author: Mr. Justice O’Connor

text:
    The People of the State of Illinois ex rel. Oscar Nelson, Auditor of Public Accounts of the State of Illinois, Complainants, v. Bank of Harvey, Defendant. South Suburban Motor Coach Company, Petitioner, Appellant, v. R. A. Pascoe, Receiver of the Bank of Harvey, Appellee.
    Gen. No. 36,787.
    Opinion filed December 11, 1933.
    Rehearing denied and opinion slightly modified December 27, 1933.
    Greydon L. Walker, for appellant.
    Glenn, Schwartz, Real & Browning, for appellee.
   Mr. Justice O’Connor

delivered the opinion of the court.

The South Suburban Motor Coach Company, a corporation, filed its intervening petition in a suit brought by the People of the State of Illinois on the relation of Oscar Nelson, auditor of public accounts, against the Bank of Harvey for the liquidation of that bank, a receiver having theretofore been appointed by Nelson, as auditor of public accounts. The prayer was that the petitioner be allowed a preferred claim of $2,853.64, and that the receiver pay the sum in the due course of administration. The demurrer of the receiver was sustained to the intervening petition; it was dismissed and petitioner appeals.

The record discloses that the Bank of Harvey was closed by the board of directors on January 9, 1932, and at that time the petitioner had on deposit with the bank, in its checking account, $2,853.64. Some time prior to that date petitioner was indebted to the Bank of Harvey in the sum of $5,000, for which it gave its note to the bank, due February 4, 1932. The Bank of Harvey was indebted to the First National Bank of Chicago in the sum of nearly $200,000, and to secure the payment of that indebtedness pledged as collateral 20 promissory notes of its customers which it held (among them petitioner’s note of $5,000) aggregating more than $88,000, and bonds of the par value of nearly $400,000. The Bank of Harvey carried a cash deposit in the First National Bank of nearly $27,000. A receiver was appointed March 1, 1932, who subsequently paid in full the balance due and owing from the Bank of Harvey to the First National Bank of Chicago and received back from the First National Bank some of the pledged notes and bonds. The balance due on the returned notes was more than $18,000, and the amount and value of the bonds returned were unknown to the petitioner. The makers of a number of the pledged notes were allowed to set off the amount of their respective deposits against their notes. Shortly after the Bank of Harvey closed, petitioner was notified by the First National Bank that it held petitioner’s note for $5,000 and demanded payment at its maturity February 4, 1932. The petitioner had no defense to the note as against the First National Bank and was compelled to pay it in full, which it did on its due date.

It has long been the settled rule that a depositor indebted to a bank which is closed on account of insolvency, may reduce his indebtedness by setting off his deposit. McCagg v. Woodman, 28 Ill. 84; Scott v. Armstrong, 146 U. S. 499; Yardley v. Philler, 167 U. S. 344; Streeter v. Junker, 230 Ill. App. 366. There is no controversy as to this rule of law, but the receiver contends that when the Bank of Harvey pledged the promissory notes, including the petitioner’s, to the First National Bank as collateral, to secure the payment of its indebtedness to the First National Bank, the notes passed to and became the property of the First National Bank, and that since they were possessed and owned by the First National Bank at the time the Bank of Harvey failed, the petitioner, who subsequently paid his note to the First National Bank, was not entitled to have the note reduced by setting off his deposit. In support of this the case of Balbach v. Frelinghuysen, 15 Fed. 675, is cited. In that case the court stated that there were two questions to be decided: (1) whether complainants were entitled to have returned to them a check which was deposited by them for collection in a certain bank, but which was not forwarded until the bank closed on account of insolvency; (2) whether the receiver should allow to complainants the amount of their deposits in the insolvent bank as a set-off to their indebtedness to the bank on their two promissory notes. The court discusses at considerable length the first proposition. In disposing of the second question the court said that if complainants’ two notes were in the bank at the time it closed, unquestionably complainants would be entitled to have the amount of their deposit set off in reduction of the notes, but stated that the notes had been “endorsed away for value” before the bank failed; that one of the notes was sent by the Newark bank (later closed) to a bank in New York for discount, and the proceeds credited to the makers of the note (complainants) on the books of the Newark bank; that later when the note fell due it still belonged to the New York bank and was paid by the makers (the Newark bank having no interest in the note or its proceeds); that the Newark bank having overdrawn its account with the New York bank, sent the latter “a batch of paper” as collateral security, which included one of complainants’ notes; that when these pledged notes matured and were paid to the New York bank, credit was given the Newark bank. Later when the Newark bank failed it was still indebted in a large sum to the New York bank, which still held complainants’ note as collateral. When all the notes held as collateral had been paid to the New York bank it had $7,000 over and above the amount the Newark bank owed it, which sum it paid to the receiver of the Newark bank. Complainants contended that they were entitled to an equitable lien on this $7,000, which should be offset against the note, and it was held that this contention was not available. All that was said in the opinion on this point is, “Nor will the receiver be permitted, as" against the creditors of the insolvent bank, to use any portion of this surplus to give a preference over them to the complainants.”

In that case no preference was shown any of the makers of the pledged notes, while in the case at bar a number of the makers of the pledged notes were allowed to set off the amount of their deposits in reduction of their respective notes. And we think the fact that petitioner had paid his note to the First National Bank, while makers of others of the pledged notes had not done so, ought not to prejudice him. He was compelled by demand of the First National Bank to pay his note when it came due. He had no defense against that bank. But the equities of the case are that when petitioner paid $5,000 to the First National Bank, the indebtedness of the Bank of Harvey to the First National Bank was thereby reduced by $5,000, which necessarily increased the assets of the Bank of Harvey the same amount.

Petitioner having by his payment of $5,000 increased the assets of the bank in the hands of the. receiver to that amount ought in equity and good conscience, under the law, to be allowed the amount of his deposit at the time the bank closed. This is the effect of the holding* in the cases of Niblack v. Feldman, 204 Ill. App. 443; Becker v. Seymour, 71 Minn. 394; Hall v. Burrell, 22 Colo. App. 278; Clute v. Warner, 40 N. Y. S. (8 App. Div. 40) 392.

In the Niblack case the receiver brought suit against the makers and guarantors of a promissory note. The suit was dismissed as to the makers and judgment entered against the guarantors. In that case the makers made their note for $4,000 payable to the LaSalle Street Trust & Savings Bank. Afterward that bank became indebted to a bank in Boston, and to secure the indebtedness pledged a great many securities, including the $4,000 note. Afterward the LaSalle Street Bank was closed and a receiver was appointed who, by order of court, paid the indebtedness to the Boston Bank, obtaining* a return of the collateral. At the time the LaSalle Street Bank closed the makers of the $4,000 note had a deposit in that bank, and it was held that this deposit could be set off in reduction of the liability of the guarantors of the $4,000 note. It was there said, The law does not impose upon receivers the obligation of defeating* the just, legal claims of special or lien creditors in the interest of general creditors of an insolvent.”

In Becker v. Seymour, supra (71 Minn. 394), Becker made his note for $500 to the Bank of Minnesota. Afterward that bank pledged it with other collaterals to the First National Bank of St. Paul to secure its indebtedness. The Bank of Minnesota became insolvent and closed its doors and receivers were appointed. At that time Becker had on deposit in the Bank of Minnesota $170.90. His note matured and he was compelled to pay it in full to the pledgee, the First National Bank of St. Paul. Afterward the pledgee bank collected sufficient from the collaterals to pay the balance due it from the Bank of Minnesota and returned the balance of the collaterals to the receivers. It was held that Becker was entitled to be repaid the $170.90 from the proceeds the receiver had obtained from the returned collaterals. The court said (p. 396): “When the note was transferred to the pledgee as collateral security, any right of offset then or thereafter existing was impaired but only to the extent necessary to satisfy the debt of the pledgee; and if the latter had returned the note to the receivers, unpaid to the amount of $170.90, general creditors of the insolvent would have had no interest therein, for the respondent’s right to offset his deposit would then have been perfect and it and the note would have canceled each other.” The court further said that although Becker was compelled to pay his note to the pledgee, that fact did not defeat his right to have paid to him by the receiver the $170.90. The court further said (p. 397): “The result of compelling him to pay the balance of $170.90 on his note was to increase the fund in the hands of the receivers arising from the collaterals returned by just that amount, to which neither the receivers nor the general creditors had any equitable claim. , , , ” And continuing (p. 398): “In its last analysis this case is simply one where the receivers have obtained, not from the assets of the insolvent, but from the respondent, through and by the act of the pledgee, $170.90 which does not equitably belong to them, or to the general creditors.”

In Hall v. Burrell, 22 Colo. App. 278, a depositor in a bank executed his note to it, which it pledged with other securities for a loan. The bank later became insolvent and a receiver was appointed. The depositor filed his claim for the amount of his deposit and paid the note held by the pledgee. There -were other depositors in the same situation, and it was held that the receiver in paying out the proceeds of the returned securities must pay the depositors similarly situated pro rata. That court quotes with approval the ease of Becker v. Seymour, 71 Minn. 394, supra.

The fact that the procedure followed by the depositor in the Becker and Hall cases was in some respects different from the method of procedure by the petitioner in the instant case, does not, we think, change the principle involved.

The judgment of the circuit court of Cook county is reversed and the matter remanded with directions to overrule the demurrer of the receiver to the intervening petition, and for further proceedings in accordance with this opinion.

Reversed and remanded with directions.

