text:
    Eugene Tabero, Appellee, v. Waclaw Sutkowski et al. Watkowski Sutkowski, Appellant.
    Gen. No. 38,827.

      Opinion filed June 29, 1936.
    Alex Janoski and Wachowski & Wachowski, all of Chicago, for appellant; Casimir R Wachowski, of counsel.
    Vincent L. Knaus, of Chicago, for appellee.
   Mr. Justice O’Connor

delivered the opinion of the court.

Plaintiff, the assignee of a deficiency decree for $1,824.99, rendered in a foreclosure suit against Sut-kowski, being unable to collect the deficiency, filed his creditor’s bill to discover assets of Sutkowski, who will hereinafter be referred to as defendant. Defendant filed his answer and counterclaim by which he denied he was liable for the deficiency and sought to have the collection of it perpetually enjoined. Plaintiff filed a written motion to strike the answer and counterclaim. The motion was allowed and defendant appeals.

Plaintiff contends that the order entered is but interlocutory and not final, and therefore not subject to review. The contention is not tenable. The order striking defendant’s answer and counterclaim virtually disposed of the entire case, as will appear from the facts hereinafter stated.

The pertinent facts are that Mary Tobijanski filed her bill in the superior court of Cook county to foreclose a trust deed given to secure an indebtedness of-$4,000. The trust deed was executed by defendant and his wife-on April 14,1925, and was given to secure their indebtedness for $4,000 due three years after date. Afterward, defendant and his wife conveyed the premises, subject to the mortgage indebtedness, to Adam Kaszuba and wife, and it was alleged in defendant’s counterclaim that Kaszuba assumed and agreed to pay the $4,000 as part of the consideration. Thereafter the time of payment of the $,4000 was extended by agreement between the mortgagee and Kas-zuba, without the knowledge or consent of defendant, Sutkowski. After the property was conveyed by Sutkowsld to Kaszuba, as above stated, Kaszuba paid the interest on the indebtedness to the mortgagee. After some years Kaszuba defaulted in payment of interest, and in July, 1935, Mary Tobijanski, the owner of the notes and trust deed, filed her bill to foreclose the trust deed, making Sutkowski, Kaszuba, the owner of the equity, and others, parties defendants, and prayed that in case the property did not sell for sufficient to pay the indebtedness a deficiency decree be entered for any amount remaining due. -

Defendant further alleges in his counterclaim that on July 22, 1935, while the foreclosure suit was pending, plaintiff in the foreclosure suit (Mary Tobijanski) made and delivered to Kaszuba a “Covenant Not to Enforce Judgment,” which recites that in consideration of the sum of $10 and other good and valuable considerations paid to Mary Tobijanski by Adam Kas-zuba, she covenanted that she would not enforce any deficiency decree that she might be entitled to in the foreclosure suit against him. And it is alleged in the counterclaim that at the same time Kaszuba, as part of the consideration thereof, executed and delivered to Mary Tobijanski a quitclaim deed to the property in foreclosure, conveying the premises to her or to some nominee for her benefit, and that immediately thereafter Mary Tobijanski took possession of the property and occupied it by her tenant; that afterward, in October, 1935, a decree of foreclosure was entered which found that defendant, Sutkowski, was liable for any deficiency. Shortly thereafter Sutkowski sought to have the decree modified so that he would not be held for the deficiency, but his motion ivas denied.

Defendant also alleged in his counterclaim that he first learned of the execution of the covenant not to enforce the deficiency decree, and of the quitclaim deed, on Friday, January 24, 1936; that he used due diligence prior to that time to ascertain the facts but was unable to do so, one of the reasons being that Kaszuba had, prior to July 22, 1935, taken a hostile attitude toward him. The prayer of the counterclaim was that plaintiff, to whom the deficiency decree was assigned by Mary Tobijanski, be perpetually enjoined from enforcing or attempting to enforce it.

Plaintiff, in his written motion to strike defendant’s answer and counterclaim, specifies a number of reasons, one of which is that the matter had been adjudicated in the foreclosure suit when Sutkowski’s motion to modify the decree, as to him, so that he should not be held for any deficiency, was overruled.

It is recited in the order appealed from, in which defendant’s answer and a counterclaim were stricken, that the court, having read the answer and counterclaim and after argument of counsel, finds among other things, that on October 2, 1935, an order was entered in the foreclosure suit denying Sutkowski’s motion to amend the decree in that case so that he could not be held personally liable for any deficiency, and therefore the question of defendant’s liability for the deficiency had been adjudicated and could not be collaterally attacked.

There was nothing in the pleadings before the court in the instant case which set up the decree in the foreclosure suit and defendant’s motion to modify it, and since there was no evidence heard the court was not warranted in making a finding as to what was done in the foreclosure suit. If plaintiff desired to have those matters appear, he should have followed the provisions of sec. 48 of the Civil Practice Act, by supporting his motion by an affidavit and set up the proceedings in the foreclosure suit. Not having done so, the sufficiency of the answer and counterclaim must be judged from their allegations.

Defendant’s contentions are (1) that the record discloses that he, as mortgagor, conveyed the premises to Kaszuba, subject to encumbrances which Kaszuba assumed and agreed to pay; that the mortgagee, by a binding agreement with Kaszuba, extended the time of payment of the indebtedness without defendant’s knowledge or consent; that afterward the mortgagee, for a valuable consideration, gave a covenant to Kas-zuba not to enforce any deficiency decree that might be rendered in the foreclosure suit against him, and the mortgagee having received a quitclaim deed from Kas-zuba conveying the premises, these acts released defendant Sutkowsld; and (2) that when the premises were conveyed by quitclaim deed from Kaszuba to the mortgagee, there was a merger of the entire title in the mortgagee and the lien was thereby extinguished.

On the other hand, plaintiff’s contention is that the execution by her of the covenant not to enforce any deficiency against Kaszuba and the conveyance of the title to the premises to her by virtue of the quitclaim deed did not release Sutkowsld, because the trust deed executed by Sutkowsld expressly provided that “the liability of the maker of said principal note shall in no case cease until said principal note shall have been paid and cancelled.” And, “It is further agreed by and between the parties hereto” that the trustee in the trust deed, with the consent of the holders of the principal note, “may at any time by agreement with the then record owner of the premises . . . extend the time of payment of the -indebtedness . . . but that such extension shall not release” the mortgagor from liability nor shall such extension affect the lien of the trust deed.

This last contention might be sound were the defendant, Sutkowski, seeking to avoid liability on the ground that the time of payment of the indebtedness secured by the trust deed was extended by an agreement between the mortgagee and Kaszuba, the grantee of the mortgagor, without his knowledge or consent. But this is not defendant’s contention. His position is that he was released from liability because the mortgagee had obtained title to the premises from Kaszuba and had given Kaszuba a covenant not to enforce any deficiency decree. It has many times been held that where a mortgagor sells the premises to one who assumes and agrees to pay the indebtedness, the relation then between the mortgagor and his grantee is that of principal and surety, Avhile each or both are liable to the mortgagee. Albee v. Gross, 250 Ill. App. 98; Douglass v. Ullsperger, 251 Ill. App. 145, and cases cited in the opinions in these two cases from the Appellate and Supreme Courts of this State.

In the Albee case the court (p. 106) quoted from Union Mutual Life Ins. Co. v. Hanford, 143 U. S. 187, the folloAving: “By the law of Illinois, . . . as by the law of New York and of some other states, the mortgagee may sue at law a grantee who, by the terms of an absolute conveyance from the mortgagor, assumes the payment of the mortgage debt. . . . According to that view, the grantee, as soon as the mortgagee knows of the arrangement, becomes directly and primarily liable to the mortgagee for the debt for which the mortgagor was already liable to the latter, and the relation of the grantee and the grantor toward the mortgagee, as well as betAveen themselves, is thenceforth that of principal and surety for the payment of the mortgage debt.”

And in the Albee case the court quoted from Jones on Mortgages, 7th Ed., sec. 741 (same as section 920, 2 Jones on Mortgages, 8th Ed.). That section is: “A purchaser who assumes the mortgage becomes as to the mortgagor the principal debtor, and the mortgagor a surety; but the mortgagee, unless he has assented to such an arrangement, may treat both as principal debtors, and may have a personal decree against both.

“The change of position can only be brought about, as regards the mortgagee, by his voluntary agreement to accept the grantor and grantee in their relation of principal and surety. . . . The mortgagee may release the mortgagor from his personal liability in such case without discharging the land, or the grantee, who assumed the debt. But he cannot release the grantee, who has become the principal debtor, without releasing the mortgagor who has become the surety. . . . The mortgagee may, by his dealings with the purchaser and mortgagor, recognize the former as the principal debtor, and the latter as surety towards himself. . . . Any material alteration of the mortgage contract will discharge the mortgagor.”

In the instant case the allegations of the answer and counter-claim, which must be assumed to be true on this record, disclose the fact that after the filing of the foreclosure suit, and while it was pending, the mortgagee, by taking title to the premises from the grantee of the mortgagor and by executing the covenant not to enforce any deficiency against the grantee of the mortgagor, was a material alteration of the mortgage contract and will discharge the mortgagor. Moreover, there was a merger of the title to the premises in the mortgagee. Obviously, one cannot hold a mortgage on his own property. Clark v. Glos, 180 Ill. 556; Donk v. Alexander, 117 Ill. 330; Shinn v. Fredericks, 56 Ill. 439; Lyman v. Gedney, 114 Ill. 388; Bank of Chrisman v. Watson, 277 Ill. 186.

