text:
    Mollie Weinberg et al., Appellees, v. Marie Larson et al., Appellants.
    Gen. No. 37,155.

      Opinion filed June 15, 1934.

      Louis Jaeee, for appellants.
    No appearance for appellees.
   Mr. Presiding Justice Sullivan

delivered the opinion of the court.

January 16, 1926, a decree was entered by Judge Ryner in the circuit court in favor of Marie Larson, defendant in the instant case (complainant in the original proceeding) against Sam and Rose Weinberg, and others, confirming and foreclosing the lien of a certain contract against the real estate described in the decree, and directing that upon the failure of the defendants or any of them to pay the amount found to be due under the decree the master should sell the real estate. February 3, 1926, Mollie Weinberg, the daughter of Sam and Rose Weinberg, originally named a defendant but who had been dismissed out of the case January 15, 1926, because it had been discovered that she had conveyed whatever interest she had in the property to her parents September 19, 1925, filed a petition to vacate the decree of January 16, 1926, alleging inter alia that she was the owner of the premises, and that notwithstanding the fact that her answer was on file the decree was entered without notice to her.

February 8,1926, she procured the entry of an order ex parte by Judge Ryner vacating the decree. March 1, 1926, upon being apprised of the fact that Mollie Weinberg had no interest in or title to the premises at the time the decree was entered or when she filed her petition to vacate, Judge Ryner vacated his last previous order and reinstated and confirmed the decree of January 16, 1926. The record discloses that Sam and Rose Weinberg conveyed their title to one Murray Xaxmer, and others, by quitclaim deed November 23, 1932.

March 29, 1927, Mollie Weinberg filed what purported to be a bill of review to review the decree heretofore mentioned, to which bill and amended bills thereafter filed demurrers were successively sustained by four chancellors. of the circuit court. An amended bill of review was filed August 15, 1927, not by Mollie Weinberg, but in the name of Sam and Bose Weinberg and signed and sworn to only by Sam Weinberg, which alleged, among other things, that when the decree in favor of Marie' Larson was entered in the original cause Sam and Bose Weinberg had on file demurrers which had not been disposed of, that the decree was entered without notice to them and that the decree of sale was a fraud and imposition, and prayed that the original decree be vacated and set aside. An amendment to this last amended bill of review was filed April 30, 1928, which contained certain other allegations of fraud in procuring the entry of the original decree, as well as in connection with the transactions upon which the decree was predicated.

Marie Larson’s demurrer was sustained to this fourth amended bill of review as amended by Judge Philip L. Sullivan, May 31, 1928, and the record is silent as to the filing of any further amended bill. The cause next came up January 28, 1929, before Judge Sullivan, to whose calendar it had been assigned, and the following order was entered:

‘ ‘ On motion of Joseph Bosenstein, solicitor for plaintiff, due notice having been served as to the pendency of this motion, it is hereby ordered that the' same be and is hereby continued until Wednesday, January 30th, 1929, without further notice.

(Sgd) Philip L. Sullivan,
Judge. ’ ’

Notwithstanding that the demurrer had been sustained to the last filed amended bill as amended, notwithstanding that the cause was assigned to Judge Sullivan, and notwithstanding the foregoing order, the solicitor for the Weinbergs, without proper notice to the solicitor for Marie Larson, procured the entry of the following order by Judge William V. Brothers, January 31, 1929:

“On motion of Joseph Rosenstein, solicitor for plaintiff, said notice having been served of the pendency of this motion,

“It Is Ordered that the defendant, Marie Larson (be) ordered in default for want of answer.

(Sgd) Wm. V. Brothers,
Judge. ’ ’

In spite of the foregoing order of default entered by Judge Brothers, we next find complainant’s solicitor appearing again before Judge Sullivan, May 15, 1931, and having this order entered:

“On motion of Joseph Rosenstein, solicitor for complainant, upon due notice having been served upon the solicitor for Marie Larson, it is hereby ordered that the motion for default and decree be filed and continued for one week, (th)at is, May 22, 1931.

(Sgd) Philip L. Sullivan,
Judge.”

No further action was taken as to the default and decree until December 21, 1932, when a decree was entered by Judge Brothers based ostensibly on the amended bill of review as amended, to which a demurrer had theretofore been sustained by Judge Sullivan, which decree not onlyvacated the decree entered in favor of Marie Larson January 16, 1926, but dismissed her bill of complaint in that case for want of equity.

The December term of the circuit court did not expire until January 16, 1933, and January 12, 1933, Marie Larson moved to vacate the decree of December 21, 1932, and her motion was continued to January 26, 1933. On the last mentioned date she filed her verified petition to vacate, alleging all of the matters heretofore stated, and particularly that none of the Weinbergs had any interest in the premises December 21, 1933, when the decree was entered, that would'justify a decree in their favor. March 13, 1933, her motion to vacate the decree of December 21, 1932, was denied on the ground that the term had passed at which the decree was entered and that the court was without jurisdiction.

This appeal seeks to reverse the order of March 13, 1933, denying the motion to vacate the decree of December 21, 1932, as well as to reverse that decree itself.

We deem it unnecessary to discuss the original decree of January 16, 1926, except to state that after the denial of Mollie Weinberg’s petition to vacate, that decree stood in full force and effect as a final adjudication of the matters presented in that cause for determination.

The original bill of review signed by Mollie Weinberg was abandoned by her, the last amended bill being signed only by Sam Weinberg, and the amendment thereto by Sam and Bose Weinberg. The bill of review was not filed until March 29, 1927, more than 14 months after the decree of January 16, 1926, which it sought to impeach, and the law is settled that a bill of review to impeach a decree comes too late after a delay of more than a year after the original decree was entered. (Slosson v. Slosson, 192 Ill. App. 259.)

The record shows conclusively that when the decree which assumed to be predicated upon the amended bill of review was entered, none of the Weinbergs had any interest in or title to the property, and the last amended bill as amended contained no allegation that any of them still owned an interest in the premises or had warranted the title thereof, and neither did the decree find that they or any of them had any equity or interest in the property. Ño person can file a bill of review who has no interest in the question intended to be presented by such bill, or who cannot be benefited by the reversal or modification of the former decree. Complainants must show the existence of some equity or interest which would entitle them to maintain a bill of review. (Wilkinson v. Gage, 40 Ill. App. 603.)

The sole province of a bill of review is to open up or set aside a decree in a former suit so as to permit a defense which through no fault of defendant was denied in the former case. The bill of review cannot serve to function as a writ of error or an appeal to a higher court. (Regner v. Hoover, 318 Ill. 169.) The law is settled that it is improper and reversible error to hear the whole case on a bill of review and to dismiss the bill of complaint in the original cause for want of equity as was done here. (Burgess v. Pope, 92 Ill. 255.)

Although the decree of December 21, 1932, found that Marie Larson’s demurrer to the bill of review was overruled and that she was ruled to answer the bill within 20 days from November 3, 1928, and was in default for failure to so answer, the record presented to this court discloses that there was no bill pending Tie-fore the court when the decree was entered, a demurrer having been sustained May 31, 1928, to the last amended bill as amended. The decree of December 21, 1932, procured for the purpose of vacating the original decree in favor of Marie Larson, even if permitted to stand, is ineffective to accomplish its purpose, inasmuch as the decree it sought to vacate was not described either by number or by title in the latter decree.

Complainants below have not seen fit to file a brief in this court. We regret that fact inasmuch as on the record presented to this court the procurement of the decree of December 21, 1932, was in our opinion a flagrant imposition upon the trial court, and we would like to have been advised as to any possible attempted explanation or justification for its procurement.

As heretofore indicated four demurrers had been sustained to the bill of review and amended bills of review; no bill was pending at the time of the entry of the decree; complainants were guilty of laches in filing the bill; a default order was procured before one chancellor without proper notice while the cause was pending on the calendar of another chancellor; none of the complainants had any equity or interest in the premises when the decree was entered; and it was highly improper to include in the decree, even if the entry of same was warranted under the law, the dismissal of the bill of complaint in the original cause.

The history of this cause presents a trifling with justice that deserves condemnation. It would seem from this record that the Weinbergs were bent on finally catching the defendant napping, by the filing of repeated amended bills and the procurement of the entry of various and conflicting orders, and thus securing an unfair advantage over her. It would be a sad commentary on our judicial system if we were to declare ourselves powerless to cope with the situation presented for our determination and were compelled to affirm such a decree as was entered here. The chancellor in refusing to entertain the motion to vacate the decree stated as the reason for his action that “the term had passed ... I just feel that ... I have no jurisdiction.” Did the court lack jurisdiction?

The decree was entered December 21, 1932. January 12,1933, during the same term in which the decree was entered a motion to vacate the decree was made, ■entered and continued to January 26, 1933, in the following term of court, on which date a verified petition was filed in support of Marie Larson’s motion to vacate the decree. The motion finally came on for hearing March 13, 1933, and defendant offered in evidence the original decree, Mollie Weinberg’s petition to vacate same, Judge Ryner’s order vacating the decree and Ms second order vacating the first order and confirming the decree in all respects, and Marie Larson’s verified petition to vacate the decree in the case at bar. Complainants’ objections were sustained to the admission of all of the documents offered on the ground that the term had passed and the court had lost jurisdiction to entertain the motion.