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


source: Caselaw Access Project

license: Public Domain

text:
    Melvin L. Straus, Appellee, v. Chicago Title & Trust Company et al., Defendants. Appeal of Mary A. Collins, Appellant.
    Gen. No. 36,806.

      Opinion filed December 11, 1933.
    Rehearing denied and opinion slightly modified December 27, 1933.
    Concannon & Dillon, for appellant.
    Sonnenschein, Berkson, Lautmann, Levinson & Morse, for appellee; David Levinson, Bernard Nath, John J. Abt and Frank C. Bernard, of counsel.
   Mr. Justice O’Connor

delivered the opinion of the court.

By this appeal Mary A. Collins seeks to reverse an order entered by the circuit court of Cook county denying her leave to file an intervening petition in a foreclosure suit, by which she sought to have the property advertised for sale in accordance with the decree of foreclosure; that the fair market value of the property be determined by the court, and that the trustee in the trust deed be directed to bid, for the benefit of the bondholders, an amount equal to the amount found due by the decree, less the amount in the hands of the receiver, and such further amount as the receiver might be reasonably expected to collect during the period of redemption, unless some third party would bid in an amount equal to the market value as determined by the court.

The record discloses that on January 16,'1932, complainant, Melvin L. Straus, as trustee named in the trust deed and chattel mortgage, filed his bill to foreclose the trust deed securing the balance of; the outstanding bonds of the face value of $877,000. The Chicago Title & Trust Co., a corporation, as trustee under a trust agreement known as Number 7765, the maker of the bonds and the grantor named in the trust deed, was the principal defendant. The bondholders were not made parties to the case.

November 10, 1932, a decree was entered finding, inter alia, that complainant, Melvin L. Straus, as trustee for the use and benefit of the owners of the unpaid bonds, had a valid lien on the premises for the amount due on the bonds, which aggregated $943,744.89, and it was decreed that unless the Chicago Title & Trust Co., not personally but as trustee, within three days pay to Melvin L. Straus, as trustee, the amounts found due, the property be sold at public sale by the master, to the highest and best bidder for cash, subject to the right of bondholders to apply their bonds in payment of any bids they might make, and that the complainant or any of the parties to the cause, or any bondholder or group of bondholders, might become the purchaser or purchasers at the sale. The receiver was continued in possession of the premises and it was provided that after the report of sale and distribution was made by the master, the court reserved jurisdiction for the administration of the property in the hands of the receiver, to advise and instruct the complainant trustee, in respect to his duties and powers, and to supervise and direct him in the future administration of the trust.

Apparently the master made no move to carry out the terms of the decree by selling the property, and on February 24,1933, Mary A. Collins, who claimed to be the owner of five $1,000 bonds secured by the trust deed, sought leave to file her intervening petition. Thereafter the matter was continued from time to time, and finally disposed of March 15th, when an order was entered denying her leave to file her offered petition. The matter was heard and disposed of on the face of the verified petition.

The substance of the allegations of the petition, so far as it is necessary to state here, is that September 15, 1927, the Chicago Title & Trust Co., a corporation, not personally but as trustee under a trust agreement, was indebted in the sum of $950,000 and to evidence this fact executed its 1,500 bonds aggregating $950,000, not personally but as trustee, and to secure the payment of the indebtedness the Chicago Title & Trust Co. executed its trust deed and chattel mortgage conveying certain real estate and personal property to the complainant as trustee; that petitioner purchased five of the bonds of the face value of $1,000 each, paying* therefor $5,000. The petition then set up the foreclosure suit, and the entry of the decree; that there was no personal liability against the maker of the bonds and that it had no property other than that described in the trust deed; that the value of the mortgaged property was $700,000; that nothing had been paid on account of the indebtedness found due by the decree, and although more than three months had elapsed since the entry of the decree no steps had been taken to sell the property. The prayer was that the court direct that the decree be complied with and complainant trustee be directed to purchase the property at the sale for the use and benefit of the bondholders for the amount due them as found in the decree, unless a bona fide cash bid be made equal to the fair market value of the premises, as determined by the court.

Complainant contends that the order appealed from should be affirmed because (1) even if it be assumed that complainant had the power to bid at the sale on behalf of the bondholders, and make payment of his bid by satisfying the amount of the indebtedness found to be due them, such purchase by complainant would be disastrous to the bondholders because “They would thereby become tenants in common of the mortgaged property which would thereupon become subject to the liens of their judgment creditors and to the inchoate rights of dower of their husbands and wives. Each of the bondholders, as a tenant in common, would be entitled as a matter of right to maintain a bill for partition,” and therefore the complainant trustee could not pass a merchantable title; (2) that the trust deed contains no provision which either expressly or by implication empowers the trustee to purchase at the sale on behalf of the bondholders, and thus deprive a bondholder of his right to receive his pro rata share of the purchase price in cash; (3) that even if the complainant has the power to purchase the property on behalf of the bondholders, such power is discretionary and the court will not compel the trustee to exercise the power unless the trustee is guilty of gross negligence or misconduct, and that no such charge is made; (4) that no bondholder has a right to intervene in the suit except upon a showing that complainant has fraudulently failed to perform his duties and that no such charge is made; and (5) that the petitioner is guilty of laches because she sought to intervene in the foreclosure proceeding August 27, 1932, and did not present her present petition for six months thereafter; that she knew of the provisions of the trust deed and of the decree.

It is a universal rule of law that a trustee is in duty bound to see that the property intrusted to his care is not lost to the beneficiaries. Courts will take judicial notice that property sold under foreclosure seldom, if ever, brings a figure at all commensurate with its value, and that under the present financial condition of the country there is great depreciation in the values of real estate, and that a foreclosure sale of property will bring far less now than in normal times. Atchison, T. & S. F. Ry. Co. v. United States, 284 U. S. 248; Morris Plan Bank of Richmond v. Henderson, 57 F. (2d) 326. In these circumstances we think the property in question ought not to be sold at a price which will result in great loss to the bondholders, if this can be avoided by having the property bid in for the amount of the indebtedness, by the trustee, for their use and benefit. Of course it may be said that any sale made by the master must first be approved by the court before it is binding and in this way the bondholders are protected. But since the decree expressly provides that the property is to be sold at once, we think the trustee ought to be directed to bid the amount of the indebtedness unless a cash bid is received equal to the upset price established by the court.

The trust deed provides that in case of default the trustee may, without any action on the part of any bondholder, declare all bonds immediately due and payable, and may proceed to protect the trust by any means which he may deem most effectual; that in case of a foreclosure sale of the property, any bondholder or the trustee may bid and purchase the property and apply the amount due on the bonds in payment of his bid; that the powers, duties and rights of the trustee may be exercised by him “without the possession or production of any of such bonds or coupons or proof of ownership thereof ’ ’; that in all suits or transactions relating to the trust deed or the mortgaged property the trustee is deemed to be the representative of the bondholders, and that in no case shall it be necessary for him to notify any bondholder or make any bondholder a party to any suit or proceeding. Under these provisions we think the trustee may foreclose the trust deed, purchase the property at the sale for the benefit of the bondholders, and apply the amount due on the bonds, as found by the decree, in payment of his bid without the production of the bonds, all of which, of course, will be subject to the approval of the chancellor, who will protect the rights of each and every bondholder. Hoffman v. First Bond & Mortgage Co. of Hartford, Inc., 116 Conn. 320; Nay Aug Lumber Co. v. Scranton Trust Co., 240 Pa. St. 500; First Nat. Bank of Wichita v. Neil, 137 Kan. 436; Silver v. Wickfield Farms, 209 Iowa 856; Sturges v. Knapp, 31 Vt. 1; Werner, Harris & Buck v. Equitable Trust Co., 35 F. (2d) 513 (C. C. A.).

In the Hoffman case (116 Conn. 320), the trustee of a mortgage, over the objection of an intervening note holder, was authorized by the court to purchase the property on foreclosure sale for the benefit of the note holders, and to apply the mortgage indebtedness in payment of his bid, although the mortgage did not expressly authorize the trustee of the trust deed to purchase the property. That a court of equity had authority to continue his trusteeship under the mortgage after the sale, that the property be managed and conserved by the trustee under control of the equity court until it could be sold without unnecessary sacrifice, and that an action of the objecting note holder for a partition or a sale of the property or a division of the proceeds, brought shortly afterward, could not be maintained. The facts in that case disclosed that chiefly owing to the depressed condition of the real estate market, the sale to the trustee and the management of the property by him was for the best interest of the note holders. It was contended that after the sale the defendant held title of a dry and passive trust. In passing on this the court said (p. 324): “Clearly, up to the time of the foreclosure sale, the defendant was and acted as trustee of an express trust created by the mortgage, with active powers and duties thereunder.” And (pp. 325, 326): “No express provision is made for subsequent sale by the trustee in case of its own purchase at the foreclosure sale, and the appellant maintains that upon such purchase the defendant became a mere passive depositary of the property and holds the bare legal title without discretion and without active duties, so that the cestuis que trustent are entitled to possession of the property and may call upon the trustee for a conveyance of the legal estate. . . . ‘Trustees, in carrying the trust into execution, are not confined to the very letter of the provisions. They have authority to adopt measures and to do acts which, though not specified in the instrument, are implied in its general directions, and are reasonable and proper means for making them effectual. This implied discretion in the choice of measures and acts is subject to the control of a court of equity and must be exercised in a reasonable manner.’ 3 Pomeroy’s Equity Jurisprudence (4th ed.) p. 2428. . . . It is one of the most important and essential powers of a court of equity to raise the implications growing out of the state of trust property, the purposes to be accomplished and the mode adapted to that end, without violence to or forced construction of the trust instrument. Sturges v. Knapp, 31 Vt. 1, 52. In Nay Aug Lumber Co. v. Scranton Trust Co., 240 Pa. St. 500, 87 Atl. 843, as in the present instance, the mortgage did not expressly confer upon the trustee for bondholders power to bid in the property at foreclosure sale, yet it was held that the trustee had implied power to do so, for the benefit of the bondholders, at a figure sufficient to cover the debt, interest and costs, and not in excess of the value of the property.” And continuing the" court said (pp. 327, 328): “The trustee was the constituted representative and protector of noteholders who are numerous, widely scattered, and unorganized, and therefore impotent to effectively protect their own interests from sacrifice at a forced sale, precipitated by a third party, in- a demoralized market.