In discussing the question of merger the court, in the Clark,case (180 Ill. 556) said (p. 564): “If Pierson had obtained from Thurlow, the grantee of Ladd, a deed of the eight lots, involved in this suit, and thereafter had procured an assignment to himself of the judgment, which was a lien upon those lots, it would be a serious question whether a merger had not taken place. The present case would then be brought within the doctrine laid down in the case of Donk v. Alexander, 117 Ill. 330. . .• . The question here presented, however, is whether, where a judgment is a lien upon two pieces of land, a party who has taken a deed from the judgment debtor of one of the pieces of land, and then afterwards obtains an assignment of the judgment to himself, can enforce the judgment against the piece of land, the title to which remains in the judgment debtor (or a prior grantee from him), and of which such party did not obtain a deed to himself.” The court continuing refers to Caley v. Morgan, 114 Ind. 350, and says: “In the latter case it was held that the purchaser of land is not estopped from buying a judgment against his grantor, existing’ at the time of the conveyance, and enforcing- it against other lands, owned by the latter at the time of the rendition of the judgment or acquired by him afterwards; and that, in such case there is no merger of the lien. ’ ’ On page 566 the court further said: “Again, ‘an assignment of a mortgage to a grantee of the mortgagor, unless he has expressly assumed to pay it and thus made himself the principal debtor, does not generally create a merger. ’ (2 Pomeroy’s Eq. Jur., sec. 793.) . . . The rule that an assignment of the encumbrance or charge to the owner of the property works a merger thereof, does not generally apply to a grantee of the mortgagor or judgment debtor, unless the latter takes a conveyance of the lands subject to the mortgage or judgment, and expressly assumes and promises to pay it, as a part of the consideration; because he is thereby made the principal debtor, and the land is the primary fund for payment, so that, if he pays off the charge, it becomes extinguished.”

In the Shinn case (56 Ill. 439) it was held that where the fee to lands and a mortgage on the same property are united in the same person, the latter becomes merged in the former unless there are equitable reasons for keeping the mortgage alive.

And in the Lyman case (114 Ill. 388) it was held that where the mortgagor conveys the mortgaged property to the mortgagee and another person, and the mortgagee afterward conveys the property to that other person, such conveyance will extinguish the mortgage. The court there said (p. 406): “Objection is urged that a mortgage made by Broomfield to Sizer March 2, 1842, is not shown to have been satisfied; but it is proved that Broomfield, after executing the mortgage, conveyed the fee to Sizer, the mortgagee, and W. H. Cushman, and that Sizer subsequently conveyed to Cushman. That extinguished the mortgage. Weiner v. Heintz, 17 Ill. 262; Shinn v. Fredericks et al., 56 id. 439.”

In the instant case the title to the premises was conveyed to the mortgagee so that under the rule announced in the authorities above cited there was a merger and the mortgage was extinguished at least as to Sutkowski. Moreover, after Sutkowski conveyed the premises to Kaszuba subject to the encumbrance of $4,000 which Kaszuba assumed and agreed to pay, as alleged in the counterclaim, the relation between them was that of principal and surety, and plaintiff in the foreclosure suit, by taking title to the property and executing the covenant not to enforce any deficiency decree, as above stated, released Sutkowski. Albee v. Gross, 250 Ill. App. 98; Metz v. Dionne, 250 Ill. App. 369. In the latter case we said (p. 372):

“The case calls, however, for the application of the general principle that, where the holder of a mortgagor’s grantee, which changes the original obligation of the mortgagor, such an agreement releases the original obligor or mortgagor. That this is the rule seems too well settled to require citation of authority.” The court then referred to In re Roth, 272 Fed. 516, and continuing said that the general rule stated in the Roth case was “that, if the mortgagee sees fit to enter into contractual relations with the grantee of the mortgagor, then the mortgagee ‘makes himself a party thereto, and must in so contracting and henceforward deal with the parties in view of that changed relationship. This imposes upon him no hardship, and does not against his will alter his original contract. If he by this contract with the grantee . . . alters the terms of the original obligation, no good reason is perceived why the rule applicable as between principal and surety should not be applied to him.’ ” And we think the application of this rule was not affected by reason of the provision of the trust deed which provided that “the liability of the maker of said principal note shall in no case cease until said principal note shall have been paid and cancelled.” That provision, as applied to the facts in the instant case, did not prevent a merger nor did it authorize the mortgagee to abrogate the rule of law which created the relationship of principal and surety between Sutkowski and Kaszuba.

We are also of opinion that the overruling of defendant’s motion to modify the decree of the foreclosure suit, so that he would not be liable for any deficiency, was not res judicata for the reason that defendant alleges in his counter-claim that although he was diligent he did not know Kaszuba had executed the quitclaim deed and had received the covenant not to enforce any deficiency decree, as above stated, until January 24, 1936, which was several months after the motion or decree of foreclosure had been denied. The effect of these two documents was not presented to the chancellor in the foreclosure suit, and the matter was not there adjudicated. Robinson & Co. v. Marr, 181 Ill. App. 605.

As a general rule, a court of equity will not relieve a defendant who has negligently failed to make a defense, but if without negligence he did not know of such defense until after the decree was entered, a court of equity will relieve him. Hubbard v. Hobson, Breese (1 Ill.) 190; Chapman v. Salfisberg, 111 Ill. App. 102.

The order of the superior court of Cook county appealed from is reversed and the cause is remanded with directions to overrule plaintiff’s motion to strike.

Reversed and remanded with directions.

Matchett, P. J., and McSurely, J., concur.


source: Caselaw Access Project

author: Mr. Justice O’Connor

license: Public Domain

text:
    B. F. Langworthy and Edward J. Stevens, Trading as Langworthy and Stevens, Appellees, v. Village of Oak Lawn et al., Defendants. Appeal of Village of Oak Lawn and Arthur F. Hilgen-dorf, Appellants.
    Gen. No. 38,851.
    Opinion filed June 29, 1936.
    Rehearing denied July 10, 1936.
    W. Otto Wielgorecki, of Blue Island, for appellants ; Walter F. Briody, of Blue Island, of counsel.
    B. F. Langworthy, of Chicago, for appellees.
   Mr. Justice O’Connor

delivered the opinion of the court.

Plaintiffs filed their complaint in chancery against the Village of Oak Lawn and others, for an accounting with the Village of the first instalments of certain special assessments levied by the Village for local improvements, alleging that they held vouchers issued by the Village, payable out of the first instalments; that the vouchers were in payment of services rendered by them as.attorneys for the Village in the special assessment proceedings; that collections of the first instalments had been made by the Village but had not been properly paid out by the Village, some of the moneys having been paid by the Village to persons who were entitled to the funds derived from the first instalments only after the vouchers held by plaintiffs had first been paid. Edward A. Briggs, Sr., one of the defendants, who had been an attorney for the Village in certain of the special assessment proceedings, filed a cross complaint claiming that he held certain vouchers payable out of the first instalments, and asked for similar relief. The other defendants, the Village and its treasurer, filed their answers admitting plaintiffs’ right to an accounting, but alleging there were other vouchers payable out of the first instalments which were unpaid, and that all of the holders of vouchers were entitled to share pro rata in the moneys collected, which were insufficient to pay the vouchers in full.

The case was tried on a stipulation of facts and a decree entered that plaintiffs recover from the Village $2,653.34, and it was ordered that within 10 days the Village treasurer pay plaintiffs $1,274.67, the amount the court found to be then in his hands applicable to the payment of plaintiffs’ vouchers, and that upon such payment the judgment be reduced accordingly.

It was further decreed that cross plaintiff Briggs recover from the Village $6,592.49, and the treasurer was ordered to pay cross plaintiff within ten days $1,136.89, on such judgment, being the amount in the hands of the Village treasurer applicable to the payment of cross plaintiff’s vouchers.

The Village and its treasurer appeal, claiming there is no priority of payment of the vouchers, but that the fund should be prorated among the holders of the unpaid vouchers, sufficient funds not having- been collected to pay them in full; that section 88 of the Local Improvement Act, “gives priority in the right to receive vouchers to those entitled to payment for costs and expenses, but it does not create priority among the vouchers after they have been issued in payment”; that vouchers issued for the cost of engineering and inspection are a part of the costs of the improvement, over which plaintiffs cannot claim priority.

On the other hand, plaintiffs and cross plaintiff contend that the vouchers which they hold were issued to them for legal services rendered in the special assessment proceedings, are a part of the costs of making and levying the assessment, and under secs. 88 and 94 of the Local Improvement Act should be paid out of the moneys collected from the first instalments before any payment could legally be made for engineering and inspection and before any payment to the contractor for work done.

We think neither of these contentions can be sustained. The mere issuance of the vouchers to the parties entitled to them does not relieve the Village from seeing that the money collected is disbursed first to those who hold vouchers which were issued to evidence the costs of making the improvements.

