text:
    Old Fort Dearborn Wine and Liquor Company, Appellee, v. Old Dearborn Distributing Company, Appellant.
    Gen. No. 38,931.

      Opinion filed November 4, 1936.
    Irving Breakstone and Irving Greenspahn, both of Chicago, for appellant.
    Moses, Kennedy, Stein & Bachrach, of Chicago, for appellee; Hamilton Moses, Stanley Morris and R. Weyand, of Chicago, of counsel.
   Mr. Justice Hebel

delivered the opinion of the court.

This is an appeal by the defendant from a temporary injunction order entered by the court based upon the bill of complaint filed by the plaintiff, enjoining and restraining the defendant, its employees, representatives, servants, salesmen, clerks, agents and attorneys, pending final hearing or sooner determination of this cause, from directly or indirectly advertising for sale at retail, offering for sale at retail, or selling at retail within the city of Chicago, a certain brand of whiskey distributed by Sehenley Distributors, Inc., a New York corporation, said brand bearing trademark and trade name of “Old Quaker,” at a price below $1.69 per quart, 89c per pint and 47c per half-pint; and a certain brand of whiskey distributed by said Sehenley Distributors, Inc., bearing the trademark and trade name of “Golden Wedding” whiskey, at a price below $2.49 per quart, $1.29 per pint and 68c per one-half pint.

This order is based upon the verified bill of complaint filed by the plaintiff wherein it is alleged in substance that the plaintiff is a corporation engaged in business in the city of Chicago, Illinois, as a wholesale distributor selling to retailers for resale in that city various brands of liquors and alcoholic beverages of standard quality. The defendant is a retailer, engaged in said city in selling various brands of liquors and alcoholic beverages at retail. The plaintiff sells at wholesale to retailers in said city certain liquors and alcoholic beverages commonly known as 1 ‘ Schenley Products,” which it purchases from a New York corporation, Schenley Distributors, Inc., which is licensed to do business in Illinois, and is the sole sales and distributing agent of certain affiliated liquor distilleries known as the Schenley Distilleries; that plaintiff is one of 10 wholesalers of Schenley products in the city of Chicago who are known as “local Schenley distributors.” These local Schenley distributors are limited to that number and are the only ones selling Schenley Products at wholesale in the city of Chicago.

It further appears from the bill that the plaintiff has a considerable financial investment in its business, and that an important and valuable asset of its business is the good will of the retailers who purchase Schenley products from the plaintiff, and of the public and consumers who purchase said products in Chicago. The good will has been built up in part by the maintenance of local Schenley distributors and Schenley Distributors, Inc., of a uniform retail price for their products. Schenley products consist of various brands of straight whiskies, blended whiskies, bonded whiskies, gins, brandies, cordials and rums. All of said brands at all times have been and are of standard quality or make. All of said brands are sold in bottles which have affixed thereon a paper label bearing the trademark, duly registered with the United States Patent Office, of the producer of the product and the brand and name of the producer. The brands known as “Old Quaker” and “Golden Wedding,” are in fair and open competition with commodities of the same general class sold at retail in said city, produced by persons other than said Schenley Distilleries.

The complaint alleges in some detail the peculiar characteristics of the market in liquor and alcoholic beverages and sets forth the beneficial effects of the maintenance of uniform and standard retail prices fixed at an amount fair and reasonable to manufacturer, distributor and consumer for each brand of Schenley products sold in Chicago, the evils inherent in price cutting, and plaintiff’s adherence and that of Schenley Distributors, Inc. to a business policy of securing to consumers the benefit of such prices. The uniform and standard retail price of the brand of whiskey known as “Old Quaker” is $1.69 a quart, 89c per pint and 47c per one-half pint, and “Golden Wedding” $2.49 per quart, $1.29 per pint and 68c per one-half pint. Schenley Distributors, Inc., in accordance with said business policy, suggests to the plaintiff and other local Schenley distributors a minimum retail price for which each of its brands should be sold at retail. In the event that any distributor sells any brand of Schenley products to any retailer who is known by said distributor to sell any brand of Schenley products in Chicago, at less than the uniform retail price suggested, Schenley Distributors, Inc., refuses to sell said products to said distributor.

It is also alleged in the bill of complaint that after the enactment of the Fair Trade Act, the plaintiff to avail itself of the benefits of the act, entered into various contracts with the retailers which contracts with retailers contain a provision that said retailers would not resell said brands except at the prevailing uniform and standard Schenley retail price. During the six months preceding the institution of suit, all sales of Schenley products made by plaintiff to retailers were made under such contracts. Defendant knew of these contracts at the time it engaged in the conduct hereinafter described. The other local Schenley distributors similarly entered into like contracts with their retailers, and the number of all retailers in Chicago selling under such contracts approximated 85 per cent of all retailers selling Schenley Products in that city. As a result of the foregoing business policy certain beneficial consequences are alleged to have ensued. The plaintiff did not consider it material to describe these at length.

During the month of April, 1936, the defendant threatened to sell, offer for sale and advertise for sale the brand of whiskey known as ‘1 Old Quaker ’ ’ and as “Golden Wedding” at a price lower than the uniform standard Schenley retail price. At the time of making such threats the defendant knew of the existing contracts to maintain the price of said brands. On April 2, 1935, and theretofore, the plaintiff informed the defendant of the business policy of the plaintiff and of its attempts to avail itself of the benefits of the Fair Trade Act by entering into said agreements, and requested the defendant not to sell, offer for sale or advertise for sale at retail in Chicago said brand of “Old Quaker” and said brand of “Golden Wedding” below the uniform price. The plaintiff tendered to the defendant a form of printed agreement which it used in making sales of Schenley products to other retailers. Said form of printed agreement is attached to the complaint as an exhibit. The defendant refused to enter into such an agreement, with the plaintiff.

On April 2, 1936, the defendant sold large quantities of the brand of “Old Quaker” and of “Golden Wedding,” the former at 69c per pint (the uniform price of which was then 89c per pint) and the latter at $1.19 per pint (the uniform price of which was then $1.29 per pint); defendant knowing at the time of the various contracts stipulating the uniform retail price. Thereafter the defendant was requested by the plaintiff to cease underselling the uniform price, but the defendant asserted that it would not refrain from so doing. Thereafter the defendant inserted advertise-' ments in the Chicago newspapers advertising retail prices of said brands below the Schenley uniform resale prices. As a result of the defendant’s conduct a great number of other retailers located in the vicinity of the defendant’s stores threatened to violate their contracts with the plaintiff and to sell and offer for sale said brands of “Old Quaker” and “Golden Wedding” at the price of 69c and $1.19 per pint, respectively or less, in order to meet competition. Several of the retailers did violate their contracts. The sales by said retailers at said price of 69c and $1.19 per pint and below, it is alleged, did not yield said retailers a fair and reasonable profit and some of the retailers began to and did offer to the public substitute brands for “Old Quaker” and “Golden Wedding” when the public called for those brands. The plaintiff consequently suffered great loss and irreparable injury.