“When default of payment of the mortgage debt occurred and until foreclosure was consummated, the trust was active and the trustee’s duties correspondingly so. ‘It not only is not a dead, dry trust, but is one of the most active and momentous responsibility. ’ Sturges v. Knapp, supra, p. 55. . . . It wonld be absurd to regard the trustee’s duty as terminated at the very time when its protection was most needed. If it had stood by and permitted the property to be sold for a fraction of its value, the trustee might have been exposed to the charge of ‘ supine negligence or wilful default,’ which was sustained in Watson v. Scranton Trust Co., 240 Pa. 507, 512, 87 Atl. 845, a sequel to Nay Aug Lumber Co. against the same defendant, supra.

“In an emergency a court of equity may, for the preservation of the trust and the protection of the beneficiaries from loss, even authorize a trustee to depart from the terms of the trust agreement. . . .

“Considerations similar to those which justify the right to bid in at the foreclosure sale dictate that the trustee hold and administer the property acquired thereby until such time as it can be disposed of without unnecessary sacrifice and loss to the noteholders. This right and duty would seem to be a necessary corollary and consequence of the right to bid and buy. If, as the plaintiff claims, the trustee’s duty be, instead, immediately after having so acquired the title, to make another forced sale in the same abnormally depressed market, the exercise of the right to purchase at the foreclosure sale would be but a futile gesture.”

In Nay Aug Lumber Co., supra (240 Pa. St. 500), it was held that although the trust deed did not expressly authorize the trustee to purchase at foreclosure, he had power to do so, and it was further held that although the trust instrument failed to define the powers and duties of the trustee, and there was no provision authorizing him to sell the property after purchasing it, he could convey good title, The court there said (p. 504): “It is difficult to see any good reason why a trustee should not be permitted to bid at a foreclosure sale, if it be necessary to protect the interests of the bondholders”; and that obviously this could be done if such a provision was in the trust agreement.

In First Nat. Bank of Wichita v. Neil (137 Kan. 436), the right of a trustee to purchase for the benefit of the bondholders at a foreclosure sale was upheld although the trust deed did not contain an express provision authorizing this; that whether a trustee would be warranted in purchasing the property at foreclosure depends upon the facts and circumstances as disclosed by the evidence. The opinion was filed April 8, 1933. The court there discusses the Nay Aug Lumber Co. case, 240 Pa. St. 500; Equitable Trust Co. v. United States Oil & Refining Co., 35 F. (2d) 508, which was taken on appeal to the Circuit Court of Appeals and there entitled Werner, Harris & Buck v. Equitable Trust Co., 35 F. (2d) 513; Silver v. Wickfield Farms, 209 Iowa 856; Detroit Trust Co. v. Stormfeltz-Loverley Co., 257 Mich. 655, and other authorities, and quoted from the Michigan Supreme Court where that court approved of the holding in Equitable Trust Co., 35 F. (2d) 513 (C. C. A.), disapproved of the holding of the United States Circuit Court of Appeals in the Equitable Trust Co. case, and approved of the holding of the Supreme Court of Pennsylvania in the Nay Aug Lumber Co. case, and on this question said (p. 446): “We are not convinced by the reasoning of Equitable Trust Co. v. United States Oil & Refining Co., and Werner, Harris & Buck v. Equitable Trust Co., supra, that at least under the deed of trust under consideration, the holder of the $100 bond or of eleven $100 bonds can say that he may gamble as he will with his bonds and be the sole judge of whether the trustee can bid for him or not, and that the court cannot say under all the equities of the case that the trustee shall bid on behalf of all the bondholders.

“We are persuaded the holding of the Pennsylvania court in Nay Aug Lumber Co. v. Scranton Trust Co., supra, that there is no good reason why a trustee should not be permitted to bid at a foreclosure sale, if it be necessary to protect the interest of bondholders, is more reasonable and equitable and should be followed. ’ ’

In Werner, Harris & Buck v. Equitable Trust Co., 35 F. (2d) 513, it was held that on foreclosure sale, where there was no provision in the trust deed authorizing the trustee to bid at the sale on behalf of the bondholders, the court could not confer such authority on him. The court there refused to follow the Nay Aug Lumber Co. case, quoting with approval the language of the trial judge reported in 35 F. (2d) 508, as follows: (p. 514): “I am unable to bring myself in accord with the reasoning of the court in the ease cited. Nay Aug Lumber Co. case. As it appears to me, the purchaser and holder of bonds had the right and reason to expect that, if there were a default in the payment of bonds under the trust deed, in case of foreclosure the property covered would be sold, and that he would receive his proportionate amount which the property realized in cash, and, moreover, I believe that this should be his right. If the proposed plan is adopted, he becomes unwillingly bound to cast his fortunes with the majority of the bondholders and to be subjected to the subsequent hazards of a greater loss than he would sustain by a sale in regular course for cash. In addition to this, we are confronted with the cumbersome and annoying circumstance of the court still necessarily retaining jurisdiction of the case for the purpose of authorizing and supervising future sales of the property by the trustee. ’ ’

We are in accord with the reasoning of the courts of Connecticut, Pennsylvania, Kansas and Iowa, rather than with the Federal Court and the Supreme Court of Michigan.

In the instant case, we think the court erred in not permitting the petition to be filed, and ruling the defendant to answer.

From what we have said, we think it appears that in case the property is purchased by the trustee for the benefit of the bondholders, he will have active duties to perform under the direction of the chancellor, and can convey good title to the property when the court thinks this should be, done; and that the bondholders’ only interest is to receive their share of the proceeds of such sale.

We think it further appears that the discretion of the trustee as to whether he will purchase the property at the sale is not conclusive upon the chancellor. Corkery v. Dorsey, 223 Mass. 97.

Complainant further contends that the order appealed from should be affirmed because the petitioner is barred by laches. In support of this it is said that August 27,1932, six months prior to the date on which the intervening petition was presented to court, the intervenor presented another petition in which she alleged her ownership of the five $1,000 bonds and prayed leave to intervene as a party defendant; that afterward orders were entered continuing the intervenor’s motion for leave to file the original petition, the motion being finally continued to February 25, 1933, on which date the intervenor abandoned her original petition and then presented the petition involved in this appeal; that since August 27, 1932, the petitioner has received notice of all proceedings in the foreclosure suit and did not object or except to any order entered nor to the decree; that “She was advised by the decree itself that no provision was made for the purchase of the mortgaged property by the complainant on behalf of all of the bondholders.” We think the contention cannot be sustained. In the first petition she sought to intervene as a defendant, while in the instant case she is seeking to have the property sold and bid in by the trustee, under the circumstances above mentioned.

The decree of foreclosure was entered November 10, 1932. Nothing has been done toward the selling of the property since the decree was entered, so that we are unable to see how complainant would be in any wise prejudiced.

The order of the circuit court of Cook county appealed from is reversed and the matter remanded for further proceedings in accordance with the views herein expressed.

Reversed and remanded with directions.

Hatchett, P. J., and HcSttrely, J., concur.


author: Mr. Presiding Justice Hall

text:
    Mary J. Cocot, Appellant, v. Board of Commissioners of Cook County et al., Appellees.
    Gen. No. 36,078.

      Opinion filed December 13, 1933.
    Albert C. Boehm and Joseph B. Lofton, for appellant.
    John A. Swanson, State’s Attorney, John E. Pedderson and Louis H. Gteiman, Assistant State’s Attorneys, for appellees; Hayden N. Bell, Assistant State’s Attorney, Walter Bachraoh and Philip M. G-lick, of counsel.
   Mr. Presiding Justice Hall

delivered the opinion of the court.

This is an appeal from a decree of the circuit court of Cook county dismissing a bill for want of equity, wherein complainant, a taxpayer, prays that an injunction issue restraining the board of commissioners of Cook county from appropriating moneys for the payment of. employees and the cost of maintaining the public defender division of the criminal court of Cook county, restraining the county clerk from issuing warrants for such purpose, and the county treasurer from paying out any moneys for such purpose, upon the theory that such appropriations and payments are unauthorized by law. The bill further asks that an accounting be had for all the moneys previously paid out for such alleged purposes, and that certain named members of the board of commissioners of Cook county, the county clerk and the county treasurer be required to account for and pay into the county treasury of such county all moneys so alleged to have been illegally paid out by them or authorized to be so paid out for the purpose mentioned.

