author: Mr. Presiding Justice Friend

text:
    Thomas R. Warner et al., Appellees, v. Monroe A. Munson et al., Defendants. Monroe A. Munson and Anna Marie Munson, Appellants.
    Gen. No. 37,754.
    Heard in the second division of this court for the first district at the October term, 1934.
    Opinion filed June 13, 1935.
    Theodore Johnson, of Chicago, for appellants.
    Chester E. Cleveland, of Chicago, for appellees.
   Mr. Presiding Justice Friend

delivered the opinion of the court.

Thomas R. Warner, Thomas Leroy Warner and Chicago Title & Trust Co., as trustee, filed a bill in the circuit court to foreclose a trust deed on real estate in Cook county, given to secure a promissory note for $30,000 made by defendants Monroe A. Munson and Anna Marie Munson, as mortgagors. The cause was put at issue and referred to a master, who recommended a decree of foreclosure. Exceptions to the master’s report were overruled by the court and a decree of foreclosure and sale was entered, from which defendants appealed.

There is substantially no dispute as to the facts which disclose that on December 13, 1930, defendants made and delivered their note for $30,000, payable to “bearer” three years after date thereof, together with interest thereon at the rate of seven per cent per annum, payable semiannually, and secured by their trust deed of even date, conveying to Chicago Title & Trust Co., as trustee, the property herein foreclosed. The loan was negotiated by one Byron E. Day, who paid to defendants the face value of the note and shortly thereafter transferred the note and trust deed to one Crowder. On December 29, 1930, Warner Construction Company, a corporation, purchased the note and trust deed from Crowder, as a temporary investment, with surplus funds, for which it had no immediate need, earned and accumulated by the company in the conduct of its business.

Thereafter, May 1, 1933, before the filing of the bill of complaint herein, Warner Construction Company, pursuant to a resolution of its directors, and with the approval of its stockholders, sold the note and trust deed for a valuable consideration to Thomas R. Warner and Thomas Leroy Warner, on whose behalf the bill to foreclose was filed. The charter of the Warner Construction Co. was not introduced in evidence, but the record discloses that it has for some 50 years carried on and conducted a business of building and general contracting*. The corporation is not a party to this proceeding, and had no dealings with defendants until July, 1931, when the first instalment interest payment was made.

For reversal of the decree defendants rely upon two principles of law, viz.: (1) That the making of the loan or purchase of the note and mortgage by Warner Construction Co. was ultra vires and void; and (2), since the defense of ultra vires could have been interposed to any action brought upon the note and mortgage by the corporation, it is equally available in this proceeding against the plaintiffs Warner. Defendants rest their case mainly on the decisions in Calumet & Chicago Canal & Dock Co. v. Conkling, 273 Ill. 318, and Mercantile Trust Co. v. Kastor, 273 Ill. 332. These cases, in which opinions were delivered by divided courts, have been the subject of considerable discussion, and are frequently cited. They hold in general that the powers of a corporation are limited by its charter, and where it enters into a contract, ultra vires, such contract is void. In the Calumet case, the .court recognizes that a loan made by a corporation may be valid although not expressly authorized by its charter, and that where the contract is within the implied scope of its charter a party who has had the benefit of it cannot interpose the defense that the power was improperly exercised. The question of a corporation lending idle funds acquired in its authorized business was not considered by the court, because the company had never engaged in business and therefore had no idle funds to lend. In the Mercantile Trust Co. case, the principal issue involved was the right of the plaintiff corporation to engage in the business of making* loans. The transaction now under consideration does not involve the question of lending money as a business, but has to do with an isolated investment.

The subject under discussion was fully considered in Independent Order of Svithiod v. Ring Lodge No. 8, 261 Ill. App. 289, wherein the opinion reviews most of the cases cited in this State, including those cited by defendants. It was there held that the loan of money by a fraternal beneficiary association to a subordinate lodge for the purpose of enabling the latter to construct a lodge hall was an appropriate exercise of power for the attainment of the object for which it was organized. On p. 306, quoting from Fletcher’s Cyc. of Corporations, vol. 3, sec. 1619, p. 2701, the court states:

“The better opinion is that where the charter of a corporation or some other statute prohibits it from lending money on certain kinds of security, but does not declare that prohibited securities taken by it shall be void, they are not void, and may be enforced by it. The taking of such security is a misuser of the powers conferred upon the corporation by its charter, for which the state may enforce a forfeiture, but the misuser cannot be set up by the borrower to prevent the corporation from enforcing the security.”

More recently this court had occasion to consider the same subject in Royal Drug Co. v. Levin, 273 Ill. App. 231. In that case the drug corporation’s charter authorized it, among other things, to do all acts reasonable and necessary for the conduct of its business or in connection therewith. Liability on a note payable to the corporation was sought to be defeated on the ground of ultra vires. The court said, at pp. 234, 235:

“The defense of ultra vires is looked upon by many courts with disfavor, and in recent cases especially the rule has been frequently announced that the plea of ultra vires should not be allowed to prevail, whether interposed for or against a corporation, when it will not advance justice, but, on the contrary, will accomplish a legal wrong. R. C. L., vol. 7, page 676. See also Fletcher Cyc. Corp. (Perm. Ed.), vol. 3, sec. 1549. The decisions in this State have held, generally, to the same effect. Darst v. Gale, 83 Ill. 136; Brown v. Scottish-American Mortgage Co., 110 Ill. 235; Kadish v. Garden City Equitable Loan & Bldg. Ass’n, 151 Ill. 531; Eckman v. Chicago, B. & Q. R. Co., 169 Ill. 312; American Credit Indemnity Co. v. Yamer, 170 Ill. App. 350. In Independent Order of Svithiod v. Ring Lodge No. 8, 261 Ill. App. 289, this court in an extended opinion cited most of the cases in this State dealing with the subject of a contract ultra vires the power of a corporation. We there held that the loan of money by the corporation was an appropriate exercise of power for the attainment of the object for which the corporation was incorporated.”

In the latter case we quoted rather extensively from the opinion in Benson Lumber Co. v. Thornton, 185 Minn. 230, where the subject of ultra vires was likewise under discussion, and, «because the principles there enunciated are in keeping with the modern trend of authorities not only in this State but elsewhere, the pertinent part of the opinion is again quoted at length as follows:

“Neither plaintiff’s charter nor the law under which it is incorporated contains any provision prohibiting plaintiff from loaning its money. There is not much difference between loaning money and selling goods on credit, a power undoubtedly possessed by plaintiff. In either case, credit is extended. If plaintiff had money on hand, might it not deposit such money in a bank on time certificates so as to receive interest thereon, a loan of money to the bank? We are not prepared to say that a loan of money by plaintiff to an individual or a bank is clearly ultra vires.
“Contracts should not be held ultra vires unless clearly shown so to be. . . .
“The present tendency is to restrict the defense of ultra vires in actions between private parties as far as possible, if not to deny it altogether, except in the case of contracts wholly executory. The general rule is that such contracts are unenforceable when wholly executory, but when executed on one side they are enforceable because the public policy of justice overbalances the public policy of keeping the corporation within the limits of its charter. . . .
“An ultra vires contract fully performed on one side is enforceable either in favor of or ag'ainst a corporation unless expressly prohibited by statute. In other words, if a corporation receives from an individual a substantial benefit under such a contract, it cannot repudiate the contract without restoring the benefit received. On the other hand, if an individual receives money or property from a corporation under such a contract, he or those claiming under him cannot repudiate the contract without restoring what was received. While this rule is generally said to be based on estoppel, it is equally sustained by the equity rule that one person or party shall not be permitted unjustly to enrich himself at the expense of another. 2 Morawetz, Private Corp. (2nd Ed.), sec. 689.”

The rule laid down in Fletcher’s Cyc. of Corporations, vol. 2, sec. 948, p. 1900, which was quoted with approval in the SvitMod and Royal Drug Go. cases, supra, is as follows:

“Whenever a corporation has the right to hold funds for which there is no present use, it may loan them, in the absence of express restriction, in order to invest them, instead of allowing them to remain idle and unproductive. This is true of insurance companies, annuity companies, benevolent associations, manufacturing companies, railroad companies, etc., having surplus funds.”