We are constrained to hold that the rulings of the chancellor excluding the proffered evidence and denying the motion to vacate were erroneous. The evidence offered, wMch was excluded, clearly showed the iniquity of the decree and defendant’s right to have it vacated. The chancellor had jurisdiction to pass on the motion. It has invariably been held in this State that if a motion to vacate a final decree is made during the same term in wMch the decree is entered and continued undisposed of to a subsequent term the court retains jurisdiction to pass upon it.

It is true that the record does not show that the motion to vacate the last decree was in writing and supported by affidavit as provided by the rules of the circuit court, but it is our opinion that while as a general rule motions should be thus made and supported, the entry of the order by the court within the term contimiing the motion to January 26, 1933, in the following term, had the effect of suspending the operation of the decree and of retaining jurisdiction over the subject matter at a subsequent term, and the court had the power at the latter term to amend, alter, modify or vacate the decree. (Watson v. LeGrand Roller Skating Rink Co., 177 Ill. 203.) Marie Larson did file a petition in writing and an affidavit in support of her motion to vacate January 26, 1933. It is immaterial, so far as the jurisdiction of the court was concerned, that no affidavit in support of the motion was presented when the motion was filed. It is sufficient that it was presented for the consideration of the court on the hearing on the motion. Filing or the failure to file a verified petition in support of her motion affected her showing on the motion rather than the jurisdiction of the court to hear it. For reasons not indicated by the record the motion was not disposed of at the January, 1933, term of court, but was finally heard March 13, 1933, when the chancellor declared that the court was without jurisdiction, rejected all offers of evidence and refused to hear the motion on its merits.

It is provided in par. 105, ch. 37, of an act relating to the circuit and superior courts of Cook county, Ca-hill’s (1933) Revised Statutes of Illinois:

“All causes and proceedings pending and undisposed of in any of said courts at the end of a term shall stand continued till the next term of court.” The record does not show any order continuing the motion from January 26, 1933, to March 13, 1933. If such an order was necessary to continue the jurisdiction of the court we will presume that it was entered. But no such order was indispensably necessary. If from any cause such an order be omitted, all causes undisposed of are continued by operation of the above statute to the next term by adjournment of the court. A motion pending and undetermined at the end of the term will stand continued to the subsequent term, under the statute, without a formal order of continuance. (Donaldson v. Copeland, 201 Ill. 540.) The power of the court over its judgment or decree, while confined by the rules of law and by the terms of the statute to the term at which it is rendered, is yet extended to a subsequent term when a motion to vacate is entered at the judgment term and continued to the subsequent term. (Windett v. Hamilton, 52 Ill. 180; Hibbard v. Mueller, 86 Ill. 256.) The motion not having been decided by the court at the term when made was continued by operation of law from term to term until decided. The verified petition presented at the January 1933 term of the court did not in anywise supersede or derogate from the motion made at the term when the decree was entered. (Shannakan v. Stevens, 139 Ill. 428.)

Paragraph 7, section 50, of the new Civil Practice Act in force January 1,1934, Cahill’s St. ch. 110, jf 178, provides:

“The court may in its discretion before final judgment, set aside any default, and may within thirty days after entry thereof, set aside any judgment or decree upon good cause shown by affidavit, upon such terms and conditions as shall be reasonable.”

In discussing this paragraph of section 50 of the new act it is said by the authors at page 125, McCaskill’s Illinois Civil Practice Act Annotated:

“This paragraph of section 50, which is an enlargement of section 58 of the Practice Act of 1907, to include all actions, substitutes a period of thirty days following the entry of judgment for the last day of the term of court at which it was entered for the time for surrendering jurisdiction over it. The 1933 legislature also passed an act in relation to final judgment, decrees, and orders of courts of record in criminal and civil proceedings, and the power to modify, vacate, or set aside the same, . . . The second section of this Act provides that any ‘judgment, decree or order may hereafter be modified, set aside, or be vacated prior to the expiration of thirty days from the date of its rendition or in pursuance of a motion made within such thirty days, wherever, under the law heretofore in force, it might have been modified, set aside, or vacated, prior to the expiration of the term of court at which it was rendered, or in pursuance of a motion made at that term. ’ Paragraph 7 of section 50 is in almost the exact language of section 58 of the Practice Act of 1907, which made no express provision for extending decisions upon motions made within the term; yet, section 58 of the Practice Act has always been construed to give the court jurisdiction to pass upon any motion to vacate, if the motion was made within the term. It will be seen, therefore, that there is no conflict between paragraph 7 of section 50 of the Civil Practice Act and section 2 of the Act in relation to final judgments. The latter is but a clearer expression of the thought expressed in the former.”

It will thus be seen that both under the settled law of this State prior to January 1, 1934, when the new Civil Practice Act went into effect, and under the provisions of that act, the chancellor had complete jurisdiction to enter such order vacating, modifying or altering the decree of December 21, 1932, as was justified by the law and facts.

We are of the opinion, therefore, that the motion to vacate the decree was properly entered and continued to the following term, that the chancellor retained jurisdiction to consider the motion to vacate the decree and that it was reversible error for him to refuse to hear the motion March 13, 1933. As far as the record presented to this court is concerned there was no bill or amended bill of review pending at the time the last decree was entered and it was impossible for complainants to present a bill that would not be obnoxious to demurrer for the reason that none of them had any equity or interest in the property.

For the reasons indicated herein the decree will be reversed and the cause remanded with directions to the circuit court to vacate the order of March 13,1933, denying the motion to vacate the decree entered December 21, 1932, and to vacate that decree and dismiss this cause for want of equity.

Reversed and remanded with directions.

(xridley and Scanlan, JJ., concur.


source: Caselaw Access Project

author: Mr. Presiding Justice Sullivan

license: Public Domain

text:
    West Suburban Mortgage Company, Appellee, v. George C. Peterson Company, Appellant.
    Gen. No. 37,212.

      Opinion filed June 15, 1934.
    Rehearing denied June 27, 1934.
    Bussian & DeBolt, for appellant.
    Cheney, Evans & Peterson, for appellee; Albert Peterson, of counsel.
   Mr. Presiding Justice Sullivan

delivered the opinion of the court.

This appeal seeks to reverse a judgment for $1,096.15 rendered in favor of plaintiff, West Suburban Mortgage Company, and against defendant, George C. Peterson Company, in an action tried by the court without a jury.

Plaintiff’s statement of claim alleged that its claim was for money due on a certain promissory note for $1,000, executed and indorsed by defendant May 9, 1923, and payable five years after date to the order of itself; that said note was delivered to plaintiff, which is the legal owner and holder thereof; and that there is due on the note $1,000 with interest thereon at seven per cent from May 9, 1932.

Defendant’s affidavit of merits averred that it was not indebted to plaintiff in any sum, because the note executed by the officers of defendant in its behalf was unauthorized by it and was ultra vires the corporation; that it received no consideration for the execution of the note, but on the contrary it was executed by it as an accommodation to the First National Bank of Aurora, Illinois, and one Ella M. Edgar; that it is not indebted on the note because same was secured by a mortgage on certain real estate in Kane county, Illinois, which note and mortgage said Ella M. Edgar assumed and agreed to pay as part of the consideration for the real estate she purchased from it; that, although the note and mortgage matured and the note was payable under its terms and the terms of the trust deed May 9, 1928, the owner and holder of the note, without the knowledge, consent or authority of defendant, agreed with Ella M. Edgar to extend the time of payment of same on condition that she would continue to pay the interest thereon; that she has paid no part of the principal of the note but has only paid the interest on same for the purpose of securing the extension on the note, thereby releasing and discharging defendant from liability on the same.

The salient undisputed facts disclosed by the evidence are that defendant is a Delaware corporation licensed to* do business in Illinois for 'the purpose of dealing in petroleum products both at wholesale and retail; that in 1923 it acquired the property located at the southeast corner of Lake and Walnut streets, Aurora, Illinois, for the purpose of constructing and maintaining thereon a retail gasoline service station; that at the time defendant acquired the property it was improved with an old • residence occupying the front portion of same; that defendant removed this building to the easterly 55 feet of the lot and remodeled it; that. May 9, 1923, defendant executed the note in question, together with other notes aggregating $3,750,

and a trust deed recorded May 11,1923, to this easterly 55 feet of the lot to secure the payment of the notes; that defendant sold and thereafter on May 23, 1924, conveyed by warranty deed to Ella M. Edgar approximately the easterly 55 feet of the lot; that she as grantee in the deed assumed and agreed to pay the notes secured by the trust deed; that she paid' the interest on the note in question until its maturity May 9, 1928, and thereafter the interest due to May 9, 1932, the last payment of interest having been made June 24, 1932; that plaintiff acquired the note for a valuable consideration, either in June or July, 1932, from one Mrs. McNulty, who was a holder in due course or had received the note from her father, a holder in due course or from his estate; that the trust deed securing the notes aggregating $3,750 contained the following recital: “This trust deed and notes accompanying same are made pursuant to authority duly granted by the Board of Directors and stockholders of the grantor herein. ’ ’

Defendant contends (1) that the execution of the note in question was ultra vires and void in that it was executed by the officers of defendant corporation without consideration to it and wholly as an accommodation to the First National Bank of Aurora (hereinafter called the bank) and Ella M. Edgar in connection with the sale of the property by defendant to her; (2) that plaintiff came into possession of the note more than four years after its maturity and is not an innocent purchaser for value; and (3) that the note upon which this action is predicated is one of several aggregating $3,750, which Ella M. Edgar assumed and agreed to pay when she purchased the property from defendant, and that upon its maturity the holder of the note for a valuable consideration and without the knowledge or concurrence of defendant agreed with Ella M. Edgar to extend the time of payment of the note, thereby discharging defendant from personal liability on such note and mortgage.