It is alleged in the bill that on February 28, 1931, the board of commissioners of Cook county by resolution that day adopted by such board, appropriated out of public funds the sum of $26,420 to pay the salaries and wages of and the expense incident to the maintenance of the public defender division of the criminal court of Cook county; that at the time the bill was filed, $17,050 of such fund had been paid out, leaving an unexpended balance of $9,370.

Defendants filed an answer to the bill, wherein it is admitted that the appropriation was made and partially paid out as alleged, set forth certain alleged facts in defense and denied that the complainant is entitled to the relief prayed. To the answer complainant filed a general replication.

After issues joined in this court, and after the abstracts and briefs of the respective parties had been filed, appellant moved that the appendix to appellee’s brief and argument, consisting of pages i and ii and pages 61 to 86, inclusive, be stricken from the brief. This motion has been reserved to the hearing. These pages consist of extracts and quotations from various lay publications on the question as to whether or not appropriations and payments of public funds for the defense of indigent persons charged with the commission of crime are advisable, necessary and justifiable. The matter contained in these quoted documents is very interesting and illuminating and might well have been presented to the General Assembly, but none of the matter contained in the pages referred to is authority, nor has it any bearing upon the questions raised here. The motion is, therefore, allowed.

On July 6, 1933, an Act of the General Assembly of the State of Illinois entitled “An Act in relation to the office of public defender in counties containing more than 500,000 inhabitants” was approved by the Governor of the State, and is now in force, giving the board of commissioners of Cook county the power to appropriate moneys for the purpose of furnishing counsel for indigent persons charged with the commission of crime. Cahill’s St. ch. 37, ¶ 539 et seq.

On July 18, 1933, appellee filed in this court a motion to dismiss this appeal upon the theory that because of the passage and approval of this act, the matter before this court has now become moot, and presents no issue which requires review and decision. We are unable to agree with counsel that the passage and approval of this act makes the issue raised here merely a moot question, and this motion to dismiss the appeal is denied.

In 1925 (Laws of 1925, p. 264, Cahill’s St. ch. 23, ¶ 446 et seq.) the General Assembly of the State of Illinois passed, and the Governor approved, “An Act to create, establish and maintain in counties having a population of 500,000 inhabitants or more, a bureau of public welfare, in aid of the powers and duties of such counties, and the powers, functions and authority of courts of record in such counties relative and pertaining to social service functions of said counties and said courts.” Section 2 of the above mentioned Act, Cahill’s St. ch. 23, ¶ 447, provided that: “The term ‘Social Service Functions’ employed and used in this Act shall be construed to embrace and include all powers, functions and duties of social service investigators and other social service officers and employees of said counties, authorized, conferred or imposed by law and pertaining to—

“(1) dependent children

(2) blind adults

(3) feeble-minded persons

(4) deaf and blind children

(5) paupers

(6) adoption of children

(7) insane persons

(8) illegitimate children

(9) minors

(10) Cases involving social, economic and hoine conditions, non-support, desertion and abandonment where the aid of the county or the jurisdiction of a court of record is invoked.

(11) The furnishing of social service and making provision of aid, food, clothing, medical attention or other relief to all persons in said county applying* for or in need thereof.” (¡Italics ours.)

In their answer it is claimed by defendants that the furnishing of legal aid to indigent persons charged with the commission of an offense against the State is authorized by the provisions of this act for “the furnishing* of social service and making provision of aid, food, clothing, medical attention or other relief to persons in said county applying* for or in need thereof,”; that the words “other relief” in the Act are authority for the making of such appropriations and the paying out of public moneys so appropriated for such purpose. It is also the claim of defendants that under the law, it is essential that a defendant in a criminal case be represented by competent counsel; that the furnishing of such counsel to indigent defendants is a form of social service contemplated by this Act, and that, therefore, the board of commissioners of Cook county in providing such counsel and appropriating* money out of public funds in the manner adopted, was in the performance of and is a part of their duty, therefore, authorized and justified.

As part of the defense to the bill filed herein, section 2, paragraph 754 of chapter 38, Cahill’s Illinois Revised Statutes, is set forth as follows:

“Every person charged with crime shall be allowed counsel, and when he shall state upon oath that he is unable to procure counsel, the court shall assign him competent counsel, who shall conduct his defense. In all cases, counsel shall have access to persons confined, and shall have the right to see and consult such persons in private.

“Whenever it shall appear to the court that a defendant or defendants indicted in a capital case, is or are indigent and unable to pay counsel for his or her defense, it shall be the duty of the court to appoint one or more competent counsel for said defendant or defendants, who shall receive a reasonable sum-for services, not to exceed fifteen dollars ($15.00) per day, for a period not exceeding five (5) days for necessary work performed in the preparation of said defense, and in addition thereto, not to exceed twenty-five ($25.00) per day, for each day actually occupied in the trial of said case, and the court shall, upon an accurate and true statement of services rendered, in writing, under oath, by such counsel, enter an order for said reasonable compensation, the total of which shall not exceed the sum of two hundred fifty dollars ($250.00) for any defendant, directing the county treasurer of the county to pay the same, whether the said defendant is convicted or acquitted; Provided, however, that no extra compensation shall be allowed in behalf of a defendant, if more than one counsel appear for said defendant.” (Italics ours.)

This act also provides as follows:

“In the event a writ of error is prosecuted and allowed by the Supreme Court and made a supersedeas for a capital offense when the sentence is death, the Supreme Court shall determine what reasonable compensation, if any, shall be allowed counsel for an indigent defendant, for services rendered in said case at the final disposition thereof, not to exceed the sum of two hundred fifty dollars ($250.00), and said court shall enter an order directing the county treasurer of the county where said case was tried, to pay the amount thereby allowed by said court.” Cahill’s St. ch. 38, ¶ 754 (1).

It is set forth in said answer that paragraph 828 (1) of chapter 38, Cahill’s Illinois Revised Statutes, provides :

“In any prosecution for a capital offense, where the sentence is death, the trial court, if satisfied that the person convicted is a poor person and unable to prosecute his writ of error and pay the costs and expenses thereof, shall enter an order that such person be allowed to prosecute his writ of error as a poor person and thereupon all necessary costs and expenses incident to such writ of error, including all court costs, stenographic services and printing, but not including fees or compensation for legal services, shall be paid by the county in which the conviction was had, upon the approval of the judge of such court.”

The answer further alleges that beginning with October 1, 1930, and ending September 30, 1931, the public defender’s- office defended 55 homicide cases and thereby saved the county, by reason of the fact that the county in said cases was not obliged to pay other counsel for the defense of these cases, approximately the sum of $13,750. It is further alleged in the answer that because of the public defender’s office securing trials without juries in 756 cases during said period, a saving estimated to be upward of $150,000 was thereby effected as a direct result of the work of the public defender’s office, and that because of these alleged savings the complainant herein has no right of action because of thex fact that in the creation of the public defender’s office and the payment of the moneys therefor, complainant has been financially benefited rather than hurt.

The Supreme Court, in Dudick v. Baumann, 349 Ill. 46, said:

“The right of a taxpayer to prevent misappropriation of public funds has always been recognized by this court on the grounds that in equity taxpayers are considered the owners of the property of the municipality, and whenever public officials threaten to pay out general public funds for a purpose unauthorized by law, or misappropriate such funds, and thereby cause taxes to be levied to make good the misappropriation, equity will assume jurisdiction to prevent such unauthorized act, as the taxpayers’ right in such case is not recognized by courts of law. (Fergus v. Russel, 270 Ill. 304; Jones v. O’Connell, 266 id. 443; Burke v. Snively, 208 id. 338; Beauchamp v. Kankakee County, 45 id. 274; Colton v. Hanchett, 13 id. 615.) ” (Italics ours.)

The right of a taxpayer to maintain a suit in chancery to enjoin and prevent the misappropriation of public funds is undoubted if he is subject to pecuniary loss thereby, but in the instant case, if the alleged facts set up in the answer are true, it may be that the taxpayer will not suffer such a loss.

By both the bill and answer it is indicated that of the $26,420 appropriated for the purpose of paying the salaries and expenses of the public defender’s division of the criminal court of Cook county at the time the bill was filed, $17,050 of such fund had already been expended, leaving an unexpended balance of $9,370 at the time the bill was filed, and it seems not to be disputed that an injunction will not issue to restrain the doing’ of an act which has already been done.

If it is true that during the period for which the alleged illegal appropriation was made, the public defender — in each case being’ appointed by the court,— defended 55 murder cases, when under the statute it was the duty of the board of commissioners of Cook county to make a minimum appropriation and payment for the employment of counsel for such purpose of $250 for each case, or $13,750, then this is a fact for the court to consider in passing upon the issues raised in this proceeding. It is also set forth in the answer that the work of the public defender’s office resulted in a saving to the taxpayers of Cook county of many thousands of dollars in various other ways. This is also a question to be considered upon a hearing. This court holds that the board of commissioners of Cook county was without power to create the department mentioned, and that the bill filed states a cause of action in equity, but as stated, the question as to whether or not complainant might suffer a pecuniary loss by any such an appropriation and can maintain her bill, presents a question of fact. The only question urged on the hearing was whether or not the board of commissioners of Cook county had the power to create the office of the department of public defender and to make the appropriations therefor, and the only questions considered by the court were whether or not there was equity in the bill and whether or not a temporary injunction should issue. The cause was submitted to the court on the bill, answer and general replication. The decree and order from which this appeal is taken is that the temporary injunction prayed for be denied, and that the bill of complaint, as amended, be dismissed for want of equity, and in this, the court was in error. '

In Leonard v. Arnold, 244 Ill. 429, the Supreme Court held that “On a motion for a preliminary injunction, a bill in chancery will not be dismissed unless the injunction is the only relief sought. (Hummert v. Schwab, 54 Ill. 142; Brockway v. Rowley, 66 id. 99.)”

