author: Mr. Presiding Justice Matchett

text:
    Charles H. Aldrich v. Charles R. Aldrich et al. Chicago Title & Trust Company, Appellant, v. Charles A. Brown and William Hardy, Appellees.
    Gen. No. 34,385.

      Heard in the first division of this court for the first district at the June term, 1930.
    Opinion filed March 2, 1931.
    Miller, Gorham & Wales, for appellant.
    John M. Zane, Harold W. Norman, William J. Pringle and Alexander 0. Mabee, for ¿ppellees.
   Mr. Presiding Justice Matchett

delivered the opinión oft the court.

I. This is an appeal by the Chicago Title & Trust Company from a decree which adjudged that Charles A. Brown was the absolute owner of a beneficial one-tenth interest in and to certain property described in a deed of trust dated January 6, 1925, and directed the Chicago Title & Trust Company to pay to him forthwith the sum of $80,333.33 with legal interest from the date of the decree. The material facts are practically undisputed and will be probably best understood if related in time sequence.

Charles H. Aldrich, now deceased, and Charles A. Brown were practicing lawyers at the Chicago Bar, and they were friends of long standing. Aldrich on June 1, 1922, and prior thereto represented the L. P. Larson, Jr. Company in certain litigation with the Wm. Wrigley, Jr. Company, in which the Larson Company claimed that the Wrigley Company had infringed upon certain of their rights and was guilty of unfair competition in the manufacture and sale of Doublemint Chewing Gum. There were two suits pending, and Aldrich represented the Larson Company in both, under an agreement whereby he was to receive as compensation for his services a contingent fee of 33)4 per cent of the amount which should be. recovered. Aldrich, who was devoting practically all of his time to this litigation, was in need of money and approached his long-time friend, Brown, with a view to obtaining financial assistance. On June 1, 1922, they executed a contract in writing, Brown being represented by his banker, Hardy, who executed the contract in his own name but in fact on behalf of Brown, Aldrich having knowledge of that fact.

The- contract reciting facts as heretofore stated and the consent of Hardy to furnish financial assistance, conveyed a one-tenth interest in the contingent fee to Hardy (Brown) promised to repay the sums advanced, and a copy of this contract was delivered to the Larson Company which in writing assented thereto. Both of these writings will be set up verbatim hereafter.

On January 6, 1925, Aldrich conveyed all his rights under his contracts with the Larson Company to George F. Porter, as trustee, by a written document which will hereafter require careful consideration and which will then be more fully described. The trustee accepted the trust but thereafter died. The Illinois Merchants Trust Company, successor in trust, declined to accept, and the Chicago Title & Trust Company was by order of court appointed successor to Porter and accepted. This appointment was made upon a bill filed by Aldrich in the circuit court of Cook county in September, 1928, in case No. B167647. Neither Brown nor Hardy nor other parties to whom Aldrich had assigned an interest were made parties.

On November 23, 1923, the litigation between the Larson and Wrigley Companies ended in the U. S. District Court by a decree against the Wrigley Company for $1,384,649.48, and both parties appealed to the U. S. Circuit Court of Appeals.

On November 5, 1928, Hardy assigned his interest, which was only nominal, to Brown, and on December 11,1928, the Larson-Wrigley litigation was settled by the payment by the Wrigley Company to the Larson Company of $1,900,000. This amount less the sums due to the Larson Company left a balance of $603,333.33, which was paid to the Chicago Title & Trust Company as Aldrich’s trustee for the benefit of the beneficiaries.

Brown claimed that one-tenth of that amount or $60,333.33, belonged to him, and that in addition he was entitled to receive back the $20,000 which he had advanced, with interest; and the trustee thereupon set aside a special fund of $89,142.24 as representing the total amount due to Brown. Aldrich, when the litigation was ended and the money in hand, was not so eager to fulfil as he had been to give promises. Differences and disagreements with creditors took place, and in order that the money might be paid over to the trustee by the Wrigley Company, it was suggested that the parties should submit their claims to arbitration, and such an agreement was drawn up. Its terms also will later require full consideration.

After considerable delay Brown signed the arbitration agreement on January 8, 1929. The arbitration proceedings before Judge Wilkerson opened on February 4. Before the award was made by Judge Wilkerson, namely, on April 13, 1929, Charles H. Aldrich died testate. His will was thereafter admitted to probate. The Chicago Title & Trust Company was appointed as executor and letters issued to that company, and it duly qualified. There were no proceedings before the arbitrator after the death of Aldrich except that on May 11, 1929, Judge Wilkerson made an award. The award found that Brown was entitled to receive on his claim the sum of $26,197.58, representing the sum of $20,000 ldaned by Brown to Aldrich and interest at 5 per cent per annum on the amount from the date of the award. The award directed that said sum should be paid to Brown by the trustee from the fund of $89,142.24, represented by the check of the Wrigley Company to the trustee.

Thereafter Brown and Hardy filed their petition in this suit (B167647 circuit court) reciting the transactions as hereinabove set forth, and stating that Brown signed the arbitration agreement upon the full belief that his title by the conveyance to him of a one-tenth interest was not to be affected. The petition averred that the arbitration agreement provided the award should be delivered to the parties and permitted partial awards from time to time; that Aldrich died before any award had been made as to Brown and Hardy. The petition set up the substance of the award and stated that the matter was then pending before the court upon a notice given by the solicitors of the Chicago Title & Trust Company; that the solicitors would ask to have the award approved and an order of distribution made in accordance therewith.

The petition averred that the award was made after the death of Aldrich and that the arbitration agreement in so far as it was not executed or accepted, was thereby revoked; that no lawful award could thereafter be made by the arbitrator and that in any event the award was not to become final until approved by the court; that the right to withdraw from the arbitration on the part of Brown existed until the award became final; that Hardy never agreed to or signed the arbitration agreement; that Brown thereby gave notice of his withdrawal and revoked the power and authority given but requested the court to instruct the trustee to disburse the applicable funds in its hands to the petitioners.

Petitioners prayed that they might be permitted to become parties to the action, without prejudice to their right to object to the trustee’s appointment as without jurisdiction as to them; that the appointment of the Chicago Title & Trust Company as trustee should be revoked, and that the sum of $60,333.33 and the further sum of $20,000 should be paid to Brown.

The Chicago Title & Trust Company answered, denying that its appointment as trustee was invalid as to the petitioners; asserted that Hardy had no possible interest in the trust and that the payment of $20,000 to Aldrich by Hardy was actually a loan and the agreement of Aldrich to repay any more than the principal and simple interest of five per cent thereon was usurious, null and void; denied that as executor and trustee it was obligáted to pay to Brown more than $20,000 with interest; denied that there could be no matter to arbitrate as to Brown’s one-tenth interest; averred-that the contract with Hardy, whereby Aldrich agreed to convey to him the one-tenth interest, was contested on the ground of usury and was null and void; further averred that the amount of $89,142.24 claimed by Hardy or by Brown was incorrect and was not ascertainable until the exact amount due to Aldrich from the Larson Company was determined.

The answer denied that the arbitration agreement was signed by Brown in the belief that his title to his one-tenth interest was not affected or included; averred that Brown was fully and .formally advised before he signed the arbitration agreement that the defense of usury would be raised, and that he signed the same knowing that that question would be submitted to the arbitrator;. that before the commencement of the arbitration the defense of usury was formally raised in a brief submitted to the arbitrator, a copy of which was served upon Brown’s counsel; that Brown made no attempt to withdraw from the arbitration, but that on the contrary his solicitors argued the matter at length and submitted to the arbitrator briefs in which the question of usury was discussed; that at no time did Brown or his solicitors object to the arbitrator considering the question of usury, or any other question connected with Brown’s claim; that on the contrary the whole dispute as to his right to receive $80,333.33 claimed by him was fully and frankly submitted to the arbitrator without reservation.

The answer denied that the trustee and executor had taken a position hostile to the interests of the petitioners; stated that it had repeatedly endeavored to effect an amicable adjustment of the dispute between Brown and Aldrich; that there were minors and unborn contingent remaindermen who had interests in the trust; that on their behalf and because of the request. of Charles A. Aldrich, and the other principal beneficiaries, of the trust that it do so, it deemed it to be its duty to submit to the arbitrator and to the court all the facts in connection with the defenses to the claim of Brown and Hardy and to take its judgment thereon; that should the court believe that its appointment as such executor in any way was inconsistent with or a drawback to its acting* as such trustee, it offered on request of the court to resign as executor and trustee.