The bill further states in substance that all of the quantities of “Old Quaker” and “Golden Wedding” sold by the defendant were purchased by the defendant from various persons within the State of Illinois who kept and had said quantity in said State prior to selling same to said defendant. Said quantity so purchased by the defendant was purchased subsequent to the time when said Fair Trade agreements were entered into by the plaintiff and subsequent to the time that said defendant knew of the standard uniform price for said brand fixed in said agreements. . Said whiskey was not dealt in by the defendant for the purpose of or in the course of closing out said quantity for the purpose of discontinuing delivery of said brand nor because said quantity nor any part thereof was damaged or deteriorated nor on account of or pursuant to an order of court.

The bill further states that unless the defendant is restrained from selling below the uniform minimum price, great and irreparable injury to the plaintiff will result. The injury is specifically set forth. The amount of compensation which would afford relief to the plaintiff is alleged to be difficult of ascertainment, and an injunction is prayed for restraining the defendant from selling the goods below the minimum prices set forth in the bill of complaint.

A hearing was had before the court upon defendant’s motion that the plaintiff was not entitled to an injunction and the relief prayed for and that the complaint be dismissed for want of equity, which motion was denied and the court entered the temporary restraining order hereinabove set forth.

Since the filing* of the appeal in the instant case the Supreme Court in the case of Joseph Triner Corp. v. Carl W. McNeil, Docket No. 23,475, considered the question of the constitutionality of the Illinois Fair Trade Act (Ill. State Bar Stats. 1935, ch. 140, p. 3091; Smith’s Stat. 1935, p. 2893) and held that the act did not violate any of the provisions of the Illinois State Constitution.

This conclusion was also approved and followed by the court in the case entitled Seagram-Distillers Corporation v. The Old Dearborn Distributing Company, Docket No. 23531—April, 1936. The court in the Triner case, in passing upon the legality of the Act, said:

“ . . .We are particularly concerned with section 2, which declares that ‘willfully and knowingly advertising, offering* for sale or selling any commodity at less than the price stipulated in any contract entered into pursuant to the provisions of section 1 of this act, whether the person so advertising, offering* for sale or selling is or is not a party to such contract, is unfair competition and is actionable at the suit of any person damaged thereby. The third section provides that the act shall not apply to any contract or agreement between producers or between wholesalers or between retailers as to sale or re-sale prices. The Fair Trade Act thus permits vertical re-sale price maintenance, but condemns, as do the Federal and State Anti-trust laws, horizontal arrangements for fixing prices. The act prescribes no criminal penalties.”

It follows that the subject to be treated by this court is whether the acts of the defendant violated the provisions of the Illinois Fair Trade Act and were sufficient to justify the granting by the court of the temporary injunction now here on appeal by the defendant.

The defendant raises the point, among others, that the injunctional order by its terms is mandatory, and questions the authority of the trial court to issue this temporary injunction for the reason that the court in doing so considered only the verified bill of complaint, thereby affording the plaintiff all the relief prayed for, whereas the question should have been considered by the court only after a full hearing upon the merits of the controversy.

In support of defendant’s position counsel relies largely on the case entitled Cleaning, etc. Ass’n v. Sterling Cleaners & Dyers, 278 Ill. App. 70, wherein this court said:

“The effect of the order in the instant case disposes of the question of price for services rendered, and really disposes of the question of merits before a final hearing, the result of which is to grant the plaintiffs the relief sought by their bill. The rule in equity is that the issuance of a temporary injunction, if the allegations of the bill justify it, is for the purpose of maintaining the status quo until the merits can be determined upon a final hearing. The court by its order disposed of the question of the merits of the controversy, and thereby changed the status of the parties.”

The general purpose of an injunctional order is to restrain acts which would destroy the property rights of the person or company damaged. The court has discretion under proper circumstances to enter an order to maintain the status quo between the parties until a final hearing is had. In the instant case the facts disclose that the defendant is charged under oath with taking advantage of the established good reputation of plaintiff’s products known by the label used, which is a trade-mark emblem.

It is the undoubted right of a manufacturer or wholesaler to maintain a fair price for an article that has back of it the record of good quality, and which is recognized as such by the buying public. This is brought to the attention of the purchaser by the manufacturer’s label under which the article is sold. In order to attract the attention of buyers, publicity is necessary. This fact is apparent when it is to be observed on all sides that the merits of an article are extolled and the benefit that may be derived from the use of the advertised article.

The plaintiff sets forth in its bill the established record of goods sold by it, to the merits of which the public is attracted by its label. The customers are familiar with the known quality of the article so sold, and to further protect its rights the label used by the plaintiff bears the legend trade-mark; in other words, the label has been registered under the provisions of the Trade Mark Statute of the United States.

From the pleadings the plaintiff has an established and prosperous business, which is based upon the sale of the goods handled at a price agreed upon by all its agents, wholesale or retail, and by its customers, for the liquor known as “Golden Wedding” and “Old Quaker” as charged in this bill. There is no question but that such are bound by the several agreements, but there is the question, can the defendant be controlled by the price fixed by a manufacturer or distributor not a party to any contract. This problem is not a difficult one to decide. The Supreme Court in the Triner case makes this pertinent statement:

“Legislatures have long endeavored to promote free competition by laws aimed at trusts and monopolies such as the Anti-trust act of this State, enacted in 1891. (Ill. State Bar Stats. 1935, p. 1235; Smith’s Stat. 1935, p. 1201.) It is manifest that when the General Assembly enacted the Fair Trade act in 1935, it was attempting to modify its former policy and to adopt an economic concept which has received widespread popular approval in recent years. The gist of the theory is that the manufacturer of a trade-marked article sold in competition with articles of similar nature, who was designated a fair price at which he, as well as his distributor and retailer, can make a fair profit, has a property right in the good will towards his product which he has created, and that it is sound public policy to protect that property right against destruction by others who have no interest in it except to employ it in a misleading manner for the purpose of deceiving the public. ‘The basic theory on which this concept rests’ observed the California Supreme Court in Max Factor & Co. v. Kunsman, 55 Pac. (2d) 177, ‘is that, from a social standpoint, price cutting, in the long run, adversely affects the public interest, and that the public will be adequately protected against excessive prices by the ordinary play of fair and honest competition between manufacturers of similar products.’ Section 2 of the California Fair Trade act, as does section 3 of our law, prohibits manufacturers from contracting between themselves to fix re-sale prices.”