Plaintiff’s theory is that the execution of the note by the defendant, by and through its president and secretary, was not ultra vires and void; that the note was executed by it for a good and valuable consideration; that the note was not executed by defendant as an accommodation; that plaintiff acquired the note for a valuable consideration from a holder in due course without notice of any infirmity in or defense to the note; that interest had been paid on the note up to within about one month of the time plaintiff purchased same, and that it is immaterial that the plaintiff acquired the note more than four years after its maturity, inasmuch as it purchased the note from a holder in due course for a valuable consideration without notice of any defense; that the execution of the notes aggregating $3,750 and the trust deed on May 9, 1923, and their delivery to the bank to secure a loan of that amount were acts within the lawful powers of defendant corporation; that the property which defendant mortgaged for $3,750 was not conveyed by warranty deed to Ella M. Edgar until May 23, 1924, in and by which conveyance she assumed and agreed to pay the notes secured by the trust deed of May 9, 1923; that no valid and binding agreement was entered into at or after the maturity of the note between the holder of same and Ella M. Edgar for the extension of the time of its payment, and that the record does not disclose any consideration for any such alleged extension agreement.

It is conceded that if defendant’s officers, either with or without authority of its board of directors, executed and delivered the notes and trust deed to the bank wholly as an accommodation to it or to Ella M. Edgar, such a transaction being clearly outside of the object of the corporation’s creation as defined in the law of its organization was, therefore, beyond the powers conferred upon it by the legislature and wholly void and of no legal effect. (Central Transp. Co. v. Pullman’s Palace Car Co., 139 U. S. 24; Calumet & Chicago Canal & Dock Co. v. Conkling, 273 Ill. 318.) There is a distinction, however, between cases where the act of the corporation was beyond the powers conferred upon it by law and the cases where the act was within the scope of its power, but where there was a failure to comply with some regulation or where the power was improperly exercised. (North Avenue Building & Loan, Ass’n v. Huber, 270 Ill. 75.) Defendant, after acquiring the property for the purpose of erecting and operating a gasoline service station, decided that it did not require all of the property for its needs in that regard and moved the old building to that portion of the premises it contemplated disposing of. It remodeled the building thereon for a more advantageous disposition of the property. It not only could sell that property but it was its duty under the law to dispose of land not reasonably necessary to enable it to transact its business.

Defendant asserts that the execution of the notes and trust deed by it was at the bank’s suggestion and request, to secure a loan of $3,750 from the bank, not to defendant but to Ella M. Edgar to be applied by her on the $7,000 purchase price of the property, and that its conveyance of the property to her by warranty deed and its execution of the trust deed and notes and indorsement of the notes were all part of one transaction to enable her to pay $7,000 cash for the property, notwithstanding the fact that the notes and trust deed were executed and the trust deed was recorded more than a year before the execution of the warranty deed covering the property to Ella M. Edgar.

Oscar L. Peterson testified that he was vice president and secretary of defendant corporation and that although, he and his brother, who was president of the company, executed the notes and trust deed May 9, 1923, and the trust deed was recorded May 11, 1923, defendant received no part of the money for which the notes and mortgage were given until after the property was conveyed by defendant to Ella M. Edgar by warranty deed May 23,1924; that he and his brother were the founders and dictated the policies of the company subject to orders of the board of directors; and that a Mr. Watson, president of the bank, but who was dead at the time of the trial, handled all the negotiations for the purchase of the property for Ella M. Edgar and that these negotiations began in 1923. This witness produced in evidence a ledger sheet of defendant which included, among others, an entry of payment of $3,750 on “house” May 31, 1924, without any indication as to who made that payment. Peterson also testified that his dealings concerning the notes, trust deed and sale of the property to Ella M. Edgar were exclusively with the deceased Watson.

The burden of proof was on defendant to establish the defense of ultra vires and that it executed the note in question and the trust deed merely for the accommodation of Ella M. Edgar. (Fletcher’s Cyc. Corp., Vol. 2, sec. 811; Mayer v. Illinois Life Ins. Co., 211 Ill. App. 285; Talmadge v. Clewiston Iron Co., 252 Ill. App. 508.) We are of the opinion that it has failed to meet that burden. No satisfactory explanation was offered as to why defendant executed, indorsed and delivered the note in question, as well as the other notes aggregating $3,750, the amount of the mortgage loan, more than one year before the conveyance of the property to Ella M. Edgar by warranty deed, if it did not receive the amount of the loan. Neither was a satisfactory explanation offered as to why the trust deed was executed and recorded more than a year prior to the transaction of May, 1924, of which defendant now claims such trust deed was a part. It is immaterial, as far as its liability is concerned, when defendant received the proceeds of the loan represented by its notes and secured by its trust deed. Assuming that the ledger sheet in evidence reflects the truth as to defendant’s receipt of the proceeds of the loan on May 31,1924, when Ella M. Edgar also made a payment of $2,500 on the purchase price of the property, it is much less inconsistent to conclude that the bank by prearrangement deferred the payment of defendant’s loan to it until that time, than to accept defendant’s theory that the bank loaned the money to Ella M. Edgar on May 31, 1924, on defendant’s notes and trust deed of May 9,1923.

The proceeds of this loan went into the treasury of defendant. It had the power to borrow money to carry on its business and to mortgage its real estate to secure the payment of same. The trust deed contained the following recital: “This trust deed and notes accompanying same are made pursuant to authority duly granted by the Board of Directors and stockholders of grantor herein.” Even without such grant of specific authority, the officers who executed the trust deed and notes were clothed under its bylaws with ample authority to execute same in behalf of defendant. The warranty deed from defendant to Ella M. Edgar recited that she assumed and agreed to pay the' mortgage as part of the purchase price of the property.

Defendant’s contention that it received no consideration for the $1,000 note in question and that the proceeds of the loan on this note were paid to it by the bank as Ella M. Edgar’s agent on May 31, 1924, as part of the $7,000 cash purchase price of the property, is refuted by an indorsement on the back of the note, “December 21, 1923 Int. pd. to 11-9-23,” and by another indorsement, “May 16, 1924 Int. pd. to 5-9-24.” These indorsements of the payment of interest from the date of the execution of the note and for a whole year prior to the conveyance of the property to Ella M. Edgar impress us conclusively as showing that the ledger entry in evidence does not speak the truth. It strikes us as very peculiar, to say the least, that men who are officers of a large business enterprise would obligate their company to pay and would, in fact, pay interest on a note for more than a year before the company received the amount of the loan represented by the note. It is only reasonable to infer that Ella M. Edgar did not pay the interest on the note for the year prior to her purchase of the property and assumption of the mortgage. The indorsements on the note of the payment of interest from May 9, 1923, to May 9, 1924, appear to us to lead inevitably to the conclusion that the proceeds of the loan for which defendant gave its notes and trust deed of May 9, 1923, were received by defendant on its own account from the bank and not from Ella M. Edgar in the circuitous manner now suggested.

Not only do we fail to perceive in this cause any act of the defendant corporation outside of the scope of its powers, but the record discloses neither failure of its officers to comply with the prescribed regulations of the corporation nor the improper exercise of any of its powers by them.

As to defendant’s second contention that plaintiff was not an innocent purchaser for value because it purchased the note more than four years after its maturity, it is sufficient to state that the evidence disclosed that plaintiff acquired the note in question for a valuable consideration from a holder in due course. Paragraph 67, section 47 of the Negotiable Instruments Act (chapter 98, Cahill’s 1933 Illinois Revised Statutes) provides:

“An instrument negotiable in its origin continues to be negotiable until it has been respectively indorsed or discharged by payment or otherwise.”

There is no claim that the note was ever paid. Demand was first made on Ella M. Edgar for payment, which was refused. Defendant likewise refused to comply with plaintiff’s demand for payment. The mortgagor who indorses in blank a promissory mortgage note, the payment of which is assumed by its grantee, becomes, in effect, a surety for its payment when due. It is well settled that such instruments indorsed in blank pass by delivery, the indorsement being treated as made to each subsequent transferee; also that the negotiability of commercial paper does not cease with its maturity, but it can still be negotiated by indorsement. (Justice v. Stonecipher, 267 Ill. 448.) It has repeatedly been held that a promissory note is a negotiable instrument, notwithstanding the fact that it is secured by a trust deed, and plaintiff’s right to enforce the payment of the note in question as against defendant is clearly established by the evidence.