In Brill v. Stiles, 35 Ill. 305, we find the following: “According to the uniform practice in courts of chancery, the equity of a bill can only be questioned on demurrer or on the hearing. Whether a bill shows a right to relief cannot be determined upon motion. In this case the cause should have been set down for hearing upon bill, answer, replication and proofs.”

In Vanderpoel v. Cravens, 139 Ill. App. 463, this court said: “A bill may be dismissed on the call of the docket for want of prosecution, but we know of no authority for the dismissal thereof for want of equity, after answer filed, without a hearing upon the merits. ” For the reasons herein set forth, the decree of the circuit court is reversed and remanded for a hearing upon the issues joined.

Reversed a/nd remanded.

Wilson and Hebel, JJ., concur.


text:
    Walter Turk, Appellant, v. Walter Bender, Appellee.
    Gen. No. 36,157.

      Opinion filed December 13, 1933.
    Louis Levy and P. F. Murray, for appellant.
    Thomas S. Hogan, for appellee.
   Mr. Presiding Justice Hall

delivered the opinion of the court.

This is an appeal from a judgment of the municipal court of Chicago, ordering the return of an automobile to defendant, levied upon in a replevin suit brought by plaintiff against defendant. The hearing below was had on an agreed statement of facts in substance as follows:

On February 16, 1932, defendant borrowed from plaintiff the sum of $200, gave plaintiff a note for $240 and a chattel mortgage on an automobile as security for the debt. The note was made payable in 10 monthly instalments of $24 each, the first instalment to fall due on March 16,1932. The mortgage provides that in the default of any instalment then at the option of the mortgagee, the entire note becomes due and payable. The first instalment, which fell due on March 16, 1932, was not paid. Plaintiff notified defendant that under the terms of their contract the whole amount became due, and demanded possession of the mortgaged automobile. In reply, defendant stated that because the note was usurious, plaintiff could not recover any amount, and defendant refused to pay. Plaintiff then demanded that defendant pay Trim $200, which defendant refused to do. Thereupon, plaintiff sued out a replevin writ and levied on the automobile.

The question to be determined by this court is whether or not the legal status of the payee and mortgagee is fixed and determined by section 6 of “An Act to revise the law in relation to the rate of interest, and to repeal certain Acts therein named” (Cahill’s Rev. St. 1931, ch. 74, ¶ 6, pp. 1729, 1730), which provides that where a rate of interest greater than seven per cent per annum is, contracted, only, the principal can be recovered, or, as appellee contends, by the terms of “An Act to license and regulate the business of malting loans of $300 or less, secured or unsecured, at a greater rate of interest than seven per centum per annum, prescribing the rate of interest and charge therefor and penalties for the violation thereof, and regulating the assignment of wages or salaries earned or to be earned, when given as security for any such loan.” (Cahill’s Rev. St. 1931, ch. 74, ¶ 27 et seq., p. 1731.) This latter act provides, in section 2 thereof, that persons operating under it shall be licensed, and that “if interest or charges in excess of those permitted by this Act shall be charged, contracted for or received by any licensee, the contract of loan shall be void, and the licensee shall have no right to collect or receive any principal, interest or charges whatsoever. ’ ’ There is no evidence to the effect that plaintiff is a licensee under this act.

Appellee insists that the note and mortgage- in this case are void as to the entire amount claimed, and cites as his authority the case of Raming v. Peyser, 259 Ill. App. 152. In that case, the facts were exactly similar to the case at bar, in so far as the making of the loan and the remedy pursued were concerned. There was a loan of $250, a note taken for $350, and a chattel mortgage on an automobile as security. However, we have examined the record in this court in that case and find that it was stipulated in the record that the plaintiff in that case was in the business of making loans, while in the instant case there is nothing in the record to indicate that such is or was the fact, but on the contrary, so far as indicated, this is the one and only loan ever made by the plaintiff. In its opinion, the court in Raming v. Peyser, supra, evidently having in mind that the plaintiff was engaged in the business of making loans, used the following language:

“The statute makes a transaction of this kind also illegal if made by a person who has not obtained a license and subjects him to fine and imprisonment. Under the provisions of the statute, the contract was illegal, whether made by a person licensed or unlicensed, and in either case the contract would be void. ’ ’ and People v. Stokes, 281 Ill. 159, is cited as authority for this holding. We have examined the opinion in People v. Stokes, supra, and we are of the opinion that the Supreme Court does not there hold that under the act in question, a single usurious loan made by a person, other than one engaged in the business of making loans, is a violation of this statute. If this were held to be true, then it must of necessity be held that the act in question amends section 6 of the Interest Act, Cahill’s St. ch. 74, ¶ 6, in so far as the rate of interest charged on loans of money under $300 is concerned. In People v. Stokes, supra, the following language is used regarding the act in question:

“In this act, the subject matter is fairly indicated by its title, and the provision against making a single loan may fairly be said to come within the purview of the title of the act. . . . The object of the law is not to regulate the rate of interest, but, on the contrary, is to regulate the business of making loans of small sums of money to wage earners and salaried people, and the provision as. to the rate of interest is only inserted as one of the incidents of such regulation. . . . It is a complete law within itself and not dependent upon the provisions of any other act for its enforcement. It is, therefore, in no sense an amendment of the interest law and cannot be held void as such.”

Further, the court says in that case:

“It does not abridge the right to contract except for usurious interest, but leaves all parties free to contract with anyone for a loan at a rate of interest not to exceed seven per cent, or for the higher rate of interest with all who choose to bring themselves within the provision of the act.” (Italics ours.)

The title of the act in question shows that its purpose is “to license and regulate the business of making loans of $300 or less,” and there is no proof that plaintiff was in such business. We hold that the statute in question has no application here. As the contract in question is usurious, in that it calls for the payment of interest at a higher rate than seven per cent per annum, therefore, the interest is all forfeited under section 6 of the Interest Act (Cahill’s Ill. Rev. St. 1931, ch. 74, ¶ 6) which controls, and the principal sum only can be recovered. The plaintiff in this case is entitled to recover $200, the amount loaned to defendant.

The case is reversed and remanded for action by the court in conformity with this opinion.

Reversed and remanded.

Wilson and Hebel, JJ., concur.


author: Mr. Justice Hebel

text:
    Joseph P. Creitz, Plaintiff in Error, v. James E. Bennett et al., Defendants in Error.
    Gen. No. 36,420.

      Opinion filed December 13, 1933.
    Behearing denied December 27, 1933.
    Alviu H. Culver and Orville E. Seiter, for pla.irit.iff in error; Orville B. Seiter, of counsel.

      Moses, Kennedy, Stein & Bachrach, for defendants in error; Walter Bachrach and Philip M. Click, of counsel.
   Mr. Justice Hebel

delivered the opinion of the court.

The plaintiff brings the judgment entered in this case to this court for review upon a writ of error to the circuit court of Cook county. It appears from the record that the declaration consists of three counts and two additional counts filed by the plaintiff, to which the defendants interposed general and special demurrers, which demurrers were sustained by the court, and a judgment of nil capiat was entered against the plaintiff. Thereafter the plaintiff moved to vacate the judgment and for leave to file third and fourth additional counts, which motion was denied by the court on the ground that the proposed additional counts failed to state a cause of action.

This action is brought by the plaintiff to recover damages from the defendants, by whom he was employed and who were engaged in the business of stockbrokers, on the theory that these defendants wrongfully and maliciously declined and refused to give the plaintiff a letter of clearance regarding the plaintiff’s business qualifications, honesty and record during the time he was employed by the defendants, as requested by plaintiff’s subsequent employer.

The first count and the first and second additional counts are predicated upon a general custom, which at the time of the plaintiff’s employment by the defendants and for many years prior thereto, had been, and is now, a general custom among all stockbrokers who are members of the New York Stock Exchange, to furnish to any other stockbroker, who is .a member of said Exchange, upon request of such other broker, full and complete information as to the business qualifications, honesty and record of any customer’s man who had been formerly employed by such broker whenever such former employee should apply to any such other broker for employment as customer’s man; and when the record of such former employee so justified, it was, and is, the custom for the former employer to give what is known in said trade as a “letter of clearance, ’ ’ and it is alleged in the first count and the first and second additional counts that the existence of said custom was well known to the defendants at the time of the defendants’ employment of the plaintiff, and that-the defendants, wilfully, knowingly and maliciously continued to refuse to give plaintiff a letter of clearance and to state facts as to plaintiff’s record while employed by the defendants to any other broker or person from whom the plaintiff was seeking employment.

The second and third counts are on the theory that the words spoken by the defendants to the plaintiff’s subsequent employer injured the plaintiff in Ms business and caused the subsequent employer to discharge plaintiff.

The proposed third and fourth additional counts are that the defendants’ words and actions and concealment of the truth constituted a wrongful interference with plaintiff’s business and resulted in plaintiff’s being discharged by his subsequent employer and permanently prevented him from obtaining any other employment as a customer’s man.