It is well to note that the injunctional order does not fix or establish a price for any of the articles sold by the defendant, but relates only to the product of the plaintiff known as such by its trade name. Again, the Supreme Court in the T rimer case quotes from Ingersoll & Bro. v. Hahne & Co., 88 N. J. Eq. 222, 101 Atl. 1030, as follows:

“The defendant makes use of the name, reputation, and guaranty of complainant for its own ulterior purpose and appropriates to itself the effect of the extensive advertising, upon which the complainant depends, for defendant’s own profit, in violation of the contract expressed in the notice, and with no desire to benefit the public. A retailer does not sell a standard article at a loss for eleemosynary purposes,” and says: “The injunction granted the complainant was subsequently made permanent in Ingersoll & Bro. v. Hahne & Co., 89 N. J. Eq. 332, 108 Atl. 128. The same jurist in this later case pointed out that, even in the absence of statute, contracts relating to trade and containing restraints are valid if such restraints are reasonable. In particular, the court said: ‘It is also well recognized that á person has a property interest in his trade-name and good will, and will, even in the absence of statute, be protected against injury to that trade-name and good will. This right has in this State been as above indicated recognized by statute. ... In those cases in which the right to fix a re-sale price has been under consideration, the prohibition against the re-sale has been against the re-sale of the article itself. The name or trade-mark or what not has been so much an integral part of the article as that a re-sale of the article without reference to the trade-mark or trade-name would be practically impossible. In the case at bar the prohibition is not against a re-sale of the article, nor is it impracticable to re-sell the article without reference to the trade-name. . . . Complainant does not seek to retain any right in the article itself; it merely seeks to restrain the use of its trade-name and good will, except under conditions fixed by it. . ..”

The facts that appear from the allegations of the bill of complaint justified the court’s order for a temporary injunction so that the status quo be maintained between the parties until a final hearing to determine the merits of the controversy.

The conclusion reached by this court is based solely upon the facts as alleged in the bill of complaint, and the application of the law to the facts as herein indicated is not to be taken as an expression of the court upon the merits. The conclusion of the trial court can be reached only upon a final hearing.

One of the contentions of the defendant is that the plaintiff not being a producer or manufacturer is not entitled to invoke the provisions of the Illinois Fair Trade Act and procure a temporary injunction fixing the resale prices of the defendant’s merchandise. Upon this question it is well to have in mind the provisions of the Illinois Fair Trade Act of 1935, which act provides in part as follows:

“8. Unfair competition — Trade mark — Provisions against resale — Validity of contract. Section 1. No contract relating to the sale or resale of a commodity which bears, or the label or content of which bears, the trade mark, brand or name of the producer or owner of such commodity and which is in fair and open competition with commodities of the same general class produced by others shall be deemed in violation of any law of the State of Illinois by reason of any of the following provisions which may be contained in such contract:

(1) That the buyer will not resell such commodity except at the price stipulated by the vendor.

“(2) That the producer or vendee of a commodity require upon the sale of such commodity to another, that such purchaser agree that he will not, in turn, resell except at the price stipulated by such producer or vendee.

‘ ‘ Such provisions in any contract shall be deemed to contain or imply conditions that such commodity may be resold without reference to such agreement in the following cases:

“(1) In closing out the owner’s stock for the purpose of discontinuing delivery of any such commodity; provided, however, that such stock is first offered to the manufacturer of such stock at the original invoice price, at least ten (10) days before such stock shall be offered for sale to the public.

“(2) When the goods are damaged or deteriorated in quality, and notice is given to the public thereof.

“ (3) By any officer acting under the orders of any court.”

Section 2 of the act elsewhere referred to in this opinion relates to wilfully and knowingly advertising, offering for sale or selling any commodity at less than the price stipulated in any contract, and which provision also binds a person who is not a party to such a contract where he enters into unfair competition.

In construing various provisions of the contract, the Supreme Court in the case of Seagram-Distillers Corp. v. The Old Dearborn Distributing Co., supra, makes this statement upon a like question, that is, as to whether or not it would bind a person who had not entered into a contract such as the one we have before us:

“We are not concerned with the claim that the contract between plaintiff and defendant was not executed by the defendant’s proper officers or that it is invalid for lack of mutuality. Section 2 of the Fair Trade act applies to wilfully and knowingly advertising, offering for sale or selling any commodity at less than the prices stipulated in any contract entered into pursuant to the provisions of section 1 of the act, whether the person so doing is or is not a party to such contract.”

As we have already indicated, the defendant is not a party to the contract with the plaintiff in this case, but under the terms of the provisions of the statute, the acts charged in the bill of complaint indicate that the defendant in seeking to sell liquors produced by the plaintiff corporation at a price less than that fixed in the contract between the wholesalers, the distributors and the purchasers,' made use of the plaintiff’s name and good-will in order to attract the attention of buyers. These acts, as alleged in the bill of complaint, were for the “purpose of inveigling the public into patronizing their places of business, in the hope of obtaining a profit on other goods of inferior quality. In other words, the reputation of the one is used for the personal advantage of the other.” Triner Corp. v. McNeil, supra.

It is evident from the facts charged in the bill of complaint that the defendant violated certain of the provisions of the Illinois Fair Trade Act of 1935, with the wilful purpose of selling and offering for sale certain commodities bearing the registered label or trade name of the producer, such registration appearing- on the face of the label, at a price less than had been established by plaintiff’s contracts with its customers, which were entered into under section 1 of the Act in question. Evidently the purpose of the defendant was to take advantage of the plaintiff’s property right in the good will and trade-marked article by attracting the public to its business in the hope that sales might be made of other goods of perhaps an inferior quality.

From the facts as they appear in the bill of complaint the court properly entered the order appealed from. Therefore the order is affirmed.

Order affirmed.

Denis E. Sullivan, P. J., and Hall, J., concur.


source: Caselaw Access Project

author: Mr. Presiding Justice John J. Sullivan

license: Public Domain

text:
    Weightstill Woods, Appellant, v. Village of LaGrange Park, Appellee.
    Gen. No. 38,279.

      Opinion filed November 10, 1936.
    Weightstill Woods, pro se.

    Stevens, Carrier & Griffith, of Chicago, for ap-' pellee.
   Mr. Presiding Justice John J. Sullivan

delivered the opinion of the court.

This is an action in assumpsit brought by plaintiff, Woods, an attorney, to recover $14,200.74 claimed to be due on account of legal services alleged to have been rendered by him to defendant, Village of LaGrange Park. At the close of plaintiff’s case on defendant’s motion the court instructed the jury to find the issues for it. The jury rendered a verdict in accordance with the instruction and judgment was entered upon the verdict for defendant and against plaintiff for costs. This appeal followed.

Plaintiff’s declaration alleged, substantially, that defendant, the Village of LaGrange Park, is a voluntary municipal corporation; that April 30, 1929, defendant was indebted to him in the sum of $14,200.74, the reasonable value of legal services performed by him for defendant at its request (this amount included necessary cash advancements for court reporters’ charges, the printing of briefs and court costs incidental to the legal services, as well as interest from the aforementioned date); that defendant, though often requested, has not paid this indebtedness or any part thereof but refuses to do so; that statements of account for such services and outlays were rendered to said Village of LaGrange Park and its board of trustees April 1, 1929, and sundry other dates prior thereto; and that at no time has any adverse vote, resolution or action of record been taken with reference to this indebtedness or any item thereof by said village or its board of trustees. An itemized statement of account was attached to the declaration and it was accompanied by an affidavit of plaintiff’s claim, which asserted that there was due him from defendant $14,200.74 for professional legal services, expenses and interest as set forth in the declaration and statement of account, after allowing defendant all just credits, deductions and set-offs.