Defendant’s third contention that the holder of the note upon or after its maturity for a valuable consideration agreed with the grantee, without the knowledge or concurrence of defendant, to extend the time of payment of the note is without merit. A valid and binding agreement for a definite extension of the time of payment of the note based on some good or valuable consideration entered into between the grantee who had assumed the payment of the mortgage and the holder' of the note, without the knowledge of the defendant mortgagor, would unquestionably discharge defendant from personal liability on the note. But there is not a word of competent evidence in the record of any such agreement between the holder of the note and Ella M. Edgar, defendant’s grantee. Interest was paid to the date of its maturity, May 9, 1928, and thereafter to May 9, 1932, four years after its maturity, and, while it is true that no action was taken to foreclose the trust deed nor to enforce payment of the note otherwise, in the absence of proof to the contrary, such forbearance must be attributed to patient consideration shown to those liable on the note rather than to a valid binding agreement for an extension, the legal effect of which would be to discharge the personal liability of defendant. We are of the opinion that the trial court was fully justified in its finding and judgment.

For the reasons indicated herein the judgment of the municipal court is affirmed.

Affirmed.

G-ridley and Soanlan, JJ., concur.


text:
    John Bartkowski for the Use of Stephanie Block, Appellee, v. The Commercial Casualty Insurance Company, Appellant.
    Gen. No. 37,241.

      Opinion filed June 15, 1934.
    C. J. Bisesi and John A. Bloomingston, for appellant.
    Earl J. Walker, for appellee.
   Mr. Presiding Justice Sullivan

delivered the opinion of the court.

This appeal seeks to reverse a judgment for $825 rendered against the Commercial Casualty Insurance Company (hereinafter referred to as the company) as garnishee in an action in garnishment brought in the name of John Bartkowski for the use of Stephanie Block, and tried by the court without a jury. A tort judgment for $750 for injuries received by her had theretofore been secured by Stephanie Block against Bessie Meskis, Edward Bartkowski and John Bartkowski, predicated upon the alleged negligent operation of two automobiles, one of which was driven by Edward Bartkowski and owned by his father, John Bartkowski.

The affidavit in garnishment recited the entry of the judgment in favor of Stephanie Block against John Bartkowsld and others, and charged that the company was indebted to John Bartkowski. Garnishee summons issued and interrogatories were propounded to which the garnishee answered that it was not indebted to and had no funds in its possession belonging to John Bartkowski.

The garnishee contends that the judgment creditor should have brought suit directly against it under the insolvency provision of the policy, and that garnishment does not lie to recover against the garnishee in a suit in the name of John Bartkowski for the use of Stephanie Block, as the garnishee owes nothing to Bartkowski or his son Edward; and that there was collusion between the assured and the judgment creditor which vitiated the coverage of the liability insurance policy issued by the company to John Bartkowski.

The theory of the beneficial plaintiff is that garnishment is an appropriate remedy in that the garnishee issued a policy of liability insurance covering the automobile in question belonging to John Bartkowski; that, while Edward Bartkowski, the son of John Bartkowski, and an additional assured under the policy, was driving his father’s automobile an accident occurred through a collision with another machine operated by Bessie Meskis; that the beneficial plaintiff, who was a guest in the Bartkowski car, brought an action for the injuries sustained by her and recovered a judgment for $750 against John Bartkowski and others; that no appeal was perfected from that judgment and an execution against Bartkowski was returned no property found; that the judgment not having been paid by Bartkowski, the garnishee was obligated to pay it by virtue of the terms of the insurance policy which is in evidence; and that there was no collusion between her and the assured.

It appeared that two other guests in his car, as well as Stephanie Block, brought actions against Bartkowski for injuries received by them as a result of the accident and the company refused to defend him in the three actions, although requested so to do, unless he signed the following agreement:

“It is hereby agreed that the Commercial Casualty Insurance Company by furnishing attorneys for the undersigned and proceeding with the defense of the following cases:

Stella Gruminski v. John Bartkowski,

Stephanie Block v. John Bartkowski,

Celia Kusawa v. John Bartkowski, does not waive any of its rights under policy number A-31531 issued to John Bartkowski, the undersigned.” Bartkowski refused to sign the agreement and the company refused to defend him in Stephanie Block’s suit.

It also appeared that the company was notified of . the accident within four or five days of its happening; that the original suit herein was commenced April 9, 1930; that shortly after the summonses in that suit were served upon him and his son, Bartkowski’s daughter delivered them to the company’s office, and that April 19, 1930, the company returned the summonses and notified Bartkowski by letter that it denied “any and all liability under the terms of your policy and . . . the Commercial Casualty Insurance Company will not defend these suits in your behalf or in behalf of Edward Bartkowski,” without assigning any reason for its action.

The attorney for the company testified in its behalf of certain conduct of the attorney who filed the original suit for Stephanie Block, as well as of the first attorney for the Bartkowskis in the beneficial plaintiff’s action against them, and of the attorney who represented the Bartkowskis in the trial of that case, which indicated what appeared to him and the garnishee as such collusion between the parties as justified the company’s refusal to defend Bartkowski unless he signed the reservation of rights agreement presented to him by the company as heretofore set forth.

By its testimony the garnishee also sought to show that Bartkowski did not “render to the Company all co-operation and assistance in his power” as provided by the contract of insurance.

The evidence disclosed that Mr. C. G-. Palmer, Stephanie Block’s first attorney, who had previously represented Bartkowski in another angle of the case growing out of the same accident, and against whom the original charge of collusion was directed, withdrew from the case shortly after the suit was commenced, when he was advised that his conduct was considered unethical by the company. Attorney Earl J. Walker appeared for her April 28, 1933, and has represented her in this litigation since that time. His conduct is not questioned. When the company refused to defend him Bartkowski retained as his attorney one Harry Ehrlich, who was or had been an office associate of Mr. Palmer, who filed the suit for Stephanie Block. Attorney Ehrlich withdrew from the case before it was tried. Bartkowski then retained Mr. Fred Bohde, a former office associate of Mr. Palmer as his lawyer, and Bartkowski and his son were represented at the trial of the original suit by him and Mr. Weintraub, an attorney associated with him.

As to the garnishee’s contention that there was fraud and collusion between Bartkowski or his son and the plaintiff: or the attorneys in the original action, it is sufficient to state that there is no evidence in the record that even tends to show that the case was improperly tried or that Stephanie Block, the Bartkowskis or the attorneys who tried their case were guilty of fraud or of one collusive act. A diligent search of the record fails to reveal any lack of co-operation with the company on Bartkowski’s part. In any event, after an insurer expressly disclaims liability and refuses to defend, there is practical unanimity among the authorities that it cannot raise the issue of lack of cooperation in the absence of a showing of fraud or collusion. There was evidence in the record that the company based its original charge of collusion on the purported act of the agent of the company who sold the policy to Bartkowski in issuing it after the occurrence of the accident as of a date prior to same. There was no substantiation of this charge if it was, in fact, ever made. The evidence disclosed that the accident was promptly reported and that the summonses served upon him and his son were promptly delivered to the company by Bartkowski. The only evidence that could possibly be considered as justifying even an inference of lack of co-operation on the part of Bartkowski, who could neither speak, read nor write the English language and who could transact business only through an interpreter, was his refusal to sign the stipulation prepared and presented to him by the garnishee which provided that, in the event it defended him, it waived none of its rights against him by so doing and his refusal to sign an affidavit for the continuance of Stephanie Block’s suit against him. His refusal to sign the first was predicated, according to the evidence, on what he considered his right to insist on the full protection of the policy, and his refusal to sign the second was justified by him on the ground that it contained statements that were not true. The trial judge saw and heard the witnesses and it does not appear to us that the findings of the court on the issues of collusion and lack of co-operation were against the manifest weight of the evidence.

The following are the provisions of the policy material to this controversy:

“Commercial Casualty Insurance Company,
(herein called the Company)
“Insuring Agreements.

“A. Public Liability : To Pay, provided specific premium charge is made in Item 1-A of the Warranties, any loss or expense by reason of the liability imposed by law upon the Assured for damages on account of bodily injuries or death resulting therefrom accidentally suffered, or alleged to have been suffered, by any person or persons, by reason of the ownership, maintenance or use of any of the automobiles described in said Warranties ....

“In Addition to the Above the Company Agrees :

“(1) Expenses and Costs: To Pay the expense of litigation and all costs taxed against the Assured in any legal- proceeding defended by the Company, and all interest accruing after entry of any judgment until the Company has paid, tendered or deposited in Court such part of such judgment as does not exceed the limit of the Company’s liability as expressed in this policy.

“ (2) Service: To Investigate at its own cost any accident (to which this policy applies) reported to the Company and to settle any claim as the Company may deem advisable; and if suit is brought against the Assured on account of such an accident, to defend such suit even if groundless, false or fraudulent, in the name and on behalf of the Assured unless or until the Company shall elect to effect settlement thereof.