The writ of error issued in this case was made returnable to the Supreme Court of the State of Illinois, and in the consideration of the cause, the court by its opinion and order transferred the instant case to this court (Creitz v. Bennett, 350 Ill. 32) for the reason that there is no constitutional question involved in the proceeding such as would justify a direct appeal to the Supreme Court, and the cause was one for this court’s consideration.

The first contention called to our attention by the plaintiff in this cause is that where there is a general custom among a certain class of employers and employees in a business to furnish information pertaining to the record of former employees to subsequent employers, such custom becomes an implied part of all contracts of employment in such business, and failure to furnish such information by the former employer to subsequent employers is actionable, where such information is maliciously refused and causes damage.

- The plaintiff in support of this contention, among other authorities, relies upon the opinion delivered by the court in the case of Cleveland, C., C. & St. L. Ry. Co. v. Jenkins, 174 Ill. 398, as being, in part, conclusive. The court said:

“The declaration contains one count, and avers a cause of action in case arising out of a contract. It avers the usage or custom existing upon the road of defendant and other roads, whereby a discharged employee is entitled to such letters, showing the time of service, reason for discharge, etc., thus averring a contractual relation, out of which, as alleged, arose the duty, when such contractual relation was severed, to give a letter or clearance card for the purpose stated. The theory proceeded upon by plaintiff, as charged in the declaration, was, that after his discharge he was entitled to such a clearance card, which was refused him, and without which he could not secure employment on other roads, whereby occurred the damage stated. ’ ’

In passing* upon the allegations in the declaration, the court further said:

“The gravamen of the declaration in this case is, that the plaintiff was discharged and refused a clearance card or letter to which he was entitled, without which he could not obtain employment on any other road, and that he failed to obtain such employment, whereby he suffered damages. The declaration avers a cause of action on the case arising out of a contract. It avers a contractual relation, out of which, as alleged, arose the duty, when such contractual relation was severed, to give a letter or clearance card for the purpose stated. Unless the law imposes on appellant, in some form, the duty to give appellee, as one of its employees, a letter of recommendation or clearance card, his action in this case cannot be sustained. If a legal duty is imposed upon the employer to give to a discharged employee, or one voluntarily leaving his service, a letter of recommendation, such duty must arise either by the common law, by statute, by contract of employment, or by such a generally established usage or custom as would demand it be done. Such usage, however, must be so well known and uniformly acted upon as to raise a fair presumption it was intended to be incorporated in the contract of employment. ’ ’

In the consideration of plaintiff’s contention, this court will, of course, consider the facts well pleaded as admitted by the defendant’s demurrer, so that the custom alleged in the pleadings will be regarded as admitted for the purposes of the demurrer. It is the general rule of law, as applied to this case, that the duty to give an employee a clearance card or a letter of clearance must arise out of the contract of employment, or be required by usage or custom. The common law does not impose such a duty upon the employer. The declaration must therefore allege a duty on the part of the employer to give a letter of clearance by reason of the custom alleged.

Upon an examination of this pleading, the plaintiff has alleged that he was employed as a customer’s man by the defendants, and that at the time of his employment there was a general custom among the brokers on the New York Stock Exchange to furnish members of the Exchange information as to the business qualifications, honesty and record of such customer’s man formerly employed by such broker. It further appears from the allegation that whenever such former employee shall apply to any other broker for employment, as a part of such custom, when the record of such former employee would justify, the former employer is to issue a letter of clearance.

We are inclined to the view that the custom as alleged by the plaintiff is a part of the contract entered into between the plaintiff and the defendants, and that the plaintiff is entitled to a letter of clearance, provided, of course, he comes within the provision of the custom alleged by him in his declaration, and that duty required the defendants to act.

The question to be inquired into by this court is: Do the allegations in the declaration establish a duty to be performed by the defendants, a violation of which would justify the plaintiff’s action! This duty arises from the custom alleged in the first count of the declaration, that the defendants shall issue a letter of clearance if plaintiff’s record justifies; and in the first and second additional counts, that such letter will follow if the plaintiff has discharged his duty under such employment efficiently and honestly.

A fair construction of the language used by the plaintiff in the declaration is that it does not undertake to impose upon the defendants the absolute duty of issuing a letter of clearance when asked for, but, in the first count, that the letter shall be issued when the record of the plaintiff justifies the issuance of such letter; and, in the other counts, that this duty shall be performed by the defendants when the plaintiff discharges his duties honestly and efficiently. The deeision based upon these allegations is left entirely with the defendants.

Can the failure of the defendants to issue a letter of acceptance be considered in and of itself a wilful act such as is alleged in the declaration? It was within the discretion of the defendants, and in the exercise of such discretion can we say that the defendants abused this right when they failed to give the information to the alleged inquiring broker? There is no allegation which would justify such a conclusion. There must be a duty imposed by law upon the defendants before the plaintiff can recover for a breach thereof.

The duty alleged in the declaration is not such that a breach thereof would justify the plaintiff in maintaining his action. This court agrees with the plaintiff that the custom was an implied part of the contract of employment. The parties contracted with reference to this custom, and the law is well established that general custom in the conduct of business becomes an implied part of the contract between the parties engaged in the business to which the custom applies unless it appears from the contract that the intention of the parties was that the custom did not enter into and become a part of the contract.

An examination of the allegations of the declaration clearly indicates that the general custom existed at the time of the employment of the plaintiff, and entered into and became an implied part of the contract, but what facts would state a cause of action based upon the failure to furnish the information called for, is not for this court to decide. What this court does conclude is that the duty as alleged in the declaration does not constitute a cause of action.

The plaintiff in support of the second and third counts, designated the defamation counts, contends that the alleged defamatory words impute a want of integrity and skill or capacity to the plaintiff in his business or employment, and are, therefore, actionable, even though such words would not be actionable if spoken of plaintiff personally, and cites Newell on Slander, sec. 129, which is as follows :

“Defamatory words falsely spoken or written of a person, which impute to him unfitness to perform the duties of an office or employment of profit, or the want of integrity in the discharge of the duties of such an office or employment, are actionable in themselves without proof of special damages; and so, too, are defamatory words falsely spoken of a party which prejudice such party in his or her profession or trade. ’ ’ (Citing authorities.)

However, in the discussion of the words alleged to have been used by the defendants, it is well to have in mind that the alleged slanderous words, when susceptible of it, will receive an innocent construction by interpretation, and the alleged slanderous words cannot be, by innuendo, extended beyond a reasonable construction, and in determining the meaning of the spoken words, they are to be taken in the sense which persons of common and reasonable understanding would ascribe to the words in their ordinary and common acceptation. LaGrange Press v. Citizens Publishing Co., 252 Ill. App. 482; Fulrath v. Wolfe, 250 Ill. App. 130.

The words alleged to have been spoken of the plaintiff are:

Q. “What was Creitz’ record while with you?”

A. ‘ ‘ He could not work for us again. ’ ’

Q. ‘ ‘What is the matter with him? ’ ’

A. “We do not care to talk about it.” which words are alleged in the second and third counts of the declaration to have been spoken by the defendants ’ agents, and interpreted to mean by innuendo that the plaintiff was accused, in the second count, of dishonest and fraudulent acts while in the employ of the defendants, and in the third count the same words are interpreted by innuendo to mean that the plaintiff was accused of having been faithless, incompetent and lacking in diligence.

The above quoted words are in and of themselves not slanderous unless a meaning may be ascribed to the words which would be susceptible of a meaning to the injury of the plaintiff in the business or work in which he was engaged.

In reply to the question concerning plaintiff’s record, the words that the plaintiff could not work for the defendants again, cannot be interpreted to mean that the plaintiff was dishonest or incompetent, but rather that the spoken words were susceptible of an innocent meaning by interpretation. When the question was put to the defendants’ agent, “What is the matter with him?” (the plaintiff) he replied, “We (the defendants) do not care to talk about it.” It is obvious that the words in and of themselves are not slanderous; there was no duty to answer further. The counts of the declaration do not allege or impose upon the defendant a duty to speak, and even by innuendo the words cannot be extended to be slanderous. Words are always to be taken in the sense which persons of common and reasonable understanding would ascribe to them; that is, in the ordinary and common meaning of the spoken word.

The plaintiff offered the proposed third and fourth additional counts in support of a motion to vacate the judgment of nil capiat entered by the court upon sustaining the general and special demurrers, and for leave to file these additional counts, designated by the plaintiff as wrongful interference counts alleging interference with the contract of employment between the plaintiff and his then employer, upon the theory that even though the words spoken were not defamatory, as a matter of law, nevertheless he may maintain the cause against the defendant as a special action based upon malicious acts without justifiable cause, to the plaintiff’s damage. In support of this theory the plaintiff cites the case of Doremus v. Hennessey, 176 Ill. 608, wherein the court said:

“The common law seeks to protect every person against the wrongful acts of others, whether committed alone or by combination, and an action may be had for injuries done which cause another loss in the enjoyment of any right or privilege or property. No persons, individually or by combination, have the right to directly or indirectly interfere or disturb another in his lawful business or occupation, or to threaten to do so, for the sake of compelling him to do some act which, in his judgment, his own interest does not require. Losses wilfully caused by another, from motives of malice, to one who seeks to exercise and enjoy the fruits and advantages of his own enterprise, industry, skill and credit, will sustain an action. It is clear that it is unlawful and actionable for one man, from unlawful motives, to interfere with another’s trade by fraud or misrepresentation, or by molesting his customers or those who would be customers, or by preventing others ,from working for him or causing them to leave his employ by fraud or misrepresentation or physical or moral intimidation or persuasion, with an intent to inflict an injury which causes loss.”

