opinion of the court.

Harry Channon, a stockholder of the H. Channon Company, a corporation, filed Ms bill in tins case against the corporation and the directors of it praying that an account.of the financial condition of the company be had and a cash dividend declared. Complainant contended that the action of the board of directors in refusing to pay a dividend was unjustifiable and arbitrary. The case was referred to the master who took the evidence and reported that the company was in good financial condition; that its financial ability to pay a dividend was admitted, and that the refusal of the directors to declare a reasonable dividend was arbitrary, unjustifiable, and a denial of the right of minority stockholders to share in the profits of the company.

He recommended that a decree be entered as prayed for requiring the payment of a 10 per cent cash dividend. The findings and recommendations of the master were approved by the chancellor and a decree entered accordingly, to reverse which the corporation and two of the directors prosecute this appeal.

The record discloses that defendant company was incorporated January, 1883, with a capital stock of $100,000, divided into 1,000 shares of the par value of $100 each. The object of the corporation was to manufacture rigging, sails, canvas goods and other merchandise usually dealt in by ship chandlers; that in April, 1913, the capital stock was increased to $1,000,000, divided into 10,000 shares of the par value of $100 each; that from the time of the incorporation of the company down to the present it has been engaged in the business for which it was incorporated. The stock of the company is substantially all held by the Channon family as follows: Henry Channon, the father, 5,400 shares; Elizabeth Channon, his wife, 819 shares; the complainant, Harry Channon, a son, 981 ■ shares; James H. Channon, a son, 781 shares; Mrs!" Grace C. Bortell, a daughter, 819 shares. John L. Hanley, the secretary of the company, owns 50 shares. Employees of the company own 310 shares, and 840 shares are in the treasury of the company unissued. It appears that the business was founded by the father and that he has always been the dominating factor of it although at the time of the hearing he was about 82 years old. He is president, treasurer and a director of the company. John L. Hanley is the secretary and also a director. James H. Channon is the other director. Cash dividends have been declared j and paid as follows: 1911, 10 per cent; 1912, 15 perj cent; 1913, 4 per cent; 1914, 2 per cent, making a total i of $85,000 paid in dividends. On January 15, 1917, a meeting of the board of directors was held. James H. Channon moved that a dividend be declared at such rate as the directors should consider reasonable. The motion was defeated without any discussion by the votes of Henry Channon and Hanley, the secretary. On February 6 following the bill was filed.

There is no dispute as to the financial standing of the company as shown by the balance sheet of January 1, 1917, from which it appears that the company had on that date in cash, $151,287.81. The company owns real estate valued at $113,769.38. In the statement there is shown a reserve of $75,000 for depreciation of stock on hand, and also a reserve of $100,000 for a building fund; that the net sales for the year 1916 amounted to $2,115,573.49, and the net profits,y for that year were $341,215.85. On December 31, 191.6, the company had on hand merchandise valued at $526,497.45; that it owed current bills amounting to $66,626, and also $41,227.24 to .Henry Channon, which he had left in the company’s treasury for several years and for which he was paid interest. The evidence tended to show that there was a turnover of the merchandise two or three times per year; that there was no justification for the $75,000 reserve for depreciation; that such reserve had never been made before and instead of any decrease in the value of the goods on hand, they had increased and would continue to increase in value. In reference to the $100,000 reserve for the building fund, the court found that while there had been some talk of procuring a new site nothing had been done in this regard for the past 3 or 4 years. The evidence also tends to show that the real estate held by the firm, although in the name' of Henry Channon, had been so held for a number of years contrary to the statute of this State, and that it could be sold for $100,000.