“Conditions

“C — Insolvency or Bankruptcy of Assured. The insolvency or bankruptcy of the Assured shall, not release the Company from the payment of damages for injuries sustained or loss occasioned during the life of the policy, and in case execution against the Assured is returned unsatisfied in an action brought by the injured, or his or her personal representative in case death results from the accident, because of such insolvency or bankruptcy,, then an action may be maintained by the injured person or his or her personal representative against this Company under the terms of this policy, for the amount of the judgment in the said action not exceeding the amount of this policy.

“D — Reporting Accidents, Losses, Claims and Suits. Co-Operation of Assured. Upon the occurrence of an accident covered by this policy the Assured shall give immediate written notice thereof with the fullest information obtainable at the time, to the Company or its duly authorized representative. If a claim for damages is made upon the Assured on account of such accident, the Assured- shall give like notice thereof with full particulars. The Assured shall at all times render to the Company all co-operation and assistance in his power.

“Notice given by or on behalf of the Assured to any authorized Agent of the Company with particulars sufficient to identify the Assured, shall be deemed to be notice to the Company. Failure to give any notice required to be given by the policy within the time specified therein shall not invalidate any claim made by the Assured if it shall be shown not to have been reasonably possible to give such notice within the prescribed time and that notice was given as soon as was reasonably possible.

“If suit is brought against the Assured to enforce a claim for damages covered by this policy, the Assnred shall immediately forward to the Company every summons or other process as soon as the same shall have been served on the Assured.

1 ‘ The Assured, whenever requested by the Company, shall aid in effecting settlements, securing information and evidence, the attendance of witnesses and in prosecuting appeals, but the Assured shall not voluntarily assume any liability or interfere in any negotiation for settlement, or in any legal proceeding, or incur any expense, or settle any claim, except at the Assured’s own cost, without the written consent of the Company previously given, except that, as respects liability for personal injuries covered hereunder, the Assured may provide at the Company’s expense such immediate surgical relief as is imperative at the time of the accident.

“Gr. Assured’s Bight of Recovery. No action shall lie against the Company to recover for any loss or expense covered by this policy, arising or resulting from claims upon the Assured for damages, unless it shall be brought by the Assured for loss or expense actually sustained and paid in money by him after • actual trial of the issue, nor unless such action is brought within two years after payment of such loss or expense; nor for any other loss or damage covered by this policy unless action is brought within two years after the occurrence causing the loss or damage. ’ ’

The policy in the instant case is as to its material provisions, with the exception of the so-called insolvency clause which we will refer to later, substantially similar to the policy considered in Kinnan v. Hurst Co., 317 Ill. 251, where the company also disclaimed liability and refused to defend an action brought by an injured party against the assured. While in that case the injured party filed a creditor’s bill to subject the indebtedness of the company to the assured to the payment of the assured’s debts, the reasoning of the court is equally applicable to the situation presented by this action in garnishment where it is sought to accomplish the same result. At pages 256, 257, 258, the court said:

“Suit was brought against the assured for damages for bodily injuries alleged to have been accidentally suffered by an employee of the assured, and this suit, even though groundless, the defendant in error was bound to defend unless and until it chose to settle it. It did not do this, and thereupon the assured defended the suit, with the result which has been stated. What was the effect of this breach of contract by the defendant in error? It had agreed to indemnify the assured against loss for liability imposed by law upon the assured on account of bodily injuries actually received, only when payment had been actually made by the assured of a judgment recovered against it in an action defended by the defendant in error. The agreement did not extend to any other judgment, for the defendant in error expressly agreed to investigate all accidents reported to it, and, in case of suit brought, to defend it, even if groundless, unless and until the defendant in error should elect to effect a settlement, while at the same time the assured agreed not to settle any claim or interfere in any negotiation for settlement or legal proceeding. The foundation of the rights of the parties under the contract was the assumption by the defendant in error of the investigation of all accidents, the negotiation of all settlements and the defense of all suits of the character mentioned in the policy, and the exclusion of the assured from all interference in any of these matters except to aid the defendant in error at its request. The refusal of the defendant in error to defend the suit of the plaintiff in error against the assured would have destroyed the foundation of the mutual obligation of the parties. The policy contemplated the payment of a judgment against the assured only in a case defended by the defendant in error, and its refusal to defend therefore deprived the former of its remedy under paragraph 1 and condition 1 of the policy, because such refusal prevented a compliance with the condition precedent of the payment of a judgment recovered by the assured after the trial of an action defended by the defendant in error. This repudiation of the fundamental obligation of the contract completely deprived the assured of its benefit and was a waiver of the performance by the assured of the conditions precedent to a recovery of the amount it would be entitled to if those conditions had been performed.

“Where one party to a contract repudiates its obligation and declares his intention no longer to be bound by it, the other party may, if he thinks proper, treat the repudiation as a wrongful putting of an end to the contract and bring an action at once, in which he may recover damages as for a present breach. (Lake Shore and Michigan Southern Railway Co. v. Richards, 152 Insurance 59.) The defendant in error was bound to defend the action without interference by the assured unless and until it effected the settlement. By its failure to do so it deprived the assured of the remedy provided by the terms of paragraph 1 and condition 1. Had it defended successfully the assured would have been relieved of all liability. Had its defense been unsuccessful the assured would have been able to require the defendant in error to pay it the amount of the judgment to the extent of $5,000, with costs and interest. Having deprived the assured of this remedy the defendant in error became liable to the assured for its value, — that is, for the amount which the defendant in error would have been required to pay if it had performed its contract. This was the judgment of the Supreme Court of the United States in St. Louis Dressed Beef Co. v. Maryland Casualty Co., 201 U. S. 173, which was an action against'the casualty company on a liability policy similar in all its provisions material to the case to the policy in this case.”

In the case of the St. Louis Dressed Beef Co., supra, where suits were brought against the assured for personal injuries covered by the policy there in question, and upon the refusal of the insurance company to defend, the assured settled and paid the claims, the Circuit Court of Appeals of the United States certified to the Supreme Court of the United States certain questions of law indispensable to the decision of the case, among which the following are pertinent to the case at bar:

“Did the denial of all liability by the assurer and its refusal to defend the suits constitute such a breach of the contract on its part as released the assured . . . from the provision that no action should lie against the assurer unless for loss actually sustained and paid by the assured after a trial of the issue?

“Was this provision waived by the assurer’s denial of liability under the policy and its failure and refusal to defend the suits against the assured?

“Was the right of the assurer to insist on the condition of rendition of judgment after trial and its satisfaction by the assured dependent upon the assurer’s defense of the action against the assured?

“Was the assurer’s denial of liability a waiver of the condition respecting the rendition of judgment after trial and its satisfaction by the assured?”

The court answered all of the foregoing questions in the affirmative so far as the questions were warranted by the facts set forth, and in its decision enunciated the following doctrine at pages 181 and 182:

“Looking at the substance of the matter, it makes no practical difference, no difference in the amount of the defendant’s liability, whether we say that the defendant "by its conduct made performance of the conditions by the plaintiff impossible, and therefore was chargeable for the sum which it would have had to pay if those conditions had been performed, or answer, in the language of the questions, that performance of the conditions was waived. The sole difference would be in the form of the declaration. In either case the plaintiff would declare upon the policy, only the breaches assigned would not be the same. In the former the breach would be the refusal to defend, in the latter the refusal to pay. If it is necessary to consider the question in a technical aspect, we think that the plaintiff was entitled to treat the contract as on foot, notwithstanding the defendant’s act, and go on with it cy-pres. Under the circumstances it could not comply literally with the words and was justified in doing the best thing that could be done for the interest of both. The defendant by its abdication put the plaintiff in its place with all its rights. To limit its liability as if its only promise was to pay a loss paid upon a judgment is to neglect the meaning and purpose of the reference to a judgment, and even the words of the promise. The promise in form is to indemnify against loss by certain kinds of liability. The judgment contemplated in the condition is a judgment in a suit defended by the defendant in case it elects not to settle. The substance of the promise is to pay a loss which the plaintiff shall have been compelled to pay, after such precautions and with such safeguards as the defendant may insist upon. It saw fit to insist upon none. ’ ’

The assured had a cause of action against the insurance company for its refusal to defend the suit brought against him by the injured party, the measure of damages in which was the amount recovered against him, together with interest on that amount from the date of judgment and costs. The injured party had the right to have the indebtedness which gave rise to this cause of action applied to the payment of her judgment, for the same reason that any other judgment creditor, under such circumstances, has the right to have the property of his judgment debtor applied to the payment of his debts. (Kinnan v. Hurst Co., supra.)

In discussing a similar situation in Matter of Empire State Surety Co., 214 N. Y. 553, the court said at pages 564 and 565:

“The cases which have decided that where the company has not been guilty of a breach of contract it is liable only to pay the assured the loss which has been sustained as a result of a judgment recovered against him (citing cases) a,re without application when the company itself has been guilty of a breach of the contract or has failed to perform its conditions. . . . While the amount of the company’s liability to these policyholders may not at that time have been liquidated, such liability had ceased to be contingent. When an accident against the consequences of which the assured is insured has happened and suit has been commenced against the assured, the insurer, under the terms of the policy, incurred the obligation of assuming the defense of such a suit. When the insurer violated the contract and refused to defend the suit or went into liquidation, thus making it impossible for it to undertake the defense of such suit, it incurred a liability which was not contingent. Where the insurer has failed to perform its contract and the accident against the consequences of which the assured is insured has happened, the liability of the insurer is certain. In such a case the liability ceased to be contingent although the amount of the liability may have been unliquidated. The insurer having failed to perform its obligation, the amount’of the liability would not become fixed until the loss which the assured sustained was determined, but the liability of the insurer would be certain and not contingent from the moment that it failed to perform its obligation to defend the suit brought against the assured.”