As to plaintiffs’ and cross plaintiff’s contention, the pertinent provisions of secs. 88 and 94 of the Local Improvement Act (pars. 218 and 226, chap. 24, Ill. State Bar Stats. 1935) are: (sec. 88): “If such first instalment is not collected when payments fall due, vouchers therefor may be issued, payable out of the first instalment when collected. Such vouchers shall hear interest at a rate not more than six per centum per annum nor less than four per centum per annum, payable annually, . . . Provided, however, that in cities, towns and villages having a population of less than five hundred thousand, where the ordinance for the improvement provides for the collection of costs, such costs shall be first paid out of said instalment and may be included in and evidenced by vouchers issued as herein provided. ’ ’ In sec. 94 it is provided, inter alia, that the costs and expenses of making and levying a special assessment and of letting contracts, “and also the entire cost and expense attending the making and return of the assessment rolls and the necessary estimates, examinations, advertisements, etc., connected with the proceedings herein provided for, including the court costs, including the fees to commissioners in condemnation proceedings, which are to be taxed as above provided, shall be paid by the city, village or town out of its general fund: Provided, however, that in cities, towns and villages of this State having a population of less than five hundred thousand by the last preceding census of the United States, or of this State, the city, village or town, as the case may be, may in and by the ordinance providing for the assessment prescribed, provide that a certain sum, not to exceed six per centum of the amount of such assessment, shall be applied toward the payment of the aforesaid and other costs of making and collecting such assessment.

“The limitation in the foregoing proviso shall not apply to the costs of engineering and inspection connected with any local improvement, but such costs in cities having a population of less than 500,000 as aforesaid, may be included in the cost of the improvement to be defrayed by special assessment.”

Counsel for plaintiffs and cross plaintiff say that the last paragraph of sec. 94 quoted, which was passed in 1923 as an amendment to sec. 94, was enacted “for the express purpose of making cost of engineering and inspection a part of the construction costs as they are usually classified in the building industry”; that prior to this amendment the costs of engineering and inspection were a part of the “court costs and necessary lawful expenses” of the special assessment proceeding. We think this contention cannot be sustained.

In City of Carlinville v. Andersen, 303 Ill. 247, it was held that the cost of inspecting the work and materials and engineering work must be paid by the city out of the general fund or be included within the six per cent allowed to be levied by certain cities under the proviso of sec. 94 of the Local Improvement Act. This decision was rendered in 1922 and before the enactment of the last paragraph above quoted, of sec. 94. The effect of the amendment of 1923 is that a city or village of less than 500,000 population may provide in the ordinance for a local improvement; that a sum not to exceed six per cent of the amount of the assessment may be applied toward the payment of the costs of making and collecting the assessment and that if this six per cent is insufficient, the ordinance may provide that the costs of engineering inspection may be included in the cost of the improvement in addition to the six per cent.

We are not advised in the instant case whether the Village in the ordinances provided for six per cent or more of the amount of the assessment to be levied to defray the costs of making and collecting the assessment, but this is immaterial because we hold that the costs of engineering and inspection are a part of the costs of the improvement, and the vouchers issued to evidence the costs of engineering and inspection are on a parity with the vouchers issued to plaintiffs and cross plaintiff.

Since the decree in the instant case is not in conformity with the rule announced in this opinion, it is reversed and the cause remanded.

Reversed and remanded.

McSurely, P. J., and Matchett, J., concur.


author: Mr. Justice McSurely

text:
    Fannie Montgomery, Appellee, v. Commercial Trust and Savings Bank, Appellant.
    Gen. No. 38,786.
    Opinion filed July 2, 1936.
    Robert F. Holt, of Chicago, for appellant.
    Hinshaw & Culbertson, of Chicago, for appellee; Oswell G. Treadway, of Chicago, of counsel.
   Mr. Justice McSurely

delivered the opinion of the court.

Defendant appeals from an adverse decree entered after hearing by the court in a chancery proceeding.

Plaintiff alleged that on April 27, 1926, she was the owner of a promissory note for $13,000 drawing interest at six per cent, secured by a trust deed upon land in McHenry county, Illinois; that she left these papers with John F. Hahn for possible foreclosure; that subsequently, without her knowledge or consent these papers or their equivalent came into the .possession of the defendant bank, which has refused to deliver them to plaintiff. Defendant answering says, among other things, that it secured title to the papers before maturity in good faith, for value and without notice of any infirmity. The decree found that the defendant took the note and trust deed with notice that plaintiff was the rightful owner and ordered defendant to deliver to plaintiff the note and any moneys paid to it on account of principal and interest.

There is little if any controversy as to the facts. Plaintiff is an elderly woman and had considerable business dealings with John F. Hahn, a real estate dealer, who advised her about business affairs; she purchased from him a note for $13,000 signed by James T. and Nellie K. Tait, secured by trust deed on a farm in McHenry county, Illinois; this was renewed but before the renewal period expired there was a default in the payment of interest.

April 27, 1926, .plaintiff brought the Tait note and trust deed to Hahn and received from him a letter of the same date addressed to her, acknowledging receipt of the mortgage papers “for the purpose of possibly foreclosing on said property for the debt of $13,000 secured thereby”; the letter went on to say that having sold these papers to plaintiff as an investment and in accepting them “for the purpose stated,” he guaranteed both the interest and principal.

Hahn had been in the real estate business for a number of years and had incorporated his business under the name of John F. Hahn, Inc., of which he was president, owning 95 per cent of the stock. He also was president of the defendant, Commercial Trust & Savings Bank, and was active in its affairs.

Shortly after Hahn received the Tait mortgage from the plaintiff he foreclosed and bid in at the foreclosure sale and took title in his own name and received a master’s deed to the property. August 21,1929, Hahn and his wife executed a new trust deed on the McHenry county property to secure his note in the sum of $13,000, payable to bearer; after the trust deed was recorded the papers were taken to the office of Hahn, Inc., and left in the custody of Gfarfield Anderson, an employee of Hahn, Inc., and Hahn told him to set them aside for Fannie Montgomery, the plaintiff; the papers, however, were never delivered to her.

Hahn, Inc., had a loan from the defendant bank to the amount of $35,000 and had deposited notes and mortgage securities as collateral; the securities so deposited were subject to sale by Hahn, Inc., and whenever sold were withdrawn from deposit with the bank and other securities substituted. Emil R Zillman and Anderson, connected with Hahn, Inc., were authorized to make these exchanges with the defendant bank. Hahn, Inc., kept its securities in its vault.

Zillman testified he presumed it was about January, 1930, that he went to the vault of Hahn, Inc., where they kept their mortgages, and took the note and trust deed which Hahn had told Anderson to set aside for plaintiff, and substituted them for other collateral with the defendant bank. He testified that he did not know that plaintiff had any interest in the note and trust deed in question, that Hahn did not tell him it was her mortgage, and there was nothing on the papers to indicate that plaintiff had any interest in them. There is no evidence that the employees at the bank who had charge of the collateral had any information at the time this was done as to any interest of plaintiff in these mortgage papers.

Mr. Hahn testified that he had no knowledge of the note or trust deed being in the bank until shortly afterward, when Mr. Wallace, one of the directors of the bank, called his attention to this particular note and trust deed, saying that he did not like the bank to have a mortgage on a farm in McHenry county and that he wished Hahn would exchange it for other collateral, but this was not done. Hahn never told anyone of plaintiff’s interest in the mortgage papers until some years afterward at a meeting of the directors of the bank in November, 1933, when he told them of the transactions between himself and the plaintiff.

Hahn, Inc., went into bankruptcy in 1932, and in April, Hahn deeded his equity in the McHenry county farm to the receiver in bankruptcy, and at the receiver’s sale the defendant bank bought the equity in the property.

Plaintiff always dealt with Hahn personally; she had no knowledge of the incorporation of Hahn, Inc., knew nothing of the bankruptcy proceedings and did not know that Hahn had given a deed to the property to the receiver; Hahn never informed her that he had foreclosed the Tait property and taken title in his own name or that he had made a new note for $13,000 secured by trust deed on the property; Hahn paid her interest to and including December, 1931; some time afterward she ceased to receive her interest and inquired of Hahn as to the matter and then learned that the bank claimed to own the note and trust deed.

Counsel for defendant presents a number of points which it is said require reversal, but we shall note only one decisive point, namely, Did the bank take the note and trust deed in good faith and for value, without notice of any infirmity in the instrument or defect in the title of Hahn, Inc., which negotiated it? Chap. 98, par. 72, Negotiable Instruments Act (Ill. State Bar Stats. 1935) says one who does this is a holder in due course. Par. 76 of this statute further provides that, “To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.” A note received as collateral to another note is received in due course of business. Chicago Bank of Commerce v. Kraft, 269 Ill. App. 295; Elgin Nat. Bank v. Goecke, 295 Ill. 403; Zollman v. Jackson Trust & Savings Bank, 238 Ill. 290. Even where negotiable paper has been stolen and a bank takes it without notice of infirmities and before maturity it is a holder in due course. Pflueger v. Broadway Trust & Sav. Bank, 351 Ill. 170; Graham v. White-Phillips Co., Inc., 56 Sup. Ct. 21; Sherman State Bank v. Smith, 244 Ill. App. 171,. affirmed 330 Ill. 373. The bank had the right to assume that Hahn, Inc., which deposited the collateral, was the sole owner of the papers.

Plaintiff’s contention is that Hahn, as president of defendant bank, knew that the trust deed and note did not belong to Hahn, Inc., but belonged to plaintiff, and that this knowledge must be imputed to the bank. Was the knowledge of Hahn in the transaction knowledge of the bank? The deposit of the papers in question as collateral with the bank was in the interest of Hahn, Inc. If Hahn, Inc., had no right to so use these papers, the transaction would be against the interest of the bank. The bank would not be chargeable with any knowledge of plaintiff’s interest possessed only by Hahn, its president, which he did not communicate to it. Facts derogatory to the title to the property deposited as collateral and known only to the president of the bank will not constitute notice to the bank of any infirmity in the title.

