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    Thomas R. Tennant, Appellee, v. Harry Epstein et al., Appellants.
    Gen. No. 8,531.

      Opinion filed May 25, 1933.
    Rehearing denied June 30, 1933.

      Walter Bachrach and Hall & Hulse, for appellants ; Walter Bachrach and Arthur Magid, of counsel.
    Paul Mac (Puffin and Kirkland, Fleming, Green & Martin, for appellee; Paul MacGuffin, J. Fred Reeve and J. B. Martineau, Jr., of counsel.
   Mr. Presiding Justice Wolfe

delivered the opinion of the court.

Harry Epstein, his wife Anna Epstein, and their son Chester Epstein, are the owners of the majority of the shares of the capital stock of the Grayslake Gelatin Company, an Illinois corporation. They and the said Gelatin Company are the appellants herein. The Epsteins are also directors and officers of the corporation. Harry Epstein is the president and treasurer, and Chester Epstein vice president and secretary. Their interests in the corporation and this suit are commutual and they are referred to by counsel on both sides as the “Epsteins” and they will be so designated in this opinion when the name is appropriate. The appellee, Thomas R. Tennant, was the complainant below and he will be so named herein.

During the year 1921, and for 15 years prior thereto, the complainant was the plant manager of the United Chemical and Organic Products Company, manufacturers of glue and gelatin. About three years before 1921, Harry Epstein sold his shares of stock in the latter company, withdrew as its manager, and refrained from the manufacture of gelatin in compliance with his agreement with the said company, not to engage in such business for a period of one year after he sold his stock. During the latter part of 1921, Harry Epstein told the complainant, Thomas R. Tennant, that he desired to go into the business of making gelatin and he wanted the complainant to plan a plant for him and become its manager. Harry Epstein and the complainant discussed the matter on several occasions and eventually with Hamilton Moses, an attorney, who was consulted by them at the suggestion of Harry Epstein.

Mr. Moses, undoubtedly, under an understanding between Harry Epstein and the complainant, was employed by them to draw the documents necessary to express in writing the oral agreements and negotiations between the complainant and Harry Epstein, relative to the new enterprise which they were about to launch. While it is anticipating to some extent a recital of the facts in the case, it is safe to say that it was the purpose of Mr. Moses, as an attorney, to prepare the necessary documents expressing the intentions of the complainant and Harry Epstein concerning the incorporation of the Grayslake Gelatin Company. The document was to state the terms of the employment of the complainant as manager of the new plant, and also the extent and amount of their interests in the new company.

The first document prepared by Mr. Moses was a contract dated December 1, 1921, which was duly signed by the complainant and Harry Epstein. This contract in express terms provided for the incorporation of the Grayslake Gelatin Company; the amount and character of stock to be held in the company by complainant and Harry Epstein; the employment of the complainant as manager of the plant for a period of five years at a monthly salary of $1,000'; also that the complainant should receive 100 shares of common stock of the company at the end of each year during his employment as such manager; that Mr. Moses should draft the by-laws of the company.

Mr. Moses also prepared the statement of incorporation for the organization of the Grayslake Gelatin Company, which statement was signed by the complainant, Harry Epstein and Anna Epstein. By-laws for the company were drafted by Mr. Moses and there was prepared in his office the certificates of shares of stock of the company. The preparing of these various documents, while not on the same date, was in fact the consummation of one transaction and of the common purpose of the parties to provide for and define their interests in the G-rayslake Gelatin Co. The interpretation and construction of these documents are involved in this case.

The complainant testified that he had never met Mr. Moses before December 1, 1921, when he was introduced to him by Harry Epstein in the office of Mr. Moses. The complainant further testified that he was not represented by an attorney when the contract, the statement of incorporation, the by-laws and the certificates of stock were prepared by Mr. Moses; that it was not suggested to him by Mr. Moses nor Harry Epstein that he secure an attorney to represent him; that he had no connection with the preparation of the contract dated December 1, 1921. The complainant now points to this evidence and argues that in the construction of said documents that they should be construed most strongly against Harry Epstein because the words in the documents were used by Mr. Epstein through his attorney, Mr. Moses. It is necessary, therefore, to dispose of this contention of the complainant as a question of fact: “Is the wording of the contract exclusively that of Harry Epstein?”

The testimony of Mr. Moses is in direct conflict with that of the complainant on the point that the complainant never met him before December 1, 1921. Mr. Moses testified that he had a conference with the complainant and Harry Epstein on November 28,1921, from 6 o’clock p. m. to 9:30 p. m., relative to the organ-' ization of the Grayslake Gelatin Company, the appointment of the complainant as its manager and the terms of his employment, and the nature and extent of the interests of the complainant and Harry Epstein in the company. This testimony of Mr. Moses is fully corroborated by the service sheets of his office which were admitted in evidence under the stipulation that they were made in the regular course of business and that the entries thereon are correct. Mr. Moses testified that the contract dated December 1, 1921, was a draft form and executed by complainant and Harry Epstein on December 6, 1921, and the contract delivered on the latter date to the Chicago Title and Trust Company; that he, Harry Epstein and the complainant discussed the provisions of the contract on December 6, 1921, and that changes were made therein. This testimony of Mr. Moses is also corroborated by the said service sheets. Mr. Moses further testified that he gave Harry Epstein the draft of the contract on December 1, 1921, and on December 5, 1921, he rewrote one page of the contract; that 'on December 6, 1921, the contract was changed in one particular at the request of the complainant; that this change in the contract is shown because part of the typewritten contract is single spaced.

The contract contains mutual promises on the part of the parties thereto. The complainant testified that he understood the contract dated December 1, 1921, and that it was in the same form as when he signed it. He signed the statement of incorporation and voted for the by-laws of the company. After considering all of the competent evidence in the record bearing on this question, we have come to the conclusion that the words of the contract, the articles of incorporation, the by-laws and the certificates of shares of stock, are the common language of both of the contracting parties and the contention that if there may be any am. biguity in these documents it should be construed against Harry Epstein, is not sustained by the evidence.

This is a case in chancery and the whole record is brought to this court for review. No question of pleading is involved, except that the complainant assigns as cross error that the chancellor erred in sustaining objections to his petition asking leave to file an amendment to his bill of complaint. The petition was filed after the hearing of the evidence in the case. The amendment was to incorporate in the bill the substance of the complainant’s testimony that Harry Epstein had orally agreed with the complainant before the execution of the contract of December 1, 1921, to retire the preferred stocks out of the profits of the Grayslake Gelatin Company as soon as there was a sufficient surplus to retire the preferred stock. The chancellor- held that the preliminary verbal negotiations and agreements of the complainant and Harry Epstein relative to the formation of the company and the retirement of the preferred stock were merged in the articles of incorporation of the company.

In view of the decision in the case of Cratty v. Peoria Law Library Ass’n, 219 Ill. 516, and Hladovec v. Paul, 222 Ill. 254, we are of the opinion that an agreement of complainant and Harry Epstein (since they were the owners of all of the stock), to retire the preferred stock out of said profits was not illegal; and that such an agreement would be valid independently of the terms of the articles of incorporation. We also note that by clause nine of the contract dated December 1, 1921, the complainant was given the option to purchase from said Harry Epstein an aggregate number of 425 shares of preferred stock of said company, during the term of his employment as manager. The proposed amendment, and the testimony of the complainant in substantiation thereof were to form, according to complainant’s theory, the basis for a provision in the decree directing the Epsteins to retire the preferred stock of the company out of its profits. The retirement of the preferred stock would have resulted in a division of all the profits of the company-in the proportion of one-fourth thereof to the complainant and three-fourths to the Epsteins. . .This result, it is contended by the complainant, was the intention of Harry Epstein and the complainant as shown by their alleged oral agreement. The contention, therefore, is squarely based on the alleged oral agreement. Such a provision in the decree would have been in effect a reformation of the contract dated December 1, 1921, which clearly intended to express in explicit terms all the mutual, oral agreements and understanding of Harry Epstein and the complainant relative to the formation of the G-rayslake Gelatin Company, the employment of the complainant as its manager and the extent and nature of his interest as a stockholder in the corporation.

More than 10 years after the contract was executed the complainant asks a court of equity to insert therein an alleged oral additional agreement made before or at the time the written agreement was signed. Furthermore, it appears from the evidence that during the five years when the complainant was the manager of the plant and a director of the company, the profits of the said company were accumulated before the expiration of the five years to an amount far in excess of the par value of the preferred stock. These facts may not constitute laches on the part of the complainant so that he is estopped to urge the existence of the alleged oral agreement, the Epsteins not having been prejudiced by the complainant’s silence. However, the nonaction of the complainant and the lapse of time, are circumstances which the court takes into consideration in determining, from all the evidence in the case, if the complainant is entitled to an addition, to the contract dated December 1, 1921, on the ground that the Epsteins either fraudulently or by design, or through inadvertence of the parties, the alleged mutual oral agreement was not inserted in the written contract. The making of the alleged oral agreement is denied by Mr. Moses and Harry Epstein.

Contracts reduced to writing, entered into by both parties with regard to that solemnity, should not be lightly disturbed by the'courts; the writing, when executed, becomes the repository of the agreement between the parties. All prior negotiations leading up to the execution of the contract are merged therein and parol evidence is not admissible to explain, contradict, enlarge or modify the writing as it existed when executed. Schweickhardt v. Chessen, 329 Ill. 637. In order to warrant the correction by the courts of a written agreement on the ground of mistake or fraud, the proof must be clear, convincing and satisfactory and that the party seeking the reformation was free from negligence. Schweickhardt v. Chessen, supra; Shelly v. Ersch, 305 Ill. 126. A court of equity proceeds cautiously in granting reformation of a written contract where the alleged error is denied. Hall v. Hubbard, 215 Ala. 653, 112 So. 235. We do not think it was error for the chancellor to deny the petition asking leave to amend the bill.