It was said in the Svithiod case, supra, that the doctrine of the foregoing text is sustained by numerous authorities, among which are Farmers Loan & Trust Co. v. Clowes, 3 N. Y. 470; Farmers Loan & Trust Co. v. Perry, 3 Sanford Ch. (N. Y.) 339; Western Boatmen’s Benev. Ass’n v. Kribben, 48 Mo. 37.

In vol. 3, sec. 1619, p. 2701, Fletcher’s Cyc. of Corporations, the author discusses at length the effect of illegal or prohibited contracts, pointing out that there is a conflict in the decisions as to the effect of a charter or statutory prohibition against discounting or lending money on securities, and says that if the statute expressly declares that the securities taken in violation of the prohibition shall be void, the same may not be enforced; that some courts have gone further and held that the mere fact of prohibition renders them void and unenforceable, “but this construction is not supported by the weight of authority.”

Defendants cite the recent case of Knass v. Madison & Kedzie State Bank, 354 Ill. 554, and ‘National Home Building & Loan Ass’n v. Home Savings Bank, 181 Ill. 35, to support their contention that the purchase of the note and trust deed was ultra vires the powers of the corporation, and therefore became null and void. In the former decision, complainant had purchased from the bank real estate securities, in the form of first mortgage gold bonds, placed by it on the market, and in order to induce their purchasé had delivered a bill of sale for the bonds containing an agreement on the part of the bank to repurchase the same at any time after one year at .one per cent discount, plus accrued interest. One of the questions presented for consideration was whether such repurchase agreement was ultra vires the power of the bank and against the public policy of the State. The court declared the agreement unenforceable, principally upon the ground of public policy, holding that the repurchase agreement assumed or guaranteed the payment of the evidence of indebtedness of another corporation, contrary to the express provisions of its charter, in derogation of the protection of the rights of bank depositors. It was said (p. 568), “As it cannot be doubted that such an agreement could jeopardize or impair the deposits or trust funds of the bank, such contract, because of its inherent danger to deposits and trust funds and because it is contrary to the public policy of the State, as evidenced by the legislative expression in section 4 of the statute quoted, is null and void.” (An act for the protection of bank depositors, approved June 4, 1879, Cahill’s St. ch. 38, ff 38 et seq.; Smith’s Statutes, 1931, ch. 38, if 64, sec. 4.)

In National Home Building & Loam Ass’n v. Home Savings Bank, 181 Ill. 35, the plaintiff corporation, by an exchange of properties, acquired a parcel of real estate and assumed an incumbrance thereon. The court held that no deficiency could be rendered against the corporation on foreclosure of the mortgage, because its purpose under the charter conferred upon it was to raise funds to be lent to its members upon the security of its stock and unincumbered real estate, and that the business of trading in real estate or acquiring same, except as incidental to its legitimate business, was wholly foreign to the purpose for which it had been .created, and to the powers conferred upon it by the State.

Another case relied .upon by defendants is Leigh v. American Brake-Beam Co., 205 Ill. 147. One of the officials of the corporation had lent defendant certain sums of money to be used in a private enterprise. The company lending the money was organized to manufacture and sell or otherwise dispose of brake beams and other appliances, and the court said that the business of lending money was not included in the powers granted to the corporation and that no action would lie upon the contract made in violation of the law.

The facts of these cases are not analogous to the circumstances disclosed by this record. Defendants take no half-way position, and would have this court hold that when a corporation acquires negotiable paper, payable to bearer, after the same has been put into circulation, the acquisition thereof operates to destroy the negotiable instrument, even to the extent that the corporation cannot pass title to it by delivery to some natural person. The authorities hereinbefore cited do not justify any such conclusion. The Svithiod and Royal Drug Co. cases, supra, and the decisions cited and referred to therein, as well as text writers and authorities in other States, are tending to uphold and enforce partly executed contracts, fairly made, where “the public policy of justice overbalances the public policy of keeping the corporation within the limits of its charter,” unless expressly prohibited by statute. Defendants received the face value of the note, and it would be a denial of justice and the accomplishment of a legal wrong to hold that plaintiffs, who acquired the note and trust deed from the corporation for a valuable consideration, be precluded from'foreclosing the trust deed and permit defendants to retain the amount of the loan and destroy the value of the securities in plaintiffs’ hands.

During the pendency of this appeal defendants asked leave to offer in evidence as an additional exhibit a copy of the charter of Warner Construction Co. This motion was reserved to the hearing. In view of the conclusion reached, it would serve no useful purpose to allow the motion. It is therefore denied and the decree of the circuit court is affirmed.

Affirmed.

Soanlan and Sullivan, JJ., concur.


source: Caselaw Access Project

license: Public Domain

text:
    John Burke for Use of Frank O. Birney et al., Receivers of Trustees System Discount Company of Chicago, Appellant, v. Congress Hotel Company, Appellee.
    Gen. No. 37,769.
    Heard in the second division of this court for the first district at the October term, 1934.
    Opinion filed June 13, 1935.
    Eugene Stewart, of Chicago, for appellant; Samuel E. Hirsch, A. J. Schanfarber, J. S. Greenberg and Carl S. Goodman, all of Chicago, of counsel.
    Mater, Meter, Austrian & Platt, of Chicago, for appellee.
   Mr. Presiding Justice Friend

delivered the opinion of the court.

March 18, 1933, F'rank 0. Birney and R. L. Stewart, as receivers of Trustees System Discount Company of Chicago, obtained judgment in thé municipal court against several defendants, including John Burke, vice president of Congress Hotel Company, for $1,380, which by stipulation of the parties was later reduced to $1,170. Garnishment proceedings were thereafter instituted, and July 20,1933, the Congress Hotel Company was served with summons as garnishee. July 22, 1933, its answer was filed, showing “no funds,” and it also answered “no” to each of the interrogatories propounded by plaintiff.

From the undisputed facts it appears that Burke, as vice president and managing director of garnishee, was paid a monthly salary of $876.87, payable on the 1st day of each month, and that at the time of filing its answer garnishee was indebted to Burke in the sum of $622.29 for salary earned by him from July 1, 1933, to July 22, 1933, the date its answer was filed. On said date Burke was indebted to Congress Hotel Company in the amount of $718.38. August 1, 1933, during the pendency of the suit, garnishee paid Burke his full salary for July, amounting to $876.87, which included the sum of $622.29 due him on July 22. The court heard the cause without a jury and February 16, 1934, entered judgment dismissing the garnishee. This appeal followed.

Sec. 13 of the Garnishment Act (Cahill’s Ill. Rev. St. 1933, ch. 62, U13) provides that:

“Every garnishee shall be allowed to retain or deduct out of the property, effects or credits in his hands-all demands against the plaintiff, and all demands against the defendant, of which he could have availed himself if he had not been summoned as garnishee, whether the same are at the time due or not, and whether by way of set-off on a°trial, or by the set-off of judgments or executions between himself and the plaintiff and defendant severally, and he shall be liable for the balance only after all mutual demands between himself and plaintiff and defendant are adjusted, not including unliquidated damages for wrongs and injuries : . . . ”

The right of the Congress Hotel Company to set off the indebtedness due. it from Burke is not questioned. It is contended, however, that garnishee failed to make the adjustment and to “retain or deduct” Burke’s debt to it from the amount of salary due him up to the date of the service of garnishment summons, as contemplated by statute, and that the subsequent payment to Burke of his entire salary for the month of July amounted to an admission on its part that at the time of the filing of the answer it held funds belonging to Burke. The garnishee, on the other hand, takes the position, which was evidently concurred in by the court, that the rights and obligations of the parties became fixed as of the date of the filing of its answer, and since Burke on that date owed the garnishee a sum in excess of the salary earned by him prior to service of the garnishee summons, garnishee had the right to set off its indebtedness against salary earned, and was therefore justified in answering “no funds”; and that subsequent payments to Burke did not affect the correctness of its answer or the rights of the parties.