The answer admitted that the award was made after the death of Aldrich; denied that that fact in any way invalidated the arbitration or that the arbitration agreement was thereby revoked; denied that the award as to Brown was not to become final until approved by the court, but averred that by its express terms it was final and binding; denied that Brown had any right to withdraw from the arbitration; averred that whereas the award was entered on May 11, 1929, Brown took no steps to attack or disaffirm it until the solicitors for the Chicago Title & Trust Company filed on June 3, 1929, a petition asking to have the award approved. It asked that the prayer of the petition of Brown and Hardy might be denied and dismissed for want of equity.

The cause came on for hearing upon the petition of Brown thereto, the matter was heard by the chancellor in open court and a decree was entered as heretofore stated.

II. It is first contended by the Chicago Title & Trust Company that the award of Judge Wilkerson of May 10, 1929, was binding* ilpon Brown and that it should not have been, set aside by the court. The decree adjudged that the award was not binding and that it should be set aside. It is the theory of Brown that the death of Aldrich revoked the submission in the absence of any stipulation that it should survive that event, and such seems to be the general rule as stated in 5 Corpus Juris, sec. 112, pp. 58 and 59:

“As the submission to arbitration confers no more than a naked power, the death before award of a party to a common law submission has the effect of a revocation of the submission, by operation of law, in the absence of a stipulation that the submission shall survive. However, if the submission expressly provides against a revocation by the death of either of the parties, such a provision is valid and will prevent the death of one of the parties from operating as a revocation. But in order to have this effect, the agreement must be explicit.”

It is contended, however, in behalf of the trustee that the provision of the agreement to the effect that the award shall be delivered to the parties and that the agreement shall inure to and be binding on the heirs, executors, administrators or successors of the parties thereto, has the effect of such explicit stipulation. The trustee also contends that the death of only one of several parties on the same side of the arbitration does not revoke, citing 5 Corpus Juris, sec. 113, p. 59, which states the rule to be:

“Where there are several parties to the submission on one side, it has been said to be extremely questionable whether the death of one- of such parties revokes the submission; but it has been held that after the death of one of such parties an award cannot be made in favor of the survivor and the representatives of the deceased party. The surviving parties may continue the arbitration by consent so as to render an award binding between them.” The authorities cited in this connection are the Matter of Hare and Milne, 6 Bingham’s New Cases, 158, and Freeborn v. Denman, 8 N. J. L. 116.

In the Matter of Hare and Milne it appeared that A & B, partners, referred matters in dispute between the partnership and C to, arbitration, and the submission provided that if either of the parties died, the award should be delivered to the personal representatives. B died, and C notwithstanding continued the arbitration bnt afterwards raised the objection that B’s executor was not made a party. The court said: “As a general proposition of law, it is extremely questionable whether the death of one of the parties on one side avoids an award,” and overruled C’s contention, but apparently put its decision on the ground that the award was in favor of the surviving partner, who would, of course, succeed to all of the rights of the partnership.

In Freeborn v. Denman, D & J declared against F, and the cause was referred to arbitration. J died before the report was made, and F objected that the death of J had not been suggested. A statute of Mew Jersey provided that where there were two or more plaintiffs or defendants and one or more of them should die, if the cause of action survived, the action should not thereby abate, and the court said:

“Inasmuch therefore as one of the several plaintiffs or defendants cannot without the others revoke a submission; inasmuch as one party without the consent of the other cannot rescind a rule of reference; inasmuch as the reference, report and judgment are with us the regular continuance of an action; and inasmuch as the death of one of several plaintiffs or defendants, where the cause of action survives, operates no abatement, there was in the case before us, by the death of Jaques, no revocation of the authority of the referees.”

In the instant case Aldrich and the trustee did not have a joint interest. The matter was of an equitable nature, and the controversy, as a matter of fact, was between Aldrich on the one side and Brown on the other. The trust company was a mere stakeholder. The residue of the trust would go to Aldrich or to the estate of Aldrich. Whatever was taken, from Brown would be for the ¡financial benefit of Aldrich or his personal representative. The cases cited do not sustain the contention- of the trustee. The overwhelming

weight of authority is contrary thereto, as is Mooers v. Allen, 35 Me. 276, where a suit was submitted to arbitration, the parties in interest met and continued the hearing, after which the plaintiff died and a plea of defendant in abatement or bar was overruled. But the higher court held that the arbitrators were without authority to proceed. To the same effect are Power v. Power, 7 Watts 205; Farmer v. Frey, 4 McCord 160; Tyler v. Jones, 3 B. and C. 144; 10 Eng. Com. Law Rep. 74.

Nor does the fact that the agreement binds the heirs, executors, etc., take the case without the rule. It was expressly held to the contrary in Bailey v. Stuart, 3 Watts and S. 560, where the clause in the arbitration agreement was—

“For the true and faithful performance and of all and singular the agreements and stipulations above mentioned, each binds' himself to the other, his heirs, executors, and administrators, in the final sum of $1,000” etc.

The court there said:

“Death is clearly a revocation where there is not an express stipulation that the submission shall survive; as was held in Rhodes v. Haigh (3 Dow & Ry. 610) and many other cases. And such a stipulation must be explicit. In Blundell v. Brettargh, 17 Ves. 232, the parties had agreed for themselves, their heirs, executors, administrators or assigns, to pay the value of certain property when ascertained by the award of particular arbitrators, delivered to the parties by a day mentioned; and Lord Eldon held that as the delivery was to be to themselves, the true construction of the agreement was that they themselves would do such acts as such be prescribed by an award thus delivered, or that if they happened not to live long enough after the delivery to do them in person, then that, their representatives would do. them in their stead; not that the binding of their representatives made them parties to the submission. It will be perceived, therefore, that such binding does not extend the duration of the submission beyond the joint life of the parties where the award is to be delivered to themselves; but the law undoubtedly allows it to be further extended by an agreement for the delivery to the parties or their representatives, as in Tyler v. Jones, 3 B. & C. 144, S. C. 4 Dow & Ry. 740. But in the agreement before us there is not a word about delivery to representatives ; nor is it even provided that they should do an act of performance.”

The trustee cites Clarice v. Crofts, 13 Eng. Com. Law Rep. 439, where it was held that under the facts the authority of the arbitrator was not determined by the death of one of the parties before the award was executed. In that case a verdict by consent had been entered for the plaintiff, subject to the award of an arbitrator appointed under a rule of nisi prius, with power to settle all matters of difference between the parties and to give directions to either party respecting the matters in difference, and the parties expressly agreed to obey the award, so as the arbitrators should publish it in writing, ready to be delivered to the parties, or either of them, “or if either of them should be dead before the making of the award, then to their respective personal representatives who should require the same on or before the fourth day of Michaelmas term then next, or any other day to which the time should be enlarged. ’ ’ The plaintiff died before the arbitrator published his award, and plaintiff’s executrix asked the arbitrator to proceed but defendant objected. It was contended for defendant that by the death of the plaintiff the arbitrator’s authority was determined, and that at all events he could not after the death enlarge the time for making his award; that no man could so bind himself as to lose the power of re-voicing; citing Vynior’s case, 8 Eep. 162; that death had always been held a revocation in law of an arbitrator’s authority, as marriage was of the authority of a femme sole; that circumstances of a party’s being engaged by bond or rule of court not to revoke, did not alter the case and that he might still revoke, though subject to an attachment or an action of covenant; that the plaintiff being dead, the parties were no longer on an equal footing; that there was no mutuality between them, and that for that reason the defendant must be esteemed as released. But it was pointed out in behalf of the executrix that while the arbitrator’s authority was no doubt revoked by death, the defendant had bound himself by rule of court, and that he could not refuse to perform that which he had consented to perform by the rule of court; that such was the g-eneral understanding of the courts was apparent from the clause universally introduced in the rule of nisi prius that in case of the death of either of the parties the award should be delivered to the personal representative.

The court by Chief Justice Best stated that while the general rule of law no doubt was that the death of one of the parties before the award, was a revocation of the arbitrator’s authority; that general rule might be guarded against by contract, and that the real question in the case was whether the defendant had done so. After reviewing the authorities the court said that the direction for the delivery of the award to the representatives of either of the parties would be nugatory, if the death of the parties were to suspend the operation of the rule; that there was under the facts an implied undertaking by the parties to bind their personal representatives to accept the award, and that there was no law to prevent it; that therefore the parties were bound. Judge Park said that the clause for the delivery of the award to the ex-editors of either party was introduced into nisi prius orders “to obviate the inconvenience that would otherwise" arise upon the occurrence of a death. ’ ’ Burroughs said that there might have been more color for this objection if a verdict had not been taken in favor of the plaintiff. Judge Graselee said that it was clearly laid down by the cases “that the death of either of the parties does not determine the arbitrator’s authority under a rule which authorizes him to deliver his award to the executors of either party, if either shall die before the award is made.”