In the old case of Higgins v. Lansingh, 154 Ill. 301, at pp. 387-8, this rule is discussed. In that case Higgins assigned certain securities to which he did not have title to an insurance company of which he was president; it was held that Higgins at the time of this transfer was not acting as agent of the insurance company; that while ordinarily notice to the president of the corporation is also notice to the corporation, such is not the law when the president is dealing with it in his own interest and against the interest of the corporation of which he is president. This exception to the general rule rests upon the sound reason that where a president or other authorized officer of a corporation is selling tainted or irregular securities to his company it will be assumed that he would not make any communication to his company derogatory to these securities, to his title thereto, or their value. In such a transaction the officer making the transfer stands as a stranger to his company. This case was followed in Seaverns v. Presbyterian Hospital, 173 Ill. 414, the court saying, “where an officer of a corporation is dealing with the corporation in his own interest, opposed to its interest, he is held not to represent it in the transaction so as to charge it with the knowledge he may possess, but which he has not communicated to it and which it does not otherwise possess, of facts derogatory to the title he conveys.” This has been reaffirmed in many cases. Booker v. Booker, 208 Ill. 529; Merchants’ Nat. Bank v. Nichols & Shepard Co., 223 Ill. 41; Neagle v. McMullen, 334 Ill. 168; see also In re Estate of Wedelius, 266 Ill. App. 69, and cases therein cited.

Cases cited by plaintiff do not depart from this. For instance, Simmons v. Roseland Security Vault Co., 331 Ill. 563, did not involve the exception to the general rule we have just noted. This distinction is pointed out in the opinion in the Wedelius case, 266 Ill. App. 69. In Mutual Investment Co. v. Wildman, 182 Ill. App. 137, the exception to the general rule was stated but it was held that the case presented a qualification to the exception to the general rule, namely, where the officer of the corporation, although acting in his own interest, is the sole or an essential representative of the corporation in the transaction. Other cases cited by plaintiff can be likewise distinguished.

The deposit of plaintiff’s mortgage papers with the bank on behalf of Hahn, Inc., was against the interest of the bank and for the interest of Hahn. Therefore, Hahn’s knowledge cannot be imputed to the bank. Applying the law as above stated leads inevitably to the conclusion that the defendant bank took the mortgage papers without knowledge of any infirmity or defect in the title, in good faith and for value, and was a holder in due course whose title cannot be successfully assailed. It follows that the finding of the court, holding the bank responsible, was erroneous.

The decree is reversed and the cause remanded, with directions to dismiss the plaintiff’s complaint for want of equity.

Reversed and remanded with directions.

Matchett, P. J., and O’Connor, J., concur.


author: Mr. Presiding Justice John J.

text:
    Adolph Goelitz, Sr., Appellee, v. Benjamin L. Lathrop et al. Appeal of Benjamin L. Lathrop, Appellant.
    Gen. No. 38,089.

      Opinion filed July 3, 1936.
    Slottow & Leviton and Ralph C. McCoy, all of Chicago, for appellant; Charles Leviton and Harold P. Shane, of Chicago, of counsel.
    Lloyd C. Whitman, of Chicago, for appellee.
   Mr. Presiding Justice John J.

Sullivan delivered the opinion of the court.

This appeal seeks to reverse a final decree of the circuit court entered December 19, 1934, making permanent a temporary injunction theretofore ordered April 11, 1933, enjoining Benjamin L. Lathrop (hereinafter referred to as defendant) from enforcing or attempting to enforce against plaintiff, Adolph Goe-litz, Sr., a judgment for $9,450 and costs rendered in the circuit, court February 15, 1933, in cause No. B-230276, in favor of Lathrop and against said Goelitz and one Adolph A. Henkel.

April 7, 1933, Goelitz filed his bill in the circuit court, the essential allegations of which are that October 19, 1931, Benjamin L. Lathrop brought an action at law in the circuit court of Cook county against Henkel Edge-Lite Corporation (hereinafter referred to as the corporation), Adolph A. Henkel, George J. Kirkgasser, Harry A. Best and Adolph Goelitz, Sr., who were all served with process and appeared; that Lathrop' filed his declaration and issue was joined by the filing of pleas of the general issue and several special pleas by all the defendants; that February 15, 1933, upon trial by the court without a jury, judgment •was entered in favor of Lathrop and against Goelitz and Henkel for $9,450, which included attorneys’ fees of $1,200; and that the cause was dismissed on the trial as to the defendants Kirkgasser and Best, having been previously dismissed as to the corporation.

The bill also alleged that the cause was tried February 14 and 15, 1933; that Goelitz was not present during the trial nor represented by an attorney, and had no knowledge that the trial was to take place or had taken place until after the expiration of the January term, three days' before the end of which the judgment was entered; that Lathrop, Kirkgasser and Best were present at the trial and represented by counsel, and Henkel was neither present in person nor by counsel; that Goelitz is informed and believes, and is advised by counsel, that the proofs upon said trial did not tend to support any cause of action against him and were insufficient in law to support the judgment ; that the judgment was contrary to the law and the evidence and would be reversed and a new trial granted in the event of review of the same provided a bill of exceptions was available, which said bill of exceptions cannot, except with the aid of the court, be made to appear of record in this case.

The bill further alleged that Lathrop’s attorney stated on the trial that the cause of action arose out of a violation of the Illinois Securities law; that Lath-rop purchased 75 shares of preferred and 150 shares of common stock of the corporation, and that the individual defendants were sued as officers or directors; that plaintiff’s theory was that the corporation had no authority to sell the stock and was insolvent at the time same was sold to Lathrop; that Lathrop tendered defendants the stock certificates; and that the only evidence produced at the trial was offered by Lathrop, plaintiff in that action.

The bill also averred that Lathrop testified that in January, 1931, Henkel suggested that Lathrop put some money into the corporation; that in February, 1931, Henkel said that $8,250 would be the price of 75 shares of preferred and 150 shares of common stock, and that if Lathrop put that amount in Henkel would give him a 90-day note signed by the corporation and indorsed by Henkel and some of the officers; that if he wanted his money at the end of 90 days he could have it; that Lathrop told Henkel he would put in $8,250; that February 13,1931, Lathrop paid $2,500 to Henkel, who gave him a 90-day note for that amount signed by the corporation and indorsed by Henkel and Kirk-gasser; that February 27, 1931, Lathrop paid $5,750 to Henkel and received a note for that amount, executed by the corporation and the stock certificates in question executed by Henkel, as president, and George J. Kirkgasser, as secretary; that April 9, 1931, Lathrop attended a stockholders’ meeting of the corporation, at which meeting Goelitz was elected a director of the corporation; that Goelitz was a stockholder and director of the corporation; that May 25,1931, Lathrop told Henkel he desired to return his stock and demanded that the money he had paid for same be refunded; that he repeated his demand several times subsequently and that finally on October 8, 1931, accompanied by his attorney, he renewed the demand, which Henkel refused to comply with; and that Henkel was president and manager of the corporation.

The bill further charged that the only evidence offered on the trial of the lawsuit concerning Goelitz was the testimony of Lathrop that April 9, 1931, Goelitz attended a meeting of the stockholders of. the corporation and at that meeting was elected a director of the corporation, and that he was a stockholder and director of the corporation; and that there was no evidence on the trial to connect Goelitz with the sale of the stock to Lathrop.

The hill further alleged that Goelitz always had a meritorious defense to Lathrop’s claim and is not now and never was legally liable to him; that Goelitz never sold nor offered to' sell any shares of stock of the corporation, never knowingly performed any act nor in any way furthered the sale of any stock or securities of the corporation to Lathrop and never aided or assisted in the sale of the stock to him; and that he never knew nor heard of any offer of sale or sale of stock to Lathrop until 30 days after the common law action was commenced in the circuit court, never knew prior to November, 1931, that the corporation was insolvent, and never made any sale of any securities of the corporation to anyone.

The bill further asserts that “Goelitz was sorely afflicted physically and mentally for a period of three years, including the date of the institution of the lawsuit by Lathrop in the Circuit court, and that he first learned of the suit from Henkel three days after the service of summons on Henkel October 19, 1931”; that on October 22, 1931, Goelitz, partly because of his ill health, partly because he knew nothing of the facts of the case, and partly because the lawsuit was primarily a matter of the business of the corporation, made inquiry of Henkel, president of the corporation, concerning the case; that Henkel advised him that he would engage a lawyer to represent the corporation and that he would arrange to have the same lawyer appear and represent Goelitz without charge or expense to him, in which arrangement Goelitz acquiesced ; that December 8, 1931, at Deerfield, Illinois, Henkel advised complainant that he had employed Decker & Golden as attorneys in the case; that Decker & Golden entered the appearance of Goelitz and their own appearance as attorneys for him December 9, 1931, and on January 8, 1932, filed pleas in his behalf; that December 28, 1932, at Deerfield, Illinois, Henkel advised Goelitz that he was employing Leo G. Hana, an attorney at law of great ability as a trial lawyer, and that Hana would be substituted in the case for Decker & Golden, to which Goelitz agreed; and that Hana entered his appearance for Goelitz and the other defendants on that date.