The subject under discussion has been passed upon under somewhat similar circumstances in the following cases:

In Paisley v. Park Fireproof Storage Co., 222 Ill. App. 96, judgment was had for $153.44, and garnishment proceeding’s were instituted May 8, 1920. The garnishee filed its answer setting forth that the judgment debtor was a wage earner and head of a family, with whom he resided, and that at the time of the service of the summons the garnishee was not indebted to Paisley in any sum whatsoever. After a hearing to contest the answer of the garnishee, the court found that it was indebted to Paisley in the sum of $82, and judgment was entered accordingly. It appears from the facts that Paisley was indebted to the garnishee upon a demand note of $300, dated February 21, 1920, which was given for money advanced. The company was the holder and owner of the note, the whole amount of which, with accrued interest, was due at the time the garnishment summons was served. The evidence also discloses that the garnishee paid Paisley $41 on May 11, 1920, and $41 on May 18, 1920, both payments being after service of the garnishee summons. The garnishee in that case likewise relied upon sec. 13 of the act, which the court considered and discussed in its opinion, with the conclusion that “upon service of garnishment process the garnishee had the right to adjust the account between itself and the judgment debtor and apply the amount due Paisley for salary on his note for $300, in conformity with the provisions of the statute. Obergfell v. Booth, 218 Ill. App. 492. The garnishee did not see fit to do so, but after service of garnishment process paid Paisley $82, and in so doing admitted an indebtedness to that amount. Wilcus v. Kling, 87 Ill. 107.”

In Obergfell v. Booth, 218 Ill. App. 492, which is cited in the Paisley case, the garnishee appealed from a judgment for $335.93 recovered by plaintiff. The garnishee’s answer admitted an indebtedness in the above amount, but contended that Booth, the judgment debtor, had executed a promissory note in the sum of $1,000, to the order of the Central Trust Co., which became due November 22, 1918, shortly after the garnishee’s answer was filed and was renewed upon the same terms for a period of 90 days. Certain collateral was deposited as security for the payment of the note. It was held that whatever right the garnishee had to apply the sum of $335.93 admitted to be due the judgment debtor toward the payment of the note “was lost when the garnishee took the renewal note of November 22, even though we do not consider the taking of that note as a payment of the debt. Although the taking of the renewal note did not extinguish the debt, it did have the effect of materially altering the relation of the parties involved. While the garnishee, under the provisions of the statute, has the right, upon being notified of garnishment proceedings, to adjust any demands it may have against the judgment debtor, it cannot enter into any new agreements with the debtor involving money or property which it holds to secure the debt, which agreements may operate to the detriment of the attaching creditor.”

In Baird v. Luse-Stevenson Co., 262 Ill. App. 547, a judgment was had on Baird’s note for $356, and garnishment proceedings were instituted against LuseStevenson Co. and summons served October 10, 1930. The garnishee filed its answer October 15, 1930, showing “no funds.” Upon contest of the answer the court found the issues against the garnishee, and entered judgment accordingly. From the stipulated facts it appears that between the service of garnishment summons and the filing of the answer the sum of $530 was paid to Baird, as an advance or drawing account against future commissions to be earned by him, and that at the same time there was due the garnishee from Baird a sum in excess of $4,000 for moneys advanced in the past to apply against commissions earned and to be earned by Baird in connection with his employment. The court sustained the judgment, holding that “the payment of money by the garnishee to his employee judgment debtor between the time of the service of the summons upon him as garnishee and the filing of his answer in the garnishment proceeding, is am admission of indebtedness to the employee by said garnishee,” citing and discussing both Wilcus v. Kling, 87 Ill. 107, and Paisley v. Park Fireproof Storage Co., 222 Ill. App. 96.

In Hudson v. Hudson Motor Co., 238 Ill. App. 391, judgment was obtained against Thomas J. Hudson for $622.30. Garnishment summons was served on the Hudson Motor Co., April 20, 1922. The answer of the garnishee, filed May 16, 1922, showed “no funds,” After a hearing, the court entered judgment in favor of the garnishee, which was reversed on appeal. It appeared from the evidence that Hudson was employed by garnishee as retail sales manager, at a salary of $416.66, which was paid to him in semimonthly payments of $208.33, on the 1st and 15th of each month. From the exhibits introduced in evidence, there appeared eight items of debit and five items of credit, showing a balance due from Hudson to the garnishee of $859.98. Other exhibits disclosed that between April 1, 1922, and February 28, 1923, the garnishee had paid Hudson his salary of $208.33 every 15 days from April 1 to May 31, 1922, and had also paid Hudson his salary, at an increased rate of $250, for every 15 days from June 1, 1922, to December 31, 1922, and from January 1, 1923, to February 28, 1923, at the rate of $312.50 every 15 days. It was there contended by the garnishee that, while the payments of salary were made or paid or advanced to Hudson he always remained the garnishee’s debtor and therefore nothing was due or owing him when the garnishment summons was served. The reviewing court, however, found that the record did not support that contention, and stated that the arrangement was “evidently a subterfuge.” Referring to sec. 13 of the Garnishment Act, and citing the Paisley case, supra, the court concluded that the garnishee had the right, upon service of process, to deduct from Hudson’s salary “as it was or came due, what he owed, but it could not refrain from adjusting the account and go on paying his salary for years, and so, simply by so doing, evade and avoid its statutory obligation.”

We regard these cases as controlling . The garnishee argues that because Burke’s indebtedness to it exceeded the amount due Burke on the date of the garnishee summons, it had the right under the statute to set off the amount of the indebtedness from Burke against what it owed him, without actually making the adjustment contemplated by statute; that the rights of the parties are to be determined as of that date; and that the subsequent payment of Burke’s salary for July, during the pendency of the suit, is immaterial. This position is untenable, and is not sustained by the authorities. The statutory provision is intended to protect a garnishee against debts which may be due from the judgment debtor, but, in order to avail itself of the statutory provision, garnishee must make the adjustment when notified of the garnishment proceeding, and cannot thereafter pay to the judgment debtor the amount admitted to be due him and still rely upon the statutory protection. Had the garnishee in the instant case retained or deducted the sum due Burke from the amount that Burke owed it when the garnishment summons was served, it could have availed itself of the statutory provision, but in paying Burke his salary after answer and during the pendency of the suit it admitted its debt to Burke and lost the right which the statute affords.

The judgment of the municipal court will be reversed and judgment entered here in favor of plaintiff and against the garnishee, Congress Hotel Company, in the sum of $622.29 and costs.

Reversed and judgment here.

Scanlan and Sullivan, JJ., concur.


author: Mr. Justice Scanlan

text:
    Anne Koscher, Appellee, v. Chicago City Bank and Trust Company and Annette Hubert, Appellants. Chicago City Bank and Trust Company and Annette Hubert, Cross Complainants, Appellants, v. Anne Koscher et al., Cross Defendants, Appellees.
    Gen. No. 37,751.
    Heard in the second division of this court for the first district at the October term, 1934.
    Opinion filed June 13, 1935.
    Rathte, Wesemann, Hinckley & Barnard, of Chicago, for appellants; Francis E. Hinckley and Joseph J. Sullivan, Jr., of Chicago, of counsel.
    Shulman, Shulman & Abrams and Hamlin K. Buchman, of Chicago, for appellee; Meyer Abrams, of counsel.
   Mr. Justice Scanlan

delivered the opinion of the court.

Anne Koseher filed her bill against Annette Hubert and Chicago City Bank and Trust Company praying that said trust company be removed as trustee under a certain trust deed given to secure a mortgage indebtedness, that a successor trustee be appointed and that said trust company be decreed to turn over a certain draft to complainant or to John Gr. Lobstein, doing business as John Gr. Lobstein & Company. The trust company and defendant Hubert, defendants to the original bill, filed an amended cross-bill to foreclose the trust deed and for an order commanding Leslie White, John Gr. Lobstein & Company and Chicago City Bank and Trust Company, as trustee, to affix their proper indorsements to said fire insurance draft thereby making it payable to cross complainant Hubert in partial payment of the indebtedness due under the trust deed. The cause was referred to a master in chancery, who made a report recommending, inter alia, that the cross complainants have the proceeds of the insurance draft, the same to be applied in partial payment of the mortgage indebtedness. The chancellor sustained exceptions of complainant to that part of the report, and a decree was entered that ordered, inter alia, that the entire proceeds of the draft be paid to the lien complainant, Lobstein, in satisfaction of his lien.

It is conceded that the sole question upon this appeal relates to the distribution of the proceeds of the draft.