The failure of the company to perform its obligation to defend the suit brought by the injured party against the assured “even if groundless, false or fraudulent,” having fixed its liability to the assured, the amount of such liability was established and rendered certain by the judgment against Bartkowski in the municipal court from which no appeal was taken, and, in our opinion, the judgment is an, “ indebtedness ’ ’ as contemplated by our Garnishment Act, Cahill’s St. ch. 62. Garnishment has repeatedly been held to be an appropriate remedy to enforce similar judgments against casualty and other insurance companies.

The beneficial plaintiff’s demand arises from the judgment against Bartkowski, and in a garnishment proceeding such as this one the trial court is obliged to determine what, if anything, is due from the garnishee to the insured under the terms of the contract. This action will lie even though liability is denied. (Wold v. Glens Falls Indemnity Co., 269 Insurance App. 407; Phelps v. Columbia Phonograph Broadcasting System, 255 Ill. App. 294.) The contract of indemnity is against loss by casualty and is absolute upon the happening of the loss, provided there is no breach of the conditions of the policy by the assured. (Hanover Fire Ins. Co. v. Connor, 20 Ill. App. 297.)

The garnishee earnestly insists that Stephanie Block could not proceed against it except under clause “ C ” of the policy, which it points out afforded her a direct right of action against the insurer for the amount of her judgment against the assured. It is true that, under the terms of the policy, she had the right to maintain an action directly against the insurance company to enforce her judgment against Bartkowski because of Ms insolvency, but we are constrained to, hold that such right of action was not exclusive.

The garnishee wMle conceding in effect the beneficial plaintiff’s right to the payment of her judgment, in the absence of proof of fraud, if she had proceeded directly against it as provided in clause “C” of the policy, asserts that it is fearful that if the judgment in this cause is affirmed it will be compelled to pay the amount of same to Bartkowski, the nominal plaintiff, who has suffered no loss and who would in all likelihood retain the amount so paid. It asserts further that it would in that event be subjected to another action by Stephanie Block under the insolvency provision of the policy. • TMs position is untenable and defendant may relieve itself of any anxiety in that regard by paying the amount due under the judgment to the beneficial plaintiff and it will be fully protected under the law.

We fail to perceive what particular difference it makes to the company whether the beneficial plaintiff’s judgment against the assured is enforced through garnishment proceedings or through direct action by her against the company. In no event could it be compelled to assume the liability of this judgment and meet its obligation more than once. Citing with approval the Kinman, St. Louis Dressed Beef and Matter of Empire State Surety Company cases, supra, and sustaining the right to enforce a judgment under a policy similar to that involved here, except for the insolvency clause, through garnishment process, it was held in the recent case of Goerss v. Indemnity Co. of America, 223 Mo. App. 316, 3 S. W. (2d) 272, at pages 274, 275, 276:

“When techmcality is invoked, however, to avoid an obligation morally established, the common law usually finds in its arsenal some weapon with which to confront it and to make that a legal which is already a moral debt. The courts of this country have frequently been concerned with policy provisions such as are under review in this case, and they have usually found a way, in pursuit of manifest justice, by one process of reasoning or another, to compel the insurer to answer for the insured’s liability, whether the insured had paid his liability or not. ... A definite promise made in the insuring clause cannot be defeated by denying to the insured in a subsequent clause, under the guise of a limitation, the right to bring an action for the enforcement of the promise. . , . But in so far as the no-action clause undertakes to limit the insurer’s liability merely to an obligation to reimburse the insured for money paid by ■ him in discharging his liability, it is out of harmony with the insuring clause. ... It follows under the conceded facts in the present case that, when the plaintiff commenced his garnishment proceeding, the garnishee was indebted to the insured under its policy, and that the judgment rendered by the court below in favor of the plaintiff against the garnishee is right and should be affirmed.”

"We have carefully read and considered the cases cited by counsel, and while we appreciate the fact that there is considerable conflict among the authorities on some of the questions presented for our consideration we are satisfied that the conclusions reached by us are supported by the weight of authority of this and many other jurisdictions.

For the reasons indicated herein the judgment of the municipal court is affirmed.

Affirmed.

Gridley and Scanlan, JJ., concur.


author: Mr. Justice Gridley

text:
    The People of the State of Illinois ex rel. Oscar Nelson, Auditor of Public Accounts of the State of Illinois, Complainant, v. Citizens Trust and Savings Bank et al., Defendants. Cora Drepiere, Intervening Petitioner and Appellee, v. Erwin J. Zuehls, Receiver of Citizens Trust and Savings Bank, Respondent and Appellant.
    Gen. No. 37,077.
    Opinion filed June 15, 1934.
    Edward J. Hess, for appellant.
    Charles H. Chapman, for appellee.
   Mr. Justice Gridley

delivered the opinion of the court.

On August 4, 1930, the Citizens Trust and Savings Bank, an Illinois banking corporation doing business in Chicago and hereinafter referred to as the bank, was closed by the auditor of public accounts of Illinois and thereafter Erwin J. Zuehls became its receiver. On April 8, 1932, Cora Drepiere, claiming that she was entitled to a certain trust fund of $5,000, as a preferred claim on the bank’s assets, filed in the present cause an intervening petition, to which on May 16, 1932, the receiver filed an amended answer. Upon a reference to a master, and after some testimony had been taken before him, Mrs. Drepiere, by leave of court on December 14, 1932, filed an amended petition in which she prayed that the court enter an order “directing the receiver specifically to execute and perform the aforesaid trusts and undertakings of the defendant bank, or, in the alternative, if he is unable so to perform, that the receiver be ordered to return to petitioner said sum of $5,000, and to receive from petitioner the aforesaid Justine Apartment bonds (which bonds petitioner now tenders to the receiver); that it be decreed that the fund of $5,000 was held by defendant bank in trust for petitioner’s use on certain trusts and confidences; that her claim is preferential; and that she may have such other and further relief,” etc. Subsequently the court ordered that the receiver’s amended answer to her original petition stand as the answer to her amended petition. On the hearing before the master petitioner testified in her own behalf, as did three other witnesses for her. Several witnesses called by the receiver also gave testimony and certain writings (including certain of the bank’s records) were introduced. The master’s report was filed on May 9,1933. After reviewing the pleadings and the evidence, and making certain findings, he recommended that the court enter a decree in substantial accord with the prayer of petitioner’s amended petition, and thereafter the objections of the receiver to the report were overruled and ordered to stand as exceptions before the court. On July 13, 1933, the court entered a decree in which, after approving and confirming the master’s report and making numerous findings, it was adjudged that said fund of $5,000 is held in trust by the receiver, for the use and benefit of petitioner; that the receiver pay to her said sum “upon the surrender of the ‘Justine Apartment’ bonds, aggregating the face value of $5,000”; and that said sum “be paid to petitioner, in the due course of administration, as a preferred claim.” By the present appeal the receiver seeks to reverse the decree.

Among the findings in the decree are the following in substance:

That for several years prior to September, 1928, petitioner had purchased from the bank numerous “individual mortgages,” among which was a certain mortgage known as the “Young mortgage,” which was called for payment, and on which there was paid to the bank the sum of $10,000, for the use of petitioner, who was the legal owner and holder of the mortgage; that out of said fund of $10,000, petitioner purchased and received from the bank another mortgage, called the “Johnston mortgage,” amounting to $5,000; that on September 18, 1928, the bank had in its possession for petitioner’s use the remainder of said fund of $10,000, to wit, the sum of $5,000; that on said date the bank delivered to petitioner certain “Justine Apartment” bonds, aggregating at their face value $5,000, “with'the express provision and understanding that it, the Bank, would procure with said sum of $5,000 an individual first mortgage of like amount for petitioner, within a reasonable time, and deliver the same to her in lieu of said ‘Justine Apartment’ bonds”; that petitioner “exercised only such acts of ownership over the ‘Justine Apartment’ bonds as were necessary to protect and preserve her rights, and such acts did not in any way prejudice the rights of the bank thereto, nor affect the terms of the aforesaid agreement between petitioner and the bank”; that on August 4, 1930, the bank was closed by order of the auditor of public accounts of Illinois, and the Chicago Trust Company was appointed its receiver; that thereafter Erwin J. Zuehls was appointed as its successor receiver; that petitioner made repeated demands on the bank and its receiver and successor receiver “to deliver to her an individual mortgage in the sum of $5,000, in lieu of said ‘Justine Apartment’ bonds, or to pay to her said amount in cash”; that petitioner has at all times been ready and able to return to the bank, or to either of its said receivers, said Justine bonds, but that each and all of them refused her demands; that the sum of $5,000 “constituted a fund which became impressed with a trust as of September 18,1928, for the use of petitioner, and continued to be a trust fund until the bank delivered to her an individual mortgage”; and that the bank, having failed and refused to perform said agreement, continued to hold said fund of $5,000 in trust for petitioner’s benefit, for the purposes aforesaid.