There is in the instant ease, of course, no such rule, nor does the arbitration agreement contain a provision that the award may be delivered to the personal representatives of the parties, nor is there any reference to the contingency of the death of either of- the parties. As attorneys for Brown point out, such a clause is usual in most of the arbitration forms, and the fact that this agreement seems to have been prepared by Aldrich and his counsel would justify the inference that the omission of any provision with reference to the death of either of the parties was intentional. The reason the death revokes an arbitration agreement is that the agreement confers a naked power without an interest, and such a power is always revoked by the death of one of the parties.

The trustee, however, invokes the principle of estoppel. It says that Brown took the benefit of the arbitration and should not now be permitted to repudiate it; that the Larson Company claimed that under its contracts with Aldrich it had the right to deduct one-third of the expenses of the litigation with the Wrigley Company from the share which Aldrich was to receive; that this amounted to the sum of $23,467.73, and that if Larson’s'contention prevailed Brown’s 10 per cent interest would have been reduced by $2,346.77; that the arbitrator decided this dispute in favor of Aldrich to the benefit of Brown in this amount. A letter from Brown to Aldrich seems to refer to a contention of this character, but apparently Brown at that time overlooked the fact that his assignment from Aldrich provided that $30,000, and no more, should be deducted for that purpose. It would appear, therefore, that there is no basis for an estoppel as against Brown on that ground.

Again, it is urged that Brown waived his rights by delay in his attempt to revoke. Aldrich died April 13, 1929, and Brown had notice thereof within a week thereafter. The award was handed down May 10. On June 14 thereafter, Brown filed his petition with the circuit court, praying that the award might be set aside. The trustee says that Brown was waiting to see what the award would be, and it is urged that he should not be permitted to experiment with the arbitration proceeding. The trustee cites Seaton v. Kendall, 61 Ill. App. 289, where a party who tried to avoid the award on the ground of misconduct of the arbitrator was held to have waived the objection by participating in the final hearing and finding without protest. The case is not applicable to the facts here. Browm, so far as the evidence discloses, did not take any part in the arbitration proceeding before Judge Wilkerson after the death of Aldrich. Browm was under no particular duty requiring any affirmative action on his part, if the death of Aldrich revoked the submission, as we hold.

Brown, however, further contends that under the arbitration agreement the award was to be in no event valid until confirmed by the court, and since the court did not approve Brown is not bound by the award. The decision of that question depends upon the intention of the parties to the agreement as expressed in it. On that point the agreement was, “The parties hereto agree each with the other to stand to, abide by, perform, fulfill and keep the said award or awards as to the said several controversies and disputes so to be made and published as aforesaid, and to accept the decision and determination of said arbitrator as to each of said controversies and disputes without recourse to any further proceeding at law or in equity.

In the following paragraph the trustee agrees that it will “immediately by petition or by other proper proceeding, submit such award or awards of said arbitrator to the circuit court of Cook county in said cause entitled, ‘Aldrich vs. Aldrich et al.,’ number B-167647, in equity, praying and asking the court to approve such award or awards,” and after further providing that on the failure of the trustee so to do any other party interested might so petition the court, the paragraph concludes: “And any such award or awards, including payments and disbursements to be made thereunder, before they shall be binding upon the trustee, shall be so approved by said court.”

We think this last provision must be construed as for the benefit only of the trustee, otherwise it would be inconsistent with the preceding paragraph which makes the award final and binding upon all the parties upon the rendition of the same. It is perfectly apparent why the trustee would insist upon this provision in its favor. Infants were beneficiaries of the trust which was imposed upon it, and it could not abdicate its position as trustee in favor of an arbitrator, but there is no reason why the beneficiaries who were not under disability could not submit their own rights to arbitration without any such limitation. The language of the arbitration agreement indicates that it was the intention of Brown to be bound and to abide thereby without further resort to law or equity. Manifestly, the trustee under the circumstances could not so agree, and the last clause therefore created an exception in its favor. Brown entered into the agreement with knowledge of the trustee’s incapacity in this respect, and he was therefore bound. He was in the same situation as if he had agreed to arbitrate directly with an infant, in which case, according to the better authority, having knowledge of that fact prior to making the agreement, he would be bound. Dowse v. Coxe, 11 Eng. Com. Law Rep. 20. In this connection, attorneys for Brown present a vivid picture of the Ancient Mariner approaching Scylla and Charybdis, and state that if Brown was bound and the trustee was not bound, then the arbitration agreement was void for want of mutuality. We are cited to a number of authorities which it is claimed sustain this contention. We are not able with the judicial eye to discern either the rock or the whirlpool which the pilot describes. The cases cited do not sustain the contention. One of these is Ingraham v. Whitmore, 75 Ill. 24, which concerned a parole agreement for submission, and the opinion of the court states the elementary rule that the promises in an agreement of that kind must be concurrent and mutual. As a matter of fact, the case was decided against the award, on the ground that a broker had no power to submit for his principals and there was also misconduct on the part of the arbitrator. Another is Keep v. Goodrich, 12 Johns. 397, where an arbitration was held invalid because the facts showed that at no one point of time did both parties bind themselves by an agreement with each other. Yet another case is Yeamans v. Yeamans, 99 Mass. 585, where the defendant undertook under the submission to do a thing which he was not legally competent to perform, and it was held that as he was not bound neither was the other party and the award was held void. We are also referred to Biddell v. Dowse, 6 B. and C. 255, where the attorneys for the parties made a submission, some of the plaintiffs being infants, others married women who joined with their husbands, and others sui juris. Defendants were all adults. The court said that the infants could not have an attorney either in or out of the suit, and it was questioned whether the next friend of the infant could be bound themselves by the attorneys. There was no showing that the next friend assumed the obligation . to perform, and the court said that the agreement was therefore not mutual and was void, following Lord Nottingham in 1 Cha. Ca. 279.

Another case is Marsh v. Wood, 9 B. and C. 659, where it appeared that after an agreement to arbitrate, one of the parties, Rowe by name, became bankrupt and assigned first to the provisional assignee and then to the plaintiffs. Plaintiffs revoked their submission. Judge Tenterden said that it was not necessary to decide that bankruptcy in general revoked a submission to arbitration because all the bankrupt’s interest had passed to the assignees, who would not have been bound by the submission, and that therefore defendants ought not to be bound.

Without undertaking to discuss these opinions further in detail (all of which are distinguishable) we hold the modern and better view well stated in 5 Corp. Jur., sec. 356, p. 148:

“In an early English case, where the award affected a person under disability, the award was held invalid for want of mutuality because such party could not be bound thereby, and this principle has been applied in a later case. But where the opposite party enters into such a submission knowingly, the courts at the present time are disposed to uphold the award. So also where a submission to arbitration is made by an unauthorized agent, the award, not being binding upon the alleged principal, has been said to be invalid for want of mutuality, and unenforceable by the principal.”

It is not necessary to the mutuality of a contract (where the consideration is a promise given for a promise) that the promises must be exactly of the same kind and nature. Here the promise of Brown was to abide by the award absolutely. The promise of the trustee was that it would submit the award to the court and if the court approved, that it would abide by it. The promises were mutual and binding upon all the parties.

In behalf of Brown a large number of cases are cited to the proposition that a common law agreement to arbitrate is revocable until the aiward becomes final. Paulsen v. Manske, 126 Ill. 72; Gregory v. Pike, 94 Me. 27, 46 Atl. 793; Farmer v. Frey, 4 McCord, 160; Boyd v. Bargagliotti, 12 Cal. App. 228, 107 Pac. 150; and Mason v. Bullock (Ala.), 60 So. 432, are the cases cited. These cases so hold but have no application here, because Brown did not, prior to the delivery of the award, attempt to revoke. However, for the reasons already stated we are of the opinion that the death of Aldrich revoked the arbitration agreement; that Brown did not waive his rights to insist on such revocation; that he is not estopped in any way to take the benefit of the revocation, and that the circuit court of Cook county was not bound in considering his petition to regard the award as valid and conclusive.