Defendant filed a plea of the general issue and an affidavit of merits. The latter alleged that all during the period plaintiff claims to have rendered legal services to defendant and until on or about May 4, 1927, he was the duly appointed village attorney of the Village of LaGrange Park; that as such officer he did perform legal services for said village, but that an ordinance of the village passed and approved September 6, 1897, which was in full force and effect during the entire time covered by plaintiff’s claim, created the office of village attorney and fixed the duties and compensation of the incumbent thereof; and that the pertinent sections of this ordinance are as follows:

“Section 1. The officers of the Village of LaGrange Park shall consist of a President and a Board of six Trustees, a Village Clerk, a Village Treasurer, a Village Attorney, a Police Magistrate, a Village Engineer, and such other officers as from time to time may be deemed necessary or expedient, and for such terms (not exceeding or extending beyond the end of the then present fiscal year) and under such Bonds as the said Board may see fit.

“Section 17. The Village Attorney shall prosecute all suits instituted by or on behalf of the Village of LaGrange Park for the collection of fines or penalties, and shall represent the village in all suits in which said village may be party, plaintiff or defendant; he shall also advise, when called upon to do so, the Village Marshal, or other officers of said Village as to their respective duties; he shall also prepare deeds or other legal papers in which the village may be interested whenever requested by the said President, and otherwise assist any officer or committee of the Board of Trustees in the performance of his or their respective duties, whenever legal assistance may be required.

“Section 18. That said Village Attorney shall be entitled to receive as remuneration for his services the sum of one hundred dollars per annum. He shall also be entitled to receive from the general treasury such expenses as may be necessary in the performance of his duties.

‘1 Provided the same are previously authorized to be incurred by the President and a majority of the Board of Trustees; . .

The affidavit of merits further alleged that plaintiff was entitled to be paid only $100 a year for his services ; that there was no appropriation of the Village of LaGrange Park out of which the sums claimed by plaintiff could be paid, and that the Village of La-Grange Park did not promise and agree to pay for said services as alleged in the declaration except the sum of $100 a year as provided by ordinance; that an examination of the minute books, ordinances and records of said village discloses no resolution, ordinance or contract authorizing or providing for the payment of any compensation to plaintiff for the services alleged to have been rendered other than the compensation set forth in the foregoing ordinance; that on or about May 4, 1927, plaintiff’s term of office terminated and he was not thereafter authorized, employed or empowered to render any service to defendant or to incur any obligation on its behalf; that as to the $560.45 advanced by plaintiff for court reporting and $156.22 cash paid by him for printing briefs and abstracts, defendant did not order or direct the incurring of such indebtedness and that plaintiff had no power or authority to incur same on behalf of said village; that there was no appropriation of said village out of which such amounts could be paid; that the services alleged to have been rendered by plaintiff as set forth in its declaration are not and were not reasonably of the value therein set forth; that during the term of his office as village attorney plaintiff was paid by defendant sums in excess of $100 a year for the services rendered by him; and that defendant is not indebted to plaintiff for the alleged services and advancements set forth in his declaration.

Plaintiff filed a replication to defendant’s plea and affidavit of merits, the material portions of which are as follows:

1 ‘ 1. That he was never an officer of said Village but was an employee as an attorney and counselor at law.

“2. That at no time material in this suit was there any valid ordinance of defendant Village establishing any office of village attorney pursuant to any statute.

“3. That plaintiff was never requested or expected to give bond or otherwise qualify as an officer called village attorney and there is no record of any such relationship because none was attempted or made, and no such relationship ever existed; but the relationship at all times was one of employment as an attorney and counselor at law to perform the services mentioned in the declaration.

“4. At all times there were ample appropriations by the Village to pay any items sued for that may require an appropriation.

“5. All services and disbursements set forth by the declaration are reasonably of the value claimed for them by the plaintiff.”

Plaintiff’s theory is that January 8, 1923, he was retained by the Village of LaGrange Park to handle its legal work on a retainer and piecework basis; that he was merely an employee of the village and not an officer; that the relationship between him and the village was simply that of attorney and client; that he was allowed a retainer of $100 a year, which was later increased to $300 a year; that in addition to the retainer he was entitled to and did receive from time to time payment for his services on the basis of what such services were usually and customarily worth; that he rendered the services as alleged in his declaration and advanced moneys as therein alleged; that out of the circumstances of the relationship and conduct of the parties there was raised an implied contract to pay him for such services on the basis of quantum meruit, and that the village by its conduct is estopped to deny that it contracted for his services; and that it is liable in the amount which he claims his services were worth and for the moneys alleged to have been advanced by him.

Defendant’s theory is “that plaintiff on January 8, 1923, was appointed to the office of village attorney under an ordinance of the Village of LaGrange Park, then in full force and effect, and under the provisions of the Cities and Villages Act; that the ordinance provided for the compensation to be paid to the village attorney for his services in the sum of $100 per annum and for such expenses as should be necessarily incurred by him in the performance of his duties, provided the same were previously authorized to be incurred by the president and a majority vote of the trustees; that the ordinance prescribed the duties of the village attorney and that the services which plaintiff alleged that he rendered, for which he is seeking payment in this suit, were such services as were prescribed by the ordinance to be rendered for the compensation of $100 per annum as fixed by the ordinance; that the plaintiff was charged with knowledge of the ordinance and its provisions prescribing his duties and fixing his compensation, and that by accepting the office under the provisions of the ordinance he was bound to perform the duties of the office as prescribed for the compensation as fixed by the ordinance; and that he cannot legally claim additional compensation for the discharge of the duties of his office, even though the compensation as fixed by the ordinance may be considered inadequate. ’ ’

The rule is settled in this State that a person accepting a public office with a fixed salary must perform the duties of the office for the salary and he cannot legally claim additional salary for the discharge of those duties, even though the salary be inadequate. Whenever he considers the compensation inadequate he is at liberty to resign. (Gathemann v. City of Chicago, 263 Ill. 292; 1 Dillon on Mun. Cor. (5th ed.) sec. 426, and cases cited; City of Decatur v. Vermillion, 77 Ill. 315.) A person dealing with a municipal corporation is charged with knowledge of the limitations of the power of such corporation to make contracts. (City of Harvard v. McCauley, 253 Ill. App. 218; Snyder v. City of Mt. Pulaski, 176 Ill. 397; May v. City of Chicago, 222 Ill. 595; DeKam v. City of Streator, 316 Ill. 123; Sprinkle v. County of Cass, 340 Ill. 382.)