From what has been said in this opinion we hold as a matter of law that the evidence in the case is not such as to justify this court in granting the complainant any equitable relief predicated on any oral agreement, transaction or circumstance consummated, occurring or contemplated by the parties prior to the execution and not contained in the written document heretofore alluded to.

Independently of the two foregoing contentions of the complainant that the words of the document herein referred to should be most strongly construed against the Epsteins, and that the court shotild read the alleged oral agreement into the said document, the complainant’s claim to equitable relief rests upon the charge that at some time unknown to the complainant, the Epsteins entered into a conspiracy for the purpose of defrauding the complainant of his rights as owner of 500 shares- of the common stock of the Grayslake Gelatin Company, and unlawfully diminishing his rights as a stockholder in the company and defrauding him of his interest of the surplus of the company and also-for the purpose of unlawfully aggrandizing the interest of the Epsteins in the surplus and assets of the company by unfair, inequitable, fraudulent methods and manipulation.

The “fraudulent methods and manipulation” relied upon by the complainant is the charge that the Epsteins, as the owners of the majority of the capital stock of the Grayslake Gelatin Company, and as the directors of the company, brought about and declared a stock dividend distributable equally to the owners of both the preferred and common stock in proportion to their ownership of such shares.

There was a decree in favor of the complainant on the finding of the chancellor that the Epsteins were carrying out an unlawful plan to deprive complainant of his rights as the owner of 500 shares of the common stock of the1 company, and to diminish his rights and interest in the surplus of said company growing out of the ownership of the 500 shares of common stock. The evidence shows that all of the Epsteins took part in declaring the stock dividend and the distribution thereof among the stockholders. The shares of the Grayslake Gelatin Company have no market value. The shares of stock declared and issued as the stock dividend and delivered to the Epsteins are now and have always remained in the possession of the Epsteins as the absolute owners thereof. These facts lead us to the conclusion that the complainant is entitled to the intercession of a court of equity to determine if the aforesaid action of the Epsteins is in fact illegal, although the charge of conspiracy is not supported by the evidence in the case. In other words, a court of equity having jurisdiction of the parties and the subject matter of the suit, and the complainant having, it is charged, sustained an invasion of his legal rights by the joint action ,and mutual co-operation of the Epsteins, it is not essential that the charge of conspiracy be proved to authorize the court to retain jurisdiction of the case. Martin v. Leslie, 93 Ill. App. 44 (12 C. J. 584, secs. 104, 105).

From what has been said it must be clear that the court must now consider the question which is the chief contention between the parties to this suit, as to whether the action of the Epsteins in declaring a stock dividend in favor of-both the preferred and common stockholders was contrary to the legal rights of the complainant. To decide this question there is involved a construction of the articles of incorporation of the Grayslake Gelatin Company, its by-laws, and the certificates of the shares of stock of the company. It must be conceded that the bare, legal question, if preferred stockholders are entitled, to a stock dividend, is not free from difficulty. This is particularly true if there is an increase in the capital stock of the corporation to the amount of the stock, dividend. Thomas Branch & Co. v. Riverside & Dan River Cotton Mills, 139 Va. 291, 123 S. E. 542; also Riverside & Dan River Cotton Mills v. Thomas Branch & Co. 147 Va. 509, 137 S. E. 620.

Before making a statement of facts in the case at bar relative to the situation of the parties as stockholders in the Grayslake Gelatin Company, and the action of the Epsteins increasing the capital stock and declaring the stock dividend, it seems advisable to state two propositions of law which are indisputable.

First: Corporations are creations of statute, having the right to exercise the powers and privileges conferred upon them by law. Stockholders therein have only those rights fixed and defined by statute. Those who become stockholders in a private corporation become such upon the agreement and contract that their investment therein may be handled subject to the exercise of any and all powers conferred upon the corporation by law.” “A part of the stockholders of the corporations involved have no right to manipulate the stock and property under their management and control in violation of the trust reposed in them as stockholders, so that they acquire either an undue advantage or such stock and property on terms other and different from that accorded to minority stockholders who may not have agreed with their plan of management and control.” Voigt v. Remick, 260 Mich. 198, 244 N. W. 446.

Secondly: Under the Constitution of Illinois, Art. XI, sec. 3, each share of stock of a corporation, irrespective of preferential rights, is a unit of voting. People v. Emmerson, 302 Ill. 300. The right of the stockholder to vote and thereby preserve his influence in the methods and policy of the corporation is substantial and of material value to the stockholder. Hayes v. St. Louis Union Trust Co., 317 Mo. 1028, 298 S. W. 91; Luther v. C. J. Luther Co., 118 Wis. 112, 94 N. W. 69; Hammer v. Cash, 172 Wis. 185, 178 N. W. 465.

Furthermore we have come to the conclusion, from the facts in this case, that the Epsteins and the complainant accepted their respective- shares of stock in the Grayslake Gelatin Co. in reliance upon and subject to the articles of incorporation, the by-laws, and the certificates of stock of the company. In these documents is to be found the intention of the parties relative as to their rights, interests and privileges as stockholders of the company. We think the facts and circumstances surrounding the formation of the company, the relation at that time between Harry Epstein and the complainant, and the respective amounts invested by them in the corporate enterprise, justify the view that their intention is to be found in said documents. This conclusion, we believe, finds support in the cases of Cratty v. Peoria Law Library Ass’n, 219 Ill. 516, and Hladovec v. Paul, 222 Ill. 254.

Equity and justice require that we look beyond the articles of incorporation to find the intention and purpose of these parties as stockholders in the Grayslake Gelatin Co. Putnam v. Slayback, 23 F. (2d) 406; Miller v. M. E. Smith Bldg. Co., 118 Neb. 5, 223 N. W. 277. We are aware of cases holding that a by-law of a corporation in conflict with the terms of the articles of incorporation, is invalid. However, any alleged invalidity in this respect in this case should not be permitted to thwart the intention of the individual parties, nor prevent the court from placing itself in the position of the parties and having the benefit of the light which the relation of the parties, the circumstances and facts attending the formation of the company, and the subsequent action of the parties, shed on the question of their aforesaid intention. People ex rel. Wallace v. Sterling Burial Case Mfg. Co., 82 Ill. 457. Nevertheless, we are bound in such inquiry by the terms of the documents wherein the intention of the parties is expressed, and the implications which may be clearly drawn therefrom.

The term “preferred stock” has no fixed and definite meaning, but the rights of a preferred stockholder are to be determined by the rights, powers and privileges accorded to him by the contract under which it is issued, the statutory provisions, if any, and the inherent rights of stock ownership. Heller v. National Marine Bank, 89 Md. 602, 73 Am. St. Rep. 212.

We have read many of the cases cited by counsel on both sides of the case in their extensive and carefully prepared briefs. They have been of great assistance to this court in its attempt to arrive at a correct solution of this question, which is not without its complexities and which has never been passed upon by reported cases in all its phases, ramifications and implications. The rule that the rights of a preferred stockholder are contractual in nature, precludes the establishment of any criterion which would be decisive of the determination of the absolute question if a preferred stockholder is entitled to a duly declared stock dividend. This is quite apparent from the case of Thomas Branch & Co. v. Riverside & Dan River Cotton Mills to which attention has already been directed to show that the -problem is to be solved by a close observance of the terms of the preferred stockholder’s contract and at the same time safeguarding his rights which he, as a stockholder, has in the corporation and which are granted to him by statute and the general law governing stock ownership.

Both in principle and as a corollary from his voting right, a preferred stockholder is entitled to a maintenance of his proportionate interest in the corporation. The doctrine that a stockholder is entitled to a continuance of his proportionate interest in the corporation is one of the reasons for the rule that a stockholder, unless restricted by his contract, and regardless of his preferential rights, has the pre-emptive right to subscribe for new shares of the corporation upon the increase of its capital stock. Crosby v. Stratton, 17 Colo. App. 212, 68 Pac. 130; Luther v. C. J. Luther Co., 118 Wis. 112, 94 N. W. 69; Jones v. Concord & M. R. R., 67 N. H. 119, 38 Atl. 120; Gray v. Portland Bank, 3 Mass. 364, 3 Am. Dec. 156; Humboldt Driving Park Ass’n v. Stevens, 34 Neb. 528, 52 N. W. 568; Meredith v. New Jersey Zinc & Iron Co., 55 N. J. Eq. 211, 37 Atl. 539; Reese v. Montgomery County Bank, 31 Pa. 78, 72 Am. Dec. 726; DeKoven v. Alsop, 205 Ill. 309. A by-law of the Grayslake Gelatin Co. gives the stockholders, without discrimination, the right to subscribe at no less than par, in proportion to their shareholding, for new shares issued on an increase of the capital stock of the company.

The right of a stockholder to maintain his proportionate interest in the corporation and a control over its affairs by his vote and influence is particularly valuable in a corporation where there are few stockholders and mutual confidence was reposed at the time of organization. Humboldt Driving Park Ass’n v. Stevens, supra; Way v. American Grease Co., 60 N. J. Eq. 263, 47 Atl. 44; Gray v. Portland Bank, supra; Stokes v. Continental Trust Co., 186 N. Y. 285, 78 N. E. 1090; Page v. American & British Mfg. Co., 113 N. Y. S. 734; Page v. Whittenton Mfg. Co., 211 Mass. 424, 97 N. E. 1006.

