author: Mr. Justice Friend

text:
    John A. Dickson and William P. Dunlap, Appellants, v. Roy D. Keehn, Appellee.
    Gen. No. 33,947.

      Opinion filed October 21, 1931.
    Church, McMurdy, Harped & Wagner, for appellants; Robert M. McMurdy and Howard M. Harped, of counsel.
    Kirkdand, Fdeming, Green & Martin, for appellee; Weymouth Kirkdand, Adbert Fink, Howard Eddis and J. B. Martineau, Jr., of counsel.
   Mr. Justice Friend

delivered the opinion of the court.

John A. Dickson and William P. Dunlap filed their bill of complaint in the superior court of Cook county-seeking to dissolve an alleged agreement for a copartnership or joint venture entered into between the parties herein for the sale of adjacent properties located in the City of Chicago, and for an accounting alleged to be due thereunder. The chancellor dismissed the bill for want of equity, holding that the agreement was invalid on grounds of public policy because it violates the rule against perpetuities and in restraint of alienation. This appeal is prosecuted to reverse the decree entered.

The essential facts disclose that Dickson had since 1918 been employed by the Illinois Publishing and Printing Company as advertising manager, general manager and director at a salary of $26,000 a year. It was his duty to search for methods of advertising for the Chicago Herald Examiner, a newspaper printed and published by the Publishing Company. Shortly prior to August 19, 1920, Dickson observed a sign of the Piggly Wiggly Company on a building located on Michigan avenue, just north of the new Link Bridge, and decided that the roof of that building would be an excellent location for a billboard to advertise the Company’s newspaper.. He thereupon sent one Hartford, also an employee of the Publishing Company, to ascertain whether the Piggly Wiggly Company would lease space on its roof for a billboard advertising the Herald Examiner. Hartford, after making inquiry,' reported that they would not, but told Dickson that there was available roof space on a building about 100 feet north of the Piggly Wiggly property located on the southwest corner of Michigan avenue and Illinois street, owned by one Nelson Landon Hoyt!

With this information Dickson called upon Hoyt the same day to ascertain whether he would lease roof space for a billboard. Dickson was advised that Hoyt was agent for his wife for half of the property and trustee for his daughter for the other half. Dickson thereupon proposed that Hoyt lease billboard privileges on the roof of this building to the Herald Examiner, but Hoyt' declined the proposal stating that he was committed to lease- the whole property 'to the Bowes Realty Company, with whom he had promised to consummate a deal that very afternoon at four o’clock and that he had even signed the lease which had not yet been executed by Bowes Realty Company. It provided for a five-year term, the rent for the first year being $4,000 and the last'four years $6,000 annually, together with an option to purchase the property at a price of $100,000 during the first three years and $110,000 for the last two -years -of the term;

The evidence discloses that Dickson’s business experience enabled him to appreciate the value of that lease and option, and that he believed real estate values on the newly opened Michigan avenue = would increase in the near future. It also appears that Dickson fully appreciated that the rental values stipulated in the lease between Hoyt and the Bowes Realty Company would make a very profitable investment as an advertising proposition for the Herald Examiner, and that the Hoyt property could be made to bring in a revenue upwards of $2,000 per month by erecting two overtowering signs on the roof of the building.

After interviewing Hoyt, Dickson returned to the offices of the Publishing Company and talked to Dunlap, co-complainant herein, about the matter. Dunlap had for some time prior thereto been the business manager, treasurer and custodian of the funds of the Publishing Company. His salary at the time was $12,000 per annum. Dickson told Dunlap about the terms of the Bowes lease and particularly of the option to purchase, and although the matter was not within the scope of Dunlap’s employment, the two went together to view the property.

As they stood there looking at the building Dunlap remarked that the property “would be a very advantageous personal real estate proposition,” and he testified upon the hearing that “it did not take him long to decide that it was a good opportunity for a personal investment.” Dickson testified that he had not thought of this before Dunlap made the suggestion, but he instantaneously “agreed with him and we decided to take it if we could get it for ourselves.”

It further appears from the evidence that Dickson and Dunlap immediately called on Hoyt, who had not yet delivered the signed lease and option to Bowes Realty Company, and suggested that Hoyt execute a similar lease, and option with them personally. They proposed a contract with them personally under which the purchase price in the option be raised from $100,000 and $110,000 to $125,000 and $135,00, respectively. Hoyt, however, declined to make such a contract with complainants because, as he stated', he was not satisfied with their financial ability to carry out the agreement, and indicated that he would prefer to do business with the Publishing Company. Complainants thereupon returned to their offices, and Dunlap drew a check of the Publishing Company for $4,000, payable to the order of Hoyt. Then they drew their personal checks for $2,000 each to the order of the Publishing Company to cover the $4,000 Company check, and returned to further negotiate with Hoyt. The latter evidently believed that he was dealing with the Publishing Company and observing the $4,000 check, accepted their proposal, executed a receipt and agreement to enter into a lease and accepted the $4,000 Publishing Company check as earnest money in payment of the first year ’'s rental. The memorandum agreement was signed by Hoyt, as trustee, as agent and personally for his wife, daughter and son-in-law, and Dickson and Dunlap signed the agreement as officials of the Publishing Company.

On August 20, a form of lease was prepared. By its terms Hoyt leased the property to the Publishing Company, its successors and assigns, for five years commencing September 1, 1920. According to the evidence Dickson insisted on the lease running to “assigns” so that he and Dunlap could later get an assignment of it from the Company, but this plan was not disclosed to Hoyt. Under the terms of the lease the Publishing Company agreed to pay $4,000 for the first year’s rent and $6,000 annually thereafter. Hoyt granted an option to the Publishing Company and its . assigns to purchase the property at the price of $125,000 until September 1, 1923, and $135,000 from September 1, 1923 to September 1, 1925. The option was to be exercised by written notice to Hoyt. Of the purchase price $40,000 was to be paid in cash upon delivery of the deed and the balance was to be paid in four equal annual instalments.

It is conceded that during all of this time Dickson and Dunlap made no effort to get- in touch with William Randolph Hearst, the owner of the Publishing Company, although in a subsequent communication to Mr. Hearst, Dickson stated that he had tried in vain to get an option for a week until communication could be had with him.

The defendant, Eoy D. Keehn, was president of the Publishing Company and personal representative of Mr. Hearst in Chicago. He was likewise the attorney for the Company and Hearst. On August 23, 1920, Dickson brought the executed lease from Hoyt, as trustee and agent, to the Publishing Company, to Keehn, and told him that the lease was being executed to obtain billboard space for the Herald Examiner. He did not, however, tell Keehn of the plan of Dickson and Dunlap to obtain the property for themselves, nor that he and Dunlap had given their personal checks for $2,000 each in exchange for the check of the Publishing Company drawn to the order of Hoyt. All that Dickson disclosed to Keehn was that he, as general manager and advertising manager for the Publishing Company, wanted Keehn, as attorney for the Company, to have the title assured and to place the entire transaction in legal shape for the Publishing Company, and he requested Keehn, as president, to sign the lease. Keehn, of course, knew that Dickson under the terms of his employment by Mr. Hearst was required to pass on advertising matters and at that time regarded the plan as nothing more than an acquisition of the leasehold by the Publishing Company of billboard space on behalf of the Herald Examiner. It is clear from the evidence at this time Dickson and Dunlap had definitely decided to obtain Hearst’s consent to an assignment of the lease and option to themselves, if possible, but they made no mention of the plan to Keehn, with whose position and relationship to Hearst they were fully cognizant.

After examining the lease on behalf of the Publishing Company, Keehn, as its president and attorney, signed the same and returned it to Dickson. The latter, however, did not deliver the lease to Hoyt for execution, but turned it over to Dunlap, who kept the document until after he procured Hearst’s consent to an assignment thereof to them. During the interim of two and one-half months, pending the assignment, no advertising sign of the Herald Examiner was ever put on the property, presumably because, as' Dickson testified, “there never was any reason why an advertisement of Herald Examiner should have been put on the property.”