If it had been properly and sufficiently shown on the trial of this case that plaintiff was regularly appointed to and accepted the office of village attorney of the Village of LaG-range Park, that at the time of his appointment and during his incumbency of the office there was in force a valid ordinance creating such office which prescribed the duties and fixed the salary of the village attorney and that the services claimed to have been rendered came within his prescribed duties, plaintiff is barred from recovery in this action. However, there was no showing that plaintiff was appointed village attorney under a valid ordinance as alleged by defendant. The ordinance upon which defendant relies was not even before the court for its consideration upon the trial.

A municipal corporation which may* sue and be sued, or which has legal business to transact, may employ an attorney to conduct such business unless restrained by its charter (1 Smith on Municipal Corporations, par. 178) and it may be estopped by its own conduct from later asserting its lack of authority to so employ, as well as any irregularity in the employment. (Anderson Co. v. City of Highland Park, 276 Ill. App. 327; Melin v. Community Consol. School Dist., 312 Ill. 376.) The rule is that a city may be estopped to set up the defense that its contract was not made in compliance with the form and method prescribed by law if the city has accepted the benefits of the contract as executed by the other party thereto, if the contract is not ultra vires of the city nor prohibited by law. (Anderson Co. v. City of Highland Park, supra; DeKam v. City of Streator, supra; McGovern v. Chicago, 281 Ill. 264; Great Lakes Dredge & Dock Co. v. Chicago, 353 Ill. 614.) In Village of Harvey v. Wilson, 78 Ill. App. 544, where Wilson sued to recover on a quantum meruit for legal services rendered the Village of Harvey, the village having received the benefit of such services it was held that the rule just stated was applicable even though no appropriation had been previously made concerning the expenses of such legal service.

Plaintiff was permitted to introduce evidence as to similar services rendered by him to defendant over a period of more than four years, for which he had been paid by the village on the basis of their reasonable value, and we think that the evidence which he offered as to the cash advanced and the services performed by him for defendant, which the village received and accepted and for which he seeks to recover in this action, was improperly rejected by the trial court.

Under his theory, having shown the circumstances of his relationship to the village and the previous conduct of the parties, plaintiff should have been permitted to prove the additional legal services involved here, his cash outlays incident thereto and the usual and reasonable value of such services. If and when this ease is again tried the evidence is sufficient at the close of plaintiff’s case to raise an implied contract to pay him for the cash advanced and his legal services rendered for the benefit of the village on the basis of quantum meruit, the burden will then devolve upon defendant to proceed with its affirmative defense.

Defendant assumes in its theory of the case and the trial court undoubtedly assumed that under the doctrine of judicial notice the ordinance above set forth and pleaded in defendant’s affidavit of merits as a bar to this action should be just as fully recognized and considered as evidence in the case as if its validity had not been made a material issue by plaintiff’s replication. The doctrine of judicial notice is a branch of the law of evidence and authorizes the court whenever a fact is material, which is comprehended by such doctrine, to take judicial notice of the fact, but it must be presented to the court in some way. (People v. Keokuk & H. Bridge Co., 287 Ill. 246.) The provisions of the statute (Ill. State Bar Stats. 1935, secs. 1 and 2, pars. 57 and 58, ch. 51) that both the trial court and courts of review will take judicial notice of general ordinances of municipalities within the jurisdiction of the trial court are only applicable to the contents of such ordinances as facts when there is no question raised as to the legal existence or validity of the ordinances themselves. Defendant pleaded the ordinance in question as an affirmative defense and before judicial notice could be taken of its context it must have been properly presented to the court. As heretofore stated the ordinance was not presented at all on the trial of this cause and therefore cannot be judicially noticed by this court. Upon the proper presentation or introduction of the ordinance by defendant plaintiff was entitled, if he could, to impeach it on rebuttal by showing* that it was invalid and did not legally exist because the requirements of the law were not complied with in its purported passage.

Numerous questions argued on this appeal cannot be judicially determined because of the chaotic condition of the record now before us as a result of the loose manner in which the case was tried. We have pointed out applicable established principles of law to the end that a retrial of this cause may be conducted in accordance with the rules of orderly procedure.

The judgment of the superior court is reversed and the cause remanded.

Reversed and remanded.

Friend and Scanlan, JJ., concur.


text:
    Adele Virginia Harris Whiting, Appellee, v. Eleanor Whiting Hagey et al., Consolidated with Adele Virginia Harris Whiting, Appellee, v. Genevieve Paton Harris et al. Graham Whiting et al., Appellants, by Samuel Grossman, Guardian Ad Litem.
    Gen. No. 38,606.
    Opinion filed November 10, 1936.
    Rehearing denied November 24, 1936.
    Samuel Grossman, guardian ad litem, pro se; Louis N. Grossman and Bernard A. Stol, of Chicago, of counsel.
    Wilson & McIlvaine, of Chicago, for appellees. .
   Mr. Presiding Justice John J. Sullivan

delivered the opinion of the court.

A complaint in chancery was filed by plaintiff, Adele Virginia Harris Whiting, alleging the existence of a certain trust created by her (hereinafter for convenience referred to as the Whiting trust) in which she reserved a life interest and praying for an accounting and a construction of the trust with reference to the distribution of certain assets between her and the remaindermen, who were her four children, two of whom were minors, and her two minor grandchildren. A similar separate action was filed by plaintiff, praying for the same relief with reference to another trust created by the last will of her mother, Eleanor S. Harris (hereinafter for convenience referred to as the Harris trust). The same questions being involved in both cases, they were consolidated in the trial court. The trustee in each case filed an answer praying for instructions of the court. The cause was referred to a master in chancery, who filed a report in plaintiff’s favor. The exceptions of the guardian ad litem of the minor remaindermen to the report were overruled and a decree entered in accordance with the master’s report. By this appeal the minor remaindermen by their guardian ad litem seek to reverse certain portions of the decree, no question being raised as to the accounting features of same.