III. It therefore remains to consider whether the agreement between Hardy and Aldrich was or was not usurious. Brown insists that it was not, and the trustee affirms that it was. Both parties cite and rely on Clemens v. Crane, 234 Ill. 215, in which the court said:

“Usury is defined to be an illegal profit required and received by a lender of a sum of money from the borrower. (Blackstone, 156; Bouvier’s Law Dict.) To constitute usury, in contemplation of law, the following essential elements must be present: (1) There must be a loan or forbearance; (2) the loan must be of money or something circulating as money; (3) it •must be re-payable absolutely and at all events; (4) something must be exacted for the use of the money in excess of and in addition to the interest allowed by law.”

The court further states that some decisions appear to imply that a fifth element should be added, namely, that of the intention of the parties or at least of the lender; but that in the opinion of the court it was quite as accurate to say that the intention of the parties, as the same appears from the facts and circumstances of the case, might be considered in connection with other evidence in determining whether the essential elements of usury were present.

The parties seem to agree also that if an agreement can reasonably be construed as non-usurious, it should be so construed. Mosier v. Norton, 83 Ill. 519; Mumford v. Tolman, 157 Ill. 258, together with the Clemens case already considered, are cited. It is elementary that usury is an affirmative defense which must be pleaded and proved by the party relying on it, but the law is diligent to discern any artifice, devise or scheme to cover up usury, and verbal evidence is always admissible as against the writing of the parties to establish such fact.

The parties here appeal to the language of the contract, and it seems desirable to set it up verbatim:

“This Agreement between Charles H. Aldrich, party of the first part, and William Hardy, party of the second part, Witnesseth :

“The first party has two certain contracts with the L. P. Larson Jr. Company covering his services for the prosecution of certain litigation between that company and the Wm. Wrigley Jr. Company, the first of which bears date of March 18th, 1914, and the second July 12th, 1915, true copies of which are attached hereto and made a part hereof, and has sought financial aid from the second party hereto to enable him to devote a large amount of time to such litigation now pending in the United States District Court for the Northern District of Illinois, Eastern Division, and on reference before Charles B. Morrison, Master in Chancery, to ascertain the profits arising or accruing to the Wm. Wrigley Jr. Company from July 28th, 1914, to November 12th, 1918, from the manufacture and sale of Doublemint Gum in its infringing dress under the terms of a decree entered in said cause on the 14th day of October, 1918; and also an action for damages brought against the Wm. Wrigley Jr. Company, filed on the 29th day of March, 1917, in said District Court of the United States for the Northern District of Illinois, Eastern Division, and yet pending and undetermined; which financial assistance the second party has consented to furnish.

“In consideration of which undertaking on the part of the second party hereto, and the keeping of the covenants herein contained on his part to be kept and performed, the first party hereto sells and assigns to the second party hereto an undivided one-tenth interest in and to said contracts and all Ms rights thereunder, and covenants and agrees that the second party hereto shall realize thereon from the decree or any settlement of the matters in controversy between the L. P. Larson Jr. Company and the Wm. Wrigley Jr. Company not less than the sum of fifty thousand dollars ($50,000) and as much more as said ten per cent interest would entitle the second party to in the event of payment or a settlement for more than $1,590,000.00.

‘ ‘ The first party is indebted to the Larson Company in an amount not exceeding thirty thousand dollars ($30,000) with interest at the rate of six per cent per annum from the date of each advancement, this assignment of interest is made subject thereto.

“The one-tenth interest so assigned is in addition to the re-payment of the amount advanced by the second party hereunder, which is to be repaid by the first party when payment or settlement is made.

“In consideration of which assignment of interest the second party hereto covenants and agrees to pay to the first party hereto upon the signing of this agreement, the sum of $5,625 and the further sum of $625 on the first day of each and every, month until and including May 1st, 1924, unless the said litigation is conclnded or settled between the parties thereto prior to the last date named; it being mutually understood and agreed that the monthly payments herein provided shall cease when settlement is made, and that this contract shall be construed as authority and direction to the L. P. Larson Jr. Company to pay the amounts to be paid hereunder by the party of the first part, from and out of any payment by the Wrigley Company under any decree or settlement as and when made, and that this contract shall be deemed an assignment of the one-third interest of said party to the extent herein stated, subject to the indebtedness of said first party to the L., P. Larson Jr. Company and the duties and obligations of the said first party to said company to be kept and performed.

“This contract shall be obligatory upon the heirs, representatives and assigns of the respective parties hereto.

“In Witness Whereof we have executed this agreement this, first day of June, A. D. 1922.

Charles H. Aldrich William Hardy.”

An examination of the instrument discloses that nowhere in it is the word “loan” used. The act of providing the money is designated an “advancement, ’ ’ which, while it ordinarily has a different meaning, might, of course, mean the same thing as a loan. Schlesinger v. Burland, 85 N. Y. S. 350; Tyson v. School Directors, 51 Pa. 9; Laflin & Rand Powder Co. v. Burkhardt, 97 U. S. 110. The writing first recites the circumstances that have given rise to the transaction. These, in short, are the necessities of Mr. Aid-rich. These appear not alone from the writing but also from the testimony as to the preliminary oral conversations. The second part of the writing conveys to Hardy (in reality, Brown) an undivided one-tenth interest in the contracts between Aldrich and the Larson Company, and in this connection appears the covenant and promise by which Aldrich agrees that Hardy (that is, Brown) shall realize thereon not less than the sum of $50,000 and as much more as the 10 per cent interest would entitle the second party to in the event of payment or settlement for more than $1,590,000. All of these by the third clause are made subject to an indebtedness of Aldrich to the Larson Company for an amount not exceeding $30,000 with interest, at the rate of 6 per cent per annum. By the fourth clause it is provided that the one-tenth interest shall be in addition to the repayment of the amount advanced by Brown thereunder which included $5,625, presently paid, and that $625 shall be paid on the first day of each and every month until and including May 1, 1924, unless before that time the litigation is concluded or settled.

It is significant that the agreement does not provide for interest on the amount to be advanced, nor is the amount advanced referred to as an indebtedness. Both terms are used with reference to the obligation of Aldrich to the Larson Company which is therein described.

The first controversy between the parties in construing this contract concerns the question of whether the money to be repaid to Brown was an absolute obligation or only a contingent one. As to the amount of money which Brown or Hardy actually advanced to Aldrich, we think there can be no question. The writing says it is to be repaid by the first party, i. e. Aldrich, “when payment or settlement is made.” Payment by whom? Evidently, first by Wrigley to Larson and afterwards by Larson to Aldrich. Would Wrigley ever pay? Presumably not, unless he had to. Who could tell him that he had to ? Manifestly, the court or courts in which the litigation was or should be pending. Would the court so direct? Not until a decision in Larson’s favor should be rendered. Would the decision be in favor of Larson? Maybe so, maybe not. Pew things in. this world are more uncertain and dubious than the result of a law suit. The uncertainty could not be removed by anything that Aldrich could do. He could not purchase a decision. Again, the writing provides that Aldrich is obligated to repay Brown in case of á settlement. Aldrich could advise his client to make a settlement. He could not force a settlement unless and until both Larson and Wrigley would agree thereto. The repayment to Brown by Aldrich would therefore - depend upon contingencies over which Aldrich did not have control. Since the repayment depended upon such contingencies, there could be no absolute obligation so far as Aldrich was concerned.

But it is argued that the provision of the agreement that Brown, or Hardy, shall realize $50,0.00, created an absolute obligation- against Aldrich. If we look closely at that agreement, however, it appears that the agreement is limited by the clause, “from the decree or any settlement.” “Decree or settlement” is somewhat different from “payment or settlement.” What is the meaning of the word “decree” in this connection? On a liberal construction it would mean that the order or judgment by which the court would finally dispose of the issues of the case. Obviously, the sum of $50,000 or more would not become due unless and until the decree would be entered. When would that be done? Sometime, it may be presumed, but at what time? A most indefinite one. As a matter of fact, years intervened. There were any number of contingencies which might have indefinitely postponed the entry of that decree. We have already pointed out the indefinite and contingent nature of the obligation to pay upon settlement. That time was, of course, wholly contingent. The probabilities are that the parties to the agreement did not distinguish between the words “decree” and “settlement,” and that the kind of a decree in the minds of the parties was one that should be favorable and under which Larson should recover.