After the lease was executed by Keehn, Dickson and Dunlap together prepared a letter, signed by Dickson alone, addressed to Mr. Hearst, in California, as follows :

“September 2, 1920.
“Mr. W. R Hearst,
San Simeon Ranch,
San Luis Obispo, Calif.
Dear Mr. Hearst:
“In looking for some locations for some printed signs recently, I ran across a piece of property on Michigan' Avenue, just north of the new bridge, (a remnant of 25 feet left after widening the street), with 100 feet frontage on Michigan Blvd. The owner was not interested in leasing the sign privileges, but I found that the property itself was for lease or sale.
“It looked like such an excellent possibility for investment that Mr. Dunlap and I decided to lease it with the option of buying it within five years. We personally paid-the first year’s rent of $4,000. When we came to draw up the lease it developed that' the owner assumed that we were acting for the Herald and Examiner, because, I suppose, my first inquiry was for a sign location for the Herald and Examiner. He prefers not to make the deal with Mr. Dunlap and me personally, and is entirely frank in stating that he considers the company a better credit risk than the individuals.
“We are very anxious to hold the lease because we think it is a good investment and because we know that an agent for a big estate is very anxious to get hold of the property. A lease for the property had been already signed to the Bowes Realty Co. but not delivered. We tried to get an option for a week until we could communicate with you. However, we could not obtain an option and had to act before five o ’clock that day, or abandon the opportunity.
“Therefore, because it is an entirely profitable investment for the paper as a location for advertisements, we signed the contracts to lease it for the Company.
“Would you be willing to let us make this lease in the name of the Herald and Examiner and then have the company assign it to Mr. Dunlap and me? This would mean that you would be assuming the risk of our paying the rent for four years of the five year term, the first year’s rent being already paid by us. The rental is $6,000 a year. I hope you believe that we can and will take care of this obligation.
“It is, as I said, an entirely profitable investment for the paper simply as a location for an advertisement. Of course, it would be a much more highly profitable investment from a re'al estate standpoint.
“In thinking over this request, it seems like rather a good bit of nerve, but I was anxious to keep the property from going to somebody else, and this seemed to be the only way to hold it.
“We would, of course, have Mr. Keehn examine the leases to assure you that there would be no further obligation against the Company than our making good on the rent.
“Will you let me know your decision?
Tours sincerely,
JAD-EOB.”

Shortly after receipt of this letter Hearst wired his approval of the assignment. Upon receipt thereof Dickson procured the lease from Dunlap and took it to Keehn with Hearst’s telegram. There is some conflict in the evidence as to whether Dickson at the same time showed Keehn a copy of his and Dunlap’s letter to Hearst, but at any rate Keehn was requested in pursuance of Hearst’s consent to the assignment of the lease to prepare the necessary resolutions to be signed by the directors of the Publishing Company authorizing the assignment. Keehn directed Edward G-. Woods, who was associated with him as attorney for the Hearst Publications, to prepare the resolutions authorizing the transfer. Up to this time no mention had been made to Keehn of the value of the lease or the manner in which it had been procured.

Following this conference with Keehn the lease and option were delivered to the Hoyts for execution on their part, but no mention was made to Hoyt of arrangements for assigning the lease by the Publishing Company to Dickson and Dunlap.

Hearst ultimately signed the minutes prepared by Woods. Hoyt returned the lease and option duly executed, and on November 4, 1920, a formal assignment thereof to Dickson and Dunlap was executed by the Publishing Company, and thereafter recorded on November 6, 1920.

Having acquired the assignment of the lease to themselves Dickson and Dunlap began negotiations with the Standard Oil Company to lease the sign privileges, instead of the Herald Examiner. The evidence discloses that the Standard Oil Company submitted a design for a Red Crown sign, set in lights, for which Dickson and Dunlap demanded $2,000 a month for the rental of one sign. There was room for two illuminated signs 20 feet high by 50 feet long on the building in question, the aggregate rental for which was reasonably worth in excess of $24,000 a year. For reasons not disclosed in the record, negotiations with the Standard Oil Company were abandoned, and in lieu thereof a three-year lease for sign space was made with the. Cusack Company, at, a rental aggregating $7,500, payable monthly, with a cancellation clause on 30 days’ notice. A lease for like privileges was made with the American Bill Posting Company for $100 a month, the aggregate revenue from these two sources amounting to $8,750 per year, with provisions making possible the sale of the property at any time upon short notice.

The property thus acquired by Dickson and Dunlap had, as the result of the widening of Michigan avenue, been reduced to a depth of 25 feet with 100 foot frontage on Michigan avenue. Dickson and Dunlap procured the opinion of an architect to the effect that the limited depth of the property would not make it feasible for the erection of a building thereon which would yield sufficient revenue to warrant the investment necessary. About this time complainants learned that the adjoining lot, referred to in the record as the Blair lot, could be purchased for $80,000. The Blair lot fronted on Illinois street adjacent to and west of the Hoyt lot and was 50 x 100 feet in dimensions. The two lots together represented a frontage of 100 feet on Michigan avenue with a depth of 75 feet on Illinois street.

With a view to finding some one “friendly” who could furnish sufficient cash to acquire the Blair lot and thus combine the two properties so that they might be sold as one, Dickson approached Mr. Kohler, advertising manager of Hearst’s American Weekly, who was regarded in the Hearst organization as one of its successful advertising representatives. Kobler, however, declined to enter into an arrangement with complainants. Dickson and Dunlap, according to their testimony, thereupon planned to approach Keehn for the purpose of interesting him in their plan. About a week after the assignment of the lease and option Dunlap first solicited Keehn’s opinion as to whether the Hoyt lot was of sufficient size to support a building capable of producing enough revenue to warrant the construction expense. ' He spoke to Keehn several times about the matter and as he testified, “in each of these talks I pointed out to him the advisibili’ty of getting it (the Blair lot); I thought it would be a good thing for him. ... I was trying to sell him on the proposition.” Evidently Keehn did not at first look favorably upon the plan by which he would be required to furnish the capital and assume the risk for one-third of the profits offered him. Therefore, about two weeks after the matter was first taken up with Keehn, Dickson appeared in the latter’s' office and told him that Kobler, for whose business judgment Keehn evidently had considerable respect according to the evidence, had offered to purchase the Blair lot and contract with Dunlap and himself to hold the two as one property and divide the profits three ways in the event of a sale, but that he preferred to have Keehn rather than Kobler. It appears from the record that this statement was untrue. Nevertheless Keehn went with Dunlap and Dickson to see the property, became interested in the proposal to acquire the Blair lot and entered into an oral agreement with complainants, that the two lots were to be sold as one and the profits upon the sale to be divided three ways equally.

On February 21, 1921, Keehn purchased the Blair' lof for $100,000, $20,000 of which was paid in cash and the balance to be paid $20,000 a year for four ■ years, with interest, at 6 per cent. Shortly after acquiring this property Keehn suggested that the contract between him and complainants be reduced to writing, to which all parties agreed. Charles Center Case, an attorney at the Chicago Bar, was then associated with Keehn in his law office as a member of the legal staff of the Herald and Examiner. Dickson and Dunlap both testified that they had confidence in him. After numerous consultations with all the parties, but more particularly with Dunlap, Case drew a draft of the contract, and submitted copies thereof to Dickson and Dunlap which they took away with them, read over and then suggested several changes. The contract was finally executed by complainants and Keehn. The preamble of the agreement recites, in substance, that Keehn had purchased the Blair lot, the assignment of the lease between Hoyt and the Illinois Publishing and Printing Company to complainants, that the parties desired that Keehn should acquire the Blair property and Dunlap and Dickson acquire the Hoyt property, so that the two pieces might be sold as one at a profit to the parties to the agreement, and contains the covenants which are hereinafter fully set forth:

Paragraph 7.

“It is agreed that in order to sell the two properties, it will be necessary for Dickson and Dunlap to exercise the option to purchase the Hoyt property but it is the expectation of the parties that the advances which Dickson and Dunlap will be required to make in the exercising of the option will not be required to be made until at or about the time the aforesaid properties may be contracted to be sold and that Dickson and Dunlap may be speedily reimbursed for such advances from the proceeds of the sale pursuant to the provisions of paragraph 6.”

Paragraph 8.

“The parties agree to promote the sale of the two properties in order that they may be disposed of expeditiously for the best possible price obtainable and at the most advantageous terms. The parties agree that they will, from time to time, give exclusive authority to brokers to be selected, for a period of approximately 90 days.”

“At any time that any offer to purchase said property shall be received, same shall at once be submitted to each of the parties hereto, and whether any such offer shall be accepted shall rest in the discretion of a majority of said parties; provided, however, that if the majority of said parties shall not desire to accept any such offer, which may be acceptable to the other of said parties, then, unless said offer shall be accepted, the parties who shall not desire to accept same, shall forthwith pay to the other of said parties for all his right, title and interest in and to said properties and in and to and under this contract and iii and to and under said lease and option to purchase such amount in cash as he would be entitled to receive under the provisions of paragraph 6 hereof, were such offer accepted and the contract thereby made, consummated. ’ ’

Paragraph 9.

“It is understood and agreed by and between the parties hereto that, in the event that said Blair and Hoyt properties are not sold for the benefit of the parties hereto on or before the 20th day of August, A. D. 1925, and in the event that parties of the second and third parts have not before that time exercised the right and privilege of purchasing said Hoyt property, in accordance with the provisions of aforesaid lease and option to purchase, the said second and third parties shall forthwith sell, assign, transfer and convey to said party of the first part, all their right, title and interest in and to said lease and option to purchase, and in and to said Hoyt and Blair properties, upon the payment by said party of the first part to said parties of the second and third parts of One Hundred ($100) Dollars in cash, and without other consideration and thereupon this contract shall cease and be determined.”

Paragraph 11.