The undisputed facts are substantially that plaintiff is the life beneficiary under two trusts, each of which consisted of one-third of the residuary estate of her mother, Eleanor S. Harris, deceased; that under her mother’s will plaintiff was given the net income for life of one-third of the residuary estate and was also given the net income of another one-third of her mother’s residuary estate until she attained the age of 35 years, at which time she was to receive the corpus of this one-third; that shortly before attaining this age she elected to create a trust of the corpus she was to then receive and by her trust agreement dated November 21, 1923, conveyed said corpus to her father, Graham H. Harris, as trustee, reserving to herself the life income from same; that the Continental Illinois National Bank and Trust Company of Chicago is successor trustee under both trusts to Graham H. Harris, deceased; that the four children and two grandchildren of plaintiff are successor beneficiaries of the net incqrne of the trust estates and also are remaindermen interested in the ultimate disposition of the principal of both trusts; that prior to March 18, 1929, each of the trusts included among its assets 2,275 shares of stock of the Continental National Bank and Trust Company of Chicago; that March 18, 1929, the Continental Illinois Bank and Trust Company (successor to the Continental National Bank and Trust Company of Chicago) consolidated with the Illinois Merchants Trust Company; that the consolidated bank commenced to transact business March 18, 1929, under the name of Continental Illinois Bank and Trust Company, with assets including, among other items, capital of $75,000,000, surplus of $65,000,000, undivided profits of $4,060,156.42 and reserve for contingencies, $10,000,000; that when the books of the constituent Continental Bank were closed March 16, 1929, that bank had a capital of $35,000,000, surplus of $30,000,000 and undivided profits aggregating $26,224,144.47; that when the books of the Illinois Merchants Trust Company were closed March 16, 1929, that bank had a capital of $17,307,700, surplus of $30,000,000 and undivided profits aggregating $35,057,027.44; that, shortly prior to the consolidation, certain agreements were entered into by the directors and stockholders of both banks, which provided for their consolidation and in addition thereto for an affiliate securities company to be organized and known as the Continental Illinois Company (hereinafter for convenience referred to as the securities company); that said agreements also provided that such affiliate was to be provided with assets of $20,000,000; that at the time the consolidation was completed there was transferred to the securities company $4,407,700 from funds acquired by the consolidated bank from excess subscriptions to the capital stock of the constituent banks and $15,592,000 or 77.96 per cent of said $20,000,000 was transferred from other assets of the bank traceable to surplus and undivided profits acquired from the earnings of the constituent bardes and available on the date of the consolidation for distribution to stockholders as earned surplus; that upon the commencement of business by the consolidated bank its statement of condition dated March 18, 1929, gave the capital of the securities company as $20,000,000 and recited that its capital stock was owned by the stockholders of the consolidated bank; that immediately prior to the consolidation both banks had surpluses in excess of $15,592,000; that the assets of the securities company, including the said $15,592,000 were segregated from the assets of the consolidating banks under certain “modified agreements for the deposit of stock” of September 7, 1928; that pursuant to the terms of such deposit agreements said assets were set apart and transferred to the securities company March 18, 1929, as heretofore stated, and were not thereafter carried on the books of the consolidated bank as assets thereof; that all the stock of the securities company was placed in trust for the benefit of the bank stockholders and that the declaration creating this trust and an indorsement on the certificates of the stock of the bank provided that the capital stock of the affiliate could not be transferred separate from the stock of the bank; that each of the shares of bank stock also bore an indorsement that such share carried with it a proportionate beneficial interest in the capital stock of the securities company; that on October 15, 1932, the Continental Illinois Bank & Trust Company of Chicago was converted from an Illinois banking corporation into a national banking association, under its present name of Continental Illinois National Bank and Trust Company of Chicago (hereinafter for convenience referred to as the bank); that the National Banking Act of 1933 made it obligatory upon national banks to sever their connections with affiliated securities companies, including those existing through control of same by shareholders of such banks, within one year from the passage of the act; that on November 8, 1933, the board of directors of the securities company adopted a resolution providing for its liquidation and the distribution of its assets to the owners thereof; that, thereafter, this resolution was approved by the holders of stock of that company who were the trustees for the stockholders of the bank; that December 20, 1933, the board of directors of the bank adopted a resolution providing that the outstanding certificates of common stock of the bank should be canceled and exchanged for new certificates of stock of a reduced par value, which should be issued forthAvith and bear no reference to beneficial ownership of stock in the securities company; that the resolution last mentioned further provided that the trustees of the capital stock of the securities company be requested to take action to sever the beneficial ownership and transferability thereof from the certificates of stock of the bank; that such action was taken and there was delivered to the bank stockholders pro rata certificates of beneficial ownership in the stock of the securities company entirely independent of the bank stock; that March 12, 1934, the stockholders of the securities company by resolution consented to dissolve that corporation and authorized and directed its directors and officers to take all steps necessary to carry such dissolution into effect; that, thereafter, in December, 1934, the trustee of both the Whiting and Harris trusts received $4,550, together with 3,033 shares of capital stock of the Chicago Corporation as the proportionate share of each of these trusts in the assets of the securities company; and that this distribution was made on the basis of $2 in cash plus one and one-third shares of Chicago Corporation stock for each share of bank stock, each of said trusts holding 2,275 shares of bank stock as hereinbefore stated.

By its decree the trial court found that, inasmuch as $15,592,000 or 77.96 per cent of the capital of the securities company was traceable to earned surplus and undivided profits of the consolidating banks and there had been distributed to the bank’s stockholders certificates of beneficial ownership of the stock of the affiliate, such distribution constituted a dividend of income upon the bank’s stock and that upon a liquidating distribution of the assets of the securities company the life beneficiary was entitled to receive from the trustee 77.96 per cent of same as income.

The subscribers for stock in the consolidating banks agreed that $4,407,700 excess stock subscriptions might be invested in stock of the securities company and it is conceded, inasmuch as that was new money invested as capital, that in the distribution of the assets of the securities company that part of the dividend apportionable to the amount of excess stock subscriptions properly belonged to the corpus of the trusts.

Therefore, the'only question raised by this appeal is whether that portion of the dividend declared upon the assets of the securities company and received by the trustee upon the bank shares held in both the Whiting and Harris trusts, which was proportionate to the $15,592,000 bank surplus invested in the $20,000,000 capital of that company for the benefit of the bank’s stockholders, is to be treated as income which should go to plaintiff, the life tenant of both trusts, or as capital belonging to the corpus of the trusts for the remaindermen.

The guardian ad litem on behalf of the minor defendants contends that although $15,592,000 or 77.96 per cent of the $20,000,000 capital of the securities company was traceable to earned surplus and undivided profits of the consolidating banks, the method by which the securities company was formed and all the circumstances connected with its formation, existence, liquidation and dissolution constituted a capitalization by the bank of such surplus and undivided profits, so that the assets of the securities company comprising the liquidating dividend paid the trustee became part of the corpus of the trusts for the benefit of the remaindermen.

Plaintiff’s theory is that although the directors of the bank with the consent of its stockholders invested the aforementioned sum of $15,592,000 in the capital of the securities company, a distribution was nevertheless later made to the stockholders of the bank, and that since that particular money came from the earned surplus of the banks, such part of the assets of the securities company paid out by way of the dividend in question which was apportionable to this earned surplus put into its capital belongs to the life beneficiary of the trusts because it is a dividend declared upon surplus and earned profits as distinguished from a distribution of capital.

While the conflict over the right to dividends as between a life tenant and a remainderman has given rise to a great diversity of opinion, we think that under the facts of this case no other conclusion can be reasonably reached than that such part of the assets of the securities company paid to the trustee of both the Whiting and Harris trusts upon the dissolution of the affiliate as were proportionate to the $15,592,000 surplus earnings of the constituent banks invested in the capital of such affiliate for the benefit of the bank stockholders, should be considered income belonging to plaintiff, the life tenant.