Of course, the trustee contends, as it must, that the covenant and agreement of Aldrich was that upon the entering of a decree Brown, or Hardy, should receive at least the sum of $50,000. It would require a quite liberal interpretation of that clause to so construe its meaning. If it was the intention to assume a personal obligation, it would seem strange indeed that the parties to the agreement, both of whom were lawyers, would not have seen to it that unambiguous language was used. Manifestly, the clause is capable of two constructions. It may be held reasonably to mean that Aldrich covenanted and agreed that Brown, or Hardy, in case of a settlement for an amount of less than $1,590,000 should notwithstanding receive at least $50,000 of the amount actually recovered. It might have been intended (but this seems v'ery improbable) to express the personal obligation of Aldrich to see to it that at all events and absolutely that Brown, or Hardy, at the end of this legal excursion should have at least $50,000. It is hardly possible that such was the actual intention of the parties under all the circumstances. In the first place, Aldrich himself was financially irresponsible. The very fact that he was peddling partial assignments of a contemplated fee, which apparently no one expected would be earned or obtained for many years, if ever, would indicate that. Why take the personal obligation of Aldrich that he would pay in case he lost the litigation, which he was conducting on a contingent fee and which if he lost would leave him penniless1? In the next place, the Larson Company became a party to the agreement at the time it was made, and by a writing upon the contract its construction thereof, as well as that of the original parties thereto, appears, as follows:

“The L. P. Larson Jr. Company has received a copy of the above and foregoing contract between Charles H. Aldrich, as party of the first part, and William Hardy, as party of the second part, with attached exhibits, and will under the terms thereof pay to the party of the second part, from any funds accruing to Charles H. Aldrich, or to his estate, pursuant to the provisions of said contract and under the terms of the original contracts between said Charles - H. Aldrich and this company, as therein provided, the amount to which said second party is entitled.”

It therefore appears from, this contemporaneous construction of the contract that the parties were all agreed that it was to be satisfied out of moneys which should become due to Larson from Wrigley and therefore due from Larson to Aldrich or to his estate. By the same agreement the Larson Company made pro- . vision that in the event of the death or disability of Aldrich before the completion of the litigation, some suitable attorney should be selected acceptable to the Larson Company, who would carry the case through" to completion, the reasonable expense of which should be charged against the estate of Aldrich, another contingency which, it would seem, made the obligation to Brown, or Hardy, yet more contingent. There is also the further significant fact that during all the years after Brown, or Hardy, advanced the money and while the litigation was pending and up to the time of settlement, none of the parties treated any of these obligations as if they represented loans that should be repaid at all events. There was no demand for interest, although after the dispute arose between Aldrich and his old friend Brown, it seems that Brown, either intentionally as the attorneys for the trustee argue, or by mistake, induced thereto through the art of Aldrich (as Brown’s counsel plausibly contends) made a demand for interest on the $20,000 which was actually advanced. The contract, however, does not provide for it, and clearly under its terms Brown is not entitled to it, although the arbitrator, proceeding upon the theory that the contract was usurious, allowed interest thereon, which he might properly do upon equitable principles. The general rule of law undoubtedly is that an assignment of a chose in action, accompanied with a collateral warranty of its value, is not usurious, for ordinarily there can be no usury in the conveyance of the obligation of a third party (3 Williston on Contracts, sec. 1689), and a lender who takes the chance (other, of course, than through death or insolvency) of losing his principal is not held to be guilty of usury in case he charges more than the rate of interest which the statute allows. Thus in Stevenson v. Unkefer, 14 Ill. 103, a note, payable in Baltimore bank notes, with interest at 12% per cent per annum, was held not usurious, the lender being paid simply for the risk he took of losing the debt, and a contract may - create a contingent obligation without using the actual words ordinarily used to express that fact, such as “proviso” and “ita quod,” “sub conditione,” “si,” “contingat.” Indeed the word “when” here used has been held by high authority to import a condition. 2 Williston on Contracts, 671.

The trustee, however, cites a line of cases holding that where the time for payment or performance is not actually fixed by the words of the contract, the law will imply the performance of the condition within a reasonable time, such as, Nunez v. Dautel, 19 Wall. 560, where one of the parties contracted to pay “as soon as the crop can be sold or the money raised from other sources,” and other cases where it was provided for “payments when convenient,” as in Noyes v. Barnard, 63 Fed. .782, 788; Hood v. Hampton Plains Exploration Co., 106 Fed. 408, 411; Nease v. Coal & Coke Ry. Co., 195 Fed. 987; Pritchard v. McLeod, 205 Fed. 24, 27. In Sears v. Wright, 24 Me. 278, the payment was conditioned to be made “from the avails of logs bought of M. when sale is made.” In all these cases the court held the true meaning to be that payment should be made within a reasonable time. We do not, however, regard these cases as applicable here. They are all distinguishable in the fact that the contingency which it was held must be performed within a reasonable time, was within the power of the particular defendant to perform. That is not the case here. Aldrich had no power to make Wrigley settle with Larson, and the entry of a decree was not within the control of Aldrich. As the contingency was one not within the control of Aldrich, the law would not imply any obligation on his part to bring it about within a reasonable time. There is a wealth of authority to the effect that money advanced with an agreement to return it upon an uncertain contingency cannot be a usurious transaction. In Josevig-Kennecott Copper Co. v. Howarth Co., 261 Fed. 567, one party agreed to advance $10,000 to be used in the exploitation of a copper mine, he to receive 25 per cent per share of stock sold to be set aside for the repayment of such advances. The party advancing was to receive 2,600 shares of promotion stock, it being also provided that if the sale campaign was unsuccessful, there would be no obligation to repay the advancement, and it was held that the rule against usury was not applicable to a transaction in which the lender risked loss of capital in whole or in part.

In Goodrich v. Rogers, 101 Ill. 523, a party advanced capital to another to carry on business in the name of the party advancing the money. The party to whom it was advanced was to receive $50 a month and each of the parties to the agreement was to receive one-half of the net profits, subject to losses. It was held that this transaction was not usurious. In Orvis v. Curtiss, 157 N. Y. 657, the parties, who were stockbrokers, entered into a joint agreement for the purpose of purchasing and carrying certain capital stock • of the American Cotton Oil Trust. The agreement provided that a joint account should be opened; that plaintiff and defendant should be equally interested; that the account might purchase or sell upon their joint order to a limited amount, the defendant to furnish to the firm such sums of money as might represent the difference between the price paid for the stock and 45 per cent of the par value. The plaintiff guaranteed that the account should be carried for the period of six months from date and agreed to furnish $4,500 for each 100 shares (the account to be closed and settled in full before July 3,1887), and to set aside the necessary money to pay for the stock whenever called upon for that purpose, plaintiff to receive interest at 6 per cent from the date of the agreement and broker’s commissions on each transaction. The net profits were to be equally divided. Defendant, however, guaranteed that the share of the profits of the plaintiff should not be less than $5,000, and that when the account was closed he would pay over and make good to the plaintiff any deficiency, so that the plaintiff should within six months from the date of the agreement receive either from the account or from the defendant as guarantor not less than $5,000. The court said that usury must he founded upon a loan or forbearance of money; that there must exist in fact or in law a corrupt purpose or intent to secure an illegal rate of interest for such loan or forbearance; that it must appear that the real purpose of the transaction was on the one side to loan money at usurious interest, and on the other to borrow upon usurious terms. The court further said that defendant’s purpose was not to borrow money but to deal in stocks; that there was nothing in the case to warrant the assertion that the plaintiff intended by entering into the transaction to lend money to the defendant in the sense in which such transactions were commonly understood; that it may have been a hard or unconscionable bargain, but whatever else might be said about it, the usury statute had no application to it whatever. To the same effect are Ordway v. Price, 156 Minn. 160, 194 N. W. 321, and Curtis v. LeMoyne, 248 Ill. App. 99. Following these authorities, we hold that the transaction here was not tainted by usury.

Moreover, Brown contends that since the evidence shows that Aldrich drew the contract the defense of usury may not now be alleged by him, or those in privity with him. He says that Aldrich knew the law as to usury and urges that the ancient maxim of the Boman Law, Nemo allegans suam turpitudinem est audiendus, is applicable. Davis v. Brown, 94 U. S. 432, is cited. The maxim, as that case shows, does not .state a rule of evidence but rather concerns supposed rights based on illegal or criminal considerations. Obviously, it has no application to the facts of this case.

It is true, as Brown contends, that a contract usurious upon its face can be shown by other evidence not to be usurious. Evidence as to that was received, ■ and its admission approved in Clemens v. Crane, 234 Ill. 215; Orvis v. Curtiss, 157 N. Y. 657; Embola v. Tuppela, 127 Wash. 285, 220 Pac. 789; Ordway v. Price, 156 Minn. 160,194 N. W. 321. There is no doubt that the rule with reference to contracts in general is that such evidence is not admissible unless there is an ambiguity in the contract, as was held in Rosenbaum, Bros. v. Devine, 271 Ill. 354, on which the trustee relies; that evidence of a party stating his" own understanding as to the effect of a document (Phares v. Barber, 61 Ill. 271), testimony of a party as to a secret and unexpressed intention with reference to letters which he has written (Brant v. Gallup, 111 Ill. 487), testimony of a party as to what he meant by expressions he used in his letter (Flower v. Brumbach, 131 Ill. 646), are inadmissible, but evidence as to the position of the contracting party which tends to throw light upon the intention and evidence of a construetion of a contract adopted by the parties, where its terms are uncertain or doubtful, are admissible, as in Gillett v. Teel, 272 Ill. 106, which is' cited by the trustee.