The bill also averred that January 17, 1933, at Chicago, attorney Hana placed in a United States mail box a sealed envelope addressed to Goelitz at Deer-field, Illinois, bearing an uncanceled United States three cent postage stamp and containing a copy of a notice that Hana would move the court January 19, 1933, for leave to withdraw as attorney for defendants; and that January 19, 1933, pursuant to such notice and by leave of court, Hana, unknown to Goelitz, withdrew as attorney for defendants.

The bill further asserted that neither the envelope mailed to Goelitz, nor the notice, nor any copy or original of the notice ever reached him, or, as far as he knows, ever reached his home in Deerfield, Illinois; that Goelitz did not learn or hear of or see any copy of said notice until three days after February 18,1933, when the January term of the circuit court had expired; that Goelitz did not learn nor hear from any source of any intention or motion of Hana to withdraw or of any proceeding in the case concerning his withdrawal until three days after February 18, 1933, and until that date Goelitz knew nothing of the trial nor’ of the entry of judgment against him in that cause; that three days after February 18, 1933, at Deerfield, Illinois, Goelitz was served by the sheriff of Lake county, Illinois, with a copy of an execution based on the judgment entered in the lawsuit; and that February 24, 1933, lie employed an attorney from whom he received in subsequent conferences accurate information and advice concerning the notice of the motion to withdrew forwarded to him through the United States mail by his attorney Hana, Hana’s withdrawal from the case, the trial, and the judgment entered against him.

The bill of complaint was verified by Goelitz and attached to the bill was a verified certificate of his solicitor, Lloyd C. Whitman, in the following form:

‘ ‘ To whom it may concern:

I, the undersigned Lloyd C. Whitman, hereby certify that I am a member of the bar of Illinois, have been engaged in active practice of the law in Illinois for over thirty years, and as attorney at law for Adolph Goelitz, Sr. and for him and on his behalf, I prepared the-foregoing bill of complaint; that in so preparing said bill of complaint I had before me a typewritten transcript entitled in said cause number B-230276 prepared by a court reporter, E. M. Franklin, and an affidavit thereto, dated March 28, 1933, by said E. M. Franklin that she, said E. M. Franklin, has been engaged in the business of court reporting for more than ten years, that she reported the testimony and proceedings at the trial of said case number B-230276 to the best of her skill and ability, and caused her report of the same to be transcribed and that said transcript, as she verily believes, is a true and correct transcript of all the testimony offered and proceedings had on said trial. And I further certify that to the best of my information and belief, and in my best judgment as an attorney at law, said bill of complaint correctly and truthfully states and presents all material evidence offered or received, and proceedings had at said trial of said case number B-230276, and that the allegations in that respect of the paragraphs of the foregoing bill of complaint numbered 4 to 12, both inclusive, are true.

“Lloyd C. Whitman,
Attorney at Law.”

Appended to the bill as a part thereof and identified as exhibit “A” was a transcript of the record in the common law action, including the declaration and two additional counts, charging substantially that the corporation, Henkel, Kirkgasser, Best and Goelitz sold stock of the corporation to Lathrop in violation of the Blue Sky law.

We have heretofore reviewed this cause on an interlocutory appeal from the order granting a temporary injunction restraining the collection or the enforcement of the common law judgment against Goelitz, and in affirming that order in Goelitz v. Lathrop, 272 Ill. App. 603 (Abst.), the well pleaded allegations of the bill were necessarily considered to be true inasmuch as no answer to the bill had been filed.

Thereafter Lathrop filed his answer to the bill of complaint November 20,1933, admitting that the judgment was entered February 15, 1933, in his favor against Goelitz and Henkel for $9,450 and costs in the circuit court; that the January term of the circuit court expired February 18, 1933; that the common law action was tried February 14 and February 15, ■ 1933; and that Goelitz was not present at any time during that trial or represented therein by counsel.

The answer denied that the proofs offered and received upon the common law trial were insufficient in law to support the finding or judgment against Goelitz in favor of Lathrop; that the judgment against Goelitz was contrary to the law and to the evidence in that case and that said judgment would be reversed and set aside and a new trial granted Goelitz in the event of review by writ of error, whether or not a bill of exceptions was available; and that, if a proper bill of exceptions was settled or made available, showing the proceedings and all the evidence offered and received on that trial, it would appear that there was not a scintilla of evidence offered or received to establish any cause of action in Lathrop against Goelitz.

The answer alleged that, while the bill of complaint asserted that Lathrop testified at the trial of the law case that Goelitz was elected a director of Henkel Edge-Lite Corporation at a meeting of its stockholders April 9, 1931, Lathrop’s testimony was, in fact, that Goelitz had been a director and stockholder of said corporation for a long time prior to that date and that he was re-elected a director of the corporation at that meeting.

The answer alleged also that Goelitz had been a director and stockholder of the corporation during the entire year of 1930, during the month of February, 1931, and until April 9, 1931, when he was re-elected a director; that in the early part of 1931, prior to Lathrop’s purchase of the stock of the corporation and his payment therefor, he was advised by Goelitz that his purchase of said stock would be a good investment and that he would make a profit on it; that Goelitz stated that he would recommend such an investment by Lathrop; and denied that Goelitz had a meritorious defense to Lathrop’s demands against him as set forth in cause No. B-230276.

The answer then alleged that Goelitz is now liable to Lathrop on the judgment and was liable prior to said judgment as a director of the corporation and as one who had assisted and abetted in the sale of the stock to defendant; that Goelitz advised, induced and encouraged Lathrop to purchase the stock of the corporation, which was sold to him in violation of the Blue Sky law; and that Goelitz had been a director and vice president of the corporation since its organization.

The answer after denying that for a period of three years, including the date of the institution of cause No. B-230276, Goelitz was so physically and mentally disabled by disease that he was unable to attend to business, asserted that during the said period of time he was in sound condition mentally and interested in several business enterprises, both as an officer and director; that he was not so incapacitated as to be unable to attend to business matters involved in his various enterprises; that at no time was a conservator or guardian ad litem appointed for him; that his attorneys have treated him as if he were fully capable of handling his own affairs; that he was well aware that cause No. B-230276 was pending in the circuit court of Cook county; that said cause had been set forr 12, 1932, and that on December 9, 1932, a subpoena was served upon him by Lathrop commanding him to appear to testify in that cause on December 12, 1932, on which date it was set for trial; that at the time of the service of the subpoena Goelitz was given a service and mileage fee of $3.50; that he returned the subpoena to the subpoena server, together with the money, saying “take this back and give it to the poor. I am not going to answer this subpoena anyway”; that at that time he was in his garage at his home in Deerfield, Illinois; that he stated also that he would not appear at the trial because his attorneys had advised him that Lathrop did not have a leg to stand on; that he repeated he would not be present in court and said there was nothing serious in the lawsuit and that “we have Ben [Lathrop] licked now”; that Goelitz did not appear December 12, 1932, and on that date the case was continued to December 19, 1932; and that, thereafter, the case was continued from time to time until December 28,1932, when Decker & Golden, Goelitz’s attorneys, withdrew, one Hana was substituted as the attorney for him and the other defendants, and, upon Hana’s plea of unfamiliarity with same, the cause was continued until January 30, 1933.

The answer further alleged that December 22, 1932, Goelitz communicated with one Selig, a real estate man in the vicinity of Deerfield, Illinois, and stated that he wanted him to draw certain deeds of conveyance ; that December. 28, 1932, Selig prepared deeds in and by which Goelitz and his- wife conveyed properties described therein, of which they were the owners in joint tenancy; that these deeds purported to convey the said properties to their son, Arthur Goelitz and his wife, Bertha Goelitz, as joint tenants, for a consideration of $10, and that contemporaneously therewith Arthur Goelitz and Bertha Goelitz, his wife, reconveyed the properties for a similar alleged consideration to Anna Goelitz, the wife of plaintiff; that the deeds were recorded the same day in the office of the recorder of deeds of Lake county; that the conveyances were not real but were a sham and made with the intention of defrauding Lathrop and the other creditors of Goelitz; that they were made by Goelitz for the purpose of avoiding an anticipated judgment in the common law action; that said real estate was unincumbered and worth in excess of $20,000; and that no consideration was paid for any of the transfers.

The answer further alleged that January 24, 1933, a notice was forwarded by registered mail by Ralph C. McCoy, one of Lathrop’s attorneys, to Goelitz, advising him that Lathrop would be ready for trial when cause No. B-230276 was called on January 30, 1933, and that plaintiff would resist any attempt made by any of the defendants to secure a further continuance; and that this notice reached Goelitz and that he was warned of the pendency of said cause and of the imminence of the trial, both by the subpoena aforesaid and by this notice.

The answer also alleged that the corporation defendant in cause No. B-230276 made representations to Lathrop to adjust the lawsuit and that upon his refusal to do so a petition in bankruptcy was filed while said cause was on the trial call; that, thereafter, an order was entered by the United States District Court restraining Lathrop from proceeding against the corporation; and that January 30, 1933, on account of said restraining order, the corporation was dismissed from the cause.