It is the theory of the complainant that the reserve of $75,000 for depreciation of the stock on hand, and of ^$100,000 for a building fund was simply a subterfuge to avoid the payment of a dividend. There is evidence that the father, Henry Channon, who dominated the conduct of the business, had stated that he would never declare any further dividend while he lived, and that Hanley, a director, was completely dominated and controlled by him. Defendant’s position is that the question whether a dividend should be declared rests in the discretion of the board of directors, and in the absence of proof of fraud or breach of trust a court of equity is without power to decree the payment of a dividend. As a general proposition, the action of the board of directors in refusing to declare a dividend is final, and such discretion will not be interfered with by a court of equity in the absence of bad faith or arbitrary or unjustifiable conduct. Cratty v. Peoria Law Library Ass’n, 219 Ill. 516.. But the power of a court of equity to order the directors of a trading corporation to declare and pay a dividend from the unused profits when they have improperly refused to do so is undoubted. Laurel Springs Land Co. v. Fougeray, 50 N. J. Eq. 756; Scott v. Eagle Fire Ins. Co., 7 Paige (N. Y.) 198 ; Morawetz on Corporations (2nd Ed.), sec. 447 ; 2 Clark & Marshall on Corporations, sec. 517; 6 Fletcher’s Cyclopedia of Corporations, sec. 3656. A trading corporation is organized and carried on primarily for the profit of the stockholders and it would be a strange rule indeed if the board of directors could arbitrarily refuse to pay dividends when the financial condition of the company would warrant it. In the instant case there is outstanding 9,160 shares of stock of the par value of $916,000, 10 per cent of whicli is $91,600. Upon a consideration of the entire record we find that it is undisputed that the company was transacting a large and lucrative business. There is no dispute that it was amply able to pay the dividend decreed without in any way impairing its financial condition. We think the refusal of the board of directors to declare and pay a dividend was unjustifiable and arbitrary. In these circumstances a court of equity may intervene to compel the directors to declare and pay a dividend as was done in the instant case.

The decree of the superior court of Cook county is affirmed.

Affirmed.

Thomson, P. J. and Taylor, J., concur.


text:
    C. A. Gustafson and John A. Anderson, trading as Anderson & Gustafson, Appellees, v. Michigan Central Railroad Company, Appellant.
    Gen. No. 24,982.
    1. Cabbiers, § 96

      —when delay in returning car is due to negligence. In an action against a railroad company to recover damages claimed to have been sustained by its negligence in failing to return in a reasonable time a car belonging to plaintiff, evidence examined and held to show that the delay in returning the car was caused by defendant’s negligence. ¡

    2. Carriers, § 201*—what charges may be collected' when private cars are furnished» Where private cars are furnished by a shipper for use in interstate commerce, the only compensation which the carrier can pay therefor is that fixed by the Interstate Commerce Commission, and such allowance or compensation can be increased or diminished by the Commission only.
    3. Carriers, § 110*—what is effect of rule as to charges in action for damages for delay. Rule 29 of the Official Classification fixed by the Interstate Commerce Commission, providing the' compensation or allowance which shall be paid by carriers to the owners of tank cars for the use of such cars does not apply to an action by the owner of a car to recover damages alleged to have been sustained by the carrier’s negligence in failing'to return the car within a reasonable time after the shipment which it contained had been delivered.
    4. Carriers, § 110*—what damages are without scopé of Interstate Commerce Act. Damages caused by a carrier’s negligence are not within the Interstate Commerce Act and are, therefore, without the scope of the Interstate Commerce Commission.
    5. Cabbiers, § 110*—what evidence is admissible to show damages for delay. In an action by the owner of a car against a carrier to recover damages alleged to have been sustained by its negligence in failing to return the car within a reasonable time, evidence as to the reasonable rental of the car is admissible on the question of damages.
    6. Carriers, § 96*—when owner of car may recover damages for delay. The owner of a car which is unnecessarily detained by the carrier after the freight contained therein has been delivered is entitled to recover the reasonable rental value of the car during the time of such unnecessary detention.

      Appeal from the Municipal Court of Chicago; the Hon. Howard Hayes, Judge, presiding. Heard in the Branch Appellate Court at the March term, 1919.
    Affirmed.
    Opinion filed June 2, 1920.
    Winston, Strawn & Shaw, for appellant; Frank H. Towner, of counsel.
    Alden, Latham: & Young, for appellees; Charles .Martin, of counsel.

      See Illinois Notes Digest, Vols, XI tq XV, and Cumulative Quarterly, same topic and section number.

   Mr. Justice O’Connor

delivered the opinion of the court.