After reviewing the evidence, including the testimony of petitioner (which was corroborated in some particulars by that of her witness, Carlos A. Life, who in September, 1928, was the manager of one of the departments of the bank and who, as admitted during the hearing, had authority to make such contract with petitioner as the court found was made), we are of the opinion that the court’s above findings of fact (as distinguished from conclusions) are sustained by the evidence, but that neither the court’s conclusions nor the decree in question is warranted by the evidence.

Counsel for petitioner contends that said verbal contract or arrangement of September 18, 1928, between petitioner and the bank was such as “to charge the bank as a trustee for said fund of $5,000, which it held for a particular purpose for petitioner’s use.” And in support of his contention he places much reliance upon the decision and holdings in the case of People ex rel. Nelson v. Bates, 351 Ill. 439, and authorities therein cited.

In that case it appears that on February 6, 1930, the Schuyler State Bank was closed by the auditor of public accounts and a receiver appointed; that Mrs. Bates filed a petition in the receivership proceedings praying for a preference over general creditors as to her claim of $4,725 against the bank; that after a hearing the circuit court entered a decree allowing the preference; that on appeal the Appellate Court for the Third District reversed the decree and remanded the cause with directions to enter a decree finding that Mrs. Bates was a general creditor of the bank and that her claim should pro rate with the claims of other general creditors; and that on certiorari our Supreme Court reversed the judgment of the Appellate Court and affirmed the decree of the circuit court in part and remanded the cause with directions. The facts of the case, as disclosed by the Supreme Court’s opinion, are substantially as follows: For many years Mrs. Bates had transacted her banking business at the Schuyler ■ Bank, and she had purchased a certain note and mortgage from the bank. About April 3, 1929, the amount of the note was collected by the bank, and upon her being notified of the fact she went to the bank and had a talk with its president, Schuyler, about the disposition of the proceeds, but no money then was given to her or credit placed to her account. She testified in substance that Schuyler stated to her that the bank “would put the money out on a farm mortgage” and would notify her as soon as the papers were ready; that she left the money at the bank; that not hearing anything from the bank she, after an interval, again called and Schuyler told her that the papers were not yet réady but soon would be; that after the lapse of another interval she again called and stated to Schuyler that ‘ ‘ she had nothing to show the money was there and would like to have something to evidence that fact”; and that thereup the bank gave her a receipt, dated April 27, 1929, to the effect that it had received from her “$4,725,"to be invested in mortgage loans” (introduced in evidence). After the bank had collected the proceeds of the note and mortgage above mentioned, it made out a certificate of deposit, dated April 3, 1929, to the effect that Mrs. Bates had “deposited” in the bank $4,725, but which deposit was “not subject to check.” The bank, however, never delivered the certificate to her or advised her of its existence. It was kept in a basket, marked “Unfinished business,” and, after the bank was closed by the-auditor, it was sent in a letter, dated February 13, 1930, to Mrs. Bates, when she first learned of its existence. In the course of the opinion our Supreme Court said (pp. 442, 443):

“The material question is whether or not the transaction between plaintiff in error and the Schuyler Bank established a trust in the fund. In People v. Farmers State Bank, 338 Ill. 134, 137, we said: ‘There are but two kinds of deposits: special and general. The former include those where the bank becomes a trustee for a depositor by special agreement or under circumstances sufficient to create a trust, and general deposits are those where the bank merely becomes the debtor of the depositor. ’ In this ease the money was not left at the bank to be credited to the general account of Mrs. Bates or as a time deposit. It was not subject to check and the bank had no right to mingle it with other funds. The receipt given to Mrs. Bates specifies the purpose for which the money was left and conclusively impresses it with a trust. No change in the status or form of the trust fund could without her consent divest it of the trust. (Woodhouse v. Crandall, 197 Ill. 104, 111.) . . . The modern doctrine as now established is, that' where the form of trust property is changed by a fiduciary and the proceeds mingled with the mass of the assets comprising his insolvent estate, the cestui que trust may resort to the mass if augmented by the trust property. ’ ’

Counsel for receiver contend that the facts of the present case are materially different from those in the Bates case, in that it appears from the entire evidence in substance that, after petitioner had accepted from the bank the “individual” Johnston mortgage (thereby reduciiig the original $10,000 trust fund to $5,000), and after unsuccessful efforts had been made to procure for her another “individual” mortgage of $5,000, the bank sold to her at par certain “Justine Apartment” bonds, aggregating at face value $5,000, and she accepted said bonds as a purchaser, thereby fully terminating any existing trust relation as to said original $10,000 fund or any part thereof. As to whether there was a sale of the bonds to her the evidence was conflicting. Her testimony was to the effect that when the bonds were delivered to her they were only delivered temporarily and until another “individual” mortgage of $5,000, acceptable to her, could be obtained by the bank and that such mortgages were difficult to obtain. But it also appears from her testimony, and from other oral and written evidence, that for nearly two years before the bank was closed by the auditor she received and accepted the interest on the bonds as it matured every six months, and that "on July 25, 1930, being in need of money, she borrowed $1,330 from the bank and put up as collateral for the loan two of said Justine bonds, aggregating at face value $1,500. These acts on her part indicate to us that said bonds were in fact sold to her and that at the times mentioned she considered herself the owner thereof. And it is our opinion that the decision and holdings in the Bates case are not here applicable; that it appears by a preponderance of the evidence in the present case that when petitioner filed her intervening petition there was no trust fund in the bank for her use, and that, although a trust relation may formerly have existed as to the original $10,000 fund, such relation had been fully terminated; and that the court erred in entering the decree appealed from.

Accordingly, the decree of the superior court of July 13, 1933, is reversed, and the cause is remanded with directions to the court to dismiss petitioner’s amended intervening petition for want of equity.

Reversed cmd remanded with directions.

Sullivan, P. J., and Scanlan, J., concur.


author: Mr. Justice Gbidley

text:
    The First National Securities Company of Barrington, Illinois, Appellant, v. Fred H. Ward and Bereniece Ward, His Wife, Appellees.
    Gen. No. 37,122.
    Opinion filed June 15, 1934.
    Eckert & Peterson, for appellant; William U. Bard well, of counsel.
    Blech & Herson, for appellees; Leonard Gordon, of counsel.
   Mr. Justice Gbidley

delivered the opinion of the court.

In a first class action in assumpsit, commenced in the municipal court of Chicago on May 3, 1932, and based upon a written contract for the purchase by defendants of certain improved real estate in Lake county, Illinois, there was a trial without a jury during June, 1933, resulting in the court finding the issues against plaintiff, and on July 12, 1933, entering judgment on the finding against plaintiff for costs. The present appeal followed.

In plaintiff’s amended statement of claim filed September 21, 1932, it is alleged in substance:

1. That on July 25, 1929, Edward B. Erickson and wife, as first parties, and defendants, as second parties, entered into a contract whereby defendants agreed to purchase from the Ericksons certain real estate (describing it), and to pay to them therefor the sum of $12,600, payable by the assumption óf a first mortgage of $8,000, and by the payment of $4,608 in monthly instalments; that on March 8, 1930, the contract “was amended by increasing the purchase price to $12,983,” payable by the assumption of said first mortgage, “and by the payment of $4,983, payable $90 on the first day of each and every month thereafter until the expiration date of said mortgage, when the unpaid balance became due and payable, with interest at 6 per cent per annum, payable monthly.” (Copy of contract, as amended, attached to and made a part of the statement of claim.)

2. That on January 20, 1931, the Ericksons assigned the contract as amended to plaintiff. (Copy of the written assignment attached to and made a part of the statement of claim.)

3. That defendants paid all monthly instalments of $90, up to and including the one due on April 1, 1931.

4. That payments for the 12 months, from May, 1931, to April, 1932, inclusive, are past due and have not been paid.

5. That because of the nonpayment of the 12 instalments there is due to plaintiff the sum of $1,080, plus interest.

6. That defendants also failed to pay the instalment due on May 1, 1932, in the sum of $90, “which sum is not included in the amount claimed by plaintiff herein”; that because of the default in the payment of said one instalment due May 1, 1932, “plaintiff, after the filing of the instant cause, commenced forcible detainer proceedings in a justice court for Cuba township, Lake County, Illinois, and on June 23, 1932, secured judgment for possession of said premises, and on June 28, 1932, obtained possession of said premises”; and that “said proceedings do not abate or bar this proceeding.”