All the circumstances in this record tend to disprove the alleged usury. No one can read the record without coming to the conclusion that everyone connected with the matter understood that Brown was risking every dollar he advanced to Aldrich and that his only hope of getting any part of it back was based alone upon the contingencies, first, that Larson should win the law suit, and, second, that the decree entered would be for an amount large enough to cover prior encumbrances as well as Brown’s claim. The fifth finding of the decree is:

“That at the time of entering into said agreement neither of the parties thereto, said Brown or Hardy, nor said Aldrich intended or purposed that said agreement should be usurious, nor intended it to be a cover for usury, nor was said agreement in any respect usurious; that at the time of the making of said agreement said Brown and Aldrich had been and were close friends and that at the time of the making of said agreement said Brown and said Hardy knew that said Aldrich was financially irresponsible, and all the parties thereto expected and intended that the sole chance for reimbursement of said Brown for his advances contracted for was the realization of said contingent fee.”

Nowhere in the briefs is this finding of the decree challenged as being contrary to the manifest weight of the evidence, and clearly without such a finding on the part of this court we are bound by it.

Again, Brown makes a much more weighty contention, namely, that the trustee may not plead usury by reason of the -terms of the trust which it has accepted; that usury was also precluded by reason of the acceptance whereby the Larson Company was substituted for Aldrich as Brown’s paymaster and also by the very terms of the deed of trust.

We have already pointed out the terms of Larson’s acceptance of the assignment by Aldrich and set it forth verbatim. Brown’s contention is that by this acceptance Larson became the obligor, having assumed and taken the place of Aldrich, and cites as applicable Gray v. Bever, 122 Ill. App. 1, where Owens owed Gray, Sr. Gray, Sr., gave to his son, Gray, Jr., an order on Owens for the sum due. Gray, Jr., took the order and Owens promised Gray, Jr., to pay it. Bever tried to reach the debt in the hands of Gray, Sr., by garnishment. This court held that Gray, Jr., was the equitable owner; that there was a contract by novation. , It was objected that the obligation was an entirety, hut" the court said that while Owens might have raised that question he had not raised it and that Bever • could not. To the • same effect are Carlyle v. Carlyle Water Works, 140 Ill.445; Townsend v. Gregory, 132 Ill. App. 192.

' In Union Nat. Bank v. International Bank, 123 Ill. 510, it was held that the defense of usury was personal and could not be raised by any other than the debtor or one in privity with him. To the same effect are Mason v. Pierce, 142 Ill. 331, and Pegram v. Miser, 176 Ill. App. 352. In Tyler v. Massachusetts Mut. Life Ins. Co., 108 Ill. 58, it was held that a debtor who permitted mortgaged property to be sold for a usurious debt was estopped afterwards to question the debt. In Essley v. Sloan, 116 Ill. 391, it was held that the question of usury between the original mortgagor and mortgagee could not be raised by the purchaser of the equity of redemption.

It would therefore appear that through the acceptance of the assignment by Larson a novation was constituted which precludes and estops the parties here who seek to raise the question of usury. The cases to which we have just called attention are cited in the brief of Brown, and. a careful perusal of the reply brief of the trustee fails to disclose any discussion of them.

Of the .same nature is the. claim which is equitable rather than legal in its nature, that the trustee is precluded from raising the-question of usury by the terms of the trust under which it acts. The instrument by which this trust was created is in writing and signed by Aldrich. It recites the contracts with Larson, the transactions with Hardy, with Reed, with Sharpe, states that the grantor’s desire is to make provision for his three children, appoints Porter as trustee and. Illinois Merchants Trust Company as successor, with power to negotiate any settlement or arrangement with the Larson or Wrigley Company, and assigns the contracts with Larson to Porter as trustee and Illinois Trust Company successor in trust “for the following uses and purposes, to. wit.” One of these purposes is stated to be “to pay the debts now'against said contracts above recited.’’1 Brown .-says that Aldrich by the execution of this -trust deed,recognized the obligation now claimed to be usurious and thereby put the whole matter out of his power forever. He cites a case, namely, Chapin v. Thompson, 89 N. Y. 270, of which a careful examination has compelled the opinion that it is conclusively in favor of his contention.

In that case Thompson executed a bond and mortgage and thereafter made a joint assignment for the benefit of creditors of all his property “in trust, etc., to pay and discharge all the debts,” etc. In the schedule of his creditors was inserted the name of the holder of the bond and mortgage. The trustee accepted the trust, the mortgagee brought foreclosure proceedings, and Thompson attempted to interpose the defense of usury. In disposing of that defense the court said:

“The right of the debtor to resist an action upon his obligation is not denied. But the result of establishing a trust was to convert the creditor into a cestui que trust and give him rights against a trust fund, which as a simple contract creditor he did not possess, and which did not belong to that relation — rights not to be enforced against the debtor, but the trust property, and adhering to that property until the debt is satisfied, or the property applied upon it according to the terms of the trust; and so long as any debt named by the creditor of the trust remains unpaid, no part of the proceeds of that property can be applied, except to its payment, without a plain violation of the trust declared by the assignment. . . .

“The assignee does not take by contract or agreement with the debtor, but by appointment. As the parties cannot change the terms of the instrument, they cannot withdraw the property or the trusts from the jurisdiction of the court," nor absolve the assignee from its control. If he resigns the assignor cannot appoint a successor. The appointment must be by the court. The execution and delivery of ¿the ¡instrument excludes the grantor from any further dominion over it or its subject-matter.

“ Nor is it within the statute which avoids contracts or securities by reason of usury . . . for it is ‘a mere trust or appropriation of property made by the debtor, without the agency of the creditor, subsequent to and independent of the usurious contract as a means of satisfying the debt after it has been incurred.’ ”

To the same effect are Stanton v. Knight, 1 Simmons 482; Wilkinson v. Dodds, 1 Johns. Cas. 158; Murray v. Judson, 9 N. Y. 73. These cases, also cited in the brief of Brown, do not receive attention from the trustee in its reply brief. They seem conclusive. Our conclusion therefore is that even conceding the agreement to be usurious, the parties to this contention are estopped from so contending.

It is also urged that the agreement, if not usurious, is champertous. This contention cannot be sustained, in our opinion. The cases cited by the trustee (Newkirk v. Cone, 18 Ill. 449; Park Commissioners v. Coleman, 108 Ill. 591) are to the contrary; but if it is champertous, for the reasons set forth concerning the defense of usury, the parties are in no position to raise the question. Chapin v. Thompson, 89 N. Y. 270.

For the reasons indicated the decree of the trial court is affirmed.

Affirmed.-

O’Connor and McSitrely, JJ., concur.


source: Caselaw Access Project

license: Public Domain

text:
    Great Northern Life Insurance Company, Appellee, v. Federal Life Insurance Company, Appellant.
    Gen. No. 34,615.

      Heard in the first division of this court for the first district at the October term, 1930.
    Opinion filed March 2, 1931.
    Loucks, Eckert & Peterson, for appellant; Tom Deeming, of counsel.
    Helmer, Moulton, Whitman & Holton, for appellee ; Charles E. Holton, of counsel.
   Mr. Presiding Justice Matchett

delivered the opinion of the court.

This is an appeal by defendant from a judgment in the sum of $3,231.26 entered upon the finding of the court. The action was in assumpsit. Plaintiff bases its claim on two reinsurance policies Nos. 45642 and 54338. By policy No. 45642 defendant company on August 25, 1919, reinsured a risk in an amount formerly taken by plaintiff on the life of John Otto G. Goertz of Wassan, Wisconsin. By policy No. 54338, defendant on March 14, 1921, reinsured another risk on the life of Goertz for the sum of $2,000. Both of these reinsurance policies were issued under a reciprocal reinsurance agreement made between plaintiff and defendant July 6, 1911. This agreement was expressly made a part of each policy.