“This contract shall be and remain in full force and effect from and after this date until it shall be terminated in accordance with the provisions of Paragraph 9 hereof, unless said properties shall be sold by the parties hereto and the contract executed accordingly prior to that time. In the event, however, that said Blair and Hoyt properties are not sold for the benefit of the parties.hereto on or before August 20, 1925, then, if the parties of the second and third parts have before that time exercised the right and privilege of purchasing said Hoyt property, in accordance with the provisions of aforesaid lease and option to purchase, this contract shall be and remain in full force and effect until said Blair and Hoyt properties shall be sold and the proceeds of the sale thereof distributed in accordance, with the provisions of Paragraph 6 hereof. During all of the time that this contract shall remain in force and effect as aforesaid the covenants, agreements and conditions of these presents shall be binding upon the parties hereto and their respective heirs, executors, administrators, successors and assigns.”

The agreement bears date March 4, 1921. On the same day it was executed a brokerage contract for 90 days was granted to the Bowes Realty Company to séll the combined properties as one at a price averaging $60 per square foot, but no sale was consummated and the contract expired by its own limitations.

In January, 1922, the Tribune Company, which had set out to acquire the entire block, including the Blair and Hoyt lots, retained the real estate firm of Clark and Trainer to assemble the properties in the block. Milton Trainer of that firm procured Jarvis Hunt to act as a dummy purchaser for the Tribune Company so as to prevent a possible rise in prices that might result If it were known that the Tribune desired these properties. The transaction was placed in the hands of William O. Trainer, who called on Keehn, inquired as to the price of his lot and the Hoyt property, and then learned from Keehn that the Publishing Company had assigned the lease and option to complainants. Trainer thereupon went to Dunlap and told him he was attempting to acquire the entire block. Dunlap apprised Trainer of the contract of March 4. Dunlap and Dickson then called on Keehn, and for the first time proposed a sale of the property to yield a profit of approximately $75,000 for each of the parties in the sale of the two lots, fixing a total purchase price on the property of $450,000. This price was arrived at on the basis of $175,000 for Keehn and $275,000 for the Hoyt lot. About- February 8, 1922, letters were prepared by Keehn, giving Clark and Trainer an exclusive agency for 30 days to sell both properties at a square foot value- that would yield the aggregate price hereinabove mentioned. This writing expired by its terms March 8. Trainer sought an extension saying that his purchaser was interested but was having difficulty in financing the sale.

About March 1, 1922, which was shortly before the expiration of the option of February 8, Keehn went to New York, talked with Kobler, and for the first time learned that Kobler had not agreed to purchase the Blair lot, as was represented to Keehn by Dickson. He thereupon returned to Chicago and heard that Hoyt was threatening to repudiate the lease and option because of what he then considered the inadequacy of the option price in the lease.-

Because of the new developments thus brought to his attention, Keehn, according to his testimony, became ■ uneasy because he had agreed to deliver the Hoyt lot along with his own -and he feared that he might not be able to fulfil this agreement, if Hoyt or those whom he represented should set aside the lease and option, or if complainants were unable to take up the option. He therefore had a conference with Dunlap and told him what he had learned from Kobler in New York, as well as what he had heard as to Hoyt’s threats to withdraw from the lease and option. Dunlap admitted that Hoyt was “going to give him trouble,” but he “thought it would go through all right.” Keehn testified that he told Dunlap it was important for him to know, because if he was contracting with third parties to deliver property on which Dunlap and Dickson had only an option to purchase and it developed that Hoyt would not go through with the deal, he would find himself in a very embarrassing position. He thereupon suggested to Dunlap that he exercise the option on the Hoyt property and thus eliminate the existing contingency. Dunlap replied that he and Dickson could not exercise their option because they did not have the money and according to Keehn’s testimony, Dunlap then informed Keehn “that is what we have got you in the deal for.” Dunlap further suggested that Keehn would have to advance the money for the option on the Hoyt lot besides taking care of his own property. Keehn replied that this was not his understanding and he would not do so; that he would work with them to sell the two properties but could not again agree to sell as one piece; that he would be willing to modify the contract to that extent or cancel it; that he felt friendly and wanted to go along as much as he could; that he considered the property was worth more than they were asking for it, $450,000; that in order to help he would modify the contract to the extent that he, Keehn, would take care of his own property and they could take care of theirs; that he would work with them to sell the two properties, but that any sale of his property would have to bring him, Keehn, $200,000.

According to Keehn, Dunlap then insisted that Keehn would have to finance the complainants’ end ‘ ‘ or the contract would have to be cancelled — that they couldn’t do and would not do it.” Thereupon according to Keehn’s testimony, he told Dunlap, “I told them that if the provision I suggested wasn’t accepted, that we would have to cancel the contract and follow that up by a written statement to that effect.” This conference between Keehn and Dunlap is denied in every particular by Dunlap. It appears from the evidence, however, that Keehn told Trainer of his conversation with Dunlap several days after it is alleged to have taken place. This is corroborated by Trainer and also by events that occurred immediately thereafter.

When the 30-day option of February 8, expired, Keehn'declined to sign a further joint option. Trainer therefore procured for- Hunt separate options expiring April 1, one from complainants to purchase the Hoyt lot for $275,000 and another from Keehn to purchase the Blair lot for $200,000.

About March 18, Trainer told Keehn that he could not sell the two properties for $475,000. He handed Keehn back his option. Keehn said “all right, that is satisfactory to me” and tore up the option. Defendant contends that when Trainer procured the joint option February 8, on both properties at $450,000, he set out to beat down the price and that the application for the extension on the ground that Hunt was unable to procure the necessary capital was merely the first step toward that end. Dunlap and Dickson had agreed with Keehn to demand $450,000 for the two properties. When the option of February 8, expired Keehn, in keeping with the provisions of paragraph 8 of the contract “that each party should at all times endeavor to promote the sale of the properties at the best possible price obtainable” raised the price upon his own lot $25,000, and when Trainer came to him on March 18 and told him he could not consummate the deal at the option price Keehn showed no disposition to make any reduction. Dunlap and Dickson, however, indicated a willingness to accept $400,000 for the two properties, which was considerably less than the price agreed upon between complainants and Keehn. It appears from the evidence that Dunlap, instead of preseating these figures to Keehn, as' provided in their contract-, entered into negotiations with Trainer for a reduction in the price. He told Trainer to get a buyer at $400,000 and he believed Keehn would agree to the sale. Defendant insists that this conduct on the part of Dunlap and Dickson was, in and of itself, a sufficient violation of the agreement with Keehn to justify the latter’s withdrawal therefrom.

Keehn testified that he realized at this time the futility of trying to negotiate a sale for the two properties while Dunlap was cutting the price, and accordingly on March 25, he addressed a communication to Dunlap and Dickson complaining of the situation. He said, among other things:

“It is very evident on account of the failure of the Trainer deal for our Michigan and Illinois property that our joint agreement relative to a joint sale is interfering with that sale. . . .

I do not want to stand in the way of a possible sale of your property by you gentlemen.

I would like to sit down with you the first of the week and talk the thing out. Maybe we can reach a better basis. ...”

Dunlap and Dickson'made no reply to this communication.

On March 28, Keehn again wrote complainants, saying:

“On account of the fact that it seems impossible to negotiate in a deal by acting together under the terms of the contract, I hereby elect to cancel.

I think both parties can succeed very much better independently and then there can be no question about the right to negotiate. . . .

I think it only fair, therefore, that you should be relieved of any responsibilities under our joint contract so that you might feel free to negotiate as you see fit.”

About this time Dickson and Dunlap consulted counsel, were advised that their contract with Keehn was valid and that Keehn could not cancel without their consent. They thereupon addressed the following letter, dated March 30, to Keehn:

“Dear Mr. Keehn:
We have your letter of March 28, 1922, in which you say you elect to cancel our contract.
We know of no reason why the contract should be cancelled nor of any right on your part to cancel it.
What have you in mind?
Sincerely”

On March 31, Keehn replied thereto as follows:

“The contract provides that all parties shall use their best efforts to make a joint sale of the property. I have worked diligently but I do not believe you have done as much. . . .

Any party to a contract can cancel it any time he sees fit, providing he is willing to stand the consequences. ’ ’

No reply was made by complainants to Keehn’s last communication, but Dunlap immediately called on Keehn, who advised the former that “he had consulted a high legal authority on the contract and that it was void.” Keehn testified that Dunlap did not then tell him that he and Dickson objected to the cancellation of the contract or that they intended to bind him thereto.

On April 6, Dunlap saw Trainer who told him that he had Hunt’s earnest money check for $40,000 and was willing to purchase the two properties at $400,000. Dunlap, however, did not call on Dickson or Keehn to ascertain whether they would accept this price or submit the figure, as provided in the contract, nor did he make any effort to get a better price from Trainer. He directed Trainer to prepare two separate contracts, one for $241,666 for Dickson and himself and one for $158,333 for Keehn, and stated that he believed Keehn could be induced to sign such a contract.

That same evening Keehn called Dunlap on the telephone, saying Trainer had just called him and inquired if Dunlap knew what Trainer wanted. Dunlap advised Keehn that he had just left Trainer, who had made Hunt’s offer of $400,000 known to him and that Trainer would have a check for $40,000 earnest money the next morning. According to Dunlap’s testimony Keehn then said, “Well, if we are working under the old contract or under the contract or under our contract, I suppose that I have a right to buy your property at that figure,” and that he (Dunlap) replied, “I told him that was a fact, if he wanted it, he could have it. I told him that I never believed that he meant to cancel our contract anyway.”