On April 24, 1924, Mary May and Patrick.May, her husband (now deceased), executed a trust deed conveying certain premises to the Chicago City Bank and Trust Company, as trustee, as security for their indebtedness of $1,500, evidenced by a principal promissory note in that amount, due five years after date with interest thereon at the rate of six per cent per annum, payable semiannually. On April 24, 1929,' the time of payment of the principal note was extended for a period of five years. On August 22, 1931, a fire insurance policy in the amount of $4,000 was issued, insuring the owner against loss or damage by fire and making the loss payable to the owner and the trustee, as their respective interests might appear. On October 14, 1931, a fire loss occurred. Upon adjustment of the loss the insurance company issued its draft payable to all parties who might claim an interest, viz., Chicago City Bank and Trust Company (the trustee under the mortgage and also a defendant and cross complainant in this case), Mary May (the surviving mortgagor and the then record owner of the equity of redemption), John Gr. Lobstein & Co. (the lien claimant, cross defendant and intervening petitioner in this case), and Leslie White (a cross defendant, who has filed his disclaimer in this suit). The draft was delivered to the Chicago City Bank and Trust Company and was in its possession at the time the instant suit was commenced. After the entry of the decree, at the court’s request, the bank indorsed the draft and surrendered it to the master in chancery. The draft was also indorsed by Mary May and by John Gr. Lobstein & Company, and the proceeds of the same are available for distribution by the master.

After the fire Mary May, the owner of the equity, engaged Lobstein, a building contractor, doing business, as John Gr. Lobstein & Company, to repair the damage to the building caused by .the fire, and .she agreed, in writing, to pay "him therefor the sum of $1,133. The work was done by Lobstein without the knowledge or consent of the trustee under the mortgage .or the owner of the same. The master’s report, also the decree, found that the reasonable value of the labor and material furnished by Lobstein under his contract was $1,133. After the completion of the work Mary May, at the instance of Lobstein, delivered, on May 17,1932, her quitclaim deed to complainant, Anne Koscher, and also assigned to the latter her interest in the draft. It was stipulated that the complainant was holding title to the premises “as security for the indebtedness alleged to be due John Gr. Lobstein.” Prior to the fire, Mary May had defaulted in certain terms of the trust deed by her failure to pay the general real estate taxes for the years 1928, 1929 and 1930 levied against the property, and on October 22,1932, she failed to pay the semiannual instalment of interest due on the principal note. She filed her bill on October 27, 1932. The amended cross-bill of complaint accelerates the maturity of the principal indebtedness of $1,500 and prays that the proceeds of the insurance draft be applied in partial payment of the trust deed indebtedness and that the real estate be sold for the balance due thereunder. Lobstein, by his answer, in the nature of an intervening petition, seeks to enforce a mechanic’s lien against the premises. The decree found that there was due cross complainant Annette Hubert the sum of $1,678.04 with interest thereon at the legal rate from February 28, 1934; also the sum of .$350 as reasonable solicitors’ fees, and all taxable costs incurred in the proceedings. The total amount due her is over $2,000.

The cross complainants’ position is that by “the trust deed, the owner of the property undertook to and did insure the premises against loss by fire and did make the loss payable to the trustee for the benefit of the owner of the trust deed indebtedness; that the contract of insurance made pursuant to this agreement created an obligation on the insurance company on the happening of the loss to pay the amount of the loss to the owner of the property and the trustee as their interests might appear; that the rights of the bank as trustee to this fund for the benefit of the owner of the indebtedness were, by reason of the existence of the mortgage and the default, superior to the rights of the owner of the equity, and that 'John Gk Lobstein and Co., or John Cl. Lobstein, was a total stranger to the transaction; that the institution of this suit by Anne Koscher, the grantee of the owner, is a repudiation of the contract of her grantor in that it seeks the aid of the Court to require the payment of this money to a stranger with whom a contract was subsequently made instead of to the party who had, upon the delivery of the trust deed and the insurance policy and the occurrence of the loss, a vested right to the same. ’ ’

Cross defendants contend “(a) The policy was not payable to the mortgagee alone, but was payable to both the mortgagor and mortgagee as their interest appeared, and when the loss was repaired the mortgagee was not interested in the fund, (b) Even if a default existed the mortgagee was not entitled to any fund derived prior to the declaration of the default.” “The trust deed only secured the mortgagee against loss occasioned by fire, and did not provide that the surplus above the loss be paid over to the mortgagee, and after the restoration of the premises to its original condition there was nothing due to the mortgagee and the fund was the absolute property of the mortgagor and he had the right to pay it over to the contractor who restored the loss.”

The trust deed provides: “ . . . And as additional security for the payment of the indebtedness aforescád, the said party of the first part, for said party, and for the heirs . . . covenants and agrees to keep all buildings and fixtures that may be upon the said premises, at any time during the continuance of the said indebtedness, insured against loss or damage by fire, ... for the full insurable value of such buildings and fixtures, and hereby authorizes said trustee to place all said insurance in such responsible insurance company or companies as may be approved by the party of the second part, or the holder or holders of said principal note and to make all sums recoverable upon such policies payable to the party of the second part, for the benefit of the holder or holders of said principal note, by the usual mortgagee or trustee clause to be attached to such policies . . . .” (Italics ours.)

“But it is settled by many decisions in this country that if the mortgagor is bound by covenant or otherwise to insure the mortgaged premises for the better security of the mortgagee, the latter will have an equitable lien upon the money due on a policy taken out by the mortgagor to the extent of the mortgagee’s interest in the property destroyed. Thomas’s Adm’rs v. Vankapff’s Ex’rs, 6 Grill & J. (Md.) 372; note to 3 Kent, Com. 376; Angell, Fire and Life Insurance, sec. 62; 2 Am. Lead. Cas. 834, 5th ed.; 1 Herman, Mortgages, sec. 424, and cases there cited. And this equity exists, although the contract provides that in case of the mortgagor’s failing to procure and assign such insurance, the mortgagee may procure it at the mortgagor’s expense. Nichols v. Baxter & al., 5 R. I. 491.” (Wheeler v. Insurance Co., 101 U. S. 439, 442.)

“Where a mortgagor is bound either by covenants in the mortgage or otherwise, for example, by a valid verbal agreement to keep the property insured as a further security for the payment of the mortgage debt, then the mortgagee is entitled to an equitable lien upon the money due on the insurance policy, even though the- policy is made payable to the mortgagor; • and the proceeds when collected by such mortgagor are held in trust for the benefit of the mortgagee: Swearingen v. Hartford Ins. Co., 52 S. C. 309, 316 (29 S. E. 722); Nichols v. Baxter, 5 R. I. 491; Wheeler v. Insurance Co., 101 U. 8. 439, 442 (25 L. Ed. 1055); Cromwell v. Brooklyn Fire Ins. Co., 44 N. Y. 42 (4 Am. Rep. 641); Nordyke v. Gery, 112 Ind. 535 (13 N. E. 683, 2 Am. St. Rep. 219); Chipman v. Carroll, 43 Kan. 163 (35 Pac. 1109, 25 L. R. A. 305); Hazard v. Draper, 7 Allen (89 Mass.), 267.” (Butson v. Misz, 81 Ore. 607, 612-3.)

“The mortgagor charged himself with the duty to take out insurance for the benefit of the plaintiff, and was not absolved from that duty by his failure so to do nor by taking insurance in his own name. It is agreed by counsel for both parties that in such a case the mortgagee, as between himself and the mortgagor, is entitled to an equitable lien upon the money due on the insurance policy, although it is made in terms payable to the mortgagor. This is the well settled rule. Lichtstern v. Forehand, ante, p. 216, 194 N. W. 421; Butson v. Misz, 81 Oreg. 607, 160 Pac. 530; 4 Cooley, Ins. 3703, and cases cited.” (Juneau Co. State Bank v. State Bank of Mauston, 181 Wis. 430, 433.) (See also Connors v. Aaron, 207 Wis. 115, 119; Fergus v. Wilmarth, 17 Ill. App. 98, 101; Farmers’ Loan & Trust Co. v. Perm Plate Glass Co., 186 U. S. 434, 456; Burrows v. McCalley, 17 Wash. 269, 49 Pac. 508, 510; Meader v. Farmers’ Mut. Fire Relief Ass’n, 137 Ore. 111, 1 P. (2d) 138, 141.)