Unless his right is limited by his contract, a preferred stockholder shares, pro rata, with the common stockholders in the distribution of the assets of a liquidating corporation, after the payment of its debts. Continental Ins. Co. v. United States, 259 U. S. 156, 66 L. Ed. 871, 888; Thomas Branch & Co. v. Riverside & Dan River Cotton Mills, supra; McGregor v. Home Ins. Co. of Newark, 33 N. J. Eq. 181; Clarke v. Armstrong, 151 Ga. 105, 106 S. E. 289. This right of the preferred stockholder is not to be limited or enlarged by implication from his contract unless such implication is to be clearly drawn from the terms of his contract. Thus in Continental Ins. Co. v. United States, supra, it is held that stockholders, common and preferred, share alike in the assets of the corporation upon dissolution, if the preference is only as to dividends. We have also come to the conclusion that if a preferred stockholder is given a preference in its assets upon dissolution of the corporation, such preference does not impair his right to an equal distribution of such assets as remain after satisfaction of his preference, unless such preference is expressly, or by clear implication, exclusive of Ms right to so share equally in such surplus assets. Williams v. Renshaw, 220 N. Y. S. 532.

We pause at this time to point out that the ease of Niles v. Ludlow Valve Mfg. Co., as reported in 196 Fed. 994, is not contrary to this view. In that case the question was whether preferred stockholders, “as to capital as well as dividends” were entitled to receive a stock dividend declared out of a surplus being the accumulation of annual profits. It was held that the stock dividend was distributable to the common stockholders only, the corporation retaining sufficient property to pay the principal of its capital stock of both classes in full in case of dissolution. The dividend payable to preferred- stockholders in the Niles case was designated as “interest or dividends” and the court inferred from the word “interest,” and from a history of the corporation, that the preferred stockholders were making investments of $100 for each preferred share procured by them. Also in the Niles case the preferred stockholders, under New Jersey statute, were exempted from personal liability for the debts of the corporation. In Continental Ins. Co. v. United States, supra, and In re Clark’s Will, 226 N. Y. S. 141, it is held that surplus of a corporation representing accumulated earnings and profits become capital assets upon dissolution. The opinion expressed in the conclusion of the Niles case that the preferred stockholders in that case had no rights in capital except to the extent of 100 cents on the dollar of their stock, can be warranted only on the ground that the court was of the opinion that the preference given to the preferred stockholders was exclusive and negatived their right to an equal share of capital assets on dissolution.

In the Niles case it is stated' that underlying the surface of the question of the right of a preferred stockholder to a stock dividend are Ms rights upon dissolution of the corporation. To the same effect are the cases of Thomas Branch & Co. v. Riverside & Dan River Cotton Mills, supra, and by analogy, Continental Ins. Co. v. United States, supra. There should be consistency between the preferred stockholders’ rights while the corporation is a going concern and their rights in the dissolution of the corporation. '

When it is the intention of persons forming a corporation to restrict the right of a preferred stockholder to share equally in the capital assets on dissolution, it is customary to use appropriate terms to do so. The restriction must be stated in some form before the implication may be drawn that the preference given to preferred stockholders in the capital assets upon dissolution is exclusive of further participation. Williams v. Renshaw, supra; Murphy v. Richardson Dry Goods Co., 326 Mo. 1, 31 S. W. (2d) 72. Different language is used to make clear this restriction, as, “no further dividends or distribution.” Russell v. American Gas and Electric Co., 136 N. Y. S. 602; “the common stock is entitled to the total assets.” National Bank of Union Point v. Amoss, 144 Ga. 425, 87 S. E. 406. The terms “redeemed in full at par” have been held to negative any further participation in capital assets. Williams v. Renshaw, supra; Murphy v. Richardson Dry Goods Co., supra.

From the cases heretofore cited we have come to the conclusion that the fact that preferred stockholders are given a preference, upon dissolution, to the repayment of the amount of stock held by them, does not necessarily preclude them from sharing in a surplus existing thereafter. Re Espuela Land and Cattle Co. (1909), 2 Ch. 187, 101 L. T. N. S. 13, 78 L. J. Ch. N. S. 729, 16 Manson, 251; Re Fraser & Chalmers (1919), 2 Ch. 114, 88 L. J. Ch. N. S. 343, 121 L. T. N. 232, 35 Times L. R. 484, 63 Sol. Jo. 500 (1918-1919), H. B. R. 186; Callaroy Co., Ltd. v. Giffard (1928), Ch. 144.

In the Callaroy case, supra, Astbnry, J. quoted the following by Sargent, J., in the National Telephone case: “It appears to me that the weight of authority is in favor of the view that, either with regard to dividend or regard to the rights in a winding up, the express gift or attachment of preferential rights to Preference shares, on their creation, is prima facie, a definition of the whole of their rights in that respect, and negatives any further or other right to which, but for the specified rights, they would have been entitled.” Judge Astbury continues: “Now in the report I am made to dissent from that. I have now come to the conclusion and I desire to express it plainly that I was wrong in so dissenting. The passage I have just read is right, because it states that 1 the express gift or attachment of preferential rights, etc.’ is prima facie a definition of the whole of their rights. I may add that in ordinary cases there must be a context. Sargent, J. is dealing with a prima facie effect, but in ordinary cases there is a context. ... Of course, if the language used is capable of being construed as an exhaustive delimination of the whole right, I agree with Sargent, J.” . . . “The construction of this contract is by no means easy but, having given the best attention I can to the authorities, I have come to the conclusion that on its true construction there is one provision and one provision only as to Preference shares. The right conferred upon them is referred to as “the” right, and I cannot find any of the distinguishing features of the Espuela case; In re Fraser and Chalmers; or the Anglo-French Music case, which enabled the courts there to construe the contracts as limited to priority and not as exhaustive deliminations of rights.”

Counsel in this case have called our attention to the case of In re John Dry Steam Tugs, Ltd. (1932), 1 Ch. 594, and decided February 16, 1932. That case fully sustains the conclusion of this court that a preference given to stockholders as to dividends and a preference given them on dissolution does not negative their rights to share equally in surplus assets upon dissolution, after the payment of preferred stockholders, unless such preference, as to priority on dissolution, expressly or by clear implication excludes such equal distribution. In the latter case it is said: “The company is in voluntary liquidation, and the question is whether Art. 5 is exhaustive of the rights attached to the preference shares or whether it is expressive only of certain rights they are to enjoy over and above their rights as contributories.' . . . The first two paragraphs of the article relate to different stages in the company’s history — the one regards it as a going concern, the other as in the course of liquidation. Accordingly the one provides for the share of profits to be assigned to the preference shareholders, during the profit earning period of the company’s existence, and the other determines how the capital is to be repaid when the winding-up supervenes. Nothing is said as to the distribution of any assets still-remaining for distribution after the capital has been repaid, but in the absence of any provision to the contrary these assets — the joint result produced by the employment of capital contributed by the two classes of shareholders — ought to be shared by all the contributories.”

In the John Dry ■ Steam, Tugs case the articles of association granted the preference shareholders the right to participate in profits over and above their fixed cumulative dividend; and “shall in a winding-up have priority both as to cumulative dividend and return of capital over all other shares. ’ ’ The opinion proceeds: “The same question with which I have to deal has been raised in several cases, and in many of them the provisions relating to the rights of the preference shares have been examined with meticulous care: Callaroy Co. v. Giffard (1926), 1 Ch. 144. Speaking generally, the question has resolved itself into one of construction, namely, whether the memorandum and articles contain an exhaustive delimination of the rights of the preference shareholders. I do not think it would serve any good purpose were I to examine the cases with a view to extracting from them the various indicia which have been taken hold of as establishing the existence of the exhaustive delimination. . . . The features I refer to are: (1) The right of the preference shareholders to participate in profits over and above their fixed cumulative dividend; and (2) the right of priority in the repayment of capital. But there is authority for saying that neither of these features is sufficient to exclude the preference shareholders from participating in the ultimate surplus assets: Anglo-French Music Co., Ltd. v. Nicoll (1921), 1 Ch. 386; In re Espuela Land & Cattle Co. (1909), 2 Ch. 187; and In re Fraser S Chalmers, Ltd. (1919), 2 Ch. 114; and in the absence of any indication in the contract between the ordinary and preference shareholders that the latter were abandoning any of their rights as contributories, 1 am bound to hold that in this case the surplus assets must be distributed amongst all the shareholders.”

The Grayslake Gelatin Company was organized under the laws of Illinois, on March 21,1922. At the time of its organization, and until April 2, 1929, the corporation had a total authorized and outstanding fully paid capital stock of $160,000 consisting of 2,000 shares of common stock of the par value of $5 per share, and 30,000 shares of preferred stock of the value of $5 per share. The first board of directors consisted of Harry Epstein, Anna Epstein, and the complainant. On March 24, 1922, at its first meeting (all aforesaid directors being present), said board by unanimous vote accepted and adopted a set of by-laws of and for the corporation. The complainant, as a member of said board, voted in favor of the adoption and acceptance of all of said by-laws and signed the minutes of said meeting at which the said by-laws were adopted and accepted.

Harry Epstein is a stockholder, a director and the president of the corporation. Anna Epstein is a stockholder and director of said corporation. Chester H. Epstein is a stockholder, a director and secretary of the corporation. Between the date of the organization of the corporation and March 23, 1929, the Epsteins were the owners of 28,000 shares of the preferred stock and 1,500 shares of the common stock of the corporation and the complainant was the owner of 2,000 shares of the preferred stock and 500 shares of the common stock of the corporation. Since January 1, 1929, the Epsteins have been the sole directors of the corporation, and there are no other stockholders of the corporation except the Epsteins and complainant.