The answer also averred that after the judgment in the common law action was entered February 15, 1933, Lathrop, desiring to prevent Goelitz from escaping payment on his liability as established by the judgment, filed a bill in aid of execution in the circuit court of Lake county February 20,1933, asking that the conveyance by Goelitz of his said property be set aside and subjected to the judgment and the execution pursuant thereto; that when the execution on the judgment was served upon him, Goelitz was also served with summons in the Lake county proceeding and with a notice for the taking of depositions on the bill filed therein; and that on March 16, 1933, the depositions of Arthur Goelitz, Bertha Goelitz, his wife, and Edward Selig were taken, and that from such depositions it appeared that the transfers of the Goelitz property Avere made Avithout consideration and for the purpose of vesting title to the real estate in Lake county in the Avife of plaintiff.

The answer further averred that defendant does not knoAV the nature of any physical affliction of plaintiff and denied that such affliction prevented plaintiff from attending to his business matters in regular course and that he was unable to attend to his defense in cause No. B-230276.

The ansAver then alleged that Decker & Golden Avith-dreAV from cause No. B-230276 because of the failure of defendants, including Goelitz, to pay said attorneys their fees; that Goelitz at no time paid any fee to any attorney purporting to represent him in that cause; that at no time did he pay attorney Leo G. Hana prior to the entry of judgment in that cause and that Hana withdrew as attorney for Goelitz and the other defendants because he had not been paid his fee; that it was incumbent upon Goelitz to employ and pay for an attorney to represent him in said lawsuit and that he failed and refused to do so; that Goelitz did hot at any time before the entry of judgment in cause No. B-230276 consult with Hana or with Decker & Golden to prepare the defense of said lawsuit; and that he took slight interest in the lawsuit and left its defense and conduct to his codefendant Henkel, who was present when the judgment was entered against him and Goelitz.

The answer also averred that Lathrop did not know if the notice of Hana’s withdrawal was received by Goelitz through the United States mail and demanded strict proof as to his nonreceipt thereof; that the other defendants in said cause, including Henkel, received said notice; that the remaining defendants employed other attorneys, but that Henkel failed to employ an attorney for either himself or Goelitz; that Lathrop by reason of the action of Goelitz’s attorney Hana was led to believe that Hana had a right to withdraw from the case and had properly communicated with Goelitz; and that Lathrop at no time did anything in said action to take advantage of Goelitz, but proceeded to trial in due and regular course in ignorance of any claim that might be made by Goelitz that he did not receive the notice of withdrawal mailed to him by his attorney.

The answer also alleged that Goelitz was negligent and disregarded the import of cause No. B-230276; that he had full knowledge of the pendency of said cause and that its trial was imminent; that he had no defense to said lawsuit, and, fearing that judgment would be rendered against him, made the aforesaid conveyances of his property while the cause was on the trial call; that Goelitz placed the conduct of that cause in the hands of his codefendant Henkel, against whom judgment was also rendered; that Henkel knew that the cause was pending on the trial call and knew that no attorney had been paid to defend Goelitz or himself; that Goelitz, by the receipt of the registered letter aforesaid and by the service of the subpoena heretofore referred to was acquainted by Lathrop with the pendency of the proceeding; that he did not obey the subpoena nor appear in court in response thereto nor did any one appear for him in response to said subpoena at any time; that he disregarded such subpoena and stated, in effect, that it was meaningless; that he disregarded the notice advising that further continuance would be opposed; that it was the duty of Goelitz to use the highest degree of diligence in protecting his interests in the lawsuit and that he did not use any diligence, but on the contrary was grossly negligent; that he had full knowledge of the entry of the judgment; that he failed to take steps to relieve himself of same until April 7, 1933, when his bill was filed in the instant case; and that he was guilty of laches.

Defendant Lathrop contends that Goelitz did not come into equity in good faith and with clean hands; that his bill of complaint contains false and deceptive allegations which misled the chancellor, who issued the temporary injunction, and misled this court on the interlocutory appeal from the order granting the temporary injunction; that by the evidence produced before the master it was conclusively shown that Goelitz was guilty of negligence in the common law suit and defiant of the court proceedings; that the evidence also showed that Goelitz was unworthy of belief; that his flimsy excuse that notice of the withdrawal of his attorney Hana in the common law action never reached him, which was of necessity admitted on the interlocutory appeal, was completely discredited by the testimony; that Goelitz’s agent, Henkel, was present when the judgment was entered in the common law action; that Goelitz actually assisted in the plan concocted by Henkel to cheat Lathrop by the fraudulent sale of the corporation’s stock; and that, having been grossly negligent in failing to take proper steps to protect himself against the common law judgment, Goelitz cannot now secure a review of same by bill of exceptions or otherwise.

Plaintiff’s theory as stated in his brief is that he “was only required to show by way of ‘meritorious defense’ probable cause, as it may be phrased, for suing out a writ of error from the Appellate Court to review the common law judgment ... or, at most, a defense on the merits of the common law case sufficient to entitle complainant to go to a jury on trial of those issues”; that “the chancery court no more had power actually to determine and finally adjudicate the issues in the common law case than to determine and finally adjudicate whether there ivas prejudicial error in the trial of the common law case — unless and until Lath-rop should voluntarily elect to submit the merits of his, Lathrop’s, claim in the common law case to the chancery court for final determination and adjudication”; that “this Lathrop elected to do, thus eliminating all other issues from the case and on these issues the master, as well as the chancellor, found for complainant and properly so”; that the effect of Lathrop’s election to submit his claim in the common law court to the chancery court was to waive all questions except Lathrop’s right to recover from Goelitz on account of Lathrop’s purchase of stock of the Henkel Edge-Lite Corporation; and that “as to the supposed other issues in this cause, as they were before Lathrop elected to confess them and go to trial on the merits of Lathrop’s claim in the common law case, the proofs are not substantially different from the allegations of the bill of complaint, which on interlocutory appeal this . . . court held sufficient.”

The theory upon which Goelitz’s bill of complaint predicated his right to relief from the comm orí law judgment is that he “had no knowledge that said trial [resulting in the judgment] was taking place or had taken place . . . until . . . after the expiration of the term of said Circuit court, at which said trial was had and judgment entered”; and that by reason of the accidental miscarriage of the United States mail, resulting in its failure to deliver to him Hana’s notice of withdrawal as his attorney in the law action, Goelitz was deprived of a bill of exceptions necessary to enable him to secure a proper consideration of the judgment and review of same by writ of error.

As heretofore stated the temporary injunction in this cause was issued by the chancellor solely on the allegations of plaintiff’s bill of complaint and that restraining order was affirmed by us solely on the face of that bill.

It now appears, however, that, while the bill alleged that Goelitz “never knew or heard of any offer of sale or sale to said Lathrop of any capital stock or securities issued or to be1 issued by said Henkel Edge-Lite Corporation until sometime, to-wit, 30 days after the institution ... of said case No. B-230276 [the common law suit],” he testified that when he was served with summons in that action he already knew that Lathrop had purchased stock in the corporation; that, while his verified bill alleged that Goelitz “was not present in said court at any time during said trial or represented in said court by any attorney, either at law or in fact’’ and “at no time during said trial was said Adolph Henkel . . . present either in person or by counsel,” it was stipulated on the hearing of the instant case that Henkel was present when the judgment was entered in the common law action and Goelitz testified that he left it to Henkel to take care of that case for him; that, while plaintiff’s bill alleged that the only evidence offered concerning him in the common law case was the testimony of Lathrop that April 9, 1931, Goelitz attended a meeting of the stockholders of the corporation, at which meeting he was elected a director of same and that he was a stockholder and director of the company, the transcript of the evidence in that case discloses that Lathrop testified that Goelitz was re-elected a director of the corporation at the meeting of its stockholders April 9,1931 (the stock was delivered to Lathrop February 27, 1931). Not only did Goelitz allege in his bill that Lathrop testified on the trial of the lawsuit that Goelitz was elected a director rather than re-elected a director of the corporation April 9, 1931, but it was strenuously urged in his brief on the interlocutory appeal that “counsel would have this court believe that the trial court actually held that Goelitz was liable merely because sometime after the sale he became a director of the Henkel Edge-Lite Corporation (p. 13). . . . The occasion — occasions of his loss of a.bill of exceptions were many: One was that after Lathrop bought his stock in the Henkel Edge-Lite Corporation Goelitz became a director of the company.” It should be added that Goelitz testified in this cause that he was vice president and director of the corporation since its organization.

It also now appears that while the bill of complaint alleged that December 28,1932, Henkel advised Goelitz that he was employing Hang, who would be substituted as attorney in the law case for Decker & Golden, who had withdrawn, and that although Goelitz did testify in one instance in this cause that Henkel told him he had employed Hana when Decker & Golden withdrew, he also testified that Henkel did not tell him that he had employed another lawyer and that he did not know who employed Hana as a lawyer until after he was served with the execution on the common law judgment and went to Waukegan in February, 1933; that while Goelitz’s verification to his bill of complaint states inter alia that he “had no knowledge that said trial was to take place, was taking place or had taken place until sometime after February 18, 1933,” the last day of the January term at which the judgment was entered, the evidence presented to the master demonstrated beyond peradventure of a doubt that he had actual notice of the imminence of the trial from the subpoena personally served upon him December 9, 1932, at Lathrop’s instance, commanding his presence at the trial of the common law action December 12, 1932, and from the notice forwarded to him at his home by registered mail on January 24,1933, by one of Lath-rop’s attorneys and receipted for by one C. Goelitz (a daughter, Carlotta, lived with Goelitz), advising that he would oppose any further continuance beyond January 30, 1933, on which date the case had been reset for trial; and that, while the prayer of the bill was, in general terms, to restrain Lathrop from collecting or enforcing or attempting to collect or enforce his judgment, no mention ivas made in the bill of the proceeding brought in Lake county by Lathrop in aid of the execution on his judgment.