In Silver v. United States Trust Co., 280 Mass. 295, the plaintiffs repaired part of the damage done by fire to property then owned by one Levinton on which the defendant held a mortgage. The work was done under contract with Levinton which contained an assignment to plaintiffs of Levinton’s interest in money then “due or to become due to him from the respective fire insurance companies who are insuring the fire loss on said building.” The contract also contained the following: “The said owner does hereby authorize and empower and request the insurance companies covering the loss on said building to make the drafts totaling $1,338 payable to the said contractors directly and the balance of the fire loss to be payable to him.” “The trust company held a first mortgage for $6,000 and insurance policies, issued to Levinton as owner, payable to it as first mortgagee and to one Freedman as second mortgagee.” In its opinion the court said (pp. 298-9):

“In Palmer Savings Bank v. Insurance Co. of North America, 166 Mass. 189, Field, C. J., declared the law of this Commonwealth to be, where the loss upon a policy of fire insurance was made payable to a mortgagee as his interest may appear, that, if the mortgage is outstanding at the time of the loss and the mortgage debt exceeds the loss, the mortgagee can recover the whole amount payable for the loss in his own name. The mortgagor is entitled only to any balance remaining after the mortgage is paid. Hence the assignment made here by Levinton to the plaintiffs conveyed to them only the balance which might remain for him after any amounts due upon the first and second mortgages had been paid. There was no such balance. They took nothing by the assignment. . . .
“Had the plaintiffs sought a mechanic’s lien for work done under their contract, the prior mortgagees would be preferred to them. Gr. L. c. 254, sec. 7. They are in the unfortunate position of any workman who has added value to a mortgaged building under contract with the owner and has not been paid before the mortgage is foreclosed. The mortgagee or purchaser at foreclosure is not bound to pay either the contract price or the value added by the work, although what he obtains may be enhanced in value by that work. Neither has any relation of contract or quasi contract with the workman. The buyer, speaking generally, has paid in the price bid the value of the work. He is not enriched unjustly. In the case before us, the defendant has, seemingly, both the building enhanced in value by the work for which the insurance money was intended to be applied under the contract, and the insurance money; but, in fact, through the price paid at the foreclosure the increased value due to the contract work has been made good to the owner, Levinton. The legal situation is the same as if the price had been paid to the owner. The latter has received it in the credit of the price bid upon the mortgage debt.”

In Healey Ice Mach. Co. v. Green, 181 Fed. 890, the owner of the premises had taken out insurance policies payable to himself or to the mortgagee. The court in refusing to allow a lien claimant to participate in the proceeds of one of the insurance policies to the detriment of the mortgagee, said (p. 896):

“Any suggestion of an intention on the part of Hill and Johnson, who took out the policies, to protect complainant’s alleged liens, is negatived by the fact that both they and their grantors denied that any debt was due complainant, or that the property was subject to any lien. Again, the proceeds of the policy are specifically appropriated by its terms. There being no obligation on the part either of Hill and Johnson or Green and wife to insure for the benefit of complainant, it is difficult to perceive how a court of equity could appropriate to it money due upon an express contract by the insurance company to defendants. Equity seeks to effect the intention of parties, and only to prevent fraud renders decrees contrary to the expressed intention. ’ ’

In support of their position cross defendants cite Huey v. Ewell, 22 Tex. Civ. App. 638; Rosenthal v. Iron Co., 197 Wis. 136, and Connors v. Mango, 207 Wis. 115. The first case is readily distinguishable upon the facts. We are unable to find the second case. The third case, in our judgment, is in accord with the authorities we have heretofore cited.

Cross defendants" seem to place stress upon the fact that the policy was not made payable to the trustee alone, but to both the mortgagor and trustee, as their respective interests might appear. We have seen from the cases cited that even if the mortgagor in the instant case had had the policy made out payable to himself alone, an equitable lien upon the fund realized existed in favor of the trustee.

Cross defendants admit that cross complainants alleged in their amended cross-bill a default in the payment of taxes levied against the premises described in the trust deed for the years 1928, 1929 and 1930, and that the master’s report and the decree so found, but they argue that the record shows no proof of the default. This argument is without merit and is clearly an afterthought. We may say, however, that cross defendant Koseher, in her answer to the amended cross-bill, failed to deny the allegations in the amended cross-bill as to the default. She also failed to object and except to the finding in the master’s report. She is therefore in no position to raise the instant point even if it were material to a decision of the instant case.

At first blush it might seem as though the equities in this case were with the lien claimant, but when the facts and the law bearing upon them are carefully considered it is clear that the equities are with the trustee as to the proceeds of the fire insurance draft.

That part of the decree of the circuit court of Cook county which orders that the entire proceeds of the insurance draft be paid to the lien claimant John Gr. Lobstein in satisfaction of his lien is reversed, and the cause is remanded with directions to the chancellor to enter an order directing the master in chancery to apply the proceeds of the fire insurance draft in payment of the trust deed indebtedness.

Decree reversed in part, and remanded with directions.

Friend, P. J., and Sullivan, J., concur.


text:
    The People of the State of Illinois ex rel. R. W. Carroll, Appellee, v. Martin Durkin et al., Appellants.
    Gen. No. 37,852.

      Heard in the second division of this court for the first district at the October term, 1934.
    Opinion filed June 13, 1935.
    Rehearing denied June 25, 1935.
    Otto Keener, Attorney Greneral, and Jerome F. Dixon, Assistant Attorney Greneral, for appellants.
    Michael F. Ryan, of Chicago, for appellee.
   Mr. Justice Scanlan

delivered the opinion of the court.

Plaintiff filed his petition for a writ of mandamus to compel the Director of the Department of Labor of the State of Illinois and certain other State officers and employees to reinstate him as a State civil service employee to his duties as a deputy factory inspector. The demurrer of defendants to the petition was overruled and they stood by their demurrer. Thereupon a judgment was entered in accordance with the prayer of the petition.

The petition alleges that pursuant to section 4 of the “Act to regulate the civil service of the State of Illinois,” Cahill’s St. ch. 126a, 6, the civil service commissioners adopted certain rules, effective August 15, 1930. The petition then sets up all of the rules adopted, one of which is as follows:

“Sec. 1. (Rule VI) The statement for cause for removal, discharge or reduction shall give the facts which are alleged to constitute ‘just cause.’ ”

The petition further alleges that plaintiff passed the State civil service examination on May 17, 1912, for the position of deputy factory inspector and that he was thereafter certified to the appointing officer and appointed deputy factory inspector in the classified service in the Department of Labor of the State of Illinois; that he diligently, efficiently and faithfully performed the duties of such position until June 30, 1933, when he received the following discharge notice:

“Discharge Notice
State of Illinois
State Civil Service Commission
June 30, 1933.
To — Mr. R. W. Carroll,
4645 N. Leamington St., Chicago, Illinois.
You are hereby discharged from your position as Deputy Factory Inspector in Division of Factory Inspection, Department of Labor. Said separation taking effect June 30, 1933.
The cause for your discharge is neglect of duty in failing to comply with the hours of employment which are from 8:30 A. M. to 5:00 P. M. with one hour for lunch.
Yours truly (Signed) Barney Cohen
Signature of Appointing Officer.
Director of Labor.

Delivered by Mr. Joseph J. Nowicki, Chief Factory Inspector, on June 30, 1933, to Mr. R. W. Carroll.

(Signed) Joseph J. Nowicki.
(Name of person delivering notice.) ”

The petition further alleges .that four other deputy factory inspectors were discharged on the same date for a similar reason; that the plaintiff was not guilty of any matter upon which the charge of neglect of duty could be lodged against him, nor of any conduct detrimental to the public service; that the discharge of plaintiff and the four other inspectors “was not for just cause, but solely and wholly for political causes”; that no facts were set forth by the appointing officer in the notice of discharge to show that the continuance of plaintiff in the service as deputy factory inspector was detrimental thereto; that the removal was for political causes and therefore the State civil service commission abused the discretion vested in it by law in failing to direct his immediate reinstatement and reassignment to duty; that at the hearing before the commission it was clearly shown that his removal was solely for political causes; that plaintiff, on receipt of the notice of discharge, filed a petition with the State civil service commission for a hearing under section 12 of the act, in which he stated that his discharge was for political causes; that after a hearing before the commission it entered the following finding and decision:

“The commission further finds that the neglect of duty by petitioners and each of them in failing to comply with the hours of employment laid down by the Director of Labor and the employing officer, and which were fully known to petitioners, is sufficient cause for discharge and is detrimental to the public service of the State of Illinois.