The Massachusetts rule, which is followed in this State, is that whether a dividend is to be regarded as income and, as such, property of a life tenant, or as capital belonging* to the remainderman, is to be determined by the substance and intent of the corporation as manifested by its vote or resolution. (Minot v. Paine, 99 Mass. 101; Leland v. Hayden, 102 Mass. 542; Rand v. Hubbell, 115 Mass. 461; Lyman v. Pratt, 183 Mass. 58; DeKoven v. Alsop, 205 Ill. 309; Blinn v. Gillett, 208 Ill. 473; Billings v. Warren, 216 Ill. 281; Lloyd v. Lloyd, 341 Ill. 461.)

In Gibbons v. Mahon, 136 U. S. 549, in passing upon the question as to whether a dividend of new shares of stock in a corporation was to be treated as a dividend to which the life tenant was entitled as income or was to be treated as an increase of capital of the trust fund, the Supreme Court of the United States said at pp. 558, 559:

“Money earned by a corporation remains the property of the corporation, and does not become the property of the stockholders, unless and until it is distributed among* them by the corporation. The corporation may treat it and deal with it either as profits of its business, or as an addition to its capital. Acting in good faith and for the best interests of all concerned, the corporation may distribute its earnings at once to the stockholders as income; or it may reserve part of the earnings of a prosperous year to make up for a possible lack of profits in future years; or it may retain portions of its earnings and allow them to accumulate, and then invest them in its own works and plant, so as to secure and increase the permanent value of its property.

“Which of these courses shall be pursued is to be determined by the directors, with due regard to the condition of the company’s property and affairs as a whole; and, unless in case of fraud or bad faith on their part, their discretion in this respect cannot be controlled by the courts. ...

“Reserved and accumulated earnings, so long as they are held and invested by the corporation, being part of its corporate property, it follows that the interest therein, represented by each share, is capital, and not income, of that share, as between the tenant for life and the remainderman, legal or equitable, thereof.

“Whether the gains and profits of a corporation should be so invested and apportioned as to increase the value of each share of stock, for the benefit of all persons interested in it, either for a term of life or of years, or by way of remainder in fee; or should be distributed and paid out as income, to the tenant for life or for years, excluding the remainderman from any participation therein, is a question to be determined by the action of the corporation itself, at such times and in such manner as the fair and honest administration of its whole property and business may require or permit, and by a rule applicable to all holders of like shares of its stock; and cannot, without producing great embarrassment and inconvenience, be left open to be tried and determined by the courts, as often as it may be litigated between persons claiming successive interests under a trust created by the will of a single shareholder, and by a distinct and separate investigation, through a master in chancery or otherwise, of the affairs and accounts of the corporation, as of the dates when the provisions of the will of that shareholder take effect, and with regard to his shares only.

“In ascertaining the rights of such persons, the intention of the testator, so far as manifested by him, must of course control; but when he has given no special direction upon the question as to what shall be considered principal and what income, he must be presinned to have had in view the lawful power of the corporation over the use and apportionment of its earnings, and to have intended that the determination of that question should depend upon the regular action of the corporation with regard to all its shares.

“Therefore, when a distribution of earnings is made by a corporation among its stockholders, the question whether such distribution is an apportionment of additional stock representing capital, or a division of profits and income, depends upon the substance and intent of the action of the corporation, as manifested by its vote or resolution; and ordinarily a dividend declared in stock is to be deemed capital, and a dividend in money is to be deemed income, of each share. ’ ’

The fundamental principle involved is whether there was a distribution of earnings, profits or accumulations as income to the stockholders of the bank. In the instant case $15,592,000 of the $20,000,000 capital of the securities company admittedly represented earnings and undivided profits of the constituent banks available for distribution to the stockholders of same as earned surplus at the time of the consolidation. The very agreements under which the constituent banks were merged contemplated and provided for the withdrawal of this portion of the earned surplus of those banks from the assets of the consolidated bank and for its investment in the capital of the securities company for the benefit of the consolidated bank’s stockholders when the merger was completed. From the moment the bank set apart and transferred the above amount of the surplus of the constituent banks to the affiliate as part of its capital, it was irrevocably segregated from the assets of the bank and beyond the power and control of the bank to recall as part of its assets. If, upon its organization of the securities company and transfer of capital to it as hereinbefore set forth, the bank had caused the affiliate to declare and pay a dividend of its stock pro rata to the stockholders of the bank instead of placing all of such stock in trust for the pro rata benefit of the bank stockholders, there would be no room for serious controversy in this cause. Such a dividend has been conclusively determined to be income belonging to the life tenant. (Old Colony Trust Co. v. Jameson, 256 Mass. 179, 152 N. E. 52; Gray v. Hemenway, 268 Mass. 515, 168 N. E. 102; Lloyd v. Lloyd, supra.)

The capital of the securities company having been segregated must not be confused with the capital assets of the bank, of which they formed no part after such segregation, and it must be borne in mind that it was not beneficial interests in or certificates of beneficial ownership of stock of the bank that were distributed to the bank stockholders preceding the liquidation of the securities company but beneficial interests in and certificates of beneficial ownership of the stock of the affiliate. If the $15,592,000 surplus remained in the bank’s assets and the banking corporation itself was thereafter terminated or dissolved, a different question would be presented. Then would follow a pro rata distribution of the capital of the bank remaining after the payment of its debts, which would, of course, belong to the corpus of the trust estate.

It must be conceded that all that the remaindermen are entitled to have conserved for their benefit under the Whiting and Harris trusts is the corporate property of the bank as represented by the certificates of stock comprising the principal of the respective trusts and any additions thereto by way of dividends of stock of the bank, which in this State have been held to be capital. It is inconceivable how the distribution in question in the case at bar proportionate to the $15,592,000 surplus earnings irrevocably transferred to the securities company as capital could be made the basis of a stock dividend predicated upon an increase of the bank’s capital when such surplus earnings had long since ceased to he assets of either of the constituent banks or the consolidated bank and were not invested in the capital of the affiliate for the bank’s benefit but ivere specifically invested therein as earned surplus of the constituent banks for the benefit of the bank’s stockholders.