That same evening Trainer met Keehn at the South Shore Country Club and told him of his conversation with Dunlap and of Hunt’s offer. Keehn replied that his price was $200,000, saying, according to Trainer’s testimony, “if we could bring a buyer for $200,000 he would sell; he would not sign a joint contract.” Dunlap testified that Keehn called him the next morning stating he had talked to Trainer and that “he did not think Trainer had a buyer,” but “he wanted to state that as far as being in earnest in cancelling the contract, that he was never more in earnest in his life.” Dunlap replied that he thought Trainer would show up with a contract and the money, but said nothing of his intention to hold Keehn to the agreement. Trainer testified that he had called Dunlap twice during the same day stating that he would be over later. He also notified Keehn, who according to his testimony said, “well go ahead and talk to them and make the best deal you can and let me know.”

About four o’clock the same day, April 7, Milton and W. O. Trainer came to Dunlap’s office with a joint contract for $400,000 covering both properties. Dunlap told them he knew Keehn would not sign a joint contract; that-the only way to get him to accept the proposition was to make separate contracts. The next morning, April 8, Trainer went to Dunlap’s office. Dunlap told him “Keehn was up in the air”; that he, Trainer, “had spoiled the situation by talking with Keehn’ ’; that he should have taken his (Dunlap’s) “instructions and worked along with him; that he would have gotten it signed, but now Keehn would not act.”

About six o’clock on April 8, the two Trainers went to Keehn’s office and tendered him the $400,000 contract, which had been signed by Hunt. Keehn told them he would not sign. He said he was going to California. Trainer drew a separate contract at a price of $200,000 for the Blair lot, caught Keehn at the railroad station, and induced him to sign. The time was short and Keehn signed the contract without reading it: He asked Trainer, however, if the contract contained a clause that his title would not pass unless they could make a satisfactory deal with Dunlap and Dickson, and Trainer assured him there was. The agreement signed by Keehn provided for the purchase of the Blair lot by Hunt for $200,000. It recited that Hunt was simultaneously entering into contracts of purchase with the owners of lot 2, which was the Hoyt property, and with the owners of other property in the block, and provided that if “the owners of any of the tracts, the purchase of which is herein contemplated, fail or refuse to execute or deliver contracts of pur-1 chase within five days, this contract shall at the option of the purchaser (Hunt) . . . become null and void,”

On Monday, April 10, the two Trainers saw Dunlap in the latter’s office and told him that Keehn had signed the contract for $200,000, that there was left only $200,000 for the purchase of the other property, and asked whether Dunlap and Dickson would sign the agreement. Dunlap stated that he wanted to talk with his attorney and did not know what he and Dickson would do. Dunlap testified that when the Trainers showed him Keehn’s contract for $200,000 and assured him that $400,000 was all that Hunt would give, “it was a matter of taking or leaving it”; that Dickson and he then talked the matter over for a while and thought the best thing to do was to accept it, that is, to accept Keehn’s contract on account and take the other $200,000. “I told Trainer we would accept the $200,000 and apply Keehn’s contract on the account — on account of the $200,000.”

In the presence of Dunlap’s counsel it was explained that Hunt was interested in acquiring the whole of the block and that the success of the conclusion of the contract was dependent on all of the titles to the property being good; that if the title to one parcel failed, the contract would fail in the entire block, unless Hunt elected to take such title. Dunlap’s counsel insisted that Hunt agree to provide the $40,000 necessary for Dunlap and Dickson to exercise their option and this was arranged. That same evening Dunlap telegraphed Keehn as follows:

“In full compromise of all differences between Dickson you and me we will sign contract and close deal as offered by Trainer if you will wire your assurance that you will turn over to us twenty-five thousand out of your two hundred thousand Do not tell me to go to hell on your wedding day”

Before they received a reply to this telegram Dunlap and Dickson executed the contract with Hunt at a purchase price of $200,000. Upon receipt of the telegram Keehn wired as follows:

“Wouldn’t tell you that on this day or any other day I am for you now as I always have been but those buyers must pay you and John the extra you demand Good luck. ’ ’

Hoyt, as anticipated, had some doubt about the advisability of going through with his lease and option to Dickson and Dunlap. At the suggestion of Dunlap’s counsel Trainer went to see him and Hoyt stated that he thought he was making a mistake; that if he were trustee for any one else than his own daughter someone might criticise him very severely. He finally settled, however, for an additional $1,700.

April 29 Keehn returned to Chicago and on the following day he learned for the first time that complainants had signed a contract for a price which they considered unsatisfactory and had employed counsel to file suit against him. On May 1 he wired Dunlap, who was then in New York, that he had just learned of Dunlap’s and Dickson’s dissatisfaction with the contract signed by them and stated “my agreement (with Hunt) was based absolutely upon buyer’s ability to get a contract with you. If the price you are to receive under your individual contract is not satisfactory, then withdraw from the deal if you can, as I do not think you have any recourse otherwise, etc. I wanted to be at all times friendly and still want to help you protect yourselves if you can, but wire me your position so that I may see if there is any possible way I can help you. ’ ’ Neither Dickson nor Dunlap replied to this telegram, although there was still time to set the transaction aside, as Keehn’s deed to the Blair lot was not executed until May 9, and complainants’ notice to Hoyt of their election to purchase was not given until May 13, and the deal with Hunt was not closed until some time in June. The bill of complaint herein was filed December 21, 1922.

The chancellor, as heretofore stated, dismissed the bill of complaint upon the ground that the provisions of paragraphs 9 and 11 of the contract were in violation of the rule against perpetuities and in restraint of alienation, and therefore rendered the entire agreement invalid on grounds of public policy. However, we regard the facts as of paramount importance and shall therefore first consider the other contentions of counsel.

It is first urged that complainants are in court with unclean hands. This contention is based on the alleged misrepresentations of complainants and their failure to divulge the facts fully, first to Hoyt in acquiring the lease and option, then to Hearst in procuring his consent to the assignment thereof, and lastly, in their dealings with Keehn, whereby he was induced to acquire the Blair lot and enter into the joint venture with complainants for the disposition of the combined properties. The chancellor dismissed these considerations as being of no consequence. In so doing he evidently believed that, in view of his conclusions as to the invalidity of the contract on legal grounds, the facts were of secondary importance.

Complainants learned of the Hoyt property in looking for available advertising space on behalf of the Publishing Company. As its confidential employees and realizing fully the value of this lease as an asset to their employer, it was their duty to acquire the leasehold for the company, not for themselves. Had Hoyt consented to make the lease to Dickson and Dunlap personally, as they first suggested, it would clearly have been a violation of their duty to the Publishing Company, for which the latter could have maintained a suit in equity against complainants as constructive trustees to recover the property. (Davis v. Hamlin, 108 Ill. 39.) As a matter of necessity, however, complainants took the lease and option in the name of the Publishing Company, with the avowed purpose of having it assigned to them if Hearst’s consent could be obtained. This was accomplished by means of the letter heretofore set forth, which is significant chiefly because of the important information withheld from •their employer. With full knowledge of the fact that the Hoyt property could be made to yield a profit probably in excess of $20,000 annually for advertising space alone and that real estate values on Michigan avenue were rapidly enhancing, Dunlap and Dickson withheld these salient facts from Hearst, to whom they owed the duty of fidelity as his employees. It is difficult to believe that Hearst would' have given his consent to the assignment if all the facts had been made known to him. Under the circumstances he could clearly have maintained a suit in equity to recover the property from complainants, even though their title was obtained through an assignment to them instead of by a direct purchase. (Tyler v. Sanborn, 128 Ill. 136; Fox v. Simons, 251 Ill. 316; Stemm v. Gavin, 255 Ill. 480.)

In that situation complainants’ title would have been quite insecure, and this fact is significant when taken in connection with the negotiations resulting in the acquisition of the Blair lot by Keehn.- Dickson withheld from Keehn the significant facts that he and Dunlap had tried to get the property personally for themselves and that the lot would yield a net profit annually in excess' of $20,000 for advertising space. Neither did he disclose to Keehn the details by which Hearst had been induced to give his consent to the assignment. Keehn was entitled to have all of this information, not only in his capacity as president of the Publishing Coihpany, attorney and confidential representative of Hearst, but also for the protection of his -interest 'in acquiring the Blair lot. This lot standing alone, located in badlc of the Hoyt lot, 20 feet below the surface of the street and with' no access to Michigan avenue, was valuable to Keehn only when taken in connection with the Hoyt lot. Therefore, it was extremely important to Keehn to have all the information then in the possession of complainants. Just as Hearst would probably have withheld his consent to the assignment if all the facts had been made known to him, so also Keehn would in all likelihood have refused to invest $100,000 in the Blair lot if he had known the facts from which, as a lawyer, he could have ascertained the insecurity of complainants’ title. Moreover, it is extremely unlikely that Keehn, as president of the Publishing Company and Hearst’s confidential employee, would have executed the assignment as president, had he known all the facts,-without first insisting that a full disclosure as to the value- of the Hoyt property be made to Hearst. ■ Manifestly, full frankness on the part of complainants toward Keehn would have defeated the entire plan and probably have resulted in a return of the Hoyt property to the Publishing Company.