May 25, 1934, the master to whom this cause was referred generally January 15, 1934, reported to the chancellor the evidence submitted to him and his conclusions of law and fact on the issues involved.

The master found that Lathrop did not clearly establish his claim in the common law action in which judgment was entered February 15, 1933; that, while there is no denial that the corporation was insolvent when the stock was sold to Lathrop and that the sale of same was in violation of the Blue Sky law, Goelitz’s legal liability was. not satisfactorily established; that. the fact that he was a director of the corporation and the further fact that February 14,1931, upon being advised that Lathrop had invested and might invest more money in the corporation, he “told Lathrop that he was glad to see him come into the corporation and that he believed he would make money” did not constitute legal liability on the part of Goelitz.

The master further found that “the law is well settled in this state that before equity will interfere by issuing an injunction to restrain the collection or enforcement of a judgment at law it must appear that the judgment was rendered without the.fault or negligence of the party seeking relief. This the complainant has failed to show. On the contrary he stands convicted of every form of negligence, total disregard and wilful and deliberate defiance of the process of this court. . . . It is the contention of the complainant’s solicitor that by reason of the complainant’s failure to receive the notice of the withdrawal of the attorney aforesaid (Hana). the complainant was left without counsel at the common law trial and so lost his chance to procure a- bill of exceptions. He argues that the loss of the bill of exceptions is the injury and the complainant’s failure to receive the notice is the cause of the injury; that the expiration of the term is a circumstance — a part of the occasion, but is not a cause of the injury. He insists that the judgment is unconscionable and therefore the defendant herein should be restrained from enforcing it unless and until the said defendant enters into the necessary stipulation in the law court to give complainant a bill of exceptions of which he has been accidentally deprived, so that he might have, an unconscionable judgment reviewed by the Appellate Court on writ of error, . . . In view of the findings and conclusions hereinbefore contained the master cannot and does not agree with the contentions, logic and arguments of the complainant’s solicitor. Complainant’s failure to be present in court at the time the cause was tried and the judgment rendered was not occasioned by any accident, mistake, fraud or inadvertence, but through sheer willfullness and deliberate negligence and defiance on the part of the complainant, and the master concludes that á court of equity should not help the complainant in this cause. ’ ’

The report concluded that Goelitz had failed to prove the allegations of his bill of complaint and recommended that the temporary injunction theretofore issued be dissolved and that his bill of complaint be dismissed for want of equity.

The master overruled Goelitz’s 52 objections (92, counting their subdivisions) to his report. These objections, ordered to stand as exceptions to the report, were set for hearing before the chancellor, and, notwithstanding their number, complexity and the fact that many of them were argumentative in nature, were all “sustained and allowed.”

This history of the cause, including the pleadings, the substance of the master’s report and the contentions of the parties, which has been set forth at length for a proper understanding of the issues, leads us to what Goelitz strenuously insists is not only the major but the only question in the case, namely, that by offering evidence before the master as to the merits of his claim against Goelitz in the common law action, Lath-rop voluntarily elected to submit the merits of that claim to the court of equity for final determination and adjudication, and that both the master and the chancellor having properly found that Goelitz’s legal liability in connection with the sale of the stock to Lathrop was not satisfactorily established, the decree should be affirmed.

In the former appeal it was not necessary to pass upon the liability of a director merely because he was a director of a corporation whose stock was sold in violation of the Blue Sky law, inasmuch as that appeal was determined solely on the face of the bill, which alleged that Goelitz was not elected a director until several months after the sale of the stock in controversy.

While in our prior opinion we questioned whether a director of a corporation who had not participated in or knowingly furthered in any way the sale of its stock in violation of the Blue Sky law could be held liable merely because he was a director at the time of the sale, after carefully reconsidering the matter we are now convinced that the Legislature contemplated that liability should attach to all who were directors of a corporation when its stock was sold in violation of the said law, and had knowledge or were chargeable with knowledge of such sale.

The pertinent portion of the statute (Cahill’s 1931 Ill. Rev. Stats., ch. 32, par. 290, sec. 37, subsec. 1) upon which the liability of Goelitz is predicated, is as follows :

(1) Every sale and contract of sale made in violation of any of the provisions of this Act shall be void at the election of the purchaser, and the seller of the securities so sold, the officers and directors of the seller, and each and every solicitor, agent or broker of or for such seller, who shall have knowingly performed any act or in any way furthered such sale, shall be jointly and severally liable, in an action at law or in equity, upon tender to the seller or in court of the securities sold to the purchaser for the amount paid, the consideration given or the value thereof, together with his reasonable attorney’s fees in any action brought for such recovery.”

In relating the history of this statute in Perkins v. Dole, 240 Ill. App. 20, this court said at p. 25:

“In section 37 of said Act of 1919 [Callaghan’s 1920 St., p. 2675 (37)] it is provided: ‘Every sale and contract of sale made in violation of any of the provisions of this Act shall be void and the seller of the securities so sold, and each and every solicitor, agent or broker of or for such seller, who shall have knowingly performed any act or in any way furthered such sale, shall be jointly and severally liable, upon tender to the seller or in court of the securities sold, to the purchaser for the amount paid, together with his reasonable attorney’s fees in any action brought to recover such amount. ’ This section was amended by the amendatory act of 1921 by interpolating certain new clauses and by adding four new subsections (Laws 1921, p. 364). The old section 37, as changed, became subsection 1 of the new section 37. The changes were as follows: After the words ‘shall be void,’ in the second line, the words ‘at the election of the purchaser ’ were added; after the words ‘and the seller of the securities so sold,’ and before the words ‘and each and every solicitor, agent or broker of or for such seller,’ the words ‘the officers and directors of the seller’ were inserted; after the words ‘shall be jointly and severally liable’ were added the words, ‘in an action at lawmr in equity.’ ”

In so far as we have been able to ascertain the construction of this statute as to the liability of officers and directors of a corporation, the.stock of which has been sold in violation of the Blué Sky law, solely on the ground that they were such officers and directors at the time of the sale, is a matter of first impression in this State. From a grammatical standpoint, with due regard for punctuation, the natural and reasonable interpretation would seem to be that the liability of an officer and director, such as Goelitz was, is just as absolute as is that of the seller of the securities.

It will be observed that the clause commencing with “who shall have knowingly performed” obviously relates to the words “each and every solicitor, agent or broker of or for such seller,” which are inclosed in commas immediately preceding that clause. It surely was not intended that the “knowingly performed” clause would modify or apply to the “seller of the securities.” When the act was amended to include “officers and directors of the seller,” in our opinion, they were not only placed in the same grammatical category “as the seller,” but we think that it was contemplated that liability should attach to them in the event of the sale of stock in violation of the Blue Sky law by reason of their presumed knowledge of such sale. If it had been the purpose of the Legislature to simply add “the officers and directors of the seller” to the group, “every solicitor, agent or broker of or for such seller, ’ ’ who could only be held liable if they had “knowingly performed any act or in any way furthered such sale,” it would have been an easy matter to have had the statute as amended read “and each and every officer, director, solicitor, agent or broker of or for such seller who shall have knowingly performed any act or in any way furthered such sale.”

We perceive nothing unfair or unconscionable in a construction of this statute which imposes liability on the officers and directors of a corporation where the proceeds of the sale of its stock in violation of the Blue Sky law inure to the benefit of such corporation. It is undisputed that the stock was sold to Lathrop in violation of the Blue Sky law and it is undisputed that when it was sold to him the corporation was insolvent. It is also undisputed that the $8,250 paid by Lathrop to Henkel for the stock was credited to Lathrop on the books of the corporation as payment for a stock subscription and deposited in the corporation’s bank account. It was then disbursed in payment of some of its overdue accounts.

It will be noted from the language of the Perkins case, supra, that under the terms of the original securities act of 1919 there was no reference at all to officers and directors. If it were not intended by the Legislature to attach liability to officers and directors for the sale of corporate stock in violation of the securities act unless they were actually sellers of the securities or “knowingly performed any act or in any way furthered such sale,” it was entirely unnecessary to amend the act to specifically mention them. If an officer or director was the actual seller, he, of course, was liable, and if he knowingly aided or furthered such sale in any manner, the act was sufficiently comprehensive as it stood to include him. We think that the act was amended in 1921 to cure what had been discovered by experience to be a fatal weakness in that as originally enacted it afforded officers and directors of corporations whose securities were illicitly sold an avenue of escape from liability on the pretext of ignorance of the particular sale. We also think that by amending the act in 1921 by interpolating “the officers and directors of the seller,” the Legislature evinced an intention to place violators of the act in three separate and distinct classes: (1) Actual seller; (2) officers and directors of the seller; and (3) solicitors, agents or brokers of the seller “who shall have knowingly .performed any act or in any way furthered such .sale.” A director of a corporation is surely chargeable with knowledge that its stock has not been qualified.for sale under the Blue Sky law, and that .it was being sold in violation thereof, where the proceeds of the sale go to such corporation, and he is also chargeable with knowledge of its financial condition. (14 A. C. J„ sec. 1867; Moody v. Chicago Title & Trust Co., 126 Ill. App. 68.) This being so, where the proceeds of the sale of the stock went to the corporation as they did here, and where the. corporation, was .insolvent, as. this was, we know of no principle of law that affords a basis for construing the statute otherwise than that the director is liable whether he participated in or knowingly aided or furthered the individual sale or not.