The plaintiff suggests that the same principle announced by the Supreme Court in the case of Doremus v. Hennessey, supra, is stated by the Supreme Court in the case of Carlson v. Carpenter Contractors’ Ass’n, 305 Ill. 331, in these words:

“The law seeks to protect every person against the wrongful acts of others, whether committed alone or by combination, and an action may be had for injuries done which canse another loss in the enjoyment of any right of privilege or property.”

This court has intimated that the words hereinbefore set forth are not defamatory, as alleged in the second and third counts, and therefore the question is: Did the words used, as alleged in the proposed third and fourth additional counts, constitute an affirmative interference with plaintiff’s business relations 1 The pertinent allegation of the proposed additional counts is to the effect that under the regulations and practices of the Committee on Quotations and Commissions of the New York Stock Exchange said Committee would not approve the application of any customer’s man for employment with any stockbroker who was a member of the New York Stock Exchange unless all of the former employers of said applicant clearly and affirmatively advised prospective employers that such applicant had discharged his duties to former employers efficiently and honestly.

It further appears from the pleading that on March 27, 1931, A. 0. Slaughter, Anderson & Fox of Los Angeles, California, were stockbrokers and members of the New York Stock Exchange, and employed plaintiff as a customer’s man for the sale and purchase of corporate stocks and bonds, at a starting salary of $300 a month, conditioned that an investigation of plaintiff’s record with former employers established the fact that plaintiff had discharged his duties efficiently and honestly, and that the Committee on Quotations and Commissions would approve his employment by his then employer; that said firm then informed defendants that they had employed plaintiff as a customer’s man, and inquired of the defendants as to the plaintiff’s record while in the employ of the defendants; that the defendants knowing that the plaintiff had discharged his duties under such employment with defendants efficiently and honestly, and knowing that plaintiff could not obtain employment without the approval of his former employers, the defendants wrongfully, wilfully and maliciously, intending to injure the plaintiff in his said business, in response to the inquiry of A. 0. Slaughter, Anderson & Fox as to the plaintiff’s record, falsely and fraudulently represented that the plaintiff had not discharged his duties as a customer’s man during his employment with the defendants efficiently and honestly, and that in response to the inquiry of said A. 0. Slaughter, Anderson & Fox, made replies to the questions hereinbefore stated and charged in the allegations of the defamatory counts of plaintiff’s declaration, and thereby caused the damage and wrongful interference with the plaintiff’s business relations.

The theory of the plaintiff is predicated upon the questions and answers alleged in the second and third counts, designated as the defamatory counts, which we have considered, and for the reasons stated in this opinion we conclude that the words used were not defamatory, and that the plaintiff did not state a cause of action as set forth in said counts. The words not being defamatory, the defendants did not interfere with the plaintiff’s employment. No threats were alleged, nor does it appear in the proposed additional counts that the defendants were charged with an affirmative interference with plaintiff’s business; nor is there an allegation which would, indicate that the defendants’ act was that of blacklisting.

We quite agree that the case of Doremus v. Hennessey, supra, is good law, but it is not decisive on the questions involved in the proposed third and fourth additional counts. In our opinion the allegations set forth in these counts are not sufficient for the purpose offered, and the court did not err in refusing to vacate the judgment for the purpose of permitting the plaintiff to file the proposed additional counts.

For the reasons indicated in the opinion, we are satisfied that the court did not err in sustaining the general and special demurrers filed to the first and first and second additional counts, and the second and third counts of the declaration, and did not commit error in refusing to vacate the judgment to permit the filing of the proposed additional counts. Therefore, the judgment of the trial court is affirmed.

Judgment affirmed.

Hall, P. J., and Wilson, J., concur.


author: Me. Justice Hebel Hall, P. J., and Wilson, J.,

text:
    Oscar B. McGlasson, Appellant, v. Durand-McNeil-Horner Company, Now Known as Fairbanks Court Wholesale Grocery Company, Appellee.
    Gen. No. 36,441.
    Opinion filed December 13, 1933.

      Alfred Roy Hulbert, for appellant.
    Mayer, Meyer, Austrian ,& Platt, for appellee.
   Me. Justice Hebel

delivered the opinion of the • court.

This is an appeal from a judgment of $550 entered by the court in favor of the defendant upon his plea of set-off. The plaintiff’s action against the defendant is upon a written contract, by the terms of which the defendant employed the plaintiff as its general counsel for a period of five years from October 1,1926, at an annual retainer of $3,000, payable in instalments of $250 a month.

It is alleged in the plaintiff’s declaration that in pursuance of the contract, the defendant paid the plaintiff $250 a month from October 1, 1926, until February, 1929, when the defendant refused to continue payments from that time until the end of the contract period, which was September 30, 1931.

The defendant filed a plea of the general issue, supported by an affidavit of merits, together with a plea of set-off. A trial was had before the court without a jury, which resulted in a judgment for the defendant.

The pleading in this proceeding is not questioned by either of the parties. The contract in question provides that the defendant: .“hereby retains the said Oscar B. McGlasson (the plaintiff) as its general counsel for a period of five years, from October 1, A. D; 1926, up to and including September 30, A. D. 1931, at a retainer of Three Thousand ($3,000) Dollars for each of said five years for the corporation and said retainer shall be paid in monthly installments of Two Hundred Fifty Dollars ($250) per month, payable on the first day of each and every month, during the said period of five years.” The last payment of $250 under the terms of the contract was for the month of January, 1929. The plaintiff’s action is for the unpaid balance of $8,000, which the plaintiff contends was due and payable by the terms of the contract. The plaintiff at the time of the institution of the suit was a stockholder and a director of the defendant, in addition to being general counsel for this corporation. He was retained as such by the defendant, and received the retainer payable in monthly instalments until February, 1929.

The plaintiff, in February, 1929, sold his stockholdings in the defendant company and received therefor an approximate sum of $23,000. During the time the plaintiff was retained as general counsel for the defendant company he was also a cotrustee, together with the Union Bank of Chicago, for Charles McNeil, a, brother-in-law of the plaintiff. Certain of the McNeil properties, which included preferred stock of the defendant company, were held by the trustees until about September 19, 1928, when the plaintiff resigned, with his cotrustee, the Union Bank of Chicago. Thereafter, Judge Charles F. McKinley, formerly of the municipal court of Chicago, and the American Safe Deposit Company were appointed successors in trust for Charles McNeil, and received the trust properties.

It appears from the evidence that the defendant had not paid dividends upon its preferred stock for a period of several years. The plaintiff discussed the question of the payment of dividends with Charles McNeil, his brother-in-law, prior to the plaintiff’s resignation as a trustee of the McNeil trust estate, and also discussed the matter with John J. McMahon, who was retained by McNeil as his attorney. These discussions took place in July or the early part of August, 1928. It became apparent from these discussions that the plaintiff could not be a party to a suit to force the company to pay dividends without jeopardizing his contract for services as attorney for the defendant company.

It further appears from the evidence of Judge Charles F. McKinley that in a conference with the plaintiff he indicated to those present that he, the plaintiff, would like to see McNeil get his money; that the plaintiff was willing and wanted to help McNeil, but could not do so openly because of his position with the company. The plaintiff also furnished financial statements of the defendant to John J. McMahon, attorney, and also furnished him with the case of Cratty v. Peoria Law Library Ass’n, 219 Ill. 516, authority for an action to compel the payment of dividends. There is evidence in the record that the plaintiff advised McMahon he had no doubt that by the filing of a bill, a sufficient showing could be made to cause the court to appoint a receiver, and used these words:

“If you (McMahon) can get a friendly judge maybe you can get — maybe I can get in as receiver, and we can work something out of this.”

The plaintiff appreciated the fact that he could not as an attorney represent diverse causes at the same time. As a trustee for McNeil he had certain duties to perform and when called upon by him to demand that the defendant declare a dividend and pay to the estate of McNeil certain dividends due, he, the plaintiff, was in a position where he had to determine whether he could represent the cause of his brother-in-law McNeil, or that of the defendant. He, however, after a conference with the parties in interest, properly resigned, but unfortunately did not cease advising and encouraging the attorney for McNeil to proceed by suit to compel the defendant to declare and pay dividends on the stock of McNeil, which was a part of the trust estate. This action would benefit the plaintiff as owner of stock in the defendant company. He offered his services, but not to act openly to aid in the proceeding to compel the declaration of dividends. He Went so far as to suggest that McMahon file a bill in equity, and the possibility of a friendly judge appointing the plaintiff as receiver of the defendant. This action violated a duty to his client, the defendant, and it was not ethical for him to serve an adverse interest. The plaintiff’s motives may have been honest, as he believed the defendant was financially able to declare dividends. However, as a stockholder, his was a selfish interest in the matter of dividends, and the suggestion of' his appointment as receiver was not proper, and certainly was not consistent with his duty to the defendant.

The opinion of the court in the case of Strong v. International Bldg. Loan & Invest. Union, 183 Ill. 97, is pertinent in the instant case upon the question of the duty of the plaintiff to Ms client, the defendant, and it is declared:

“Attorneys at law cannot thus accept employment from adverse litigants at the same time and in the same controversy. Nor does it matter that the intention and motives of the lawyers are honest, as we fully believe them to have been in the present instance. The rule is a rigid one, and designed not alone to prevent the dishonest practitioner from fraudulent conduct, but as well to preclude the honest practitioner from putting Mmself in a position where he may be required to choose between conflicting duties, or be led to an attempt to reconcile conflicting interests rather than to enforce to their full extent the rights of the interest which he should alone represent.”