The immediate subject matter of this entire transaction was the Hoyt lot. Its acquisition was the keystone of the plan by which the parties hoped to dispose of the combined properties and thus reap considerable profits for themselves. Therefore the negotiations with Hoyt and certainly the concealments from Hearst and Keehn of salient facts, which if disclosed would have defeated the accomplishment of complainants’ plans, tainted the entire transaction so as to preclude recovery in a court of equity in favor of those who seek the court’s aid.

It is stated in Pomeroy’s Equity, 4th ed. paragraph 401, that:

“Whatever be the nature of the plaintiff’s claim and of the relief which he seeks, if his claim grows out of or depends upon, or is inseparably connected with, his own prior fraud, a- court of equity will, in general, deny him any relief, and will leave him to whatever remedies arid defences at law he may have:”

This rule is supported by Miller v. Kraus (Cal. App.), 155 Pac. 834, in which the doctrine of unclean hands was invoked by the court to defeat the rights of the complainant who sought an accounting under a copartnership agreement where his own conduct was characterized by the court as unconscionable. The court said:

“As is plainly manifest from the findings, a copartnership between the plaintiff and the defendant was established or brought into existence through fraud practiced by the former upon the latter, and certainly the plaintiff is in no position to ask the favor of equity as to a transaction thus brought about by him.

“ ‘Whenever a party who, as actor, seeks to set the judicial machinery in motion and obtain some remedy, has violated conscience or good faith, or other equitable principle, in his prior conduct, then the doors of the court will be shut against him in limine; the court will refuse to interfere on his behalf, to acknowledge his right, or to award him any remedy. ’ 1 Pom. Eq. Juris. § 397.

“Partnership contracts create a fiduciary relation between the partners and they must be founded in good faith and upon the consent of the parties and for a lawful purpose. And it is a settled as well as a most salutary rule that where one of the parties to an agreement of partnership has been induced to enter into it by the fraudulent representations of the other, the partnership may be declared void and dissolved, or, what in effect amounts to the same thing, the agreement of partnership rescinded. 30 Cyc. of Law, p. 657; Story on Partnership, § 6; Hynes v. Stewart & Owens, 49 Ky. (10 B. Mon.) 419. This rule proceeds from the theory, of course, that where one partner is induced by the fraudulent representations of the other to enter into the partnership the consent of the former to the agreement has not been obtained.”

Conduct similar to that of complainants was likewise condemned by the Supreme Court of this State in Dunning v. Bathrick, 41 Ill. 425. In that case a farmer named Darling owned a tract of land. The complainant Bathrick and others conspired to obtain this property from Darling. The defendant Dunning carried on an opposing conspiracy. Dunning and his associates were successful in obtaining* possession of the land by means of false representations and various other frauds upon Darling. Bathrick filed a bill in equity seeking to hold Dunning as trustee. The court denied him the relief prayed for on the ground that complainant had come into court with unclean hands, saying:

“Here, then, is shown falsehood, deceit and misrepresentation of the most aggravated character, out of which no good claim can arise to demand the aid of a court of equity. Equity delights not in iniquity, but repels from her embrace all who practice it. . . . Such hypocrisy, baseless pretensions and mock benevolence, cannot stand the test of the most ordinary scrutiny and they place the complainant in a situation far from enviable. . . . All his acts are marked by this one overpowering desire to obtain this land; and by fraud and misrepresentation, he has got a deed for it. The defendants have a deed also and are in possession. And though the proceedings under which they claim title may be denounced as having* originated in forgery, and carried on by fraud, still in such a contest where there is knavery on both sides, which shall this court aid!

“Here was a contest, who should steal this land. The complainant approaches a court of equity, holding in his hand evidence of his attempt to get this land from Darling by a purchase for taxes, and the deed Darling executed, for which he has never received a dollar. Here, then, is no remarkable equity on complainant’s part by his own showing. The defendants’ case seems to us to be full of fraud of the blackest dye, and can find no favor with this court. Which of these parties, both with unclean hands, should a court of equity assist? Justice, and those pure- principles which are the ornament of such a court — its brightest jewels — answer, neither,

“We cite no authorities in support of the conclusion we have reached. Books need not be searched for precedent. It is found inborn, innate in every bosom. Where both parties seek a right through fraudulent devices and pretenses, neither party can have the aid of a court of equity.

“On a bill filed by the heirs at law of Darling, no obstacle appears to their recovery.”

Defendant further insists that there was an anticipatory breach of the contract on the part of Dunlap which justified Keehn in terminating the agreement. This contention is based upon a conversation testified to by Keehn with Dunlap following Keehn’s return from New York just before the expiration of the joint 30-day option, dated February 8, 1922. Keehn testified that he told Dunlap what he had heard from Kobler, and discussed with Dunlap the possibility of Hoyt’s repudiation of the lease and option to complainants. Keehn insists that he pointed out to Dunlap the embarrassing position in which he would find himself if it developed that Hoyt would not go through with the deal because he, Keehn, would then be bound under the joint option to deliver title not only to his own property but also to the Hoyt tract, which he did not own. After telling Dunlap that he could not be put in such a position, Keehn asked Dunlap why he did not exercise the option, acquire the property, and thus eliminate the existing contingency. In reply to this inquiry Dunlap said, acording to Keehn, “well, we cannot exercise the option, that is what we have got you in the deal for; we have to put up $40,000 to exercise the option, we though the thing would carry itself; we did not want to exercise the option until we knew we were able; evidently you have to finance it for us.” Keehn then stated that this was not his understanding of the contract; that he had to finance his own property and that when the time came complainants would have to give notice, exercise their option and be prepared to deliver title. Dunlap told Keehn that complainants did not so understand the transaction and that Keehn would have to finance it for them or else the contract would have to be canceled because complainants could not and would not do it.

Dunlap denied this entire conversation. Complainants by their brief devote some 50 pages to an argument tending to show that the conversation did not fake place and that there was no anticipatory breach. Presumably, if the conversation took place,' as related by Keehn, an anticipatory breach was committed by complainants. The authorities are clearly to this effect. (Kadish v. Young, 108 Ill. 170; Lake Shore & M. S. Ry. Co. v. Richards, 152 Ill. 59; Chicago Title & Trust Co. v. Sapola Lumber Co., 242 Ill. 468; 15 R. C. L. 506, 507.)

Keehn’s version of this conference with Dunlap is supported by the logic of events that followed, ás well as by the testimony of Trainer, Case, Hunt and Fleming. It clearly appears from the evidence that complainants were unable to put up the money with which to exercise their option, and that when the Hoyt property was finally sold to Hunt, the latter had to advance the $40,000 required to exercise the option, as well as the purchase price. It also appears from the evidence that the rumor regarding Hoyt’s threatened refusal to sell the property because of the' inadequacy of the price was well founded. Several witnesses testified to this fact, including Trainer and Dunlap himself, who stated, “I say Hoyt wanted twelve or fifteen thousand. At one time I think he wanted twelve or fifteen thousand — was it seventeen thousand — he wanted that because he maintained that as trustee he did not have the right to accept that money all in cash when he had a good investment for it on the original term of the option. . . .” And the record shows that complainants finally paid Hoyt an additional $1,700 to satisfy his anxiety. As against these circumstances there is Dunlap’s denial of the conversation. From an examination of the record, however, it appears reasonable to conclude that Keehn’s version of the conference with Dunlap is substantially correct. He followed this conversation with letters notifying complainants of his intent to cancel the agreement and his conduct thereafter was fully consistent with the position assumed by him.

A considerable portion of the briefs is- devoted to a discussion of the law relative to the validity of the contract between complainants and Keehn, and also to a discussion of the question whether a fiduciary relationship existed between Keehn and complainants, which would operate as an estoppel against Keehn to deny the validity of the contract. In view of our conclusion as to the facts of the case, however, we deem it unnecessary to protract this already lengthy opinion with a discussion of these legal questions. It may be said in passing that these parties were dealing at arm’s length; that they were all employees of Hearst, occupying responsible positions, and that no confidential relationship existed between them. The theory underlying complainants’ contention that Keehn is estopped from denying the validity of the contract is based upon an assumption, not evidence, that Keehn knew clauses 9 and 11 would render the contract void. The fallacy of this argument is evident from the fact that Keehn had invested $100,000 in the Blair lot in reliance upon the existence of the contract, and would, therefore, have been foolhardy, to say the least, in executing an invalid agreement which might have resulted in a failure of the plan to sell the combined properties as one and left him holding a piece of land purchased at great cost with only moderate chances of recovering the capital that he had invested therein.

For the reasons stated, the decree of the superior court dismissing the bill for want of equity will be affirmed.

Affirmed.