In addition to the fact that Goelitz was an officer and director of the Henkel Edge-Lite Corporation at the time that Henkel sold the stock to Lathrop, evidence was produced before the master that February 14, 1931, the day after Lathrop had made his initial payment of $2,500 to Henkel, Henkel took Lathrop and one Becker to Goelitz’s home and there stated: “I want to introduce you to a big shot in the company. Mr. Goelitz is vice president and a member of the board of directors; . . . that Mr. Lathrop had invested some money, he expected to invest more and Becker expected to invest some”; and that Goelitz said “I am very glad to meet you gentlemen and I think you made a very fine investment and you are going to make a pot of money.” Goelitz contradicted this testimony, but admitted that Henkel brought Lath-rop and Becker to his home on the occasion in question and that a conversation between the parties ensued which lasted two or three hours. Thereafter, on February 27, 1931, Lathrop paid Henkel $5,750 more and received the stock of the corporation. It thus appears that Goelitz at least encouraged Lathrop to believe that his investment with the corporation would be profitable.

The evidence disclosed that while the action at law was pending and a short time before judgment was entered therein, Goelitz conveyed real estate belonging to him in Lake county to his son and daughter-in-law; that it was simultaneously deeded back to his wife and that all the conveyances were without consideration. . It is urged that Goelitz sought by this means to render himself judgment proof and that his conduct in this regard constituted an admission of his guilt. While no case in this State has been called to our attention where this question has been determined,- it is generally held that the basic principle underlying the admission of this character of testimony is that it tends to show consciousness on the part of a defendant that he is legally liable for the damages incurred by another and sought to be recovered. (Wigmore on Evidence, 2nd ed., vol. 1, sec. 282; Pelkey v. Hodgdon, 102 Me. 426, 67 Atl. 218; Harmon v. Haas, 61 N. D. 772, 241 N. W. 70, 80 A. L. R. 1131.)

We are of the opinion that both the master and chancellor erred in failing to find that Lathrop made out at least a prima facie case in the common law action, and that if Goelitz’s theory is correct that the merits of the controversy were before the chancellor for determination his liability under the statute was sufficiently established in the instant case.

The next question presented is whether Goelitz was guilty of such negligence in connection with Lathrop’s common law action against him as to preclude him from the relief sought in this proceeding, even though he was otherwise entitled to it. The rule is universal that a party seeking to enjoin a judgment or the collection of a judgment must be free from all negligence and must have used the highest degree of diligence in the cause in which the judgment at law was entered. In Cairo & St. L. R. Co. v. Holbrook, 92 Ill. 297, the court said at p. 301: “The doctrine has been uniformly held, that where a party has been served with process and neglects to make his defense, he cannot invoke the aid of a court of equity to grant lfim' relief. ’ ’ In Ward v. Durham, 134 Ill. 195, the court used this language at p. 202: “The loss of a defense, to justify a court of equity in removing a judgment, must in all cases be occasioned by the fraud or act of the prevailing party, or by mistake on the part of the losing party, unmixed with any fault of himself or agent.” In Kretchmar v. Ruprecht, 230 Ill. 492, the court said at pp. 493, 494: “It is immaterial to the decision of this case whether they had a valid defense or not. They had ample opportunity to present it if they had one, but without any reasonable excuse they neglected to do so. Equity will not relieve against a judgment at law except in cases of fraud, accident or mistake, and then only where the party applying for relief is free from all negligence. ’ ’

The judgment at law was entered against Goelitz and Henkel February 15, 1933, in the action brought by Lathrop that had been pending since October 9, 1931. Henkel was present in the trial court when it was rendered. It conclusively appears that when Goe-litz was served with summons he intrusted his defense of Lathrop’s action to his codefendant Henkel. Henkel advised Goelitz that he had retained Decker & Golden as attorneys to represent all the defendants. Decker & Golden filed their own and the appearance of all the defendants December 9, 1931. Plaintiff’s motion of April 20, 1932, to place the cause upon the trial calendar was strenuously opposed. It was finally placed on the trial call November 18, 1932, over defendants’ objections. Goelitz was personally served with a subpoena December 9, 1932, to appear and testify at the trial of the cause. He did not appear. An endeavor was made to serve a seconcl subpoena upon him, but a member of his household stated that he was asleep and could not be disturbed. December 28, 1932, Decker & Golden withdrew from the cause as defendants’ attorneys. Attorney Leo G. Hana was substituted as their attorney and the case was continued for trial to January 30, 1933. Henkel advised Goelitz that he had retained Hana. January 19, 1933, Hana filed proof of service of notice on all the defendants of,.his motion for leave to withdraw from the case. Hana was granted leave to withdraw January 19, 1933, and the cause continued for trial to January 30, 1933. January 24, 1933, Lathrop’s attorney McCoy mailed a registered letter with a request for a return receipt to Goelitz at his home in Deerfield, Illinois, advising that further continuance would be opposed when the cause was called for trial January 30, 1933. McCoy received a return receipt signed “C. Goelitz.” Henkel retained no other lawyer, either for Goelitz or himself. The trial of the common law action commenced February 14, 1933, and upon its conclusion the judgment was entered February 15,1933, at which time Henkel was present. February 20, 1933, Goelitz was served with an execution on this judgment and also with summons in a proceeding brought by Lathrop in Lake county in aid of the execution, which proceeding sought to set aside the conveyance of his property alleged to have been fraudulently made by Goelitz so that same would not be subject to execution on Lathrop’s judgment.

Goelitz’s right to the injunctive relief sought in the instant case was and is predicated solely on his assertion that he did not receive Hana’s notice of withdrawal as his attorney in the common law action because of the accidental mis'carriage of the United States mail, which failed to deliver such notice to him although the envelope containing same was properly addressed, stamped and mailed.

Goelitz strenuously insists that Henkel was his agent only to the extent of securing an attorney to defend him against Lathrop’s action at law, and that Henkel having advised him that attorney Hana was looking after his defense and not having received Hana’s notice of withdrawal or any information concerning same, he had a right to rely on Hana to protect his interests in the lawsuit and was not negligent in so doing.

On the record now before us this contention is without merit and neither fallacious argument nor far fetched theories can change or overcome the facts. The evidence conclusively shows that Goelitz not only intrusted his defense of the common law action in its entirety to Henkel, but that he insisted that it was Henkel’s duty to arrange for such defense. Goelitz testified in no uncertain terms that he “left it all to Henkel.” It is idle to urge, merely because Henkel told Goelitz on one occasion that Decker & Golden represented the defendants and on another that Hana was their attorney, that Henkel’s agency to look after Goelitz’s defense was restricted to securing an attorney for him. From the facts in the record it is entirely immaterial whether or not an accidental miscarriage of the mail resulted in Goelitz’s failure to receive Hana’s notice of withdrawal. Henkel had been theretofore charged with arranging for Goelitz’s defense. Henkel received Hana’s notice of withdrawal. Henkel employed no other attorney to represent either Goelitz or himself. Henkel was present when the judgment at law was entered and represented Goelitz at that time. If a litigant authorizes another to look after his defense of the action generally and an attorney is not employed or other proper and necessary measures taken, no relief can be had in equity in the absence of actual fraud. (53 A. S. R., p. 449; Neville v. Pope, 95 N. C. 346.) Courts of equity will not grant relief merely upon the ground of accident where the accident has arisen without fault of the other party, if it appears that the damage alleged to have been caused by the accident might have been avoided by: inquiry or due. care. (1 Story Eq., 9th ed., sec. 105; United States v. Ames, 99 U. S. 35, 25 L. ed. 295.)

The judgment at law was obtained at the conclusion of a two-day trial, after repeated continuances, Goe-litz having theretofore been represented in the lawsuit by the attorneys heretofore mentioned, procured by Henkel, none of whom had been paid. Not only can no sharp practice be attributed to Lathrop in the common law case, but on the contrary his attorney actually served Goelitz with a subpoena in that cause on one occasion and a week later attempted to have him served with another subpoena, and then, after Hana’s withdrawal, mailed him a registered letter to his home, advising that the cause was set for trial January 30, 1933, and that further continuance would be opposed. No amount of specious reasoning can alter the effect of the evidence and only through such reasoning could any conclusion other than that Goelitz was grossly negligent in his defense of Lathrop’s action at law against him be reached.

We have heretofore indicated several respects in which the allegations of the bill of complaint were either untrue or misleading and calculated to be deceptive. In other respects pertinent material facts were disclosed upon the hearing before the master to have been within Goelitz’s knowledge when the bill was drawn Avhich were omitted therefrom, and we have no hesitancy in stating that if the facts presented by the record now before us had been contained in the allegations of the bill of complaint upon which alone the interlocutory appeal was decided, we must have reached the same conclusion in determining that appeal as Ave do here on the question of Goelitz’s negligence.

Other points are urged, but in the view Ave take of this cause we deem further discussion unnecessary.

The motions heretofore filed by Lathrop and reserved to hearing for leave to amend his answer and to produce further testimony in this court are at this time denied.

For the reasons indicated herein the decree of the circuit court is reversed and the cause is remanded with directions to dissolve both the permanent and temporary injunctions and to dismiss plaintiff’s bill of complaint for want of equity.

Reversed and remanded with directions.

Friend and Scanlan, JJ., concur.