The articles of incorporation provide: “The preferred stock shall be seven per cent cumulative divi: dend preferred and shall be a first lien on the assets of the company in the event of its dissolution, over the common stock of said company, and shall be entitled to a payment of a seven per cent cumulative dividend annually before any dividend shall be declared and paid upon the common stock of the company.”

The by-laws of the corporation provide: “Article II, Sec. 1. The capital stock of this corporation shall consist of thirty thousand shares of preferred capital stock, of the par value of five dollars each and two thousand shares of common capital stock, of the par value of five dollars each.” “Preferred Stock. Sec. 2. The preferred stock shall be seven per cent cumulative dividend preferred, and shall be a first lien on the assets of the company in the event of its dissolution over the common stock of said company, and shall be entitled to the payment of a seven per cent cumulative dividend annually before any dividend shall be declared and paid upon the common stock of the company.” “Increase. Sec. 3. Should the capital stock of the company at any time be increased such increase shall be offered to, and may be subscribed to by the then existing shareholders in proportion to their share holdings at that time at not less than par.” “The certificates, both the common and preferred stock of the corporation, provide: ‘The holders of the preferred stock shall receive from the surplus or net earnings of the corporation dividends at the rate of seven per cent (7%) per annum on the par value of such stock, and no more, payable quarterly. Such dividends shall be cumulative and as often as any such dividends shall have accrued and remain unpaid, no dividends shall be paid to the holders of the common stock of the corporation. In the event of any liquidation, dissolution or winding up, whether voluntary or involuntary, of the corporation, the holders of the preferred stock shall be paid the par value of their shares and all dividends accrued thereon, before any payment or distribution shall be made to the holders of the common stock. ’ ”

From the date of the organization of the corporation on March 21, 1921, the corporation, by vote of its directors, paid to the holders of the preferred stock cash dividends at the rate of seven per cent per annum, amounting to seven cash dividends, totaling $73,500.

On January 22, 1927, there was placed on the desk of the complainant a letter stating as follows: “This is to inform you that your employment contract with the Grayslake Gelatin Company, dated March 24, 1922, and expiring March 24, 1927, will not be renewed. ’ ’

On April 2, 1929, at a special meeting of the stockholders of the corporation, a resolution was passed increasing the capital stock from $160,000 (consisting of 30,000 shares of preferred stock of the par value of $5 each and 2,000 shares of common stock of the par value of $5 each) to $510,000 (consisting of 30,000 shares of preferred stock of the par value of $5, and 72.000 shares of common stock of the value of $5 each). The individual defendants voted 28,500 shares in favor of the resolution and the complainant voted 2,500 shares against it.

On April 23, 1929, a cash dividend of 49 per cent was declared on the common shares, and on April 29, 1929, said cash dividend of 49 per cent was paid to the holders of the common stock, complainant receiving $1,225 and the individual defendants together receiving $3,675. No other cash dividends on common stock were paid.

On May 21, 1929, at a special meeting of the board* of directors, a stock dividend in the form of 32,000 shares of common stock of the par value of $5 each, fully paid and nonassessable, was declared to the holders of record of the preferred and common stock and outstanding on March 23, 1929, in proportion to their share holdings at that date, that is to say: One common share for each preferred and common share held of record by said stockholders on said date. The stock dividend was made payable on May 22, 1929. At said special meeting of the board on May 21, 1929, there was transferred from the surplus or net earnings of the corporation $160,000 in full payment of the said 32.000 shares of common stock at the par value. The surplus on that date was approximately $321,408.55.

' On May 22, 1929, Chester H. Epstein, as secretary of the corporation, served upon the complainant a written notice informing him of the aforesaid action of the board on May 21, 1929, and delivered to complainant a certificate for 2,500 shares of the common stock of the corporation, fully paid and nonassessable. These shares of common stock are held by the attorney for the complainant to await the result of this suit. It is not contended that the complainant has in any manner waived his -rights by the acceptance of the said shares of stock.

On May 22, 1929, there were issued and delivered to the Epsteins as stockholders of the corporation, certificates for 29,500 shares of the common stock of the corporation of the par value of $5 each, fully paid and nonassessable.

The surplus of the company, before the increase of its capital stock, belonged to the corporation and.it was available for distribution to the common stockholders as cash dividends. By the action of the board of directors of the company, and the processes of the increase of the capital stock of the company and of the stock dividend, the surplus, was effectually and irrevocably dedicated to corporate uses and became “capital” of the company and it ceased to be available, under the control of the directors of the company to be distributed as they saw fit. People of Colorado ex rel. Fraser v. Great Western Sugar Co., 29 F. (2d) 810; Collins v. Portland Electric Power Co., 7 F. (2d) 221; Gibbons v. Mahon, 136 U. S. 549, 34 L. Ed. 525; Stamford Trust Co. v. Yale & Towne Mfg. Co., 83 Conn. 43, 75 Atl. 90. The distribution of surplus of a corporation rests in the discretion of its directors. Collins v. Portland Electric Power Co., supra; Robertson v. H. E. Bucklen & Co., 107 Ill. App. 369; Long v. Rike, 50 F. (2d) 124 (certiorari denied 284 U. S. 657).

The complainant lays great stress on the words of the certificates of stock stating that the preferred stockholders shall receive from the surplus or net earnings of the corporation dividends at the rate of seven per cent per annum on the par value of such stock, “and no more.” It is contended by the complainant that the words “no more” bar the preferred stockholders from receiving any stock dividends. In view of what has already been said herein, we do not think it can be contended that these words limiting the dividends of the preferred stockholders in the going concern, impair their rights to share equally in the assets of the company on dissolution. Nor that such words limit the right of the preferred stockholders to maintain their' proportionate interest in the corporation, or the right to subscribe for new shares of stock issued upon increase of capital stock. We find nothing in the other documents limiting such rights of the preferred stockholders to surplus assets on dissolution.

From all of the facts and circumstances presented in this record it shows that the surplus of the company was to a considerable extent the joint result of the money and labor of the respective parties to this litigation. The question presented to us is the legality of the distribution of the stock dividend.

We are of the opinion, and so hold, that the stock dividend was legally distributed to all of the shareholders of stock in proportion to their share holdings. Therefore, for the reasons herein stated, the decree of the circuit court of Lake county is hereby reversed.

Reversed.


source: Caselaw Access Project

author: Mr. Presiding Justice Wolee

license: Public Domain

text:
    Ella Hunt, Appellee, v. Frank Green, Receiver of the United States Bank of Crystal Lake, Illinois, by Appointment of Oscar Nelson, State Auditor of Public Accounts of the State of Illinois, Appellant.
    Gen. No. 8,580.

      Opinion filed May 25, 1933.
    McKenna & Harris, for appellant; James J. Mc-Kenna and Henry H. Koven, of counsel.
    Joslyn & Joslyn, for appellee.
   Mr. Presiding Justice Wolee

delivered the opinion of the court.

The appellee, Ella Hunt, started a suit in replevin against Frank J. Green as receiver of the United States Bank of Crystal Lake, Illinois, to recover possession of a certain promissory note. The note is for the sum of $5,000, dated February 18, 1930, and due one year after date. The note was executed by one Art Wilbrandt, payable to the order of himself and by himself indorsed. The declaration charges that said defendant wrongfully and unjustly retained and refused to turn over to Ella Hunt, appellee, the said note. There is a second count in the declaration which is one in trover for the unlawful conversion of the note in question. To the declaration the appellant filed a plea denying the unlawful taking and detention, and the unlawful conversion of the property and pleading property in the defendant.

At the trial of the case the court found the defendant guilty and found the property in the plaintiff and assessed her damages at one cent. The court entered judgment in accordance with this finding. The defendant prayed for, and now prosecutes an appeal to this court.

For a period of about nine years, one Lynn Richards had been connected with the United States Bank of Crystal Lake, Illinois, in different capacities. For the last few years he had been the acting cashier of said bank. In February, 1930, he was also acting as administrator of the estate of Elmer McQ-oon, having been so appointed on June 11, 1928. The said Lynn Richards was administrator of the estate of Marcia A. Adriance, known as the Adriance estate. At the time of the trial of this case, Lynn Richards had died. The record discloses that on April 23, 1930, he had brought into the appellant bank a note for $5,000, executed by Art Wilbrandt, due one year after February 18, 1930. This note was discounted by the bank and the proceeds of the same was credited to the account of Lynn Richards, administrator of the Adriance estate. The note remained in the possession of the bank as owner thereof until May 8, 1930, when the bank sold the note to what is known as the Rupert estate, for the sum of $5,012.30, this being the face value of the note and the accrued interest.

The record further discloses that on June 7, 1930, the appellant bank again became the owner of the note by purchase from Lynn Richards. The note then remained in the possession of the appellant bank until after it was closed by the auditor of public accounts and a receiver appointed, from whom it was replevined by the appellee.

The appellee was the sole and only heir of Elmer McGoon, deceased. She sold a farm inherited by her from the said Elmer McGoon, to Art Wilbrandt and Tillie Wilbrandt and conveyed the same by warranty deed. A part of the proceeds received from this sale of said farm was paid to Lynn Richards, as administrator of said estate. Ella Hunt and P. J. Hunt, her husband, agreed to accept the note of Art Wilbrandt for $5,000 as part payment of the purchase of said farm. Art Wilbrandt executed a note for $5,000 indorsed in blank and delivered it to Lynn Richards. The money realized in cash from the sale of the farm was insufficient to pay all the debts and costs of the Elmer McGoon estate and the appellee and her husband arranged with Lynn Richards, the cashier of the United States Bank of Crystal Lake, to borrow sufficient money from the bank to pay all the debts and costs of administration in the estate of Elmer McGoon, deceased.