Plaintiffs brought suit against the defendant railroad company to recover damages claimed to have been sustained by them on account of defendant’s negligence in failing to return within a reasonable time an empty tank car from Detroit, Michigan to Cushing, Oklahoma. There was a verdict and judgment in plaintiff’s favor for $180, to reverse which defendant prosecutes this appeal.

The record discloses that plaintiffs were engaged in the oil business and sold some of their product to the Ford Motor Company of Detroit. The oil was shipped in a tank car furnished by plaintiffs’ which was to he returned by the defendant. On the return trip it was permitted to remain for a period of 18 days at Joliet, Illinois. Plaintiffs contend that this delay was caused by the negligence of defendant and that for such delay they were entitled to the rental value of the car amounting to $10 per day. Defendant’s position was that the delay in the return of the car was not caused by its negligence but was due to the failure of the Ford Motor Company to furnish proper forwarding directions; and that the most plaintiffs could recover was three-quarters of one cent per mile as fixed by the Interstate Commerce Commission.

As to what caused the delay of the car at Joliet the evidence tends to show that when the car was emptied of its contents at Detroit there was placed on the car a card showing the consignee, destination and route and that from such information cars of this character were usually returned without further directions. Defendant, in an endeavor to prove that the delay was not occasioned by its fault, produced Myron Fischer who testified that he wa,s the only one who would receive shipping orders for the car at Detroit, and that no such orders were received by him; that the car was returned on the directions written on the card and placed on the car by the Ford Motor Company. This witness testified that he got his information from the records which he had not thoroughly examined. Defendant also produced John P. Kilkline who testified that it was his duty to issue billing on outbound cars at Detroit; that a waybill for such cars would be issued by him after he had received shipping orders; that without such order it was impossible to make out a waybill; that he did not receive such order for the car in question until.April 12 (at which time the car had been standing at Joliet 18 days), and that immediately he issued a waybill and the car was moved to Oklahoma. This witness further testified, however, that at the time in question and for a number of years prior thereto it was the custom to return empty tank cars on the information contained on the cards without further shipping orders. In answer to an interrogatory filed prior to the trial defendant replied: “Said car was consigned to Anderson & Gustafson at Cushing, Oklahoma, via the A., T. & S. F. Ry. Co., at Joliet, Illinois.” Defendant’s superintendent of car service wrote plaintiffs that he was endeavoring to find out why the Santa Fe refused to take the car from Joliet to Oklahoma “as it was properly accompanied by memo, bill when received from the Ford Motor Company.” The undisputed evidence shows that the car was moved from Detroit to Joliet and it is clear that before the car was moved there must have been some shipping directions. In fact, in the sworn answer to the interrogatory mentioned it is stated that the car was consigned to plaintiffs at Cushing, Oklahoma via. the Santa Fe from Joliet. We think it clear that the delay of the empty car was occasioned by defendant’s negligence. In these circumstances it will be unnecessary to discuss the action of the court in refusing to give an instruction tendered by defendant other than to say that other instructions given by the court fully covered defendant’s rights on this point.