The plaintiff also contends that he should have been granted a new trial by the court on the ground of newly discovered evidence. Affidavits of the plaintiff and of Charles McNeil were considered by the court in passing upon the motion. During the course of the trial there was evidence regarding the delivery of the file of the McNeil estate, which contained financial statements and clippings of the company, by the plaintiff to McMahon, the attorney. The affidavits are to the effect that McNeil delivered the file to McMahon. Proper diligence is not shown by the affidavits, especially when we consider that there is no showing by the plaintiff of his inability to produce McNeil as his witness upon the trial. The significant fact in this case is, however, that McMahon received the file containing information which was in the possession of the plaintiff as trustee, and this court is of the opinion that because of failure of the plaintiff to show proper diligence and inability to produce McNeil, the trial court did not err in refusing to grant a new trial on the ground of newly discovered evidence.

It is suggested by the defendant that the judgment entered upon the defendant’s plea of set-off for the sum of $550, admitted by the plaintiff to be due for monies collected, should have been against the plaintiff for $1,800, this amount to include the sum received at the rate of $250 a month for a period of five months. The defendant paid the monthly payments required by the contract during the time plaintiff was urging and aiding the institution of an action to compel the payment by the defendant of dividends. Such acts were unknown to the defendant when the payments were made. Public policy requires that the plaintiff, under the circumstances, refund the sum of $1,250 received from the defendant as its counsel during that time.

The trial court did not err in its finding denying the plaintiff the right to recover the balance of the amount alleged to be due under the retainer contract with the defendant. Strong v. International Bldg. Loan & Inv. Union, supra. It necessarily follows that the defendant upon its plea of set-off should recover the amount paid to the plaintiff during the time the plaintiff failed in his duty to the defendant under the contract between the parties. This the trial court did not allow, and for this error a' proper judgment will be entered by. this court. The judgment of the trial court is therefore reversed in part, and, on cross error assigned by the defendant, judgment will be entered in this court for $1,800 in favor of the defendant and against the plaintiff, which includes the amount of $550 allowed by the trial court upon the defendant’s plea of set-off.

Reversed in part on cross error and judgment in this court with a finding of fact.

Reversed in part and judgment here with a finding of fact.

Hall, P. J., and Wilson, J.,

concur.

Finding of fact: The court finds as a fact that the plaintiff was retained by defendant as its counsel upon a written contract of retainer at an annual sum of $3,000, payable in monthly^ instalments of $250; that during the months of September, October, November and December, 1928, and January, 1929, the plaintiff conferred with and advised Charles McNeil and his attorney regarding the filing of an action against the defendant to compel the defendant to pay dividends on the preferred stock of the defendant corporation, which was in violation of his duty as attorney for the defendant under the contract between the parties, and in doing so the plaintiff acted unknown to the defendant at the time the monthly payments were made; that for the period from September 1, 1928 to February, 1929, for the money received by the plaintiff a proper judgment will be entered upon the plea of the defendant’s set-off, the sum of $1,250 will be added to the $550 allowed by the trial court, and judgment for the sum of $1,800 will be entered.


text:
    Schick-Johnson Company, Appellee, v. Central Republic Bank and Trust Company, Appellant.
    Gen. No. 36,465.
    Opinion filed December 13, 1933.
    Fisher, Boyden, Bell, Boyd & Marshall, for appellant ; David A. Watts and Wm. G. Blood, of counsel.
    White & Hawxhurst, for appellee.
   Mr. Justice Hebel

delivered the opinion of the court.

The plaintiff’s suit is a fourth class action in the municipal court of Chicago, and is based upon defendant’s certification of a check. The case was tried without a jury, and at the close of the evidence the court overruled the defendant’s motion for a finding, and. entered a judgment upon a finding for the plaintiff in the sum of $297.87 and costs of suit. From this judgment the defendant perfected an appeal to this court.

Plaintiff’s statement of claim is based substantially upon the certification of a check by the defendant, and failure to pay upon presentation the amount of the check to the plaintiff, and alleges a telephone promise by the defendant to certify the check upon presentation, and that relying upon that promise the plaintiff released collateral security to the drawer of the check.

The defendant’s affidavit of merits alleges that the check was certified by mistake after the drawer of the check stopped payment; denies that a telephone promise was made to certify, and alleges that the plaintiff’s position was not changed because of the alleged promise to release the collateral.

The evidence is, in substance, that the check was delivered to the plaintiff on the afternoon of June 24, 1932, and that the plaintiff at that time surrendered the possession of certain contracts which it held for security purposes; that at 8:30 the next morning the defendant received a stop payment order from the drawer of the check, which was taken to the paying teller’s cage about 9:10 a. m.; that the check was presented for certification shortly before 10:00 a. m. ; that there was a large number of stop orders that morning, and that the teller failed to notice the stop order in his cage and certified the check. The check itself shows that it was shortly afterwards deposited in the First National Bank of Chicago by the plaintiff, presented for payment in the clearings two days after the certification, and upon presentation payment was refused and the check stamped, “payment stopped.”

The possession of a certified check creates a sense of security in the holder. He, the holder, knows that the bank has the amount of money of the drawer on deposit in the bank; that his account is charged with the amount so certified, and that the bank will pay the amount called for by the certified check.

By common usage business men uniformly have accepted and treated a certified check as so much cash. When the check was presented by the plaintiff to the paying teller of the defendant bank, the plaintiff was entitled to receive the amount of the check in cash, but instead of demanding payment in cash the plaintiff accepted the certification of the check. All this was done during the regular banking hours of the bank. The evidence is silent as to any representation, nor is there any intimation that the plaintiff induced or took an unjust advantage of the defendant bank. The plaintiff did not deceive the bank. The drawer had money on deposit sufficient to pay the amount called for by the check. This the defendant bank acknowledged when it certified the check.

In an opinion on this same question, in the case of Carnegie Trust Co. v. First Nat. Bank of City of New York, 213 N. Y. 301, Mr. Justice Cardozo (now a Justice of the U. S. Supreme Court), while sitting as a Justice of the Court of Appeals of New York, said:

“If the bank that made the payment has a cause of action for money paid under mistake, it must invoke that remedy directly. It cannot accomplish the result indirectly by inducing the defendant to repudiate the acceptance.

“Any other conclusion would be destructive of the value and efficiency of certified checks. By common use such checks are treated for most purposes as the equivalent of cash (White v. Eiseman, 134 N. Y. 101, 107). It would be an unfortunate rule that would impair their ready acceptance in the transactions of commerce. If the holder of a check, after procuring it to be certified by a bank, may be required to litigate the question whether the maker of the check had a right of counterclaim or set-off, the transaction has not been safely closed until the cash has been collected. That has not heretofore been supposed to be true. In the words of Peckham, J., in First Nat. Bank of Jersey City v. Leach (52 N. Y. 350, 353): ‘The bank virtually says that check is good; we have the money of the drawer here ready to pay it. We will pay it now, if you will receive it. The holder says no, I will not take the money; you may certify the check and retain the money for me until this check is presented. ’ If the bank may resist payment whenever the drawer has omitted to take advantage of a right of set-off, the holder’s safety is illusory.”

If the drawer after the issuance of a check can for any reason, or even without reason, stop payment, the holder’s confidence in a certified check will he shattered.

The plaintiff in the instant case maintained that there were sufficient funds of the drawer in the bank to apply upon the check at the time the defendant’s teller certified the check, and that the drawer was thereafter permitted to withdraw the amount from its account. That is not the issue in this case. The defendant’s liability is to be determined upon the facts in evidence that led to the certification of the check and the bank’s failure to pay.

The contention of the defendant is that the check having been certified by mistake, and since the right of third parties have not intervened, the certification may be revoked; and, in support of this position, the case of National Plumbing & Heating Supply Co. v. First Nat. Bank of Chicago, 260 Ill. App. 431, is cited. From the evidence in that case we are not satisfied that the holding is applicable to the instant case. The facts as they appear from the evidence offered by the defendant bank and hereinabove, in part, set forth, are that Harry H. Dobry, drawer of the check, had business dealings with the plaintiff, and the plaintiff held instalment contracts which Dobry had with certain purchasers of fixtures. These instalment contracts were delivered by Dobry to the plaintiff and held by it as collateral security, and in order to obtain possession of these contracts from the plaintiff, Dobry, on June 24, 1932, late in the afternoon, issued the check in question and obtained the instalment contracts from the plaintiff. On the morning following the date of the check, Dobry called the bank by telephone about 8:30, and told the person answering the telephone to stop payment on the check issued by him, Dobry. This evidence clearly indicates that the drawer in order to obtain possession of the collateral, issued the check late in the afternoon after banking hours, and at the time never intended that payment of the check should follow. The act of the defendant in endeavoring to stop payment on the check before banking hours the following morning, after the check had been accepted in good faith by the plaintiff, sustains this conclusion.

The evidence was offered as a part of the defense of the defendant bank in order to support its reason for refusing payment of the certified check. Under these facts there is no theory of law upon which the drawer of the check was justified in stopping payment, and upon this same evidence offered in defense, the defendant was not justified in refusing payment of the certified check in evidence.

The judgment of the trial court is therefore affirmed.

Judgment affirmed.

Hall, P. J., and Wilson, J., concur.