Even though when the securities company was incorporated no actual dividend of its stock pro rata to the bank’s stockholders was declared, the declaration of trust of February 27, 1929, in placing all the stock of the affiliate in trust for the bank’s stockholders exclusively as part of the plan of consolidation of the constituent banks, manifested an intention to treat the capital of the affiliate to the extent of $15,592,000 as income. For several years the beneficial interests of the bank’s stockholders in the stock of the securities company were inseparable from their bank stock, but then the bank was compelled by the National Banking Act of 1933 to sever its relations with the securities company. Thereupon the affiliate delivered to the stockholders of the bank, including the trustee of the Whiting and Harris trusts, certificates of beneficial ownership of the stock of the securities company entirely independent of their bank stock. While there was no actual division of the securities company stock, the action of the directors of that company, approved by its stockholders at the instance of the bank, in delivering certificates of beneficial ownership pro rata of the stock of the affiliate was, in our opinion, tantamount to the declaration of a dividend of that stock as income. Finally, in March, 1934, the securities company having passed through several disastrous years of the depression, its officers and stockholders proceeded to take the necessary steps to dissolve it. As a result of its liquidation the trustee of both the Whiting* and Harris trusts, as hereinbefore stated, received $4,450 in cash and 3,033 shares of capital stock of the Chicago Corporation as the proportionate share of each of these trusts in the assets of the securities company, being at the rate of $2 in cash plus one and one-third shares of Chicago Corporation stock for each of the 2,275 shares of bank stock held in each trust. Inasmuch as this distribution, whether we term it an ordinary dividend or a liquidating dividend, was of assets of a corporation whose capital to the extent of 77.96 per cent consisted of earned surplus of the constituent banks irrevocably segregated from the consolidated bank’s assets and not only intended to be but actually invested as income for the use and benefit of the bank’s stockholders, reason and authority preclude its being treated otherwise than as income to the extent of 77.96 per cent. As to the distribution of the beneficial interests in the stock of the affiliate and then of the certificate of beneficial ownership of such stock and as to the ultimate distribution of stock of the Chicago Corporation as part of the assets of the securities company to the bank’s stockholders, the established rule is that when a dividend is declared of stock in other corporations, distribution of such stock in its effect ordinarily is like a cash dividend. (Leland v. Hayden, 102 Mass. 542; Gray v. Hemenway, supra.)

Notwithstanding that the trustees of the securities company stock held same and no actual distribution of that stock was made, we are impelled to hold that the allotment of beneficial interests therein to the bank stockholders, even though inseparable from their bank stock, had the characteristics of a dividend of income to the extent of earned surplus of the constituent banks invested in the capital of the affiliate. When the certificates of beneficial ownership of the stock of the securities company were distributed independently of the bank stock, the characteristics of a dividend of income were even more evident. When the actual dividend was declared and paid we think that beyond question it had the characteristics of a dividend of income to the extent heretofore indicated and as snch should be treated by the trustee of the Whiting and Harris trusts as income.

In Old Colony Trust Co. v. Jameson, supra, shares of common stock of the General Electric Company were held by trustees, the net income to be paid to a life tenant and the corpus to remaindermen. The General Electric Company, which owned all the common stock and 300 shares of the preferred stock of the Electric Bond & Share Company, reorganized by separating from its other assets all of the stock of the Electric Bond & Share Company which it owned and held. Under its plan of reorganization it created a new corporation known as the Electric Bond & Share Securities Corporation, to which it transferred all its stock in the Electric Bond & Share Company and in consideration of such transfer the new corporation issued all its stock pro rata to the holders of the common stock of the General Electric Company. In that case the court was called upon to determine whether the shares of stock of the new corporation distributed to the stockholders of the General Electric Company were to be paid to the life tenants as income or treated as capital and held by the trustees in the corpus of the trust estate. In concluding that the shares of stock of the new corporation received by the trustees must be treated as income, the court said at pp. 182, 183:

“ ‘A simple rule is, to regard cash dividends, however large, as income, and stock dividends, however made, as capital.’ Minot v. Paine, 99 Mass. 101. But as shown by the memorandum of findings and rulings of the judge of probate, the case at bar cannot be distinguished from Gray v. Hemenway, 212 Mass. 239. It is a controlling authority and governs the decision of the case. In Gray v. Hemenway the Delaware, Lackawanna and Western Railroad Company, a Pennsylvania company, invested part of its surplus in the stock of the Lackawanna Railroad Company, a Hew Jersey corporation. The Pennsylvania company declared a dividend payable in the stock of the New Jersey corporation. It was held that the dividend was to be treated as income, following Leland v. Hayden, 102 Mass. 542. Mr. Justice Sheldon, speaking for this court in Gray v. Hemenway, supra, at page 241 said, ‘Here, as in that case, the shares distributed represented an investment of accumulated profits . . .if the directors . . . had sold the shares and divided the proceeds among their stockholders, there could have been no doubt that it was a cash dividend and belonged, as between tenants for life and remaindermen, to the former. ’ The dividend in question, like the dividend in Gray v. Hemenway, was not a stock dividend, properly so called; see Coolidge v. Grant, 251 Mass. 352; ‘It left the corporation the poorer by what was given to the stockholders; it left the proportional interest of each stockholder in the diminished quantum of the corporate property exactly what it had been. ’ Gray v. Hemenway, supra. These dividends of the stock in another corporation were not a distribution of property in dissolution of the corporation, as in Brownell v. Anthony, 189 Mass. 442; neither does the principle established in D’Ooge v. Leeds, 176 Mass. 558, apply. The transaction by which the stock of the Securities Corporation was distributed is to be treated as a cash dividend payable to the life tenant. Leland v. Hayden, supra; Gray v. Hemenway, supra; Gray v. Hemenway, 223 Mass. 293.”

In Gray v. Hemenway, 268 Mass. 515,168 N. E. 102, a railroad company held $58,500,000 of the mortgage bonds of a coal company and voted at a meeting* of its board of managers to adopt a plan whereby the railroad company was to transfer to a securities company, a third corporation, a part of the surplus assets of the railroad company, consisting of the bonds of the coal company heretofore mentioned and the mortgage securing same. The securities company was to issue all its capital stock pro rata to the railroad company’s stockholders in consideration of the bonds and mortgage. This plan was carried out and the resolution of the board of managers of the railroad company stated that the bonds and mortgage were a part of its surplus assets and so charged on its books, leaving a surplus after the transfer of more than $80,000,000. The number of shares of stock of the railroad company and its capital were the same after the transfer of the bonds as before. In its determination of the question as to whether the distribution of the securities company stock was to be treated by a trustee as income for the beneficiaries for life or capital to be held for remaindermen, the court held that the distribution of the stock of the securities company to the stockholders of the railroad company had the characteristics of a dividend of income of the railroad company and as such should be treated by the trustee as income.

In Lloyd v. Lloyd, supra, where the Tribune Company erected a building which when it was no longer needed in its business it sold to a newly organized corporation for 40,600 shares of its stock that were distributed pro rata among the stockholders of the Tribune Company as a dividend from accumulated earnings, pursuant to resolutions by both its stockholders and directors, the stockholders immediately selling the stock under a previous arrangement for $100 a share, it was held that the distribution amounted to one of income and that a stockholder who was a trustee must pay the cash received to the life beneficiary and not to the corpus for the benefit of a remainderman.

From the figures hereinbefore set forth detailing the amount of the capital, surplus and undivided profits of the constituent banks immediately prior to the consolidatioxx and of the consolidated bank when it commenced business March 18,1929, it clearly appears that the investment of $15,592,000 surplus of the constituent banks in the capital of the securities company for the benefit of the bank’s stockholders did not impair the capital of the bank.

Other points have been urged but in the view we take of this cause we do not deem it necessary to discuss them. Upon full consideration of the case, on reason and authority we are of the opinion that the decision of the court below is correct. The decree of the circuit court is affirmed.

Affirmed.

Friend and Scanlan, JJ., concur.