It was agreed that the $5,000 note should be held by the United States Bank at Crystal Lake as collateral security for the loan. This $5,000 note came into the possession of the appellant bank on April 23, 1930, apparently being sold to it by its cashier, Lynn Richards. The deposit slip covering this transaction is in the handwriting of Lynn Richards. The note left the bank on June 7, 1930, and again came into the bank’s possession. The deposit slip covering this transaction is also in the handwriting of Lynn Richards. Since the commencement of this suit the Art Wilbrandt note has been paid, together with the interest thereon, and the proceeds deposited in the State Bank of Woodstock, Illinois, with the agreement that, if in the present snit the appellee was found to be the owner of the Wilbrandt note, the $5,000 note of the appellee and the appellant bank was to be paid from this deposit. It was also stipulated between the parties that the appellant claimed to be the owner of the note, not as collateral but as the property of the United States Bank of Crystal Lake.

It is the contention of the appellee that she is entitled to the note in question, and therefore, had the right to maintain her action of replevin. Also that the question of the note being held by the defendant as collateral was eliminated by agreement of the parties.

The first question raised by the defendant relates to the ownership of the note, and the right of the plaintiff to maintain her suit in replevin. The evidence shows that Ella Hunt was a sister and only heir at law of her brother Elmer McG-oon. The general rule is that the title to real estate descends to the heir and is immediately vested, but is defeasible'and liable to be defeated by the sale made by the administrator of the estate to pay debts. The title to the real estate of Elmer McG-oon descended to the appellee, subject only to the debts of her brother. The real estate belonging to the estate of Elmer McGoon was sold to Art Wilbrandt. The deed to the same was executed by Ella Hunt and P. P. Hunt, her husband. The note which is the subject matter of this suit was executed by Art Wilbrandt and taken as part payment for said real estate. Ella Hunt received the proceeds of the sale of the property and turned over such part as was necessary to pay the debts and costs of administration, etc., to Lynn Eichards, administrator.- The testimony shows that there was not sufficient cash to pay all of the debts and costs of administration in the McGoon estate, so that Ella Hunt gave her note payable to the United States Bank at Crystal Lake, for the sum of $500' in order to raise sufficient cash for said payments.

Appellee contends, and we think that the claim is fully supported by the facts, that the $5,000 note was to be held by the bank as collateral for the payment of the $500 note, and that the evidence fully sustains the contention of the appellee that she was the owner of the note in question.

One of the defenses interposed by the appellant in the case is that the bank was the holder of the note in due course. A holder in due course is one who has taken the instrument under the following conditions: That the instrument is complete and regular upon its face; that it became the holder of it before it became overdue, or without notice that it had previously been dishonored, if such was the fact; that he took it in good faith and for value; that at the time it was negotiated to him he had no notice of any informality in the instrument or defect in the title or the person negotiating it.

The appellant and the appellee differ upon the question as to who has the burden of proof to show that the bank was the holder of the note in due course. Where the title of any person who has negotiated an instrument was defective, the burden is on the holder to prove that he or some person under whom he claims to have acquired the title is a holder in due course. It is our opinion that if the appellee had proven the ownership of the note, that she had not authorized its sale or transfer, then the burden of proof was cast upon the appellant to prove that he was the holder of the note in due course of business; and this he has failed to do.

We think that it is proper to take into consideration in determining this question, the manner in which the note was handled. It apparently was sold to the bank and got out of the possession of the bank, and was again returned to the bank and found in its possession. That this was known to the bank, or by its managing representative, its cashier, Lynn Eichards. The cashier of a bank is a general agent for the transaction of the business of the bank. Pfeffer v. Farmers State Bank of Schaumburg, 263 Ill. App. 360; Hansel v. First Nat. Bank of Mansfield, 158 Ill. App. 127. The information, therefore, of Lynn Eichards, the cashier, was the information of the bank.

It is the contention of the appellant that, although the United States Bank of Crystal Lake may not successfully contend that it was the owner and holder in due course of the note in question, the receiver of the bank stands in a different position from the bank. For the purpose of marshaling the assets of the bank for the benefit of its creditors, and, in law, the receiver is an innocent holder of such assets. He cites several cases to support this contention, but an examination of all the cases cited shows that negotiable paper of some kind had been given to the bank for the purpose of bolstering up its assets, or to assist in making it appear to be a going concern, so that a fraud or deception is worked by a bank on depositors or the public generally, and in such cases the courts have uniformly held that the maker of such notes is estopped from denying the validity of the same, and the receiver of the insolvent bank holds the assets as an innocent holder for value. Such is not the fact in this case. Mrs. Hunt, the owner of the note in question, did nothing that could be criticized as being fraudulent as against anyone. Her dealings were open and above board and perfectly legitimate. The receiver holds the property coming into his hands only by the same right of title as the person for whose property he is the receiver, subject, however, to liens, equities, etc. existing at the time of his appointment.

By the stipulation entered into between the parties to the suit at the time of the hearing, the appellant'is not now in a position to raise the question that the note was delivered to the bank as collateral, and therefore, appellee could not recover. Also, it is our opinion that the doctrine of where one of two innocent parties in the case must suffer, the one who puts it in the power of a third party to commit the act causing it must bear the loss, is not applicable. As above stated the knowledge of the cashier was knowledge to the bank, and the bank took the note knowing its defects.

We think the trial court properly found that the note in question was the property of Ella Hunt, the appellee, and that the United States Bank of Crystal Lake, the appellant, was not the holder of the same in due course. The judgment of the circuit court of McHenry county should be and is hereby affirmed.

Judgment affirmed.


text:
    Florence A. Engstrom and Maria G. Engstrom, Plaintiffs in Error, v. City of Rockford and Arthur E. Rutledge, Defendants in Error.
    Gen. No. 8,601.

      Opinion filed May 25, 1933.
    Rehearing denied June 21, 1933.
    C. A. Pedderson, for plaintiffs in error.
    A. Philip Smith, David D. Madden and Wilbur E. Johnson, for defendants in error.
   Mr. Presiding Justice Wolee

delivered the opinion of the court.

Florence A. Engstrom and Maria Gr. Engstrom are the owners of certain real estate located in the City of Rockford, Winnebago county, State of Illinois. They filed their bill of complaint in the circuit court of Winnebago county to the chancery side thereof to the January Term, 1932. The said bill prayed for a temporary injunction to restrain the City of Rockford and Arthur E. Rutledge from in any way interfering with their said real estate, description of which was set forth in full in their bill of complaint. The bill prayed for a restraining order to prevent the defendants from removing certain steps, buttresses, appurtenances and canopies from the complainants’ property. A temporary injunction was granted by the court after the complainant had filed a bond in the sum of $500, which bond was approved by the court.

The defendants entered a motion to dismiss the temporary injunction for the reason that there was not a proper bond filed. This motion coming on for a hearing, plaintiffs asked leave and were granted permission to file a new bond. The new bond was filed, and the motion to dissolve the temporary injunction was again filed. The answer to the new bill set up the location of the entrances, steps, approaches and canopies. After this the plaintiffs in error were granted leave to file an amendment to said bill, and the defendants in error filed an amended answer thereto. The matter was heard upon the motion to dissolve the temporary injunction and the court ordered that said temporary injunction be dissolved and the bill dismissed for want of equity.

Suggestion of damages was filed by the defendant, Arthur E. Rutledge, and the case came on for a further hearing before the court upon the damage because the complainant had procured said temporary injunction. The court awarded and entered judgments against the complainants and also against the sureties on the bond, Hugh T. Brown and E. W. Engstrom, for $300 for solicitor’s fees, for procuring the dissolution of the temporary injunction. To the entering of this decree the defendants (the complainants below) excepted and prayed an appeal to the Appellate Court of the Second District of the State of Illinois. Instead of perfecting their appeal a writ of error was sued out and the case is in this court to be heard on a writ of error brought here by the original complainants.

Many reasons are assigned by the plaintiffs in error for a reversal of this judgment. The principal and main argument presented by the plaintiffs in error in this case, is: that the court heard the case on its merits and dismissed the appeal, and for this reason it was error for the court to allow any solicitor’s fees for the defendants.

There is no certificate of evidence filed in this case, so the only thing that is presented to this court is the sufficiency of the decree and it must speak for itself. If there is no certificate of evidence in the record of a chancery cause, the Appellate Court can only consider those matters which appear from the pleadings and orders, and the decree of court. Perrine v. Reed, 155 Ill. App. 213.

It is the contention of the plaintiffs in error that the court allowed the solicitor’s fees for the defendants on a hearing on the motion to dissolve the temporary injunction. This we think is the correct rule. In the case of Marks v. Columbia Yacht Club, 219 Ill. 417, 419, the court clearly states the rule as follows:

“The allowance of these damages for service rendered in obtaining the dissolution of the temporary injunction is governed by section 12 of chapter 69. (Hurd’s Stat. 1903, p. 1042.) This section has been upon the statute books for .over a quarter of a century and has been before this court for construction on many different occasions. One of the latest cases is that of Landis v. Wolf, 206 Ill. 392, where we reviewed our former decisions and held that solicitors’ fees which are necessarily incurred in procuring the dissolution of an injunction may be allowed as damages, but that where an injunction is merely ancillary to the principal relief sought by the bill and its dissolution is only incidental to the defense made and the counsel fees are incurred in defending the suit generally or in the management of some other branch of the case, they cannot be assessed as damages. The damages allowed by the statute are only those sustained by reason of an improper and wrongful suing out of the injunction, and the solicitors’ fees can only extend to the motion to dissolve! It makes no difference whether there was a demurrer interposed or not, or that the knowledge about the case gained upon the hearing of the motion to dissolve was subsequently used upon the trial of the case on its merits. If the injunction is the primary object of the suit and a motion is made to dissolve, counsel will be entitled to a reasonable fee based upon the labor performed in the attempt to dissolve.”