There is no dispute as to the facts which are stipulated. Reinsurance policy No. 45642 was originally for $3,000. On October 3, 1921, it was reduced as of the date of August 20, 1921, to $500. Goertz died April 9, 1924. Proofs of death were submitted under four different policies which were in part covered by these reinsurance policies, and plaintiff paid to the beneficiaries named in these policies total sum of $15,000.

The defense presented is that the policies upon which plaintiff sues had been terminated prior to the death of Goertz. This defense is based on an interpretation of the fifth and tenth clauses of the reciprocal reinsurance agreement of July 6, 1911. The fifth clause, after stating that the insuring company shall have the privilege of renewing the reinsurance at the end of five years and that in such case shall be bound to continue all the reinsurance then in force “either continuously or by reinstatement or substitution,” continues: “provided that in the event the Insuring Company increases its maximum limit on an individual or single life to be retained at its own risk in excess of all reinsurance, the Insuring Company may, by giving written notice to the Reinsuring Company, reduce policies of reinsurance issued hereunder by such amount in each case as will increase the amount of insurance to be carried at its own risk, as aforesaid, to its then current maximum, but if any policy of reinsurance is so reduced all policies of reinsurance issued hereunder and then in force must be similarly reduced; provided, further, that if any life is reinsured in two or more companies, the reinsurance issued hereunder shall in such case be reduced only in the proportion that the total reduction required bears to the total reinsurance on such life. All such reductions shall take effect upon the renewal dates of the respective reinsurance policies next after the date of such notice.”

The tenth clause provides:

‘If the amount of original insurance carried on any life by the Insuring Company is reduced the reinsurance on such life issued hereunder shall ipso facto be reduced in like amount; provided, however, that if such life is reinsured in two or more companies the reinsurance issued hereunder shall be reduced only in the proportion that the total reduction in the original insurance bears to the total reinsurance on such life. The Insuring Company shall be entitled to a refund of any unearned premium on reinsurance so reduced, such unearned premium to be calculated from the date of such reduction.”

At the time of the execution of the reciprocal reinsurance contract, the maximum risk which plaintiff might take upon a single life was fixed at the sum of $5,000. On April 12, 1921, the maximum risk was increased to the sum of $7,500. On March 19, 1923, it was again increased as of date of April 1, 1923, to $10,000, and plaintiff wrote defendant to that effect, as follows:

“Chicago, Ill. Mar. 19, 1923. • “Federal Life Insurance Company,

Federal Life Bldg.,

Chicago, Illinois.

‘1 Gentlemen:

“Our Executive Committee has decided to increase our maximum retention on one life from $7,500 to $10,000 as from April 1st, 1923.

“In accordance with the terms of our reinsurance agreement this increase in maximum retention will take effect on the anniversary date of the reinsurance commencing with and following April 1, 1923.

“If agreeable to you we will make this request at the time when payment of the renewal premium is tendered on the understanding of course that you are not on the risk for the amount by which your reinsurance policy is to be reduced from the due date of the premium.

Very truly yours,

J. P. P. Oliver,

Actuary and Ass’t Secretary.”

On March 21, 1923, the actuary for defendant wrote plaintiff as follows:

“We are in receipt of your letter of the 19th instant advising us that your company has increased-its maximum retention on one life from $7,500 to $10,000 and that this increase in retention will take effect on the anniversary date of the reinsurance commencing with and following April 1st, 1923, in accordance with the terms of the reinsurance agreement between our respective companies.

“It will be entirely agreeable to us to handle the matter as indicated in your letter and if you will forward policy of reinsurance to be reduced on account of this increase to us upon the next anniversary we will be glad to give the matter our prompt attention.”

It is the contention of defendant that the effect of this correspondence under the terms of the reciprocal reinsurance agreement was to effect an automatic termination of the policies as of the subsequent dates of their respective anniversaries. The first anniversary after the notice on policy No. 45642 was August 20, 1923, while that of policy No. 54338 was March 14, 1924. If the reduction in reinsurance was carried out upon these dates and if the amount of the policies carried by plaintiff remained the same, the effect would have been to wipe out these two reinsurance policies.

Without further notice to defendant plaintiff on April 27, 1923, issued another insurance policy to G-oertz in the sum of $5,000, and also without notice to or knowledge of defendant, reinsured this last risk on Goertz to the amount of $2,500 with the Lincoln National Life Insurance Company. As a result, plaintiff, upon the respective anniversaries of the reinsurance policies, was carrying the full maximum amount of insurance upon the life of Goertz. When the premium on No. 45642 fell due it was remitted to defendant in the usual course of business and was retained by it. The premium upon the $500 insurance policy amounted to $4.83 and was paid September 29, 1923. The payment was a matter of record in defendant’s office, and an examination of the record by the head of the actuary department would have disclosed the fact. All matters as to reinsurance were handled for defendant by its vice president, and it is conceded that he did not have the actual knowledge which an investigation would have disclosed.

The parties agree that it is of vital importance to an insurance company,to know how much insurance a risk-.carries; that it is the general custom in the application of reinsurance that the insuring companies require and furnish copies of report of medical examination and other information; that defendant had the right under the reinsurance agreement to reinsure the life of any policyholder of plaintiff, but there was no liability until the risk was accepted. It is further stipulated that proofs of death were satisfactory; that demand for payment was made by plaintiff and that defendant refused to pay.

Propositions of law were submitted by both parties. All the propositions requested by plaintiff were held, all requested by defendant were denied, and the court passed on the ultimate question in the case by holding at plaintiff’s request that both reinsurance policies issued by defendant to plaintiff on the life of Gloertz were in full force and effect at the time of the death of G-oertz April 9, 1924, and that defendant is liable thereon. Defendant contends that it is not liable on either policy. The controlling question with reference to both policies is, What was the effect of the notice of March 19, 1923, upon the policies'? Defendant contends, if we understand aright, that the effect of that notice was to automatically cancel both of the policies as of the subsequent dates of their anniversaries.

In support of this contention its appeal in the first instance is to the reciprocal reinsurance contract itself. This reciprocal reinsurance contract was made a part of each policy issued. Defendant argues that the contract is controlling and appeals to what it calls the “four corners” of the contract. Defendant says that the oral evidence is not admissible to vary this contract, except as it might be received to remove an ambiguity; that there is no ambiguity'and that the writing itself must be taken to express the intention of the parties. . If the intention of the parties can be ascertained by an examination of the writing, .we agree the law is as defendant contends. It must, however, be remembered that the only object of applying rules of construction to a written contract is that the intention of the parties as expressed by its language may be ascertained. In this particular case it must also be remembered in that connection that the burden of proof is upon defendant. It pleads a cancellation of the policy. The burden of proving that affirmative defense is therefore cast upon it. Any doubt, it would seem, must be resolved in favor of plaintiff. Moreover, an insurance contract is always construed liberally in favor of the insured. By the same reasoning it would appear that a reinsurance contract also should be liberally construed in favor of the reinsured. The law does not favor a forfeiture. It does not look with favor upon any construction which tends to render void and unenforceable a writing to which the parties have given their assent.

In the light of these rules and principles let us consider the contract we are here asked to construe. Defendant says that it is not ambiguous. We agree that the language is clear and distinct and apparently without any ambiguity; but when we come to apply the language of the contract to the actual facts which appear, the construction is not made without considerable difficulty, and the meaning is not quite so plain and distinct as defendant would have us think. In such cases the modern tendency is in the direction of considering facts and circumstances which will tend to make clear the meaning of the language used and thus also make it possible to ascertain the real intention of the parties.

The question turns first upon the construction to be given to the fifth clause of the reinsurance contract. The proviso therein is to the effect that the reinsured company (here plaintiff) in case it increases its maximum limit on an individual or single life to be retained at its own risk, may “by giving written notice” reduce “policies of reinsurance issued hereunder.” This clause would appear to be for the benefit of the company reinsured (in this case, plaintiff). The contract says plaintiff may give a written notice. No duty is created so far as the reinsured company is concerned. In other words, under the terms of the contract plaintiff might give the notice. It might not give the notice. The provision is wholly for plaintiff’s benefit.

The proviso is further to the effect, however, that if any policy of reinsurance is so reduced, then all the policies issued under the contract and then in force must also be similarly reduced. In other words, if the reinsured company decides, as it may, to give the written notice, it must cover all policies which the reinsuring company has written under the terms of the contract. There is a further provision (unimportant here, we think) to the effect that if any life is reinsured in two or more companies, the reinsurance shall be reduced only in the proportion that the total reduction required bears to the total reinsurance on such life.

Another clause provides:

“All such reductions shall take effect upon the renewal dates of the respective reinsurance policies next after the date of such notice.”