The principal contention of defendant is that plaintiff’s claim can in no event exceed the amount fixed by rule 29 of the Official Classification filed by defendant with the Interstate Commerce Commission, which rule provides for an allowance to be paid by the carrier to the owner or lessee of tank cars of three-quarters of one cent per mile for the loaded and empty movements of such cars. It is said that this question is one of great importance to railroads and shippers and is of first impression. Defendant offered in evidence a certified copy of its schedules filed with the Interstate Commerce Commission, which, on objection, was excluded. Paragraph 1, rule 29 of the Official Classification is as follows: “In providing ratings in this classification for articles in tank cars, the carriers whose tariffs are governed by this classification do not assume any obligation to furnish tank cars. When tank cars are furnished by shippers or owners, mileage at the rate of three-quarters of one cent per mile will be allowed for the use of such tank cars, loaded or empty, provided the cars are properly equipped. No mileage will be allowed on cars switched at terminals nor for movements of cars under empty freight ca,r tariffs.” It is defendant’s position that the only claim plaintiffs have in the instant case is that provided for in the rule quoted; that section 6 of the Act to Regulate Interstate Commerce provides that every common carrier subject to the provisions of tlie act shall file with the Interstate Commerce Commission schedules showing all rates, fares and charges for transportation between the different, points on its oWn route and between points on its own and points on the routes of other railroads; that schedules shall contain the classification of freight in force and shall also state separately all terminal charges, privileges or facilities granted or allowed, and any rules or regulations which in anywise change, affect, or determine any part or the aggregate of such “rates, fares, and charges or the value of the service rendered to the passenger, shipper or consignee”; that it was in compliance with this section of the act that defendant filed its schedules with the commission; that section 15 of the Act provides that if the owner of any property transported under the act furnishes any instrumentality used, “the charge and allowance therefor shall be no more than is just and reasonable and the Commission may after hearing, on' a complaint or on its own initiative, determine what is a reasonable charge as the maximum to be paid by the carrier * * * for the use of the instrumentality so furnished and fix the same by appropriate order which order shall have the same force and effect and be in force in like, manner as the orders above provided for under this section”; that section 1 of the Act as amended May 29, 1917, provides that where tank cars are used by carriers as in the instant case, the Interstate Commerce Commission shall, after hearing on complaint or upon its own initiative without complaint, establish reasonable rules, regulations, and practice including compensation to be paid for the use of any car not owned by the common carrier, and under these provisions of the act defendant argues that the “Interstate Commerce Commission has the sole jurisdiction over the amount of compensation to be paid by a carrier for the use of a private car”; that the ..Commission having determined and fixed such amount at three-quarters of one cent per mile for the use of private cars furnished by the shipper, as in the instant case, the defendant is not permitted to pay more and the court is without jurisdiction or authority to order it to do so; that before any. greater amount can be allowed the matter must first be taken up.with the Commission and determined by them.

Where private cars are furnished by the shipper, as in the instant case, it is undoubtedly true that the maximum compensation which the carrier can pay for the use of the car is three-quarters of one cent per mile for loaded and empty movements. This allowance or compensation. can only be increased or diminished by action of the Commission, but we think this argument is beside the point involved in the case before us. Here compensation is not asked for the use of the car. The claim is that plaintiffs have been damaged by reason of the negligence of defendant in permitting the car to remain 18 days at Joliet. We think it self-evident that rule 29 of the Official Classification was not intended in any way to cover such a situation. It is conceded, as indeed it must be, that damages caused by the negligence of a carrier are not within the act of Congress to regulate interstate commerce and, therefore, without the scope of the Interstate Commerce Commission. In Galveston, H. & S. A. Ry. Co. v. Wallace, 223 U. S. 481, the court said: “Damage caused by failure to deliver goods is in no way traceable to a violation of the statute, and is not, therefore, within the provisions of sections 8 and 9 of the Act to regulate commerce.” And since plaintiffs’ claim can in no conceivable way be brought within rule 29, it follows that the court properly excluded the Official Classification offered in evidence.

Counsel for defendant call our attention to a report of the special master in the case of Guaranty Trust Co. of New York v. Missouri Pac. Ry. Co., pending in the District Court of the United States for the Eastern Division of the Eastern District of Missouri, wherein the master held that the only compensation which the owner could recover for the unnecessary detention of a private car is that provided in the tariff filed with the Interstate Commerce Commission, which report was approved by the court. In the report the master says that the claimant seeks to recover from the receiver of the railroad company “for the use of a tank car owned by claimant,” and further he states that the claim is for the detention of the car. We are, therefore, at a loss to know just what was the basis for the claim. If it was for the use of the car,. of course, the master was right. If the claim was for the wrongful detention of the car, we think his conclusion was clearly wrong.

There is some argument that in no event was the proper measure of damages applied or allowed. Witnesses testified to the reasonable rental value of the car. This evidence was proper and plaintiffs were entitled to recover the reasonable rental value of the car for the time it was unnecessarily detained at Joliet. McCabe v. Chicago & N. W. Ry. Co., 215 Ill. App. 99; The Mediana, L. R. [1900] App. Cas. 113; Priestly v. Northern Indiana & C. Ry. Co., 26 Ill. 206; Galbraith v. Chicago Architectural Iron Works, 50 Ill. App. 247.

The judgment of the municipal court of Chicago is affirmed.

Affirmed.

Thomson, P. J. and Taylor, J., concur.