Hebel, P. J., and Wilson, J., concur.


source: Caselaw Access Project

license: Public Domain

text:
    Minnie Simon, Appellee, v. William Nelson Pelouze et al., Appellants.
    Gen. No. 34,552.

      Opinion filed October 21, 1931.
    Bose & Symmes, for appellants.
    Irving Gr. Zazove, for appellee; John B. King, of counsel.
   Mr. Justice Friend

delivered the opinion of the court.

Minnie Simon, as plaintiff, filed an action on the case against William Nelson Pelouze, M. L. Harris, W. J. Mohr and W. M. Thompson, as copartners operating the Henrotin Hospital, and as trustees and servants of Chicago Policlinic, a corporation not for profit, to recover damages for injuries caused by the falling of an elevator in said hospital while she was a passenger therein. Pelouze and Mohr were the only defendants served, the-others being- dismissed from the proceeding. The case was tried before the court and jury, resulting in a verdict and judgment for the sum of $2,500.

The original declaration contained five counts, none of which charged the defendants as copartners, but as officers, directors, trustees,- agents, supervisors and servants of Chicago Policlinic, a corporation not for profit, and alleged that on the 9th day of December, 1927, said corporation was the owner of the building located at 939 North La Salle street, in the City of Chicago, and the defendants were the officers, directors, trustees, agents, supervisors and servants of said Chicago Policlinic, and as such used, managed, maintained, kept, operated, controlled and supervised therein a public hospital known as Henrotin Hospital, and in connection therewith used, managed, maintained, kept, operated, controlled and supervised a certain passenger elevator; that on the date and place aforesaid plaintiff was invited to visit a patient of the defendants and while she was riding upon said elevator and was in the exercise of all due care and caution for her own safety, as a direct and proximate result of the negligence, carelessness and improper conduct of the defendants, said elevator was caused to and did fall or drop, thereby seriously injuring the plaintiff.

As to specific negligence, the first of said counts alleged that it was the duty of the defendants to inspect the elevator so that if it became defective in-any way the defect might be discovered, but that therein the defendants failed and as the direct and proximate result thereof the elevator fell, causing the injuries complained of. The second count alleged that it was the duty of the defendants to manage, maintain and operate the elevator so that those riding upon-it would not be subject to any injury, by equipping it with a governor or some other safety device, but that in this regard the defendants failed in their duty. The third count alleged that it was the duty of the defendants to safeguard the elevator as alleged hi the second count, but that the defendants negligently, carelessly and improperly maintained and supervised the elevator in a loose, defective and dangerous condition and neglected, to inspect the safety device thereon. ' The fourth count alleged it to be the duty of defendants to use, manage, maintain, control and supervise the elevator so that it would not fall, but that they disregarded this duty and as a result of their negligence1 in this behalf the elevator fell, causing the injuries complained of. The fifth count alleged that it was the duty of the defendants to use, manage, control and supervise the elevator so that those who might be upon it would not be subject to any injury, but that the defendants disregarding their duty in this behalf negligently and carelessly failed and neglected to exercise ordinary care. «

To this declaration a plea of the general issue was interposed by the defendants Pelouze and Mohr, and also a plea by which they denied that they were co-partners operating the Henrotin Hospital, and that they or either of them, as officers, directors, trustees, agents, supervisors or servants of the Chicago Policlinic, managed, maintained, controlled or supervised the Henrotin Hospital.

Under the issues so formed the plaintiff endeavored to show that the defendants were liable for the falling of the elevator, and to that end she testified as to the manner of the accident and the extent of her injuries.

As to the connection of the defendants with the accident, plaintiff offered the testimony of Hazel Gf. Taylor, who had been an employee of the Henrotin Hospital for about seven years. Miss Taylor testified that her immediate superior was Miss Miller, whose superior in turn was the board of directors; that she had seen Pelouze around the hospital several .times, but had never seen him do anything but walk in the lobby to and from Miss Miller’s office; that she was paid by the Chicago Policlinic Hospital; that neither Pelouze nor Mohr had ever given her orders of any kind; that she knew that Mohr and Pelouze were on the board but that they had nothing to say to her or any one else that she knew of.

Plaintiff further offered the testimony of Dr. M. L. Harris, who téstified that he was a surgeon connected with the Henrotin Hospital; that the superintendent had supervision of the hospital and was employed by the board of trustees, which included the two defendants herein; that the superintendent ran the hospital and had no superior, and that her conduct was not supervised by the board of trustees; that the superintendent conducted everything herself and the board did not superintend the Henrotin Hospital. Dr. Harris further testified that the superintendent was an employee of the trustees of Policlinic, of which Henrotin is a branch; that Henrotin Hospital was a hospital under, and a part of the Chicago Policlinic, and that it had no legal or corporate existence in itself.

At the close of Dr. Harris ’ testimony plaintiff rested her case, and the defendants Pelouze and Mohr, and each of them separately, moved the court for a directed verdict, which was denied.

Pursuant to the ruling on this motion defendants produced evidence disclosing substantially that the Chicago Policlinic built the Henrotin Hospital; that it was and always had been a part of the Chicago Policlinic, owned by it and built by it, and that “Henrotin” was just a name; that the trustees, including the defendants, Pelouze and Mohr, were trustees of the Chicago Policlinic; that if the Henrotin Hospital had any surplus it belonged to the Chicago Policlinic, an institution organized for charity, having no stock and managed by a board of trustees who acted without pay; that if there was any surplus it was used in carrying on the charitable business of the Policlinic in taking care of the poor and sick in the out department and in the hospital; that Henrotin and Policlinic were one institution and the bills of Henrotin were all paid by the Policlinic; that the buildings owned by the Chicago Policlinic included the Henrotin building and that they were all operated through the Policlinic; that defendants were trustees of the Policlinic and hired the superintendent who conducted the hospital; that neither of the defendants had ever given any orders nor had they anything to do with the operation of the elevators; that defendants had never been in partnership with other trustees and did not operate the Henrotin Hospital as a partnership; that the night superintendent hired the engineer of the Henrotin Hospital, who in turn engaged his assistants, and that the engineer had been instructed by the superintendent to. have the elevator inspected every week,, and that if there was anything wrong with its mechanism to report the same to her.

At the close of • all the evidence defendants again moved the court to direct a verdict, which motion was likewise denied and the cause submitted to the jury who found the defendants as described and charged in the original declaration guilty and assessed plaintiff’s damages in the sum aforesaid.

After verdict plaintiff moved the court for leave to amend the praecipe and summons so that the defendants should be described and charged as “William Nelson Pelouze and W. J. Mohr; and William Nelson Pelouze, Trustee and W. J. Mohr, Trustee, operating Henrotin Hospital,” and for leave to file an amended declaration. Pursuant to the allowance of this motion an amended declaration of eight counts was filed in which the defendants were described in the title of the cause as in the amended praecipe and summons, but in the first and fourth counts of which they were described and charged as individuals, and in the second, third, fifth, sixth, seventh and eighth counts they were described and charged as trustees operating Henrotin Hospital.

. Totj;he-amended declaration a special demurrer was interposed; which .being overruled, the defendants pleaded general issues and special denials to the different counts and to these pleas the plaintiff replied. On the issues so formed the defendants’ motions for a new trial and in arrest of judgment were overruled and judgment was entered on the verdict against the. defendants, both as individuals and as trustees.

Defendants urge a reversal upon various grounds, including the giving and refusal of instructions and the permission of the trial court to amend the praecipe and summons and in permitting plaintiff tó file the amended declaration and requiring defendants to plead thereto. In the view that we take, however, it ivill be unnecessary to discuss all of these grounds.

Chicago Policlinic being a charitable institution is not liable for the negligence of its servants. (Board of Review of Cook County v. The Chicago Policlinic, 233 Ill. 268.) And the corporation not being liable, this action was brought against two of its trustees. To that end they were charged in various counts of the original declaration as officers, directors, trustees, agents, supervisors and servants of the Policlinic; and in certain counts of the amended declaration they were charged personally and in others as. trustees operating Henrotin Hospital.

Under the original declaration upon which the case was tried, plaintiff offered evidence tending to show that the defendants were trustees of the Policlinic, but gave no evidence showing that they personally were guilty of any negligence whatsoever, either of omission or commission. The record simply shows that they were trustees of the corporation and that the accident occurred, causing the injuries complained of. Upon this state of the record we are of the opinion that defendants’ motion for a directed verdict should have been allowed for the following reason: A trustee or director of a corporation is not liable for the negligence of the corporation by its servants, unless he has participated in such negligence. This doctrine was laid down in the early case of Peck v. Cooper, 8 Ill. App. 403. There suit was brought against the stockholders of a corporation, one of whom, Ferdinand W. Peck, was also president, and it was held that on the evidence there could be no recovery against the directors because none of them had participated in the tortious act complained of, which was the ejecting of a negro from a bus. The case was retried as against Ferdinand W. Peck and judgment entered against him on the ground that he had participated in the wrongful act. This decision is reported in 13 Ill. App. at page 27. The judgment in the second trial was reversed, and upon the third trial a verdict was returned against Peck on the ground that he had promulgated the order of eviction and thus participated in the tortious act, and judgment was rendered against him. The last judgment was sustained in 112 Ill. 192. The doctrine thus enunciated is amply sustained by other authority. Cyclopedia of the Law of Private Corporations, page 3773, in which it is stated that “To make an officer of a corporation liable for the negligence of the corporation there must have been upon his part such a breach of duty as contributed to, or helped to bring about, the injury; that is to say, he must be a participant in the wrongful act.” Bath v. Caton, 37 Mich. 199, 14A Corpus Juris, 176, wherein it is stated that “a director or officer is not, merely by virtue of his position, liable in all cases for the torts of other directors, officers or agents; he is liable when, and only when, he participated in the tortious act, authorized or directed it, or acquiesced in it when he either knew or by the exercise of reasonable care should have known of it, and should have objected and taken steps to prevent it.”