This provision seems to be clear and unambiguous. In the absence of modification, either by agreement or conduct, it means that the date upon which the reduction is to take place is definitely fixed as being upon the renewal dates of the respective reinsurance policies next after the date of the notice. This provision is positive and binding upon both parties, but either party with the consent of the other might, of course, waive the provision. Such are the terms of the reinsurance agreement — clear and unambiguous enough until we attempt to apply them to the particular facts.

On March 19,1923, plaintiff wrote defendant that its executive committee had decided to increase its maximum retention upon a single life from $7,500 to $10,000 “as from April 1st, 1923.” In the letter plaintiff points out to defendant that under the terms of the reinsurance agreement the increase would take effect on the anniversary date of the reinsurance, “commencing with and following April 1, 1923.” In another paragraph the letter states that if agreeable to defendant, plaintiff “will make this request at the time when payment of the renewal premium is tendered.” In other words, plaintiff said in effect, “We do not make this request now; indeed, under the terms of our contract with you we have no right to make it now, but we inform you of the reduction which we are about to make and of the fact that we claim the right to request the reduction upon the anniversary dates of our respective policies.” The letter adds that, of course, defendant is not on the risk for the amount by which the reinsurance policy is to be reduced from the due date of the premium. In other words, plaintiff said in substance: “If we request this reduction, as of right we may, then from the date the premium is due, your liability will be terminated.” The notice does not refer specifically to the reinsurance policy of G-oertz. It refers to all the reinsurance policies held by plaintiff to which it might become applicable.

The proposition of plaintiff, as we understand it, is conditional, not absolute. The notice looks to the future, not to the present, and the final decision would depend upon facts which might exist at that time in the future when the request for a reduction should be made.

The reply of defendant is dated March 21,1923, and its language indicates an acceptance on its part of this construction. It informs plaintiff that the letter of the 19th has been received and recites with accuracy the contents of plaintiff’s letter; then adds, “It will be entirely agreeable to us to handle the matter as indicated in your letter.” The reply then further suggests that if plaintiff will forward the policy of reinsurance to be reduced “upon the next anniversary” defendant will be glad to give the matter “prompt attention.” In other words, plaintiff gives notice of the contemplated action on April 1, 1923, which will give to plaintiff the right at a future date to reduce its insurance, and defendant says, “If you will forward the policy of reinsurance at that time we will give the matter attention.”

We cannot but construe this correspondence between the parties as putting the whole matter up to future negotiation on the date when the right of plaintiff to reduce its policies would become absolute under the terms of the contract. When that date arrived conditions had changed, plaintiff in the meantime having written $5,000 additional insurance on the life of, Goertz. Under these circumstances plaintiff then had no right to demand a reduction in reinsurance on these particular policies, and defendant had no right to demand such reduction. The notice as to what might be done in the future had become ineffectual by reason of the fact that the supposed right upon which it was based had been removed by the action of plaintiff in issuing further insurance upon the life of Goertz.

At the request of plaintiff the trial court held as a proposition of law:

“If it appears to the court from the evidence that the plaintiff carried at its own risk its full maximum of retention of original insurance on the life of said Goertz on all reinsurance policy anniversary dates after March 19, 1923, and prior to the death of Goertz on April 9, 1924, then the court holds that the letter from the plaintiff to the defendant dated March 19, 1923, notifying the defendant of the plaintiff’s change in maximum retention and the defendant’s reply thereto dated March 21, 1923, did not of themselves bring about any subsequent reduction in the amount of reinsurance issued by the defendant to the plaintiff on the life of said Gfoertz. ’ ’

We think the court rightly held that such must be the reasonable interpretation of the language of the contract as indicated by the conduct of the parties with reference thereto. Moreover, this interpretation seems to conform to that which the respective parties put upon the agreement in a similar situation when the amount of policy No. 45642 was reduced from $3,000 to $500 on August 20, 1921, following the increase of the maximum risk on a single life from $5,000 to $7,500. In that instance, upon the subsequent anniversary, plaintiff delivered the policy to defendant and defendant thereupon indorsed the reduction on the policy. Merle v. Beifeld, 275 Ill. 594.

In so far as policy No. 45642 is concerned, the interpretation which we have put upon the reciprocal reinsurance contract and the notice of March 19, 1923, is further indicated by the fact that after the anniversary date, of that policy and after the giving of the notice, plaintiff paid and defendant accepted the premium upon the policy. The acceptance of this premium is wholly inconsistent with the idea that the effect of the notice was to bring an immediate and automatic reduction of the policies, as defendant contends.

Certainly as far as that policy is concerned, defendant could not accept a premium on the policy and then be heard to allege that the policy had been canceled. We do not overlook the contention of defendant that the particular official having authority so to do did not have actual knowledge of the fact that the premium had been paid. He could have had such knowledge and in the exercise of reasonable diligence would have had such knowledge. Defendant will therefore be held to have acted with knowledge.

Again, the premium was not only received, but a receipt in the usual form was issued for it, and defendant retains the premium paid. It has not returned the premium. It has not offered to return the premium. This is persuasive evidence that defendant did not regard either of the policies as automatically canceled by the notice given. In so far as this specific policy is concerned, it has much greater weight. It would amount, to a waiver of forfeiture in case the policy is held to have been forfeited, and it would amount to a renewal of the policy under the circumstances in case it were held to have been canceled. On this point the court at the request of plaintiff held:

“If it appears to the court from the evidence that the defendant on September 27, 1923, received and accepted from the plaintiff the premium of $4.83 on reinsurance policy number 45642, for the year beginning August 20, 1923, and ending August 20, 1924, and at all times prior to the beginning of this suit has retained the same, then the court holds as the law that the defendant by accepting and retaining said premium has waived any defense to this action for recovery of the amount of that policy on any ground arising prior to the date of such acceptance, of which ground it had knowledge or was charged with knowing, prior to the acceptance of said premium.”

This proposition of law is sustained by the case of Germania Life Ins. Co. v. Koehler, 168 Ill. 293, cited in plaintiff’s brief, but defendant in its reply does not either distinguish or discuss the case.

Defendant further argues that if the risk had terminated, then there could be no waiver because there was nothing left to insure. It says that it is obvious that there could not be a renewal of a new risk; that a renewal would of necessity have to be on a risk that was previously insured, and that plaintiff by its increase in retention limits absorbed defendant’s risk and thereafter carried the risk upon its own account; that by issuing an additional policy upon the life of Gfoertz it undertook a new risk and plaintiff is required to say that defendant agreed to insure a new risk without knowing that there was such a risk and without plaintiff making any application for reinsurance upon the new risk in the manner provided in the contract. Defendant says that if the old risk was absorbed by plaintiff’s increase in retention limits and if plaintiff desired to undertake a new risk and thereafter requested defendant to reinsure upon such new risk, it was incumbent upon plaintiff to advise defend-. ant of the nature and extent of the new risk and the amount of reinsurance requested by a written application, as provided in the second section of the contract between plaintiff and defendant.

These contentions ignore obvious and conceded facts in the case. The risk was not new. The policies had not been surrendered. They were still in the possession of plaintiff when the respective anniversary dates arrived. Presumably if defendant desired or regarded the matter as in any way involving a new risk, it would ' have refused payment of the premium and demanded a medical examination and other preliminaries to the taking of a new risk. All these were waived by accepting payment of the premium, and so far as policy No. 45642 is concerned, defendant is estopped by its conduct in taking and retaining that premium.

Defendant has cited Stevenson v. Sun Ins. Office, 17 Cal. App. 280, 119 Pac. 529, and Hillock v. Traders Ins. Co., 54 Mich. 531, 20 N. W. 571. These cases hold in substance that the physical surrender of fire insurance policies is not necessary to a termination of the risk where the evidence shows that such was the actual intention of the parties. We do not regard these cases as at all inconsistent with the views herein expressed. National Life Ins. Co. v. Metropolitan Life Ins. Co., 226 Ill. 102, is also cited. It holds that where the parties mutually agree to cancel a reinsurance contract there is a sufficient consideration. We do not question that proposition, but it is not applicable here. Under the facts and the law we think it must be held that the parties did not intend by the' correspondence of. March 19 and March 21, 1923, that an immediate and automatic reduction of the reinsurance held by plaintiff should be brought about as of the subsequent anniversaries; that as a matter of fact the minds of the parties never met upon any proposition to agree to a cancellation of the policies, and that defendant is liable.

The judgment of the trial court is therefore affirmed.

Affirmed.

O’Connor and McSurely, JJ., concur.