The court in its final decree found, among other things, as follows: “The court doth further find that afterwards, there was a hearing upon said motion to dissolve said temporary injunction and upon the merits at which, evidence was introduced, both oral and documentary, and at which there were arguments of counsel, and the court was fully advised in the premises, and that thereupon this court entered an order dissolving said temporary injunction and that thereupon there was filed in this court a suggestion of damages by the said Arthur E. Rutledge, caused to him by the wrongful suing out of said temporary injunction and that the hearing upon said suggestion of damages was continued until the further order of this court. ’ ’

The court further found that the hearing had on this suggestion of damages was continued from time to time until August 3,1932, at which time the different parties to the suit were attended by their respective attorneys. And the order further recites: “And the court having considered the evidence introduced upon the hearing, both oral and documentary, and the arguments of counsel, and being fully advised doth find therefrom that the said Arthur E. Rutledge was one of the defendants in said original bill; that he was restrained by the temporary injunction of this court from in any manner going upon, trespassing, removing, or destroying the steps, canopies, approaches or entrances” to certain buildings, etc. It will thus be seen that the decree recites that the court heard the evidence and was fully advised before making his decision, and where it appears by the decree that proof is heard in open court, such findings will be presumed to be correct. Geffinger v. Klewer, 227 Ill. 598.

An examination of the decree also discloses that the court found that the defendants employed counsel to represent them and were actually represented at the hearing on the motion to dissolve the temporary injunction. When it appears from the record that the court heard proof and the decree recites that certain facts appeared to the court but the evidence is not preserved in the record, the presumption is that the court found such facts from the evidence that was heard before him. So in this case this court will presume that the findings of fact in the decree are correct and are supported by the evidence as heard by the trial court.

We are of the opinion that the order of the chancellor in assessing the damage to be allowed to the defendants in their suit to dissolve the temporary injunction should be and is hereby affirmed.

Judgment affirmed.


author: Mr. Presiding Justice Wolfe

text:
    First National Bank of Kirkwood, Illinois, Appellant, v. Marcellus Galbraith et al., Appellees.
    Gen. No. 8,626.

      Opinion filed May 25, 1933.
    Rehearing denied July 6, 1933.
    Safford & Soule and R. B. 0 ’Habra, for appellant.
    John J. Kritzer, James W. Clendenin and Scofield & Bell, for appellees.
   Mr. Presiding Justice Wolfe

delivered the opinion of the court.

This is an appeal from an order of the circuit court of Henderson county vacating a judgment obtained by the appellant against the appellees under their warrant of attorney. The warrant of attorney is printed on the back of the promissory note executed solely by one C. A. Hedges, on October 6, 1931, for $9,390.04 payable one year after its date to the order of the appellant.

Referring to the face of the instrument, that is without regard to the warrant printed on the back thereof, the note is a judgment note in the usual form of notes so designated. Owing to the contention made by the parties, it is well to consider one provision of the note proper, namely, “and to secure the payment of said amount, we hereby authorize, irrevocably, any attorney. of any court of record to appear for us in any court, in term time or vacation, at any time hereafter, and confess a judgment without process in favor of the holder of this note for such amount as may appear to be unpaid thereon, etc.”

At the top of the warrant of attorney signed by the appellees there appears written in ink as follows: “C. A. Hedges,” and underneath the name, “October 6, 1932.” This warrant of attorney provides in part as follows': “For value received, we, the undersigned, do hereby jointly and severally guarantee the payment of the within note at maturity, in accordance with its terms, or if such maturity is extended, its maturity at any time thereafter, with interest at 7% etc.” The guarantors waive all demand, notice, protest and notice of protest; that the extension of the time of the payment of the note shall not discharge persons “secondarily liable.” Further, “To secure the payment of said amount due or to become due hereunder, the undersigned, and each of them hereby authorizes irrevocably any attorney of any court of record to appear for the undersigned or anyone or more of them in such court, in term time or vacation, and at any time hereafter and confess judgment without process in favor of the legal holder of this note for such amount as may appear unpaid thereon, together with costs and reasonable attorney’s fees, and to waive and release all errors which may intervene in any such proceeding and to consent to immediate execution upon such judgment, hereby ratifying and confirming all that the said attorney may do by virtue hereof.”

On February 23, 1932, the appellant filed with the circuit clerk of Henderson county its declaration in the usual form when based on a guaranty; the note, an affidavit of the execution of the guaranty and of the amount unpaid on the note, and a cognovit, were attached to the declaration. The affidavit states that the consideration of the guaranty was “money loaned and advanced and guarantee of bank deposits.” On the same date the clerk entered judgment against the appellees for $9,609.14. No judgment was taken against C. A. Hedges.

At the March term of said court, 1932, the appellees filed a motion to redocket the case and to vacate the judgment on the ground that it was void; that in the event the judgment be held not void and be. set aside that the judgment be opened and the appellees be given leave to plead. The motion was supported by the affidavit of one of the appellees, and the showing made by the motion was that the declaration alleged that appellees had guaranteed payment of the note at maturity and that the note was not due when judgment was entered; that the attorney who filed the cognovit was without authority to file the same on the date of the judgment. The motion further set forth that the note was the personal obligation of Hedges and not of the appellees; that the only consideration for the guaranty was that the note was not to mature before a year after its date, and that by taking judgment before the maturity of the note, the appellant had breached the contract, vitiated the sole consideration of the giving of the guaranty, thereby releasing the appellees; that therefore the appellees had a good and meritorious defense to the whole of the appellant’s claim.

On the hearing on this motion in open court the appellant, at the close of the argument of counsel for appellees, offered to prove that the writing on the back of the note, reading, ‘ ‘ C. A. Hedges, Oct. 6,1932, ’ ’ just above the printed guaranty, was placed there by a clerk in appellant’s bank as a memorandum only, in accordance with a custom of that bank, after the note and guaranty with power of attorney had been executed by all the parties and delivered to appellant. The court refused to permit this proof to be made and sustained a motion to strike the offer. „ No other evidence was offered by either side.

On December 2,1932, at the October term, the circuit court sustained appellees’ motion to vacate the judgment on the ground that it was prematurely taken, held the judgment void for that reason and vacated the judgment as void.

The original note and the warrant of attorney on the back thereof, have been, by certificate and order of the trial judge, certified to this court for inspection and are in the custody of the clerk of this court.

By many decisions of our Supreme Court and Appellate Courts, it is well established law in this State that judgment is not prematurely taken on a warrant of attorney, forming a part of a promissory note, for the amount unpaid on the note, although the note is not due by its terms, where the warrant provides that judgment may be taken at any time after the date of execution of the note. Farwell v. Huston, 151 Ill. 239 ; McDonald v. Chisholm, 131 Ill. 273; Adam v. Arnold, 86 Ill. 185; Great Western Hat Works v. Pride Hat Co., 224 Ill. App. 249; St. Clair v. Goldie, 244 Ill. App. 357.

Under such terms of the warrant of attorney, the debt by the express stipulation of the parties, is due for the purpose of judgment at any time after the date of the note. Alldritt v. First Nat. Bank of Morrison, 22 Ill. App. 192. And this is so although at the bottom of the note there is a memorandum of its due date. Martin v. Summers, 79 Ill. App. 392. Where a warrant of attorney in a note authorizes any attorney to appear “at any time” and confess judgment for the amount of the note and interest then due, the words, “then due” do not limit the power to confess judgment at any time, but they relate exclusively and clearly to the time when the power is exercised. Elkins v. Wolfe, 44 Ill. App. 376.

The right of the payee of a note to take judgment under the conditions afiove mentioned has been for a long time recognized by our courts and generally understood by lawyers, bankers, and business men. In fact, that the law in this State is as above stated, is not disputed by either party to this appeal. Examining the warrant of attorney signed by the appellees, we note that by the terms thereof they authorize any attorney of record to appear for them in such court, in term time or vacation, “and at any time hereafter,” to confess judgment for such amount as may appear unpaid thereon. Unless the context of the guaranty forbids (or unless the terms thereof are ambiguous and an extrinsic evidence manifests a contrary intention of the parties), we feel bound to hold that the guaranty was ready for judgment for the amount unpaid thereon at any time after the date of its execution. No ambiguity appears in the guaranty justifying the introduction of extrinsic evidence for the purpose of making clear the intention of the parties in this behalf.

As appears from the offer by the appellant to prove that the writing at the top of the guaranty, namely, “0. A. Hedges,” “October 6, 1932” was placed there after the signing of the guaranty, there exists a dispute of the question of fact when such writing was placed on the guaranty. If the date appearing on the guaranty is a controlling or material factor in the process of construing the guaranty to ascertain if the judgment was prematurely taken and therefore void, we apprehend that, in this case, the hearing on the motion to set aside the judgment was not of such a rigid or summary character as to deny the appellant the right to introduce evidence to show when the writing was made.

We have considered the legal proposition made by the appellees that counter-affidavits are not to be filed under a general motion to vacate or open a judgment. This is true if the substance of the counter-affidavits relates to the merits of the case in which the judgment was rendered. If the question for the court, under such a motion, does not go to the merits of the case and the order of the court would be final on the ex parte hearing, and the question could not be again tried after the judgment was open, counter-affidavits are admissible. Gilchrist Transp. Co. v. North Grain Co., 204 Ill. 510.