From the copy of the contract as amended, attached to and made a part of plaintiff’s statement of claim, it appears that it is dated July 25, 1929; that the Erick-sons are designated as first parties and defendants (the Wards) as second parties; and that some of its provisions are as follows in substance:

That if the second parties (the Wards) shall “first make the payments and perform the covenants hereinafter mentioned,” to be made and performed by them, the “first parties (the Ericksons) covenant and agree to convey or cause to be conveyed” to the second parties, in fee simple, by good and sufficient warranty deed, the real estate in question (describing it), subject to taxes for the year 1929 and subsequent years, special assessments, building line restrictions, etc., and also “subject to a first mortgage of $8,000, dated -, due five years after date thereof, bearing interest at the rate of 6 per cent per annum, payable semi-annually,” which mortgage “said second parties assume and agree to pay' as a part of the purchase price hereof, which is $12,983. ’ ’

That in addition to paying said mortgage, the “second parties agree to pay to said first parties, at the office of the First National Bank, Barrington, Illinois, . . . the sum of $4,983, with interest at 6 per cent per annum, payable monthly, viz., $90 on October 1, 1929, and $90 on or before the first day of each month succeeding thereafter, until the expiration date of the first mortgage, when the unpaid balance shall become due and payable.”

“That if said second party fails to make either of the payments, or any part thereof, or fails to perform any of the covenants on the part of said second party hereby made and entered into, this contract shall, at the option of said, first party, be forfeited and determined and said second party shall forfeit all payments made on this contract, and such payments shall be retained by said first party in full satisfaction and in liquidation of all damages sustained, and said first party shall have the right to re-enter and take possession of the premises aforesaid; or, if said second party fails to make either of the payments or any part thereof, as hereinbefore agreed, and if said default shall continue for the period of sixty days, then at the option of first party all of the deferred payments hereunder shall become and be immediately due and payable. ’ ’

In defendants’ affidavit of merits, filed November 23, 1932, they admitted the execution of said contract as amended, but denied plaintiff’s right to maintain the present action. They alleged that on June 17, 1932, plaintiff commenced a forcible detainer suit against defendants before a justice of the peace in Lake county; that defendants were served with process in the suit; that a hearing was had on June 23,1932, and said justice found in favor of plaintiff and rendered judgment in its favor for the possession of the real estate in question; that on July 29, 1932, defendants surrendered possession of the property, and that by reason thereof and because of the express terms of said amended contract “the same operated in full satisfaction and in liquidation of all damages sustained and in full of all claims for rent thereunder”; that by reason of plaintiff’s re-entry and taking of possession, and because of the terms of the contract, “said contract was forfeited and determined by plaintiff, and all of its terms and provisions were likewise terminated, and no action can be maintained at law upon the contract. ’ ’ And defendants denied that they are now indebted to plaintiff in said sum of $1,080, or in any sum, by reason of the contract.

The bill of exceptions discloses that at the beginning of the trial defendants’ attorney stated that he was willing to admit the allegations of plaintiff’s amended statement of claim, but that he wished to introduce on defendant’s behalf three exhibits, viz., (1 and 2) two notices served by plaintiff on defendants and (3) a photostatic copy of the forcible detainer proceedings before the justice of the peace of Lake county. Thereupon plaintiff’s attorney admitted that the two written notices had been signed by plaintiff and served by it on defendants on the days of their respective dates, and that the copy of the forcible detainer proceedings was correct. The exhibits (hereinafter mentioned) were admitted in evidence, and no further evidence was offered by either party. Thereupon, after arguments of counsel, plaintiff submitted to the court two “special findings and holdings,” the first of which was marked, “Held,” but the second was marked “Refused,” viz.:

“The court finds that plaintiff forfeited the contract sued upon, on account of defendant’s failure to pay the installment due May 1st, 1932,” (Held)

“The court holds that, under the contract sued upon, plaintiff is entitled to recover for unpaid payments which accrued prior to the time that said contract was forfeited.” (Refused)

Defendants ’ Exhibits 1 and 2 are written notices of plaintiff, dated and served on defendants, respectively, on “April 23, 1932,” and “May 7, 1932,” in substance as follows:

(Exhibit 1.) Please take notice that, “beginning with the payment which is due on May 1,1932,” by the terms of your agreement with the Ericksons, dated July 25, 1929, for the purchase by you of the real estate (describing it), which agreement has been assigned to the undersigned, “and continuing with every payment due thereafter, we shall request you to comply with the terms of said agreement, and make payment on the day specified therein; time shall be of the essence commencing with said payment. This notice is given in lieu of notice heretofore given demanding possession of said premises.”

(Exhibit 2.) Please take notice that because of your failure to pay the instalment of $90, “due to the undersigned on May 1,1932, ’ ’ by virtue of your agreement with the Ericksons for the purchase of the premises (describing them), which agreement has been assigned to us, “and as demanded in our notice to you, dated April 23, 1932,” the undersigned “ha's elected to forfeit and determine said contract,” and “because of said forfeiture and determination, hereby demands immediate possession of the following premises” (describing them).

You will please take notice that upon your failure to surrender possession thereof immediately in compliance with this notice, a proceeding under the provisions of section 3, chapter 57 of the Illinois Statutes (1931) will be instituted. This notice is given to you by virtue of the requirements of chapter 57 of said statutes.

From said Exhibit 3 it appears that said forcible detainer suit was commenced by plaintiff before said justice of the peace against defendants on June 17, 1932; that after service of process the case was heard on June 23, 1932, the parties being present in court; and that the court adjudged that “plaintiff have execution for the recovery from defendants (the Wards) the possession of the following described property” (describing it), and that the writ of restitution be stayed for five days.

As grounds for a reversal of the judgment in the present case, plaintiff’s counsel contend that, by reason of the contract sued upon, “defendants owe to it the payments due from May 1, 1931, to April 1, 1932, inclusive, (or $1,080); that inasmuch as plaintiff commenced suit for those payments on May 3, 1932, and did not forfeit the contract because of defendants’ failure to make those payments but forfeited it on May 7,1932, because of defendant’s failure to pay the installment due on May 1, 1932, plaintiff has a good cause of action against defendants for the unpaid installments accruing before May 1, 1932; and that this right of action is not taken away because plaintiff subsequently recovered possession of the property because of a default which occurred after the installments herein sued for had become due.”

Counsel for defendants, in urging the affirmance of the judgment appealed from, contend that “no recovery can be had upon any contract for unpaid installments if the contract has been forfeited by the vendor; and that after such forfeiture the contract in itself is at an end, and becomes extinct and is rendered void so as to bar any action thereon for any part of the money due thereunder.”

In 20 Corpus Juris, p. 14, sec. 10, it is said:

“A remedy based on the theory of the affirmance of a contract or other transaction is inconsistent with a remedy arising out of the same facts and based on the theory of its disaffirmance, or rescission, so that the election of either is an abandonment of the other. (Citing cases.) Where a party rescinds a contract the law does not permit him thereafter to make use of it as subsisting for the purpose of claiming damages, or for the purpose of recovery thereon.” (Citing Stinson v. Sneed [Tex. Civ. App.], 163 S. W. 989, 991.)

In 27 R. C. L., p. 666, sec. 429, in discussing the “effect of rescission on further liability of purchaser, ’ ’ the author says:

“If the vendor exercises his option to declare the contract at an end, he cannot change his position and thereafter hold the purchaser liable to complete the purchase or pay any part of the unpaid purchase money. The remedy of the vendor by way of a cancellation of the contract and the continued liability of the purchaser for the purchase money are totally inconsistent, and the exercise of the former terminates any further liability of the purchaser for the purchase money. (Citing cases.) This is true as regards the liability of the purchaser for unpaid installments of the purchase money overdue at the time of the vendor’s election to terminate the contract; and even though a judgment has been recovered against the purchaser for overdue unpaid purchase money, the subsequent termination of the contract by the vendor will relieve the purchaser from liability on the judgment. ’ ’

The first sentence of the above statement in 20 Corpus Juris, and the first two sentences in the above statement in 27 R. C. L., are quoted with approval in Wollenberger v. Hoover, 346 Ill. 511, at page 545. (See, also, Ogden v. Larrabee, 57 Ill. 389, 400; Rose v. Bundall, 86 Wash. 422, 425.)

In view of the allegations in plaintiff’s amended statement of claim and the evidence introduced, and considering the authorities above referred to, we are of the opinion that the court was justified in making* such finding as was made, and in entering the judgment in question against plaintiff. It appears that plaintiff’s suit, for the recovery from defendant of said 12 matured and unpaid instalments aggregating $1,080, was commenced on May 3, 1932; that the suit was based upon the contract and was in affirmance thereof; that on May 7,1932 (four days after the commencement of the suit and while it was pending*) plaintiff served upon defendants formal written notice in which it is stated that it had “elected to forfeit and determine said contract” and, because of such determination, demanded immediate possession of the property (which possession defendants then had), and further stated in the notice in substance that, if defendants failed immediately to surrender such possession, plaintiff would commence a forcible detainer proceeding under the statute; that thereafter plaintiff commenced such proceeding, prosecuted it and obtained judgment for possession of the property; and that, prior to the trial of the present case, plaintiff actually obtained possession of the property. Under these undisputed facts we think that plaintiff’s attempt afterward to maintain the present action on said contract, notwithstanding the inconsistent position and actions taken by it, is contrary to the authorities and the law.

The judgment of the municipal court of July 12, 1933, appealed from, is affirmed.

Affirmed.

Sullivan, P. J., and Scanlan, J., concur.