“The commission further finds that the action of Barney Cohen, Director of Labor and as appointing officer, in discharging Charles I. Neimark, John Persenaire, Richard W. Carroll, Con Hoffman, and William Hamilton as Deputy Factory Inspectors, Division of Factory Inspection, Department of Labor, was not for political reasons, as alleged in petitioners’ statement for hearing in these cases and each of them.” The petition further alleges that in entering said findings and decision the commission did not act in good faith but was motivated by political reasons. The petition concludes with a prayer that a writ of mandamus issue directing defendants to reinstate plaintiff in his position.

Par. 14, sec. 12, of the State Civil Service Act, ch. 126a, Cahill’s Ill. Rev. St. 1933, is as follows:

“Par. 14. Removals, reductions, suspensions.) Sec. 12. No employee in the classified civil service of the State shall be removed, discharged or reduced in rank or pay by the appointing officer, except for just cause. The term ‘just cause’ as used in this section — shall mean any cause which is detrimental to the public service other than political, racial or religious.
“In every case of removal, discharge or reduction, a statement of the cause therefor shall be set forth in writing, which statement shall be in duplicate, and shall be signed by the appointing officer. One copy of said statement shall be delivered personally to the employee and the other copy of said statement shall be filed in the office of the Civil Service Commission, with a notation thereon showing proof of service of a copy of said statement upon the employee. Upon the filing of a copy of said statement with the notation aforesaid, in the office of the Civil Service Commission, the removal, discharge or reduction shall immediately become effective.
“Whenever an employee who has been removed, discharged or reduced shall file with the Civil Service Commission, within five days after his removal, discharge or reduction, a statement in writing, alleging that his removal, discharge or reduction was made for political, racial, or religious causes, and that he believes that upon a hearing he will be able to establish such a fact, it shall be the duty of the Commission to order a hearing. The time and place of such hearing shall be fixed by the Commission and due notice thereof given to the appointing officer and the employee.
“Upon such hearing the Commission shall determine and decide whether or not the removal, discharge or reduction was made for political, racial or religious causes, and the Commission shall have no jurisdiction or authority to review, consider, or determine any other question.
í Í
“If, upon such hearing, the Commission shall find that the removal, discharge or reduction was made for political, racial or religious causes, it shall enter an order reinstating the employee in his former position and directing the payment of all back salary due. If the Commission shall find that the removal, discharge or reduction was not made for political, racial or religious causes, it shall enter an order to that effect, and the removal, discharge or reduction shall stand and be final. ’ ’

It is clear, from a reading of the two acts, that the State Civil Service Act differs widely from the Civil Service Act in relation to cities. Under the latter act charges against the employee are preferred before a civil service commission, where a full hearing is had. The commission is a quasi judicial tribunal and the statute provides that an employee may be removed only “for cause, upon written charges, and after an opportunity to be heard.” The power to remove is not an arbitrary one, to be exercised at pleasure, but only upon just and reasonable grounds, and the record of the commission must show that it acted upon evidence, so that the court may determine whether there was any evidence fairly tending to sustain the charge. But under the State Civil Service Act the jurisdiction of the commission is limited to the consideration of the question as to whether or not the discharge of the employee was for racial, political or religious reasons, and the commission has no authority to review, consider or determine any other question. In other words, the State commission has no jurisdiction to determine the question as to whether or not there was “just cause” for the discharge. If the commission finds that the discharge order entered by the appointing officer was not entered because of racial, religious or political reasons, then, the statute provides, “the removal, discharge or reduction shall stand and be final.” Plaintiff cites a number of cases arising under the City Civil Service Act, such as Funkhouser v. Coffin, 301 Ill. 257, but these have little or no bearing upon the determination of the instant appeal.

Plaintiff states that the petition is not intended as a collateral attack upon the action of the State civil service commission, nor as an attempt to obtain a trial de novo through mandamus. He concedes that the commission could not grant any relief to a civil service employee even though he was, in fact, discharged without “just cause,” if the discharge was not for racial, political or religious causes. He further concedes that we cannot review or control the discretionary powers of the appointing officer in making the discharge. He states that the sole purpose of the instant proceeding is to question the jurisdiction of the appointing officer to make the discharge; that “under Section 12 there are certain jurisdictional provisions which must be complied with by the appointing officer, and failing to comply strictly with the statute he acts without authority, and, therefore, the discharge would be of no force and effect. ’ ’ The argument is that under par. 14, sec. 12, of the act and sec. 1 of rule VI of the commission the appointing officer has not the power nor authority to discharge the plaintiff, unless “the statement for cause for . . . discharge” in the discharge notice makes out a prima facie case of “just cause”; that the discharge notice is fatally defective in that regard and the appointing officer was without power or authority to discharge plaintiff; and, therefore, for that reason, the trial court was warranted in overruling the general demurrer of defendants. That the act and the rule require that the appointing* officer, in the discharge notice, shall make out a prima facie case of “just cause” for the discharge, seems reasonably clear. The discharge notice need not he verified, and it is a serious commentary upon the so-called State Civil Service Act that the employee has no right to question the truth of the charge no matter how serious it may be. The appointing* officer is not required to hold hearings or to make findings. If he makes out a prima facie case of “just cause” on paper, he can arbitrarily and unjustly discharge civil service employees, and they have no right to a hearing save to prove, to the commission, if they can, that they were discharged solely for racial, religious or political reasons. We are forced to the conclusion that the contention of the attorney general that, under the act, whether or not there was “just cause,” as a matter of fact, for the discharge of plaintiff, is to be determined solely by the appointing officer and that his action in that regard cannot be reviewed by commission nor court, is sound. We recognize fully that the act affords little, if any, protection to the employees; but the legislature, alone, has the power to remedy the patent defects in the law.

As to the jurisdictional question raised by plaintiff: The act (par. 14, sec. 12) provides that no employee shall be removed, discharged or reduced “except for just cause. The term ‘just cause’ as used in this section — shall mean any cause which is detrimental to the public service other than racial, political or religious.” No form of notice of discharge is provided by the act or the rule. In making the discharge the appointing officer is required only to make a statement in writing of the cause of the removal, one copy of which shall be delivered personally to the employee and one copy of which shall be filed in the office of the commission with a notation thereon showing proof of service upon the employee. Thereupon the discharge immediately becomes effective. That the appointing officer had jurisdiction of plaintiff, through service of a copy of the discharge notice, is conceded. Neglect of duty is one of the common grounds for discharge under civil service acts. Such conduct would be “detrimental to the public service,” and would constitute “just cause” for discharge under the act. Plaintiff relies-strongly upon the wording of section 1 of Eule VI of the commission, which provides that “the statement for cause for removal, discharge or reduction shall give the facts which are alleged to constitute ‘just cause.’ ” That rule, in our opinion, intends that the statement shall give the ultimate facts “which are alleged to constitute ‘just cause’ not the evidence bearing upon the charge. Such a notice need not set up the facts with the particularity of an indictment. The object of the notice is to apprise the employee and the commission of the discharge of the employee and the alleged cause for the action of the appointing officer. If the object and intent of the law are substantially attained by the notice, it is sufficient. From plaintiff’s statement to the civil service commission it appears that he understood fully the nature of the charge against him. The commissioners, although they had no jurisdictional right to do so, allowed him to introduce evidence in support of his claim that he had not been guilty of the charge made against him, and, after hearing all of the evidence bearing upon the subject, they found “that the neglect of duty by petitioners and each of them in failing to comply with the hours of employment laid down by the Director of Labor and the employing officer and which were fully known to petitioners is sufficient cause for discharge and is detrimental to the public service of the State of Illinois. ’ ’ They further found, as they had a jurisdictional right to do, that the act of the appointing officer in discharging plaintiff “was not for political reasons, as alleged in petitioners ’ statement for hearing. ’ ’ While the discharge notice might have stated the charge with greater particularity, nevertheless, we do not believe that we would be warranted in holding that it was so fatally defective that the jurisdiction of the appointing officer over the subject matter of the charge does not sufficiently appear from it.