However, it is contended by the appellees that such evidence would contradict or alter the written terms of the guaranty. We are also mindful of .the rule that the date of a contract in writing cannot be varied by parol testimony where the date is a material part of the contract, so that to vary the date would alter the rights of the parties. (Ehrmann v. Stitzel, 121 Ky. 751, 90 S. W. 275; Joseph v. Bigelow, 4 Cush. (59 Mass.) 82.) Nevertheless parol evidence has been held admissible to prove alterations, erasures and mutilations of written instruments as such evidence does not conflict against the general rule prohibiting the admission of parol evidence varying the terms of a written contract. Craig v. Chicago Coach & Carriage Co., 172 Ill. App. 564; Isador v. Harris, 217 Ill. App. 133. In the case of VanZandt v. Hopkins, 151 Ill. 248, it is held that parol evidence is admissible to prove when and for what purpose a memorandum was made upon a note. In the case at bar, the purpose of the evidence offered was not to vary the terms of the contract, but to show that the alleged memorandum was not a part of the guaranty when it was executed and delivered.

. The agreement of the appellees is an absolute guaranty of payment of the amount of the note at its maturity if the payer failed to do so. There was an absolute liability of the appellees to pay the principal and interest of the note although the time of its payment was postponed to October 6, 1932. Beebe v. Kirkpatrick, 321 Ill. 612. The time when the guaranty was dated and executed did not go to the merits of the question of the absolute liability of the guarantors. The motion to vacate the judgment alleged that the judgment was prematurely taken because the note was not due until October 6, 1932. Nothing.appeared in the motion from which it could be understood that the date appearing on the warrant of attorney of the appellees would be relied upon as an element governing the time when judgment could be taken against the appellees under their guaranty. It is also observed that the offer of the appellant to introduce the aforesaid evidence was made after the argument made by the appellees in support of their motion. There was no denial in the motion or in the affidavit attached thereto of the allegation of appellant’s declaration that the note and guaranty were signed on the same day and as a part of the same transaction. Under the allegations of the motion a question of law was presented involving the legal construction of the guaranty. People ex rel. O’Connell v. Noonan, 276 Ill. 430.

Courts exercise an equitable jurisdiction over judgments entered by confession on warrants of attorney, and a motion to open or vacate such a judgment, is addressed to the discretion of the court. Lake v. Cook, 15 Ill. 353; Gillespie v. Rout, 39 Ill. 247; Fitzgerald v. Power, 225 Ill. App. 118; Whalen v. Billings, 104 Ill. App. 281; Goergen v. Schmidt, 69 Ill. App. 538; Nitsche v. City of Chicago, 280 Ill. 268. If the appellees had filed a bill in equity to enjoin further proceedings under the judgment, and during the hearing on the bill it transpired that matters material to a -decision were not presented by the pleadings, it cannot be doubted that leave would have been granted to amend the proper pleadings to permit the introduction of evidence to apprise the court of all of the facts in the case.

We are of the opinion that the evidence offered was admissible if the date written on the guaranty limited the right of the appellant to take judgment under the warrant of attorney before maturity of the note. Milligan v. Holbrook, 168 Ill. 343; Delsman v. Friedlander, 40 Ore. 33, 66 Pac. 297. As will hereafter appear, the date written on the guaranty was a material part thereof, and the evidence offered by the appellant should have been admitted by the court under such terms as would have allowed the appellees to controvert such evidence by proof, if they so desired.

The guaranty of the appellees was an absolute obligation to pay the note at its maturity, if the note was not then paid by the maker and thereby canceled. (Beebe v. Kirkpatrick, supra.) The word “due” may express the same meaning as the' word “owing.” Elkins v. Wolfe, 44 Ill. App. 376; 19 C. J. 818; Shaw v. Merritt, 170 Ark. 338, 279 S. W. 1016. In this sense of the word, there was due from the guarantors the amount of the note although the note had not reached maturity. The word ‘1 due ’ ’ may be employed to designate the time of payment of a debt. It seems inconsistent to use the word “due” as meaning the time of payment and subsequently authorize a confession of judgment at any time “hereafter.” Furthermore, by the use of the word “due” with the terms “or to become due,” it is reasonable to suppose that this alternative gives the appellant the right to take judgment at maturity of the note or before its maturity, although from the context of the guaranty the word “due” might be construed, as contended by appellees, as meaning the time of payment. Farwell v. Huston, 151 Ill. 239. We think the words of the guaranty, “at any time hereafter” must be held to relate and refer to the date October 6, 1931. Thomas v. Mueller, 106 Ill. 36. As the matter appears from the record, the date Oct. 6, 1932, is a part of the guaranty. (VanZandt v. Hopkins, supra.) If the guaranty was in fact executed on the date of the signing of the note, that date would be controlling and judgment could be taken under - the warrant of attorney of the appellees on any date thereafter. That a warrant of attorney may be so worded as to prevent the talcing of judgment before maturity of the note, is established by the cases. Baering v. Epp, 247 Ill. App. 51; Harris v. Bernfeld, 250 Ill. App. 446.

“The rule that the power to confess judgment must be clearly given and strictly pursued, . . . like all other rules, has its reasonable limitations, and must not be applied with such strictness as to defeat the obvious intentions of the party granting the power.” Holmes v. Parker, 125 Ill. 478. For the reasons above stated the judgment of the circuit court of Henderson county is hereby reversed and the cause remanded to the said court for new trial.

Reversed and remanded.


text:
    Dairyman’s State Bank of Marengo, Appellant, v. Nellie S. Dunham, Appellee.
    Gen. No. 8,637.

      Opinion filed May 25, 1933.
    Rehearing denied July 6, 1933.
    Allen B. Woodard, for appellant.
    William L. Pierce, for appellee;
   Mr. Presiding Justice Wolfe

delivered the opinion of the court.

The appellant filed its declaration of one count in assumpsit against the appellee on her promissory note dated June 1, 1929, for the principal sum of $1,500. An affidavit of claim was filed with the declaration. The appellee first filed the plea of non-assumpsit and a plea verified by her attorney denying the delivery of the note. The latter plea, on motion of the appellant, was stricken from the files. Thereupon the appellee again filed the plea of non-assumpsit, an unverified plea denying the delivery of the note and an affidavit of merits. The appellant filed a replication to the plea. Regarding the affidavit of merits, there is no controversy that its allegations were not sufficient to allow the introduction of appellee’s evidence hereinafter mentioned. By stipulation of the parties a jury trial was waived and the cause was submitted to the judge for a finding and judgment.

The appellant introduced the note in evidence and rested its case. The appellee introduced evidence tending to show that there was no consideration for the giving of the note and also that it was conditionally delivered. The court found the issues for the appellee and rendered a judgment against the appellant for costs.

Two assignments of error made by the appellant will now be considered. It is first urged by the appellant that since there was no verified plea of the appellee denying the execution of the note as provided by the Practice Act, evidence was not admissible to prove that the note was conditionally delivered. In support of his position the appellant cites cases holding that delivery of a note is an essential part of its execution, and that evidence under an unverified plea showing that the note was never delivered is not admissible. (Bailey v. Valley Nat. Bank, 127 Ill. 332.) It is next contended by the appellant that the evidence tending to show that there was no consideration for the giving of the note was not admissible because there was no special plea filed by the appellee denying consideration for the note (see Keith v. Mafit, 38 Ill. 303, and Wilson v. King, 83 Ill. 232, 238). To dispose of these two assigned errors, a reference to the bill of exceptions is necessary.

The testimony of the appellee was the only evidence introduced contesting the appellant’s prima facie case, made by introducing the note in evidence. She testified, in effect, that before signing the note the cashier of the appellant bank told her that she would not have to pay the note; that she was taking no chances as she was only loaning her name to the bank; that before she signed the note the cashier promised to give her a receipt or statement showing that she was the owner of a one-seventh interest in a Dakota farm owned by the appellant. The introduction of this evidence was objected, to by the appellant on the ground, among others, that the proffered testimony did not concern the delivery of the note but its payment. The court overruled the objections stating, “The court is only admitting this evidence for whatever bearing it may have on the question of delivery.” When the appellee testified that she did not receive from the appellant any money or anything from the bank for signing the note, the appellant made a motion that the testimony be stricken on the ground that it was a conclusion of the witness. Appellant introduced evidence tending to contradict all of this testimony of the appellee.

Nowhere does it appear in the bill of exceptions, or the record proper, that the appellant objected, or took exception, on the specific ground that such evidence of the appellee was inadmissible because the plea denying the execution of the note was not verified or that there was no special plea denying consideration for the note. This should have been done to obtain a ruling from the trial judge, and to allow the appellee an opportunity to amend the pleadings if she desired. Otherwise the assigned error cannot be considered in this court. Wilson v. King, 83 Ill. 232; Logan v. Mutual Life Ins. Co., 293 Ill. 510.

The appellant also assigns as error that the finding of the trial judge is contrary to the manifest weight of the evidence. Underlying this contention there are two propositions insisted on by the appellant. It is urged that the evidence of the appellee varies the terms of the note and it was therefore inadmissible; that that part of appellee’s testimony which the appellee insists shows that there was a conditional delivery of the note, in fact shows the manner of the payment of the note.

The appellee is the daughter of Chauncey A. Dun-ham who died testate on December 30, 1926, leaving him surviving as his heirs, Ella C. Dunham, his widow, the appellee and a grandson. The will of Chauncey A. Dunham, after making several bequests, devises all the remainder of his real and personal property to the widow and the appellee. The appellee and Ella C. Dunham were appointed executrices of the will by the county court of McHenry county. The inventory filed in the estate was introduced in evidence and shows that Mr. Dunham died seized in fee of six parcels of real estate situated in Illinois and upon which there was placed an aggregate value in the inventory by the executrices of $22,150. He did not leave a great amount of personal property and there is nothing in the record to show its market value. It was not proved nor is it contended by appellee that the Dunham estate was insolvent.