The evidence disclosed by this record does not show any act of either defendant which in any wise contributed to cause the falling of the elevator in question, but shows only that defendants were at the time of the accident trustees of the Chicago Policlinic, which conducts the Henrotin Hospital in which the elevator fell.

Plaintiff insists, however, that Henrotin Hospital is a unity and not a part of Chicago Policlinic, and in support of its contention relies on evidence showing that Henrotin had its own telephone number, stationery, bills and other indicia of being a separate unit. Plaintiff also urges that Henrotin Hospital yielded a considerable monthly profit, indicating that it was not a charitable institution. In this connection it is urged that the capacity in which the Henrotin Hospital was operated, by whom, and the character of its organization were proper questions for the jury. We cannot agree with this contention, however. While it is true that there were certain indicia of the separate unity, such as stationery, telephone listings and bills, the evidence clearly establishes the fact that Henrotin was an integral part of, owned and operated by Chicago Policlinic, through its trustees. Chicago Policlinic was in existence long before the Henrotin addition was constructed. The evidence shows that Dr. Henrotin, who had for many years been connected with Chicago Policlinic, received from one of his patients named Barrett the property upon which the Henrotin Hospital was constructed as a donation for Chicago Policlinic. The Henrotin building was financed by a bond issue and private donations to the Chicago Policlinic Institute. During the course of its construction Dr. Henrotin died, and the so-called addition to the Chicago Policlinic Institute was named in memory of Dr. Henrotin. The evidence does disclose the fact that the Henrotin Hospital yielded a considerable annual profit. This entire surplus, however, was turned back to the Chicago Policlinic and used for charitable purposes. According to the evidence all bills of the Henrotin Hospital, including insurance, help and maintenance expenses, were paid by Chicago Policlinic, and there is no evidence to sustain the contention that Henrotin was a separate unity, except for matters of convenience, nor is there any evidence to sustain the contention that Henrotin Hospital was operated by the trustees as trustees of Henrotin Hospital. Under the circumstances we hold that there was no evidence to support the allegations of plaintiff’s declaration. Furthermore whatever evidence there may be in the record with reference to the relationship between Chicago Policlinic Institute and Henrotin Hospital was adduced by defendants after plaintiff had rested her case. Plaintiff’s case in chief under the original declaration established only the facts that defendants were trustees of the Policlinic and that an accident occurred causing the injuries complained of. This proof is not sufficient under the original declaration to make plaintiff’s case, and hence the court should have directed a verdict for defendants at the close of plaintiff’s case.

For the reasons stated, the judgment of the circuit court will be reversed with findings of fact.

Reversed with findings of fact.

Hebel, P. J., and Wilson, J., concur. '

Findings of fact: We find as a matter of fact that defendants were trustees of Chicago Policlinic, a corporation not for profit, organized for charitable purposes; that Henrotin Hospital is a part of and operated by Chicago Policlinic, a corporation; that Henrotin Hospital is unincorporated and had no legal entity; that defendants did not participate in any act directly contributing to. plaintiff’s injuries and therefore are not individually liable.


text:
    National Bond & Investment Company, Appellant, v. Charles F. Moss, Appellee.
    Gen. No. 34,823.
    Opinion filed October 21, 1931.
    Rehearing dened November 2, 1931.
    John W. Creeicmur, Donald Eugene Hoopingarner and Nolan H. Tepper, for appellant.
    Fred M. Outhouse, for appellee.
   Mr. Justice Friend

delivered the opinion of the court.

Plaintiff filed suit in replevin to recover possession of a Marmon automobile of the alleged value of $1,000. Upon demand made by the bailiff of the municipal court, Charles P. Moss, doing business as the Moss Auto Sales, defendant herein, refused to deliver up the chattel, whereupon plaintiff, by leave of court, filed a statement of claim in trover. . Trial was had before the court without a jury, resulting in a finding for the defendant and the entry of a judgment that the plaintiff take nothing by its suit.

The essential facts, as to which there is substantially no dispute, disclose that on August 19, 1929, J. A. Jacobson, trading as Jacobson Auto Company, sold the car in question to Christ Johnson on a time payment plan, taking from him to evidence his deferred payments a promissory note for $1,107.48, payable in instalments of $92.29 each monthly thereafter, and a chattel mortgage on said automobile to secure said note. The chattel mortgage was properly executed and filed for record in Wisconsin. Shortly after the Jacobson Auto Company took said note and mortgage it sold and delivered them, for a valuable consideration, to plaintiff. Plaintiff is an automobile finance company with offices in Racine, Wisconsin, Chicago and elsewhere, whose business is that of purchasing from automobile dealers notes, contracts. and other papers evidencing time sales of automobiles by such dealers.

Johnson paid to plaintiff the September and October instalments on the note, but defaulted on the subsequent payments. After acquiring said automobile Johnson drove it around in the vicinity of Racine, Wisconsin, until about November 5, 1929, when he came to Chicago with the car and traded it to the defendant, Moss, for two other cars at a valuation of $841. Within five days thereafter the defendant, Moss, sold the car for an undisclosed amount.

Sometime later in November, 1929', plaintiff discovered that Moss had come into the possession of said automobile, and on November 27, 1929, filed the replevin suit.

Plaintiff’s claim to the car is based on its right to possession under Johnson’s mortgage, which provided among other things, that he would not part with the possession of said car as long as said note remained unpaid and said mortgage unsatisfied, and that he was not to remove it from the State of Wisconsin.

It is first urged by defendant that plaintiff failed to make a prior demand before instituting its suit. Under the authority of Barnes Scale Co. v. Rose, 257 Ill. App. 92, a demand is not necessary to enable a party to maintain a replevin against another where both claim title to personal property and the right of possession thereunder. It was there stated that the “claim of ownership by defendant is inconsistent with the theory that they might have surrendered them (the chattels) on demand and removes the necessity for demand if one had been made.” This would be especially true where, as in the instant case, the chattel was sold and possession lost prior to the institution of the replevin proceeding.

The controlling question in this case is whether plaintiff’s right to possession of the car under a valid recorded chattel mortgage in Wisconsin, containing the provisions hereinbefore set forth, is paramount as against a bona fide purchaser for value without notice in Illinois. In this connection plaintiff insists that courts of Illinois will extend the doctrine of comity so as to give validity to a foreign mortgage in Illinois as against an innocent purchaser. We cannot agree with this conclusion, however. It was held in Snow v. Breene, 248 Ill. App. 518 and Dawes v. Rosenbaum, 179 Ill. 112, that the courts of this State will not enforce a mortgage executed out of the State conveying personal property against a bona fide purchaser for value in this State, who had neither actual nor constructive notice of its existence. Furthermore the pleadings herein allege that defendant “had wrongfully taken and unlawfully, wilfully, and maliciously converted and disposed of said automobile to its own use with intent to defraud and cheat the plaintiff, etc.” The record contains no evidence to sustain these allegations. If the original taking was rightful and if the detention was rightful, there is no conversion and trover does not lie. (Vincent v. Riling, 168 Ill. App. 445.) Moss having no actual or constructive notice of the mortgage, rightfully acquired possession and title to the automobile in question from Johnson by purchase for a valuable consideration, and under the views hereinbefore expressed with reference to the rights of an innocent purchaser of property mortgaged in a foreign State, we are of. the opinion that the detention was likewise rightful.

For the reasons stated the judgment of the municipal court will be affirmed.

Affirmed.

Hebel, P. J., and Wilson, J., concur.


author: Mr. Justice Wilson

text:
    Open Shop Employing Printers Association of Chicago, Appellee, v. Chicago Trust Company, Appellant.
    Gen. No. 34,734.

      Opinion filed October 21, 1931.
    Rehearing denied November 2, 1931.
    Francis E. Hinckley and Emmet J. Cleary, for appellant; Frank C. Rathje, of counsel.
    F. F. & J. V. Norcross, for appellee; J. V. Norcross and Henry Fitts, of counsel.
   Mr. Justice Wilson

delivered the opinion of the court.

This action was brought by the Open Shop Employing Printers Association of Chicago, a corporation, against the Chicago Trust Company, a corporation, to recover money paid out by the defendant on certain checks drawn by the plaintiff to certain payees on the unauthorized and forged indorsements of the payees’ names by one Robert J. Tufts, an employee of the plaintiff.