The judgment of the superior court of Cook county is reversed and the cause is remanded with directions to sustain defendants’ demurrer to plaintiff’s petition for a writ of mandamus.

Reversed and remanded with directions.

Friend, P. J., and Sullivan, J., concur.


author: Mr. Justice Sullivan

text:
    Irene E. Mueller, Appellee, v. John Hancock Mutual Life Insurance Company, Appellant.
    Gen. No. 37,723.
    Heard in the second division of this court for the first district at the October term, 1934.
    Opinion filed June 13, 1935.
    Hoyne, O’Connor & Rubinkam, of Chicago, for appellant.
    James A. Peterson, of Chicago, for appellee; Frederick R. Nyberg, of Chicago, of counsel.
   Mr. Justice Sullivan

delivered the opinion of the court.

This is an action brought by Irene E. Mueller, plaintiff, against defendant, John Hancock Mutual Life Insurance Company, upon three insurance policies issued by defendant to Otto E. Mueller, in and by which defendant agreed to pay plaintiff, the wife of Otto E. Mueller, in case of his death $1,480. A trial by the court without a jury resulted in a finding for plaintiff in that amount and judgment thereon. This appeal followed.

The declaration filed December 19, 1933, alleged that defendant had issued three policies on the life of Otto E. Mueller, two for $370 each and one for $740; that plaintiff was his wife and the beneficiary named in the policies; that July 6, 1925, Mueller left his home in Chicago and has not returned; that he has not been heard from since July 7, 1925; that, by reason of his unexplained and continued absence for the “space ■ of seven years,” the law presumes that he died July 6, 1932; that all premium payments were made on the aforesaid policies; that since his departure plaintiff has made a diligent and continuous search for the assured and found no trace of him; and that September 10, 1932, she furnished and delivered to defendant satisfactory proof of his death.

Defendant filed special pleas, averring that the policies are payable upon receipt by defendant of satisfactory proof of the death of the assured and that such proof has never been received; that, at or about the time of the alleged disappearance of Mueller, he was charged with wrongfully taking funds from defendant, by whom he was employed; and that, by reason of the acts and circumstances surrounding his disappearance, no presumption of death in law could or did arise by reason of such disappearance.

It appeared that Mueller, who had been employed by defendant company as an insurance agent for two years at that time, left his home on the morning of July 6, 1925, and that his wife received from him through the mail the following letter on the morning of July 7, 1925:

“Chicago, Ill. 7/6, 1925.
Dear Irene,
Sorry that it had to come to this, but it cannot be helped now. The reason for all is drink and me not being man enough to be able to fight it. I am headed for Canada, what I will do, I do not know. If you want a divorce, you probably can get it any time. If not, well, I’ll try my best to get out of this mess. I am about $200 short on my book. Commissions that I have got coming will make up for part of it, the rest I shall pay as soon as possible. As soon as you get this letter, you better go to Theede’s and tell them what happened; also stop the milk, that company I owe another 35.00 Doll. I gave Theede a check for 30.00 Doll; its no good either. About the flivver, well do as you please, sell or keep it. Jimmie might fix it up for you. Give the kids my regards and tell Georgina she should pray for her papa and everything will be all-right. My debit book and grip is in the car give it to anybody of the Hancock Company.
With love and kisses to you and the kids,
Your
Ed
Send you another letter as soon as I get time.”

The evidence disclosed that the assured married plaintiff in 1914; that they resided at 6219 Bernice avenue, Chicago, Illinois, with their three minor children, the eldest of whom was six years old and the youngest one year at the time of their father’s disappearance; that they lived in the same building with the Theede family; that Mueller’s family relationships were kindly and affectionate; that prior to July 6, 1925, the assured had not left his wife for any extended period of time; that, after he left his family, plaintiff had his picture placed in the Chicago Police Bulletin with his description and a request for information as to his whereabouts; and that she went to the court of Domestic Relations, the Legal Aid Society, and to Mr. Theede, Mueller’s friend, also an agent for defendant, in efforts to locate the assured, but failed to find him.

Plaintiff and her eldest daughter, Georgina, 15 years old at the time of the trial of this cause, testified that no communication had been received from assured by either of them since his letter of July 6, 1925. Mueller’s mother and brother, who resided in Germany at the time of his disappearance but had come to this country in May, 1927, testified that although the assured had communicated with them more or less regularly prior to his disappearance, no word was received from him by either of them since that time nor had either of them seen him.

It is urged that the facts and circumstances surrounding Ms disappearance, as discMsed in his letter to plaintiff, clearly indicated Mueller’s intention to remain away permanently. We are unable to agree with this contention. To us his letter portrays rather the thoughts of a brooding man, remorseful of his conduct. Because of what he considered Ms improper treatment of his wife, he suggested that if she cared to secure a divorce from him “you probably can get it any time.” In the very next sentence he stated, in effect, that if she did not divorce Mm, “I’ll try my best to get out of this mess. ’ ’ His letter evinced devotion, love and affection for Ms wife and children. He solicited the prayers of Ms six-year-old daughter that “everything will be allright.” He promised another letter soon. A careful analysis of Ms letter convinces us that, rather than indicating an intention not to return, Mueller at least intimated therein his hope and desire, after he pulled himself together and got on his feet, to return to the wife and cMldren whom he loved. In our opinion the fact that Ms disappearance is explained does not overcome the presumption of death after Ms continued, unexplained absence for seven years.

Defendant claims that the reason for the absence of Mueller was explained by Ms admitted shortage in Ms accounts and the possibility or probability of his being prosecuted, and that no presumption of death arises for these reasons.

In Piersol v. Massachusetts Mut. Life Ins. Co., 260 Ill. App. 578, where the assured’s accounts were being audited before Ms departure, and a shortage thereafter discovered, resulting in an indictment charging Mm with embezzlement of $1,742.40, after discussing and distinguishing many decisions of the courts of review of this State on the question, the court said at p. 587:

“An examination of the cases indicates that the prerequisites which would justify a presumption of death are (1) that the person whose death is in question has disappeared from his last known abode, domicile or residence; (2) that he has neither returned thereto nor communicated with those with whom he would naturally communicate if alive; (3) that inquiry has been made at the last known place of abode of the persons who would naturally hear from him without obtaining information indicating that he is alive. Out of proof of such material facts a presumption of death arises as a matter of law, but it is a rebuttable presumption which may be disproved by evidence of facts tending* to show that the party presumed to be dead is alive. See Jones, Commentaries on Evidence, 2nd ed., vol. 1, secs. 285-294; 8 R. C. L., pp. 708, 709, and see page 714.”

So in the instant case the mere fact that there was a net shortage of about $200 in assured’s accounts cannot be considered such an explanation of his continued absence for seven years as to rebut the presumption of his death.

Plaintiff’s undisputed evidence as to the material facts was ample to give rise to the presumption of death as a matter of law, and, inasmuch as the record discloses no evidence that assured is alive, it is unnecessary to discus’s defendant’s contention that the verdict and judgment are against the manifest weight of the evidence.

For the reasons indicated the judgment of the superior court is affirmed.

Affirmed.

Friend, P. J., and Scanlan, J., concur.


author: Mr. Presiding Justice O’Connor

text:
    Bankers Life Company et al., Appellees, v. The Village of Elmwood Park and Urban V. Bedard, Appellants.
    Gen. No. 38,043.
    Heard in the first division of this court for the first district at the February term, 1935.
    Opinion filed June 17, 1935.
    Myron E. Wisch, of Chicago, for appellants.
    Markman, Donovan & Sullivan, of Chicago, for appellees; Henry O. Nickel, of Chicago, of counsel.
   Mr. Presiding Justice O’Connor

delivered the opinion of the court.

Plaintiffs, as owners of special assessment bonds issued by defendant, the Village of Elmwood Park, and payable out of the sixth instalment of a special assessment levied by the Village, filed their petition for a writ of mandamus to compel defendants to pay from the moneys collected from the persons whose property was assessed interest on such special assessment bonds from the date of their maturity until paid. A writ was issued as prayed for, and defendants appeal.

The record discloses that the Village of Elmwood Park levied a special assessment to defray the cost of constructing a system of sewers in the village. It issued its bonds payable solely out of the special assessment when collected, some of which bonds are now owned by plaintiffs. The bonds in question were dated June 30,1927, and were payable on December 31, 1933. The moneys were not all collected when the bonds became due but apparently payments were made from time to time by the property owners until November, 1934.