Mr. Dunham during his lifetime executed his note for $1,500 payable to the appellant bank one year after its date. He never paid any interest on this note, although it called for the payment thereof. This note was renewed by Mr. Dunham giving new notes on the first day of June of each year, which was the due date of the original note. The last of such renewal notes was due on June 1, 1927, which was about five months after the death of Mr. Dunham. The reason for the giving of the first note of Mr. Dunham to the appellant bank is apparently understood by the parties to this appeal, but this court is not apprised by the evidence, or admission of the parties, of the circumstances connected with the execution of this note. Nor does it appear whether the note was included among the assets of the bank. (McComb v. Jacobs, 256 Ill. App. 141.) Nor does it appear from the evidence for what purpose the note was given. (State Bank of West Pullman v. Hovnanian, 250 Ill. App. 144.) No claim was filed against the Dunham estate based on the note.

The testimony of the appellee is substantially as follows: That her father since the year 1918, to the time of his death was a stockholder and a director of the appellant bank; a few days before June 1, 1927, she and her mother were in the appellant bank and that Clarence Coarson, the cashier of the bank, called their attention to the Dunham note and told them that the note was due and he wanted them to sign it; that appellee and her mother knew the note was in the bank since the time Mr. Dunham executed the first note for $1,500'. Coarson told them that if they did not sign the note, the bank would file a claim against the estate of Chauncey A. Dunham. The appellee and her mother told Coarson they did not have the money to pay the note and that the bank should file the note as a claim against the Dunham estate. Coarson told them that the only thing for them to do was to renew the note themselves. They told Coarson that they did not want to do so as their attorney had advised them not to sign a note to take the place of the Dunham note. Coarson informed them that they were not taking any chances by signing a new note as they were only loaning their name to the bank until a Dakota farm owned by the bank could be sold and the note would then be canceled; that Coarson said that the farm was in good condition and he thought it would sell and the note would be canceled; that they would never have to pay the note. When the appellee and her mother asked Coarson for a receipt or statement showing that they had a one-seventh interest in the farm, he promised to give them one, but he never did. After they signed the note, they again asked Coarson for the receipt. Coarson said he had not got around to make it out. They were also told by Coarson that they would not have to pay interest on their note.

On October 28, 1927, the appellee and her mother had another conversation with Coarson and which was of similar import, the appellee testified, to the conversation held in June. It was on October 28, 1927, that the appellee and her mother signed a note for $1,500, dated June 1, 1929, payable one year after its date with interest at seven per cent after its date until paid. This note and a like note dated June 1, 1928, were renewed by the appellee and her mother by the execution of new notes, each for $1,500 with similar terms as the first note. The note introduced in evidence was the last renewal of the original note dated June 1, 1927. It appears in evidence that the note of Mr. Dunham was canceled by the bank and given to the appellee and her mother when their first note was signed. The widow of Chauncey A. Dunham died before suit was brought on the note now in question.

The appellant introduced the evidence of Coarson and George Redpath, who were respectively the cashier and president of the appellant bank during all the time in question. The appellant bank is in the process of liquidation by its present officers and neither Coarson nor Redpath had any connection with the bank as officers when they testified.

Mr. Coarson testified that when the Dunham note became due on June 1, 1927, he asked the appellee and her mother to sign a new note as he knew that they were the only heirs of Chauncey A. Dunham; that he also told them that the Dunham note was good and there would be no chances of any more loss by signing a new note than leaving the old note stand; that the appellee and her mother informed him that they were advised not to sign any note; that he told them that they would either have to renew the note or a claim would be filed against the Dunham estate; that they were taking no chances by signing a new note; that he explained to them that there was a $11,000 mortgage on the Dakota farm and this was considered a liability instead of an asset; that an offer might be worked ont, with the approval of the directors of the bank; that if the appellee and her mother would assume one-seventh of the liability, pay one-seventh of the expenses, take one-seventh of the income and pay in $1,500, the bank would give them a one-seventh interest in the farm. This proposition was never accepted by the appellee or her mother, and the matter was dropped so far as he was concerned. Coarson denied that he told the appellee and her mother that they would never have to pay the note. On cross-examination he testified that he told appellee and her mother that if the Dakota farm sold for enough and above the mortgage, they would probably not have to pay their note; that there was some talk of a receipt showing that arrangement; that he did not think that he told them he would give them a receipt; there was no promise held out to them to sign the note.

Mr. Bedpath testified that he told the appellee and her mother on October 28, 1927, that they would have to sign a new note or a claim would be filed against the Chauncey A. Dunham estate. The appellee and her mother asked for a one-seventh interest in the Dakota farm and witness told them that the bank would not give them such an interest unless they would assume one-seventh of the $11,000' mortgage on the farm; that he did not tell them that if the farm sold for more than the mortgage, the appellee would be reimbursed on their note to the amount of one-seventh above the mortgage debt, whether the note was paid or not. He did not tell the appellee and her mother that they would not have to pay their note. He also told them that the farm was not paying. On cross-examination Mr. Bedpath denied that the appellee and her mother asked for a receipt for a one-seventh interest in the Dakota farm. He also testified that the appellee and her mother did not talk about taking a one-seventh interest in the Dakota farm and assuming one-seventh of the $11,000 mortgage.

In rebuttal the appellee testified that the only conversation by her or her mother about the new note was had with Coarson and they never tallied to Bed-path about the new note.

The testimony of all of the witnesses is to the effect that unless the appellee and her mother executed a note in exchange for the Chauncey A. Dunham note a claim would be filed against his estate. It was proved that the Dunham note was canceled and surrendered to the appellee. Under the facts in evidence coupled with the surrender and cancellation of the Dunham note the appellant gave up its right to file a claim against the estate of Mr. Dunham for the amount of the note. While the conclusion may not be drawn from the evidence that there was an express promise on the part of the bank to forebear filing the note against the Dunham estate, there was an implied promise, under the facts, on the part of the bank not to do so. If there was a deficiency of the personal assets of the Dunham estate to pay the debts of the estate, the appellant, not having surrendered the Dunham note, could have proceeded against the appellee and her mother to recover the amount of the note to the extent of the real estate devised to them by Mr. Dunham’s will, although the appellant had not filed a claim against his estate within the time required by the Administration Act. Cahill’s St. ch. 3, ff 61 et seq. Durflinger v. Arnold, 329 Ill. 93, 98. The evidence shows that there was a good and valuable consideration for the note executed by the appellee and her mother. Whelan v. Swain, 132 Cal. 389, 64 Pac. 560; Whitney v. Clary, 145 Mass. 156, 13 N. E. 393; Nye v. Chace, 139 Mass. 379, 31 N. E. 736; Vaughn v. Bass, 10 Ala. App. 388, 64 So. 543; Reuter v. Sullivan (Tex. Civ. App.), 47 S. W. 683; Mohn v. Mohn, 181 Iowa 119, 164 N. W. 341; Kayser v. Hodopp, 116 Ind. 428, 19 N. E. 297; Broom & Co. v. Harrah, 143 Ill. App. 476; Farmers State Bank & Trust Co. v. Parr, 234 Ill. App. 78; Union and Planters’ Bank of Memphis v. Jefferson, 101 Wis. 452, 77 N. W. 889. See also Wicks v. Metcalf, 83 Ore. 687, 163 Pac. 434, 988. The note being given for a valuable consideration, evidence that it was not to be paid was inadmissible. Moore v. Prussing, 165 Ill. 319; Farmers State Bank & Trust Co. v. Parr, supra. The burden was on the appellee to prove a conditional delivery of her note. This evidence should be clear, convincing and specific.

The appellee in her argument insists that this court should accept her sworn statement in her affidavit of merits that the Dunham note was conditionally delivered to the bank as one of seven notes of like amount and character given by the directors of the bank to make up a shortage in the bank and that this note was not to be paid unless creditor suffered a loss by reason thereof. We are not informed if the other six directors of the bank have paid their notes or are being held liable thereon. On the other hand the appellee also insists that the promise of the bank to give her a receipt or statement of a one-seventh interest in the farm was independent of the Dunham note. However, a reference to -her affidavit of merits shows that Mr. Dunham was to receive from the proceeds of the Dakota farm such an amount as would reimburse him in case he was called upon to pay his note of $1,500; that the Dunham note became a part of the assets of the bank to satisfy the demands of the State bank examiner.

Under the circumstances it is clear to this court that the testimony in the case (of the appellee) bearing on the question of the conditional delivery of appellee’s note is vague and uncertain and not of such character as to convince the court that the note was not to take effect because there was not a present and effective delivery thereof.-

Aside from the affidavit of merits it appears that the evidence relative to the appellee receiving a one-seventh interest in the farm, was to provide for the payment of the note and not a condition precedent to its delivery. Handley v. Drum, 237 Ill. App. 587. The appellee testified that she knew about the Dunham note from the time her father signed it; that the appellant knew the circumstances connected with the execution of the Dunham note, of course, is beyond dispute. That much more was said about the Dunham note and the Dakota farm than appears in evidence, when the appellee signed her note, is clear to this court. It was a matter none of the witnesses was anxious to testify about. We are convinced that it was the intention of the parties that the appellee’s note was to take the place of the Dunham note and that there was an effective delivery thereof, and that there might be some reimbursement to the appellee out of the Dakota farm if she was called upon to pay the note. The judgment is therefore reversed and the case remanded to the trial court.

Reversed and remanded.