It appears from the evidence that the plaintiff, in addition to its commercial account, maintained an account in the defendant bank under the designation, “Chicago Trust Cotmpany as Trustee u/iagreement Open Shop Employing Printers Assn, of Chicago Bonus Account Trust No. 1328.” The defendant company was also the depositary of a certain savings account belonging to the plaintiff and carried on the books of the defendant company under the designation, “Chicago Trust Co. Trustee Open Shop Employing Printers Association of Chicago, Bonus Fund, 110370.” It appears that the Trust Fund was established for the purpose of carrying on and supporting an “activity” of the plaintiff’s which was for the purpose of providing a fund out of which the apprentices who were learning the business were paid a bonus upon graduation. These apprentices were taught in what was known as the Chicago School of Printing. The fund itself was made up from the payment of certain sums by members of the plaintiff association and the account was generally referred to as to the “Chicago School of Printing Bonus Account.” Before these sums came into the Bonus Account, however, they were paid into the general checking account and periodically checks were drawn upon this account covering the amount paid in for the Bonus Account and this sum was made out for deposit in the Chicago School of Printing Bonus Account already referred to. Thirty-nine of the checks in question were drawn in favor of this Bonus Account by the proper officials of the Open Shop Employing Printers Association of Chicago and 24 checks were drawn by the officials of the Open Shop Employing Printers Association against the commercial or checking account. The 39 checks made payable to the Chicago School of Printing after they had been executed by the proper officials, were indorsed with a rubber stamp bearing the words, “Chicago School of Printing” and, underneath, the name of the employee of the company, Robert J. Tufts. The 24 checks in question were made out to different creditors of the plaintiff, presented by Tufts to the proper officials for their signatures, and Tufts thereupon forged the indorsements of the payees and presented them for payment to some other bank than that of the defendant. The checks made out to the Chicago School of Printing,' which were checks drawn in favor of the Trust Fund, after the name of the payee therein had been forged by Tufts, were also cashed at other and different banks than that of the defendant and all of these checks were passed through the Clearing House and honored by the defendant and charged to the deposit account of the plaintiff. ' In the case of the checks, or vouchers as they are sometimes termed, to the Chicago School of Printing, it is apparent that the defendant corporation, Chicago Trust Company, was, in fact, the payee and should have had knowledge .of the fact that the indorsement had been improperly placed upon the backs of the checks in question. This Trust Fund had been created by a resolution of the Open Shop Employing Printers Association of Chicago and copies of the resolution presented to the defendant and duly acknowledged. The defendant thereupon assumed the obligation as trustee of this fund and it was to this defendant, as trustee under the name Chicago School of Printing, Bonus Fund, that these checks were made payable.

The Chicago Trust Company defends on the ground that it is a large institution employing many people and with many accounts and that it sent monthly statements to the plaintiff and that a proper examination of the account by the plaintiff would have shown the irregularities and that, therefore, the plaintiff company should not be entitled to recover on account of its own negligence.

It is not questioned in the briefs filed on behalf of the defendant, but that the indorsement of the names of the various payees was forged by Tufts. It also appears from the evidence that the only duty of Tufts was to prepare checks for signature, and that when they were presented to the proper officials for that purpose, the names of the payees appeared in the body of the checks.

Counsel for defendant in a supplemental brief filed in this cause stated that the facts are identical in principle with those involved in the case of United States Cold Storage Co. v. Central Mfg. District Bank, decided by the Supreme Court of this State on appeal from this district. Defendant cites and relies upon the opinion originally filed in that case. We agree with counsel in this regard but, the opinion referred to, on a petition- for rehearing1, was reversed and appears under the title, United States Cold Storage Co. v. Central Mfg. District Bank, 343 Ill. 503. The question involved, as set out in that opinion follows:

“The question to be determined in this case is whether a bank which has paid a check drawn upon it by one of its depositors, a corporation, payable to the order of a named person upon the forged indorsement of the payee, can successfully defend against the reimbursement of the depositor upon the ground that the check, after being prepared for execution under the direction of an employee of the corporation who furnished the name of the payee and the information for the voucher attached to the check but who was not authorized to sign the check separately or jointly with any other person, was presented by such employee to two other employees of the corporation who were authorized to execute the check by signing it jointly, and did so execute it in reliance upon the information furnished by the first employee, and where it further appeared that the depositor was not indebted to the payee, and the check was not delivered to or indorsed by the payee but was cashed by another bank than that on which it was drawn, upon a forged indorsement of the payee’s name, and was subsequently paid by the bank on which it was drawn.”

The question to be determined is, in our opinion, precisely the same as that stated by the Supreme Court in the foregoing opinion. It was there held that it was the obligation of the bank to its depositors, and to the person named in the check, that it ascertain the genuineness of the indorsements; that it was the bank’s duty to do this.

The negligence of the drawer of a check is immaterial, unless it is such as directly and proximately affects the conduct of the bank in the performance of its duties. Such would be the case if the checks were signed in blank and the employee allowed to fill out the name of the payee or the amount of the check. The checks in question in the case at bar were drawn in the regular course of business and made payable to actual persons in existence, and they were signed upon information derived from those preparing the checks who were in the employ of the plaintiff and on whom they had a right to rely.

The agent Tufts in the case at bar was engaged in committing an individual fraudulent act and any knowledge he might have had in so doing is not imputable to his principal. The Supreme Court in its opinion in the case of United States Cold Storage Co. v. Central Mfg. District Bank, supra, says: “He was simply one of the agents of the plaintiff, in collecting the information upon which the check was based and caused the check to be prepared for signature. His intention in regard to the check was of no importance, for he had nothing to do with giving it vitality. Even if he was expected, as a messenger, to deliver the check to the payee, his intention to deliver or not to deliver it could not affect the character of the check. If there still remained the duty for him to perform of delivering the check to the payee by mail or otherwise, Ms intention to betray his employer, disregard his duty, steal the check and forge the payee’s name would not become the intention of the plaintiff, whose agent he was only for certain limited purposes, which did not include the drawing of checks.”

The facts in the case at bar are so clearly analogous to those found in the foregoing case, that we see no reason for citing other or additional authorities. The relation existing between the depositor and the bank, as exists in the case before us, is fully expressed in the case of United States Cold Storage Co. v. Central Mfg. District Bank, already referred to. The court in its opinion says:

“Out of the rélation of debtor and creditor existing between banks and their depositors, the law implies the contract on the part of the bank to pay the depositor’s checks, to the amount of his deposit, to the persons to whom he orders payment to be made. If the check is made payable to the order of a person named, the duty of the bank is absolute to pay only to the payee or according to his order. No amount of care to avoid error will protect the bank from liability if it pays the check to a wrong person, and it must ascertain and act upon the genuineness of the indorsement at its peril. Jordan-Marsh v. National Shawmut Bank, 201 Mass. 397; Welsh v. German-American Bank, 73 N. Y. 424; Critten v. Chemical Nat. Bank, 171 id. 219; Seaboard Nat. Bank v. Bank of America, 193 id. 26; Armstrong v. Pomeroy Nat. Bank, 46 Ohio St. 512; Jackson v. National Bank of McMinnville, 92 Tenn. 154.

“The negligence of the drawer of a check is immaterial, unless it is such as directly and proximately affects the conduct of the bank in the performance of its duties. (Jordan-Marsh Co. v. National Shawmut Bank, supra; Shepard & Morse Lumber Co. v. Eldridge, 171 Mass. 516; Welsh v. German-American Bank, supra; Shipmen v. Bank of the State of New York, 126 N. Y. 318; Los Angeles Investment Co. v. Home Savings Bank, 181 Cal. 680.) A bank can justify a payment on a depositor’s account only upon the actual direction of the depositor. The questions arising upon checks between the drawee and the drawer always relate to what the one has authorized the other to do. They are not questions of negligence or of liability of parties on commercial paper but are those of authority, solely. . . . The question

of negligence cannot arise unless the depositor has, in drawing his checks, left blanks unfilled or by some affirmative act of negligence has facilitated the commission of a fraud by those into whose hands the check may come. ’ (Crawford v. West Side Bank, 100 N. Y. 50.) The payment of a check on a forged indorsement appearing, it becomes incumbent on the bank making the payment to establish affirmatively the drawer’s negligence, and it is not the law that the drawer is bound to prepare his check so that nobody can successfully tamper with it. (Critten v. Chemical Nat. Bank, supra.) Nor does he owe the duty to his banker to employ none but honest clerks who will not steal his checks and commit forgeries by means of them. When he has drawn his check payable to the order of the payee named he owes the drawee no other duty, and the risk of the authenticity of the indorsement on which the drawee pays the check is that of the drawee. ’ ’

The trial court directed a verdict at the end of all the evidence finding the issues for the plaintiff and assessing the plaintiff’s damages at the sum of $35,627.96, which included the amount of the checks involved, together with interest. We are of the opinion that the instructed verdict and the judgment thereon was proper.

For the reasons stated in this opinion the judgment of the superior court is affirmed.

Judgment affirmed.

Hbbel, P. J., and Friend, J., concur.