Plaintiffs claim they should be paid interest on the bonds held by them respectively from December 31, 1933, to the date the bonds were paid, November, 1934.

Counsel for the Village in his brief says: “The sole question presented to this court for decision in the instant appeal is: ‘Do bonds issued under the provisions of “An Act Concerning Local Improvements” which are not paid at maturity bear interest from the maturity date to the date said bonds are paid?’ ”

Section 42 of the Local Improvement Act, under which the special assessment was levied, expressly provides that where a special assessment is to be paid in instalments, “All installments shall bear interest as hereinafter provided until paid, at the rate of not to exceed six (6) per centum per annum. ... In all cases it shall be the duty of the municipal collectors, as the case may be, whenever payment is made of any installment to collect interest thereon up to the date of such payment whether such payment be made at or after maturity. ’ ’ By section 86 of the act it is provided that, “For the purpose of anticipating the collection of the second and succeeding installments, ... it shall be lawful for such city, village or town to issue bonds, payable out of said installment, bearing interest at a rate not more than six per centum per annum nor less than four per centum per annum payable annually . . . and shall be dated and draw interest from the date of the issuing of the same.”

And counsel for the Village in his brief further says: “It is the contention of the Village that if the legislature intended that said bonds should draw interest subsequent to the date of maturity it would either have made some statement concerning the payment of interest subsequent to the date of maturity in the wording of the act, or it would have made some provision for the same in the form of the bond set up in the act. Since the legislature has seen fit to do neither the municipality is therefore not bound under the statute to pay interest subsequent to the date of the maturity of the bond. ’ ’ We think this contention is without merit. Section 42, from which we have above quoted, provides that the Village shall collect from the property owners all instalments with interest until paid, and this too, whether the payment be made by the property owners “at or after maturity.” Section 86 provides that the bonds “shall draw interest from the date of the issuing of the same.” Obviously, the Village must pay the interest collected from the property owners to the holders of the bonds until the bonds are paid. The proceeds of special assessments are trust funds for the payment of the bonds issued for the purpose of anticipating the collection of the assessment, and where bonds are made payable out of a particular instalment and the moneys have been collected from the property owners for that instalment, a bondholder whose bond is past due is entitled to have his pro rata share of the moneys collected paid to him with interest from the time the same should have been paid to him. Rothschild v. Village of Calumet Park, 350 Ill. 330. The Village is not authorized to use the moneys collected "for the sixth instalment for any purpose except to pay the bonds issued against ‘that instalment with interest thereon.

The judgment of the superior" court of Cook county is affirmed.

Judgment affirmed.

McSurely and Hatchett, JJ., concur.


text:
    Harold J. Kilburg and William C. Barteik, Trading as Kil-Bar Electric Company, Appellees, v. Petrolagar Laboratories, Inc., Appellant.
    Gen. No. 38,062.
    Heard in the first division of this court for the first district at the April term, 1935.
    Opinion filed June 17, 1935.
    Rehearing denied July 2, 1935.
    Anderson & Clarke, of Chicago, for appellant.
    Moses, Kennedy, Stein & Bachrach, of Chicago, for appellees; Hamilton Moses and Arthur Magid, of Chicago, of counsel.
   Mr. Presiding Justice O’Connor

delivered the opinion of the court.

Plaintiffs brought an action against defendant to recover $6,280 claimed to be due them for labor and material furnished in and about the construction of a building for defendant. There was a verdict and judgment in plaintiffs’ favor for the amount of their claim, and defendant appeals.

The record discloses that on April 1,1931, defendant was desirous of constructing a factory building on a piece of real estate it was acquiring in Niles Center, a suburb of Chicago, and on that date entered into a written agreement for the construction of the building with the Began Construction Company, a corporation, as general contractor for the erection of the factory building. The construction. company was to be paid for its services the cost of labor and material plus 10 per cent. The contract further provided that the Began Construction Company “is to sublet all contracts for all labor and material on the basis of the cost of labor and materials and a profit to the sub-contractor, except the contracts for masonry, brick work, concrete work and carpenter labor and lumber. ’ ’ All the subcontracts, together with the estimated cost of masonry, brick work, etc., were to be approved in writing by defendant before subcontracts were executed by the construction company. The contract further provided that defendant “will pay all bills and invoices for labor and material, as contracted, as and when the same become due and payable and will pay to the Began Construction Company ... as and for its services, a sum equivalent to ten (10%) per cent of the total cost and amount paid by them for labor and materials in the construction of said premises, together with ten (10%) per cent on the total amounts paid on said subcontracts, said compensation of ten (10%) per cent to be paid to the Began Construction Company.”

Shortly thereafter the construction of the factory was commenced, and about a month thereafter, May 15, 1931, the Began Construction Company entered into a written agreement with plaintiffs whereby plaintiffs were to install the electrical work in the building for a consideration of $11,445. Át that time it was understood by all parties that plaintiffs would be required to furnish other labor and material as the building progressed, the nature and extent of which could not then be definitely stated, and that orders would be given to plaintiffs from time to time in this respect. Plaintiffs commenced the work of installing the electrical equipment mentioned in the written contract on May 15th, and other work for which orders from time to time were given by the Began Construction Company and approved by defendant. Plaintiffs billed the Began Construction Company for the work as it progressed; the Began Company presented plaintiffs’ bills, together with other subcontractors’ bills, to the defendant and they were paid by defendant to the Began Construction Company, and in turn the Began Construction Company paid plaintiffs, the total payment being more than $40,000.

There seems to be no dispute but that there is still due and owing to plaintiffs $6,280, the amount for which they sue, but defendant contends that its obligation is to the Began Construction Company, the general contractor, and not to plaintiffs, who are subcontractors under the Began Construction Company.

Plaintiffs contend that they furnished the labor and material on direct orders of defendant; that the labor and services went into defendant’s building, and therefore, under the common counts which were a part of its declaration, it became liable to pay plaintiffs the fair and reasonable value of the labor and materials furnished. In support of this the argument seems to be that although some of the orders were given by the Began Construction Company to plaintiffs, the construction company was acting as defendant’s agent, and that some of the orders were given plaintiffs by defendant direct.

The evidence shows that the building was almost completed about January 1, 1932, and some months thereafter there was a new arrangement between the parties, whereby plaintiffs were to bill the defendant direct and not to bill the Began Company, as had theretofore been done. But the undisputed evidence is that all the bills that plaintiffs billed direct to defendant have been paid. We think it clear that the Began Construction Company, in giving orders to plaintiffs, was not defendant’s agent, but was a general contractor and that plaintiffs were subcontractors. This is the substance of all the evidence. The contract entered into between defendant and the Began Company expressly states that the Began Company is to sublet all the work except masonry, brick work, etc., and that it is to be paid for its services 10 per cent of the cost of the work done by the subcontractors. The contract is unambiguous in this respect, and the oral orders given to plaintiffs from time to time as the work progressed were orders given by the Began Construction Company and approved by defendant.

The defendant in its brief assigns cross error in which it contends that the contract between defendant and the Began Construction Company contained an express promise by defendant to pay all bills for labor and material furnished; that plaintiffs were third parties and beneficiaries of that promise and the trial court erred in holding to the contrary. Plaintiffs have moved to strike this cross error and the motion was reserved to the hearing. The motion must be denied. Plaintiffs, having prevailed in the trial court, could not have appealed or sued out a writ of error under the old practice, but they may assign cross errors in their briefs. Supreme Court Buie 39. McNulty v. Hotel Sherman Co., 280 Ill. App. 325. But while the plaintiffs may argue their cross error, we think it is without merit. The facts in the instant case do not bring plaintiffs within the rule, as they contend. The written and oral contracts in the instant case were not entered into for the direct benefit of plaintiffs (a third party), but the benefit to them is merely incidental and they have no right to recover under the contract. Carson Pirie Scott & Co. v. Parrett, 346 Ill. 252.

Under the evidence in t£fis case the judgment for the plaintiffs cannot stand, and it is reversed and the cause-remanded.

Judgment reversed and cause remanded.

Mo Surely and Hatchett, JJ., concur.